THE ECONOMIC SITUATION

HL Deb 28 July 1966 vol 276 cc909-1053

2.30 p.m.

Loan SHEPHERD rose to move, That this House takes note of the economic situation confronting this country. The noble Lord said: My Lords, last night we were confronted with the fact that fifty noble Lords wished to take part in this important debate and, if I may, I would start by expressing appreciation to the Opposition for agreeing to the change of Business for next week in order that a second day should be provided for this debate. I should also like to express appreciation to those noble Lords who agreed to speak on Monday instead of to-day.

The Government welcome this debate, and hope that it will be wide-ranging, deep and penetrating. It is perhaps a clichéto say that this nation faces grave and difficult times. I suppose that, in terms of Party political strife, for some the situation may be satisfying. I can well understand the Opposition to-day seizing the opportunity to deploy their full guns against the Government. I would not deny them that opportunity; it is their duty and their right. But if this debate were to be purely in terms of a slanging match between one Party and another, and if we ignored the deep-rooted difficulties which have confronted, and continue to confront, the nation, such as those in the field of industrial investment, the standards of management, the attitude of the trade unions, and, in particular the views of our workpeople as a whole, then I believe the debate would be sterile. Equally, I think we should acknowledge the general advances that have been made. I believe it would be dangerous to underrate the difficulties, but so do I believe it would be dangerous if we were to over-rate them.

There are some who suggest radical and ruthless adjustments to our policies as a means of getting out of our difficulties. There are some noble Lords who believe we should sweep away the overseas aid that we give to our developing friends. There are others—and they are within my own Party—who believe that a radical reduction of overseas Defence expenditure would be the quickest way out of our difficulties. There are many other suggested ways; but they would all have serious effects on outside matters. Therefore, the Government, and any Government, must be limited in what they do by how it will affect overseas problems and our overseas friends.

I should like to call the attention of the House to the fact that no other country in the Free World, except the United States, has consistently poured out so much treasure and resources in the field of Defence, not only in Europe, but throughout the world. If I may, I would remind your Lordships of some figures which I gave in the Defence debate earlier this year. This nation contributed about 7 per cent. of its gross national product within the field of Defence, in comparison with Germany, last year at 5 per cent., now moving to4.5 per cent., Holland at 4.4 per cent., France at 5.4 per cent., and Sweden at 5.1 per cent. In terms of manpower, one-fifth of our scientists and technologists are involved in research and development in Defence, and 1½ million of our workpeople, out of a working population of 23 million, are involved in Defence. In terms of foreign exchange alone, from 1956 to 1965, if we exclude the purchase of arms and the sale of arms, Defence has cost us across the exchanges £1,800 million—over £500 million to Germany. These are very grave and heavy burdens.

No manufacturing country, certainly in Europe, is quite so dependent as we are upon the terms of world trade, and no country is quite so vulnerable to the fluctuations of commodity prices. For instance, this year the raw goods that we buy have risen in price by about 2 per cent., which will add £100 million to our import bill this year. With the pound sterling as a reserve currency, we are more at risk than perhaps most when there is a shortage of liquidity and, in particular, dollars. Certainly our own pound is very much influenced by the movement of currency due to interest rates.

Having said that, perhaps I might briefly draw your Lordships' attention to the amount of overseas aid that we have given, and continue to give, which is in the region of £202 million in the present year, through bilateral and multilateral aid agreements. These burdens have been with us, and will continue in some respects. But, if one compares the proportion of our gross national product that we have put into machinery and equipment in recent years, we compare poorly with other European countries. I would ask your Lordships to bear with me in giving these figures.

If we take total investment in machinery and equipment for manufacture between the years 1955 and 1964, France put 8.6 per cent. of its gross national product into that investment; Germany 11.9 per cent.; Italy 9.1 per cent.; Holland 12 per cent.; Belgium 8 per cent., and the United Kingdom 8.6 per cent. But it is more significant when we look at the figures for the years 1960 to 1964. Into the same form of investment France put 5.7 per cent., and Germany 7 per cent. The United Kingdom put 4.6 per cent. This is one of the reasons why the Government have consistently told the country that we must put more of our available investment into manufacturing industry. One salient factor—and I am sure the noble Lord, Lord Robbins' will agree with me here—is that our economy is so placed that it is only during a period of deflation or restriction that we have a surplus in our balance of trade. Yet when we have growth, even the most modest growth, we immediately become involved with a trade deficit. One need only remember the years from 1955 to 1960, and culminating in the disastrous debt of £765 million in 1964. These are some of the basic facts.

The Government first took office in October, 1964, and there were two basic decisions that had to be taken, and were taken. I will deal with them now, quite shortly. First of all, there is devaluation. I believe that most Members of this House—though not all—feel that if we were to devalue we might obtain a short-term advantage. But I understand, and the Government believe, that at the present stage if this country were to devalue, so would all the other countries throughout the world, and we should therefore be back at the present situation, except in this one respect: that there would be less faith than before in the British word as to maintaining the value of its currency.

Devaluation would be an easy way out. This step could have been taken in 1964. But in the Government's view it would be wrong to devalue when it can be avoided by putting our own House in order. I wish to say, as firmly and as strongly as I possibly can, that this Government will defend the parity of the pound with all the strength they have. May I add this? I believe that too much is written and said to-day in the Press and in the City about the possibility of devaluation. It is a free world, I know; but some of the articles which are written in the Press, and some of the voices which are heard in the City, appear to foreign countries to have some authenticity about them. I believe that this was one of the factors—though not, I agree, the major one—in the recent difficulties. We also took a further decision in regard to the balance of payments. We set out to achieve a balance of payments by the end of 1966. To achieve that we had, I think, two choices. In the first place we could have adopted the savage deflation of previous years, with a short-term gain but a long-term growth loss. But we chose, and I think rightly (and I believe most economists at the time agreed that we chose rightly) to attack the root causes of our balance-of-payments difficulties. We first of all decided to attack imports, which had risen during 1964 by 11 per cent., and to do that we used the surcharge for which we were criticised by noble Lords opposite.

In the field of exports we gave rebates and took other measures to stimulate the export trade. In order to shift resources to exports, there was a 7 per cent. bank rate, increased taxes, a ceiling on bank advances, limitation of private overseas investments, and deferment of public expenditure. It is interesting to note that in the second half of 1965 consumer spending rose by only 1 per cent. over the previous year. Yet in the field of exports we were able to move up by 6 per cent. In fact, during that period we shifted our resources from the home market into the export field. In the long term, by the use of the corporation tax, investment incentives, and industrial reorganisation (which will be coming along) the use of the "little Neddies", and the Regional Development Councils, we have sought to stimulate the long-term development. The targets were set in the National Plan which arose, if I may remind noble Lords, from the Industrial Review.

On the labour front we had the National Insurance Act, the Redundancy Payments Act, and we are developing industrial retraining. We set out, with these and other measures, to create a sense of social security which we believed was the only basis on which we could obtain the co-operation of our work-people. There was one doubt in our minds, and I expressed that doubt in the first speech I made in your Lordships' House as a Minister. That doubt was on the question of time. We needed time for all these measures to flow and work, particularly in the field of prices and incomes. We had to obtain a restraint, in spite of the tremendous pressures that had been built up during 1964. We had to try to create a system by which incomes were related to productivity.

I am now going to pay a special tribute to my right honourable friend George Brown. I know that there are some—though not in this House—who sneer at his efforts. But I have attended some of the meetings, and I doubt whether there is any man who has worked so consistently with his whole heart to get the workingmen of this country to accept the principle of the relation between prices and incomes. To go on to a factory floor and plead with the men in fields of restraint—and I have done this—is quite a different thing from going to the Albert Hall to speak to the Institute of Directors, where the lunch taken is perhaps comparable to the wage of one day's work. I do not intend that as a snide remark, but to indicate the type of pressure, and sometimes hostility, that George Brown and others have had to face, and will no doubt continue to face, to get this policy through.

In the field of imports, in 1965 imports were contained by about 1 per cent., both in terms of value and volume—avery marked difference from 1964 when, as your Lordships know, they rose by about 11 per cent. But during the five months of 1966 there has been a serious, and certainly disappointing, turn. Imports have risen by about 5 per cent. over the average of 1965, and this has been aggravated by the adverse terms of trade. In the field of exports, during the five years running to 1964 our exports increased by about 5 per cent. In 1965 they rose by 7 per cent., and in the first five months of 1966, just prior to the shipping strike, the rise was in the region of 6 per cent. To get this increase in perspective, and to see what a notable contribution certain noble Lords in this House have made in industry as a whole and in leading trade delegations, may I give these figures? During the last five months our exports to the sterling area rose by 4 per cent.; to the EFTA countries they rose by 14 per cent.; to the Common Market countries by 10 per cent.; to North America by 17 per cent., and to the Soviet bloc by 36 per cent. From any point of view this is a notable achievement. The Government reasoning was that exports would continue to rise at about the 1965 rate. World trade was buoyant, and our prices appeared to be no obstacle to business. There were improved export aids and incentives provided by the Board of Trade, and, as the House will know, my right honourable friend the President of the Board of Trade announced new aid and assistance in his speech last Tuesday.

We believe that it would be possible to maintain and improve our export figures. But there were two shadows—and I will deal with them shortly—in the field of shortage of labour and in increasing home pressures. One of the criticisms of the measures announced last week was that they lowered export incentives. Until I became active in your Lordships' House I was an exporter and manufacturer's representative selling British goods overseas. I well remember saying, "Why can't they do this, and why can't they do that, to help the export trade?" It is now a topical subject once again. The Government have made the most exhaustive examination of this problem. There was an export subsidy, a tax relief on profits and special manufacturing rebates—there are many other incentives. But one always came up against the insuperable problem—at least the Government regard it as insuperable at this stage—in that they are all contraventions of GATT and our other international undertakings, and were bound to lead to retaliation.

If I may, I will give what is a purely personal opinion but one which I think is generally accepted—namely, that in the end our export growth will depend upon higher qualities within management, a willingness to go out and sell and, above all else, a shift of our resources by curbing home demand, and a greater utilisation of existing machines. In the long term—this is what we should bear in mind—there should be a rationalisation of industries; there should be fewer cubs and more lions, and more organisations in this country capable of taking on the big industrial organisations of the Continent. Also in the field of production and productivity, investment is important. I believe—and I think those who are connected with the export trade share thisview—that there are still great opportunities, if only they would be seized. To appreciate this we have only to see the results of the Moscow Trade Fair. I think British industry, through the push of the noble Viscount, Lord Watkinson, and others, is making increased efforts in the field of exports.

In regard to Government overseas expenditure, the House will know that we undertook a Defence Review, and we set out our determination to contain defence expenditure at £2,000 million at 1964 prices. This means a cut between now and 1970 of some £400 million. The Government have announced further cuts in overseas expenditures, in which defence will play its part, of £100 million. I believe that at the end of the Far East confrontation considerable savings can be made there. In regard to Germany we have a more difficult problem. This year the cost of the British forces in Germany across the exchange comes to £94 million. At this critical period of NATO we have no desire to do anything that would weaken the defensive ability of the Alliance, but we have a clear duty to put right our own balance of payments. Therefore we are continuing discussions with our friends the Germans, and our Allies within NATO. My right honourable friend the Chancellor of the Exchequer has made it quite clear that unless there is some relief—perhaps that is not the right phrase; but unless our exchange costs in Europe are met by either Germany or our NATO allies we shall have to take steps to relieve ourselves of the burden.

In private investment overseas, which is a matter which has always exercised the interest of this House, in the last three years the average net outflow has been 150 million—an outward flow of £350 million and an inward flow of £200 million. In 1963 and 1964 this country was investing or lending overseas £1,400 million of unearned income. This was money that had been deposited short-term in this country and, generally, we had lent it long. Therefore we have had to put various restrictive measures on the flow of overseas capital and we believe that we shall have to continue the voluntary agreement for some time. During 1964–65 the net outflow of overseas investment was £100 million, but in the first quarter of this year there was a disappointing turn when the trend was reversed and when we found ourselves with a net deficit of £50 million. It is for this reason that we have had to put added point to containing overseas investments.

Turning to the field of private holidays, I can well understand our people wanting to go to the sunny climes, but our cost for that type of holiday has been rising consistently by £20 million a year. The Government have taken the view, with the utmost reluctance, that this will have to be curbed for the short term. Therefore we have made unpalatable cuts, but it will at least provide us with a saving of £50 million.

The balance-of-payments figure for 1964 was a deficit of £769 million, and in 1965 it was reduced to £354 million. At the end of last year we believed that the trends were such that we should be in balance by the end of 1966 or early in 1967. I think we should acknowledge that we did make considerable progress during 1965 and the early part of 1966.

I will now turn to the internal position. I said in a debate many months ago that we inherited a public expenditure programme well beyond the resources of this country, both in terms of money and in terms of physical resources. The Chancellor made it very clear that we should seek to contain public expenditure on average at 4¼ per cent. increase, in constant prices between now and 1969–70. In 1965 it was a little under 5 per cent. This in fact was quite an achievement, because it was well appreciated at the time that in the early days the level of public expenditure would be higher than—shall I use the phrase?—"the norm", laid down by the Chancellor. It has been necessary, because of the severe impact of public expenditure upon internal pressures, for further restraints to be imposed. We regret that this is necessary and we shall have to keep a careful watch in the future, but I am sure the House will agree that in regard to housing, schools and hospitals, and in particular the factories in the development area, these should not be affected.

In the field of investment I think a good story can still be told. At 1958 prices the investment in manufacturing in 1964 was £1,118 million. In 1965 it had risen by £95 million to £1,213 million, and in 1966 it appears that investment in running at about the same high level. For 1967 it may be at a slightly lower level. Therefore it is imperative that we do all we can to stimulate investment in the manufacturing industries.

During 1966, and particularly, in about May or June, we had three special worries. First of all, production, which had risen quite strongly during 1965, appeared to be stagnating, if that is the colloquial phrase for production. It is the Government's view that this was basically due to shortage of labour, and I will come to that point in a moment. One of the strangest things is that while production was basically stagnant during the early part of 1966 the growth of consumer demand was rising very strongly, and one would have thought that this growth would have had some effect on production. That has not appeared to be so and it has resulted in large increases in imports.

We do not believe that the halting of the advance of production is due to the order books. In most industries they appear to be still long. We believe that they have been held back by shortage of labour basically due to a shorter working week. In fact our workpeople are working less by 3¾ per cent., and output per head has risen only quite shallowly, by 1½ per cent. One of the disturbing things, if I may draw the House's attention to it, is that the motor car industry has had a substantial rise of employment, although output appears to be down. The chemical industry, too—and this is one of the major capital intensive industries—has had a rise in employment not commensurate with the rise in production.

In the field of labour shortage, we had a very interesting debate introduced by the noble Lord, Lord Byers, and on that occasion I indicated to the House that we had an unemployment figure of about 280,000, or 1.2 per cent. of our work-people. There appeared to be four skilled vacancies for every one unemployed. The "little Neddies" are carrying out an urgent investigation into this problem to see how we can increase productivity and, above all else, shake out some of the employment from one company to another. And the Government believe that the selective employment tax may have some effect in providing a new level.

In terms of internal demand it has never been easy to ascertain the true position. Good barometers, I understand, are the unemployment figures, the hire-purchase levels and retail sales. If one took 1965, the pressure appeared to be about right, but in 1966 all these barometers indicated very heavy pressures on our demand, and therefore we have been forced, with the utmost reluctance, to take the measures of last week. Noble Lords may well ask why we had not taken them before. But to depress demand is a difficult decision to take, particularly as figures can sometimes be at variance and challenge each other, as the noble Lord, Lord Robbins, will no doubt agree as an economist; because if you deflate unnecessarily it may well hit manufacturing capability and the field of exports.

The rise in consumption in the early part of the year was due, in the Government's view, to the fact that many purchasers, believing there would be rises in the Budget, tried to anticipate it; and we thought that there would be a falling off after the Budget. This has not taken place. In May, the number of newly registered cars had risen by 15 per cent. In June, the hire-purchase figures showed another increase, and in the same month retail sales were up by from 2½ to 3 per cent. But even then we thought that, with the impact of the selective employment tax, which would have meant £36 million per month out of our economy, we should be right in proceeding in the way indicated by the Chancellor of the Exchequer in his Budget statement to Parliament in May. Then came the disastrous shipping strike, when imports continued to flow in and exports, certainly so far as British ships were concerned, came to a dead stop; and we had the dreadful June deficit.

We believed, as I have said, that the measures that had been taken were sufficient. I think that if we had wanted to take stronger measures then, we could have taken them: I think the nation was expecting tough measures. Psychologically, from the Government's point of view, the time was ripe. But my right honourable friend the Chancellor of the Exchequer, his advisers, and of course the Government, took the view that what was done then would have been sufficient. If my memory is right, most of the economists writing at the time felt that it was not so much a question of whether we had taken sufficient out; the main question then, I think, was whether we had taken out too large an amount. That was the situation a few weeks ago. It is one that we very much regret, since it must have a serious effect upon the growth plan within the National Plan.

I have left to the last the question of prices and incomes. As the Prime Minister explained on July 20, increases in money terms have for long been outstripping the increase in national production. In 1965 we paid ourselves £1,800 million more in money incomes than in the previous year, of which about £1,300 million represented increases in wages and salaries. In the same period we earned only £700 million by way of increased production. As an inevitable consequence, there has been a steady rise in the general level of prices, in spite of indications that prices and incomes policy has been having some effect. Judging from Press comment on recent opinion polls, the need for a temporary standstill on prices and incomes is widely recognised throughout the country.

Although the intention can be loosely described as a twelve-months' standstill for prices and incomes, similarity of treatment of the two sides is impossible, and the Government's intention is as follows. So far as prices and charges are concerned, they will be subject to a standstill for the next twelve months, but there will have to be room for exceptions in certain circumstances. Incomes will be subject to a standstill for the first six months, which for convenience may be regarded as until the end of 1966. During this period it is intended to secure a virtually complete freeze, other than the implementation of certain existing commitments. During the second six months, that is, the first half of 1967, it is intended that severe restraint should be exercised, and that proposed increases in income should be subject to more stringent criteria than those at present in force.

The Prime Minister made it clear that the Government accepted that there were certain circumstances in which price increases might be unavoidable—for instance, as a result of the increased cost of imported materials, increased costs arising from seasonal factors, or costs imposed by the Government through taxation. In addition, there may well be other circumstances in which price increases will be justified in the national interest—for example, to prevent a firm engaged in export business from going out of business. The extent to which the Government will expect to be notified of individual cases is under discussion with the C.B.I. and was set out in the White Paper.

In the field of incomes we are faced with very great pressures. I do not propose to say anything further about it at this stage. The Government have a Bill in another place, and we shall have an opportunity of discussing it next Wednesday. I believe that by then more of the Government's views on the means of obtaining containment or freeze of incomes will be available to the House. I hope the House will not think that I am avoiding the issue of incomes by not going into it further now, but there are discussions taking place even this afternoon. My noble friend Lord Cooper of Stockton Heath, who will be making a maiden speech, is to speak much later than is usual for maiden speakers, but he is seeing the Prime Minister with his colleagues in the Trades Union Congress and will come here later to take part in this debate. Therefore, in these circumstances I would hope that the House would not press me to say more in this field.

At the beginning of my speech I said we should not overrate or underrate our difficulties. Clearly we are in a serious position; yet if there were a period of restraint, of consistent application by all to the task, we could well come out of it. It is strange that in war the British people will willingly accept all forms of discipline, yet in peace we seem to resent it. I believe we need to create a form of national emotion. I do not know whether it is for the Government to do it, or whether the Government is in fact capable of doing it; but we need to create a national emotion similar to that which sweeps across our football fields, no doubt under the stimulus of the Liverpool supporters, in support of England.

If in this regard we can create a similar emotion in our people, I am sure that we can sweep away many of the restrictions which apply on all sides of industry and public life, and could then have an era of co-operation from all. Some may say that that is a pious exhortation. But what is the alternative? Whilst we may have Party strife in this House, and it is a good thing that we do, I hope that men of good will will do their best to see whether we cannot get the whole resources of our nation, which are great, working once again to make this country what it could and should be.

Moved, That this House takes note of the economic situation confronting this country.—(Lord Shepherd.)

3.12 p.m.

LORD CARRINGTON

My Lords, the noble Lord, Lord Shepherd, has, as he usually does, made a lucid and disarming and amiable speech; and he has made the best of what to noble Lords opposite must be a most distressing occasion. He has skated with skill and delicacy over some thin ice. I shall try to be as lucid as he was, but I fear that I may not be so amiable. As I have said before, it is the duty of all sensible men of all Parties to support the Government in measures they take to defend the pound and to put the economy right, always supposing that they take the right measures. The electors, in their wisdom, decided last March that they would entrust the Party opposite with their affairs for a further period of office and, for better and for worse, the country is saddled with the Labour Party for the time being. They alone have the exact knowledge of what is happening to our economy. They alone have the power to enforce their policy; and they alone have the responsibility for doing it.

Though it is the duty of the Opposition to support sterling, it is equally the duty of the Opposition to point out where they think the Government have gone wrong, what they have done wrong, and to give some clear warnings about the future. Our duty is to the country, not to the Government. If the noble Lord, Lord Shepherd, sees me as a sort of cheer leader for the Government alone, I am afraid that he is mistaken. So I think it right, though no doubt it will be unpalatable to noble Lords opposite, to say, firmly and clearly, that in my view the present crisis is solely and entirely the fault of the Government.

