THE ECONOMIC SITUATION

HL Deb 01 August 1966 vol 276 cc1082-202

3.17 p.m.

Debate resumed (according to Order) on the Motion moved on Thursday last by Lord Shepherd, namely:

That this House takes note of the economic situation confronting this country.

THE EARL OF SWINTON

My Lords, I propose to devote the whole of my speech to trying to make one or two constructive suggestions on the grave economic situation which we started to debate on Thursday and which we debate again to-day. Before I do so there is one observation which I must make. As an old Parliamentarian I was shocked at the suggestion which apparently came on the last occasion from the Front Bench that it was almost lèse-majesté to criticise Ministers of Her Majesty's Government. That is the most complete nonsense; it is not democracy and it is not Parliamentary Government. It is because that impression was left on this side of the House, as many of my noble friends have said to me, that I refer to this matter to-day.

THE LORD PRIVY SEAL (THE EARL OF LONGFORD)

My Lords, may I interrupt the noble Earl? Since he has just administered a rebuke to our Front Bench, I assume I must take responsibility; but I am afraid I do not know to what he is referring. Certainly I would never suggest, after many years in this House, that Ministers were immune against criticism. I do not quite know what the noble Earl is talking about.

THE EARL OF SWINTON

My Lords, if I may say so without offence to the noble Earl, the Leader of the House, he speaks so much more than he listens that I cannot help feeling he sometimes does not hear what he says. Certainly the impression given, as many of my noble friends have said to me—and I think the Leader of the Opposition will bear this out—was that the noble Earl and another noble Lord on the Treasury Bench desired to imply that Ministers ought not to be criticised. If the noble Earl assures me that that was not in his mind, then I am extremely glad to accept that assurance.

THE EARL OF LONGFORD

My Lords, I am afraid, with great respect to the noble Earl, I frankly resent this suggestion. I do not think it is enough for the noble Earl to say that he has an assurance from me to-day. I never said any such thing last time; I never implied any such thing. I have been here, on one Front Bench or another, for twenty years, and it would be fantastic for me or anybody with that experience to suggest that Ministers should not be criticised now or at any other time. I do not know what the noble Earl is talking about.

THE EARL OF SWINTON

Certainly the noble Earl seems to resent criticism a very great deal. However, I will leave it at that. But, in spite of what the noble Earl said, I am sure nobody in any quarter of the House will be restrained from making whatever criticisms are right and proper, for that is what Parliament is for.

Now I should like to come to what is much more important and what concerns us all; that is, the gravity of the present situation. There are two points on which, much as we differ on policy and so on, I think we are all agreed. The first is the great gravity of the present crisis, and the second is that we must solve it. Indeed, this may be our last chance. Therefore, I think it is vital that our policy should be right and that to find the right policy we must be right on our basic facts. We must see clearly what we have to achieve, and we must make sure that we can and do achieve it.

It has been said—and I do not dispute this at all—that this is a crisis of confidence. But the need to restore confidence goes very deep indeed. It is a question not just of restoring confidence in sterling, but on what that confidence must rest. It is not a question of restoring confidence in Her Majesty's Government, though pace the noble Earl the Leader of the House I am afraid that might prove well nigh impossible. It goes—and, perhaps, fortunately—wider and deeper. It is—is it not?—a question of restoring confidence in ourselves and in our industry, confidence that we shall become and continue efficient and competitive, and to get that confidence needs the combined and determined effort of us all. But I say again, to achieve that purpose we must be sure of our facts, and here I believe that the Government are wrong, and grievously wrong, on one fundamental fact.

The so-called National Plan is based on the assumption that there is a great shortage of labour in industry. I believe—and I do not know whether everybody does not now accept this, after the debates and all that has appeared in the Press—that that is profoundly untrue. There is a large reservoir of excess labour in industry, if that labour is effectively employed. Many comparisons have been given. There have been published comparisons, industry by industry, of what is the amount of labour employed; and not only in America where the conditions are, I think, entirely different, but in the European countries. Those tables are not challenged, and they have shown that in many of our industries we are, I regret to say, very near the bottom of the league table.

The specific instances have been given in great quantity. My noble friend Lord Conesford enlivens our debates every second day with some telling example, and in that remarkable speech which we had from the noble Lord, Lord Shawcross, in the last debate he, with all his wide experience, reinforced that. If it is so—and I do not really think that the Government will challenge this—and there is that reservoir of surplus labour, then I believe that the whole plan for the selective employment tax, or rather for its application, is entirely and utterly wrong. I should not object to a levy upon all the employers in industry. But the proceeds of that levy should not be applied in subsidising employers who already have too much labour, and in industries where restrictive practices abound. There should be no subsidies at all. If there were such a levy—and, as I say, I should not take exception to it—in my opinion the proceeds of it should be applied in reducing other forms of taxation, which would in itself encourage production.

Let me give an example of what I mean. This levy raises a great deal of revenue which could be applied in reducing the rate of corporation tax, and, if that were done, then the companies which were relieved of this heavy burden would be able to apply that relief in new machinery, in new plant, in research and development, in market research and in sales overseas, all of which are vitally necessary, all of which it will not be possible for industry to do to-day under the load of taxation which is being imposed upon it, let alone the complete deprivation of incentives. All that would be possible if the levy were applied in that way. Again, it could be applied in restoring in whole, or in part, the investment allowances, the removal of which was of very grave consequence to the hotel industry. That is what I would do with what is called a selective employment tax, and that is what I would do with a levy upon industry. Those are the variations which I would make in the "Hungarian rhapsody".

Indeed, I go so far as to say that, unless this is done, we shall not get the productivity agreements which we all agree we must work out and get into operation during the standstill in pay and dividends. Those agreements are really, in my view, the one constructive element in the Government's proposals. But the pity of it is that the rest of their policy does so little to help, and quite a lot to hinder, the making of those agreements. Surely it is essential that there should be every incentive to employers and to workers to make this plan work, and to make it work quickly. Every productivity agreement of this kind that is made will be an example and an incentive to others.

Here I want to ask one or two questions about the effect of the standstill legislation which is being introduced, and about which we have received the White Paper. At first sight it looks as if it imposes an absolute bar on any pay increase, but there seemed in something I read—though I cannot find it in the draft of the Bill—a possible loophole regarding increased pay due to increased output. It is very important that we should be clear about this, and I hope that in this debate the Government will make the position clear. We want industries and firms to get down now to making agreements, linking pay with increased production and with the improved use of labour. But if we are to get prompt and willing co-operation in this, it is essential that when an agreement is made it should operate forthwith so that production and wages can advance together. In my opinion, therefore, it really is vital that the Government should make the position clear and give this encouragement. Otherwise, the pay pause may defeat its own object.

My Lords, there is one other question which is relevant particularly to export industries. An employer who pays an increased wage is prosecuted and fined, but there is no corresponding penalty on employees. They can strike with impunity if their employer obeys the law. But what happens, and what will be the effect, if a firm has a very important export contract, where delivery is of the essence of the contract, and where the workers say (as they may, although I hope they will not), "Unless you break the law and pay us more we go on strike"? There are many more problems which your Lordships will be debating in the days to come. I have raised points on these agreements which are particularly relevant to the theme I am trying to develop.

My Lords, I imagine—indeed, I think there is no doubt—that, in order to get the necessary goodwill and drive behind a plan of this kind, there must be broad agreement by employers and unions to accept the aim, and to make the plan work. But I hope that we shall not try (if I may so put it) to be too universal in operating this plan. For one thing, we might lose valuable time. But in practice, as at Fawley, when you come down to making agreements linking productivity and the proper use of labour with wages, a great many of those agreements, if not all of them, must be made in individual firms. They will nearly all differ, and it is the management and the workers who know what is needed and what is practicable. And when an agreement is made, surely the management and the workers should be entitled to operate it and to benefit by it without delay. That is what should happen if, as I hope, agreements are made during the first six months. When we get to the next six months, after the standstill, then I say that every agreement which is made should be operated as soon as it is made, and that the firms should have a clean bill of health to go ahead. Concurrently, those firms who, for one reason or another, cannot get an agreement in the year of the pay-pause, should not get a clean bill.

My Lords, I have spoken shortly because I think that, if one takes trouble, one can put what one wants to say concisely but no less effectively and, I hope, no less clearly. I hope that the suggestions I have made may be of some reality, and may be of some help. If we can act in this way, building line upon line and precept upon precept, with the resolute and determined co-operation of which Lord Chandos spoke so convincingly on the last occasion and—and I do not hesitate to say it—fortified by a real moral sense and purpose, then, my Lords, I believe—in fact, I am sure—that we shall achieve results which will restore our confidence in ourselves and the confidence of the world in us.

3.35 p.m.

LORD REAY

My Lords, I do not intend to launch a comprehensive attack on the Government, or to produce a comprehensive alternative economic doctrine or a comprehensive set of alternative economic measures. I consider that this has been done with sufficient frequency, and with more or less sufficient adequacy, both in this House and another place—and, above all, in the Press. But I should like to address myself to a number of dangerous long-term implications in the measures recently taken by Her Majesty's Government, particularly as regards disincentives to productivity agreements, and to productive investment, both in the public and the private sectors. I wish to draw attention to a discrepancy between what the Government know to be necessary and what they in practice omit to do in the field of the promotion of industrial efficiency and the provision of personal incentives, and I wish to suggest an explanation for some of this in terms of a puritan attitude evident in the Party opposite which it will have to abandon if our economy is to improve under their direction. This will be enough, but it will not be exclusive; and if any noble Lord, as would be his right, chooses to remark on gaps in the Liberal Party's economic policy, I trust that at any rate he will not use my speech in evidence. My excisions are for reasons of brevity.

Mr. Richard Prike, who recently resigned as economic assistant to Dr. Balogh in protest at the Government's measures, has estimated that this year we shall probably experience a drop in our national income. If this drop was of the order of 1 per cent., this would represent a shortfall of some £1,400 million on the expectations of Mr. Brown of what the growth rate was likely to be in oneyear—and this, after all, is the assumption of growth behind the targets of the Plan. Whatever derisory opinion may be drawn from that about the delusions of the Plan, I mention this point as a single indication of the seriousness of our sacrifice and the corresponding urgency for measures of long-term recuperative value.

Now no one has emphasised more frequently than the Prime Minister that it is greater productivity and the encouragement of productive investment which this county requires. The increase in productivity per man-hour worked fell from 6 per cent. in 1964 to 3 per cent. in 1965. This is an alarming trend, but I suggest there are two reasons to expect that the present incomes freeze will prevent any improvement. The first is the well-known psychological fact (which comes out so clearly from the history of the initial union resistance to the Fawley proposals) that it is a sense of insecurity in labour that produces their irrational resistance to suggested change; that it is, above all, the threat of unemployment that stimulates this sense of insecurity; and that it is unemployment of exceptional magnitude that the unions are now being led to expect. Moreover, in the case of the Fawley proposals, it was a condition of the union that no worker should be dismissed from his job. Now I do not see how it is possible to get productivity agreements without this proviso. Yet this is possible only where firms are expanding and where, without such agreements, they would tend to take on more labour. But in deliberately created circumstances of decreased private investment, with its deliberately indiscriminate attempt to release labour, how many productivity agreements that might have been inaugurated will now be capsized?

Further to that—and this is the second reason why, on this score, I would call in question the Government's measures—what will happen to productivity agreements which are already in train, now that the wage freeze makes no provision for them to be treated in any way as an exception? What can imaginably be the long-term value of such a lack of discrimination? What I should like to ask the noble Earl, if I may, is exactly what he believes will happen to such productivity agreements already in the pipeline, and whether, in particular, he believes that they can in practice still be negotiated, but the rewards for labour postponed until after the freeze is over.

While on this question of a wage freeze (not only the need but also the manner of which we as a Party deplore), might I also ask the noble Earl whether statutory enforcement and penalties might not have been employed with much greater logic and better public appeal against restrictive labour practices—as they have been against restrictive practices in management with increasing success—rather than to enforce a wage freeze, only some of whose detrimental consequences I have attempted to outline? I am not asking him about the desirability for this, which I take for granted. I am asking him about its practical feasibilities and, if he has anything to say on this perhaps at the end of the day, whether, for instance, the Prices and Incomes Board could be given such powers, and if it is even possible to discuss this I should be very grateful to him.

THE EARL OF LONGFORD

My Lords, I am a little nervous after what was said earlier of seeming to interfere at all with the widest range of discussion, but of course we are to have a full debate on Wednesday in this House, as the noble Lord is probably aware, on the question of prices and incomes.

LORD REAY

My Lords, I am very grateful indeed to the noble Earl who has now had longer warning than he would have had if I had not raised this question until Wednesday.

I should like to turn to the question of capital investment, and in the first place to private capital investment. The Prime Minister gave us one of the principal factors behind our currently deteriorating trade figures the fact that during the past six months of this year imports of machinery rose by 23 per cent. over last year. This is not a luxury consumer item; far from it. Machinery provides the alternative that is so highly desired as a replacement for labour. The question I would ask is this. If, as it has been by the credit squeeze, private capital investment is curtailed and Government investment programmes are slashed to cut current consumer demand, what will happen to this figure when an attempt is made to reflate the economy? Will this not only aggravate our perennial problem in past boom periods—namely, that imports rise too fast, only this time with the added circular viciousness that increased productivity will become that much less easy to achieve?

On the question of public investment, I should like to draw attention to a priority ordering of the Government that in the long term I think is likely to be damaging. They have chosen to make minimal cuts in overseas expenditure, and none at all in the social services. They have made their cuts, in fact, in the productive, domestic centre. Paralysed by their ancient—and rather sympathetic—reverence for the Welfare State as they initially created it, and by their novel—and far less sympathetic—urge for an independent and illusory influence abroad, they have had to cut in the single area which should have remained expansive: productive investment at home.

My Lords, I will take one example, the road programme. In 1958 the Road Research Laboratory estimated that traffic congestion cost the country in economic terms £200 million a year. There is good evidence to believe that this figure would be substantially higher now. In that year, 1958, there were about 8 million vehicles on the road. In 1970, when in all likelihood this Government will still be in power, it is estimated that there will be 17 million vehicles on the road, and by 1980 28 million vehicles. Before the latest cuts the noble Lord, Lord Chesham, announced that £55 million had already been cut from the road investment programme. There are now to be further cuts of £14 million. Of course, all people without vested political interests recognise that one day private motoring will have to be heavily penalised. But does one believe that the Government will dare to do it? That is what one is worried about, and what is more likely to happen is that we shall be left with an increasing economic burden, indirectly caused, and the discomfort of congestion.

I should now like to come to the principal part of my argument. It has been the persistent verbal complaint of the Prime Minister that much, if not the greater part, of British industry is inefficient, ignorant and unenterprising that there are too many unqualified directors of companies; that there is too much family influence; too many traditional family and other firms are happy to trot along at their traditional rate of profit and remuneration. With all this I entirely agree, and I agree that the consequences of this continuing factor are highly unsatisfactory. For it is from management that initiatives for agreements on productivity and that determination for expansion must come. But what is quite unacceptable, surely, is that the Prime Minister should try to shift the blame for this situation from himself—for he has all the necessary fiscal controls—by some sort of moral manœuvre, on to the heads of men in industry itself.

For the truth is that in fiscal measures—and look at the opportunities, look at the number of new impositions that this Government have successively imposed on the Inland Revenue!—nothing whatever has been done fiscally to penalise the inefficient in industry and to reward the efficient. The capital gains tax obviously did not do that. It can be argued that that was not its function, that it was purely a measure of social justice. But its effect was that the selective employment tax had to be given to some other Department than the limping Inland Revenue, and perhaps as a result it did not do so either. But then, neither did the corporation tax; nor does the present dividend freeze penalise the inefficient against the efficient. More extraordinary than that is that the dividend freeze actually does the reverse in that it removes from expanding firms the opportunity to attract further capital for investment by offering a higher annual rate of return. Added to this the price freeze itself is a penalisation of the efficient firm. Given that these obviously represent a political concession, it seems to me—and here I am making a positive suggestion—that the correct way to handle the question of a dividends freeze, instead of this, would be to do it by means of surtax on unearned income, which is assessed a year in arrears in any case, and the next year an addition might be put on to surtax to enable incomes to remain in line with wages over the past year where wages have risen.

There is a related matter to which I wish to refer. The Government have complained that there is a brain-drain, an exodus of the better qualified, better instructed and the more enterprising among the young. At the same time, they complain that the old-fashioned have too much of a say in industrial management. Yet—to leave aside here any argument for a distinction between earned and unearned income—they impose a 10 per cent. surcharge on surtax. That is to say, they single out this one vital and escaping element of the population for an additional payment of direct taxation. For years now it has been perfectly clear that the level at which surtax is raised on earned incomes should be raised, and one can see in this regressive move only a confirmation of one's suspicion that the Socialist Party is congenitally incapable of recognising that executive and managerial skills are a scarce resource. One is evenled to suspect that the Party is emotionally incapable of accepting at all the concept of differentials in earned incomes.

Even last week, of all occasions, the Prime Minister referred to the "philosophy of economic opportunism curbing our moral standards" alluding to those famous thirteen years. I am not picking on one man for an untypical sentence. I am singling out an attitude that I consider to be pervasive and harmful in the Party opposite and a comment for which many noble Lords will be able to recollect further precedents. What does the Prime Minister mean by making this sort of remark? Is he where he is to preach a sort of evangelical asceticism—as if this were not in any case an insult to the Episcopal Benches—or is he there to be an efficient manager of the economy? And what does economic management depend on but an understanding of materialistic motives, and that, above all, company and personal profits are incentives—not for his purpose an immorality—and that it is by creating them through fiscal manipulation, and not by hoping to replace them by sermons, he will stimulate the economy?

My Lords, there are many other points that I could mention. There is the comment that a price freeze may be, as I am certain it already has been, of negative value in controlling consumer demand. The Government must spend more money on redeployment to compensate both for the hopeless inadequacies of the Government training centres and for the fact that industry may now cut back on its own apprentice training schemes. I could ask—indeed, my Lords, I think that I will ask—what sort of international initiative this Government believe they can take in helping to solve the world liquidity shortage? What sort of proposals did Mr. Wilson bring back from Washington on this subject? Any? My Lords, I will end on a personal note. I am young—young enough for it perhaps to be an offence to many of your Lordships that I should be speaking so early, and so long, in such an important debate.

My friends, of course, tend also to be young, with occupations either in industry, in the City, in the law or in journalism, and their politics tend to be uncommitted. Their complaint is similar. They expect from Governments those qualities that we try to demonstrate in our private lives: common sense, courage and honesty. Of course, they will allow a reasonable margin for the placation of fanatical political interests. But for years now they have grown increasingly to feel that Governments have not had the courage to take uncomfortable preventive measures that would have prevented the need for even more uncomfortable curative measures; have not had the common sense to take the right measures, when they have taken any measures at all, and have not had the honesty to admit that uncomfortable measures would produce discomfort.

It is, perhaps, this last objection that astonishes me most in our present Prime Minister. The Prime Minister would agree with, indeed he has anticipated, the comparison made by the President of the United States of America of our country at this time with its predicament in 1940. But our Prime Minister in 1940 did not say: "I have, I am afraid, some blood and a few tears to offer", and then add as a postscript on the following day, "but I have taken the right measures now. It will not really cause any hardship. Our problem is a marginal one. There is no reason why we should not enjoy ourselves." If the Prime Minister still imagines—as, despite his demonstrable lack of success to date, he still appears to imagine—that work and sacrifice can be extracted by imparting a sense of crisis, he must establish a psychological recognition throughout the country that Government and people are inextricably bound in a brave and critical effort to avert catastrophe. He has to stop denying on the next day the effect of the words he has spoken on the first. Any amateur psychologist could give him this advice; indeed, when the next batch of economic advisers resign from Government service I suggest that the odd psychologist is appointed in their place.

An outstanding financial economist of roughly my age, probably known to some of your Lordships here to-day, resigned his job to go into management consultancy because he could no longer bear the frustration of years of fruitless advocacy of measures to improve this country's economy. I suspect that youth may one day provide Governments in this country with a sharp warning. I happen not to have any friends in Carmarthenshire, but I consider this to be more a geographical than a psychological accident. In the long-term, if nothing is done to reduce the complacency, the short-sightedness and the prejudices with which Governments in this country have tended to approach their business, then I expect two things. The first is emigration: of the skilled worker, of the manager, of the young executive, of the technologist, of the man with capital, and, more important, of the capable young man without. Secondly, I expect popular support both of extremist or nonsensical political movements, and even possibly of unconstitutional political movements. And if Governments have to wait until that happens before they change their character, then surely even our present Prime Minister will not be able to smile his usual reassurance when he has to lead the final dirge for the locust years, over the last of which he will have blandly and blindly presided.

3.55 p.m.

LORD SNOW

My Lords, I was unable to be present on the first day of this debate, but I had the curious experience of reading our proceedings and the similar proceedings in another place. I read these records with interest but, I must say, without drawing quite the lesson from them that the noble Earl, Lord Swinton, drew. When he was speaking I thought of the well-known psychological phenomenon that when two sides are shouting everyone thinks the other side is shouting louder. And I cannot help saying that I felt, as I read our record in particular, that a number of speeches could not possibly have been designed to improve the mess in which we find ourselves. I was proud of our House when I read the speech of the noble Lord, Lord Robbins. I was a good deal less proud of our House when I read certain other speeches—one in particular; but as the noble Lord concerned is not at present in the House I think I will say no more about it. I am not referring to the noble Lord the Leader of the Opposition. I came away from this course of reading feeling that all politicians in Opposition eager for office should have on their shaving glasses the words said by Charles II to his brother James: "Don't worry, Jamie. They'll never kill me to make you King."

But, my Lords, this situation is a good deal too serious even for that kind of quip. We all know, or we think we know, what the situation is. A great deal has been said about it and a great deal, as I say, can only affect the situation slightly for the worse, if it affects it at all. I should not choose to do that; and I should not choose to do that if my noble friends and I were in Opposition. I believe I should try to apply to myself self-discipline and self-restraint; and since I should apply to myself that self-discipline and self-restraint I feel I can recommend it to this House. I shall simply remind your Lordships of two brute facts, and I shall remind you in consequence of certain reflections that these particular facts suggest.

I promise to be very brief—about as brief as the noble Earl, Lord Swinton—but first, before I come to my two brute and simple facts, I want to say this. The Government have come to some harsh decisions. No Government, no conceivable Government, could ever reach those decisions without extreme reluctance; as could none of us here, on either side of the House, if we had been in the unfortunate condition of being forced to make those decisions. But it is one thing to take decisions with difficulty, with doubt, with self-searching, even with remorse. Once the decisions are made then one has to force oneself to carry them out wholeheartedly. That is the first condition for effective action, either in peace or war. The cost of what we are doing is going to be high enough in all conscience; but if, now we have screwed ourselves up to act, we cannot act wholeheartedly, we are going to make the worst of all possible worlds.

The first fact of which I want to remind your Lordships is this. One part, and really the smaller part, of our troubles is a financial crisis. This is nothing new. The fact is that we have had eight such crises since 1945. That is a particularly stark truth. It is making a lot of us reflect across the noise and backchat—and I believe the ruminations of my noble friend Lord Francis-William last Thursday, are going to be heard a great deal more often in the nearish future. I will concede at once that this time confidence, in the technical sense, has been more severely shaken. I will concede something more. It is clear that whenever a Government which is regarded as progressive comes into power confidence will weaken. It will weaken whatever policies that Government is undertaking and of whatever personages that Government is comprised—if it were of archangels inspired by the economic advice of J. M. Keynes, confidence would still weaken. Any theoretical progressive Government starts, to use the American phrase, "with two strikes against". It will command only 50 per cent. of the confidence that any theoretically conservative Government will command. That is a fact of life, and only fools quarrel with the facts of life, though also only fools do not draw lessons from them.

I do not much believe in conspiratorial theories of history or politics. I do not believe in conspiracies in this case. But I do believe in climates of opinion. Such people as I have known, here and abroad, who help form this special climate of financial opinion have usually been decent and upright men, often with a pretty taste in the arts. But it would be an error to think that their sympathies were dangerously progressive. This has always been true. I mentioned J. M. Keynes a moment ago. I can remember a time—not so long ago—when rich banking acquaintances of mine regarded him as the wildest of revolutionaries. All this is, as I say, a fact of life. There is another old American phrase: there is nothing so scared as money. Any Government on the side of my noble friends and myself has constantly to reckon with this climate of opinion and has to calculate what confidence it needs and what it can dispense with.