It must be humiliating for noble Lords opposite to recall the events of the last eighteen months, and to remember what they are on record as saying. It has been a chapter of misjudgment and incompetence. Consider this example. The balance-of-payments considerations led Mr. Selwyn Lloyd to impose a credit squeeze, a pay pause, and other measures which led to the slowing down of British industry and a high level of unemployment. On our first weekend, when the present Prime Minister formed his Administration, we determined that we would not tread that path again. That was said by the Chancellor of the Exchequer in November, 1965, during one of his Budgets. And so on, alternately optimistic and pessimistic, culminating in the mini-Budget of March 1 this year, when, your Lordships will remember, the Chancellor said: The economy is therefore reasonably well poised. The best guidance I can give the House at this stage"— and your Lordships will not need to be reminded that "at this stage" was just before the Election— is that I do not foresee the need for severe increases in taxation". As he admits, he gambled and he failed—and that was but five months ago. For the events which have followed are fresh in our minds: the reassuring, confident speeches of the Prime Minister, followed by the sudden decision to increase the bank rate, followed by the announcement that at some unforeseen time, as yet undecided measures would be introduced. That really helped confidence! Then his departure to Moscow on an entirely unnecessary visit, and finally, the carefully prepared package of plans—not the hasty panic measures of the bad old days. Heaven help us all if we ever have hasty panic measures from Mr. Wilson! No responsible man, and certainly not Mr. Callaghan, would deliberately mislead public opinion; and I am sure what he has said, and what the Prime Minister has said, has been said in good faith. But then they have been absolutely and totally wrong. The Chancellor and the Prime Minister have not only been misinformed, they have been shown to be completely lacking in judgment and the competence to manage our affairs. Not even those who wish to place the most favourable interpretation of the Government's handling of our economic affairs in the past twenty months would say that their performance has inspired confidence amongst those of us who wish to see an expanding and prosperous Britain.

I must remind noble Lords opposite that, all along, we have been warning the Government about the economic situation. Mr. Heath, during the Election campaign, said: This Election is going to be fought on the economic conditions of Britain. This is the most important single issue in our campaign. And the whole way through the Election he reiterated over and over again, as did all of us on this side of the House, his concern at the turn in the economic situation. It was a great pity that the Prime Minister shrugged off those warnings.

So we come to the stringent measures of last week. The impression has now been left abroad—and this, I think, is what I resent almost more than anything else—that this country is almost down and out; and, in addition, it is becoming more and more obvious that even our friends do not believe that we count in international affairs any longer. Your Lordships will have read and will have noted the article from Washington by Henry Brandon in this week's Sunday Times. We shall not count any more until we have put our house in order. It is no good the Prime Minister deluding himself that he can exert influence in Moscow or Washington or anywhere else in our present circumstances.

The noble Earl the Leader of the House reminds us from time to time that he was once chairman of a bank, and he will no doubt recall that the customer with the biggest overdraft was not his most trusted friend or his most influential adviser, although perhaps he may have been his biggest headache. But Britain is far from down and out, and when we talk of our economic problems and our balance-of-payments difficulties, as opposed to the confidence in the Government, we are speaking only of comparatively small margins of success or failure. There is a wealth of brain and initiative, and enterprise in this country, waiting to be used and encouraged. There is great resilience and strength in the British economy, and I have no doubt that with good management we can once again restore confidence and restore our own pride. I shall have more to say about that a little later on.

I come now to the measures which the Government have proposed to remedy the situation. It is almost impossible for anyone in Opposition to know whether these measures will be adequate or not—andprobably very difficult for those in Government. There can be no doubt that in the circumstances a very heavy bout of deflation was necessary, and certainly the combination of the proposals of last week with the heavy deflationary effect of the selective employment tax is going to be extremely severe. Although we do not yet know exactly what the Government propose about the wage freeze, it seems fairly clear, by their insistence on hurrying the Prices and Incomes Bill through Parliament, that some compulsion is to be put in the Bill, as Mr. Brown admitted in the House of Commons last night. But, in spite of the speech of the noble Lord, Lord Shepherd—and I understand his reasons—we are still uncertain as to whether the wage freeze is to be without exception or whether there are to be exceptions; whether it is to operate flexibly, as Mr. Brown said, or inflexibly, as the Prime Minister has led us to believe.

It would be unwise to discount the anger with which the postponement of agreed wage rises will be greeted by those who are disappointed and who expected an increase in their wage packet. Nor, indeed, is it yet at all clear who is going to co-operate with the Government and who is not; or which unions are going to help and which unions are not. Nor do I feel entirely confident that the Government are seriously trying to cut expenditure in the public sector. It is true that they have made large cuts in the capital programmes of the nationalised industries, though this in itself in the long run will lead to a slowing down in the development of those industries and a consequent lessening of their efficiency—industries, incidentally upon which almost all other private industry relies—but in the sector which is entirely under their control, they merely seem to have imposed what seems to be a very low cut across the board. We do not know what is to be cut, though various Departments seem to have been given targets. Those of us who have been in charge of Departments know how difficult it is to enforce that sort of cut. In a few months' time all may well be forgotten as other costs have risen and have more than engulfed the rather modest savings proposed by the Government.

However, although the Government have been imprecise in what they are going to cut, they have been very precise in the extra taxation which the private consumer has to pay. We all recollect the days of the previous Labour Government when we had even less money to take abroad than the £50 proposed now. We can also recollect the difficulties which British tourists encountered, together with the rather bad faith which grew up between the tourists and their host countries because there had to be so much scrimping and saving. On the whole, this sort of measure should if possible be avoided. For that reason I hope that this will be a temporary restriction. In- cidentally, thought the Prime Minister had said that very few people would be affected by this restriction since most holidays were already within the £50 limit. But the figure which the noble Lord, Lord Shepherd, gave of a saving of £50 million would seem to belie the Prime Minister's observation. Perhaps at some time that could be cleared up.

LORD SHEPHERD

My Lords, I did in fact make a mistake, and I am glad that the noble Lord, Lord Carrington, has given me the opportunity now to rectify it. The £50 million, apart from the cost of holidays, also includes restrictions and restraints on immigrants' transfers of money, which is quite a sizeable figure.

LORD CARRINGTON

I am most grateful to the noble Lord, but I should be obliged if he could split up that figure a little more. If the saving of £50 a head on the travel allowance is very small, I have grave doubts whether it is worth imposing it. Perhaps the noble Lord, or somebody who is to reply later for the Government, will be able to give us some more information. As for the surtax proposal, this is clearly a sop to the Left-wing of the Party opposite since it can have no relevance to the immediate situation.

But there is a larger doubt in my mind about these proposals, a doubt which I think is shared by a great many people both here and abroad. I was surprised, for example, that the pound has not rallied nearly as strongly as the measures taken would seem to have warranted. I believe that this is due to a lack of confidence in the Government's determination to see their measures through to the end. There have been certain pointers in that direction. There has been, for one thing, what can only be described as the opéra-bouffe performance of Mr. Brown's resignation. It seems that he wished to resign from the Government because the measures were too severe and prevented the expansion for which he had been working. He was persuaded not to resign, and now tells us that he is 105 per cent. behind the Government's proposals. I suppose the extra 5 per cent. is inflation.

Consider the effect of this on public opinion. Has Mr. Brown really given up all thoughts of trying to get his own way? Does he acknowledge Mr. Callaghan's judgment was right; and was there any significance in what I imagine was the inspired leak as to the future increased importance of the Department of Economic Affairs, so that in six to nine months' time expansion could be got under way again? This sort of talk raises doubts in the minds of informed people. To speak of deflation in one sentence, and the increased importance of an expansionist Department in another, is really very contradictory.

Then there are doubts about whether the Government are really serious in facing up to effects of their deflationary measures. Do not let us mince words. The Prime Minister and the Government, if they do what they say they are going to do, are deliberately going to create unemployment. But the Prime Minister still speaks in the euphemisms of redeployment of labour and of a shake-out. The more delicate his phraseology, the more obvious his political minuet, the more doubts are raised. Are these just words, or is it the firm intention of the Government to accept the consequences of what they have done?

There is still a considerable doubt about the Government's intention on the wage freeze, as I have already mentioned. Nor has the Chancellor explained the very odd report in the Financial Times last Tuesday which seems to suggest that he thought the financial measures, taken by themselves, without the wage freeze, were enough to rectify the situation. This is going to puzzle, and indeed dismay, quite a number of people in this country as well as outside. One can hardly wonder at the doubts of some of our creditors. Nor can any of us view with anything but dismay the pigheadedness of the Government in continuing the nationalisation of steel. I do not believe that most noble Lords opposite believe in it. It is one of the tablets of faith, and since most of the other tablets have either been abandoned or lie in pieces around them, they cling to this one, hoping no doubt to discover a twentieth-century Moses in the bullrushes of Smith Square clutching in his hand a substitute for Clause 4.

The consequences of steel nationalisation will be further inflation, and a period of uncertainty and disorganisation in the steel industry, which can benefit no one, least of all the British economy. This time, if we are going to get through this crisis, the Government have got to mean what they say and say what they mean—and they must all speak with the same voice. We cannot be told it is severe one day—severe enough for the Government to plan for unemployment of 470,000—and then be told by Mr. Jay (or so it seemed to the Parliamentary correspondent of The Times) that Mr. Jay himself did not seem any too sure that there was a crisis, that the task was not going to be too arduous; and comfortingly he dismissed the financial economies as a mere fleabite, and laughed away the fears of unemployment. The Government must be prepared to face up to the facts, and face up to the unpleasantness and hardship which their measures will no doubt bring—hardship caused, at any rate in part, by their failure to act sooner and with more resolution.

I noticed that in one of the newspapers there was a criticism that Mr. Heath, in his speech in another place on Tuesday, had made no new suggestions other than those contained in the Conservative Party Manifesto in March. I must say I find that a very strange criticism. We put forward at that time explicit proposals for remedying our economic difficulties. Alas! we have not had the chance of putting them into practice. Is it not absurd to expect some new and painless solution to be put forward every four or five months? We made some very serious and constructive proposals in our Manifesto, and I beg noble Lords opposite, if they do not believe me, to go out and buy a copy of it; indeed, I will provide them with one if they do not have one. Perhaps they could do worse than to read the speeches of Mr. Heath and Mr. Maud-ling in another place in the last two days.

The economy is 80 per cent, privately-owned and 20 per cent. nationalised. It is essential, if it is to run properly, that the private sector is given the proper encouragements and incentives; and this, we feel, has not been done by this Government in the measures which have just been announced. In our view, there must be some recasting of our taxation system whereby it will be possible for those who are working hardest and most productively in the country's interest to retain a greater proportion of what they earn. There is clearly a moment when taxation becomes counter-productive (using the word in its literal sense), and this must operate at all levels. It is no good adding 10 per cent. to the surtax of those very men who are the leaders of our technicians and industrialists

The Government, too, must tackle the problem of restrictive practices in industry. It will not have escaped the notice of our friends abroad that during this serious crisis there has been an unofficial dispute in the London docks about the handling of a timber cargo with new labour-saving machinery. My noble friend Lord Cones ford raised in your Lordships' House the other day another example of restrictive practices, and out of our personal experience we could all relate many other examples. We should all feel very much more encouraged if we felt that the Government were at last going to tackle these vital issues; and, indeed, the related issue of the trade unions.

When are the Royal Commission likely to report? Is it true, as I have heard it said, that it will be years before they do? As I understand it, the Trades Union Congress have not yet even put in their evidence to the Royal Commission. Surely, there is some way by which a Report from the Commission could be speeded up—perhaps by the production of an Interim Report. And what about the legal enforcement of wage agreements? Have the Government no proposals in this field? Nor have we seen any acknowledgement by the Government of the need to be more selective in applying the vast sums of money spent on the socialservices—prescriptions given to people who could well afford to pay for themselves; housing subsidies given to those who are quite well enough off to do without them. These, are but two examples of the need for re-examination, in this time of prosperity, of the basic concepts of the Beveridge Report.

What new proposals have the Government got for trying to get us into the Common Market? If that were achieved, I can think of nothing that would be more stimulating or provide more incentives for British industry and manufacturers. My Lords, these and many other measures were suggested by us at the General Election, four or five months ago. It really would pay noble Lords opposite to study them.

I think the time has come, too, when they should consider whether it is not necessary to abolish the division of economic responsibility which exists between the Treasury and the Department of Economic Affairs; for I believe that this is one of the major causes of the Government's muddle. Mr. Brown, relying too much on his prices and incomes policy, and prices having risen less steeply than incomes, has over the past eighteen months been inflating the economy, while down Great George Street Mr. Callaghan has been fiddling, nervously and inadequately, with the valve of deflation, though at the same time trying to pretend that he is doing no such thing. The sooner the two of them get together, or one of them goes, the better it will be for the management of our affairs. They remind me of one of those barometers that I had as a child. When the pressure is low, out comes Mr. Brown shouting "Go"; but when the pressure is high, in goes Mr. Brown and out comes Mr. Callaghan shouting," Stop". My recollection of my barometer is that it was very inaccurate. Let us do away with this unnecessary and foolish division of responsibility.

My Lords, no Opposition can hope to do more than point out where things have gone wrong, and put forward in broad outline what they would have done and what they would do. But let there be no doubt: the responsibility and the power lie in the hands of the Party opposite. In their hands they have the wellbeing and the reputation of this country. If they cannot discharge that obligation, and are not competent to do so—and I do not think that they are—then they should go and make room for someone else.

3.37 p.m.

LORD GLADWYN

My Lords, I should not be intervening in this debate at all had not my noble friend Lord Byers an unbreakable engagement abroad. However, I shall do my best not to disappoint your Lordships. May I say that I have, of course, consulted Lord Byers, and I think what I have to say more or less represents his views as well, I hope, as those of the Liberal Party. I may add, as your Lordships will see from the list of speakers, that my noble friend Lord Byers has put his name down for the second day's debate on Monday. We must only hope that he will be back on that occasion and so be able to give your Lordships his valuable advice, based on great knowledge and experience, which I think is always very acceptable to your Lordships.

Generally speaking, the Liberal Party, while recognising that in the circumstances in which we find ourselves certain unpleasant measures are absolutely necessary—of course we recognisethat—believes that these circumstances should never have arisen, and that, having arisen, they should be dealt with in a way which would undoubtedly have been severely criticised by the Labour Party had they been carried out by Mr. Selwyn Lloyd.

We all know the old, old story which we have heard so often since the war—I forget how many times. The British economy is coasting merrily along, having just tanked up at the international filling station, when suddenly the wicked gnomes switch on a red light. The brakes scream and the vehicle shudders to a halt. The popular Deputy Prime Minister is thrown through the windscreen, but happily is not seriously hurt, though I am afraid he is obviously shaken. The driver goes off to argue with the gnomes. The passengers are told that if they want to continue with their journey they have jolly well got to tighten their belts. Meanwhile, it is agreed that there will have to be a new steering wheel before the bus is allowed to proceed; otherwise, all the passengers are in danger of being thrown into the ditch. It is all so sickeningly familiar, except that this is just about the record stop so far—by which I mean that the bus has stopped in absolutely record distance.

What really prevents the vehicle from accelerating nicely down the road along with all the other industrialised nations? The first reason is obvious, or at any rate it is obvious to us on these Benches. We have too heavy a load, and we have had too heavy a load for years. Ever since the Empire broke up we have been pretending to be a World Power, when clearly we were nothing of the sort. Billions of pounds—many of them wasted—have been spent in this vain effort during the last twenty years, more particularly East of Suez. For along time the Liberal Party has been pointing to this anomaly. It is to be hoped that, at long last and under the spur of sheer necessity, its advice will be accepted—though I believe, my Lords, that the Tories are now encouraging the Government to spend even more money East of Suez. Perhaps the noble Lord, Lord Carrington, would like to comment on that, but I rather think he is engaged in conversation.

LORD CARRINGTON

My Lords, I heard the noble Lord, but I did not have any comment.

LORD GLADWYN

I take it, then, that the Tories are urging the Government to spend more money East of Suez than is now being spent. That will certainly go on the record.

LORD CARRINGTON

I do not think the noble Lord should take any such thing. I never said anything of the kind. I had just made a speech lasting half an hour, and I had no comment on what the noble Lord was saying.

LORD GLADWYN

Silence is consent. The other basic cause of our difficulties is also obvious. We produce, on the average, less per head than other comparable countries. This is due partially, no doubt, to the fact that we did not have to start from scratch, like so many countries, after the last war; but more especially to the persistence of ancestral fears, dating from the terrible 'thirties, which are embodied in what are generally known as restrictive practices. In other words, our bus is over-bodied and under-engined, and the only thing which seems to work reasonably well are the famous brakes.

Last week the Prime Minister, in his Statement, seemed to put some of the blame for our grinding to a halt on a shortage of liquidity in the world's financial centres. This growing shortage of liquidity undoubtedly exists, but it has been with us for some months—many months. Its effects were something which, I believe, the Government should really have foreseen. It is hard to believe that it was the dominating factor in a sudden confidence run on sterling which forced the Government to switch over, as the Prime Minister said, from, "No further measures are required at this time; editorials saying so are wet" to apocalyptic warnings on the state of our economy, in the space of only 96 hours.

I accept what the Prime Minister said yesterday in the other place about the vulnerability of sterling when the country is in deficit, but I really do not think he disproved the charge of a certain lack of foresight. For a number of months interest rates have been rising as a result of deliberate policy by Continental and Scandinavian banks who have felt that tight credit was needed to contain growing inflationary pressure. This has necessarily meant that our structure here of short-term interest rates, which a year ago was relatively high, is now no longer so. But the Central Bank credits, which were recently renewed, were designed to be used in just these circumstances, and their use would have sufficed to deal with this problem had not very much broader factors been at work contributing to a loss of confidence.

Now the sad truth, as we think, is that ever since November, 1964, when they took a number of very necessary measures to deal with the appalling situation passed on to them by their predecessors, the Government have failed to re-establish complete confidence in our country's ability to hold the present exchange rate. This may not have been entirely their fault, but we on these Benches, at any rate, believe that it was largely due to maladroit tactics. In the first place, in order to overcome the basic opposition to their economic policy on the part of their own Left Wing, the Government have consistently pretended that they were not trying to deflate, though at the same time they have obviously been assuring their foreign creditors that this was precisely their objective. Indeed, if they had not persuaded our foreign creditors on this point they would not have got the essential credits, the pound would have been devalued and their policy would have been in ruins.

Then there is no doubt that in November, 1964, and in July, 1965, and again recently during last week, some action was taken which could well be described—I grant that—as courageous, in the sense that it was obviously going to make the Government unpopular. But the point is that this action is only taken, as we now see, under the pressure of events, and usually after statements that no further measures are necessary or contemplated; and it therefore carries less conviction than would pre-emptive action of some kind. Among questionable tactics we would also maintain that the Government have staked much too much on the short-run benefit accruing from their prices and incomes policy. Unfortunately, the prices and incomes policy has not really functioned—I do not think anybody seriously maintains that it has—and some time ago the Government should have drawn a necessary conclusion. The seamen's strike was not the cause of our predicament, my Lords; it was only the last straw.

Thus, though, given the circumstances, the Government had little option to do other than what they did—and, of course, so far as what they did was necessary in order to avoid devaluation the Liberal Party is firmly behind them—we would respectfully maintain that these circumstances were to a very considerable extent of the Government's own making. As a result, in order to overcome the crisis of confidence which has now arisen the Government have quite likely been forced to take measures of deflation which may amount to what the nuclear experts refer to as "overkill". It is, indeed, quite possible to argue that now that the Government have taken some £500 million out of the economy before the selective employment tax comes into operation—which I believe will take out another £200 million or so—we could quite well get deflation upon deflation, Pelion upon Ossa, which might send unemployment soaring to quite exceptional heights before Christmas or soon after.

Even if this is believed to he an acceptable risk—and it may be—it is our belief that present retraining facilities for the unemployed—those people who will become unemployed—are totally inadequate, and that a tremendous drive should be made straight away to provide such facilities and decent pay so that people can be redirected into productive employment, preferably, of course, involving exports. Generally speaking, unemployment should not be regarded as the "stick"; it must be seen as a means of the productive deployment of manpower. Why not take Mr. Cousins away from his unproductive grumbling and put him on to this gigantic task which would be one worthy of his very considerable talents? After all, this was the great contribution to victory of his predecessor, Ernest Bevin; and, though we are not in a siege economy yet, we may well, if things go on like this, be in one fairly shortly.

Moreover it is surely undeniable that any wage freeze as such is quite incompatible with a high-wage, high-efficiency system. But if the wage freeze is thought to be necessary in the deplorable circumstances in which we find ourselves, we think that two exceptions might well be made. One might be, as my noble friend Lord Byers has already suggested, to encourage a pay-roll freeze, a freeze of pay-rolls as a whole. The noble Lord's reasons for suggesting this were explained recently in a cogent letter to The Times, which no doubt many of your Lordships read. It may be that there are objections to this particular proposal, and I only wish Lord Byers were here to explain this afternoon, although no doubt when he speaks (if he does) on Monday he will be able to explain his thought much more fully to us in this regard. All I say now is that it should be taken into serious consideration.

The other alternative surely would be to welcome wage increases which are clearly and demonstrably based on higher productivity. We can see no danger in that and a good deal of advantage. I need hardly say that a dangerous situation—and here I agree with the noble Lord the Leader of the Opposition—would only be made worse by the nationalisation of steel. As I understand it, of the £540 million compensation, £140 million will be in the form of debentures and preference shares but £400 million will be in equities. Equity holders who receive Government bonds as compensation will, I think, almost certainly sell them to obtain other equities. This will no doubt give a false increase in equity prices and would surely depress gilt-edged at a time when it has had about as many knocks as it can stand. That seems to me to be an additional reason for not going ahead with the nationalisation of steel at the present time.

The Prime Minister has said that once the British people are told the facts their deep reserves of strength and power are brought out to the full". But what he has not told us is what his Government's long-term policy now is. In particular, he has not said how he intends to deal with what is really the fundamental question—namely, that of an increase in productivity and an increase in exports.

It may be said that some of the criticisms I have been making have been destructive. What do the Liberals say should now be done in addition to the main curbs on private and public expenditure already announced? Here I think I can best echo the splendid proposals of my own Leader, Mr. Grimond. We suggest the following: massive re-training schemes involving a reform of the apprenticeship system, as I have already said here and now; the strongest possible action against all forms of restrictive practices; consideration of certain cuts in tariffs; holding down and not increasing direct taxation; some reform of the whole structure of Government involving the creation of House of Commons commissions with real power over the Administration; thorough reform and stream-lining of the Civil Service, preferably by importing a good number of "dollar a year men"; encouragement of "Fawley-type" efficiency agreements and wage contracts for considerable periods negotiated firm by firm with more pay for more work written into them; and, finally, further large economies East of Suez notably on any nuclear follies such as F.111's based on atolls in the Indian Ocean.

In short, what we want is a Government with a completely new look and certainly not one which appears to be divided as to how the economy should be run. Surely it is insensate—and here I agree again with the noble Lord the Leader of the Opposition—to have two Departments of more or less equal strength each wedded to a different brand of political philosophy. I believe that the Prime Minister has said that this strange arrangement results in "creative tension". That there is a certain tension was revealed by the proceedings in another place only yesterday; about whether it is creative, I have considerable doubt. Besides, as we see it, we are quite unlikely fully to achieve the structural changes now required in our economy so long as we are denied certain advantages enjoyed by our Continental competitors—namely, in the first place, a larger and more competitive domestic market and, in the second place, a larger and more easy labour market, bolstered, if necessary, by liberal immigration policies.

This, of course, is one of the essential reasons why the Liberal Party has been consistently in favour of our joining the European Economic Community as soon as possible; and in the parlous circumstances in which we find ourselves it is becoming more and more clear that at least some of the so called "terms" on which the Government are now insisting as pre-conditions of our entry are about as unrealistic as a belief in fairies. Perhaps the basic trouble is that the Government find it very difficult to do anything serious about increasing productivity because they are always forced to look over their shoulder. We say, give us a Government which, owing to their being solidly based on a political philosophy that is acceptable to the great majority of the people of this country, are not under this necessity. If this should be interpreted as meaning that I feel that a new look should be taken at the Party system which has operated in this country for so long, and has now degenerated into a sort of four or five year dictatorship on the part of the inhabitant of No. 10 Downing Street with his gigantic apparatus, then I, personally, would not mind very much. Indeed I hope and believe that this may be the direction in which, consciously or unconsciously, we are now going.

Perhaps the young men and women of all Parties who are sick of venerable slogans may now get together behind the scenes and agree on really radical schemes for putting this ancient country on its legs again. You have only to strike the right note and they will come along. I just do not believe all these stories that we are decadent and down and out. The old saying remains profoundly true, that the British can never read the writing on the wall until they have their backs right up against it. Well, we can nearly read the message now, and shortly we may begin to do something about it.

3.56 p.m.

LORD KAHN

My Lords, I have by now enjoyed adequate and ample opportunity of appreciating the extraordinary kindness and friendliness to a newcomer to this House on the part of all those concerned in its activities. It is therefore with confidence that I crave your Lordships' indulgence on the occasion of my first vocal intervention in the proceedings of this House. But I would wish I could have made this plea on a less grave occasion. I am not one of those who deny that some measures of further restraint were called for; but when I consider the extent and character of the measures, I am inclined to wonder whether the Chancellor of the Exchequer is not unduly modest about the efficacy of all the various proposals which he had himself announced before we were told of the further measures on July 20. It is only too well known how unpredictably slow some measures of restraint can be, and yet, in the end, how obstinately dominant. The earlier steps are now working their way through the system. Your Lordships' House has to consider the totality of all the measures and not exclusively those announced on July 20.

I wish to emphasise particularly the possible effects on productive investment. In announcing measures in July, 1961, to which the noble Lord the Leader of the Opposition has already referred, the Chancellor of the Exchequer of the day, Mr. Selwyn Lloyd, stated in another place: It is not my intention to force a downturn of private investment in productive industry."—[OFFICIAL REPORT, Commons, Vol. 645, col. 227; 25/7/61.] Such investment, on which the growth of the economy so much depends, had at that time, in 1961, been painfully picking up from an unduly low level. The July measures of 1961 brought about a setback to private productive investment from which, at long last, it had just about made a full recovery a short time ago, after an interval of five years. Recently productive investment in the private sector has already started tailing off. What are now the prospects six months, twelve months, hence?

It seems to me that there is room for more emphasis on the theme of redeployment and corresponding less emphasis on the theme of disinflation. What is called for is a combination of expansionist measures with measures of restraint. Admittedly, it would be harmful to stimulate some sectors of the economy when there is no labour available to enable them to respond to the stimulus. But labour is now to be released. Some of it will be taken up, with great advantage to the economy, in the production of exports and substitutes for imports, which have hitherto been held back by the tightness of the labour market. But as to the rest, it is not desirable, my Lords, that the slack should, in considerable measure, be taken up in the production of capital goods for the improvement of the country's industries? The fear is that so far from the slack being fruitfully taken up in this way, the production of capital equipment for the home market will actually fall off.

This leads me on to invite your Lordships to consider the question of restraint of credit. Here, incidentally, I should mention in passing that I happen to be the director of a small bank. Answering a question addressed to him in another place on July 12, the Chancellor of the Exchequer stated: … the present ceiling of bank advances … should remain from now until the end of March, 1967, and until further notice thereafter. I shall continue to keep the position under review, but it follows that there will be no general arrangements to offset the intended effect of the tax."—[OFFICIAL REPORT, Commons, Vol. 731 (No. 694), col. 1198.] that is to say, the selective employment tax. If that unqualified statement is not relaxed in the light of the measures subsequently announced, it is bound to have adverse effects on the orders which industrialists will be placing for equipment to be delivered in 1967—and I am glad to see the noble Viscount, Lord Chandos, nodding his head. It would seem more natural to indicate that relaxation of credit restriction will be introduced as and when conditions permit—and indeed as and when conditions demand possibly relaxation, possibly even expansion.

Certainly it has been indicated that the Government's measures will be relaxed if relaxation is called for. Speaking in another place only two days ago, the President of the Board of Trade said: … if these new restraints prove more than was necessary to correct the balance of payments, and unemployment increases seriously, it is quite possible to relax. In those circumstances, it would certainly be the intention of the Government to do so. Both the regulator control of indirect taxes and hire-purchase restrictions can be varied up or down at a few hours' notice, with immediate effect on the economy."—[OFFICIAL REPORT, Commons, Vol. 732 (No. 62), col. 1578.] My Lords, my submission is that if, at long last, some release of labour from the production of consumer goods is secured, it is most desirable to exploit the opportunity and man up industries on the production of which the future growth of the economy depends, rather than simply revert in due course to the status quo.

I turn now to another aspect of redeployment, and in doing so I intend to go a good deal further than the noble Lord, Lord Gladwyn. From the political point of view and the psychological point of view, as well as from the economic point of view, it seems important to try to minimise the extent to which the relatively less useful kinds of activity benefit from any easing of the labour market brought about as a result of the Government's measures. This brings me to the role of the employment exchanges. What I am going to suggest involves elaboration of a hint dropped by the noble Lord, Lord Haire of Whiteabbey, in his speech during the Second Reading of the Finance Bill almost a year ago, which appears in the OFFICIAL REPORT for August 4, 1965, at column 367.

In the four weeks which ended on May 11—I am simply quoting figures for that particular period because I happen to have them available—placings made by employment exchanges amounted to 168,500 persons. Many engagements of labour, of course, took place in that same period outside the employment exchanges. The number of new engagements will be much bigger when the Government measures really begin to bite. The question is, where do considerations of public interest enter into the operations of employment exchanges? I imagine that the manager of an employment exchange does have in mind that certain employers have more than some other employers to contribute to the wellbeing of the country; but, unless I am mistaken, his dominant loyalty is to the applicant and to the would-be employer to secure a good, safe, well-paid job for the applicant, and a satisfied employer. Of course, if employment exchanges were to operate at all rigorously on the basis of national priorities, steps would have to be taken to prevent their being bypassed—in other words, to secure that, subject to exceptions, all engagements took place through or with the assent of employment exchanges.

In putting forward this indication to your Lordships' House I appreciate that I shall be accused of trying to invoke one form of war-time legislation, the Control of Engagement Orders. Taken by themselves—I am not harking back to any other form of war-time control of labour—that was a purely negative control. In itself it did not constitute any positive direction of labour. Even in that restricted sense, I am not arguing simply that because it was desirable and possible in the conditions of war to have that kind of legislation, that form of negative control is necessarily desirable and possible in the circumstances which rule to-day. I am relying far more on what happened in this context in the decade after the war.

The Economic Survey for 1947, issued in February of that year, dealt at considerable length with the problem of securing the redistribution of manpower, and it was admitted in the Survey that the Government has no direct control over the way in which manpower moves". (Cmd. 7046, para. 128.) That was in February, 1947. Later in 1947 when, as your Lordships may recollect, the balance-of-payments position was precarious, a new Control of Engagements Order was made. This was withdrawn in March, 1950, partly under pressure from the Opposition of the day. Later, in 1951, as your Lordships will recollect, there was a change of Government, and, of course, the new Government came into office in the middle of a balance-of-payments crisis. I might, in passing, just remind your Lordships that among the measures announced on November 7, 1951, by the new Chancellor of the Exchequer—the present noble Lord, Lord Butler of Saffron Walden—were the imposition of certain import quotas and the halving of the tourist allowance from £100 to £50 (to be reduced a few months later to £25). Your Lordships will also incidentally recollect that a month later the new Prime Minister, Winston Churchill, announced that the rearmament programme could not be fulfilled and was being scaled down.

But the point I am leading up to is that, faced with the problems of rearmament, the new Conservative Government in 1952 reintroduced much the same system as the one to which I am alluding—under the name of the Notification of Vacancies Order. I am not suggesting that either in the period 1947 to 1950, under the Labour Government, or in 1952 and the subsequent years, under the Conservative Government, this system of negative control of manpower was administered with any remarkable vigour. What is remarkable, however, is that it was not until some time after the General Election of 1955, and after building control had been abandoned, that the Order was finally revoked by the Conservative Government of the day, in May, 1956. I will leave the matter at that.

I have dealt with the particular rather than with the general. Nevertheless, I have attempted to suggest the possibility of making a reality, as opposed to a possible mockery, of the word "redeployment". The sincere desire of the present Government to avoid the evils of the "Stop-Go" policy, if it can be called a policy, can be generally appreciated. What is now important is that the evils of "Stop-Go" should not once again be experienced as a sequel of the Government's sincere desire to avoid it.

4.12 p.m.

VISCOUNT CHANDOS

My Lords, I count it a particularly happy coincidence that I should be following the noble Lord, Lord Kahn, in your Lordships' House. He was one of our advisers when I was first President of the Board of Trade. I must say that when I took his advice I was nearly always right, and when I did not take it I was sometimes right. I am sure that your Lordships will benefit greatly from hearing from the noble Lord again, and I congratulate him warmly on his maiden speech.

Your Lordships know that I dislike making disagreeable speeches. They are utterly alien to my conciliatory nature. But in our present economic discontents everything which is true is likely to be disagreeable, and everything which is agreeable is not likely to be true. I would refer as little as possible to the past. I should like to spare noble Lords opposite, who are a little bit "punch-drunk" after the speech of my noble friend Lord Carrington. I do not want to add to their distress or to cause calls for more plaster for their wounds. I prefer to talk about the future. Of course, if I have to criticise Government policy, I hope that noble Lords will treat my remarks with indulgence.

Figures are generally a poor guide, but I think that certain relevant figures are not in dispute. We are told that production has gone up by 3 per cent.; prices by 5 per cent.; and wages and earnings by 9 per cent. Perhaps these figures are not accurate in themselves, but they represent roughly the proportion of what has been happening. And I think that, on wages agreements already agreed, wages are going up by at least 4 per cent. during 1967. I have always been an advocate of a high-wage, high-production country. I firmly believe that wages could be higher, without much effort and without damaging our competitive power as a nation. If a comparison is made between any large efficient company in Great Britain and in the United States in the same industry and making the same product, it will be found as a rule that the American company uses 20 to 25 per cent. less labour per unit of production—and this is a conservative statement. At first sight, this would appear to be a stigma upon the efficiency of the British company, but very often, particularly in the field outside repetition goods, the costs of the British company are significantly lower than those of the American. This is because our wages and earnings are less than half the American. I think this is very sad, and a comment on modern Luddism.

A few years ago the president of a large United States industrial company showed me his wage sheet. I always remember the figure. The hourly rated labour was paid at the rate of 2.80 dollars an hour for a 40-hour week—that is, £40 a week. They are probably higher than that now. We could work towards these figures, if we could work towards the productivity of American labour. I therefore find myself in the rather uncomfortable posture of being in agreement with Mr. Cousins and Mr. Foot and their school of thought, that any long-term attempt to keep down wages is going entirely the wrong way about solving our national problem. Fortunately, I am old enough and obscure enough not to cause Mr. Cousins and Mr. Foot any great embarrassment by saying that I agree with them. But your Lordships will note that I referred to a "long-term" agreement. Where I disagree with them is about the short-term pause. What we have done is to freeze production and largely unfreeze wages. And noble Lords opposite are part of a Government who have produced this policy of freezing the wrong thing. This process must be reversed, to achieve the high-wages, high-production economy that we all want.

The comparison I have made between British and American companies in the same industry demonstrably proves that much of British industry is over-manned, and the corollary to that is that wages are over-cheap, in the long term. The first measure should have been, partly no doubt by taxation, to bring pressure to bear upon industry to do with less labour, first for the same production and later for more production, without any increase in the labour force. The selective employment tax is utterly misdirected—it is wholly in the wrong direction. What it does is to make an arbitrary and largely indefinable difference between productive labour and distributional and ancillary labour: a return to the distinction which it was sought to make in the early 19th century and which is now (the noble Lord Lord Kahn, as an economist, would probably confirm this) completely discredited and out of date. The selective employment tax actually gives premiums to manufacturers to take on more labour released from distribution. This is precisely what is not wanted.

Manufacturing companies in this country should not be encouraged to take on "Nippies" from Lyons' Corner House on to the production floor. It is a grave mistake to pay them premiums to do so. Manufacturing companies should rather be persuaded to look at every man and woman employed and try to reduce their numbers without affecting production. This might be achieved by a well-considered payroll tax. It might be. But the present measure, loaded as it is with uncertainty and impossible definition of what is distributional and what is primary production, is aimed at the wrong target. I refrain from saying that the tax has not been thought out in many respects. It looks as if it had been taken from some shelf, with the idea of trying this out and seeing where we got to afterwards.

My first constructive suggestion is to beg the Government to look again at this measure, and if there must be doses of medicine, let them be given to ameliorate the patient's condition, and not worsen it. The tax, too, is accompanied by much false argument and is another example of the new, modern maxim, "No taxation without misrepresentation."

I think that if I went very far into the reversal, the 180-degree reversal, of Government policy between the General Election and now, I should inflame the controversy—and the temperatures of noble Lords opposite. I will try not to do so. Let me say, however, that I do not charge the Government with bad faith. They would like planned expansion; they would like higher wages and higher production: but they have proved that they do not know how to get them. Instead, they have got us, unwittingly, of course, into a princely mess.

Why does the economy appear to drag in this country? In the main, it is because the incentives, particularly to the potential money-makers, have been over the years drastically reduced. A man who starts a modest business on borrowed capital (always assuming that he can borrow it; and that is how most new businesses start) and who by his energy and ingenuity builds it up, is obliged to pay out all of his company's earnings as dividends lest peradventure he should escape the surtax—and another 10 per cent. has been added on to that; that is a sensible kind of thing to do! During his active life he might pay 70 or 80 per cent. of his current earnings to the State. He may well be forced during the credit squeeze to sell his business; and if so, he will then pay about 30 per cent. capital gains tax on any profit he has made. This may have an affect on his health, and if, five years later he dies, the Inland Revenue will take the bulk of anything that is left—including the pennies that are put on the corpse's eyelids. This is a climate in which people like the late Lord Cowdray could hardly undertake the large risks which he did, and which added so strikingly to the nation's wealth and prosperity.

Generally speaking, nobody believes, I suppose, that a nation can grow rich or more prosperous on a diet of restriction. That is the diet which is now prescribed right across the board. I think the general public believe that to get higher productivity, the sovereign remedy for our discontents is that we should all work harder. They have a vision of Sir Paul Chambers or the noble Lord, Lord Cole, calling together the tens of thousands of workers in I.C.I. or Unilever, assembling them into Trafalgar Square, and saying: "Work harder, you boys, and we can get out of our trouble". This is an illusion, because primarily productivity is a function of capital and not of labour: the provision of more and more and faster machines, improved methods of handling materials on the shop floor, and so forth. These all involve capital expenditure. Every measure which the Government have recently taken is drying up the resources of capital. It is destroying the seed corn of industry. The noble Lord, Lord Kahn, drew attention to the great fears we have that the investment in productive industry will fall sharply and the machines will not be there in 1967.

Again, the American operative has behind the bench more than twice the electric energy available to his British counterpart. So that any measures to reduce power generation are against any possibility of achieving higher production due to higher use of electric power. There is, of course, much more to capital expenditure than the mere expenditure: there must be the organisation and management to use it, and the willingness of labour to use it. It is not because capital is lacking sometimes that these things do not happen. The liner trains are not in service not because the capital is not there but because they cannot get the operatives to use them. In some cases, inability to man the night-shift, bad labour relations or bad management prevent the capital from being put to its full use. If production is primarily the function of capital, capital must be wooed. I think Sir Halford Reddish made a happy epigram the other day, when he said that the other place had devoted a lot of time to the discussion of capital punishment, whereas they ought to have devoted more time to discussing the punishment of capital.

I have made the obvious remark that mechanisation is intended to reduce the effort of production, and that it is primarily a function of capital. If, however, harder work, in the ordinary sense of the word, is not the answer, the corollary is that trade unions and workers must change their attitudes, abolish restrictive practices, be more ready to dilute skilled labour with unskilled, not take fright if some workers are immediately redundant, and understand that in present conditions of brimful employment it should not be difficult to redeploy them in new industries and new production, or in some industries which are short of labour—which is the exception—and not over-manned.

As part of the solution to this problem—and this is the next thing the Government must do—we must try to strengthen the unions and the law under which they work. We should undertake two reforms: one to combat the "wild-cat" strike; and the other to see that the officers of the great unions are elected by a large and not by a small number of members. The first of these reforms can, I firmly believe, be brought about in a very simple way—and will have the effect of strengthening the unions—and evidence of methods will be given to the Royal Commission. It would take too long to recite them now. They will involve penalties on "wild-cat" strikes during the period of the conciliation procedures. The law should at the same time lay down a shorter period for the conciliation procedure than is now general. After this period of conciliation, if the settlement does not satisfy the unions, then of course the strike carries no penalties or disabilities whatever.

I advocate, also, a secret postal ballot for the election of principal officers of trade unions. Let me take, for example, the A.E.U. Members have to attend their branch meetings to vote. As a result of the ballot procedure in this union, the average national vote for the officers is 7 per cent. of the members; and the highest ever achieved, after an unprecedented Press and television coverage, reached 12.2 per cent. of the members. I do not think it too harsh to say that if this is democracy, it is an inefficient piece of democracy.

LORD WYNNE-JONES

Can the noble Lord tell us what is the percentage of the shareholders who vote for the election of directors?

VISCOUNT CHANDOS

I was not at the moment discussing directors, but you will find that as a rule (this is something that I am proposing) the proxies which, for instance, elect the directors of I.C.I., with which I am connected, run into some millions of votes. Each vote has a share.

LORD WYNNE-JONES

But can the noble Lord tell us what is the choice offered to the proxy votes?

VISCOUNT CHANDOS

The choice is whether they elect a chap like Lord Chandos to be a director—and I cannot Imagine anything more agreeable. I am afraid that the noble Lord is on a rather bad line here. Proxies that vote directors to the board will run into well over half the number of shareholders. What I am saying—there is nothing very terrible about it; but it is a great pity—is that officers of the A.E.U. are elected, as a rule, on a 7 per cent. vote. This is a very agreeable diversion, and I shall get some more support at the next annual general meeting. I will make a point of asking some of the shareholders to transfer their credit balances, if they have any, to the bank of which the noble Lord, Lord Kahn, is a director. The figures, I think, show without any doubt that they invite minority groups to secure control of our great unions. I confess that if I were a trade union member I should be pretty idle about attending the meetings, but I should be quite willing to vote on a secret postal ballot.

I must mention, though only cursorily (I must not keep your Lordships for too long), the great increase in the Civil Service under the present Government. In 1964, Government offices, excluding the Post Office, occupied 14 million square feet of office space in London. To-day this has risen to 15 million square feet. I am in no way charging the Civil Service with inefficiency. But day by day more and more complicated pieces of administration are put on their backs, of which the corporation tax and selective employment tax are examples. It is somewhat ironical, that when great restrictions are to be put on private office building, Government occupation in London should go up in little more than a year by a million square feet. The tower block of Vickers, a landmark in London, which is about half occupied by Vickers, provides 255,000 square feet of office space. To-day, therefore, it requires 60 Vickers towers to house the Government Civil Service. I really think that ought to be looked at.

These measures, the payroll tax, the reform of the law in regard to trade unions, to strengthen them and to secure more democratic types of election, and a reduction of the administrative burden, are all fairly long-term measures: and we are faced by a short-term crisis. At the end of the speech of the noble Lord, Lord Shepherd, he made some remarks about the patriotism and energy of our people, and he referred to the World Cup. If we could get a serum which was derived from the enthusiasm of the World Cup and inject it into our population, we should be out of our troubles very soon. But I think something quite simple and emotional is required in our present crisis.

When Henry V was in front of Harfleur he did not send for his staff and say, "According to my latest statistics, owing to the rate of sickness it will be difficult to find replacements during the winter months. If you turn to Hamley's Operations of War you will find that the area of the bridgehead in which we are operating is too small for the efficient deployment of our troops. If you turn to the Public Relations Office, you will find that there is a certain murmuring round the camp fire, and my conclusions about this are that the best action we could take would be to capture Harfleur." He did not say that. He said: Once more unto the breach dear friends, once more; Or close the wall up with our English dead. What I suggest is that, by voluntary agreement—please do not be shocked—we should all work thirteen full Saturdays during the next twelve months at the ordinary rate—something that everybody can understand. When I say "we", I do not mean the people on the shop-floor only. I mean the managing director, the general manager, the superintendent, the foreman, the shop steward, and perhaps even the two Houses of Parliament. Waiting until the cheers have died away about the last suggestion, let me say that I really am sincere. Here is something which would make everybody face the fact that we must take special measures. As a corollary, I would relax the law regarding entertainment on Sunday afternoons, and the customs against no races and no games on Sunday afternoons, on the Sundays following these thirteen Saturdays. Surely, the sacrifice of thirteen Saturdays in a national emergency is something which might be achieved by dynamic leadership. It would raise production by, perhaps, 3 per cent.; it would shorten the length of our order books; it would improve our exports and, above all, bring everybody face to face with what is really a national emergency requiring national unity. It is no good talking about the Dunkirk spirit, as the Prime Minister has, unless we can say how it can be inspired and applied.