Now I have conceded that, I want to stress to noble Lords opposite that confidence is a two-sided condition. I began by saying that now the Government's decision is taken, we have to act on it without qualification. But I suggest to noble Lords that if in future this situation ever recurs, there may be demands that no Government could resist. I believe that a large number of people in this country are just plain mystified. They are baffled by all these concepts of reserve currencies and falls of sterling, and the whole nexus of finance and policy that, in a way good, intelligent, hardworking people simply do not understand, affects and constricts their own individual lives. They do not completely understand why this country is so little independent. They hear all this talk of confidence, and under the surface they are beginning to wonder what are the rules of this particular game or whether it is really worth playing. Their patience is not infinite. Unless their confidence is won, it is not inconceivable—one hears whispers in the air, sometimes from surprising sources, sometimes indeed in a sort of Poujadist way as from the noble Lord, Lord Reay—unless this different kind of confidence is won, it is not inconceivable that ordinary, decent English people will want to withdraw from policies which most of us on both sides of this House take for granted.

I repeat, confidence is a two-sided condition. Noble Lords would be wise not to talk too much about it. Noble Lords opposite would, I am sure, be wise to tell their friends who help shape the pattern of financial opinion that the people of this country have a surprisingly strong desire to decide their own destiny. I believe that far-sighted people, here and abroad, all over our kind of the Western world, have already detected this subterranean feeling, probably a little before we have. Unless it is understood, it may find expressions that none of us expects and that most of us would regret.

I should like now to finish by mentioning my second fact. It is even more simple. It is fairly well known, but not so well known as it ought to be. In the long run, it is much more important than any feature of the financial crisis or any other sort of arithmetic. It is this. To go back to 1899, to the days before the noble Marquess's grandfather was Prime Minister, since then the world's export trade has steadily risen, with very minor inflections. Since the same date, this country's percentage of the world's export trade, with exactly the same tiny inflections, has steadily fallen. The graphs have a sombre eloquence of their own. I suggest that these graphs ought to be part of the furniture of anyone who aspires to have a voice in English politics in the present day.

Since the last war at least, successive Governments have tried to arrest this drift. All the Governments that the noble Earl has sat in have been faced by this drift, which has gone on inexorably for well over three-quarters of a century. None of us have made much of a success of it. This has been the toughest problem, underneath the clashes of politics and the back-chat, which we have had to face. Any real success is obviously going to take a long time. We cannot have a dilemma as deep-rooted as this and expect to be able to solve it in a single afternoon, and we cannot expect to be able to solve it by a single specific.

I believe that this is a danger which we all run into. We all have our pet nostrum. I have computers and various sorts of technologies. But they cannot all be true. I believe that many of the noble Earl's suggestions were valuable, but again they are only part of any comprehensive multilateral attack which we must make on the problem. Bad management, fractionation of industry, restrictive practices, weak salesmenship, lack of computers and of high grade technologists, inferior technology—they are all important. They are all weaknesses. We have to get all these problems right more or less simultaneously, if we are going to get anywhere near solving the problem.

But it is going to be a long haul, and we should do well to tell ourselves and the country that it is going to be a long haul. Anything we can do about improving technology certainly will not make much of a dent, even if we are lucky, in five years' time and probably more. But a spirited country will make that kind of effort, if it believes in what it is doing and if it is told the bitter truth: that this has been going wrong for a long time and it is going to take a serious length of time to get it even slightly better. We may have to accept years of disappointment—and I believe we ought to say this. Once we understand what has gone wrong and for how long, then I believe we shall be ready to think and act—and thinking here is almost as important as acting. If we do think and act, then I believe we shall be surprised at how deep the response will be.

4.9 p.m.

LORD BEECHING

My Lords, this is the first time I have spoken in your Lordships' House, and although I must criticise the way in which the economy of the country has been managed over the whole postwar period, I will be as non- controversial as possible. Several noble Lords, in earlier stages of the debate, have emphasised how important it is to engender a new spirit in this country—a new determination, a new pride and, as some noble Lords have said, a new morality. This is a point of view with which I wholeheartedly agree, but since we are talking about the national economy, let us be realistic enough to recognise that economic man is a selfish being, however high or low his personal aspirations may be. Therefore, from the economic point of view, the components of this new spirit which we seek are a greater resolution and a greater determination, on the part of individuals to succeed by their own efforts, coupled with a recognition that personal success will be hollow if it is not accompanied by national success.

It should not be assumed, because I stress these more materialistic aspects, that I think they are the whole content of the new spirit that we wish to induce, but they are important components of it, and, if they are denied, the whole will be lost. They are, too, as I have already said, the components which are relevant to any consideration of the economy, and, unless we establish conditions which will foster them, we shall never establish them by exhortation. In so far as they are materialistic, they are ideas which will flourish only when conditions provide material evidence of their truth. There are many ways in which we can make these ideas invalid in practice, as indeed we have contrived to do for some time past, but I wish to speak about only one of them—that is, the effects of over-employment. Some noble Lords may think that I really mean national overspending, of which over-employment is only one possible effect, and some may even think a desirable effect. But that is not what I mean. I want to speak quite specifically about the effects of over-employment. National over-expenditure of itself is an insupportable folly for this country; but, in spite of some appearances to the contrary, it is not a folly in which Governments expect to be able to indulge for very long. Governments always do expect, though, that however much they may spend, both at home and abroad, the people of the country will restrain their own spending to balance the account.

The folly of our post-war Governments has been to go on believing this, while they themselves have responded to the siren lure of over-employment masquerading in the charming guise of full employment. As a result, they have fallen into the trap of expecting restraint while themselves creating conditions which make restraint virtually impossible, and, as a result, have created a succession of balance of payments crises. But that is not the only or most important effect of over-employment. Balance of payments crises can be overcome by short sharp bursts of severe restraint, but the moral rot that comes from long periods of over-employment is cumulative and persistent. Better, you may say, than the rot that comes from unemployment, and I would agree; but more widespread, more insidious, and possibly even more destructive to our national strength.

This, my Lords, must sound like awfully emotional stuff, so let me explain why I think over-employment is so damaging. I believe that individually most of the people of this country wish to behave sensibly and well. They do not want to exploit the other chap; nor, on the other hand, do they want to be exploited by him. But, when the mass of people find that they have tremendous bargaining power, bargaining power so great that they can use it irresponsibly and with apparent impunity, there will be some, here and there, who will do just that. For a time, the more responsible majority may hold back; but as they realise that they are being left behind, and possibly even moving backwards in terms of real money, then they will feel impelled to join in: and so the infection spreads. In those circumstances, it is no good exhorting them to stop. It is no good thinking, either, that if only they understood it better, and knew that this struggle was not of any real use to any of them, that then they would stop. Many of them know that already, and certainly their more responsible leaders do. But they do not know how to stop.

The same is true of managers. They do not know how to stop either. I have heard several Chancellors of the Exchequer say that if only management would be tougher in bargaining, the whole process would be brought under control. But, under conditions of buoyant demand and labour shortage, which management is going to be tough first? Those who have tried have collected a load of grief; but the process of wage inflation has still gone on. Again, accelerated wage inflation is not the only effect of over-employment, nor even the worst one. Many other things happen. Union leaders lose control over their members; managements lose control over employees to the point of having to condone rank indiscipline; and improvements in working methods are most unreasonably opposed. Now, it gets worse, and we begin to hear references to the "nonworking" attitude of employees in many places. They go to work, they get paid, but they loaf; and I cannot think of anything more calculated to be demoralising than that.

Your Lordships will realise that I have been describing the symptoms of the "English disease"—and how regrettable that our name should be attached to any such complaint! But, more importantly, I have pointed to the underlying source of the infection, and hence to the possibility of cure. Both reason and experience must make us realise that persistent over-employment is bound to have the very effects which we deplore. It is no good arguing, as some people do, that other countries have had conditions of over-employment without displaying the same symptoms as we do, and that there is not, therefore, an inevitable causal relationship between the two. It could be, of course, that some other nations are more resistant to this undermining influence than we are, or that they have found some prophylactics which permit them to ward off the disease while living with the conditions that cause it. But I do not believe that either of those things is true. It is just a matter of time. Over-employment is a condition which poisons our attitudes slowly, but cumulatively: and we have had conditions of over-employment longer and more continuously than any other country. In the twenty years since the war we have had over-employment all the time, apart from three short interruptions in 1952–53, 1958–59 and 1962–63, and these were involuntary and as a direct consequence of emergency measures to correct balance of payments difficulties.

If one looks at the data, it is quite obvious that, over the whole period, we have been endeavouring to control the economy with over-employment as the norm, and that when the inevitable balance of payments difficulties have come upon us we have taken action too slowly at first, due to a reluctance to leave the false comfort of over-employment and overspending, and then, of necessity, have acted too violently and too late. As a result, we have had three sharp spurts of unemployment, from which we have immediately rushed back into a condition of over-employment again. There has been no serious and deliberate attempt to abandon the impossible struggle to stabilise over-full employment as the norm, and to move into a position of trying to establish the highest norm which we are capable of sustaining.

The suggestion of any retreat at all from over-employment may sound frightening, but there is no reason why it should be. The critical gap seems to be a very small one. We have never been in serious balance of payments trouble, since the war, when the unemployment level has been above 2 per cent., and we have never been out of serious trouble for any length of time when the level has been below 1.5 per cent. It looks, therefore, as though we should be appreciably better off if we tried to control with a figure of about 2 per cent. unemployment as the norm, instead of aiming for about 1½ per cent. or less, as we do at present. We should still have some fluctuations, of course, both in unemployment and in other features of the economy, but I am sure the swings could be controlled much better if we were aiming at a sustainable norm, instead of at an impossible one. The present controls can certainly be improved, but their degree of adequacy would be much more apparent if they were not being used in an attempt to achieve the impossible. I seriously believe, my Lords, that we could control the level of unemployment within limits of 1½ and 2½ per cent. if we aimed for a norm of 2 per cent. and, in terms of unemployment alone, this would be a very good bargain compared with the fluctuations between 1½ and 3¼ per cent. which we have experienced over the last five years, and even more of a bargain by comparison with the much bigger fluctuations that we are likely to face in the immediate future if we do not stop our present follies. Couple that with the benefits of reductions in "Stop-Go" and avoidance of the conditions which produce the "English disease", and the change looks overwhelmingly attractive. My Lords, I urge Her Maiesty's Government to try it, as soon as we begin to emerge from the freeze which must now follow the latest and most thorough-going demonstration that over-employment does not make the economy grow, it just undermines the morale of the people.

4.22 p.m.

LORD MCCORQUODALE OF NEWTON

My Lords, it is my very real privilege to be the first to be able to congratulate the noble Lord, Lord Beeching, on his brilliant speech. It was a speech to which I think we all listened with the deepest attention and one which I trust will have the attention it deserves. We all know Lord Beeching as one of the foremost, if not the foremost, exponent of modern methods in industry and modern methods of efficiency, and I think we are exceedingly fortunate in having him among us. I hope we shall hear him on many future occasions, especially when he is not inhibited as to controversy by a maiden speech.

My Lords, so much has been said in Parliament about the economic and financial crisis, both in another place and here—and much of it most admirably said—and so much has been written in the newspapers and the magazines, that the whole subject, I fear, is in danger of becoming a bore. That would be a mistake. As I am acutely conscious that I am adding to this flow of words, I will be as short as I conveniently can. Surely, this country at the moment, and I think many of us in this House and others all over the world, must be feeling confused. I think this is largely due to the fact that we have not had yet one clear statement from the Government as to their policy and their intentions. It was only a month or six weeks ago that the Prime Minister on the broadcast was telling the nation, quite rightly, that we must fight the seamen's strike because if we gave way it would damage the financial position of the country. Six weeks later we had the Prime Minister on the broadcast telling the country that because of the seamen's strike we were in financial difficulties. Possibly the economists understand the difference between the two. I do not believe the normal man in the street like myself, listening to the broadcasts, can feel that the Prime Minister has been saying the same thing at these different times, because he has not.

Then we had the Chancellor of the Exchequer going to The Hague and being reported as saying that the incomes and prices freeze is a momentous measure, that it is really a bonus and not vital, and that if it did not succeed—I think these were his words—we should not be all at sea again. At least, that is what he is reported as saying. Seeing that this prices and incomes freeze would now appear to be the very heart of this Government's policy to deal with this crisis, how can the Chancellor go off and say such things? Why talk with two voices?

Again, we have Mr. Brown, the other leading Minister, apart from the Prime Minister, in all this crisis policy. Mr. Brown very nearly nailed his principles to the mast and we should all have admired him very much if he had gone through with it, but we are now told that, because a hundred of his friends advised him not to, he was prepared to sink his principles and apply himself wholeheartedly to a policy in which he did not believe at all.

THE EARL OF LONGFORD

My Lords, the noble Lord has said that we are told that. I do not know by whom we are told it. It is quite untrue.

LORD MCCORQUODALE OF NEWTON

Is it not true that Mr. Brown offered his resignation because of this policy?

THE EARL OF LONGFORD

He certainly offered his resignation, but he never said that he would sink his principles.

LORD MCCORQUODALE OF NEWTON

I never said that he said he would sink his principles. I said that he did sink his principles, and that is a very different matter. Of course he did not say so. Mr. Brown may say some very odd things, as I think he did in the debate the other day, but I do not believe even he would seek to say that.

Then I come to the Prime Minister. I have much admiration for the courage of the Prime Minister. I believe he is a courageous man, but he really must speak with one voice and not two if the country is going to follow him. On the 20th he said in another place: It is not our intention to introduce elaborate statutory controls over prices and incomes"— and now we have the most elaborate statutory control over prices and incomes that has been introduced in peace time in the last 150 years. These statements can be multiplied. That is why I believe we are all confused. People need to be told, and told with one voice, and then I believe that they will follow.

On Thursday, we heard from Lord Robbins—I am sorry he has just gone. It was a most eloquent exposé of the pros and cons of devaluation, and he showed, I think quite conclusively, that it would be not only a financial but even more a moral disaster to this country if we went in for this policy of devaluation. I would say, as he did, that we must avoid a disaster of this sort at all possible costs.

So, if the crisis is a real one—and every indication is that it is not only very real but severe and even critical in its effect—then I would say quite frankly to this House that, much as I dislike some, nay, many, of the measures of the Government propose, and however misguided I may think they are, we must support them at this time for the sake of the country, lest even worse befall us. But in this critical time—and in this I think the noble Lord, Lord Robbins, and also the noble Lord, Lord Snow, erred—this does not mean that we should not point out the mistakes and follies which have brought us to this lamentable state. If we honestly believe that the Government are not showing themselves up to the job of running this country properly then we should say so and not merely be mealy-mouthed about it.

With regard to this crisis, I would say that two things are urgently necessary: first of all, the one to which the noble Lord, Lord Beeching, devoted the major portion of his admirable speech. We have an urgent need to reduce the pressures of demand for labour in this country. I must agree with what he said, because this would enable collective bargaining, a system in which I believe, and indeed have believed in all my life, to act properly and to succeed. It cannot succeed in an over-heated over-employment condition.

The other thing that surely we must do, and do most drastically, and indeed the Government recognise this, is that we must reduce Government expenditure both at home and abroad, and I do not think the Government's proposals for cutting down Government expenditure go anywhere near far enough. Government expenditure has to be paid for by taxation, and taxation in the long run has to be paid for from the private sector of industry, and if we put too heavy a load of taxation on to the private sector of industry then it cannot bear it; its prices go up and disaster follows. Taxation of this sort stultifies the private industry on which we depend.

The other day I was talking to one of the ordinary folk in my own industry and I said to him, "What do you think of this crisis?" He replied "They"—the Government are always "they" in this country, of whatever complexion they may be—"tell us to work harder, to produce more, to export more, and then they jolly well see that we are not going to make a penny piece out of it for ourselves". I believe that is symptomatic of what the country may well think of this increase in taxation. Incentive—the carrot—is what makes people work harder in peace time. There is not, and cannot be, in peace time the urge that we had during the war, and to get people to work harder you have to show that it is worth their while to work harder.

To return to the question of the reduction of Government expenditure. It was quoted in the debate on Thursday last that a million extra square feet of office space are now occupied by the Government in London (I think it was in London) as compared with two-and-a-half years ago. I have another figure, which I believe is accurate and which is that there are 15,000 more civil servants, or temporary civil servants, in Government employment than there were two-and-a-half years ago. And if we say that, with their office accommodation and all the services which have to be provided for them, they possibly cost between £2,500 and £3,000 apiece—because a great number of them are highly skilled—that puts our figure at something like £40 million to £45 million in this one sector alone. Parkinson with a vengeance!

I should like to go back to my remarks about private industry. We are exhorted on all sides, and quite rightly, to export more, but practically the whole of our exports have to come out of the private sector of industry, and therefore this sector should be supported and helped, and encouraged and jollied along. But what we find is that nearly all these Government cuts and nearly all the Government measures are directed to harm, or to make more difficult, the private sector of industry. The crisis bank rate, the decrease in consumption through the extra taxes imposed, the cut in bank lending—they are innumerable and they all harm this private sector of industry on which we depend. Surely it is time, in 1966, that we should all realise that our prosperity and our livelihood depend in the end on the profits made in the private sector of industry. In that respect I would recommend what I thought was an admirable short letter—the first letter in the columns of The Times to-day—by a Mr. MacTaggart, whom I have never been privileged to meet but who seemed to set out a very clear proposition on this subject.

Already in industry we are witnessing a sharp run-down in private investment. If this is allowed to proceed further (and the new measures we have had to put on will certainly accelerate this process) then I would suggest that lasting disaster will be suffered by the country, because, as was said in the debate on Thursday, private investment in industry is our industrial seed corn, and if we do not sow it then there will be nothing to reap. Moreover, once industry starts a rapid run-down it is most difficult quickly to reverse the process.

My Lords, at risk of keeping you longer than I said, might I refer for just a few moments to one question with which I am rather closely associated in my business career, namely, the market in gilt-edged securities, as they are called—the Government securities market. The market in Government securities is vital to our national life. That it should flourish is of the first importance to any Government, because it is the cushion on which all financial Government expenditure rests. We must always remember that the condition of our Government securities market is a very real measure of the confidence felt in our financial position. Now the health of the gilt-edged market, which is in sad disarray at the present time, was undermined and brought into disrepute, I believe to an extent much greater than was realised at the time, by the application to it last year of the capital gains tax, which unilaterally broke the implied bargain between Government and holders of Government stocks which stood, or had been issued, at a discount. In my opinion the market in Government securities has never recovered this loss of confidence since this was done last year, and its weakness, especially over the last few weeks, has accentuated the present sterling crisis. The capital gains tax has surely been proved to be a great folly. I see it is now suggested that it is not going to bring in anything this year. Indeed, with the fall in securities on the Stock Exchange it is not likely to do so. And yet it has done a great deal of harm, and especially to our Government securities.

Incidentally, and on a lighter note—and I say this without any possible intention of offending anybody—it was interesting to note an odd coincidence that the very day after our footballers (who have done so gloriously since) drew with Uruguay in their first match on the Monday, on the Tuesday my attention was called to the fact that3½ per cent. War Loan stood at 49, and 3½ per cent. Uruguayan Loan stood at 49, which presumably meant that our financial position and our football skill were just about the same as theirs.

THE EARL OF LONGFORD

My Lords, is the noble Lord able to tell us how those securities stand at the moment?

LORD MCCORQUODALE OF NEWTON

My Lords, I rather think the Uruguayan Loan has got a little above us, in spite of our football, although I did not verify this on Friday. On Thursday it certainly stood a little higher, but now, since our footballers have done so well on Saturday, we may have gone higher again. I would add, of course, that the Uruguayan Loan has a date and I am sure it will be kept, but unfortunately the War Loan has no date.

On top of this disarray in the gilt-edged market the steel nationalisation Bill has come as a body blow, because everybody associated with it realises that some £650 million (or whatever it was) has to be injected into and borrowed on this weak market. I will not argue the rights or wrongs of steel nationalisation to-day, but, surely, when we wish to establish confidence in the world, the introduction of the steel nationalisation Bill at this time must be folly of an extraordinary virulence. I cannot believe there is anybody, however much they believe in Socialism and public ownership, who would think it right and sensible to bring this Bill in at this moment,

I would put in an urgent plea to the Government to have regard, and close regard, for their own Government securities market, for it is on this that our international confidence very largely depends. When we last debated economic policy a few weeks ago, I ventured to make a few remarks about the S.E.T., and I do not propose to repeat them in any way. I made a remark for which I was rather pooh-poohed, that I feared that the Rhodesian situation was a grievous drain on our resources. I put the figure then at something like £150 million, when I was told I was wildly wrong, but now I understand that others are coming round to more or less the same view as I held. I expressed the opinion how ironical it would be for historians in the future if it was the Rhodesian crisis and the Rhodesian sanctions, which we had put on, that broke not Rhodesia's back but our own; and, indeed, we had the Prime Minister's broadcast suggesting almost the same thing. I would say that, out of this crisis, one should urge that this sanctions nonsense should be done away with as soon as possible and sensible agreement reached with Rhodesia, and this running sore stopped.

I am sorry to have kept the House for so long, and I am coming to the end. I believe most strongly that the subject matter of this debate is of paramount importance, one of the most important things that have happened in our lifetime, and I think this is an occasion when we should all say where we personally stand upon it. As we all know, this country is very poor in physical resources. Indeed, except for coal (and that is not so attractive as it was) there are hardly any physical resources in this country at all. We depend entirely upon the skill, the inventiveness, the enterprise, the efficiency and ability to work hard, and the productivity of our manpower and woman-power if we are to maintain a high standard of living in this country, or even a standard of living at all. We face, and always will in this country, a difficult task if these are our objectives, and they surely must be. I believe, and believe most profoundly, and even more strongly than I did35 or 40 years ago when I went first into industry, that the system we know as private enterprise can foster these qualities; that competition begets efficiency; that reward for enterprise and extra skill and extra effort can be given by private enterprise; and that Socialism, even of the less extreme sort that we have seen in this country, just does not and cannot do so effectively.

If I may say so, without, I trust, offence, I fought my first Election in 1929, as did others in this House, and like many others was defeated when the first Labour Government came in. In two years we saw that Government crash in economic ruin, with grave hardship and loss in the country, and we saw an enormous majority elected to Parliament believing in private enterprise, one humble Member of which was myself. Many more saw the second Socialist Government come in with a great Parliamentary majority and a great majority in the country just after the Second World War. In seven years they destroyed that majority, lost the confidence of the country and were shot out, and the country reverted to people who believed in private enterprise. Nearly two years ago the country tried again, with a great deal of good will on all sides I think, because the Conservatives had been in for thirteen years and many people felt that it was time for a change. We elected another Socialist Government, first with a small majority and, after a short time, giving them a very handsome majority of nearly 100 in the other place. We seem to be lurching to disaster once more. The third Socialist Government would appear to be going the same way as the other two, and all I can say in epitaph is the refrain of a song very popular just now, "When will they ever learn?"

4.47 p.m.

LORD WILLIS

My Lords, it falls to me (and I am very glad of the opportunity) to be the first from these Benches to congratulate the noble Lord, Lord Beeching, on his maiden speech. We have all long admired him as an administrator, and now we know that he is a fine fluent speaker, full of good common sense, and we hope he will be often heard in your Lordships' House.

I was greatly provoked by the last speech by the noble Lord, Lord McCorquodale of Newton, and felt tempted at times to follow him into the realms of Rhodesia and steel, and his astonishing analysis of Socialist Governments. But I think I would rather at this stage keep to the point in hand.