The British workman is the most wrongly maligned person in the world. If your Lordships will forgive me for one moment, I must tell you something from my own industrial experience. In 1940 a rain of bombs fell upon the Metropolitan-Vickers Works. Forty acres of glass were destroyed, and the tool room fell into the main shop—a shambles. All through the winter of 1940 the men worked 56 to 60 hours a week, with snow round the machine tools. The British workman, when times are good, is a very awkward "cuss" to deal with—and I would not have it otherwise. But when you are up against an emergency he is superb, and this is the spirit which we want to evoke. Let us have a go, and this is my suggestion. We should say about these thirteen Saturdays: England expects that every man this Saturday will do his duty".

4.34 p.m.

LORD ROBBINS

My Lords, one of the privileges of rising at this stage is that I can join with the noble Viscount, Lord Chandos, in congratulating my noble friend (if I may so call him) and longtime colleague, Lord Kahn, on his maiden speech. I am sure that we must all have felt that Lord Kahn's succession to your Lordships' House was a notable acquisition to our reserves of wisdom and of debating power. In many years of professional acquaintance I have found that, whether you agree with the noble Lord or not, he always is both stimulating and provocative of useful thought.

Reverting to the immediate crisis which overhangs this discussion, the first thing I should like to say is that we are clearly not yet out of the wood. I hope and trust that the measures announced last week will convince holders of sterling that at last we are in earnest and that this will quell the psychological tornado which broke out some three weeks ago. But we deceive ourselves if we suppose that all that has happened is just another piece of bad luck—the seamen's strike, the world rise in interest rates, M. Pompidou's observations on British economic policy, and so on and so forth. The fact is—let us face it—that we are still in an acute position of long-term financial disequilibrium. We are not within sight of financing our overseas purchases and expenditure without running further into debt. For many months it has been becoming clearer that the prospect of balancing the account by the end of this year was illusory and that unless there was an unexpected improvement, the knowledge that this was so was bound to lead to another crisis.

I am not speaking now with hindsight. The present position was predictable. The last time we had a debate on this subject I allowed myself to say that if the inflation continued, not only would the balance continue adverse, but it would prove eventually impossible to maintain the present parity of sterling. I added: The inflationary forces are still strong and I doubt whether we have yet done enough to bring them under control"—[OFFICIAL REPORT, Vol. 272, col. 790; 9/2/66.] The ultimate test, therefore, of last week's measures is not merely that they damp down the recent speculative movement but, further, that they arrest the inflation and create a situation in which the state of the balance of payments once more permits us to pay our way.

Turning to the measures themselves, I can see a good deal in detail which I could have wished otherwise. I personally greatly regret the cuts in investment and wish that more of what had to be cut had been imposed on consumption. We shall all he worse off if the development of the infrastructure of nationalised industry is held up and the process of industrial development is unduly interrupted. I share the fears of the noble Lord, Lord Kahn, in that respect. I cannot believe that consumption in general could not have sustained much more than the comparatively small increases involved by the 10 per cent. regulator. I could wish, too, that there had been some cuts in subsidies where no severe hardship would be involved. 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 prescriptions.

But we are at a moment of grave national crisis, and surely it would be wrong to let objections to particular measures inhibit unequivocal support for the general policy of restricting expenditure. If I were an outside commentator, speaking to the world at large, I would express the view that last week's announcement marked a watershed in policy in this country. It marked recognition—genuine recognition at last—that you cannot run an economy of this sort, so dependent on its external connections, on the basis of creeping inflation and excess use of capacity. It marked an end of the belief that a situation of this sort can be dealt with by soft measures and loud exhortations. Although quantitative prediction in these matters is a fool's game, since we live from day to day and have to adjust our appraisals accordingly, I would venture to express the hope that the amount which it is now proposed to take out of the stream of spending should be sufficient to accomplish its purpose and produce a more solid foundation for growth and prosperity; and, whatever my reservations on the appropriateness of certain cuts, I should wish to defend that policy against its critics—to defend, that is to say, the general policy of disinflation at this time.

The first criticism that I should like to controvert is the criticism that instead of deflating we should have devalued. I welcome greatly the declaration by the noble Lord, Lord Shepherd, in this connection, expressing the firm decision of the Government not to resort to this expedient. I do not think indeed that in present circumstances this view that we should have devalued has much practical applicability. On the most cynical outlook, there is a limit to the number of undertakings recently given that one can go back on, just like that. But I know this view is held, let us face it, by some of the ablest and sincerest among us, and I think it deserves a considered answer. I do not think that the answer is only that devaluation without deflation would be dangerous. That is true indeed. But against that argument it is still open to the devaluationist to reply that, with his solution, the deflation need be less.

In my judgment, therefore, the true answer is an appeal to common honesty. I do not think that devaluation can be ruled out in all circumstances. The Bretton Woods Agreement specifically made provision for such adjustments in certain conditions. If there was mass unemployment on an extensive scale and no prospect of improvement without further deflation, if we were obviously in what the statutes of the International Monetary Fund call "a position of fundamental disequilibrium", then clearly these conditions would be satisfied. But I do suggest that it would be a plain breach of duty, both to our partners in the International Monetary Agreement and to our creditors—to those who have put their money here, trusting that we should keep our word—if we were to devalue now, when the level of unemployment is almost at an all-time record low for peace time and the economy is still in a state of inflationary boom. I have suggested already that it would be wildly inexpedient, having regard to the obligations which have already been entered into in the last weeks and months. But I hope I have shown that there are deeper reasons of good faith and common decency why at this time we should not contemplate such a policy.

The next criticism I would consider is that which arises from fear of unemployment. This is a fear which inspires the attitude of all sorts of serious minded people, and it is clearly one which deserves the most respectful consideration. I personally always speak on this subject with considerable trepidation and diffidence. In the inter-war period when mass unemployment actually prevailed, I was on the wrong side: I opposed measures of reflation which I now think might have eased the situation and, although I do not flatter myself that my attitude influenced action in any respect, I shall always most seriously regret having done so. But, my Lords, we are not confronted with a situation of mass unemployment. We are confronted with a position in which, in many parts of the country, the number of vacancies available vastly surpasses the number of applicants coming forward. We are far past the point at which experience shows that price inflation and balance-of-payments difficulties almost invariably set in. In 1939 the late Lord Keynes, whose record in this respect, in sharp contrast to mine, was utterly above suspicion, warned us that if there were 550,000 unemployed, we should be confronted with the problems of full employment in an acute form. My reference is to a turnover article in The Times in that year. And remember that half a million then was a considerably larger fraction of the working force than half a million would be now.

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.

Now if such a slackening of employment were only to be secured by the permanent or long-lasting unemployment of the persons thus enumerated, I would say it was indeed a position of extreme gravity. But this is not at all likely. The composition of the statistical percentage is in fact a continually changing one, over a substantial part of the field; and what is to be expected from a more moderate use of capacity is, in substantial measure, merely a lengthening for a few days or weeks of the time of transfer to a new job. If there be areas where this does not happen, if there be areas where there is a danger of human capital rotting month after month in enforced idleness, I would unhesitatingly say that that was an occasion for preventive action. But I should not think that such action would appropriately take the form of blowing up the rest of the economy or keeping it blown up in a state of inflation and international unbalance.

A closely related criticism is that which emphasises the dangers of a chain reaction of adverse movements. The fear is often expressed that as a result of the disinflationary measures recently announced the economy may be pushed into a nose dive and that before we know where we are we shall be in a position of industrial inactivity and waste. It is sometimes said that already the signs are ominous of a falling off of activity and that in such circumstances disinflationary measures will only make things worse.

As I said earlier. I see grounds for some fear in this connection. I do not like that part of the package which acts on long-term investment. Investment which is damped down necessarily takes time to get started again, and in the interval there may be further adverse repercussions. I wish the contradiction had been more concentrated at the consumption end. But I cannot share the view that the application of the brake need necessarily involve an intolerable slowing down. I am clear that if such a danger were to show itself, there are many ways in which it could be arrested. In the inter-war period, when we used to discuss theoretically control of the trade cycle, it used to be said that the chief problem was to discover ways of initiating recovery rather than curbing the boom.

In the post-war event I think experience has proved otherwise. We now know what some of us did not realise then, that when there is real slack in the system recourse to certain fiscal measures can soon set things right without danger; the regulator can begin to act, so to speak, overnight. But we have not yet discovered painless methods of controlling inflation. I therefore hope very much that the Government will not be inhibited in carrying out their manifest duty now by fears of what may happen later on. Surely it is the dismal record of our history since the war that, again and again, when quite a slight touch on the brakes would have kept the economy stable fears of this sort have been the enemy of action. And now, when the house is blazing, surely it would be folly to desist from using the hose for fear that later on there may be floods, which can be dealt with in other ways.

Finally, there comes fears of the effects of these measures on our long-term productivity. Here I think the position is more complicated. I certainly do not think that a reduction of the inflationary heat in the economy will be damaging to productivity per head—that is very unlikely. I do not think it need be damaging to future rates of growth; to go forward cautiously is to avoid upsetting reverses. But, as I have said, I do regret the curbs of investment. I think there is real danger here which needs watching. And let me add that I certainly think there is still much in our general economic policies which works against the improvement of productivity.

It is clear to me, for instance—to say perhaps the most unpopular thing I could say—that the present policy in regard to rents is a definite impediment to mobility; you cannot hold rents below the equilibrium point without positively creating housing shortages; and I am bound to say that, in my judgment, the selective employment tax will put a premium on labour hoarding when labour hoarding should in fact be discouraged. I completely agree with the noble Viscount, Lord Chandos, in this connection. And although all hope of resolving a crisis of this magnitude by increases of productivity alone seems to me to be grotesquely inappropriate to the immediate needs of the situation, I very much hope that the Government will review all their policies with this criterion in mind. In the long run all our positive hopes of growth depend upon this factor, and we should not let any dogmas or shibboleths stand in the way of achieving it.

I end, as I began, by emphasising that we are not yet out of the wood, even in the short period. The position is very serious and there are still many possibilities of upset. I hope, therefore, that noble Lords will not think me a prig, a Cross-Bench prig, if I say that the situation is one in which recrimination going beyond the usual Party game is not only inappropriate but positively dangerous. I do not doubt that part of the present trouble is due to delay in coping with tendencies which were daily making themselves more apparent, and to that extent responsibility must rest with the Government. But equally I do not doubt that responsibility for the original crisis must rest with their predecessors, who allowed unbalance to develop without taking appropriate action. From this point of view honours or dishonours are, in my judgment, pretty even.

However, speaking broadly, the pickle in which we find ourselves is the product of confused thought rather than infirmity of will. It is the intellectuals who have fostered the belief that we can have growth without discipline, stable prices with unrestrained demand, over-full employment without inflation and balance-of-payments difficulties; it is these who are ultimately blameworthy, if anyone is. And perhaps even here one may say that the motives were not dishonourable. It is not reprehensible to wish for more rapid growth, any more than it is to urge the necessity for continuity and caution. Most of us are liable to make mistakes. What is needed in our present situation is not general recrimination, but sober recognition of facts and reconciliation of our objectives with the logical possibilities of the situation.

4.57 p.m.

LORD SHAWCROSS

My Lords, it must be difficult for anyone, and certainly it is most difficult for me, to follow a speech so well informed, so important and so thoughtful as that of the noble Lord. I cannot, of course, pretend for a moment to speak with his great knowledge of economic matters, and I shall approach the subject matter of this debate, so far as I can, from a practical point of view, as one who is concerned nowadays in the management of two or three industrial or banking concerns which are very much involved in the present crisis. But there is at least one thing upon which I can follow my noble friend Lord Robbins, and that is to say that it does not seem to me that at this time mutual recrimination as to what somebody said or did not say two or three years ago is really very helpful. Nor, indeed, do I think that, facing the situation that we now have, it is very helpful to discuss what somebody did or did not do many years ago. These matters may be of great interest and no doubt of great relevance when the time comes along for an Election. What is important at this time, and what the public wants this House and another place to consider now, is what should now be done.

The country is obviously in a worse mess than it has ever previously been in time of peace. Except in so far as we can learn lessons from what has happened before—and there are some lessons that we can learn—I am not in the least concerned at this time with the question of who is to blame for having got us into the mess. The problem is, how are we going to get out of it? Nor perhaps is it much use to argue now, as I know some people are inclined to argue, whether the Government's very drastically deflationary policies were really necessary. They have been announced, and, erratic and uncertain though they may be, they are in train and being carried into effect. At the best they have resulted in our having bought time, and, I am afraid, bought it at a onsiderable price. The deflationary measures that have been taken, and in particular the wages and the prices freeze, are not in themselves cures for the disease. At their best they treat the symptoms.

What is the disease? It is my view that the real disease is that economically over the past several years, and not only in the lifetime of the present Government, this country has not been sufficiently expansionist in the only way it can be expansionist, namely, by boosting-up its industrial productivity. We have been riding the economy on too tight and too restrictionist a rein. We have never really given it a chance to see what it can do if it had its head.

Basically, I am bound to say that I think Mr. Cousins was right in saying that the policy for this country to pursue was one of higher earnings and higher productivity. It is true that during his twenty months as a member of the Cabinet nothing much was done to implement that policy; and it is true, no doubt, that he made the trifling error of putting the earnings cart before the productive horse. That is always a most unreliable method of equitation. But it is clear that unless we build up our output per manhour worked (at present it is below that of the United States, and far below that of France or West Germany, or, of course, Japan) and unless we reduce our labour cost per unit of output (at present it is far higher than that of the United States, with whose manufacturers we have to compete) then, whatever steps by way of wages freezes and other deflationary devices we may adopt now, in the end this country will become simply an impoverished terminus a quo for emigration to more prosperous and happier lands.

We can do these things. For many years on trading account, taking invisibles and visibles together, we have in fact been more than in balance; we have had a surplus. We can increase that surplus and so meet the cost of necessary Governmental expenditure overseas. Although no doubt it may be distasteful to see Her Majesty's present advisers doling out £225 million in aid overseas, while at the same time going cap-in-hand to beg from foreign bankers, I am certainly not one of those who think we should scuttle away from our friends and allies East of Suez, or cut down the foreign services of the B.B.C., or deny such aid as we can give to the developing countries which so badly require it. A great deal of Governmental expenditure overseas under the various heads that I have mentioned, and no doubt under others, is important for this country if we are to retain any kind of influence in the world, provided, of course, that we can pay for it out of our trading account. And we can pay for it out of our trading account. I hope that by an expansion of economic policy we shall move quite quickly to being able to pay for it out of our trading account.

What is it that has held us back all through these years? When this Parliament came into office twenty months ago it had tremendous opportunities. In spite of perhaps some justified scepticism about 3 per cent. mortgage rates, or some difficulty in squaring promises about still further social benefit with no further increases in taxation, it had a tremendous fund of goodwill, and not least from the professional managers and executives who are increasingly responsible nowadays for the control of our important industrial and commercial concerns. They were as aware as anyone of the latent but potential increase in our national income, which could have been brought about even without any additional capital investment. These are the people who are now being penalised by swingeing increases in taxation.

Why is it that after seventeen months, as the noble Lord said in opening this debate, our production is stagnant, at the exact point where it was all those months ago? The general efficiency of British manpower compares quite favourably with that in other countries abroad. I reject in the strongest terms the suggestion that was made by the noble Lord, Lord Shepherd, that the reason for this stagnation in our industrial productivity was shortage of manpower. Nobody who is really concerned outside the theoretical corridors of Whitehall believes that there is a shortage of manpower in industrial industry, as the noble Lord, Lord Shepherd, apparently believes. I know that the National Plan (which I suppose will become known now as the "National Hallucination") suggested that there was a shortage of upwards of 200,000men in industry in this country. But that is really sheer nonsense. The truth of the matter is that up and down the manufacturing industry of this country far more people are being employed than are really necessary to produce the goods that have been manufactured.

If I am asked why it is that there has been this stagnation, I say that I believe it to be due, in the main, to two factors, both of them bearing on personal incentive. It is the passive attitude of the Government towards restrictive practices; it is the negative, or even hostile, attitude of the Government towards profits or high incomes, which they enforce positively by their taxation policy. Anything above, shall I say, £3,000 in income, is regarded as almost indecent unless perhaps it is earned by somebody in Government or Parliament; and any rise in the profits of a company is regarded with suspicion.

Let me take the question of profit a little further. It is really surprising that my old colleagues, now in power again, like the Bourbons before them, seem to have forgotten nothing and to have learned nothing. At a time when, in the Soviet Union, the importance of personal incentive has been largely recognised, at a time when, in that country, they are moving towards the acceptance of profit, if I may use the words of that well-known economist, Professor Trapeznikov: as an index which best characterises the work of an enterprise and conforms with the interest of the national economy and of the workers, the doctrinaires in the Labour Party still regard the making of profit as a dirty word instead of, as it is, one of the main measures of the efficiency with which a business is run.

This is a trifle odd when one remembers that out of every £100 profit made by a company the Inland Revenue immediately takes £40, and if the profits are distributed to shareholders it takes something between £65 and £82 10s.; indeed, if they are distributed to surtax payers, if one takes into account this cynical and deplorable piece of retroactive legislation which is to be surcharged upon them, it takes a good deal more. But does that lead the Government to encourage companies to make profits? Nothing of the kind. Any policy to "clobber" profits still evokes prolonged cheers from the leaders of the Government who ought to know, and do know, very much better.

The fact is that, far from encouraging the making of profit or the earning of high incomes through industry, the Government, in pursuit of a rather spurious policy of egalitarianism, has become so obsessed with the distribution of the existing cake that it has neglected the splendid opportunities of increasing the size of the cake which falls to be distributed. In the process it has created a tax burden which is greater than that borne in any other country of the world. It is a burden which is stultifying to incentive in industry and to effort on the part of individuals. These taxes and the steady depreciation of money which has accompanied them—8 per cent. during the lifetime of the present Government put a very substantial premium on immediate consumption instead of on saving. Yet it is high consumption, rather than high income, which is at the root of one of our basic problems at this time. It is this fixing of attention on income, rather than on its disposal in savings and in investment, which has underlain one of the weaknesses in the Government's whole economic policy.

But it is not only that taxation is far too high in this country and is for that reason so stifling to individual and corporate effort in industry. It is the complete uncertainty and confusion of the situation. The other day a learned judge, talking not about the quantum but about the complexity of our tax system, said of it that it was such as not to be tolerated in any civilised society; and your Lordships will be glad to know that it is that learned judge whom my noble friend on the Woolsack has very wisely appointed to preside over the Law Reform Commission. But one must admit that the Government have not made its task any the easier.

Within fifteen months they have introduced two major upheavals in our tax system which have produced a degree of uncertainty and confusion in regard to fiscal matters which I venture to think is unequalled in any other country of the world. The 1965 Budget was the implementation of a Minority Report of three out of thirteen members of the Royal Commission. One might have thought that that fact alone would have led the Chancellor of the Exchequer to be warned of the grave practical difficulties that might attend the introduction of these measures, and at least have led him to consult with those who were going to be practically affected by them. Nothing of the kind. The Finance Bill of that year was the worst drafted, most slipshod and complicated piece of legislation that the country had ever seen. But it will not hold this pride of place long, for much worse is coming.

In the result—and this is the serious point—the time of a great many important and able people in industry (to say nothing of the ordinary taxpayer, who is completely baffled by these new laws) is being taken up with attempting to work out how particular actions on the part of their company are likely to be affected by the new tax laws which have been introduced, instead of getting on with the job of producing more for the country's economy. The Inland Revenue Department, always courteous, always helpful, always efficient, always working very hard—and in spite of having been increased in number by a thousand in the last year and doubling the overtime they are working—are completely and hopelessly bogged down. Had it not been for that, it might be that a payroll tax right across the board, or possibly an added value tax, would have been considered. And there might have been something to be said for one or other of those taxes if it had been accompanied by some relief on the direct taxation system. But, as is well known, the Inland Revenue Department were already more than preoccupied with the complications of the taxes they already had, and the Government had to look round for some other Department to involve in our fiscal system.

In the result, and no doubt from the same authorship, we got this new tax, this height of fatuity, the selective employment tax. The proposed administration of this alone would be appropriate perhaps to Alice through the Looking Glass. The consequence of it (and this is the serious thing, apart from the severe deflationary effect, which was possibly the only consequence that was seriously anticipated by those who introduced it) will only be to penalise services such as the banks, the insurance companies and the tourist industry, which together earn £600 million in foreign currency each year for this country, which is more than the deficit on the balance of payments, and, on the other hand, to subsidise the notorious over-employment in the one section of industry the tax is supposed to benefit. Your Lordships have already heard various critical speeches on this matter. I have not heard a single person with experience in industry who, although his firm may itself be getting some benefit from this tax, has a good word to say of it, considering its effect upon the economy as a whole.

Let me pass briefly to the other aspect of this problem of productivity which, although almost marginal, we seem incapable of solving. Why is it that in a wide range of industries in this country we have to employ two people, often three, to produce what one person can produce in some other countries overseas? I do not put the whole of the blame for this on the trade unions. Sometimes it is due to cosy, weak or complacent managements. Occasionally it is due to incompetence in management. Sometimes it is due to restrictive practices on the employers side, although as to this the machinery is working well and these practices are fast disappearing. Quite often it is due to the fact that some of our manufacturing units are too small to take advantage of the economies of scale, to invest in modern plant, numerical control systems, long production runs, and so on.

I congratulate the Government—I am glad on this gloomy day to have something on which to congratulate them— on having appointed a board of distinguished businessmen and bankers to run the Industrial Reconstruction Corporation, which may be able to act as a catalyst in promoting mergers and more bigness in industry. I wish the Government would establish a board to promote mergers between the innumerable trades unions, sometimes as many as 26 in a single industry, which make it so difficult for employers to reach reasonable arrangements in regard to production at their particular factories.

The trouble is that we are not manning our capital equipment efficiently: we are over-manning; or far too often we leave it idle for two-thirds of the day. Expensive capital is justifiable only if it is fully employed. I have said that this is not the fault of the trade unions. I was a little surprised last time I spoke in your Lordships' House on the subject, that when I referred to the Report of the Royal Commission on the Press and said that in that industry over a third of those employed were redundant, one noble Lord on the Opposition Benches—the head of a very important printing firm—got up and said that he would "not let me get away with that". The noble Lord is speaking later in this debate. I hope that before he does so he will read the Report of the Prices and Incomes Board on his industry, and the comments of The Times, as to the shocking state of affairs which existed—no doubt not in his particular and famous concern, but in the industry as a whole.

I have been writing and talking about this subject up and down the country since the devaluation in 1949. I shall not repeat now what I said in those speeches. But there is, perhaps, just this to be added: that the wage freeze is well calculated to make the trade unions stick even more rigidly to these practices, which were ingrained in them because of the great unemployment in the 1930s. The National Economic Development Council and the "Little Neddies" might have been expected to deal with this problem. They are some of the more important of the too numerous series of committees which nowadays absorb the time of the higher executives and trade union leaders. But, unfortunately, they seem to have lacked dynamism, urgency or effort, or at any rate effect. Now I think more is needed.

A few months ago the Prime Minister said that the trade unions should put their rule books in the museum. He said it well. He said it a trifle late. If now the Prime Minister, together with Mr. Brown, with his immense energy, enthusiasm and sincerity, would launch a really serious campaign enlisting the support of radio, television, the newspapers and the Opposition—because this is no Party matter—to convince the ordinary people of this country of the fatuity of these restrictive practices, and of the possibility of a high productive, high earning, economy; and if he would follow that up by depriving those unions which did not put their rule books into the museum of the privileged position which they enjoy under the Trade Disputes Act, he might then overcome the disasters which have befallen the country during his Administration. If he does that, he will earn the gratitude and support of that middle sector of the community which, in the end, determines the fate of Governments.

5.23 p.m.

LORD FRANCIS-WILLIAMS

My Lords, may I say how pleased I am to be the first from these Benches to be in a position to compliment the noble Lord, Lord Kahn, on his maiden speech, which seemed to me admirable, and I am sure we all hope to hear him very often. We have already had a good number of speeches in this debate, and we are to have a great many more. We have heard the noble Lord, Lord Gladwyn, describing with his usual Liberal lucidity how we should, as I understand it, get together behind the scenes with our backs to the wall, and read the writing on it. We have had the noble Viscount, Lord Chandos, along with a good deal of other material, in what was on the whole, I thought, a more amiable speech than he often gives us, repeating his usual heartrending story of the capitalist who, taxed up to the hilt throughout his life, eventually finishes with something approaching a pauper's funeral. I was not surprised to hear him say that, in the long term, he felt a good deal of sympathy with Mr. Frank Cousins. I have long suspected that the President of the Institute of Directors and the Secretary of the Transport and General Workers' Union were cousins under their skin. Both tend to say," Let us, of course, support the public interest, but do not touch me or mine".

Surely, what comes out in any real consideration of this crisis is how minor the economic, rather than the financial, malady in this country is. Only 1 per cent, of our gross national product is involved between an adequate surplus and a deficit, and we have been struggling with an underlying deficit of some £300 million to £400 million, compared with a national income of £28,000 million. Really, we are poised as delicately in this financial situation as madness and genius are sometimes said to be; and indeed I sometimes think that what we have developed is a genius for financial madness.

I want to suggest to your Lordships that, although there has been some criticism of the kind of weapons which are being used in this situation, in some ways what is wrong is that we are in danger of fighting the wrong war in the wrong century. We are fighting for a position of sterling as an international currency which we inherited from the Victorian times, and which is in many ways as out of date and as seriously damaging to us as our old attempt to retain our Victorian position in international defence—with a Navy which provided a policeman for the whole world, and so on—has been.

I am not suggesting devaluation, although I was glad that the noble Lord, Lord Robbins, thought it a subject worthy of serious intellectual examination, and felt it necessary to give the case against it. I think we must avoid getting into the position, in which we have sometimes been in the past, of feeling that sterling, the exchange rate of the pound, is a kind of emotional symbol of the national greatness which never must be looked at. We abandoned the old gold standard a long time ago, but we still tend to cling to too many of its principles. Indeed, if I may adapt a very famous phrase, I suggest that we are often somewhat in danger of crucifying this nation on a cross of plate gold.

I recognise completely the importance of international trade and of international banking to this country, but I suggest—as I have suggested in this House before—that the time has come when we have to ask ourselves whether sterling can remain as an international currency, and whether, indeed, in the modern conditions of the world, any single currency, even the dollar, can carry the great responsibilities. Indeed, in part—and in large part—the troubles with which we are grappling at this moment come from difficulties arising with the dollar as well as with the pound. America has been trying to reduce its deficit in the international banks. Dollars have become short, and sterling has been sold to buy them. Over and over again it has been proved, as it has been proved again and again during the past thirty or forty years, that really the days, either of sterling or of any other currency required to carry the full burdens of being an instrument of international exchange, have gone. I sometimes wish that the Swiss franc would be made an instrument of international exchange. That would teach the "gnomes of Zurich" a thing or two.

There is a meeting going on at present in The Hague, as your Lordships will know, of the Group of Ten—an international study group set up by the International Monetary Fund to study monetary reform. I must say that it goes on with its meetings with no particular sign of urgency or drive. If I criticise this Labour Government, of which I am a supporter—and I do criticise it on a number of details—I criticise it particularly because, although the Prime Minister has frequently given a sort of academic nod to the problem of finding a new international currency, he has never shown any particular zest or urgency in dealing with it. But I believe that is in fact one of the most important issues with which we in this country ought to be concerning ourselves, and with which the world as a whole ought to be concerning itself.

My Lords, so long as there is this tiny balance, this continual pressure upon the pound as an international unit of exchange, in a situation where liquidity is getting less and less and where in fact the situation, in terms of the growth of international credit, is running very much, I am sorry to say, along the lines on which it ran in the late 1920s, before the 1929–31 crisis; and unless we really are prepared to apply our minds to these broad international questions of what we are going to do to get a really effective inter- national currency instead of sticking the responsibility upon sterling because we happened to get it in Victoria's golden reign, then we are continually going to lurch from one financial crisis to another, and the people of this country are going to be continually asked to bear fresh burdens and fresh sacrifices. This is not because they are not working hard enough, not because they are not showing enough ingenuity and inventiveness in their economic affairs, but because they are being asked to carry an international financial and exchange burden which is beyond not only their strength but the strength of any single country.

It is because I do not think there is adequate drive behind this problem that I have some criticisms of this Government, but the criticisms which I think can be legitimately made are not such as can come well from the Conservative Party. I think it can be said that in many issues this Government are thinking too much in old terms. Throughout most of this century, since the end of the First World War, we have had a continual series of crises simply because repeated Governments, mainly Conservative Governments, have failed to deal with the basic problems. The last World War was called by Sir Winston Churchill, very justly, "the unnecessary war". In many ways we are being called upon again to fight an unnecesary war in the economic field because we have refused again and again to do what was necessary to avoid such a situation from developing.

I remember the policies put in train by Sir Stafford Cripps in the late 1940s, when he, too, was grappling with such a situation and was attempting to improve our balance of trade. I remember, because I had some hand in assisting him with it, the campaign which was run in the factories and elsewhere under the general title, carried on large posters, "We work or want"—which, for this island, is one of the perpetual truths of life. I remember also the howl of criticism and contempt which went up from the Conservative side at that time. I remember all the jokes about "Stifford Crapps", and I remember all the criticisms about austerity. I remember the appeals which were made to the trade unions by Sir Stafford Cripps for a wage restraint, for an actual wage stoppage; and I remember the immense response, despite all the difficulties, that came from the trade unions. My noble friend Lord Williamson was one of those at the head of a great trade union who helped to make that policy possible. I remember, too, all the continual carping and criticism that went on until, at last, the Conservatives got back to power and, gradually and disastrously, we moved into the era of, "You've never had it so good", and, "I'm all right, Jack".

I believe that the basic economic situation of this country is sound. I believe that we have taken on international financial responsibilities with an exchange currency too great for us to bear. I believe, as I am sure all your Lordships believe, that it is necessary for the time being to take very substantial and grave measures to put our economy on an absolutely stable foundation in order to make it less vulnerable to attack. In such circumstances, one might have hoped and expected from the Benches opposite, and from Members of the Party opposite in another place, that kind of objective, intelligent, informed approach, critical in parts but looking at the problems as a whole, that we got in your Lordships' House to-day in that masterly speech by the noble Lord, Lord Robbins.

I was particularly touched, as I am sure many of your Lordships were, by the frank admission of Lord Robbins that in the very comparable arguments of the 1930s he was now convinced he was on the wrong side. I was glad to hear him say so, because I have long had a great admiration for him, and in those days I found myself on the other side from him. But whether one agrees with him or not, I think one must admire the approach he made. When he sought to examine what was being done by the Government to meet a situation which he declared to be of the greatest gravity, he requested, he urged, that that should be done without stirring up controversy just for the sake of it. I must say that I wish members of the Party opposite, in particular in this House, which always preserves a certain discretion in such matters, could have taken more notice of him.

I was very interested in the opening speech from the noble Lord the Leader of the Opposition, who was trying, very much against his nature as he told us, and I think against his better judgment, to be as unamiable as he possibly could. In what I must presume was one of these unamiable passages he suggested that Members on these Benches should read the speech of Mr. Heath in another place yesterday. Anxious as I always am to anticipate Lord Carrington's every wish, I had already done so, as I expect had most of your Lordships. I have also read the descriptions of his performance in many of the newspapers, particularly those most favourable to him. "Two-fisted Heath" proclaimed the Daily Telegraph; and it told us how he bounded forward from the opening bell throwing punches in all directions; though it was forced, a little sadly, to confess later on that some of them admittedly were wild and missed altogether—which is, as I am sure the noble Lord, Lord Carrington, would agree, no way to win a world title. Indeed, in describing the speeches of the Leader of Her Majesty's Opposition in the country throughout the last few days at a time of grave international crisis and decision, The Times newspaper said: This may make their flesh creep in Bexley but it is not the language of statesmanship. It is the language of statesmanship that we have been missing so noticeably. Of course, one appreciates that Mr. Heath is anxious to acquire a reputation as "Ted the Giantkiller"; unfortunately, it is the wrong giant he picks on. The real giant of the economic problem, and particularly the financial problem, he leaves to blows flung in all directions and to windy words and empty clichés. All he is anxious to do is somehow to cut others in politics down to his own size—an understandable but, on the whole, rather impossible activity; and to try, since he naturally does not like Mr. Wilson's superiority in debate, to minimise the character, achievements and courage which the Prime Minister has shown, both in this crisis and throughout his period of office.

LORD WINDLESHAM

The noble Lord having finished that fairly extended passage, might I ask him whether he feels that in the last few minutes he has followed the advice of the noble Lord, Lord Robbins, that he urged us to take; that is, to approach this serious situation in a non-Party spirit?

LORD FRANCIS-WILLIAMS

My Lords, I was trying to do so, I thought rather well, under considerable temptation. What I was trying to do was to point out to noble Lords opposite that their Party, one with a very great history, has a great responsibility, and that it was regrettable that their leader was not, in my view, fulfilling it. I was hoping very much that he would take my advice and seek to do so better in the future. I certainly hope that he will; because it is, as I say, a considerable crisis. But it is not by any means an insurmountable one.

I have no doubt whatever that we shall get through these difficulties, as we have got through the recurring difficulties in our economic history over recent years. But unless men and women of all Parties are prepared seriously to apply themselves to the question of Britain's future international role, not only in the field of defence and in other such fields, but in this vital field of international currency and exchange, I very much doubt whether, although we shall get out of this crisis, we shall avoid toppling into another one in another three years' time. By the measures which are courageously being taken by the present Government—and these are very courageous measures, particularly for a Labour Government, which has to ask of its followers restraint and sacrifices which it must find it very difficult to do—I believe we shall get out of our difficulties. And it will be done as a result of that courage and determination, backed by the will of the people of this country. But, for Heaven's sake, having got out of it this time, let us really put our heads together and do some serious thinking about our international place in the future.

5.50 p.m.

VISCOUNT ECCLES

My Lords, for a few minutes I propose to return to the package which is the subject of the debate; but I must first add my congratulations to the noble Lord, Lord Kahn, upon his interesting maiden speech. Like him, I advised the noble Viscount, Lord Chandos, in the war, and I certainly do not think my advice was anything like so good as that of the noble Lord, Lord Kahn. In fact I think that on one or two occasions we had differing views, and his prevailed.

However, to come to this package, I want to speak as shortly as possible, because of the number of noble Lords who wish to intervene. One must ask the question: in the circumstances will it work? It is a very severe package of restrictions, and one would normally go first to the Government Front Bench, who know all the details of our situation, and ask them to tell us frankly: do they think that this will work? But we cannot do that any more. They have answered questions of the sort wrongly over and over again. Every time we have had a Budget, or the equivalent of a Budget, the Chancellor of the Exchequer has said that the deflationary measures he was proposing would be enough to hold the economy on an even keel. Then we have had incidents like the Declaration of Intent on prices and incomes. We were told that that would work; but of course it did not work. Really, it is now very serious that we cannot ask the Government for a judgment, in which we can have any confidence, of their own measures. So we have to go outside the proper place to get this information and ask someone who has not got all the information.

My Lords, I am afraid that again the answer is that we cannot get that clear-cut view that this will work, which is what is needed, at least in the short run; and that for two quite different reasons. In the first place, as my noble friend Lord Carrington said in the admirable speech with which he opened the debate from this side of the House, we do not know how the pay freeze is to be operated. We have to take it from the noble Lord, Lord Shepherd, that we must not ask questions. We do not know how many individual unions and employers will try to operate it, whatever may be the methods to be proposed. And I am bound to say that I think that this pay freeze is central to the whole package. It will not work unless there is some not only temporary but continuous restraint on incomes.

I was glad that the noble Lord, Lord Shepherd, quoted a passage from the Statement of the Prime Minister on July 20, but I was sorry that he did not quote it all. The Prime Minister said: … in 1965, we paid ourselves increases in money incomes of about £1,800 million compared with the previous year. About £1,300 million of this represented increases in wages and salaries. Over the same period we earned only £600 million by way of increased production. These trends are continuing…."—[OFFICIAL REPORT, Commons, Vol. 732, (No. 58), col. 635: 20/7/66.] Of course, as usual, the Prime Minister will not tell the whole truth. It is the fact that the trend of increases in incomes is continuing, but there is not a continuing trend in increased production. Therefore when we consider what are the sums that have to be removed from circulation if we are not going on with weakness of sterling, pressure on prices and all the rest, we have to consider magnitudes which are far beyond what can be taken out by ordinary fiscal and monetary methods, and therefore restraint in incomes is the centre of the whole package.

I am astonished when I read apparently balanced judgments to the effect that we could get on with the package without the pay freeze. I think it was the Chancellor himself, talking at a Press conference at The Hague last Monday, who said, "I do not know whether the pay freeze will work, but it does not very much matter, because it is going to be a bonus on top of it all; we could get along without it." Now, of course, the Prime Minister has had to correct the Chancellor of the Exchequer, because everyone, at home and abroad, who studies this, knows that the magnitude of the drag on our finances is such that we cannot cure it without a change in our attitude towards incomes. Furthermore, it is no good having a standstill for two or three months with half the people concerned just waiting for the "end of term"—when "holidays" begin again, and out they break and claim all that they would have claimed before. No. This is a situation—after all, we have had it with us for a very long time—when we simply cannot afford to add sums of this magnitude to the purchasing power of the country in any year.

My Lords, there is another reason why one cannot have any view that would command attention, here or overseas, about this package. As every noble Lord has agreed, the British economy is very sick and very much in need of a good doctor. But we are in the situation that the patient does not trust the doctor; and, what is worst still, the doctor himself does not believe in his treatement. When we get that situation, where the patient feels that the doctor is not one who has done him or his family much good for the last 21 months, and he also knows perfectly well that the Government themselves do not believe in this kind of remedy, the chances of this package working are regrettably low. I should like to pursue this for a moment. Is there a single noble Lord in this House who can get up and say, with his hand on his heart, that the present Government have shown themselves competent managers of our economy? The answer is, of course, that there is not a single one.

THE LORD PRIVY SEAL (THE EARL OF LONGFORD)

My Lords, I realise that the noble Viscount is discarding the advice of the noble Lord, Lord Robbins, to be fair and dispassionate and tell the whole truth. May I say that he is embarking on a very different line of abuse? But since he says that it is so impossible to find anyone from outside who will express confidence in the Government, and since he has referred to the recent meeting at The Hague, perhaps he might have mentioned that the Ministerial Group of Ten expressed confidence in the Government's ability to put these matters through. I am frankly surprised, and rather shocked, at the failure of the noble Viscount to tell the whole truth.

VISCOUNT ECCLES

My Lords, what else could the Ministers do? They are all creditors of this Government. They have all lent them money. Do your Lordships think that creditors would be so silly as to get up and say at a public meeting, "We are not going to get our money back"?

THE EARL OF LONGFORD

Tell the truth.

VISCOUNT ECCLES

Well, my Lords, I find no noble Lord opposite who will get up and say that this Government is competent—

THE PARLIAMENTARY UNDER-SECRETARY OF STATE FOR COMMONWEALTH RELATIONS AND FOR THE COLONIES (LORD BESWICK)

Do not be silly.

VISCOUNT ECCLES

—to manage the economy.

LORD BESWICK

Ridiculous!

VISCOUNT ECCLES

How can they be? Look at the promises they made at the Election about the methods by which they said they would not tackle exactly this kind of situation. Now they have gone right back. We cannot have confidence in anybody who changes his mind as quickly as present Ministers.

LORD BESWICK

Stick to the truth!

VISCOUNT ECCLES

I do not think that any noble Lords opposite—I may be wrong about this—really believe that Mr. George Brown, the Deputy Prime Minister, and quite a number of members of the Cabinet believe in the deflationary remedies, and I have a lot of sympathy with them. I think it must be very hard indeed for them to have to put their names to a policy which is the opposite of everything on which they were elected.

THE EARL OF LONGFORD

My Lords, since the noble Viscount is adopting these tactics—he apparently intends to proceed by way of rhetorical questions and then afterwards announce that no noble Lord, no member of the Cabinet present, can express confidence in the policy—may I say that he is talking absolute nonsense about the Cabinet and their views?

VISCOUNT ECCLES

My Lords, it is very interesting to believe that every single one of the members of the Cabinet, who all their lives have preached an exactly contrary doctrine, have now turned round. I did not think that even they were quite such turncoats. Well, my Lords, I had better perhaps pass to something which may not annoy noble Lords opposite quite so much.

LORD BESWICK

Something constructive.

VISCOUNT ECCLES

I think we should all agree, on both sides of the House, that for a very long time now our people have been suffering from what on the Continent they call "the English disease". When they speak of the English disease, they do not mean incompetence in financial or economic measures. They diagnose our trouble as a debilitating insistence on being paid more for less work, coupled with a financial situation in which this desire has been all too easily satisfied and, of course, most ex- travagantly satisfied in the last 21 months. I believe that it is this disease, these attitudes of mind, which are really crippling the economy, rather than the wrong level of investment. If we felt that our people had the right attitudes to work, then we should get investment. The other way round, it is not so easy. Therefore, for a moment or two I should like to examine the English disease.

If the Government had adopted financial and economic measures which were very different from the ones they have adopted, and if they had been consistent with each other, then the climate in which this disease has spread so fast would have been altogether healthier. I mean that if we had had the Conservative measures which Mr. Heath outlined the other night—more sensible and lower taxation, more competition, a real war on restrictive practices and, above all, more restraint in Government spending—then the climate for curing the English disease would have been altogether better. But I am bound to say that, in my humble judgment, no packages of purely financial and economic measures by themselves would cure this disease.

How did we come to catch these attitudes, "Couldn't care less" and "More pay for less work"? We have to go back to the days when food, work and homes absorbed the self-interest of the great majority of people. There was then widespread poverty, so that it was worth working hard for a few extra shillings for the family. I remember it well. Between the wars jobs were precarious, unemployment was round the corner, and the middle classes themselves had restraints—I may call them moral restraints; they were much more certain about what was right and wrong in those days. These compulsions have largely gone.

We are glad that poverty and unemployment have done. But we have put nothing in their place. We have created a vacuum. Simply to say that the people should gain economic freedom in order to do as they please is not consistent with developing a responsible attitude. And I am afraid that for a long time now the Labour Party—rightly I would say—have been entirely preoccupied by the gap between the rich and the poor. They have told their supporters up and down the country, and many of us on this side have been infected by this, that it was pretty easy to go on getting rises in pay every year and that it was certain that the State would take over more items in the family budget. We have not understood that if those harsh compulsions which we knew before the war are taken away, we have got to find something else to which to attach our self-interest, something outside ourselves; and no effort has been made to give us that kind of leadership.

I do not think that any noble Lord could deny that for some years now we have been living in an age of growing disorder, properly called moral disorder, and that the bad example and inconsistencies, the foolish measures, of the last 21 months have added to the cynicism of the people. This is the root of the trouble. We must somehow or other have a Government which will foster more responsible behaviour. They can do that by first getting the economic climate right, and secondly by setting an example in restraint themselves. The present Government have done neither. They have not got the climate right. The proof of that is that we have this package now. And they have refused themselves to give a proper example in restraint. One has only to look at Government expenditure. They came into office making speeches up and down the country that we were in a grave financial condition. Every Minister knew that the pound was in danger, that the balance of payments was a high priority. But what did they do? The noble Lord, Lord Shepherd, has told us that they added 5 per cent. to Government expenditure—that means, several hundreds of millions. This was a scandalous thing to do against the cries of emergency which they were uttering all over the country.