Since the Prime Minister announced his package some time ago, we have had two days' debate in another place and nearly two days in your Lordships' House, and acres of articles in all the newspapers on the same subject. Many of the speeches, and nearly all the articles, have been heavy with advice to the Government, but I think the noble Lord, Lord McCorquodale of Newton, has been the first one to read what I call a rather premature epitaph. If Napoleon was right when he said, "One bad General does better than two good ones", we should soon be at the end of our troubles, for it seems to-day that every columnist is a general, and every commentator an expert. Some of the advice has been very good. Some comes into the category of advice which can be forgotten, if not forgiven. Some of it strikes me as being about as useful to the nation as an item I read in the New Statesman this week. This seems to have a certain bearing on the economic situation, because it describes certain rules which have been devised to allow pedestrians to remain as dry as possible when walking in the rain. It said: When walking into the rain one should lower the head and walk as fast as possible. When the rain is coming from behind one, one should walk forwards leaning backwards or backwards leading forwards at a deliberate pace. I think enough has been written and said about the crisis during our debates, and I do not want to labour all over the same ground and the same arguments. The only point at which I think I agreed with the noble Lord, Lord McCorquodale of Newton, was when he said that everybody should say where they stand in this matter. I think, therefore, I can save your Lordships' time by referring your Lordships to the OFFICIAL REPORT of this debate, and by saying that my own position is that I accept Shepherds Pie, salted by Robbins, peppered by Francis-Williams, and now Lord Beeching as afters.

I should like to make a few comments on the more general theme connected with the debate. The last thing I would wish to appear is to be complacent about our economic difficulties, or to deny the present serious nature of the situation, but I am beginning to wonder whether we are not taking it a bit too far. It seems to me sometimes that we, as a nation, seem to enjoy wallowing in woe, and that, next to football and cricket, our national pastime is masochism. The truth is that in many ways our economy is astonishingly sound, and nobody ever says so. We are not nearly so feeble as we think we are, or as some other countries would like to believe. In all but six of the last seventeen years we have in fact sold more goods and services abroad than we have bought.

In spite of a decline in figures, we export still some 16 per cent. of our gross national product, and no other country except Germany manages to sell such a high proportion overseas. In the world's most competitive markets, the United States and Western Europe, we are doing very well, thank you! Last year our exports to the United States alone rose by 23 per cent. We are second only to Western Germany in world car exports. Last year we sold 150,000 tractors worth £94 million, more than the United States, Germany, France and Belgium put together. The export growth of the machine-tool industry improved by 12 per cent. last year, and since 1959 we have outstripped Holland, Germany and Switzerland in this field. I have taken these facts from an interesting article by William Davis in the Guardian which I commend to your Lordships.

Of course some of our industries are lagging. Of course we need to do even better. Of course we need to try to solve some of the problems of modernizing our industry. But, for Heaven's sake!, let us get the balance right. Let us say that we do some good things at least, because to exhort our people only in terms of gloom and doom is in the long run to die. The plain fact is that our business transactions, both visible and invisible, with the rest of the world show a large surplus. It is overseas expenditure of £500 million per annum which puts us in the red. That is the plain and brutal fact. Part of this is spent on military commitments, but a large slice—and I am glad to see this—goes in aid to the underdeveloped countries. Since 1960, in spite of our own difficulties, we have given over £800 million in aid overseas. Last year we gave £187 million alone, and that is a good deal more than most other industrial nations.

Sometimes when I hear criticism of this country abroad, such as that we are pampering ourselves at someone else's expense, I feel that we are entitled to turn round and say to these critics that they should "put their money where their mouth is". I think all the achievements I have mentioned should go into the record when we are talking about our economic situation. The noble Lord, Lord Carrington, spoke the other day about finding a Moses in the bushes in Smith Square.

LORD McCORQUODALE OF NEWTON

My Lords, I wonder whether I might interrupt the noble Lord. He said he did not agree with anything I said. I should like to say that I agree with practically everything that he has said up till now.

LORD WILLIS

My Lords, I am glad to hear that, and I thank the noble Lord. I was about to say that the noble Lord, Lord Carrington, spoke the other day about finding a Moses under the bushes in Smith Square. It may be hard to find a Moses, but it is all too easy to find Jonahs, not necessarily in Smith Square. I have heard the word "austerity" used in connection with these measures. This is patent, ridiculous nonsense. We are a rich and prosperous nation, and none of these measures is going to take us back to whale meat and snoek and dried egg and ration books. A man used to living on £2,000 a year thinks himself hard-up if he is reduced to living on £1,800 a year, but he is hardly facing austerity. Hardship is relative.

I believe that we need a sense of proportion in other directions, too. The noble Lord, Lord Shawcross, the other day spoke of the Government clobbering profits and high incomes. I have seen this same theme taken up in some newspapers. Of course we should reward initiative and provide real incentives in money terms. But is it not just as true to say that if we give too little in many cases, we give too much in others? Some months ago, for example, I read in an advertisement of apartments with a magnificent view over London. They were advertised for £5,250 per annum or £105 a week. If you take the old axiom that you spend one-fifth of your income on rent, this would mean, according to the Inland Revenue, that a married man without children who took such an apartment would require an annual income of £170,000 at 1964–65 rates of tax. That entire block of apartments is fully occupied. Mayfair penthouses last year were being offered on a 79-year lease for £70,000 upwards. A top floor penthouse overlooking Lords was offered at £45,000. Presumably all these properties went, too. The luxury blocks are full. I just wonder what salaries are earned by the people who live there.

Last Christmas a certain London store was offering a handmade rocking-horse for your child for £49, or a petrol-driven kiddie-car for £100. Another store reported a brisk trade in gold watches at £300 and £400 a time. Yet another sold gift vouchers ranging in value from £400 to £1,500 which could be exchanged for furs. And, of course, there was the advertisement offering get-away people the chance of avoiding the chills of winter by taking a cruise at a cost of £1,200 for a double cabin. Then there was the man who advertised last year for a resident chef; three in family, resident staff of three, and adequate kitchen help". When you see such advertisements the word "austerity" takes on a sour ring. We may have some executives who do not get paid enough; we may have some workers who loaf and do not pull their full weight. But we also have our fair share of curled and pampered darlings, and there is room for a little more clobbering here, because unless we clobber in this direction our people are not going to feel that there is fairness.

Finally, I should like to say a word about the future. In the past few years we have had crisis after crisis, all arising, it seems, from the same basic causes, and solved temporarily by the same sort of basic measures. This particular crisis, as many noble Lords have said, will have served some purpose at least if it carries still further the process of stripping us of our illusions. Part of our problem at least is that we are still suffering from an Imperial hangover. We are burdened not only with to-day's problems but with yesterday's attitudes. Sometimes I think we carry self-deception to the point of lunacy. We have to adjust ourselves to what we are in real terms, not to what we were 70 years ago, nor to what we should like ourselves to be.

In real terms this means that we and the Government have to ask ourselves certain serious questions. We are, after all, a fair-sized industrial nation, no more, no less; bigger than the French, but not quite as big as the Germans, and way, way behind Russia and the United States. We are no longer the great workshop of the world. We have dropped down the league in economic terms. In these circumstances, the questions we have to pose are these: can we any longer afford to keep a quarter of a million troops overseas? Can we afford any longer to be a power in the Far East? Can we any longer afford to import £1,000 million of foreign or Commonwealth food every year? Can we play a full part in Europe if we have, more or less, to go it alone and other countries do not share in the burden on the basis of equal partnership? These are some of the questions that have to be posed. It may not be easy to face all these questions, but we have to do it. It may not be easy to extract ourselves from some of our overseas burdens, but we ought to serve notice that we can and must do it at some time.

The alternative to planned action along these lines is slow erosion, which can only mean disaster. As other noble Lords have said, the margin is so small, relatively small. If our spending overseas had been only £100 million a year lower in the last ten years, we should have ample money in the reserves and be almost free of debt. We cannot afford this crisis, as we could not afford the last one, and we certainly shall not be able to afford the next. Each crisis weakens us a little more and, above all, destroys our own confidence, not to mention other people's. Now we have taken these measures, let us fight them through. Let us take them beyond that to some of the other more fundamental issues which have been raised in this debate, so that we do not in fact go back to the cycle of "Stop-Go", "Stop-Go" any more. Above all, let us stop destroying our own confidence and the confidence of our people, because there is a point beyond which there is no recovery for the exposed heart, and too many terrors dull the mind.

VISCOUNT MASSEREENE AND FERRARD

My Lords, before the noble Lord sits down, may I ask him this question? Surely the apartments which he mentioned at a rent of £5,000 a year are, as to the majority of them, taken by large companies to entertain overseas buyers.

LORD WILLIS

My Lords, I should like to have a relative list of some of these large companies, and I should like to know on what boards of directors some of the ladies with their Pekinese dogs whom I see coming out of these apartments serve.

5.2 p.m.

LORD CONESFORD

My Lords, with quite a number of the statements of the last speaker I agree. I, too, think that some of the achievements of our export trade are very fine indeed; and I have some reason to know that, when we are both abroad, neither of us has much hesitation in speaking up for this country. But that does not mean that the situation in which we find ourselves is not very serious indeed.

If I might comment in passing on two of the remarks of the noble Lord, when he says that some people have too much money and some people have too little, that may be a rather curious argument in favour of the wage freeze. I might also say that I could easily multiply such examples. But of course he is right in saying that the burden abroad of defence is a very important factor in our situation. However, our defence expenditure abroad is not incurred for fun. I put it to a Minister the other day, when he was being questioned from the Opposition Front Bench, "Do Her Majesty's Govern- ment regard adequate defence as a luxury or a necessity?" We got no very clear answer. But in so far as it is a necessity, if we did not protect our vital economic interests in the Far East, our economic position would be much worse.

This has been a very important debate in which a number of leading economists and leaders of industry have taken part. My main excuse for speaking is that political experience and knowledge of the electorate over the years, for I had some twenty years in another place, perhaps qualify one for making certain comments on our present discontents. I have some very strong convictions on some of the things that are wrong.

There was no speech made in this debate which I more admired, and with which, on the whole, I found myself in closer agreement, than the speech made last Thursday by the noble Lord, Lord Robbins. I was also greatly delighted by the speeches of my noble friend Lord Chandos and the noble and learned Lord, Lord Shawcross, and by many others. The noble Lord, Lord Robbins, made a plea that we should avoid unnecessary recrimination. Provided that is not misunderstood, I think that I agree with him. But that does not mean, as was said by various noble Lords on this side, that we should avoid controversy, when some of the things being proposed by Her Majesty's Government are, in our opinion, completely wrong, and when some of the actions which have brought us into our present state have not yet been recognised.

It would be no good my saying that I have always avoided controversy, for I have not, and have no intention of doing so, but I think I avoid unnecessary controversy. I have told the House before that my favourite quotation in politics is from a sermon of Bishop Butler, "Things and actions are what they are, and the consequences of them will be what they will be: why then should we desire to be deceived?" In so far as Her Majesty's Government are, in my opinion, still doing things that are wrong and propose to persist in doing things that are wrong, I propose to say so and to fight them. I know it will not astonish the noble Earl the Leader of the House, nor will he resent it in any way, but sometimes I hear remarks in this House and sometimes I see priggish articles in the Press which suggest that to mention the incompetence of Her Majesty's Government is or ought to be a breach of the Official Secrets Act. Frankly, I do not take that view.

THE EARL OF LONGFORD

My Lords, if I may say so, the noble Lord it tilting at a windmill of his own. He is taking up this line that he is facing, with a certain heroism, the dangers of speaking out, but the dangers do not exist.

LORD CONESFORD

I entirely agree with the noble Earl. I assure him that I am not unduly nervous. Whatever my faults, I do not think that is one of them. As I am going to say quite a number of things in vigorous criticism of Her Majesty's Government, perhaps I may start by mentioning a very important matter on which I agree with them. I wholly agree with them in their opposition to devaluation. I am not going to argue the point again, because I wholly agreed with the analysis of the noble Lord, Lord Robbins, and for the same reasons I had come to the same conclusion. At the opening of the debate the noble Lord, Lord Shepherd, after saying that it was the Government's policy to avoid devaluation, said that a great deal too much had been talked about it, and rather implied that that was the cause of doubt. I agree with Lord Robbins that this matter of devaluation is quite certain to be discussed; it must be discussed because there are genuinely different opinions held about it. But, as I say, in my conclusion I agree with Her Majesty's Government.

What Lord Shepherd does not realise, I believe, is that the main reason why the determination to avoid devaluation is doubted abroad is the proved unreliability of the Prime Minister in the last few weeks. I am not going to repeat—it has been done quite a lot—the various contradictory statements that were made in the week beginning on July 10: the optimistic statements issued from No. 10; the speech, I think in the presence of the Australian Prime Minister, in which articles in the newspapers were described as "wet leaders", and critics who were pointing to the situation in which we found ourselves were described, I think, as "moaning minnies". But I may have got the expressions wrong.

But what was the immediate sequel? On Thursday, July 14, we had that extraordinary Statement in both Houses of Parliament, made by the Prime Minister in the Commons and by the noble Earl the Leader of this House here. The purport of that Statement was this. Things were very serious indeed further measures would have to be taken, and, when the Prime Minister knew what those further measures were, he would not hesitate at some future date to tell us. These were the ingredients of the Statement: things very serious, action demanded, action unknown and the date at which it would be announced unknown.

All this was uttered in order to reassure the holders of sterling. A greater demonstration of complete incompetence has never been experienced in recent times. That Statement on July 14 reminded me almost equally of the threats of King Lear and the prospectus of the South Sea Bubble. It was a cross between the two, and what it cost in the flight from sterling we do not yet know. But so serious was it that, after that extraordinary week-end in Russia and some rather important engagement I think in Liverpool in connection with "pop" art, the Statement had to be made on July 20 of what it was that the Government really proposed. We then had the announcement of the Government's measures.

What I want to know is this. What do Ministers wish us to believe about those statements of the Prime Minister between July 10 and July 14; those reassuring statements that there was nothing much to worry about, and implying that no further immediate steps were required or would be taken? Do Ministers wish us to believe that the Prime Minister believed that what he said was true, or that he did not? If he believed it, then obviously he was the worst informed man in this country. If he did not believe it, then what confidence can we place in him or his Administration?

In that Statement of July 20, after telling us of the very serious measures that were going to be taken, the Prime Minister concluded by saying that the Government thought they were justified in doing this, because they have done everything in our power to secure social justice. "Justice" is a great word and a noble thing. In my professional and in my political life I have sought, no doubt very inadequately, to serve that great cause, as indeed have politicians in all quarters of the House. I am bound to tell the Government that I find the Government's policies often unjust and morally shocking. I propose to give two examples, although I could give many more.

The first example is the capital gains tax. Of course, different views can be taken on the question whether a capital gains tax is a good thing or not. I share the doubts of the noble Lord, Lord Robbins, about whether it is good. But let me say at once that, of course, one can be an honest, and indeed an enthusiastic, supporter of the idea of a capital gains tax. But what I regard as unjust and immoral is to treat a man as having made a gain when in fact he has made none. Let me give a simple example. If by continuous inflation the Government halve the value of the pound sterling, and some shares in a company, in the period in which the value of the pound has been halved, double in sterling value, then the holder of the shares will not have made a gain at all. His capital will be precisely what it was. But if he dies or if he sells his shares he is deemed to have made a capital gain of 100 per cent. and is taxed accordingly. I am content to adopt the words of the noble Lord, Lord Robbins, in the debate on August 4 of last year, when he described this as "flagrantly unjust".

I take a second example. There is the selective employment tax with its savage attack on charities. Bank rate is at the moment 7 per cent., yet charities are called upon to make a compulsory interest-free loan to Her Majesty's Government. Why, if anybody is interested in justice, do they think that charities should lend money to the Government rather than the Government lend money to charities? What part of their work do the Government wish the charities to abandon? I think we have heard enough about justice in connection with what the Government are doing. I may say in passing that, until the Opposition raised the utmost objection to this tax on their behalf, the charities were going to get no refund even of the contribution, and there was a Parliamentary Answer by the Chancellor of the Exchequer to that effect. The two examples I have given are sufficient to show that the Government's proposals frequently are unjust and morally shocking.

But, of course, I may be told that they do not say they show justice; they say they show social justice. I have often been puzzled to know exactly what "social justice" meant, so utterly divorced is it from any conception of justice, though I ventured to state my conclusion to Parliament many years ago: that social justice bears the same relation to justice as social credit bears to credit.

The selective employment tax is perhaps the most morally and intellectually contemptible measure that any of us can remember and that any Government has introduced. The uncertainty it has introduced and the injury that it has done and will do to our economy are scandalous. This tax has been condemned as much from the Back Benches in both Houses by men who normally support Her Majesty's Government as it has been condemned by the Opposition. Yet the Government are persisting. How can they possibly ask for the support of the Opposition, and of all who are really concerned with our recovery, when they persist with a measure calculated, in the opinion of nearly every thinking man who has spoken, to do incalculable injury to the economy?

In so far as this tax shifts purchasing power from the purchase of services to the purchase of material goods, it will be bad for our balance of payments. As has been pointed out by many people, including myself in asking Parliamentary Questions and supplementary questions, it will make the waste of labour by the worst wasters of labour even more profitable than it is now; and one of the worst effects of this ridiculous tax will be that it will make many people extremely busy calculating, not how to serve their country by increasing exports, but how to save themselves from ruin by such lunatic actions as moving their head office across the road. Not merely had this Government of so-called planners not planned what to do in an emergency which everybody but themselves foresaw: they are making it quite impossible for the business community to plan anything whatsoever. They are, indeed, by the uncertainty of their various measures, removing all predictability from our affairs.

On unemployment, I find myself again in complete agreement with Lord Robbins. I am not going to criticise the Government because their action will increase unemployment to some extent. There is no remedy for our ills while we insist on over-full employment. I use that phrase, but I think I mean the same as was meant by the noble Lord, Lord Beeching, whose maiden speech we so much enjoyed, when he referred to "over-employment". I think he meant the same thing as I mean when I say "over-full employment". If 2.3 per cent. are temporarily unemployed because they are changing their jobs, that does not mean a return to the unemployment of the 'thirties, or anything of the kind. Incidentally, as to the phrase "over-full employment", with which we are so often taunted as though it meant that the Conservatives or the Liberals desired unemployment, I would remind the House (as I have reminded them before) that the first statesman in this country, as far as I know, to use the term "over-full employment" to describe our industrial condition was the late Herbert Morrison—and he said it on August 20, 1947.

I am sometimes asked whether I think the measures of the Government are too severe or not severe enough. I think neither. I think many of them are simply too stupid. What may cause grievous unemployment is not curing over-full employment and producing, perhaps, 2..3 per cent. as a maximum of temporarily unemployed. That will be good, even for the temporarily unemployed, in the long run. What does threaten serious unemployment is the attack, the continuing attack, on savings and investment. Here, again, I share the fears expressed by Lord Robbins, by my noble friend Lord Chandos and by others. I should greatly have preferred cuts in consumption to these cuts in capital equipment. I should have preferred, also, avoidance of waste in the social services to restrictions on much-needed investment. It is a mystery why the Government are so antagonistic towards the idea of savings. The lesson of all the Government's actions to any one with money is, "Spend it. If you save it, it will depreciate; if you invest it in a British company and the company fails, you will lose it; if the company succeeds, it will not be allowed to increase its distribution to its shareholders."

My Lords, in this package of measures there is one strikingly absurd clause designed to prevent the distribution of higher dividends. Of course, this is largely academic, because in the next year very few companies will be in a position to increase their dividends, even if they are in a position to maintain them. But suppose there is an odd company that is in a position to give a greater distribution, what possible gain to anybody is it that the money which should be paid to the shareholder is kept uselessly in the coffers of the company? I have tried to demonstrate on previous occasions the absurdity of thinking that some useful purpose is served, that somebody gains, if a company that has earned profits does not pay shareholders monies not needed for development or for any such purposes. In my maiden speech about eleven years ago, on November 1, 1955, I ventured to quote a famous paragraph from the Report of the Royal Commission on the Taxation of Profits and Income. If noble Lords opposite will look at paragraph 536, they will see that the Royal Commission pointed out how absurd this idea was.

May I mention one other subject on which I feel very deeply—that is, the restrictions on foreign travel? I admit, here, that I am very much interested. I am an old man, and I cannot be confident that I shall live long enough to see all these measures reversed—though they will be. I had hoped—and I hope it is not an entirely unworthy desire—to visit many foreign countries which, in a long and fairly busy life, I have been unable to visit. I had also hoped to renew my knowledge, and to extend it, of the countries I love in Europe, like France and Italy. I realise that all this may be impossible. But my objection to this type of restriction can be simply stated: it is an atrocious exercise of tyranny by a Government over the pleasures of its citizens. What right have a Government to say, "Expenditure of dollars, and so forth, on tobacco is a necessity, and expenditure on the trash of American films is a necessity; but, as to the use of foreign currency by a man who wishes to travel abroad, that is a luxury that we are entitled to hit"? I say that is an intolerable and uncivilised tyranny.

I know it may be asked "Could we afford it? Could we afford more than £50 per person?". It may be said that in the case of tobacco it brings in a great deal of revenue. Is it beyond the genius of this Government, or some other, to do the same with the foreign currency allowance as they do mutatis mutandis with tobacco? Let them have £50 as the limit if they think that necessary; but let their subjects be able to buy additional foreign currency by paying some tax in order to do so. Let them follow the treatment given to tobacco. Why could that not be done?

THE EARL OF LONGFORD

My Lords, since the noble Lord spoke so strongly, perhaps he can remind us what his Government did when they came in in 1951.

LORD CONESFORD

Certainly, my Lords. I can only say that I have myself on all possible occasions taken this view with my own Government. I admit that between 1951 and 1955 I happened to be a Minister and was not able to do so in quite the way I am doing now, but I hope that the noble Earl has sufficient belief in my honesty to accept it when I tell him that I have made this particular point in every way of which I am capable, whatever Government was in power. I regard it as perfectly intolerable. I am glad to say that one of my few backers in all this was the noble Lord, Lord Rea, who leads the Liberal Peers.

THE EARL OF LONGFORD

All credit to the noble Lord that on one famous occasion he did resign from a Government. I cannot agree that he took every step that was open if he remained a member of that iniquitous Government.

LORD CONESFORD

My Lords, the noble Earl may remember that the matter was put right by the time that Government left office—I think that that is not unimportant. Anyway, I give the noble Earl any point he likes about this. I quite agree it has been done by other Governments. It was done by nobody more strongly than by Hitler; it was Hitler's policy. What distresses me is that a Government that calls itself a Socialist Government is becoming so rapidly and increasingly National Socialist.

SEVERAL NOBLE LORDS: Shame!

LORD CONESFORD

My Lords, as far as restrictive practices are concerned I agree with everything that has been said by many speakers. I have done my utmost, both as regards liner trains and as regards the abuses of the London newspapers, to bring to the attention of this House what a scandal it was—a scandal about to be increased under the selective employment tax, under which every man wasted in manufacturing industry is going to draw a bonus.

LORD WILLIS

My Lords, may I ask the noble Lord whether he has also brought to the attention of this House the restrictive practices in the legal profession?

LORD CONESFORD

My Lords, I have dealt with legal matters on occasions; but I disagree with the noble Lord on this. I think the legal profession, in so far as it has restrictive practices, is showing itself not incapable of putting its house in order. Let me say quite clearly to the noble Lord that professional standards are not a form of restrictive practice which I deplore; and I think, from my knowledge of the the noble Lord, that neither does he. It may be asked: What could the Government do about restrictive practices? Let me tell them two things they could have done. But, before doing so, I wonder whether they realise quite how much harm is done to their reputation and credibility abroad by the scandal that after two years they still cannot run the liner trains in the way they desire. It brings this country into ridicule and contempt.

Let me tell them two things they could have done. They could have raised this matter at the time when the railway men were asking for increased remuneration; they could have made any grant of increased remuneration absolutely dependent on the abandonment of this restrictive practice, with the increased remuneration following, and not preceding, the abandonment. The other thing they could have done (and may still do) is to give evidence of this and all other restrictive practices of the kind to the Royal Commission on Trade Unions. I have drawn the attention of this House to the terms of reference of the Royal Commission. Why on earth is it not getting the assistance of Her Majesty's Government, who must know all about these restrictive practices in different industries? Why do they not collate all the evidence and give it to the Royal Commission?