Then they flouted their own incomes policy. They gave no example of restraint. They first raised their own salaries more than anybody has done, and followed that by giving in to political pressure to meet various large claims from the public sector. Instead of giving an example of the more economic use of manpower, they now occupy one million square feet more of offices in London and the numbers of the civil service are very much larger. If the Government do not get the climate right and will not give a good example, one cannot expect the people to exercise restraint. It is from the top that these things must come.

What, then, is going to happen? I suppose that either the package will fail and then the Government will be forced to devalue in the worst possible circumstances, or the measures may be very deflationary and touch off a large volume of unemployment. If they did, the Government would panic. They would put the engine into reverse and the old merry-go-round would start again. Because the trouble is long term. One cannot see whether in six months or maybe a year, it is going to be any better. It is not only the people in this country who cannot see this.

My own view is that there is no cure for the economic disorder unless we first cure the moral disorder. That is not only hard to say but still harder to do, but it is no good brushing under the carpet the real reason of our present bad shape in the world. I do not think it would be any good trying to go back to some kind of middle-class morality, which served us all right in the past, when poverty and unemployment were restraints upon the great mass of the people. The present is not like the past. If we now went back to a large measure of unemployment, we should not restore the level of good morals in this country. We should probably have a revolution on our hands. The change has now to be a change throughout the whole population, and this is something we have never tried to do so far.

In the old days a child with a tricycle was much safer and much easier to teach than the grown man with his Jaguar. We have grown up now. We realise that the kind of moral standards which would make us a great country again have to be far better than anything we ever knew before, because so many millions of families—and I am very glad of it—have economic freedom, have the money and the power to do as they please, which only the rich used to have. Now the level of behaviour has got to be something quite different and this is not being tackled at all. I am bound to say that I think the Labour Party have forfeited their right, if they ever had the inclination, to give this kind of leadership. It seems to me that their fundamental doctrine is false. It is this: the mechanical rearrangement of material goods by itself induces people to behave better. There is no evidence in history that that has ever been the case.

I therefore appeal to my noble friends in the Party to which I have the honour to belong to come forward and give us an example of a patriotic, radical and, I must add, puritanical spirit which in history has been the only effective answer to the kind of disorder that we have round us to-day. Let us take our heads out of the economic sands and make the character of the people—not the pockets of the people, but the character—the object and the test of all our political actions. If we did that, we should soon see that the heart of the people is sound.

6.11 p.m.

THE LORD BISHOP OF SOUTHWARK

My Lords, until a few days ago I divided the country into two: the minority who understood economics, and the majority, which includes myself, who did not. I am now wondering whether there is a minority at all, with the exception of those of your Lordships who are taking part in this debate. When the crisis broke on us, I thought that the wisest course was to say nothing until I had tried to understand it. I did try, and, no doubt like many of your Lordships, I traversed acres and acres of newsprint in the Sunday papers, the Friday magazines, the Spectator, the Statesman and the Statist, and, of course, the journal of another place, Hansard, noting how even people of the same Party contradicted one another in their approval or disapproval of causes and remedies. So I came to the conclusion that everybody is baffled and gives an uncertain answer. In fact, when it comes to the nature of the economy, I felt like St. Paul on Mars Hill when he told the Athenians that, although they spent their time in nothing else but to tell or to hear some new thing, all he could find at the end of the day was an altar with the inscription, "To the Unknown God".

But perhaps a confession of ignorance is the best way forward. And a degree of ignorance there must be in economics, because, in spite of the calculations, there is always an imponderable—namely, the unpredictability of human beings. If all of us could accept this fact, we might together take some steps forward. And when I say "together", I am not suggesting a coalition, but a determined effort on the part of everybody to be constructive rather than to throw lobs into one another's court. "The thirteen wasted years of the Tories" or, "The two years of Labour incompetence", may appeal to those who enjoy throwing political custard pies. We on the Bishops' Bench could easily join in the fun by designating politicians of both Parties for the role of the unjust steward, who your Lordships will remember made friends of the mammon of unrighteousness by tampering with the currency and fudging a prices policy. But I doubt whether any of these things does anything to solve our problem or to save our country from the desperate situation in which it is now placed.

My Lords, it is not just thirteen years or two years. My political memories go back to the 'twenties, and we have been staggering from one economic crisis to another economic crisis for forty years, and probably more. My contention is that the sooner we call it a day, and get down to some hard thinking—the Government, Opposition and all of us—the better. I emphasise "all of us", because an insidious effect of Party abuse is to encourage the rank and file to look for scapegoats and to heap the blame on them, instead of appreciating that there is no way out of our difficulties until each one of us realises that we are personally involved and personally responsible.

Having said that, I should like to ask the Government to consider five points. First, are the Government bringing home to us, as they might, the seriousness of the position, or, for fear of making themselves unpopular, are they using the soft pedal? Time and time again "Wolf" is cried, but within a few months we seem to be going on very much as we were before, with the result that the times of crisis are treated with cynicism. The present measures may be severe, but are they sufficiently severe to give us, the general public, the psychological shock that we need? To give a small illustration, last week the Government, if they believed that a major shock is necessary, could have shaken the country by putting an additional 1s. on a packet of cigarettes and a drastic tax on betting. Perhaps there are sound economic reasons for not doing so. Or is it that the Government were fearful of their popularity? Or is it that the Prime Minister has a large smoking habit. Be that as it may, I believe that if the facts are stated bluntly to us, the country will respond. A smoking tax is only one of the ways of doing it.

Secondly, a democracy will oppose dictatorship, but it knows that in some circumstances there must be compulsion. After all, that applies to our domestic life. If a family finds itself on the rocks, the head of the family, to save it from bankruptcy, will say to its members, "I am sorry, but for the time being there are certain things that we have to do in order to cut our coat according to our cloth". I know that wage freezes, the suspension of strikes and the direction of labour constitute political dynamite; but may be that is better than the dynamite of inertia, half measures and pious exhortations that bring down our national home in ruins.

To give an illustration, in last night's paper I read that a gentleman who has the euphemistic title of a "Football pools concessionaire", has a weekly income during the season of £900. In the same paper, I read that another gentleman, who has the less euphemistic title of "Ticket scalper", sells 25s. seats at World Cup matches for £6; and in today's paper it is £75 for a £5 ticket. Can a country really afford touts and parasites? Would it not be to the advantage of everybody if these gentlemen were to be directed to employment that would help in our export drive? These are extreme cases, I know; but the fact is that thousands of our countrymen are in jobs—if that is the right word—that at this juncture our country simply cannot afford. For instance, is it really necessary to have an army of milkmen to deliver our milk ever day, when this is practically unknown in most other countries? I realise that the position cannot be changed overnight, but I am hoping that the Government will tell us that they have a bold, imaginative scheme for the retraining of labour, that they intend to cut out wasteful employment, and are determined to encourage us to use our manpower wisely for the common good.

Thirdly, when a domestic family is in trouble, it will cut down its commitments; it will concentrate on essentials, and cut out what is not absolutely necessary. I know nothing about military strategy, but to what extent can we afford to continue to police the world as we are doing? At last we appear to be doing something about defence costs in Germany. Is it too much to hope that the Government will do some hard thinking about our commitments in the Far East? Again, while in happier circumstances it may be desirable for sterling to take the strain with the dollar, may not the time have come to reform the international monetary system in the hope that we can evolve a system of international credit that will relieve the pressure on sterling? The question is not what we should like to do, had we the resources to do it, but what we can safely do with the resources at our disposal at the moment. The fact is that, as a national family, we are overstretched: we are trying to do too much.

Fourthly, has the time come to review our immigration policy? If there is a shortage of labour, should we not encourage people to come to this country, provided that we are not depriving other countries of key men, and provided that we have suitable jobs for them? I am well aware of the political difficulties and of the housing shortages, but if people are unemployed in their own countries, and if we have jobs here waiting to be done, surely common sense suggests that we should welcome them. It is foolish to say that the main hindrance to expansion in the economy is a shortage of labour if in the same breath we say to those who are anxious to work for us, "Keep out".

Fifth, and last, managerial efficiency and productivity. Here I trespass on strange ground, and I hesitate to express an opinion. Nevertheless, my job takes me into factories, firms and businesses in South London, and I have opportunities to talk to dozens of people on both sides in industry. As an onlooker I have two impressions. First, management will become more efficient if there are reasonable incentives. Time and time again I am told by managements that it is just not worth their while to make changes as it is too difficult or too expensive; or they are too heavily penalised by taxation that does little to encourage them. I am not competent to know whether they are right or wrong, but most of the men who tell me this strike me as being men of real integrity who, in addition to wanting a livelihood for themselves, are keen to help their country. In any case, I am sure that the time has come for both the Government and the Opposition to throw aside doctrinaire prejudices and to take a close look at the fiscal system, with a view to encouraging expansion and penalising inefficiency, overmanning, restrictive practices and economic waste.

My second impression is that the workers will do a fair day's work, and more, if they can be convinced that they can benefit from increasing prosperity. At the moment they believe, rightly or wrongly, that the dice are loaded against them; that profits are unfairly distributed in the interests of shareholders, speculators and middlemen. They may be wrong—I do not know. If so, let them have the facts to convince them. I have never doubted that increased wages must be related to productivity, and I hope that the Government will insist on this by legislation, rather than know-tow to sectional bargaining of pressure groups and industrial malcontents. But they must remember that it cuts both ways: treat the working man fairly, explain to him what is happening, take him into partnership, and in most cases he will respond.

My Lords, I put forward these suggestions in a constructive spirit and, I hope, with no Party bias: the times are too serious for that. I do not despair. Our history proves that when the occasion demands our countrymen will respond, provided they understand the issues involved. There is a verse in Scripture to the effect that when we are asked to go one mile we must be prepared to go a second. Maybe the noble Viscount, Lord Chandos, had that in mind in his speech. In any case, our present condition demands the second mile to-day, not just from the Government, not just from the Opposition, but from each one of us. In spite of the denigration, the cynicism, the self-depreciation that has disfigured our national life in recent years, I believe that the heart of the country is sound; that if the Government, with the helpful criticisms of the Opposition, give the lead, the response will be such that we shall overcome our difficulties and prove our greatness.

I began in Athens with St. Paul, and I conclude in Athens, but some centuries earlier, with Pericles. I claim said Pericles that our nation is an education to the world, and that her members yield to none, man by man, for independence of spirit, many-sidedness of attainment, and complete self-reliance in limb and brain. God grant that this may be true of Britain!

6.27 p.m.

LORD FRASER OF ALLANDER

My Lords, I rise to address your Lordships for the first time, and I do so in the knowledge that I cannot expect to uphold fully the best traditions of your Lordships' House, nor yet achieve the high standard of debate for which it is rightly respected. I hope, therefore, that I may benefit from your Lordships' customary forbearance and trust that, in turn, I may secure your indulgence at least for the comparative brevity of my remarks.

I am moved to raise one or two issues of a broad general nature by reason of the critical state of our economic affairs, and I rely on some 45 years of business experience to justify my intervening in this important debate. It is a matter of concern to me that the present financial policies, operating in what is still predominantly a private enterprise economy, should seem to deny or discourage those three prime expressions of human endeavour; incentives, competition and consequent productivity. Obviously, in present circumstances a halt had to be called to the excessive rate of inflation and to combat the imbalance of payments. Yet as one looks over the annual figures of Government revenues since the last war, and compares them with the gross national product, one sees the renewal of a most disconcerting trend at the present time. Once again, Central Government taxation is on the point of absorbing a third of the national income—a third of some £30,000 million. When so large a sector of expenditure, more than £10,000 million, is concentrated in a single authority, there must inevitably be a reduction in the degree of competition. Further, with the absorption of so high a proportion of individual and corporate income, the latitude to exercise fiscal incentives must be appreciably reduced. Senior management may well be worst affected, but discouragement could be widespread.

In human terms, if one takes away monetary incentives and reduces the element of competition or comparison, one inevitably diminishes the motives for individual effort. And this at a time when an upsurge of national endeavour is called for to rid us of what foreign critics call the "British sickness". I say" the element of competition or comparison. "Within the growing Welfare State the private sector proportionately contracts. In the field of education, medicine and other essential social services there now appears too small a yardstick by which to judge efficiency or, if you prefer it, productivity: we cannot say whether or not we are getting value. Additionally, as the Administration brings more of the assets of the nation under its control the element of competition still further declines.

It may well be that the next six to twelve months will provide the Government, and indeed the nation, during this essential period of restraint, with an opportunity both for reflection and for the reconsideration of our system of taxation. Over the years our present system and our economy as a whole have become too entrenched with subsidies, restrictions, controls, limitations, monopolies, and a great veneer of camouflage, so that many of its effects are contradictory and discouraging to individual effort and initiative. The vast expenditure that Governments now control is in itself inflationary, as are many of the other elements I have mentioned. They give a sense of false values. They prevent us from coming to terms with our newfound prosperity.

Whether or not our incidence of tax is the most severe in the world, I would certainly judge it as providing the greatest measure of disincentive and growing confusion. Certainly I find in business life that our tax systems and procedures hold many inconsistencies and contradictions—and here, my Lords, I must declare my interest. All my life I have been substantially connected with retail distribution and thus constantly come into contact with the broad masses of our people. One learns how readily they respond to a clear and definite lead on matters which are obviously right and just. But to obtain their confidence the measures proposed must be both rational and logical, and clearly understood.

In recent years, we have in retail distribution largely welcomed a number of measures (and more are in process of being considered by Parliament at the present time) for the protection and guidance of the consumer. The consumer, who represents each and every one of us, is entitled, in an age of technological advance, to such measures of help and guidance as will enable him or her to employ to the best effect an expanding purchasing power in an age of ever greater choice. Indeed, the consumer spends in established retail outlets about the same amount as the Government's current revenue—some £10,000 million a year. But the essence of this progress is in choice and selection; and this I think we all recognise. Yet in the sphere of Government expenditure the choice is being increasingly limited, as I have ventured to illustrate, and I feel we have still not moved away sufficiently from many outmoded practices and, still more inhibiting, from many outdated attitudes.

For instance, there is still the belief that there is something improper in making a profit. I was brought up in a school where the making of a loss, particularly in a public company using other people's money, was considered improper. Nor can I conceive of a society expanding and advancing whose individual corporations do not make profits proportionate to their need for new capital and for servicing the monies invested in them. That is not to say that at this time the distribution of profits should not be restrained—indeed, no prudent directors or proprietors would consider otherwise. In fact very recently some of us have reduced our dividends, although we were in a position to maintain or even, in some instances, to increase them. Upon reflection, none of us would wish to join or to serve in a concern which was making an annual financial loss. Nothing is more dispiriting to management and staff than to know that their business is running downhill. Over the past years one has seen this sense of frustration in some of our nationalised industries, as well as in certain public companies. The latter inevitably, under the pressure of the market, have had to revise and rethink their ways.

One particular aspect of the falsity of subsidies and restrictions is especially evident at this time in the city of Glasgow, my home town. Not having served in another place, I would humbly mention that my reference to "my home town" is no reflection on the practice pursued there by maiden speakers. For more years than I can remember, the civic authority has been the principal instrument for the provision of housing, and to-day between 80 and 90 per cent. of all houses within the city boundary—and indeed those related to Glasgow overspill—are either provided municipally or by the new town development corporations. In fact the position elsewhere in Scotland is not largely different. If it were not for the fact that the number of houses required, and the number being built, was showing an increasing disparity this might not be of a critical consequence in itself.

However, the Glasgow Corporation has persisted in the practice of charging grossly uneconomic rents for many years, and now, in consequence of the rising standards imposed by national requirements in the sphere of social services for which the Corporation is responsible, increasingly larger revenue is required for local purposes. This has resulted in the revaluation of commercial property, involving in numerous cases increases in assessment of a threefold nature. Here I am personally concerned, and I am able to tell your Lordships that such rent and rates as appears likely to be required from many of these premises is such that the occupiers' total profit of recent years would be entirely absorbed and they would in fact be compelled to cease business. This is an instance where unrealistic and false housing rentals will do intolerable damage to the very people whom such reduced charges were originally, and are now mistakenly, designed to assist.

Circumstances have greatly altered, but our attitudes and many of our prejudices remain, and much to our own detriment. I do not wish to appear controversial, but I urge that while we remain basically a country whose individual characteristics respond to initiative and private enterprise, and whose spirit still reflects a sense of adventure and an inventive and pioneering attitude, we should harness our economic thinking to these, the best features of the British character.

Admittedly there has been much new legislation, but all change is not necessarily for the better, and in recent finance measures, such as those of investment grants, corporation tax, capital gains tax and selective employment tax, to mention but a few, I see much that is contradictory and is capable of denying our people the opportunity to seek and work out their own economic salvation. The selective employment tax, which has been a subject of prolonged debate in both Houses of Parliament, also emphasises, as did a question earlier to-day which was raised by the noble Duke, the Duke of Atholl, the tendency to contradiction in our taxation system. Certainly it will appear to be so, if judged on a regional basis, in relation to the Highlands of Scotland, and more so in the light of recent announcements of limited financial assistance for the hotel and catering industry.

The Highlands and Islands Development Board is engaged in creating an attitude of mind designed to stimulate the population to a policy of self-help and eventual regional prosperity. Some of us are concerned individually in furthering this aim in an area where there is great dependency on the service industries, an area where, given a reasonable frequency and standard of modern communications, the expansion of the tourist industry is ideally suited in both the local and the national interest. Nor does this in any way reflect upon the importance of the region's agricultural and forestry interests.

Yet this selective employment tax will bear most heavily upon the area, especially upon those prototype developments such as that which I am privileged to be connected with in the area of Aviemoor in Inverness-shire; and if this is successful, as indeed we resolutely intend it shall be, it could well be a prototype for several other such projects which would give increasing employment, both full and part time, to many hundreds of both sexes in areas of the Highlands in which it would not only be uneconomic but physically difficult to develop orthodox industry on a comparative scale.

Surely, if the nation requires that each and every one of us shall apply ourselves with added enthusiasm to our tasks, giving more fully of our experience or of our newly acquired skills, we must offer not only stick but carrot. We must promote the practice as well as the promise, portray example rather than exhortation. How else can we possibly expect to move out of this state of inertia, this almost static level of productivity which is at the root of most of our financial problems both at home and overseas? To-day our basic rather than our current economic problems, if not deep seated, are certainly long rooted. Noble Lords will probably agree that they began with the First World War and the gradual dispersal of our overseas assets.

I am glad, however, that we do not have in our present circumstances exactly the same conditions as I experienced as a young man for some five or six years in business on my own account. Then, in 1931, we were overwhelmed by an economic blizzard which many declared was imported from America. It is true that recent action taken by the United States authorities to strengthen their balance-of-payments position has led indirectly to the selling of sterling, but the association is not a fundamental one. The late Lord Keynes diagnosed correctly the then need to expand the economy, to invest and to cause our currency to circulate. As it was, we contracted, and the reason, as I well recall, that we drew in our horns on every side was essentially one of lack of confidence, lack of confidence abroad and not least among ourselves.

I feel sufficiently strongly to-day to say the third leg of our economic stool is productivity, with incentives and competition as the others; then in turn all three create and support the seat of confidence. I hope, therefore, that those who are presently in charge of our affairs may take such steps as will evoke a sense of confidence and so provide through their measures the circumstances that will both encourage arid enable the British people to do increasingly and actively those tasks and duties which are both the right and the responsibility of every citizen to do for himself or herself, for their families and for the nation at large.

6.45 p.m.

LORD SAINSBURY

My Lords, it is, I think, appropriate that as a fellow retailer I should be the first to congratulate the noble Lord, Lord Fraser of Allander, on his interesting, if not entirely non-controversial, speech, and I am sure I speak for both sides of the House when I say that I hope he will join in our debates frequently in the future.

It is very depressing that when we debate the economic health of the nation so often the patient is sick. The heart of the problem has been described as that of increasing productivity and of ensuring that wages rise no faster than productivity. In my opinion, unless we solve this problem the patient will remain uncured. Now that there is a chance that sterling has been given a breathing space by last week's measures, in my view it is imperative that as a nation we work for this longer-term solution. The most important condition for increasing productivity, as has been stated so frequently in our debate this afternoon, is the elimination of restrictive practices and of overmanning. According to the National Institute for Economic and Social Research, since 1960 output per man hour in manufacturing has gone up by 46 per cent. in Japan; 29 per cent. in Western Germany; 25 per cent. in France; 21 per cent. in the United States; but only 18 per cent. in the United Kingdom.

But the elimination of restrictive practices and overmanning is not something that the Government can achieve by Act of Parliament. Government can only help create the right atmosphere and conditions. Such measures as the Industrial Training Act, the Redundancy Payments Act and the recently introduced Bill to set up the Industrial Development Corporation are all steps in the right direction. But finally the elimination of restrictive practices and overmanning is something that has to be threshed out on the shop floor between the representatives of the unions and the representatives of management, and it takes time, patience and good will on both sides. And it has to be admitted that not infrequently when a productivity agreement has been arrived at by the representatives of management and the paid officials of the unions, the shop stewards will not play.

We had an example of that only last week—and it has already been referred to by the Leader of the Opposition—in the unofficial strike at Tilbury Docks by 1,300 members of Mr. Cousins's own union, the Transport and General Workers' Union. The productivity agreement, which, in the words of the Chairman of the Port of London Authority, achieved three things, higher productivity, lower costs for the importer, and higher wages for the men, had been accepted by the unions, but rejected by the men. Once again the bogey of redundancy raised its head, and was no doubt exploited by certain disruptive elements for their own ends, although I understand that an assurance was given that in fact there would be no redundancy.

However, unfortunately, in my opinion, we are not in a position to wait for the longer-term effects of productivity agreements; it is vital to take action on the wages front as well. As the National Board for Prices and Incomes said in one of its Reports: Earnings and productivity should be treated as related aspects of the same problem. How serious the earnings aspect is is well illustrated by the latest available Ministry of Labour figures, which show a 10.1 per cent. increase in hourly earnings during 1965. This has to be compared with an estimated 2 to 3 per cent. rise in productivity in the same year. The increase in earnings was partly made up of straightforward wage increases, and partly by increased overtime working, due to a reduction in the basic working week in many industries from 42 to 40 hours.

It is an interesting fact, to which the present Minister of Labour, Mr. Gunter, has on several occasions drawn attention, that while the normal basic working week has during the last twelve years or so been reduced from 48 to 44 hours, then to 42 and in many cases more recently to 40, the hours actually worked, until recently, were still only half an hour less than before the war. The obvious cause of this overtime working at overtime rates has been the shortage of labour, due partly to inefficient use. However, its wage inflationary effect has been enormous. Britain now works more overtime than any major industrial nation except France. In my opinion, most of the blame for this must surely lie with management, because so many managers have failed to face up to the long-term problem of the efficient use of manpower in industry. The employee is not so much concerned how his weekly take-home pay is made up, how much is due to normal working and how much to overtime; his only concern is the total, and naturally he will fight against any reduction. Because management has sheered away from this difficulty, overtime has continued to be such an undesirable feature of British industry.

In conclusion, may I refer briefly, whilst declaring an interest, to the selective employment tax, which I criticised when I spoke in your Lordships' House on May 11 in the Use of Manpower debate. One of my criticisms is that, if the analysis is right that increased productivity and more efficient use of manpower is a longer-term solution, the selective employment tax is based on the wrong assumption, because all the evidence available indicates that there is more overmanning and under-employment in productive industries than in the service industries. Furthermore, as has been made abundantly clear, the tax will lead to a large number of anomalies which it will be practically impossible to correct. A good example of this is that identical activities such as transport or maintenance will be treated in three different ways, according to who performs the function, for the purpose of levying the tax. It is this sort of thing that destroys business confidence, that leads to the view that the Government listen too much to theoretical advisers, and do not work out the practical implications of their measures.

In a mixed economy so much depends on confidence between the Government, the business community and the trade unions. It is fair to say also that if Government do not always understand business, businessmen do not always succeed in overcoming their prejudices when a Labour Government are in power. Exaggerated invective and destructive criticism are no help, from whatever quarter they come. The Opposition is in no position to throw stones, because the truth is that no Government since the end of the war have succeeded in curing our basic economic ailments. Now the times are too grave, and the time is too short, for anything but national unity.

6.58 p.m.

LORD MELCHETT

My Lords, as the first Member of your Lordships' House to speak from these Benches after the maiden speech of the noble Lord, Lord Fraser of Allander, I should like to add my congratulations to those of the noble Lord, Lord Sainsbury, on a most remarkable maiden speech. Those of your Lordships who have been here most of the afternoon will have heard the speeches of several noble Lords—I think in particular of the noble Viscount, Lord Chandos, of Lord Shaw cross and others—with wide and up-to-date experience in big industries.

I hope, not only that some of the speeches we have heard this afternoon will be widely reported, but that the Government will take real notice of the wise counsels which have been heard in your Lordships' House today. To those speeches we now add the most remarkable speech of the noble Lord, Lord Fraser of Allander, who is able to draw on a long and wide experience in industry. What he has had to say is of the greatest importance, and I hope it will be duly noted by noble Lords opposite.

I find it possibly a little easier to follow Lord Sainsbury than some of his other colleagues on that side of the House, because I found that he was in sympathy with much of the criticism and with many of the themes which have run through speeches made from this side of the House and indeed on the Cross Benches. It is important in this time of grave economic crisis that those of your Lordships who come to this House should draw on their experience in practical industry, and, where we have common points of view, that these matters are taken to heart by Ministers who are responsible for guiding the fortunes of the country.

Nearly everybody who has spoken this afternoon has looked back over the last twenty years and come to the conclusion that very little seems to have changed in the basic situation. We have a series of economic crises, an endless monotony of "Stop-Go", and an apparent inability by those in authority to analyse our basic problems and to face up to the radical changes which have got to be made in some of the basic industries and techniques which we employ in controlling our affairs. Analyses which begin to show, for instance, that the trade unions must abandon restrictive practices; or analyses which begin to show that the banking system has got to face up to a decimalised currency and possibly, in due course, even to a European dollar in place of the pound sterling; or analyses which mean that we must change our attitude to the commitments which we take as a leading independent military and economic Power—all these analyses tend to be swept under the carpet as soon as their awkward consequences begin to show their heads. The evidence is rearranged to support the status quo, with perhaps a little tinkering here and a little tinkering there; meanwhile the periods between the economic storms become shorter. During these periods of relative calm, we seem to get into a state almost of euphoria and complacency which has now become a matter practically of disbelief in a great part of the rest of the modern world.

If we look at the present situation, what sort of things should we in fact be doing? I suggest that we need to stop the gigantic annual losses on an uneconomic ports and railway system. We should be building modern steel milk alongside deep water, where we can import ore and coking coal from overseas. We should be increasing investment in the successful companies of this country. One hundred companies provide 50 per cent. of all our exports; indeed ten of them do 20 per cent. of the whole of the export trade. These companies are not difficult to identify, and anyone with experience in industry will see that they can only maintain and expand their export business if they have a buoyant and profitable home market. The need is for a vastly increased investment in production and in those companies and industries which are fundamental to our national life, such as the transport industries, and the large industries which carry the greatest burden of the export trade. At the same time there is a need for drastic reshaping of the old and inefficient industries. We have the skills, we have the people, and we have the capital. In addition, I suggest that we must reduce the import of things that can be adequately produced in this country.

However, instead of any of this, we find ourselves once again, with almost unbearable monotony—and this time with extremely little warning—drifting into a situation which demands yet another round of old-fashioned, orthodox deflation, deflation which is absolutely necessary to avert immediate financial disaster. Deflation has as its avowed intent the creation of unemployment, and for all that has been said in this debate about the under-employment of people in industry, people are still one of our scarcest and most valuable assets. Deflation also has the avowed intent of cutting back investment, with the inevitable result of further reducing the long-term prospects of pulling out of our present difficulties. And undoubtedly there will be a further reduction in the incentives for people to work. I have always believed that such policies as these are really unnecessary and are in themselves self-defeating. We can, of course, buy time and gain a temporary respite from external pressures, but only at the expense of further delaying the very projects which in the end alone can solve our long-term problems, the very projects through which eventually we shall get a basic growth in our production and wealth.

I should like to add at this point that I support everything that has been said in your Lordships' House to-day about resolutely resisting any possibility of devaluation of the pound. It is entirely unnecessary at this stage, and I should like to add my support to Her Majesty's Government, who are absolutely correct in taking this line. I hope that the speech of the noble Lord, Lord Robbins, on the subject will be carefully studied, because I think that the detailed explanations which he gave with great authority this afternoon are of great importance and should be well understood and recognised, both in this country and abroad. Devaluation is not necessary and it could do no more than give a very temporary respite. It is unnecessary mainly because we are not at the present time out of line with other industrial nations. Our export prices are competitive; our exports are buoyant; we buy our raw materials in the same markets as our main industrial competitors, and our labour, on the whole, is somewhat cheaper than that of most of our competitors. So if we devalue now, it is really an admission in advance of gross inefficiency, and an admission that we expect to remain inefficient for a long time to come. Furthermore, devaluation is an entirely negative move, because it would do nothing to cure the long-term basic problems facing the country. There is no alternative in the very short term to the measures for immediate deflation which the Government have taken.

However, it is the causes of the crisis and not the short-term remedies which I believe really matter. It is the long-term policies which could remove the very causes of this crisis and earlier crises which, I suggest, should be occupying the attention of the House in this debate. We seem to have developed a sort of national lethargy which makes us unwilling to face up to the extent and the rate at which the world is changing. Our economic difficulties are clearly defined and are there for everybody to see. Why, then, do we believe that a country as small as this, and with scarcely any natural resources of its own, can continue to maintain and improve its standard of living from such a small economic base and with such a limited home market, and at the same time try to police a large area of the world, provide aid on a large scale to underdeveloped countries, and find capital for a wide range of overseas investment at the same time?

As though this were not enough, we take on and cling doggedly to the role of central banker for a large area of the world, and allow our currency to be used as one of the basic reserve currencies—a role most skilfully avoided by our European competitors. I have probably said sufficient to indicate that it is not so much the short-term tactical measures which cause me concern, but the long-term economic strategy of the Government which I believe to be, in its basic concept, unworkable.

On the strategic front, the first essential for this country, in my view, is to sign the Treaty of Rome as soon as we can possibly arrange to negotiate to do so. This will be a long job, and the transitional arrangements have been estimated to engage us in discussions for, possibly, up to two years. I would urge upon Her Majesty's Government that priority should be given to preparing ourselves for entry into the European Economic Community. It is far more important than any National Plan which any Government can ever produce in this country. Let us produce a plan of how we can adjust our own arrangements to enter and become part of the European Economic Community.

In this process we should seek to rid ourselves of the overwhelming disadvantages of managing a major reserve currency. We should also seek to spread more evenly across the whole economy of the European Continent the burden of defending Europe, and get rid of the burden of aid, long-term credit and the policing of the underdeveloped areas of the world. This burden should be more evenly spread over the productive capacity and wealth of Europe. Only after we have joined the E.E.C. are we going to be able to achieve long-term, soundly-based economic growth. I personally cannot see how we are ever going to escape from the endless cycle, beginning with high investment and growth, leading immediately to inflation in this contained economy with all its limitations, followed soon after by pressure on the balance of payments, pressure on the exchange account, and ending once again with the situation with which we have been faced in the last few weeks.

It is not just a matter of lack of confidence in the Government. Everybody has been talking in the last fortnight or so about confidence, saying that confidence in the management of our affairs has gone, and therefore a run on the pound starts. In all the contacts I have with bankers and industrialists overseas, I think the problem goes much deeper than confidence. People are very well-informed to-day. They can often see more clearly what we are doing in this country than we can see ourselves. It is by the realisation that we are taking on a programme which, by quite a simple analysis, it is clearly impossible for us to achieve, that a change in confidence is started. Although there will be pauses and we shall get support, until we begin to reassess our whole position in the world—the commitments which we have overseas, the direction in which we are going to steer this country in the future, whether we are going to be part of a much larger economic complex—we shall never get long-term confidence in this country's ability to pull itself out of its difficulties.

There is only one other point which I should like to make, and that is that if the strategy is wrong the tactics are worse. If you want productivity you must have incentives for people to work and to save. This is where, by a process of adding to all the various facets of taxation, we have manoeuvred ourselves into a position where we have removed the major incentives from people, from the shop floor up to the proprietors and the investors in industry. You must hold out the prospect of a higher standard of living and higher earnings if you want to get co-operation and the extra effort which everybody knows is essential. An increase in earnings and a reduction in personal taxation, both on earnings and savings, is the very opposite of the present taxation policy.

The noble Lord, Lord Shepherd, in opening this debate earlier this afternoon, said that there was a great need for exhortation, that we had to revive the Dunkirk spirit, and that this whole nation had to pull together. He said that we had somehow to galvanise people into action. He finished by asking: What are the alternatives? I will tell the noble Lord, Lord Shepherd, and his colleagues, what the alternative is. The alternative is to provide some incentives. During the war, people could see the objective which we were aiming at, and they knew the consequences of failing to achieve the objective. To-day I am absolutely convinced that the negative approach will do nothing but slow things down and make it impossible to get co-operation. I do not believe that it is a practical proposal to go to the unions and to the masses of the working people in this country and, against the background of a wage freeze, ask them to drop restrictive practices and cooperate in the new techniques. To my mind it simply does not make sense.

Of course, everyone is now concerned with inflation, and we have to squeeze out of the economy some of the surplus consuming power, as the noble Lord, Lord Robbins, so rightly pointed out this afternoon. The place from which I should like to see the surplus consuming power taken out of the economy is the now outdated, old-fashioned subsidies of the Welfare State, which are really based on an earlier period—many of them with their origins right back in the pre-war period of the 1930s. There is no doubt that it is unnecessary and wasteful to provide free medicines for everybody, free visits to the doctor for everybody, subsidised rents, and subsidised uneconomic transport systems which use a vast amount of scarce national resources. It is from this part of the system that I firmly believe one has to take out the surplus money which is pushed in and which is adding to the inflationary pressures.

Certainly steps could be taken to safeguard the interests of those people who would possibly be hard hit, such as pensioners and so forth. But the vast majority of people in this country to-day, with the standard of living which we have achieved and established, can perfectly well afford to pay, and should pay, for the basic essentials of life. Savings and the cost of food should be put as a first charge on their incomes: and if we need to take additional spending power out of the hands of the public to keep consumption down, let it he taken from luxuries, betting, and all the additional items on which people spend their money after they have set enough aside for their basic needs.

I have detained your Lordships long enough. In short, I would say, loin Europe, cut overseas commitments further, he prepared to give un the sterling area as part of the negotiations for getting into Europe, stop the old-fashioned Welfare State subsidies which are based en conditions which no longer appertain in this country, and, above all, reduce taxation and provide people with incentives to work, save and invest.

7.20 p.m.

LORD COOPER OF STOCKTON HEATH

My Lords, I had not intended to make my maiden speech so soon after being introduced into the House, but as this debate is on a subject which is vital to trade unionists and which has been woven into the fabric of a trade union leader's job since the war, I felt that I might have something useful to contribute. I am accustomed to considering the state of the economy from the point of view of the jobs and earnings of the 800,000 members of my union, and I have long realised that, whatever we may achieve at the bargaining table with employers, the real value of any gain is ultimately determined by the economic situation at any particular time.

In the post-war years we have through collective bargaining made impressive gains in money wages and other conditions—something in the order of an average of five per cent, a year. By the time price increases and the restrictions on earnings caused by the recessions of the post-war period have had their effect, the real improvement, taking one year with another, has been only about 2 to 2½ per cent.—half of that achieved at the bargaining table. It is this experience that makes sense of attempting, at least, to get what we call an incomes policy.

I could not help reacting when I heard incentives referred to, because I think it a fact—and I am not going to be controversial—that we in this country have what I often refer to as a distorted wage pattern. It is the accident of where a man lives, rather than what he is doing, that so often determines the size of his wage packet. It might be supposed that some of the highest-paid people were those who might be described as being responsive to incentives; but I am afraid that it does not work like that at all. The size of the packet is based upon the labour supply locally, and I do not myself think that either the trade unions or management are entitled to be proud of the wage situation as it is to-day after the postwar period.

Members of this House must know some of the stupid things (if I dare say this) that have been done on the part of management in order to keep their labour. During the negotiations in this post-war period which have been conducted centrally there has been, I think, a fair amount of reasonable behaviour in a situation in which the trade unions have been stronger than they have ever been in their history; but the great mischief has been done by wage drift. We know that the initiative on wages is still on the shop floor, rather than at the centre, and the great problem for us in the trade union movement is to try to bridge this gap and bring a sense of order into the situation.

When I think of how much better we could do if only we could master our own economic problems, as other noble Lords have said; and when I go abroad and meet foreign trade unionists, and we look around and see them outpacing us in their improved standards—one can see the improved living standards in France and Germany overtaking ours; and countries like Italy and Japan rapidly catching up on us, not to speak of the high level and the high standards in the United States and in Sweden—I am forced to the conclusion that I should not be doing my trade union job of maximising the living standards of the members I represent if I did not co-operate in the solution of problems which were causing those living standards to rise at what is, comparatively, a snail's pace. So I ask the question: how can we solve our basic economic problems?—and this is the question that is taxing everybody to-day. Of course, we all see the problem from different points of view, but I think we are all agreed that we must get the economic life of this nation into a healthy situation if we are going to contribute to a solution of those balance-of-payments problems which have caused one Government after another to introduce measures of deflation.

In the last few years—and I should like to dwell on this point—there have emerged very tentatively from both Parties endeavours to grapple with this situation, and I do not think it is without significance that both the major Parties have played a part in trying to introduce some form of machinery that might help to discover what was wrong with the state of the economy and what was wrong with industry and I have in mind particularly the "little Neddies". I sit as a member of the National Economic Development Council, so I am privileged to see the work that is being attempted there and the work that the "little Neddies" themselves are carrying out. All this, it seems to me, indicates that there is emerging a tripartite co-operation among Government, employers and unions. This means a form of partnership—not, I should say, involving the use of the stick or the carrot.

In spite of our immediate problems, I am encouraged to observe the work of the "little Neddies", because they are finding out what is at the root of many of our problems. When we talk about economic matters, we still think in terms of our imports being made up primarily of half our food requirements and our raw materials; but the fact is that we are importing altogether too many things that we are capable of manufacturing in this country. The figures are very disturbing indeed.

A "little Neddy" which was set up to study imported manufactures found that, in the ten years between 1954 and 1964, the value of our imports of manufactured goods trebled and that their share of the total imports doubled. The volume of imports of manufactured goods rose by 174 per cent. as against a rise of only 6 per cent. for all imports. As has been said already by one noble Lord, our export figures were very good in the early part of this year (and I hope they are going to be sustained), which rather indicates that, in spite of all the problems of wage cost, we are at least managing to hold our own, or are even beginning to improve our export position. But this improvement was far out-weighed by a considerable increase in imports, much of which was not consumer goods—and I think this is a very important point to note. They were not consumer goods: they were manufactured goods, particularly machinery. So, I think we ought to appreciate that, by pinpointing where the difficulty is arising, the "little Neddies" are doing a first-class job of work.

A host of industries have been looked at, but there is one industry which I, as a trade union officer, have always felt was one of the most efficient we have and that is the British chemical industry. Yet, when the import figures were examined, it was found that we were importing a great many chemicals which we were quite capable of producing ourselves. Here, may I repeat that the "little Neddies" are not trade union organisations: they are tripartite, comprising representatives of the Government, employers and trade unions. The "little Neddy" for the chemical industry has given itself the task (I think this gives one the measure of the problem) of endeavouring to arrange for the home manufacture of an additional £31 million worth of chemicals, which it is hoped to substitute for those at present being imported.

It is interesting, and relevant to this debate to-day, that the reason the chemical industry was not manufacturing as much as we should have hoped was its under-capacity; and the reason for this under-capacity—and we understand this quite well—is because, in a "Stop-Go" economy, or even in the uncertainty of to-day, there is no encouragement to manufacturers to invest. Unless a manufacturer can look forward to a fair measure of stable certainty—I do not suppose that he expects absolute certainty, but at least he must see ahead; unless he can do this, if the economy is up and down, he has no encouragement to invest. So this very fine British industry, this, on the face of it, very efficient British industry, could have been doing much more for us if it had had sufficient and adequate plant.

Another development, again on the theme of tripartite development, the cooperation of Government, trade unions and employers, was the joint Statement of Intent in December, 1964. I think that here is the clue to one important contribution towards getting the economy into a healthy state. I must say at once—because we are altogether too prone to do so—that we must not write ourselves down as a nation. British industry in many fields is as good as any industry anywhere—evenbetter. The real job is to get the standards of the best averaged over the whole of British industry. But to do this requires co-operation among all those who can make a useful contribution to healthy industry. I believe that already we have established centrally a close co-operative position between the trade unions, represented through the T.U.C., and the employers, represented through the Confederation of British Industry. In fact I must say, sitting as I do from time to time at various levels, that it is most encouraging to see the liberal outlook—if I may say that—of the leaders of British industry to-day. But I agree with the noble Lord, Lord Melchett, that this wants pushing right down to the shop floor.

This, again, is a great problem. We know our difficulties, and we know the many steps we can take to help us get out of these difficulties; but we must still get through to the shop floor, though, unfortunately, time is not on our side. I think the theme is being pushed down regionally through the "little Neddies" and through the regional machinery that is operating. But certainly the attitudes that operate centrally are still not accepted locally. This again is a very necessary requirement: a complete change of attitude on the part of both sides of industry towards each other. It is good centrally, but there are many misgivings, particularly at the ground level. I think that the time is past for industrial anarchy, from whatever source that may come. I believe it is in the hope of working more and more towards cohesive representation through the trade unions and through the employers, that the prospect for British industry lies.

My Lords, the present time is a most difficult one both for the leaders of British industry and for the leaders of British trade unions. I believe that the economic steps which the Government had to take were absolutely necessary; but the endeavour to operate a wage freeze is a very ambitious and a very difficult exercise to undertake. The British employers and the British trade unions have made it quite clear that they have grave doubts as to whether this can be operated; but the good feature, nevertheless, is that after great thought, and sometimes great reluctance, both the employers and the trade union movement have now offered to do their best to co-operate with the Government. I would conclude by observing—and I am not trying to be in any way controversial—that in this grave situation, where it is important that we should all endeavour to co-operate, it is a matter of regret that the politicians should play politics so much about such a serious matter.

7.35 p.m.

LORD HANKEY

My Lords, we have had a number of remarkable maiden speeches to-day, and I am very glad that I am able to congratulate the noble Lord, Lord Cooper of Stockton Heath, on what he has just said. I think it is of enormous advantage to this House that we should have the presence of men with such remarkable careers and who have such interesting experience in the new organisms which are being formed for the co-operation of both sides of industry and Government. I thought that what the noble Lord had to say about the "Little Neddies" and the work of "Neddy" itself was of great interest, and we hope he will often come here and give us the benefit of his advice. We shall always be glad to hear him.

I share the sadness expressed on both sides of this House about the hard words and recriminations and invective which have been exchanged about the economic situation. The situation is much too serious for recrimination. Neither of the main Parties has succeeded in dealing with the real fundamentals of our economic troubles and I think it is futile for the pot to call the kettle black. We are all in this mess together and we shall certainly not get out of it separately.

I think it is really vital to learn from our experiences. As I was for five years chairman of the Committee in the O.E.C.D. in Paris which dealt with balance of payments, economic growth and economic policies generally, I hope I may be excused if I speak with some considerable detachment in this matter. It used to be thought sufficient in the United Kingdom for the Government to look after the balance of payments; the market economy would look after all the rest and a little adjustment of bank rate would then be sufficient. Well, periodic crises of growing severity led to repeated stops and our periods of prosperity grew constantly shorter. After the disastrous stop of 1962—I hope that the Government will not do anything so prolonged again—we came to the conclusion that we must have an adequate level of demand. Without an adequate level of demand it was impossible to pull our industry up or to have any adequate expansion. The Conservative Government knew quite well in 1964 that they were taking a risk. They hoped that industrial expansion would lift us off the rocks and our reserves would carry the burden meanwhile.