My Lords, I am sorry to have detained the House for so long; but I have one final point. I think there are two ways in which a society can prosper or can make a success of its economic system. The first, to me atrocious, is the tyranny of Communism. Communism is a form of Socialism which at least can be made to work. The other society which can work is a free society where you use human desires of freedom to encourage, instead of discouraging, men to improve their own lot and by so doing the lot of their country. Give them hope and give them freedom! The measures proposed by Her Majesty's Government to-day show, I think, a dangerous tendency to substitute compulsion for freedom. I do not regard it as merely incidental that they are showing a contempt for Parliament. What is being done in the next few days in both Houses of Parliament is to ignore what have been the safeguards of Parliamentary Government in this country for centuries. In the advance to 1984, it is later than you think.

BARONESS GAITSKELL

My Lords, I have asked my noble friend Lord Campbell of Eskan if I could intervene for one moment to ask a question. As several noble Lords—and especially the noble Lord, Lord Conesford—have suggested that a certain amount of unemployment, more than we have had in recent years, is now good for the economy and so, I would suggest, for the country, would some of these noble Lords, in a spirit of patriotism, volunteer to join the unemployed pool?

LORD CONESFORD

My Lords, both the noble Lord, Lord Robbins, and I tried to explain that the 2.3 per cent. unemployment figure which I thought desirable referred to people who were not permanently unemployed but unemployed because they were changing their jobs. I can only say, speaking for myself, that if at some stage in my life I had been hopelessly under-employed—that is to say, that I had been in a job where I was not able to work and was simply surplus to requirements—I think I should certainly have tried to change my job. I have not experienced that position; but that would have been my attempt.

5.39 p.m.

LORD CAMPBELL OF ESKAN

My Lords, I had not intended to intervene in this important debate, for the very good reason that I felt I had nothing to say that would not be better said by other speakers. As I listened on Thursday, and again this afternoon, I realised increasingly that I should be a dwarf among the Titans in competing with the debating skill—and, at times, the entertainment value—of some noble Lords opposite. I could not be compared with the wisdom and experience of speakers such as the noble Lords, Lord Robbins and Lord Snow, and the noble Lords, Lord Kahn, Lord Cooper of Stockton Heath and Lord Beeching in their most notable maiden speeches. I would have included the noble Lord, Lord Melchett, if he had not marred an otherwise admirable speech by urging the abandonment of what he called the old-fashioned Welfare State. One only has to see, to take one example, the cost and financial anxiety of illness in the United States to shudder and thank Heaven for the Labour Party and the Welfare State.

On the other hand, as I listened I had a growing feeling that there were some things I wanted to say because no one else was saying them—although my noble friend Lord Willis said some of them this afternoon, far better and in a more moving way than I should have done. So, inspired by Lord Chandos's exhortation to work on Saturdays, I decided to work on these notes and "have a go".

My Lords, there is nothing new about this. I am sure that the other speakers who said or implied that there were two crises, not one, were right. The balance-of-payments crisis, the financial crisis, can only be cured, first, by cutting down expenditure overseas, particularly defence expenditure, by about £150 million to £200 million a year although that obviously cannot be done in one fell swoop. But aid to developing countries should, in my view, not be cut, because, to put it as shortly as possible, casting one's bread upon the waters is always a fruitful undertaking. In any event, the exchange costs of aid could be reduced to manageable proportions by our own action in timing it with the cooperation of the recipients.

Secondly, I believe that in these crises conditions we should have selective reduction of imports by a system of import licensing and by limiting credit for imports. Thirdly, the roots of the financial crisis lie, as other noble Lords have said, in the continuing role of sterling as an international reserve currency when our industrial and strategic power and wealth can no longer support this role. We must extricate ourselves from this position through a process of wide international collaboration. I agree with my noble friend Lord Francis-Williams that this, combined with cutting military expenditure overseas, should be the Government's main objective. We simply cannot afford to go on being, or to try to go on being, bankers and security guards for most of the world. Even if with folie de past grandeur, we distort and torture our own society and economy, I do not believe we shall be able to afford that role again in the foreseeable future.

Too many of our attitudes are still based on Britain's being the centre of a great Empire—what the noble Lord, Lord Willis, called an imperial hangover—indeed, the strategic and economic centre of gravity of the whole world. These attitudes are based on our having been able to deploy and dominate other people and their resources and markets as well as our own; and as a result of two appalling world wars and the march of time and history, these things have entirely changed. There is nothing more pathetic than what the charities called "distressed gentlefolk in reduced circumstances." That is what we, as a nation, are in danger of behaving like. Surely if our circumstances have changed, as they have, we should face the fact and adapt ourselves to new circumstances and get, as it were, a new job. We should find a new role and not simply bemoan our fate or carry on as if nothing had happened, hoping that something will turn up to enable us to maintain our past grandeur.

That brings me to the second crisis. It is, as has been said, a crisis of confidence. It is not, as noble Lords oppo- site have alleged, a crisis of confidence in our present Government; it is essentially a crisis of confidence in ourselves. We are no longer confident of our place and of our relationships in the world. This is not at all to decry Britain. Whatever our lack of physical resources we have immense reserves and resources of courage and strength, and spirit and skill, and wisdom and tolerance. Surely we must learn to devote these to building a new society and economy related to the realities of the present. We must devote our national characteristics and heritage to building a Britain of future hope, rather than dissipating them in hankering them after past glories. Britain undoubtedly has a leading part to play in world affairs, even if it is no longer the star part. Our crisis of confidence in ourselves surely comes from the diminishing credibility of the international role we are trying to play. Confidence in ourselves means confidence in our ability to cope with our environmental relationships. The surest route to neurosis or personal disaster is to bite off more than one can chew.

My Lords, this long preamble brings me to the point that I as a businessman want to try to make, because I think that many of our industrial and domestic economic problems come from this same lack of confidence and lack of clarity in what we are trying to do, and from too many of our attitudes being quite out of date and unrelated to existing life and its real pressures. Everybody keeps saying that higher productivity is the key to solving all our problems, and I agree. But by higher productivity I certainly do not mean longer hours at work. I mean more output by men and women while they are at work. This will have to be achieved by better management, perhaps above all by better management, and I say that as a manager; by better organisation, better training, better communications, better work; by technical innovations and better equipment. This is a concept essential to the whole complex of economic and social relationships in a modern industrial society.

There can be all sorts of opinions about how far the quality of life in a modern society should be sacrificed to material advantages. The trouble is that if we want the material fruits of this modern industrialised world we have to pay the price and accept the discipline. Without higher productivity trade unions risk having the wage increases they obtain made useless, either by inflation or by reduced employment. I am not talking about the short-run and the present squeeze. Industrialists risk potentially crippling industrial disruption if they resist the understandable pressures for increasing wages; or, if they do not resist them, they risk their product becoming so expensive that they cannot cover their costs in competition with more adaptable producers abroad. And the Government have to face the consequences of all this in terms of damage to the standard of living, and to employment and the balance of payments and public confidence and stability.

Noble Lords opposite argue that financial incentives should be the main means to higher productivity, and of this I am far less certain. Of course, there should be a valid relationship between what people earn and what they produce, but it should be a recognisable and a just relationship. How can anybody argue that there is a recognisable relationship between productivity and reward of, to take a random alliteration, bankers and brewers, busmen and builders labourers, bookmakers, booksellers, barmen and the Beatles; or directors, dustmen, dockers, draughtsmen, donkeymen, dukes and dairy farmers? How can anybody say what the relative value of their productivity is?

In any event, what evidence is there that men and women do in fact react directly to financial incentives by producing more? I am sure that there is a stage where the absence of reward is demoralising, when the gain is not worth the candle, but that is a very different thing from preaching that financial carrots automatically generate higher productivity from labour and capital.

There are always some people who will be greedy for money and will do anything for it, as there are people who are greedy and intemperate about all sorts of things—power and prestige, food, sex and drink. But I suspect that profit and financial incentive as the sole and universal motive is an illusion of temporate salaried economists. In fact I believe, and my belief comes from the evidence of my own experience in running businesses, that training and understanding and a sense of security and confidence are all far more likely to lead to good jobs well done, to better work and higher output, than the carrots of financial incentives, and the stick of fear of unemployment. Fear is always a destructive motive. This was the point the noble Lord, Lord Reay, was making and people who talk about sticks and carrots, if not donkeys themselves, seem to assume that the rest of us are.

My Lords, I am not pretending to be egalitarian. How could I without hypocrisy? Although I am convinced that poverty can and should be stamped out in Britain, and extremes of wealth and poverty removed. Of course, I am not saying that everybody should be paid the same. Scarcity of talent, exceptional skill and endeavour, social and scientific significance, hardness of work, should reap special and just rewards. But I am saying that it is no good a company chairman, like myself, going on about productivity unless management play their full part in achieving it; and unless there is a valid and visible relationship between productivity, its rewards, economic growth and social justice. I believe in social justice, but I do not believe that there is this visible relationship at the moment. I think that our whole industrial, commercial, financial and professional structure is at fault, rooted, as it is, in other times and manners. As my noble friend Lord Snow implied, it must be totally incomprehensible to nine-tenths of the population of this country—indeed, the evidence of our economic ills suggests that it is totally unintelligible to everybody.

We really are in a state of advanced schizophrenia about the purposes of our society and the means by which we want to achieve them. For instance, there is the obsessive abuse and the obsessive defence of profits. Of course, profits are an essential, integral part of our economic system, but this obsessive abuse and defence encourages people to think that there must be some deep, eternal conflict between businessmen, supposedly intent on maximising profits at the expense of all other considerations, and everybody else seeking a sensible, pleasant, civilised society. This is absolute nonsense. Anyway, is not the corollary of the profit-maximising businessman the trade unionist similarly fighting for maximum wages?

It really is extraordinary that the worker's place simply does not exist in company law at the present moment. It is not recognised. And in a fully employed society, unless we establish the worker's place, how do we expect a sense of participation and co-operation? Without these, investors will not get their profits, customers will not get service, and the country will not get the efficiency, productivity and economic growth that are so desperately needed. This is why the Government should look radically at company law. And this is why the Government are rightly striving to inspire more fruitful understanding and more constructive confidence about the role of business and all who work in it.

They are doing this through taking a leading part in trying to develop the system of economic development committees, to which the noble Lord, Lord Cooper of Stockton Heath, referred. I wish somebody could think of a less asinine and more edifying nickname for them than "Little Neddies". I am chairman of two E.D.C.s for the construction industry, building and civil engineering, and they provide an admirable forum in which representatives of management, professions, trade unions and Whitehall (in alphabetical order) can meet in a neutral, non-negotiating atmosphere, under an independent chairman; a forum in which they can frankly and freely express, explain and discuss their hopes and fears, their plans, problems and policies, all to the end of the greater efficiency and productivity of the industry concerned, in a climate of growing understanding and confidence. And this is no confrontation with everybody in prepared and heavily defended positions. This is no juggling with jargon. This is a continuing process of dialogue between the various human components of the great industries which comprise the national economy. This, surely, rather than indiscriminate sticks and carrots, is what the country needs. And this dialogue will surely help to re-create our confidence in ourselves and in each other, and so to rediscover our role in the real modern world.

Finally, the noble Viscount, Lord Eccles, had his merry joke when he kept challenging us to stand up, if we thought, or did not think, something about the Government. Of course, the Government have made muddles and mistakes—who or what Government have not? Look at all the muddles and mistakes that were made during the war—but we won it! The selective employment tax, while it was a bright idea, is thoroughly ill-thought-out and ill-planned in practice. But the corporation tax has made a logical and desirable distinction between a corporate company and its shareholders; and the capital gains tax, which seems to me socially equitable, has plenty of reputable precedents abroad.

The Government have at least tried out new ideas. They have experimented. I think that one of our great failings is that we have stopped being able to be an experimental society. Whitehall's fear of precedents is, I am afraid, largely to blame for this. But if I were asked to stand up to show that I believe that the Government are sincerely trying to get our society and our economy right; that they are striving imaginatively to find new ways of doing it; that they are doing it, and that they are more likely to succeed than their predecessors and cannot conceivably do worse, I would steadfastly stand up. Unless I sit down at this point and so be misunderstood, I would only add that I am sure that, in the present crisis, the Government had no alternative between the thoroughly unpalatable package they have presented to us and devaluation. And devaluation must be a nonstarter. But I hope that the Government will continue to have the courage of their convictions in tackling the underlying causes of the crisis, in cutting overseas expenditure, in actively examining the role of sterling as an international reserve currency, in drastically changing company law, in restricting imports, and in giving priority to productive investments, especially investments in exports. I personally get most worried when I feel that the Government are having the courage of Tory convictions.

5.56 p.m.

VISCOUNT MILLS

My Lords, we are asked to take note of the economic situation. I expect that most of us have been taking note of it for a very long time, and certainly since a Socialist Government came into power towards the end of 1964. We are told that through Tory misrule there had been a heavy deficit in the balance of payments and that the present Government had been left to handle it. We are not told that through Tory rule taxation had been lowered, production had increased and that the rise in exports had been very great.

It is true that there was a serious deficit in our balance of payments, but that was part of a world malaise. The world was experiencing a shortage of money, a distrust of money, and ever-rising interest rates. No doubt we felt it more severely than some other countries, due to the nature of our trading, but we had ample reserves and drawing power to enable our own trading deficit to be met without too much anxiety, whilst measures could be considered for dealing with what, after all, was a world situation and with our own situation. However, as we know, the Government felt they had to take some action at once and we had an immediate increase in the standard rate of income tax, an increase in petrol taxation and the import surcharges which caused such consternation amongst our partners in the European Free Trade Association.

I was interested in what the noble Earl, Lord Swinton, said to the effect that it was part of the duty of the Opposition to criticise if they felt that Government measures should be criticised. I think that this was rather misunderstood on the Front Bench opposite. I agree with the noble Earl that it is only part of our duty. It is our duty, too, to be as helpful as we can and to be as constructive as we can. I should like to repeat what the noble Lord the Leader of the Opposition said on July 20 in commenting on the Government's proposals which were announced that day. He said this: My Lords, it is the duty of all of us, in all Parties, to support the Government in measures which will remedy what is obviously a serious situation; and in so far as these measures which have been announced will achieve that object they will have the support of noble Lords who sit on these Benches. But, my Lords, it is always difficult for those of us in Opposition, and not in full possession of all the facts, to know exactly how bad the situation is."—[OFFICIAL REPORT, Vol. 276 (No. 40), col. 467; 20/7/66.] I am fully in agreement with that statement. But I would add that, consequently, it is also difficult to be as constructive and helpful as one would wish, except by commenting on the principle which seems to me enshrined in the Government's proposals for dealing with the situation.

The Government, in their many attempts at solving the problem, have made it clear that they are relying on restriction at home and abroad to get us out of our economic problems. With that course, I must say, I disagree. There is no happy and prosperous future which can emerge out of restrictions. It is not a permanent remedy. At best it can only tide us over, and, as we have experienced before, the trouble will recur. We seem never to learn from our experiences. Is it sensible, for example, constantly to interfere with the home market of our biggest export industries? How can the motor industry, for example, plan their productive schedules and costs if their basic, home market is altered by Government action? I have spent most of my life in business, constantly striving to build up overseas markets, because I know that the development of business in those markets, including manufacturing there, makes for greater exports from this country. But restriction has to be the rule here, too. Do we want to see our activities shrink to the compass of these islands? I am sure we do not. But that is the danger.

Now restriction is to be the order of the day in relation to wages and salaries. I know that we are to debate this subject on Wednesday, but it is part of our economic policy which we are discussing this afternoon. This attempt at restriction in regard to wages and salaries used to be called "the guiding light". It is now re-named "the norm", but it is the same thing. I, personally, was always against that idea. I considered that it would prove inflationary, as opposed to wage adjustments related to production and productive efficiency. The last Conservative Government tried this. It did not work. The present Government have been trying it too, without success. They now propose to continue this light, but to dowse it for a time and to substitute a barrier. I see much confusion arising, not only among the operatives, but also among the salaried staffs—technicians, engineers and so on.

It is our duty to try to meet the Government's desires, and to work their plans, if they are workable. But what will the situation be if we freeze remuneration, as we must; if our leading men in industry, who only have a scale in their own industry, are tempted away by the offer of higher remuneration, perhaps for a slightly different job than that which they are doing? As I see it, the proposals in the White Paper will not prevent the payment of a higher scale for a different job or on promotion. And that is right. But men and women are human. Will they be prepared to stand still and see others rewarded? I am sure that the proposals spring from an honest desire to meet the present situation. I am equally sure that the idea behind them is that of social equality. But does the average man and woman really want social equality? Do they not rather want the opportunity to get on, to shine before their fellows, and to improve their own wellbeing and the comfort and advancement of their families?

When we had our brief discussion on the Government's measures on July 20 the noble Marquess, Lord Salisbury, asked if the Government had any proposals for dealing with situations such as the seamen's strike, or for preventing such a situation from arising again. The noble Earl the Leader of the House, in my view, did not reply to the question, but suggested that a particular strike could not be used as an argument for dealing in some revolutionary way with the whole trade union movement. The noble Marquess, in my view, had not suggested such a course. But the reply shows how touchy the Government are on the subject of attempting to deal with the direct ills in our industrial economy from which we are suffering.

Everyone knows the immense danger to production and to harmonious working which occurs from strike action. Surely we have a right to expect the Government to formulate plans to prevent these occurrences, whether they are the fault of management, of the unions or of men acting unofficially. To be fair, the Government have tried hard to get union co-operation to end this state of affairs. They have been patient—perhaps too patient. But it should not be possible, in this struggle to preserve the value of the pound, for the Government to be subject to actions which make their task infinitely harder, and that in consequence we should all have to suffer.

In general the Government have followed the well-trodden path of restraint. That path has been followed before but has led only to a temporary relief. The only difference is that this time the restrictions are much more severe. They may give confidence to foreign bankers: we want measures which will give confidence to us that we can go forward and, with a slight touch of the brake where that is necessary, keep on our way to increasing prosperity. I do not believe that restraints show that way.

The noble Lord, Lord Gladwyn, in his speech last Thursday drew attention to what he describes as the fundamental question, namely, that of an increase in productivity and an increase in exports. I said in the debate on manpower initiated by the noble Lord, Lord Byers, in your Lordships' House on May 11 that far from being short of manpower in the productive industries, in my view there is a surplus of manpower, and that has been mentioned also by other noble Lords. I said that the selective employment tax would not help labour to be used more efficiently but would probably have the opposite effect. There has been time now to consider every aspect of this matter and my view has not been changed. I would join with those who would urge the Government to abandon this measure and to substitute an employment tax right across the board. It is significant that even those who might benefit financially from this tax have no praise for the selective employment tax, with all its anomalies and promise of confusion and unfairness.

There has been a certain amount of criticism in this debate, and I think my noble friend Lord Conesford showed us that we can criticise too. That is one of the burdens that Governments have to shoulder. But there has also been a certain amount of constructive suggestion. The noble Lord, Lord Francis-Williams, delivered a very helpful speech last Thursday and drew attention to the continual pressure upon the pound as an international unit of exchange in a situation where liquidity is getting less and less. Lord Melchett's speech was framed round constructive suggestions designed to aid balanced expansion and better productivity and to bring about an increase in earnings and a reduction in personal taxation on both earnings and savings. That is the direction in which we should be planning to go when the present clouds of restraint have lifted.

6.14 p.m.

LORD LEATHERLAND

My Lords, I fear that we are in great danger of becoming a nation of naggers and grousers. I suppose it is only natural, but it reminds me of what Mr. Selwyn Lloyd said when he was asked how he tackled the Tory economic crisis of 1961. "It is more difficult", he said, "if you are being blackguarded by the Opposition all the time." Now, we have had a long debate, and a good-natured one, and I want to try to keep it so. This is a very serious subject. There must inevitably be many points of view, and it would be hopeless for us to try to reach any degree of unanimity. Before I go any further, I must say how delighted I was to hear that inspiring and constructive speech by the noble Lord, Lord Campbell of Eskan, who sits on these Benches. It was worthy of a great captain of industry and commerce, and I shall read it assiduously in the morning.

I must say that it was a pleasure to have heard, too, the noble Lord, Lord Beeching. Some of the things he said (not all of them, in my view) seemed to be running on the right lines—that is, if he has left us any lines at all to run on. On Thursday we had what I thought was a delightful speech from the noble Viscount, Lord Chandos. He put forward what was perhaps an unorthodox remedy; I do not know whether it is the official Party line but it was that passionate passage from King Henry V before Harfleur: Once more unto the breech, dear friends, once more; Or close the wall up with our English dead. Of course, that might have been one way to prevent English visitors to the Continent from spending too much currency in France. But I really wish that he had gone on a little further down the stanza, where the poet says the 'noblest English …sheathed their swords for lack of argument.' That might not have been inappropriate for this debate.

The noble Viscount, Lord Eccles, accused the British people of diminished moral standards. He called for a puritanical spirit. His Party were going to give the lead and set an example. That rather shook me, because it was his Party that introduced wholesale casinos into this country; it was his Party that set up thousands of legalised betting shops; and it is his Party which this morning is suggesting admitting children of sixteen into pubs to drink whisky. It was supporters of his Party who invented those secret investment trusts so that directors could use shareholders' money to speculate on their own behalf. It was supporters of his Party who devised the ingenious system of bond washing to dodge taxation. It was the leader of his Party who introduced the new era of materialism with his "Never had it so good" speech. If that is what Tory puritanism means, then thank goodness I am not a Roundhead!

The noble Viscount also alleged that we have increased Government expenditure. Of course we have; it is a bigger country, a bigger population, and with bigger responsibilities. But he did not remember to tell us that in all the thirteen years of his own Government expenditure went up year by year and, as Mr. Quintin Hogg said a couple of days ago, if anything the spending under the Tory Government was too much. When we tried to save some money by reorganising defence, the Conservatives opposed us and actually urged us to spend more. He also complained about his inability to ascertain from Ministers whether they thought the package deal would work. He said he had to go outside because he could not get the information from the proper quarters. Well, let me go outside, too. First of all to the Financial Times which says: This is enough to right the payments balance. To the Investors' Chronicle which says: Though unpleasant it is right. To the Stock Exchange Gazette which says: There is good reason for believing these measures will really work—that they will be the beginning of a permanent cure for the basic economic problems which have prevented Britain from advancing steadily in the post-war world. And, of course, I can go to another outside source, President Johnson, who said: Britain is blessed with a gallant and hardy leadership. In its Prime Minister she has a man of mettle whose firmness and leadership have inspired us deeply. Then the noble Lord, Lord Carrington, the leader of the Opposition, made, I thought, a responsible speech, quite in keeping with his dignified office. It was, of course, interlaced with one or two backhanders. At one stage he passed on to us some secondhand advice from the Sunday Times, that we should put our house in order. There is nothing more correct than that. Incidentally, I do not like Britain being referred to by inference as a disorderly house. But that is just what we are doing now, trying to put the national house in order; and it is rather retrospective counsel to come from him when you remember the £800 million deficit with which his Government left us. Then he said house subsidies should not be given to people who are not needing them. I agree with that. It is already the official policy of many Labour-controlled councils. But what about the taxpayers' money that is being paid out in subsidies to the owners of stately homes?

My Lords, we cannot have a sliding scale of morality here. What is good for one should be good for the other. Then the noble Lord challenged us on what new proposals we had for entering the Common Market. That really was the pot calling the kettle black. The best time to have entered the Common Market was at the beginning, and what did his Government do? They entered into negotiations, and then they withdrew from them before the signing of the Treaty of Rome, just the same as they entered into negotiations for entering the European Coal and Steel Community and then withdrew from them. So now we get a new slogan from the Tory Party: "Don't do as we do: do as we say".

Finally, the noble Lord urged us to read his Party's Manifesto. On one page it says: Our new economic programme will make a prices and incomes policy really effective". Well, George Brown needs all the allies he can get; I am glad he is going to have some on the Front Bench opposite. And, of course, while the Conservatives are repeatedly complaining about the increase in the cost of living, this Manifesto, to which the noble Lord the Leader of the Opposition referred, proposes a big tax on imported food. That means higher prices and higher wages to keep pace with them, and what will happen to the incomes and prices policy then, poor thing?

Unlike Mr. Selwyn Lloyd, I do not say that the Opposition have been black-guarding us—we are too polite in this House—but Mr. Heath came very near to it in Bexley a few days ago when he called the Government policy a tatty ragbag of old ideas, a botched-up package of half-baked measures. That was not so bad, but it was quite obvious that he had not sought the advice of Mr. Selwyn Lloyd, who said: "These measures will do the trick in the short-term". So we have to pay our penny and take our choice.

What is it we are considering in this debate? We are considering a great nation; a nation of over 50 million people, physically strong, sturdy in heart, psychologically sound; a nation that single-handed waged war against a powerful enemy during a most critical period; a nation that pioneered the industrial revolution and which, in more recent times, has helped to take a lead in electronics, hovercraft and jet propulsion; a nation which split the atom, and 22 of whose scientists have received Nobel prizes since the end of the Second World War; a nation which is exporting goods and materials to the extent of £5,000 million a year in the face of world wide competition; a nation which has faced and overcome crisis after crisis in the past, under both Labour and Conservative Governments.

We are, as has been said, the world's biggest exporter of tractors and lorries, of telephone and telegraph equipment, of vacuum cleaners and washing machines, of cotton yarn and thread, woollen textiles, rubber tyres, radioactive isotopes and even bicycles, cameras and pianos. We have the world's second largest industry in aircraft, office machinery and oil refining; we have the world's third largest industry in glass manufacturing; we have the largest clothing industry in Europe, the largest paper and board industry in Europe, and whilst we are exporting 16 per cent. of our national income every year, Japan is only exporting 10 per cent. and the United States of America only 4 per cent. And there was this year, in the first five months until the seamen's strike intervened, a 9 per cent. increase in our exports over the corresponding period last year. So I think those people who are trying to cry down Britain ought to learn another tune. The fact is that at this moment Britain is fighting the world's economic battle as well as its own, and we are fighting it under the worst possible conditions, because of the deficit which we inherited of £800 million—but I do not want to make a political point. So although there are millions of prosperous and carefree and fully employed people they have yet to realise that they are living partly on borrowed money, and that the rats are nibbling away at the bottom of our hayrick.

At this moment Britain is suffering from a malaise; one that has hit nearly every industrial country in the world: bank rates are rising, inflation is troubling many nations and credit squeezes are being imposed. In Germany, where wages have risen twice as fast as they have here during the last two years, an even fiercer squeeze is being imposed. There is therefore a shortage all over the world of money to finance an expanding volume of world trade and, at the same time, to keep reserves at an adequate level. This shortage of liquidity is embarrassing everyone in every country, and because we are not only a gigantic trading nation ourselves but also bankers financing all kinds of multilateral deals besides the simple, direct sales and purchases on our own account, we are exposed to the combined blizzards of scores of nations when anything happens to go wrong. We become the orphans of the storm, So unless we fortify ourselves with some adequate reserves, this storm will continue to blow round our heads—our national heads and our international banker heads—with increasing severity.

So far as we are concerned internally the trouble is that there are two things basically wrong. We are consuming more than we produce, that is to say, we are spending more than we earn. We are importing too much as compared with our exports. So the balance of payments swings on the wrong side, the pound comes under pressure and our reserves go down; and they will continue to go down month by month and year by year unless something drastic is done. We must build up our reserves, and we must do it quickly. We cannot go on living on deficits, as the Tories ought to have realised in 1964 when they incurred that deficit of £800 million.

One trouble of trying to carry on a huge world business is that we are trying to do it on too small a working capital. Sterling is not only a trading currency, but a reserve currency for the sterling area. Our normal £1,000 million balance which we hold is not enough, especially when part of it happens to be mortgaged, borrowed, money. With £1,500 million free of mortgage we might be capable of shouldering our own responsibilities and those of the sterling area. We should certainly feel more comfortable than we are at the present time, but we should have to take care, I think, that these bigger reserves are handled in such a way as not to inhibit the expansion of world liquidity. We should have to become lenders instead of borrowers: lenders through an international organisation, or some other new organisation which may be set up to deal with this question of world liquidity.

I sometimes wonder whether we really gain or lose by being the world's second reserve currency. Are we trying to do too much, with too little? Is the sterling area banker role really a cuckoo in our nest? This role can certainly bring good profits. It gives us big influence, and it brings big export orders to our factories. But while we are doing this on too small a reserve, it means that when a wind blows somewhere out in China our own domestic economy gets caught up in a typhoon. Traders start selling sterling to cover their legitimate commitments, sometimes sooner than they need; the whole business of leads and lags comes into operation, and this brings speculation and rumours and growing uncertainty. It is a disturbing thing to recall the damage that rumours can do. I sometimes wonder who starts them. Whether we are to cling to this world reserve role or not, whether we discharge these world responsibilities through the sterling area or through some new consortium, we can be safe only if we build up our reserves. But with world trade expanding, and the supplies of money not keeping pace with it, we must realise that a world currency role will be harder for us to sustain in the future than it has ever been in the past.

This problem of liquidity is really worrying the whole world. That is why it is a good thing that the Group of Ten and the I.M.F. are trying to find a remedy; and it is a good thing that our Government are supporting them in their efforts. I personally hope that a way will be found to enable British finance to go on lubricating the wheels of international trade as it has done in the past. But we cannot safely do that on borrowed money, as we are trying to do it now. The same arguments apply to the block export of capital. We have been averaging an export of £300 million for some years past, and in 1964 it went up to £423 million. It is a good thing to export capital if you do it out of surplus; it is quite a different thing when you try to do it when you are already yourself in debt.

It all comes back to the need for increasing our reserves, both to sustain our own economy on a stable basis, and to shoulder any international currency responsibilities that we might have. It means that we must increase our exports, reduce our imports, introduce stability into our own national economy, and stop the wage price spiral. First, so far as imports are concerned, the need to deal with this problem is growing more urgent as one import price after another keeps going up. The terms of trade have already started to turn against us. Incidentally, who brings these imports in? In the majority of cases I think they are private enterprise traders, but they cannot necessarily be blamed for that. Bans and quotas are certainly an attractive way of dealing with excessive imports, but at this moment, while we are walking a tightrope, I should not like to take a step which will provoke other countries into retaliation, particularly as both the I.M.F. and EFTA do not like quotas themselves.

Another thing that I think could be done to reduce some of our dependence on imports would be to try to substitute indigenous materials for some of the metals and other materials used in industry. Another is to cut down the waste in industry. As a result of incompetence in inspection and preparation, a great deal of material is wasted in British industry; and it is not only the material that is wasted, it is time and labour being wasted as well. I think we ought to give more attention than we do to the question of industrial salvage. Just take one example. If all the recoverable waste paper in this country were collected we could save £15 million a year in imported pulp. The wage freeze may possibly cut some of the wasteful consumption that is going on, and I think it will do so without seriously hurting anybody.

Now look at exports. Many of our factories are producing things which are quite inessential, and they are producing them at a time when many of our export factories are seriously undermanned; and if the freeze reduces the demand for completely useless articles, and switches workers into export employment, I think it will do the country a lot of good. Incidentally, some of these switched workers will find themselves on higher wage rates and in jobs with greater permanency. And this idea of switching is not a revolutionary one beyond the capacity of the Civil Service; the Ministry of Labour arranges 9 million new jobs for workers of various kinds every year.

I think we ought also to look at the useless ways in which many people are employed. Look at these buxom young ladies who dress themselves up as chickens, who come and knock on our doors and ask, "Have you had an egg for breakfast?" Look at the young ladies delivering coupons saying, "Three-pence off" this or that commodity. It is not only the waste of labour of the ladies doing the delivering; it is the waste of the printing and the paper. We have groups of girls dressed up as Dutch girls calling on housewives urging them to eat Dutch cheese and butter. We have people making plastic flowers for gifts. We have factories and merchants manufacturing and importing such socially useless things as "one-armed bandits". These are only a few examples.

I think that perhaps some increase in the present export bonuses might be good in some cases, although the grant of these bonuses would have to be very selectively arranged indeed. It might conceivably be that the export firms could get a preferential share of what is to become the S.E.T. premium. But the main thing is to increase productivity. The output per hour per worker is rising—there is no doubt about that at all; the official statistics confirm it. But it is not rising enough, and something has to be done about it. Winning exports is an operation in which price is not the only factor. Many of our exports are competitive in price, but how long they will remain so if we do not stop the price-wage spiral is quite another thing. What is more disappointing, and a bigger subject for us to worry about, is the fact that so many British manufacturers cannot keep their delivery dates and that some of them do not even attempt to do so. They reject an order outright without trying to execute what the export customer wants.

This, I think, is another reason why we want more men, more modern machines, and more night-shifts in export industry. Many of our factories are excellent, others are not. They have not the modern machinery, sometimes because the British machine tool industry has not been able to provide them with it. They are not adopting modern methods, and here they have no excuse because there is unbounded expert advice available to them, both through the "little Neddies" and through the firms of management consultants, who are doing a very fine job for British industry. I think this shortage of modern machinery can be blamed very largely on the British machine tool industry. They have been far too content with turning out traditional machines, and whenever a revolutionary machine was required they simply imported it. The machine tool industry is undergoing a radical change, largely due to the influence which the Government have brought to bear upon it. If new revolutionary plant is to be installed, that is expensive; it cannot be made to pay on the basis of one-shift working, and many more of our workers must learn to work night-shifts as well as day-shifts.

I come to a point mentioned very often by the noble Lord, Lord Conesford, that is, that we must get rid of the Luddites from both sides of industry. But it is not sufficient merely to denounce these people to find the remedy automatically. I think remedies can be found more easily if employers realise that when a man surrenders what have been his rights he should be entitled to some recompense. This can be done. It has been done by the Esso Oil people at the Fawley refinery; it has been done by the Shell chemical concern at Carrington, and it is about to be done by British Oxygen at several of their plants. I should like to go deeply into this question of productivity, but quite obviously there are others who want to speak and so I shall move on and say merely one more thing.

I think we have been carelessly walking a commercial and industrial tightrope for far too long, and the position has developed where only very drastic measures can put the economy fundamentally right. I am glad the Government has had the courage to take these measures. They will probably hurt for a time, but in the long run they will make life more secure for millions of people. We want an economic foundation sound enough to ensure that these crises will not be constantly recurring. As The Times said on July 10, There were similar crises before Mr. Wilson came into office. They arose out of a similar lack of confidence in Conservative methods. I want to add one more thing. I hope that Conservatives and Liberals, and the Press and television, even if they do not like restraint for its own sake, will try to restrain themselves in one direction, from repeating too frequently this word "devaluation". If there is one way to undermine confidence and to encourage speculation internationally, it is by the constant repetition of that word, and the creation in people's minds of the idea that it is a real possibility. I do not think this is the time to portray this country as a convalescent in a bath chair. I think it is a question of portraying us as a World Cup winner in vigorous training.

I think the Government have diagnosed properly the cause of our illness. I think they have prescribed the right medicine. It will not mean anything like austerity. Like many medicines, it will taste nasty, but in the long run I believe it will do Britain a power of good. And so, with a little patriotism, I shall take my dose as dutifully as I can.

6.42 p.m.

LORD CLITHEROE

My Lords, the noble Lord who has just sat down was good enough to say that he did not want to make any political points, and so I know he will forgive me if I do not answer those that he made. I shall spend no time in discussing the errors of the past, except in so far as they may help us as to our decisions in the future. I want to avoid repetition as far as I can and to confine myself to some positive suggestions.

As many speakers have already said, our present problem is to restore confidence, as this is a crisis of confidence. The prime cause of the crisis is excess demand at home caused by excess expenditure by Her Majesty's Government; added to it, I regret to say, a certain lack of confidence in certain of Her Majesty's Ministers. I will not describe the underlying malaise which was so well described by the noble Lord, Lord Beeching, in his admirable maiden speech. We need courage and we need character; we need brains and we need judgment. Lest I forget to say so, I acknowledge that Her Majesty's Government have shown great courage, though I do not believe that the Ministers concerned have shown good judgment.

What then should be done now? The first and obvious step, to reduce demand at home, has been taken, and it will result in a severe deflation if these measures are carried through. The credit squeeze will be the most severe we have had, and the banks which, as noble Lords know, are limited in their advances, will be put in a difficult position in the next few months; and some of their customers will be in a still worse position. It should not be forgotten that the 105 per cent. of advances which the Government instructed the banks not to exceed included export credits. I think that is a point that should be borne in mind.

The measures that have been taken, in my judgment, important as they are and effective as I think they will be, have not got a proper balance. Much more current home expenditure should have been cut and much less taxation imposed. That is my opinion. The estimates for Civil Votes for 1966–67, which I have here, are above £6,000 million as against less than £5,000 million spent in the year 1964–65. One noble Lord said that every Government since the war had increased its expenditure; but this is an enormous increase in such a short time, and there is scope for cutting in that expenditure.

THE EARL OF LONGFORD

My Lords, may I interrupt the noble Lord? He knows the Treasury much better than I do, but I am quite sure that those figures are not comparable. Perhaps when I reply I shall be able to comment on that.

LORD CLITHEROE

Not comparable with what?

THE EARL OF LONGFORD

I will deal with that in more detail when I reply, but I am quite sure they are not comparable.

LORD CLITHEROE

Well, my Lords, I shall reinforce myself by turning to page 71, which shows the ten-year table in a summary, and it is followed by the tables which cover each particular set of appropriation accounts. Perhaps I may lend them to the noble Earl after I have finished my speech, in case he has not got his copy with him at the moment.

I am not going to make a speech now outlining all the reductions in expenditure that should be made. I can give to the House and noble Lords one or two illustrations. For example, in Class 6 there is £600 million, and that includes a number of items which I think should be dealt with, such as charges for medicines and so on. Then I think about the nationalised industries which really cost us a lot of money. Those noble Lords who were in this House or another place at the time the Bills to nationalise industries were passed may recollect that those Acts contain a clause that the accounts should be balanced taking one year with another. Several of us said at the time that this was a rather vague phrase. If one looks at the accounts one will find that the nationalised industries have lost a great deal of money. We have got to stop that. We have to get them all back on to a basis of not losing money. Some of them have been put on to a basis which appears to be better than it really is. There is the coal industry, which is supported largely by large taxations on oil to prevent competition with coal. I mention nationalisation only in order to say: "Don't nationalise any more, because if you do you will find there are so few sources of revenue coming from private enterprise that they really will not be able to pay the bill for the losses of the industries you have nationalized".

Then, when we look at the Administration itself, there seem to be a great number of Ministers. For instance, the Treasury, which now is divided into two, the Treasury and the Department of Economic Affairs, consists of seven Ministers, who are doing the work which, when I was in the Treasury, two of us did. Seven as against two is a big increase. I do not say that the whole of that increase is due to the present Government. Previous Governments have made some increases, but Her Majesty's present Government have made a great increase by creating this new Department. I think that the sooner it comes to an end the better it will be for everybody.

Now I want to say a word about taxation. This is a subject in which most noble Lords and most people in the country are interested. We have got ourselves into a most ghastly muddle and, as Lord Shawcross in his admirable speech the other day reminded us, a learned judge recently said that the complexity of our tax system was such as not to be tolerated in any civilised society. I agree very much with that learned judge, and I believe that most noble Lords agree. Almost every business decision, and I have to be involved in taking quite a few, is now delayed and frustrated by tax complications which occupy the time of many of the most able men in the country; and, what is more, they have reduced the conscientious and hardworking men in the Department of Inland Revenue almost to despair.

On top of all the horrors of last year's Finance Bill, we now have the selective employment tax, which even the noble Lord, Lord Campbell of Eskan, does not like. That is a tax which penalises commerce, the very section of the economy which is earning a vast amount of foreign currency, for example in banking, insurance and in the tourist industry; and it subsidises over-employment in industry which is one of the major causes of our stagnant productivity. The Prime Minister himself recognises the need for a "shake-out" of labour, as he calls it, and at the same time the selective employment tax is imposed which creates an immense amount of work and has exactly the opposite effect of what is needed. I beg Her Majesty's Government to scrap the selective employment tax.

I should like to replace it and to replace its necessary deflationary effect by cutting down current expenditure and borrowing by the amount which the tax is designed to bring in. Other noble Lords who have spoken—the noble Earl, Lord Swinton, and the noble Viscount, Lord Mills—thought that it ought to be scrapped but that it might be replaced by a non-selective payroll tax. That would be much better than the tax we have got, although I should prefer to do it by cutting down the expenditure.

As to taxation in general, at present it is a very great disincentive to earnings. I believe in high productivity and high wages and in incentives both to workers and to work-providers, who are just as important, to do their jobs. We want people to be able to earn more, to make more profits, and if possible to spend less. What do we do? We tax them savagely on their earnings. The object should be to tax consumption rather than earnings and give everyone the maximum incentive to increase output.

Now a word about trade unions. I was lucky enough for two years in the war to work as Parliamentary Secretary under Ernest Bevin. I was also lucky enough to spend a year of my life as a member of a Royal Commission with the noble Lord, Lord Citrine In those periods I had quite an opportunity of being educated about the trade union movement, apart from the fact that I come across it a great deal in my life in industry. Of course there is need to alter the law with regard to trade unions, and much has to be done—but we cannot wait until the Royal Commission has reported. But I know this: that you must strengthen the hands of the responsible union leaders and the law under which they work. The noble Viscount, Lord Chandos, in his speech suggested two reforms, and there are others of which we are aware and which can be considered. Let us never forget that these trade union leaders and leaders of industry are able to help us only if we consult them. You have to consult them and convince them that your measures are wise. Remember that they, in turn, have to convince their members.

Can you wonder that the leaders of industry are mad at the imposition of a tax like the selective employment tax, on which they were never consulted at all? Can you wonder that the leaders of the unions are deeply distressed by some of the aspects of the White Paper on the prices and incomes standstill which we are to discuss on Wednesday? We all know that wages have been allowed to run away, and that deflationary measures should have been taken sooner; that is common ground. We know that it is essential to call a halt; the Government tells us that and we believe it. It is quite another thing—and a panic measure—to legislate to compel employers to break the solemn undertakings they have given to workers in respect of agreements already made. Nothing would shake confidence more in industrial relations, and it is confidence we now need so badly.

I know what a desperately difficult problem this is, but I beg Her Majesty's Government to think again. I warn Ministers of the danger of what they propose and the powers they seek. You do not increase confidence abroad by breaking your promises at home. I do not think our foreign creditors abroad will be impressed if we break promises which we have made to people in this country—in fact, I know they will not. What is more, I do not know that they will very much appreciate Her Majesty's Government seeking the powers of a dictator which they are seeking in that Bill which we are discussing on Wednesday. What we need are leadership, education and incentives. The time has really come for all men of good will to work together.

6.55 p.m.

VISCOUNT HALL

My Lords, being somewhere near the "tail-end Charlie" of a large list in a two-day debate does not give me much room to add anything of substance. I should like to bring out two or three points which I feel should be dealt with almost immediately. First of all, I should like strongly to support my noble friend Lord Snow in his view that we give our thoughts not to the history of past ills, but to the diagnosis and treatment of the present one.

The essential problem is that, after many attempts at a cure, the country is still painfully adjusting to the situation created by a total war in which we were forced to sell all our foreign investments, and yet we are still left to run an international banking and trading system, but this time without adequate backing. Those investments must be re-established and the fundamental need before us now is to restore the internal health of our industrial orientation so that we fit into the pattern of large international units which are developing in the world around us. In all seriousness the value of the notes in our pockets comes not from Mr. O'Brien or his successors at the Bank of England. Without this country's foreign earnings they would mean no more than the pieces of paper which change hands in the parlour game of Monopoly. In the rounds of comparatively generous wage awards unrelated to foreign earnings we have simply been playing the game of Monopoly with each other for far too long. We have become so engrossed in the game that we have ignored the real life creditors at the door and failed to bring home real money to justify our living standards.

The consequences have been, and are, serious. Many who have stood loyally by sterling through its earlier crises have lost faith and withdrawn their long-term deposits from London. But this is the calibre of confidence that, once lost, is not easily regained. We must justify its revival by our own awareness of the new scheme of things and by an all-out practical effort. We must not mince words and must look upon a redeployment as involving unemployment. While I deplore it as sincerely as anyone in this House, particularly the personal hardship that would be involved for many, I fear that it is the only way now of making effective the wage and price freeze, the pursuit of which I wholeheartedly endorse.

But while I endorse it, I regret that it has become necessary. This Government have been engaged on a unique experiment, which I have supported—an attempt to correct the basic structural faults of the economy while maintaining full employment—and it is tragic that this fundamental social experiment has failed; that instead of the adult cooperation of all concerned in industry, we have had wages surging ahead whilst production has remained almost static. Instead of pursuing the quest for higher productivity against the industrially tranquil background of a full employment base, we have now got to achieve it in an atmosphere where the chances of industrial unrest are increased.

I hope—and with due accord to Mr. Frank Cousins's union which has not been backward in reaching productivity agreements—that the new circumstances will not change the attitude of union leadership. But the real fear which I have is that the wage freeze is bound to harden the attitude of the rank and file on the shop floor, and harden their attitude against their union leaders most of all. Therefore, I feel that Government must be aware of the need to support a realistic union lead now as never before. I hope that my noble friend the Leader of the House will consider with his colleagues the need for an order restraining, by other means as well as by a money penalty, unofficial strike action for the duration of the wage and price freeze.

Mr. Dean Acheson once gave considerable offence when, speaking in terms of international politics, he—to my mind, quite rightly—said that Britain had lost an Empire but was in danger of failing to find a new role. We stand in danger of this thesis being applied particularly in the industrial field. The protected, unsophisticated markets of the Commonwealth belong now to the history books. The Lancashire cotton industry is still undergoing agonising contortions, but Lancashire is not an isolated example of the failure to adjust to the new circumstances in time. The whole of the European shipbuilding industry is now having to learn the facts of life from the Japanese, and my noble friend Lord Leather land has warned us of the problems in the machine tool field. We at Westminster have had to learn to live with modern practices—British manufacturers can no longer afford to take refuge in the past, nor can their employees.

One cannot attempt now to apportion blame for the persistence of over-manning, low productivity and restrictive practices, though I feel that a more aggressive and professional management approach would never have allowed these industrial malpractices to flourish as they have done. But, in spite of all this, industry as a whole in this country—which, after all, has been exporting more than ever—must be encouraged more clearly than ever by Government leading the way. Government can do this by two practical incentive actions now.

First of all, it stands to reason that if a man is to be redeployed he must first be discharged, and that under our redundancy legislation many employers, particularly under the present conditions of an increased credit squeeze, are quite unable to meet the capital cost involved. In present circumstances, therefore, should these provisions not be put into temporary abeyance for the duration of the freeze? I strongly commend this action to my noble friend and I hope that he will find it possible to reply to this point.

Furthermore, I cannot see a lasting increase in exports arising solely from repeated exhortations from Government. Those exhortations are bound to pall, particularly in the face of a period of income standstill, and, with due deference to the noble Lord, Lord Clitheroe, I urge that all those in export industry, from chairmen to apprentices, who are contributing positively to our overseas earnings, should from now on receive practical, direct and personal recognition of their fresh achievements.

The key word of this problem now before the country is "exports". In the Queen's Award to Industry we already have a symbolic form of national appreciation, and I propose that this form be given immediate practical substance. Let the Government allow every employee of a company winning the Queen's Award a remission of one-third or even more of personal income tax in the following year, and the voluntary redeployment of manpower to the award flags of the exporting industries will be achieved within weeks. The British spirit will be shown greater than the British pound and, what is more, the balance of payments turnround will astonish not only us but all our foreign doubters. I stress this proposal with the complete and immediate urgency it deserves.

7.8 p.m.

LORD ALPORT

My Lords, it is inevitable and right that in a debate of this sort, on an occasion of this sort, those who address your Lordships' House from the Government Benches or from those of the Opposition should take care to pour an occasional libation before the altars of their own Party gods. I thought that the noble Lord, Lord Leatherland, and my noble friend Lord Conesford were particularly generous in their offerings in this respect, and I was surprised at the beginning of his speech to hear how careful the noble Lord, Lord Campbell of Eskan, was to pay a proper tribute to his political gods. It was to me, however, reassuring, knowing his reputation in the world in which he works and has made such a contribution, to be able to agree with a large part of the middle of his speech, which I think would have common acceptance throughout your Lordships' House. It was however, as we all noted, probably right that he should continue to pour a little more of the sacred wine of Socialism before the altar, at the end of his speech, in case anything he said in the middle passage might outrage the deities.

My Lords, those who have followed the course of your Lordships' debate on Thursday and to-day will have been struck, I think, by the underlying sense of unity which exists in your Lordships' House, and this encourages me to make a point which, although I do not think it will have or command acceptance widely, or perhaps at all among your Lordships, is one in which I profoundly believe. Within the next ten or fourteen days Parliament will pass into law a series of measures the effects of which, we are told and can well understand, will be more far-reaching than anything previously enacted in peace-time. Their effect, among other things, will be to delay or deprive individuals throughout British industry, and throughout the country in every section of our community, from receiving the legitimate expectations of their industry and toil. Some of the measures which are going to be passed run directly contrary to the policies enunciated by the Labour Party at previous Elections, and for which that Party has stood for many years. They run contrary, equally, to the policies of the Opposition.

The fact that the Trades Union Congress has acquiesced does not mean that those policies and their effects, as they begin to develop throughout the whole nexus of British industry, will be acceptable to individual unions. The enforcement of the provisions of these measures that are going to be enacted is going to put an intolerable moral strain upon the Government, upon the Parliamentary Party in the House of Commons which supports them and upon wide sections of their supporters in the country. The complications inherent in the administration of these measures are bound to lead to unforeseen results, to injustice beween individuals, which cannot at the present time be guarded against and which probably, when the time comes, will not be able to be put right by administrative action. If the Government are, as they say they are, determined to govern and stick staunchly to their purpose as formulated in these measures, they are bound to be subjected to pressures which over a period of months must destroy and undermine their political morale. Whereas, on the other hand, if they immediately start to adjust or mitigate these measures they will he regarded as weakening, and will soon become prey to widespread agitation and pressure from every group whose interests are adversely affected by the policies which the Government have pledged themselves to enforce.

I hope that the noble Lord, Lord Mitchison, will not regard it as a breach of confidence if I recall that he said to me a few months after he became a Minister that he had come to the conclusion that this country was impossible to govern. At a moment of crisis, of crisis acknowledged on both sides of the House, such as we are facing at the present moment, it is possible for a Government to put through Draconian legislation. It is possible to obtain a consensus in the nation springing from alarm, and sometimes a consensus within a Cabinet resulting from exhaustion. But the crisis atmosphere in which we are living at the present moment will not and cannot be sustained indefinitely.

People who to-day feel that they will acquiesce in what the Government are doing will get bored and restless and anxious to be relieved of the pressures upon their expectations which Government policy is occasioning. What will happen, may I ask, if there are in the spring of next year, say, 500,000 people in this country unemployed—temporarily, perhaps—and mostly in the industrial constituencies represented by Members of the Labour Party in the House of Commons? And if there is no increase in unemployment, can the policies of the Government, restrictionist in character and purpose as they are, be seen to succeed? And if one or the other happens, can they avoid undertaking hastily a policy of reflation to take the place of the present policy of deflation? And if that is undertaken by the Government prematurely because of these pressures, is it not inevitable that, in a space of twelve months or so, this country will once again be facing a new balance-of-payments crisis, with devaluation as the only course open to us?

Some of the things which the Government are doing today are right and should be supported, and anybody will acknowledge the courage with which they are undertaking their task. Some of the things they are doing are wrong and will be opposed (whether in this House or in the House of Commons I cannot say), but in the country over a period of time. But, right or wrong, I do not believe that a Party Government representing and engaging the loyalty at a General Election of less than half the nation can, in the circumstances in which we find ourselves at the present time, restore the confidence either of the world in Britain or of the British people in themselves. In my view, this is not simply, or even primarily, an economic and financial crisis: it is basically a crisis of government. The political pattern of Britain, many of our Parties' most hallowed prejudices and traditions, are to my view out of date; and we are at the present moment at the political watershed from which a new political dispensation in Britain during the second half of this century is bound to flow.

What I mean, simply, is this. Neither a Government dependent upon a Labour majority in the House of Commons nor a Government dependent upon a Conserva- tive majority in the House of Commons, each faced with a determined and powerful Opposition ready to exploit a developing political situation and to undermine the political and moral stamina of Minissters and rank and file alike, can carry through a sustained programme of national reconstruction. During the years 1956 to 1964 the Conservative Party was drained, as a result of the impact of events, of idealism and intellectual vitality. The same will happen to the Labour Party under the impact of events and the developments and consequences of its policy which will flow from the decisions that have been made hurriedly in the circumstances of crisis during the last few days.

The Labour Party will never again be the same Party as Mr. Wilson led to victory in 1964. And if I may say so—and whether this is a tribute or a criticism I do not know—because of the particular psychology of that Party the consequences of these pressures will be quicker and more far-reaching on them than they were on the Conservatives in their time. In my view, the time is passed when what is called so derogatively the "English sickness" can be cured either by the benzedrine of "You've never had it so good", which failed in the past, or the cascara of "purposeful Socialist planning". I realise that memories of the 1930s, honourable and life-long loyalties, prejudice and perhaps self-interest as well, all contend against the emergence of a Government of national reconstruction. But—and I think I follow here one of the points made by the noble Lord, Lord Snow—unless this country is to surrender itself to an authoritarian régime, either of the Left or of the Right, I believe that such a Government is inevitable and will come into being in due course.

I invite your Lordships to consider the dramatic effects outside this country which the emergence of such an Administration in Britain, representing a United Nation, would have. Consider how quickly our relations with Europe would be transformed and also with the United States. Consider the authority which such a Government would be able to exercise over the internal situation here in Britain. Consider the certain upsurge of confidence in the political and financial future of this country. Consider the impact which such an event would have among the Commonwealth countries where the institutions of democracy are disintegrating under the impact of faction, tribalism and personal ambition. We all know here in this Chamber, we know in this country at large, that the people of Britain are not work-shy, that our young people are not decadent. We do not need to be lectured by the French or moralised over by the Swiss, or patronised by the Americans, or coerced by countries whose very existence derives from Britain's statesmanship and restraint.

I believe, by our own efforts, we could within a short time shake ourselves clear of the embarrassments and difficulties of our present situation. I realise that such a process would involve all of us in the sacrifice of many long-standing prejudices and points of view. I know that, although the unity of this nation in this way might last for only a relatively short time, as it has always in the case of past conditions, those sacrifices would be worth making and the results would be to the interest of our nation.

7.24 p.m.

LORD DOUGLAS OF BARLOCH

My Lords, I do not propose to follow the noble Lord in his interesting prognostications. I want to come back, if I may, to the essential economic argument upon which we are engaged. One thing of course we are all agreed about, perhaps with a slightly different emphasis, and that is that our economic affairs are in a mess. But the important question is why they are in a mess, or what are the ultimate causes of this difficulty from which we are suffering. We hear time after time, and I have listened to or read most of the debates which have taken place either here or in the other House, statements that we are suffering from paying ourselves too much, from a prices and wages spiral, from incomes outrunning productivity, and so on.

But these are merely phrases which describe the symptoms of the trouble. They do not explain why the trouble has arisen, and I find it very difficult in the measures which the Government have proposed to connect them with any basic thinking about this problem. Indeed, the latest set of measures which are to be debated in this House on Wednesday appear very largely to be based upon the theory that our troubles are all caused by original sin; that it is because the work-people of this country and the employers and manufacturers are naughty and irresponsible and are the cause of the increase in wages and the increase in prices which have taken place. After all, when a price is paid for anything, be it for labour or for services or for a commodity, it is paid because somebody is willing to pay it and he thinks it is worth his while to pay it.

It is true, of course, that, in a condition in which you have a monopoly, the monopoly can control to a certain extent the price which is paid by restricting the supply of the service or commodity which is offered. It may be to a certain extent that the bargaining with regard to wages in this country is influenced by a form of monopoly when you have a trade union with a million members or so confronting a united body of employers. The result of that kind of bargaining, I suppose, is apt to be somewhat uncertain; but, even so, employers as a general rule do not pay wages which they do not feel they are able to pay, nor do people buy commodities at prices which they consider to be totally uneconomic.

In the statement made by the Prime Minister on July 14 he referred to the increase in the bank rate and he mentioned the lack of liquidity abroad. I do not gather that he implied that there was any lack of liquidity at home. Indeed, that would be entirely contrary to another measure which he announced at the same time namely, that the special deposits of the bankers to the Bank of England were to be doubled. That is a means of reducing liquidity, a means of reducing the amount of circulating credit; and personally I think it was right. But it is only a temporary measure. In its nature it can be no more than that. The special deposits will be released sooner or later to the banks which provided them, as has happened on previous occasions. Therefore, this affords no permanent solution.

By liquidity I understand—although this is a phrase which is used in very loose ways—the circulating means of payment, which consists, on the one hand, of the coin and notes which are provided at the instance of the State, and, on the other hand, of the credit which is provided by the bankers in order to carry out exchanges. It is undoubtedly the fact that the amount of bank credit available is dependent on the amount of currency which is put into circulation at the instance of the Government.

My Lords, let us look for a moment at what has happened in this respect in recent years. In 1938, the last pre-war year, the average amount of currency in circulation was £446 million. In 1946, the first post-war year, it stood at the figure of £1,340 million, almost exactly three times as much. It became increasingly evident that it was impossible to reverse this inflation. Nor was it possible to maintain the parity of exchange between sterling and the dollar which existed at that time, and the result was that in 1949 devaluation took place. I think that was right and inevitable, and I defended it at the time. The position continued after that more or less stable for a time.

In 1951 the average circulation was £1,302 million, a little less than in 1946, but after that it began to rise steadily, year by year, and in May of this year, the last figure I have seen published of the average circulation, it had risen to £2,628—that is to say, more than twice as much as it was fifteen years earlier. The consequences of that are inevitable. That is the reason why the prices of everything, including wages, have been bound to go up; and if, after some temporary pause, the inflation of the currency continues as before, sooner or later there will inevitably be another devaluation which, my Lords, will not solve anything if we then resume exactly the same path as before.

To my mind this is a very serious situation. I am not imputing in this blame to any Party. It has gone on with the acsquiescence or approval of both Parties ever since 1951, and I know that there is a school of thought which says that it is absolutely essential that we should have a continuance of inflation in order that there should be economic growth. That is a proposition which I entirely deny. What happened in the Victorian era and up to the outbreak of the First World War? This country's trade and industry expanded constantly. It was the workshop of the world. It provided capital for development in foreign coun- tries all over the world, and the ships of this country provided for the carrying of commodities from country to country. That was achieved upon a practically stable currency without any inflation at all. I am, of course, aware that there were many economic troubles and that the standard of living was not as high as it is at the present day; but the increase in the standard of living has been brought about not by inflation but by the inventiveness, the skill and the hard work of our population; that is the only reason for it.

In a country in which economic change is taking place, and in which economic change is bound to take place, probably with increasing speed because of the accumulation of technical skill and the rapid development of inventions of all kinds, it is inevitable that certain trades and occupations will decline and others will rise up to take their place. When that happens it is also inevitable that a certain number of people will be temporarily unemployed. This is a problem which is capable of being, dealt with. Steps have been taken to ease it in one way or another. There are the redundancy payments, for example, and the schemes for retraining and redeploying labour. Indeed, as the human being is infinitely adaptable and capable, it is much easier to redeploy labour than to redeploy capital which has become obsolete because of changes in the direction of production. In many cases that capital is in adjustable and must be lost for ever. That is the price which has to be paid for economic change, but it is a price so far as labour is concerned which, given such help and understanding, can be reduced to small proportions—a price which in the end will enable labour to earn higher wages and further raise the level of remuneration of the population generally.

But I once more return to the point that we have to stop the inflation which has been taking place year after year in this country. It does not make for the benefit of the population. It does not make for real economic progress. It may induce spurts and starts, and then stagnation afterwards. It may very easily induce speculation which will divert the direction of investment into channels which appear temporarily to be advantageous but which are permanently detrimental. In my opinion, it is entirely a mistake to suggest that inflation has any desirable consequences at all, and it certainly has some very undesirable ones, because the victims of inflation are those who, economically, are the weakest in our society. They are the persons who have saved and retired, the old-age pensioners and others who have not any longer a commodity or a service to sell and who are unable to profit from the increase in prices which takes place, but have to suffer from it.

Therefore I repeat once more that I hope every effort of the Government will be devoted to dealing with the basic causes of this trouble. I do not disagree with the necessity for temporary expedients in order to tide us over the present emergency, but they are at the moment only temporary expedients, and I do not know yet—I hope we shall know in time—what permanent measures the Government propose to deal with this problem.

7.40 p.m.

VISCOUNT MASSEREENE AND FERRARD

My Lords, I want to try to be constructive, but first I must blame the Government for having deceived the electorate at the General Election. I cannot understand why this crisis has caught them in such a condition of un-preparedness, because the factors leading up to it have been with us for the last twenty years. To my way of thinking, it is largely owing to the false doctrines of Socialism, which to some degree have pervaded the thinking of all political Parties. We have seen that Socialism has ruined the economy of many countries throughout the world, and we see that to-day it has come near to ruining our own economy. What is inflation, in political terms? It is only a form of bribery indulged in by professional politicians (with due respect to any professional politicians in your Lordships' House) to gain power by deceiving the electorate. 'They tell the electors that they can have more and more in terms of money for doing less and less. To-day we see the chickens coming home to roost.

I said that I would try to be constructive. To some extent I agree with the present measures, because we are in a grave crisis. But of course they are temporary measures, and what I am worried about is what are Her Majesty's Government going to suggest in their place when they are taken off, as presumably they will be? Are we going to have more Socialism? If we are, then we might as well dispense with these temporary measures, because they are only going to prolong the agony. We might as well give up the ghost.

One of the great problems that the Chancellor of the Exchequer has to face is excessive home consumption—in other words, excessive spending. The other day a friend of mind who had been round some council houses on an official visit told me this story. He went into one house and said to the housewife, "This is a nice house you have got. I hope you are contented". She replied, "We have our two televisions, a deep freeze, a 'fridge' and a hair-dryer. It is extremely nice, but we have one problem. We can't spend it." He said, "I don't understand you". The housewife explained, "The trouble is that there are a few of us working in this house and we have £80 cash coming into this house every week and we can't spend it." He said, "You don't have to spend it. You can open a bank account and save it or invest it." "Oh," she said, "we can't do that. We are working-class people."

How are we going to cope with that? It is probably taking place in tens of thousands of homes. I agree that the Chancellor of the Exchequer, with his temporary measures, will cure that to a certain extent, but they are probably not strong enough. I wonder whether we cannot have some form of compulsory saving. This is only a suggestion. I personally think that it is hell being an employer in this country, and I am contracting out of it as fast as I can. But I would suggest that employers could deduct so much from employees' wages, which could be placed in a savings account for them. That is one suggestion to try to cut down on excessive home spending. The high bank rate will not cure it, because these people do not have bank accounts. Of course, all these suggested cuts, which are no doubt necessary, are a negative policy. At the same time as these cuts are being made, we have put through a new Social Security Bill which, in its first year, is, I understand, to add £60 million to the burden carried by the Exchequer. I should have thought that we could have slightly cut our social services. We ought to reimpose prescription charges. It was rather cowardly of the Government not to do that.

We have heard a great deal about productivity, but are the Government willing to give industry the means of increasing productivity? I doubt it, because to do that they would have to throw away a great many old-fashioned, out-dated ideas of Socialism. We have heard in this debate that we have over-full employment—what I call bogus full employment—three men doing the work of one. I put 90 per cent. of the blame for this on the restrictive practices of the unions. I have come up against them personally on the shop floor.

Government Departments and local councils are extremely wasteful in their use of labour. The other day a friend of mine was working up at the Belsize roundabout and saw fourteen council men coming to cut the grass on the roundabout, which is about a quarter of an acre. He said that it was a great embarrassment, because quite a few people were jeering at the men cutting this grass with all the most up-to-date machinery. They took the majority of the day to do this. The onlookers were saying facetiously, "Don't work too hard", and that sort of thing. This appalling misuse of labour by Government Departments, and generally by authorities, adds to the difficulties of this country in raising its productivity.

We all know what is wrong with the economy, but the tragedy is that nobody appears to have the guts to correct it. If only we could increase our productivity by 4 or 5 per cent. our troubles would be over. And it is extremely easy to raise productivity. I have had a factory, and I know how it can be raised. All you have to do is to employ fewer men working the same machine, or the same number of men working slightly longer hours, or to improve the machine. The Government make the excuse that output is held back by shortage of labour and by shortage of machines. But this is not true. I know of factories that have very modern machinery, but their produc- tivity per man has not increased at all in comparison with the capital invested in the machinery. I put new machines into a factory, and one of the workers sabotaged a machine worth about £8,000. I agree that the unions are against all such actions and would not back a workman up in such behaviour. But that is one of the human problems that we have in this country which make things so difficult.

Of course, nobody wants unemployment; but we certainly cannot afford to have over-full employment. If we are going to continue with over-full employment, then we have not a hope, and we shall not win export markets. One of the greatest difficulties that I have encountered is overtime. I should like to see all overtime done away with. We have a 40-hour week, and after allowing time for tea-breaks and that sort of thing you can say that it is about 36 hours. The trouble is that a number of workers—not all of them, by any means—during their working hours scrimshank. They go slow because they are anxious to earn a lot of money by doing overtime; and if you have to pay out a lot of money on overtime your goods are not competitive. As I say, I should like to see some arrangement whereby we could do away with overtime. The average worker does not want shorter hours; he merely wants to earn more money by doing overtime. Perhaps we could have something like—I cannot think what to call it, but, say, a nationally recognised working week of so many hours. If the Government, in consultation with the unions, arranged every six months or every year, according to the productivity of the country, to say the national working week should be one of 50 hours or 55 hours—and workers would not be forced necessarily to work the 50 or 55 hours, but they would have the opportunity to do so—any hours worked over 40 should be completely tax free. This would be a great incentive. Then, as the productivity of the country improved, the Government, in consultation with the unions, could bring down the amount of hours and could raise the rate per hour. This is only a suggestion. But we must do something, because otherwise we shall go from bad to worse.

The other day a bank manager friend of mine told me of a young man to whom he had granted an overdraft in order that he could start on some construction work involving bulldozers. He was employing quite a number of men. But he has had to sell his machinery because he found that he could earn more working as a labourer on a building site shovelling sand. He is taking home £30 to £40 a week with overtime, and he has no responsibilities at all. Soon I do not think there will be any employers left. Perhaps that is what the Government want; they may want the State to take over everything. But if the State takes over everything and does not make a profit, then we shall be in a real mess.

I should like to take up the noble Lord, Lord Campbell of Eskan, on one or two things he mentioned. He said (I hope I am not misquoting him) that he did not think the Government, or British Governments, experimented enough. Well, it is all right if you are going to experiment with your own money; but for Heaven's sake do not experiment with mine! This is quite a point. The noble Lord also said—and again I disagree with him—that he is all against having more productivity if it means longer hours. If by this means we shall get out of a jam, then I think we should have longer hours, but once we are out of the jam and we have better machines we can have shorter hours. Of course, we have invested a tremendous amount of capital in new machines, but it has not always done the trick. The noble Lord, Lord Reay, pointed out that the import of machines into this country was up by 20 per cent. last year.

The noble Lord, Lord Campbell of Eskan, also suggested that workers should be incorporated in company law; and perhaps he has a point here. But I should also like to think of them becoming shareholders, perhaps somehow through this compulsory saving. If only they could become shareholders in the factories where they were employed they might work that much harder. If we are to survive as a nation, we must really throw away all these out-dated, out-worn and old-fashioned Socialist theories, otherwise I cannot see any hope for us.

8.0 p.m.

THE MARQUESS OF READING

My Lords, at the concluding stage of a two-day debate, I feel rather like the wicket- keeper being sent in to bat. No one expects him to hit any runs; he must just try to keep his end up for a decent period before returning to the pavilion. I can assure you that my innings will be a brief one, but I hope I shall manage somehow to carry my bat.

Looking back on this long and exceptionally interesting debate, I think that of all the words of wisdom to which I have listened perhaps those which most clearly accord with my own views were uttered—no doubt with noble Lords opposite and their friends in mind—by the noble Lord, Lord Francis-Williams. I sometimes think, the noble Lord said, that what we have developed is a genius for financial madness. The crucial question, in my submission, is not so much whether the quantitative impact of the combined measures introduced by the Government—their totality, as the noble Lord, Lord Kahn, I think put it in his most informative maiden speech on Thursday—will be adequate to meet this critical situation, but rather whether sufficient weight is being given to what I might call the psychological aspects. We have the productive resources, human and material, with which to surmount this crisis, but they can be fully developed only with proper leadership and competent administration.

If your Lordships can cast your minds back so far you will recall that the noble Lord, Lord Shepherd, in the course of opening this debate deplored some of the things that have been said and written in the newspapers, and he maintained that they had been a factor, though he said not the main factor, in the difficulties in which we find ourselves at present. With respect, I suggest to the noble Lord that this is really putting the cart before the horse. It reveals an approach which I believe is symptomatic of the Government and at the root of much of our trouble. It is much more likely that these articles reflect than that they disturb overseas opinion. It is no good emulating the ostrich and trying to ignore what people upon whom we are so heavily dependent are saying and thinking about us. Informed overseas opinion is all too well aware of the predicament in which we find ourselves. I fear that it is the people of this country who are unprepared for the shocks that may be in store and it is they who will have to bear the brunt.

If I seek briefly to draw attention to and some unfavourable inferences from the Government's record, I do not do so in any spirit of recrimination but rather because I profoundly believe that they are highly relevant to our present discussion. We shall not find the way out of our predicament if we do not examine how and why we came into it. A further question must arise in these grave times. If incompetence on the part of the Government has to any material extent been responsible for getting us into this grave situation, are they likely to have the capacity to extract us from it? Surely we are entitled to ask, why has this situation been allowed to deteriorate to this critical level before any really determined effort was made to stop the rot? Why, despite the severity of the steps which the Government are now taking and their oft expressed determination, re-emphasised by the noble Lord, Lord Shepherd, to maintain the existing parity of the pound, is anxiety still being expressed about devaluation?

Can we wonder why doubts persist when almost from the moment they assumed office this Government have bungled one move after another? It all started in the late autumn of 1964 when the then Foreign Secretary, accompanied by the President of the Board of Trade, precipitated a run on sterling by the alarming reports with which he sought to justify the import charges to our partners in E.F.T.A. This introduced a new factor, the crisis of confidence to which the Prime Minister referred shortly afterwards in another place. It has been simmering ever since and more recently has shown all too menacing signs of boiling over.

I do not underestimate the difficulties and delicacy of the problems which this Government inherited, but I do say that with a modicum of competence they should never have been allowed to develop into a crisis of these dimensions. We were promised purposeful, modern, dynamic, planned management of the economy. What have we seen but irrelevance, incompetence and improvisation? Even when they have hit upon a sound and constructive idea this Gov- ernment have shown themselves hopelessly incapable of putting it into effect without creating muddle and chaos on a monumental scale. This I believe results from their apparent inability to foresee the repercussions and practical implications of the decisions which they make. "If"—and it is a fairly big if—"we get the principle right, the administrative problems will sort themselves out", seems to be the dubious assumption on which they proceed.

Last Thursday the noble Lord, Lord Shawcross, described the 1964 Finance Act as the worst drafted, most slipshod and complicated piece of legislation this country has ever seen. The noble Lord went on ominously to warn us that "there is worse coming". No doubt this foreboding will be borne out by the legislation which your Lordships will be considering later this week. There are many other examples which I could cite to support my contention were I not anxious not unduly to detain your Lordships at this late hour. The only consistent policy I can detect in the Government's record is their unswerving adherence to the Law of the Bungle. Nowhere has this been more in evidence than during the past three weeks. Was ever a Government caught more obviously unprepared? We are told that the deterioration in the situation was in part caused by the aftermath of the seamen's strike. But, my Lords, should not this have been foreseen? Was there any contingency planning? What directives were given to the economists and the planners enlisted by the Government into their service?

As a result, this country has now been called upon to endure the most severe dose of deflation to which it has been subjected for decades, and the tragedy is, first, that with more resolution, better judgment earlier in this year and during last year, the medicine need not have been made nearly so unpalatable; and, secondly, despite its harsh severity it has failed to dissipate genuine anxieties. The acid test to apply is simple enough. It is whether in the eyes of the world, and more especially in those of our creditors, we have at last come to our senses and are making an all-out effort to put the economy back on to an even keel. What impression must have been made abroad by the announcement last week, on the day when in another place this grave crisis was being discussed, that because Christmas falls this year on a Sunday we are to have a holiday on the 27th of December? Is this sort of attitude calculated to bring home to the people of this country the seriousness of the position in which we are? It contrasts glaringly with the suggestion made by the noble Viscount, Lord Chandos, on Friday that we should all work thirteen consecutive Saturdays. I hope that the noble Earl when he replies will be able to tell us whether the Government have any suggestions of this or a similar imaginative nature.

I do not believe that we shall ever succeed in persuading overseas opinion that we are in real earnest until we do two things, both of which have been advocated by many other noble Lords. One is to restore the prescription charges and so demonstrate that, however laudable and desirable, we cannot go on carrying the full and mounting burden of the Welfare State which we are financing largely on borrowed money. And at the same time the Government must at least postpone nationalisation of the steel industry, which in the present context is supremely irrelevant and which, as the noble Earl, Lord Perth, and the noble Lord, Lord McCorquodale of Newton, have so clearly demonstrated, is also positively harmful.

THE EARL OF LONGFORD

My Lords, may I just ask the noble Marquess, who is lashing about in an agreeable way, whether he has any particular proposals for cutting the Welfare State? Is there anybody he thinks is getting too good a deal now and ought to be cut down a bit?

THE MARQUESS OF READING

My Lords, I cannot have made myself clear. I did not suggest any further cuts in the Welfare State I suggested only that the prescription charges should be restored.

THE EARL OF LONGFORD

I thank the noble Marquess.

THE MARQUESS OF READING

My Lords, neither of these proposals need involve anybody in this country in any hardship whatsoever, if proper safe- guards are provided. The only casualties would be in the herd of sacred cows so lovingly and for so long tended by noble Lords opposite and their friends. At this stage of the proceedings they are a luxury the country can no longer afford.

May I, in conclusion, remind your Lordships of these words that St. Paul wrote to the Corinthians: If the trumpet give an uncertain sound, who shall prepare himself for the battle? We shall never surmount the problems that beset us so long as the Government continue to flounder in a morass of ineptitude and irrelevance and are incapable of providing leadership which inspires confidence at home and abroad.

8.12 p.m.

LORD ALDINGTON

My Lords, my noble friend Lord Reading said that he felt like the wicket-keeper going in to bat last and not being able to make any runs. I think those who have listened to him are well aware that he is more like the gallant kind of wicket-keeper who plays for England, and who is expected to make a long innings. I would congratulate him, if I may, on the forcefulness of his speech which, like other forceful speeches by my noble friends, has brought the noble Earl the Leader of the House to his feet. I suppose I shall feel rather impotent and weak if I do not succeed in doing the same thing during the course of my speech. The noble Earl, of whom we are all very fond, and for whom we have general respect, has shown a sensitivity which I think is rather strange on some occasions, and I hope he will forgive me if, in the course of my remarks, which I trust will not be too long, I make some comments on the conduct of affairs by himself and his colleagues.

Here we are, at the end of what, to me, has been a fascinating, a long, and not unexhausting debate. Those who are skilled at replying to debates in your Lordships' House which last as long as this will, I suppose, have steeled themselves against the rather vicious habit of wishing to argue with every single person who speaks. I suspect that the noble Earl himself has felt as I have on one or two occasions, and he, too, may have wished to argue with some of his noble friends, as I was prepared to argue with some of mine. I think this debate shows that it would indeed be an enormous pity if your Lordships' House were subjected to a restriction on the length of speeches. Some of the speeches of fifteen to twenty minutes' duration have been masterly in the lucidity and the pithiness of the point of view they were putting forward.

During the debate as I have listened to it, there seemed to be general agreement on both sides of the House that we in this country are in what colloquially might be described as "a mess"; a mess caused not by any foreign attack on our currency or any outside influence, but by ourselves. Furthermore, there is general agreement, I think, that the Government and the nation have crossed a watershed in the announcements of July 20 and in the following days, and that we are now beginning to face the facts. I think there is general agreement on those two points.

I suppose it is not wise for me to name the speeches that have delighted me most, though I am bound to say that I agree with the noble Lord, Lord Cones-ford, that of those made last Thursday the speeches of my noble friend Lord Robbins, the noble Lord, Lord Shaw-cross, and the noble Viscount, Lord Chandos, were pre-eminent; and to-day I should like to say how greatly I enjoyed, and how much I benefited from, listening to my noble friend Lord Swinton, to the noble Lord, Lord Clitheroe, and, perhaps, above all, to the maiden speech of the noble Lord, Lord Beeching. This, I think, was a maiden speech of particular distinction, of particular relevance and of particular power, from a man who the whole country has learned never says anything without good purpose, and never says anything unwise or silly. We should be wise to pay attention to what he has said. I wish to refer to his main point later on in my speech.

I should also like to add my congratulations to the other maiden speakers, to the noble Lord, Lord Kahn, whom it has not been my privilege to hear before (that may be because I was not educated in the right place), to the noble Lord, Lord Cooper of Stockton Heath, and to the noble Lord, Lord Fraser of Allander. If I may take one other speech on the Government side that I enjoyed and gained not a little from, it was the speech of the noble Lord, Lord Snow. It is the first time I have heard him speak from other than the Government Front Bench. I will try to follow his advice of self- discipline and restraint in criticism, but I have to face the fact that all I have to say will be, in one measure or another, in criticism of the Government and their showing of competence, or lack of it: and, indeed, I detected in his remarks to us some rather skilful criticism. He said that many people are just plain mystified. Indeed, they are. He emphasised the need for greater productivity, and said that no one nostrum is the answer to our problems. These last two points seem to me to be reminiscent of a letter I read from the former Minister of Technology, who was, of course, his master, namely, Mr. Frank Cousins.

If I may take the noble Lord's first point about people being "just plain mystified", I think one of our problems is that there is confusion. There is confusion in the mind of what is called "the man in the street" The man in the street includes managers, scientists, technologists, people working in offices and on the shop floor. It may be that since July 20 our people are beginning to understand more what has happened to us, but I think I should add that there are many people, not least my right honourable friend the Leader of the Opposition in another place, who have been Riving warnings about our position for many months. I should add, too, that there have been splendid, and splendidly lucid, leading articles in many newspapers, including the Daily Mirror, about our present position.

So one may ask again: Why is it that so many people are "just plain mystified"? I think the answer is to be found in the conflicting statements made by leaders of the Government.

BARONESS GAITSKELL

My Lords, I wonder whether I could interrupt the noble Lord for one moment? The reason why people in the street, like myself, are mystified, is because there is a difference between an economic crisis and a financial crisis. People like me understand an economic crisis, but they have no idea what a financial crisis is until they know about sterling and until they know about the balance of payments.

LORD ALDINGTON

My Lords, I understand the point of view put by the noble Lady. It is my case—and, I think, the case deployed by other noble Lords—that there really is no such distinction: they are all part of the same problem, and I think we delude ourselves if we try to find two kinds of crises. I think the noble Lord, Lord Campbell of Eskan, said (and I will comment on this later) that there was a balance of payments crisis and an industrial management crisis in regard to the management of our economy. I am bound to say—I may be quite wrong, but perhaps the noble Baroness will listen when I develop the argument later—I do not think that is right. The same fallacy I think occurred in statements made by members of the Government in the late 1940s, before Mr. Gaitskell was Chancellor of the Exchequer, when there was an attempt to say that there were two problems. It is my belief that it is all part of the same problem. I come back to this difficulty that the country and those of us in this House must have in trying to fathom what really is wrong when we get such contradictory statements made between Ministers and by Ministers contradicting their previous statements. I do not propose to quote. My noble friends Lord Conesford and Lord McCorquodale of Newton gave your Lordships some examples.

But over the months people have been led to believe that the economy was under firm and purposeful management so that they could be certain that the Government were keeping everything right and, if anything went wrong, they would put it right at once. People were led to believe that the Plan, because it had been announced, would be fulfilled. They were led to believe that the Prices and Incomes Policy was working when it was manifestly not. They were led to believe that it would be quite normal in our economy for us to run on an unemployment figure of 1.1, 1.2 or perhaps 1.3 per cent. And, finally, many people, not in the highest places but many of us, have been indicating this point on which the noble Baroness touched when she intervened a moment ago, that the fault facing the country at the moment is really the fault of attitude by overseas bankers, a fault in the system of the sterling area, a fault of international liquidity. And indeed the noble Lord, Lord Willis, came near, I thought, to excusing the Government and excusing Britain on this ground.

We are not wholly out of this confusion on the part of the Government. It is still difficult for people really to understand what is happening when we have the First Secretary of State, known to be hostile to deflation, making some extraordinary comments in the other place in the debate last week and now proposed as the dictator elect of the prices and incomes regulations, with regulations that are precisely the opposite of what the Prime Minister appeared to be promising in his Statement of July 20. All these are facts. It may be that noble Lords and the noble Baroness opposite and others elsewhere have their explanation of them. I adduce these facts in my argument briefly to comment again on the confusion in the minds of people.

What more can be done to make the country aware of our real problem? The noble Viscount, Lord Chandos, suggested we should work on Saturdays thirteen times a year. If the Government think that is a good thing no doubt they will say so. To my mind the most important thing is that the Government from now on speak with one voice, and one decisive voice, and show that they are going to carry out to the full and to the end the measures they have now proposed.

If I may turn to this question of confidence which has dominated so many of the speeches in your Lordships' House, if the restoration of confidence is our aim I think we should go right to the root cause of the loss of confidence. First, I think the root cause is our failure to right our balance of payments and keep it right over a period of years, and I give to noble Lords opposite that this has not been done over a period of many years since the war. And it is this failure first to right our balance of payments, which has been done from time to time, and second to keep it right. But the real problem to-day is the time that it is taking this country on this occasion to put its balance of payments in order, coupled with the now admitted failure to achieve balance by the end of the year, and coupled again with the collapse of the Government's principal economic policy aims, the prices and incomes policy and the growth of 4 per cent. These are the things that have got to be tackled and set right. It is certainly true that there are some of your Lordships who think, and so advise us, that they may find a solution of our balance-of-payments problems in the details of the balance-of-payments statement. This was Lord Campbell of Eskan's point of view, and that of some others too.

This is the argument which says that there are two problems, the financial problem and the economic problem. Those people tend to look at the imports, the cost of Government activity overseas, the cost of all forms of investment overseas, and to think that the matter can be put right by cutting them. I believe—I may be wrong, but I think experience shows that I am right—that the trouble is very different. Whilst there is obviously a limit, and that limit may not be constant, on the amount we can afford for defence, on the amount we can afford in foreign expenditure or other forms of Government expenditure overseas—and I agree with the noble Lord about the importance of aid—and there may be a limit too on the amount we can afford for imports, the real key to the balance-of-payments situation is the proper management of our domestic economy.

It would, I think, be the greatest possible mistake to look for recovery simply by cutting Government expenditure overseas. There I agree with the Prime Minister, although I may have some disagreement with him on the details. Incidentally, I thought that in his speech the noble Lord, Lord Willis, seemed in this respect to show less confidence in Britain's power to win the earnings to pay for this expenditure than I have. I agree with the Prime Minister, too, that it is right not to impose import controls. I think they do more harm than good. They have caused us more harm than good in the past, and I hope that, not only because of our international obligations but for other reasons, too, we shall not be driven to reintroduce them.

I think, too, it would be a mistake to look for recovery by ending the sterling area. This was mentioned by several speakers, notably by my noble friend Lord Melchett. I am not one of those who believe that the existence of the sterling area, or perhaps more important the wide use in the world of sterling as a trading currency, is a bar to our entry into Europe. I think indeed rather the reverse. Moreover, I think that both are an advantage to us economically in normal times. Nor do I think that today's crisis is caused basically by the existence of the sterling area or the use of sterling as one of the major trading currencies. It is, of course, true that when we get other things wrong the threat to us is enlarged because we are at the centre of the sterling system, but the basic cause is not the leads and lags, not the sterling liabilities, the difficulties of which are mitigated by the action of our friends in the Group of Ten, but simply failure to put our balance of payments into surplus.

I would add this. In so far as international liquidity requires improving, and I think there is strong argument for that, we are in a very weak position to persuade others to do what we want them to do until we have put our own house in order at home. That failure to put our balance of payments right is all the more serious because the expected improvement of the current account in 1965 really took place in the early months of that year and was not maintained. I think it is fair to my right honourable friend in another place, the former Chancellor of the Exchequer, Mr. Maudling, to reinforce what he has said, that this was much as he expected, and though the Government can take some credit for helping exports to increase, it does not entitle them to say that their management of the economy has itself led to any improvements in the current account at all.

Having stated what I deem to be the problem, I now come to the measures. On the short term, I agree that deflation is the right and apt remedy, and that devaluation is not the right remedy. I have no doubt about this at all. But even if I had come here with doubt, I think after I had listened to the noble Lord, Lord Robbins, I should have been entirely persuaded that devaluation is not right. I hope that this is a more powerful argument for resisting devaluation than the Government sometimes adduce from the Benches opposite, that it is wrong to talk about devaluation. It really is no good behaving like ostriches and hiding our heads in the sand and imagining that in this world in which we live, and of which we are an important part, people will not talk about devaluation of the pound. If we want them to have confidence in the pound, let us face the facts and let us be prepared to argue the matter with them. I have some friends and maybe there are some noble Lords here (though I have not heard them in this debate) who think that devaluation is right. There is the editor of the Spectator who writes frequently upon the subject. I think he is wrong, and 1 never cease saying he is wrong; and I am glad to hear that the Government still take, and I hope always will take, the same view.

Quite apart from the points that the noble Lord, Lord Robbins, made in this connection, it is, I think, right, as one other noble Lord at least has reminded us, that in general our costs are competitive now in the world. It is not our costs that have been keeping exports down (if one may put it like that) at a time when exports have increased greatly, much to the credit of industry and a little bit to the credit of the Government—I will give them that. The reason why our costs are competitive is that our main competitors have been inflating their economies as much as, and in some cases more than, we have. But the fear about our exports does not arise from the present position; it arises from the belief that our competitors are going to cure their inflation quicker than we are going to cure our inflation. I hope that this fear has now been put to rest.

But I much regret that this is not the only fear in the minds of foreigners. There is the other fear, which is not based upon speeches made here, nor upon articles critical of the Government written in newspapers, some of them newspapers which support the Government: the fear that the Government are not competent to run Britain's economy. For the sake of Britain, I hope that the Government will prove that that fear is unfounded. But I think it is a fear, and it is fear only that can be responsible for any rational idea that devaluation should be forced upon the pound.

Now to look at the measures themselves. I have noted that your Lordships' view generally is that these measures are harsh but they are necessary. Indeed, they are the harshest we have known. They would have been less harsh if they had been introduced several months ago; and they could have have been much less harsh if they had been introduced last year, so that our economy could have been got into balance then. But, for all that, I accept that the measures of deflation now introduced should be pursued. I suppose that no one outside the Government can say whether the precise amount is right, too much or too little. But on the point of the details within the package I share the view of my noble friend Lord Clitheroe in regretting that the cuts in Government expenditure have not been greater. I say that, not because I wish to do any harm to the social services as a positive wish, or any harm to any service carried out by the Government, but because I think that at a time when the nation itself is not expanding wealth by more than 1 per cent. or so each year—for that is what is happening now—it is wrong for the Government to expand its expendture by more than 4½, nearly 5 per cent., in the year.

The noble Earl will remember that this is a point I made in the last speech I made to your Lordships, when I pointed out that the whole of the National Plan had, if I may put it this way, "gone for a Burton". I must put it to the noble Earl: can he really justify this great increase in Government expenditure when the production of the nation as a whole is not increasing by as much? This does not arise from any prejudice against Government expenditure. I have taken part in Government and I have supported Governments when they have tried to expand our expenditure in education and hospitals, and have indeed led to a magnificent expansion over ten to thirteen years, and I should wish that to continue. But there must be, and the Government recognise there is, a limit to what can be afforded. From the point of view of those in industry who are struggling to earn the nation's wealth one has to remember that every bit of Government expenditure is, as it were, part of the national overhead, and, as part of the national overhead, becomes part of the overhead expenditure of each exporter and each manufacturer. Anybody who has worked in industry will know that there is a limit to the size of overhead.

I do not think that the noble Lord, Lord Campbell of Eskan, who spoke to us on the importance of the social services, need accuse me of wishing to "down" them. I think that now is the time for are-examination of the way in which our social services are conducted. This, indeed, was proposed recently by the Opposition, and I support it. I am merely saying that there is, and must be, a limit to the growth of our national expenditure. As to the importance of the cuts in investment, I noted what the noble Lord, Lord Robbins, had to say, and one must take that to heart, as I hope that the Government will. It is a mistake to discourage investment, particularly in the industries at the base of our economy, as most of the nationalised industries are.

But I would add this. Some people think that any cut like this in Government expenditure or in nationalised industry, or any cut-back in investment, is, by itself, going to retard the rate of growth over the years in front of us. Lord Robbins told us that that was not his view; that this need not be so. Some of your Lordships may have read recently an article in the Lloyds Bank Review, written by a Mr. Wilson (his initial is "T." not "H.") which establishes the fact that since the war it is not true that those countries that have most frequently had to deflate, that have had the most frequent "Stops" and "Go's" have been the slowest growers. Indeed, the fastest grower among the manufacturing nations of the world is Japan. This applies in recent years as well as over the whole period. Japan has been a country subject to the sharpest "Stops" as well as to the sharpest "Go's". So I do not think we need necessarily frighten ourselves too much that the particular fact of having deflated on this occasion will by itself slow up our growth in future.

Now may I pursue the noble Lord, Lord Robbins, into what I regard as the main point of our economic position—it is the point that attracted the attention of the noble Lord, Lord Beeching, in his maiden speech—the question of unemployment? There has been some discussion between us as to whether or not there is a shortage of labour, and whether, if there is, it is that which has caused our present position. I think it is certainly incontrovertibly clear that at present unfilled vacancies are in excess of the wholly unemployed total. It is also true that of the total of wholly unemployed, as the Ministry of Labour Gazette for April, 1966, shows, nearly 60 per cent. are expected to find difficulty in getting work for one reason or another. In common parlance, these people are called unemployable. I do not think that is wholly right, but one must take account of this advice from the Ministry of Labour Gazette. If, as seems prudent, one leaves them out of the figures of unemployed, one then gets a much clearer measure of the pressure in industry for more labour—that is, the surplus of unfilled vacancies over employable men who are at the moment unemployed. If one looks at some of the regions, one finds that at the date of that Report, unfilled vacancies in the South-East Region amounted to eight times the number of people available for employment. So on that occasion there was pressure for labour.

But if I may try to reconcile the two conflicting points of view in the House, it is also true that in simple terms one of the problems of British industry, perhaps the main problem, is over-manning; or, put another way, that the output per person compared with that of our competitors in the United States or in some parts of Europe is much lower than it ought to be or need be. The selective employment tax is based, apparently, on the assumption that there is no such reservoir in industry. Being based on that assumption, which is wrong, in my opinion it is a wrong tax and misplaced; and I agree with all the criticisms which have been made of it by many distinguished noble Lords in this debate.

But the question is how to cure this overmanning. I do not think we can cure it just by installing more capital equipment, because it is due more to the wrong attitude than to the lack of capital equipment. We certainly cannot cure it, so experience teaches us, by trying to run the economy too near full capacity. In fact—andwe must face this fact, as the noble Lord, Lord Beeching, has told us—there has been over-employment for a number of years since the war, and I agree with the noble Lord on the ills that he described so forcefully to the House which follow inevitably from this state of over-employment as a norm.

The noble Lord, Lord Robbins, had some important words to say about this. I will remind the House of what he said, because noble Lords opposite have on several occasions in this debate told us that they thought he made an excellent speech and that all of us, including them, should follow his advice. He said last Thursday, the first day of this debate: The fact is, in my judgment, that the use of capacity to-day as measured in terms of labour is so excessive that while it persists, unless we are willing to resort to complete regimentation and direction of the labour force, there can be little hope of redeployment of labour sufficient to meet the incessant incidence of change. It is impossible to achieve mobility with an army, almost every able-bodied member of which is already committed to action. So the necessity of adaptation to changing circumstances must involve, for those who are changing jobs, a brief period in which in the statistical sense they are not employed; and experience seems to show that this degree of adaptability is not to be secured with a use of the labour force much over 97.7 per cent. or 97.8 per Cent."—[OFFICIAL REPORT, Vol. 276 (No. 45), c. 954; 28/7/66.] This is his advice to us. The noble Lord, Lord Beeching, speaking with great practical experience and great authority, would have put the figure at 98 per cent.

May I ask the noble Earl who is going to reply what is the Government's view on this most important matter? Do they accept a figure in relation to a percentage of unemployment at which any wise Government should aim? If they accept that there should be a figure, do they accept Lord Robbins's figure, or what figure do they accept? It would appear from the debate in another place that the Chancellor of the Exchequer was trying to tell the other place that the measures he had announced would produce unemployment of between 1½ and 2 per cent.; that it would not cause hardship and it would really involve people changing jobs—in other words, that the additional unemployed would be very temporary, in the sense that they were moving from one job to another. But it is also true that the President of the Board of Trade seemed to argue that the measures would not lead to such a measure of unemployment and that in any case 1½ per cent. unemployment was quite enough. All this is a little mysterious and confusing. But we in this House have been faced with the formidable advice of one of the best economists the country has known, and we have been greatly impressed by his speech; and the formidable advice of one of the most practical leaders of industry of this century. Therefore, we should like to know what view the Government has on this important point.

So much for the short-term measures and the main subject of the debate. Noble Lords have also been talking in their speeches of the longer-term measures. If there were more time and if I had not wasted a little of your Lordships' time by going over old ground, I might have some things to say about long-term measures. The important thing for the long-term is that if the Government accepts Lord Robbins's point they must maintain that policy throughout; and, to be fair to the Government, when Governments have followed Lord Robbins's advice or something near, the balance of payments has been good, and when they have not the balance of payments has got into difficulties. I regard that as the very central point in the management of the British economy.

There are other matters which are perhaps to other noble Lords more important or possibly as important. There is the whole question of the direction of the economy by the Government. Is it going to be two-headed or one-headed? I think most noble Lords, certainly on this side of the House, must be of the opinion that the sooner we get back to one Minister responsible for the economy instead of two the better will the economy be conducted, and certainly the more easy it will be to explain what is happening to the country.

Then there are the questions about greater productivity on which the noble Lord, Lord Campbell of Eskan, said a number of things on which, in much humility, I would agree with him. I agree that greater productivity is not just a question of longer hours of work. Indeed, the whole point of the remarks which I made earlier tend in that direction. I agree that training and retraining—and this is an essential part of an economic policy that allows the economy to run at something around 2 per cent. unemployed—by management and outside are very essential and can lead to greater productivity. I am sometimes frightened when I see emphasis laid upon new machinery, automation, and so on, if the training and the thinking has not first been done, but I agree with the noble Lord, Lord Snow, about the importance of measures taken under his guidance and the guidance of Mr. Frank Cousins in that respect.

But, in the end, higher productivity will depend upon the enterprise and efficiency and freedom of thought and mind of the people running industry. Higher productivity will not be achieved by dirigiste management from Whitehall. It will not be achieved—and here I differ from Lord Campbell of Eskan—by a series of Committees, whether "Neddies" led by him or by anyone else. It will not be achieved under the wrong economic climate, and it will certainly not be achieved if the prices and incomes regulations—as indicated to us in White Papers and in the Bill which was courteously circulated to us—are turned into a permanent or semi-permanent par of our economic life.

There are many other matters in which we still disagree with the policy which the Government have been putting to us in recent months. I imagine that they have now to look at the whole of that policy again. After all, some of its main props have fallen down. But taking an even longer view, and coming back again to the point that there are two problems here—the financial and the economic—I should like to emphasise once again that the international liquidity, the moment at which we get into Europe, the future of the sterling area—all these things are important but they are not an excuse for failing to manage our economy properly at home; and to emphasise once again, too, that it is my belief that we are not likely to persuade others to act as we wish on the international liquidity front, on the sterling area front or even about getting into Europe, until we have got our house in order and shown that we can manage our own economy. It is with that hope, that the Government will improve the handling of the economy, that I wish to draw my speech, which I think has been a bit too long, to a close.

Perhaps I may add this. There are some people who think that the country is in such a mess that, as it were, our traditional forms of Parliamentary Government, of Parliamentary democracy, must be put in cold storage for the moment and that we must all get together and have a coalition. I, as noble Lords know, am speaking here from this Front Bench, but I am not a Member of the Opposition Front Bench; I speak for myself. I cannot think that, however difficult it is going to be to restore the confidence in Britain, and, within Britain, to restore the confidence of our own people, we need tear up our traditional form of democratic Parliamentary Government. I say to noble Lords opposite that, from my point of view, if they feel they cannot weather this storm, if they feel that they must be split in two, then Mr. Heath is there waiting with an alternative Government which will command the full support of the people.

8.53 p.m.

THE EARL OF LONGFORD

My Lords, if there is a more attractive and forceful speaker than the noble Lord who has just addressed us, I should be very glad to listen to him indefinitely. Until the last few words, I was going to join with him in making it absolutely plain that there is, of course, no question of a coalition. I am sorry to speak so plainly to the noble Lord, Lord Alport, who has apparently departed. I often sympathise with the ideas of the noble Lord more than do some of his colleagues. But here I want to make it plain that the issue simply does not arise, and I must make it plain to the noble Lord, Lord Aldington, that if Mr. Heath is, so to speak, a Lord-in-Waiting, or a Gentleman-in-Waiting, he is going to wait many, many years. By all means let him wait, let him study the job, and then perhaps in Valhalla he will be able to join us and discuss the matter. But I want to make it plain, since the noble Lord finished on a stridently Party note, that so far as we are concerned the idea of Mr. Heath taking over in the immediate future is quite fatuous. I cannot speak more plainly, 'but it seems to accord with the last few words which fell from the noble Lord opposite.

I agree very much with many things that the noble Lord said, though not all of them certainly, and I agree with him about the difficulty of replying to a debate of this kind in which there have been well over forty speeches, all of them interesting in different ways. But, mercifully, the noble Lord, Lord Shepherd, and the noble Lord, Lord Hughes, looked after the first day's debate most effectively for the Government, and with apologies to any noble Lords whose speeches were not fully answered that day—I have in mind, particularly, the noble Lord, Lord Grant Chester, because lately I failed to reply to him in another debate—I am afraid I must leave them, or most of them, for posterity, for the students of Hansard, and confine myself so far as possible to the speakers to-day.

There has been some little discussion as to whether it is in order to criticise Ministers. I am bound to say that it would never occur to me to refrain from criticising Ministers when I was in Opposition, and it would never occur to me when I was in the Government that anyone was going to refrain from criticising me. It would make life very tedious and I do not see any prospect of it at all. I was a Treasury spokesman throughout the period of the last Labour Government, and I was in the City while six Conservative Chancellors of the Exchequer came and five Conservative Chancellors departed in conditions of greater or less distress, and certainly at no time was there any suggestion in the country, or in the City or anywhere else, that these gentlemen should not be criticised. So we, certainly, cannot complain if there is criticism.

But there are, of course, limits, particularly in view of the task, in which I know noble Lords are interested, of rallying the country or assisting the Government to rally the country—a point which was made very clearly by various speakers such as the noble Lord, Lord Clitheroe, and in another way, although his speech on the whole was very critical, the noble Lord, Lord McCorquodale of Newton. If it is not impertinent of me to say so, we have after all sampled the joys and problems of Opposition for many years and we are familiar with them, and it is not quite easy for leaders of the Opposition to back up measures without criticising sometimes. But I am bound to say one thing to the noble Lord, Lord Carrington, who has so many claims on our respects and who, indeed, even in the last few days—if I am not embarrassing him by saying this—has been most helpful in all that concerns the Business of the House. When he said that the present crisis is solely and entirely the fault of the Government, I can only beg him to remember the old adage —in view of his brilliant speeches on other occasions—that the step is short from the sublime to the ridiculous. Every Member of this House knows perfectly well that that was an utterly absurd statement, not just thrown off but made deliberately and, if I may say so, it was a repetition of something which he said on an earlier occasion. The noble Lord is on the move?

LORD CARRINGTON

My Lords, I was just going to ask the noble Earl the Leader of the House whether he remembered, after the result of the Election was declared last March, that both Mr. Brown and Mr. Gunter said, "No alibis now".

THE EARL OF LONGFORD

Yes, but that is assuming a certain rationality among the critics. Everybody is perfectly well aware that much that happens in the time of a Government can be reasonably attributed to the Government, and much that happens cannot be reasonably attributed; and no one—and, certainly, no one who is as well informed as the noble Lord—supposes that every misfortune which befalls this country is due to the Government of the day. But having said that, I assure him that I am going to eschew the personal note unless I find the House getting so bored that I am forced to resume it.

In my eyes it was appropriate that the noble Earl, Lord Swinton, with whom I enjoyed a short misunderstanding which I am sure has now passed away, should have opened the debate to-day. I think I am right in saying that he and I are the only survivors in this debate, at any rate, of the first economic debate we ever had in this House after the war. I have been looking up the noble Earl's speech on that occasion and, if I may say so, it reads as well as his speech today. I cannot say anything fairer than that. But, certainly, in all these debates in this House over the last twenty years in which the noble Earl and I and others have spoken so often, we have been labouring—whether we were in the Government, or in the Opposition or in the Liberal Party or on the Cross-Benches—certain themes, such as the need always for more exports and, possibly even more, the need for increased productivity.

I am bound to say that, looking back (as I have done occasionally for one reason or another) to these earlier debates, I feel that the discussion on productivity here and generally is a great deal more enlightened than it was in those days. In those days, it was associated too often with an attack on the industry and the diligence of the British working man. It was not the noble Earl, Lord Swinton, but it was a great friend of his and mine who talked on one occasion, I remember, about "the collapse of the will to work". Any failure of production to expand was placed on the working class, and particularly the manual workers. To-day I think we have passed a long way beyond that point. It is now understood on all sides that productivity involves a united effort, a co-operative effort, among the employers, the employed, the Government and, indeed, the citizens of the country. That was brought out brilliantly to-day by someone well qualified to do it—namely, the noble Lord, Lord Campbell of Eskan. He laboured another point when he stressed the need for social justice as a basis of any real productive effort in unison.

I will not retaliate dialectically against the noble Lord, Lord Conesford, who was in his most vehement mood. He made that joke about social justice and social credit. It was made by me for the first time in this House in irony, but I have always found it fatal in public life to indulge in irony. I see it has now been assumed by the noble Lord, Lord Conesford, and used against us. Such is public life. At any rate, if the noble Lord wants to know what social justice is, I can explain it to him very simply, although I would not have thought he needed a child's guide to it. It means, simply, a fair distribution of the wealth of the country. That is not the same as justice in the ordinary sense—which, after all, involves obtaining a proper redress at law. So it means what I have just explained, and I think the noble Lord, Lord Campbell of Eskan, would be able to give the noble Lord, Lord Conesford, a masterly lecture on the whole subject.

At any rate, my Lords, productivity has been a common theme, and I am not going to say a great deal about it to-day. But I would, if I am in order—I am in the hands of the House here—when discussing this problem short-term and long-term, quote something, which seems to me very apposite, most penetrating and very concise, that was said by the right honourable gentleman, Mr. Maudling, in another place. It bears a little bit on the controversy which began to develop between the noble Lord, Lord Aldington, and the noble Lady when she intervened, although I am not saying that it refutes either of them. Mr. Maudling, if I am allowed to quote him (if not, I realise I shall be forced to paraphrase him), referred to the British economic problem as a whole, short-term and long-term, and said, on July 14: The short-term problem has always been bedevilled by two factors. The first is the exposed position of sterling as a reserve currency, with greater responsibilities than assets—an historic fact since the war—and the second is the tendency for wages to rise faster than productivity in an expansion."—[OFFICIAL REPORT, Commons, Vol. 731 (No. 54), col. 1764; 14/7/66.] So much for the short-term problem. Then he said: The long-term problem is different. It is to increase efficiency and productivity by higher investment and to remove the barriers to efficient output in industry. I think we can all agree that one could not get anything which sums up the whole situation more effectively than that; and I am glad to quote Mr. Maudling, partly because we all respect him very much and partly because it shows that, in this matter of diagnosis, there is no large difference between the Parties at the present time.

I hope the House will forgive me if I concentrate my own observations to-night on the short-term problem rather than the long-term one which. we have so often discussed. But before I do so, may I turn to one or two subjects which were raised in very striking ways but which I feel cannot be carried very much further to-night? The noble Lord, Lord Reay, the noble Earl, Lord Swinton, and other noble Lords raised the issue of the freeze on incomes and prices. I can only repeat what I said earlier: that, while these questions are, of course, inextricably linked with the topics we are discussing to-day, we are going to debate that area of matters on Wednesday, so perhaps I shall be forgiven if I do not go further along that line.

THE EARL OF SWINTON

My Lords, as I cannot be here then, I should be most grateful if the noble Earl would have a look in Hansard at what I said and would, in the course of that debate, give the answers which I think are very important from the productivity point of view.

THE EARL OF LONGFORD

I quite agree. I will not pursue the matter now with the noble Earl, although on one particular matter affecting strikes the noble Earl, if I may say so, was misinformed. But I will pursue that on Wednesday.

Then there was the whole issue raised by the noble Lord, Lord Campbell of Eskan, the noble Lord, Lord Willis, and other noble Lords, of our overseas commitments. Of course, that would be a nice subject for an hour's address in itself, but I will not attempt to deal with it now except to make one reply to the noble Lord, Lord Conesford—and as he raised this matter in a sharp, verbalistic way, perhaps he will allow me to reply in the same coin. He asked us whether we thought defence was a necessity or a luxury. I would say that certainly the defence of this island, in the narrower sense, is clearly an absolute necessity; but if you take our world-wide role, I would say that you cannot answer his question in the form he has posed it. You can only say that our commitments under that heading abroad represent a world service, and that at any particular time it must be a question for very close discussion and analysis of how much of that service we are economically capable of performing. That is how I would answer that point, but I will leave the issue for another occasion.

The noble Lord, Lord Snow, in a speech that I am sure to some would seem the outstanding speech of the day—though all these are subjective matters, I am sure some noble Lords would take that view of the noble Lord's contribution—embarked on a very subtle, yet far-reaching, branch of group psychology. We have heard a great deal of the confidence that foreign bankers must be asked to feel in us. He raised the question of the confidence the public in this country is going to feel indefinitely, if things go on as they have been going on, in our role in international banking. I understand that that was the thought behind the speech. The noble Lord posed the question. I will not say any more except to emphasise what the Prime Minister said in another place; that there is no question whatever of abandoning our role as reserve bankers. I should not like there to be any gloss over the clear words used by the Prime Minister on that subject.

My Lords, let me turn to the present crisis. I think it is right to call it a crisis, although it has been pointed out by the Prime Minister and others that in one sense it is marginal; the whole position would be transformed if we could improve our exports by, say, 2 per cent. So it is not the kind of crisis that foreshadows a possible collapse. However, I think it right for the country to take a grave rather than a light view of it and to call it a crisis, as the most convenient word. We are all well equipped by now with knowledge of the short-term factors. We know about the seamen's strike, and many of us also realise that commodity prices have been rising far more than was expected. Anybody who, for example, sets aside Government predictions—although, of course, Government predictions are made on high expert advice; they are not political judgments—and turns to the report of the National Economic Institute will realise that the prospect as assessed by the forecasters has deteriorated considerably in recent months.

The real source of the crisis—and here there is absolutely common ground between us; certainly between the noble Lord, Lord Aldington, and myself—lies in the underlying condition of the internal economy, in the persistence of excessive pressure of demand on resources, and this prevents any further improvement in the balance of payments this year. So we go forward on that road together—namely, that the reduction of the pressure of demand was, and remains, vital if we are going to rectify the balance of payments. We have tried hard. I do not think that anybody can say that we have done nothing about the pressure of demand.

Mr. Maudling—I am quoting him again from the speech from which I quoted earlier—referred, rightly or wrongly, to our last Budget as probably the most deflationary Budget that the House of Commons has ever seen. He was not using it as a compliment at that moment, but it illustrates the point that we have taken seriously this business of trying to reduce demand. In the second quarter of this year unemployment averaged 1.2 per cent. as against 1.6 per cent. in the third quarter of 1964; and I suppose the outstanding single factor is the increase in the last year of earnings by 7.1 per cent. and of wages per hour by 7.8 per cent. There is no question of concealing, or wishing to conceal, these figures; they are published in any event and are watched all too closely by foreign financiers and others keenly interested in sterling.

Even if productivity had increased much faster than was conceivable, it is clear that the effect of this rapid increase in wages was bound to be damaging; that, in other words, we were going to be in trouble even if foreigners had not taken unnecessary fright. It was clear that, quite apart from short-term monetary movements, it had become essential to take new steps to correct the balance-of-payments deficit. It is therefore, I hope, common ground that these steps had to be taken. I must say that I have not noticed much division of opinion during these forty-odd speeches about the need to take the steps or indeed, broadly speaking, about the kind of steps that have been taken. I will not at this hour begin to spell all of them out again; we have had them retold in this House more than once.

I would make one or two further comments. We on these Benches are very happy—I say, "we on these Benches", but that is perhaps not putting it right because the Government have reached the decisions; but I could say that any member of the Labour Party (I can try here to speak for the Party as a whole rather than for the Government) is extremely happy that this Labour Government did not slash the social services. I hope noble Lords know me well enough by now to know that I am not trying to import some sort of personal censure.

But there is a difference in outlook of noble Lords opposite. It is not just an accident that they sit on those Benches and that we sit on these Benches. Perhaps they may think that it is an accident that they happen to be in Opposition and we are in the Government, but it is not an accident that we sit on different sides of the House. We believe much more intensively than they do in equality—not absolute equality, but we believe in a great deal more equality than do noble Lords opposite; and frankly, whereas they draw, perhaps, more of their inspiration—which undoubtedly is very considerable—from a desire to reward success, we draw more of our inspiration from a desire to relieve distress. Therefore, when we come to a decision of this kind we shall find, I think, that the Labour Party will always take this kind of decision—at least I hope it will—not to slash the social services; while noble Lords opposite would have cut them, as the noble Marquess, Lord Reading, and other noble Lords indicated. I am not accusing them—

THE MARQUESS OF READING

My Lords, will the noble Earl—

THE EARL OF LONGFORD

May I just finish my sentence? I am not accusing any noble Lords opposite of gross heartlessness. They believe that their method is the way to increase the wealth of the country and in the end provide wealth for everyone, but there is this difference between us and there always will be so long as there is a Conservative Party and a Labour Party.

THE MARQUESS OF READING

My Lords, I am sorry to interrupt the noble Earl, but I have listened to practically all the speeches and I have read those which I unfortunately had to miss, and I have not read one speech which advocated anything which could conceivably be called slashing the social services. May I remind the noble Earl of what the noble Lord, Lord Robbins, for whose views one has great respect, said, I shall never believe that, old-age pensioners and chronic invalids apart, the rest of us cannot afford the price of ten cigarettes when we go to collect our prescription."—[OFFICIAL REPORT, Vol. 276, (No. 45), (Cols. 951–2), 28/7/66.] That is, in better words, what I and other noble Lords have been trying to say.

THE EARL OF LONGFORD

Well, my Lords, I am in the judgment of the House, the recollection of the House, but I did understand that noble Lords opposite would have economised at this point on the social services, whether to a large extent or small, and that there has been therefore this difference between us which has emerged in this debate and I think elsewhere. I do not honestly think it is a matter of argument. If the noble Marquess, Lord Reading, thinks I have gone too far in using the word "slash", I will say "cut", but I am not going to and I am afraid I cannot collaborate more than that. We have shown a much greater care and concern for the development areas than our predecessors ever did in a like situation—

NOBLE LORDS

No!

THE EARL OF LONGFORD

Yes, that is simply a matter of record. We have made this squeeze a great deal more selective than any kind of squeeze associated with the noble Lords opposite. It may be that had they been longer in office their next policy of restraint would have been improved upon. But I am talking about our performance compared with theirs in history.

There is, however, this question of unemployment which was raised in, if I may say so, a very detailed way by the noble Lord, Lord Robbins, in the first place in a remarkable speech, and then by the noble Lord. Lord Beeching—to whom I pay a wholehearted tribute—and the noble Lord, Lord Aldington. He put it to me, so to speak, in the sharpest way. If I recollect rightly, the noble Lord, Lord Robbins, suggested that we ought to be ready to stand a figure of 2.3 per cent. unemployed, compared with the Prime Minister's figure of something between 1½per cent. and 2 per cent. The noble Lord, Lord Aldington, wants to know whether the Government has a particular figure in mind. He will not, I am sure, think me impertinent if I say that there is a danger, when we get down to this sort of discussion, of forgetting that we are talking about human beings. They are not just statistical digits.

As noble Lords are aware, I have never earned my living doing any sort of manual work, but there is this point, I think, for all of us who have lived our lives as professional people—I realise that in the House there are some who have indeed earned their living by very hard manual work—when we talk about 2 per cent. or 2.3 per cent. or 1.8 per cent. or something or other being the right figure for unemployment, we are implying that the working-classes ought to have a figure of this sort attached to them, which, of course, is not envisaged by any professional man when he starts on his own career or educates his son. That is not a complete answer—I am not going to pretend that it is—but it is a point which I think we must bear in mind, at any rate when talking about these figures.

The noble Lords in their experience will not be surprised that I cannot in fact go beyond the statement made by the Prime Minister when he indicated that a figure of 1½ per cent. to 2 per cent. might be considered not unreasonable in certain circumstances. I am afraid I cannot add to that, but I will certainly make sure that all that the noble Lord has said—Irealise that he was not speaking from a Party point of view; he was speaking as a very experienced industrialist—and all that was said by the noble Lord, Lord Beeching, and the noble Lord, Lord Robbins, and other noble Lords will be looked at again by my colleagues.

LORD ALDINGTON

My Lords, will the noble Earl please withdraw this imputation that those of us who talked about this matter, whether the noble Lord, Lord Beeching, who is responsible for looking after a number of men's lives, or the noble Lord, Lord Robbins, who has studied this matter very much, or myself and other people who are also responsible for a number of people at work, are unmindful of human consideration? Of course we are fully mindful of human considerations, just as mindful as the Chancellor of the Exchequer, his own colleague, was when he used words very similar to those which I used to the House this evening. I much resent this imputation and that we should be accused of being inhuman and not thinking of others, especially as there has not been time to expand one's thoughts.

THE EARL OF LONGFORD

My Lords, if I had wrongly accused the noble Lord of being inhuman I would have apologised, but he will see when he reads Hansard that he has completely misunderstood my remarks. I tried to persuade the noble Lord in advance that I was not accusing him of inhumanity, but if he requires a further apology for the pain caused to his feelings through his own misunderstanding, I extend it readily.

My noble friend Lord Kahn made an important speech which strictly speaking belongs to the first day, but it was not answered and I feel that without going into the major point he raised about the role of employment exchanges, where I think he may not get satisfaction from the Ministry, I must say something on productive investment, because this subject was raised not only by my noble friend but also by other noble Lords. I agree with my noble friend Lord Kahn—he does not need me to teach him economics because, as we know, he is one of the half-dozen best economists in this country—that if the new measures were likely to have an effect on productive investment that would be a tremendous argument against them. Ever since they came into office the Government, in applying restraintson demand in order to restore the balance of payments, have sought to support manufacturing investment, and on the whole I should have thought that my noble friend would agree that manufacturing investment has held up very strongly. The noble Lord, Lord McCorquodale of Newton, who is extremely well informed in these matters, took a gloomy view of this affair, but in his absence I will not argue with him. I hope that my noble friend Lord Kahn will realise that the calculations of the Government—and many of their chief advisers will be his close friends—are not a cause for the concern which I think he began to express to the House.

LORD KAHN

My Lords, will the noble Earl allow me to say that I was not referring simply to the Government's measures announced the other day, but I was considering the relation of earlier measures to the new ones and referring particularly to the restraint of credit? I was suggesting that it might be desirable to withdraw the warning statement made at an earlier date by the Chancellor of the Exchequer about the duration of the present credit squeeze.

THE EARL OF LONGFORD

My Lords, if the noble Lord will allow me, I will place all that he has said on this matter before my colleagues, and I am sure that they will give greater attention than usual to what he has said.

I must not keep the House too long. We had very interesting speeches from the noble Lords, Lord Leatherland and Lord Hall. But before I close I should like to deal with one aspect of the future about which there seems to be some misunderstanding. I find some noble Lords, in complete good faith, are under the impression that we are now abandoning our great vision and giving up the idea of growth. I cannot accept that proposition for one moment. Of course, there has been growth one way and another in the standard of living in this country for a number of years. Mr. Macmillan, in his biography which I was reading the other day, points out how much standards have improved in the last decade, so that we are now accused of being "an affluent society". I do not think that any phrase has caused more confusion than that phrase "affluent society", but I agree that the standards of living of our people have improved under various Governments in recent years, although there is still a great deal of poverty, and more perhaps than we should prefer to-day.

But when we talk of growth in the modern sense, it seems to me that we are thinking of the kind of programme which was involved in Mr. Maudling's memorable Budget speech in 1953. The statement of plans for an organised growth in our economy, when they were set out by Mr. Maudling in 1953, following various suggestions from our side and from other sides, were widely applauded by many people, and by me in a debate that I opened here. At that time Mr. Maudling said this: The purpose of the Budget can also be clearly stated. It is to do the Government's part in achieving the rate of growth broadly described as the 4 per cent. target. So the 4 per cent. target was officially proclaimed by a Conservative Government, and was welcomed, I may say, throughout serious circles.

Mr. Maudling was confident at that time that this target could be achieved without any strain upon our currency if the nation showed the will to do it. Well, my Lords, Mr. Maudling proved too sanguine about what could be achieved in the immediate future; and, if you like, we on our side have proved too sanguine in regard to the immediate implementation of the possibilities set out in the National Plan. But I want to make it plain beyond all possible doubt that that does not mean the collapse of the policy. It merely means the postponement of the realisation of certain ideals. There is no question of abandoning our conviction that you can plan organised growth without destructive inflation. Without committing myself or the Government to any figure, I want everyone to realise that we are as convinced as ever that this can and will be done. But at the moment the task is to make our money strong and firm. I come away from this debate in spite of a few natural acerbities, with the conviction that there is a common purpose in this House, and I think there is beginning to be a common purpose throughout the country, that this can and will be done.

The noble Lord, Lord Carrington, carried me with him in that part of his speech when he referred to the character of the British people; and the noble Lord, Lord Campbell of Eskan, also referred to our unsurpassable courage and skill. Certainly if anybody had any doubts before, the exhibition of some rather typical Britons—typical in their character, I think; but perhaps more typical in their physique and footballing skill—has heartened all of us, and perhaps has been quite useful in the eyes of the world.

Our character, therefore, is our strongest asset, provided there is this requisite leadership. If we stick to economic terms, as my noble friends Lord Willis, Lord Leatherland, Lord Hall and others have pointed out, it would not be difficult or disingenuous to argue that we are putting up a better economic effort than at any time in the past. Certainly we are now paying for 95 per cent. of our imports with our physical exports, whereas before the war we paid for only two-thirds of them. There have been references in this debate to our export effort in which all Parties and all sections of the community can take an equal pride. There is no possible excuse therefore for any kind of defeatism, and I have not heard of any in this House in this debate.

It is rightly said that it is up to the Government to arouse the people. That is a fair comment from the noble Lord, Lord Clitheroe, and others. But I would say, with respect to noble Lords in all parts of the House, and particularly to Opposition Leaders, that the Government cannot do this alone. The attitude of the Opposition is bound to be of high importance. Speaking as someone who has studied a great deal more history than he has had any part in making, I would merely offer two comments on my present colleagues. One is that they have remained in touch with the ordinary people of this country. The other is that they are not easily cowed. I do not suppose for a moment that my colleagues are better or worse as human beings than others in public life or in any part of it, but the nation happens to have chosen us to do an arduous and indispensable job, and I believe that the nation will, on the whole, approve the guidance we are now offering and, quite apart from Party, will show once again its unique capacity for rising to the challenge of adversity, drawing new strength from setbacks and finding a way through to a fuller and better life.

On Question, Motion agreed to.