We are greatly indebted to the Conservative Government for founding the National Economic Development Council, and for stimulating investment and for accepting that public expenditure must be brought into the national account forecasts. But their bold, calculated risk was a complete failure, as the crisis of 1964 showed. For be it noted that industry had not expanded as much as was hoped, in spite of the development of demand.

The Labour Government added a more elaborate incomes policy; some deflation; in due course, a National Plan; the "Little Neddies"—an enormously valuable mechanism—and many other selective methods of stimulating productive investment, exports, mobility of labour, et cetera. But fundamentally they were doing the same thing as the Conservatives: they were preserving a relatively high level of demand in order to stimulate economic growth, and they did it, be it noted, on borrowed reserves. This policy also, I am afraid, has now failed, and we are back to square one. Why? Well, it is certainly true that without an adequate level of demand we cannot have economic growth. But our unfortunate experiences under both Parties show that the opposite is not true: we do not necessarily get growth because we allow demand to expand. Other nations may, but we do not. And why not? My Lords, there are very many factors involved, but in my view we have left this question of economic growth rather too much to the economists, because I believe that the major factor in industrial expansion is innovation: scientific, technical and industrial innovation. In British conditions we get no adequate innovation. We introduce fewer new processes and new products than other countries. We steadily lose our share of world markets. The extra demand needed to pull up our production has merely created inflation because productivity has risen so little, because production has not expanded properly and because wages and incomes have gone up more. I warmly agree with what was said by the noble Lord, Lord Cooper, in this connection.

The statistics are quite revealing. If we take 1961 as 100, the level of industrial production in the United States in 1965 was 130; in Germany it was 128; in Italy it was 134; in France it was 128; in Japan it was 170; and in the United Kingdom it was 118. We were bottom of the class among the great nations. I sympathise with Mr. Brown's disappointment. We must have economic expansion as well as balance-of-payments stability. I do not think it is impossible to have both. There was a remarkable report produced for O.E.E.C. by a group of experts under the chairmanship of the noble Lord, Lord Kahn, whose speech we heard with so much interest to-day. That has proved a new starting point for a complete study of the problem of incomes policies, and I believe that if a proper link between incomes and productivity could really be established, this equation could be solved. But until that is done we are not going to succeed.

If we had had industrial expansion comparable with that of other countries, the rise of wages and incomes in the United Kingdom would have been easily financed. On prices and wages, viewed by themselves, only the Americans did much better than we did. With adequate rises of productivity and production we could have had schools, universities, hospitals, motorways, defence and social services and, for all I know, we might have reduced taxes as well. We certainly could have had more incentives, on which I warmly agree with what was said by the noble Lord, Lord Melchett. But if we go on as we are there is no limit to what we are going to have to cut. Our foreign policy is undermined. Our defence policy is undermined. We go cap-in-hand to the Germans and foreign Governments and bankers—I really see no end to our humiliation. It is essential to find a cure; it is essential to solve this fundamental long-term trouble.

Obviously we must have an incomes policy, an effective incomes policy, relating increases of incomes to increases in productivity. I fully support the Government on this. But if productivity does not rise, where does this lead us? Can the Government or anyone in industry freeze incomes indefinitely? I foresee a terrible amount of economic and political trouble in, I suppose, less than a year if we have an absolutely pure freeze. Therefore we must find the means to raise productivity and to secure real innovation all over the country. I agree with all that has been said about the need for productive investment. But how can we get the new machines and the new processes and the new installations actually operating?

We spent, I think, over £1 million on the new dock at Tilbury. An agreement was made by the Transport and General Workers' Union for very much higher wages for the workers involved. But when it came to the point, there was a strike which has been settled only temporarily, and fifteen ships were held up. This is not the first disgraceful incident at Tilbury; there have been others. Then there are the liner-trains; there are the demarcation disputes in shipbuilding; and quarrels between the unions in the motor industry. There is the case of the Webb-offset printing. There was a firm which spent millions on a new plant which it has had to dismantle. How in this way are we to get increased productivity? I entirely agree with what was said by one noble Lord about the state of affairs in the printing industry. This country is being exploited by the fact that it is difficult for printing industries elsewhere to compete. Then there are the apprenticeship restrictions in many trades, especially building where conditions are so very difficult, and now that industry has to be restricted.

My Lords, is not the conclusion clear? We have tolerated a state of affairs in which local objectors and purely sectional interests can and do prevent any economic progress. Our great trade union leaders—and we have very great trade union leaders—have little influence in these local matters. Why is this? I believe the reason is that we have inherited and built up a system which prevents them from having adequate influence. In such conditions how can we create an efficient system of communication in industry, like the Germans, the Swedes, and other successful competitors of ours have? Can we blame management, or indeed the trade unions? I do not think we can. My Lords, the present system is at fault, because it often favours local sectional interests as opposed to the workers' national interests, craft interests rather than industrial interests, and short-term advantage rather than long-term interests. The admirable sense of loyalty of our workers is often turned to help a local trouble-maker rather than to their union, their firm or their industry.

Should we not now look at the whole system as a matter of urgency? Should we not face the necessity, the ultimate necessity, for legislation? I am told that the T.U.C. has not yet submitted any observations to Lord Donovan's Royal Commission. That Royal Commission is making a far-reaching and fundamental survey which will take about another two years. Can we let this problem wait for another two years before we formulate a reform, while at home deep dissatisfaction grows and no useful economic progress can be hoped for and while abroad our competitors steadily outflank and outclass us? My Lords, the members of the Royal Commission are very busy men. They cannot give nearly all their time to it. Is it wise or sensible, or fair to ourselves or our children, to delay decisions? Can the Government survive two or three years of this? Has not the wage freeze really created a new situation in which we ought to look at it again? What about the next major crisis, which may, on previous form, be only two years or so off?

I wish to urge that we should, by legislation, find a means of working round, after full consultation with the T.U.C., towards a system of industrial unions, superposed if necessary on the craft union structure. I believe that on balance none of the big unions would suffer. They should exercise and carry their proper responsibilities and should be enabled to do so. The union leaders should be enabled to exercise real leadership. There are several ways of ensuring this.

Should not industrial agreements be enforceable? I have great doubts whether at present we have the right system. Is there any other answer to many of the local trouble-makers who, regardless of agreements, refuse to work new machines and processes, organise local strikes and put their workmates out of work? I believe that our workers, and especially their wives, are really fed up with the present state of affairs. Should we not consider forming industrial courts to interpret industrial agreements? The Swedes, the Germans, even the Australians, and many others have courts of this sort. Should we perhaps insist on a ballot before a strike takes place or, at any rate, before a strike can be legal? There will, of course, always be strikes and a right to strike. Let us recognise that. But in the interests of our prosperity and future, should we perhaps consider canalising the right to strike, like the right to use firarms? Here again there are many precedents abroad and even in some industries in this country.

Only if we get the real co-operation of the trade union rank and file, as well as of the leaders, can we hope to make the redeployment of labour a reality and not a mockery. I warmly share the views of the noble Lord, Lord Kahn, on the need for that redeployment, and of the noble Viscount, Lord Chandos, and others, on the possible effects of the selective employment tax.

Some people maintain that our industrial relations are not too bad, that in days lost per cent. of the working population the United Kingdom figures only seventh in the I.L.O. statistics. I do not think we should be deluded by this argument. Admittedly, we have good industries and bad industries. In some firms I know of, conditions could not be better. But the strikes and lost opportunities in many of our great export industries are most damaging, as any senior member of our Foreign Service can certify.

I believe that the discouragement and demoralisation of progressive management in some of our greatest industries, to which reference has been made, is very great. They invest abroad as the result, instead of here. They say rightly that it pays better. Out goes the long-term capital and know-how and the technical personnel. I do not believe that we recoup a quarter of it in invisibles, though we obviously get the profits. But others get the markets we might have supplied. If we take a national interest rather than sectional one, I do not believe this is really in our national interest.

To conclude, I urge that we urgently consider these difficult long-term questions afresh and quite impartially. I do not wish to be controversial about them. We have many old traditions in all these fields. We have invented trade unions and helped other nations to build them up, including the Germans, who have a very interesting system now. Let us take a really hard and progressive look at them. Let us be prepared to adapt these traditions to our real needs in the future.

I believe, on our past experience, that there must be a National Plan. It must include both public and private expenditure. There probably must be a Department of Economic Affairs to look after the Plan. There must be an Incomes Policy. There must be some reason to hope for higher productivity. We must identify and sweep away the obstacles to progress. Just as the Tudors stopped the Wars of the Roses, so we must face the need for Government and Parliament to restore order in our torn and disordered society. And if, out of all the present welter of trouble and despair we can create a real approach to altogether better industrial relations, to real confidence and co-operation between both sides of industry and Government—and we see it coming already at higher levels and it is most welcome—then the whole exercise will bring a quite new outlook to our country, such as both the noble Lords, Lord Shepherd and Lord Eccles, favour.

But this is not a task to divide our Parties and cause recrimination. It is essentially a matter for co-operation and understanding and a common approach. I think personally that the Government will have to consider doing something about it quite soon.

7.56 p.m.

LORD GRANTCHESTER

My Lords, we have had much good advice this afternoon from many distinguished economists and from leaders who have been successful in the development of great industries. I do not feel that anything I might say could add to the strength of the appeal which so many of them have made to the Government to reconsider some important aspects of their policy. I am sure that we shall never be free from troubles and problems: men have a way of solving one and creating another, and I think that there will always be room for improvement.

I feel that there has been a lack of frankness by the Ministers and of failure to speak in words which are understood. Communication, as the noble Lord, Lord Hankey, has just said, is always difficult. So, after the constructive suggestions which have been made, perhaps I may be permitted to try to unravel, to some extent, the story of the present crisis. I shall need the help of the Ministers, to whom I shall have to put a few questions. I hope that they will co-operate, because I believe that if a wider circle of men and women in the country can understand the cause of the crisis, it could be a first step to getting their co-operation in working out of it.

As the right reverend Prelate the Bishop of Southwark said, no one understands what has gone wrong; so perhaps some analysis of the principles and practices involved may help a little. We have grown so used to talking about living in a "mixed economy", as if this were a sort of privately arranged co-existence be- tween Conservatives and Socialists, that the great gulf between "a market economy" and "a centrally directed economy" is in danger of being overlooked. This matter cannot be dismissed just because it is controversial. I recall Professor Hayek's warning twenty years ago of the confusion that would accompany the creation of a system of planned economy in which the entrepreneur working for profit is replaced by a central planning authority. I remember a Socialist friend, now in the present Government, taking me to task some years ago for saying that one control needs another control to support it, and so on ad infinitum, until everyone is in his own ordained place, working at an ordained pace for an ordained rate of wage.

There are those, like the noble Earl the Leader of the House, the noble Lord, Lord Shepherd, who spoke to us this afternoon, and other noble Lords opposite, who can make the most painful process to which we are subjected appear to be for the best in this best of all Governments. We were led to believe that the far-reaching changes, amounting to something like a social revolution, would cause us to look back, not in anger, but in gratefulness. Now something has gone wrong, and much confusion prevails, for with what elaborate window dressing the Government set out their theories! A National Plan for the first time in this country! Most people admired "the pie in the sky". And why not? For we were all to get more and more, even if it might turn out to be but more and more paper money with decreasing purchasing power. The foundations were not right, and when the unions blew and storms came in from the sea, the fine house was no longer recognisable.

For many years we in Britain have been contributing to the cost of a considerable body of expert economists and statisticians to which the noble Lord, Lord Hankey, made reference, who made a study of attempts in a number of European countries to check inflation by an incomes policy. If it is too much to say that this policy was discredited, certainly it was shown that the value of such a policy was but marginal and temporary, and that where tried it had created a great deal of ill will.

Why then did the Government make this the cornerstone of their policy? I have tried to find an answer to this question. It may be because the American Administration kept on reproaching us, and it was impossible to speak to anybody in Washington who was interested in this subject without hearing the reproach that they had held their price level steady for some years and that they could not understand why we could not do the same. Of course, the conditions in the two countries were quite different; and, in any case, the American Administration was not enforcing a wage freeze: and I have not heard one suggested, in spite of the new wave of inflation that the Vietnam war is beginning to start.

There is no economic motive force upon which a free society can depend other than the "profit motive" inherent in the individual, linked as it is apparently with the instinct to fight for survival. It is what enables decisions to be taken—a regulator or an engine, if you like, which draws its fuel from the expressed choices of individuals made when shopping or buying; and it is these choices that call the production tune in a true industrial democracy. The profit motive has nothing to do with morals or ethics or exploitation. It is curbed by competition. It is not original sin, as some appear to think, for it is not money, but the love of money which is the root of all evil; and we are enjoined to work hard so that we do not become a burden upon others. The profit motive is not incompatible with the conception of the "common good". But the common good must be defined by the law within which the entrepreneur operates. Kill the idea of profit, and indolence or slavery will follow. What is wrong with this Government's policy, in my view, is that it does not sufficiently recognise this elementary fact; many of the economists who have spoken to-day have said this in more technical language.

This country has problems—largely problems of adjusting our thinking and our actions to current conditions, and to freeing our enterprises from the shackles of restrictions and disincentives. What we cannot afford to do is to go on dithering, unable to face the fact that our resources at present are limited, and can only be further limited by stultification and frustration induced by unpredictable interventions by governmental authorities and by continual policy changes. This is a problem, but it does not constitute a crisis. It only becomes a crisis when the rest of the world, or a large part of it, comes to the conclusion that we are becoming paralysed and, therefore, cannot be relied upon. The Government have largely brought the present crisis upon themselves; and as the Prime Minister has been taking such a dominant role—almost a quasi-Presidential role—then he must shoulder the main blame for its creation.

It is often the little things that are fastened upon by outside observers as showing the way the wind is blowing. Almost the first act of the new Government in October, 1964, as several noble Lords have already mentioned, was to put right in one fell swoop the remuneration of elected Members of Parliament, who alone are responsible for our national expenditure. After this misfortune in example and timing, how did the same Government expect their advocacy of restraint on incomes to be taken seriously? Another early act was to abolish prescription charges, not just for those in need, which would be perfectly justifiable, but so that we could all get free medicine, in addition to free medical advice. The Government thus threw away a £50 million a year contribution towards the very heavy cost of free medicine. That, more than any other single act, I think, shocked many people in other European countries and in the United States, to whom it epitomized what they considered to be recklessness in the squandering of this country's resources. The fact that the Government have raised since taking office an additional £1,000 million by taxation to meet general Government expenditure, and had slipped in by the beginning of this year some £500^* million of additional paper money, has made nothing like the same impression. But it is the flexibility in the money supply, as Ministers may call it, or the watering down or debasing of the currency, as I should call it, that made possible the 9 per cent. increase in earnings without any comparable increase in productivity, which upset the Government's calculations and made nonsense of the National Plan. The money supply will be further increased if the Government insist on proceeding ^*This figure, Lord Grantchester considers, would be more correctly given as £150 million and confined to the year ended February 28, 1966. [Bank of England Report, 1966.] with its plan for the nationalisation of steel.

From my experience of the early postwar years, when foreign currency was limited for holiday makers to £50 (and at that time the purchasing power of £50 was greater than it is to-day), I am sure that if it were desired to find one restriction that would convince everyone in Europe of our hopeless poverty and damage the credit of this country in the eyes of the man in the street abroad, it is the new restriction imposed on spending abroad. I believe we shall lose psychologically, educationally and probably financially, by this exhibition of inward-looking thinking.

I will now come to some more involved matters. In these, as I have said, I shall have to ask for the help of the Minister who is to reply, perhaps on Monday. If I had known anyone was to reply to-night I should have said something to him before I started about these questions. But I shall have to ask for the help of one of the Ministers replying to get the facts correctly established. The first crisis of confidence broke on November 26, 1964, soon after the new Government took office. To support sterling, the Government had placed at their disposal what the noble Earl the Leader of the House, and the Prime Minister in another place, called massive credits to the tune, I think, of some 3,000 million dollars. This credit was made available through their central banks by the Governments of some ten countries working under the auspices of the International Monetary Fund. As noble Lords will recall, we were then told that these credits were an expression of the confidence being shown in Britain and in our ability to achieve our objectives which the Government declared were: first to increase exports; secondly, to review our defence expenditure; and, thirdly, to secure the transfer of more skilled manpower to increase the export effort. Exporters have achieved some success in the first objective, and have had some extra help from Government Departments. The Government are still reviewing defence expenditure. As regards the third declared objective, I have no figures, but I suspect their greatest success in the transfer field is shown in the increased numbers of employees in Government Departments. I shall leave the Minister to give the figures of the additional employees taken on in Government Departments since November, 1964. The noble Viscount, Lord Chandos, has told us the extra floor-space they occupy.

I do not think the Government can have drawn on the credits made available in November, 1964, to the full extent. Perhaps the Minister can tell us, when he replies, how much use we made of, how far we went in drawing on, that 3,000 million dollars. He must have the information. Then during 1965 we drew on the International Monetary Fund to the tune of 1,370 million dollars net. To get this in perspective, the drawings during 1965 of all the other members of the Fund, including some developing countries, totalled only 360 million dollars. Out of these drawings, I fancy we must have repaid the amount outstanding on the credits made available in November, 1964. I should like to know whether I am correct in assuming this. It appears also that, out of these drawings, some 300 million dollars found their way into our reserves shown at the end of 1965. I should like to know whether I am right in believing that any credits used and outstanding from the arrangements of 1964 were repaid during 1965.

Then it would be interesting to know the terms which were agreed in respect of the amounts drawn from the International Monetary Fund during 1965. The Fund, as noble Lords know, has observe certain rules and secure repayment in a comparatively short number of years. As noble Lords will also know, it is not a long-term lending institution.

We have been told, from time to time, that the Government have sold assets which they hold for dollars, and added the dollars to our reserves. I think the figures have been published, but anyway I shall not be able to do the sum I should like, so I will let this pass. So far as I understand, the swap arrangements which have been in force for some time between certain central banks have been taking place as before, for we were told that the credits provided and the drawings from the Fund were in addition to other arrangements between central banks which would continue to operate. The original idea of these swap arrangements as your Lordships will remember, was to counter the effect of so-called "hot" money which tended to be moved, other things being equal, to countries offering the highest return. I should like to know to what extent in each year such arrangements have operated. Has this arrangement been extended to movements other than movements of "hot" money, strictly so called, which may be considered inconvenient to the country from which they are moved.

Why I have gone into all this will now, I hope, be clear. When money is moved out of a country it may amount to a vote of no confidence in the way in which the country is conducting its affairs. When this happens, and before the rot has gone too far, any Government concerned would be wise to ask itself whether it should change its ways, or at least give an explanation, so that this does not happen. Is it not right that we should at least know what accountants call the trend and magnitude of these movements? I do not want details. The transactions of which I have spoken are in reality very simple matters. The only difficulty is the number of noughts required to-day to express the astronomical sums in which Governments operate, but if the censorship were lifted this "in-and-out" account could be expressed so simply that any man or woman used to simple bookkeeping could understand it. This is part of the process of communication which I think we need if the public is to be informed and to co-operate in the policy which any Government is putting forward.

Now perhaps we can ask what happened the week before last. Does the Prime Minister not have a simple "in-and-out" account on his desk every morning? If so, how was he taken by surprise? Of course the Prime Minister also needs a note of what resources are available, and I wonder whether the slipup could have been here. In view of the obvious confusion that has prevailed, is it too much for us to expect a truthful answer to the simple question as to how this matter of the movement of funds in and out of this country is watched by responsible Ministers?

I have been trying to reconstruct the events of the week before last, high drama and tragedy perhaps that it was. There is not much to go on. What puzzles me is that on June 13 last we were told that an additional stand-by credit of some 1,000 million dollars had been arranged. The impression made on me then was that we could all go away in the confidence that anyone who was rash enough to sell pounds would not get them back except by paying a higher price and making a loss. If any of us should need to sell a few pounds during our holidays, well that was the good luck of the buyer. So, my Lords, I ask again, what went wrong? I hope the Minister can enlighten us. The only explanation I can think of is that the funds which the Government had available for buying unwanted pounds began to look a little too depleted. This was just the possibility that we believed to be taken care of by the credits announced on June 13. I cannot help wondering whether any strings were attached to the drawing of these credits which were not fully understood.

We were all glad to know that the French were assisting us, not by joining in the group that made the bulk of the credit available but under a separate agreement, if I remember rightly, to the tune of some 300 million dollars. We know the French are careful people and on more than one occasion in international discussions on monetary policy they have made it clear that they do not like the provision of credits which can be taken up "automatically". I am wondering whether some kindly Government politely intimated that they had listened long enough to our Government protesting that they knew the right remedies for our troubles and that they intended resolutely to apply them. Did someone suggest that this time before the credits were released they required action rather than words? Was this, or something like it, the cause of the panic and the obviously unthought-out measures of last week? The one step which has been continuously pressed on the Government since the granting of the first credits in November, 1964, has been that expenditure by our Government must be cut drastically. There is no other known way—except possibly to go over to the rigid and absolute controls of Communism—of halting the inflation which too much Government expenditure has generated.

The Government try to escape having to admit their failure by putting the blame on what they call "pressure by foreign bankers". It seems to me this must be about the most unworthy taunt ever used by British Ministers and broadcast by the B.B.C. The creditors of this country, from which our Government have sought help, are first, friendly Governments who have lent us some of the savings of their own people. Noble Lords opposite have reminded me on more than one occasion that the Bank of England, our central bank, is firmly under their control since the Act passed when they were last in power, and that even if the Governor is still called the Governor, the controller is the Chancellor of the Exchequer. It is the same with the Governments which have lent us the money; it has been done through their central banks, but it was the responsibility of the Governments.

The other principal creditor is the International Monetary Fund, whose officials are international civil servants working under rules which we helped to draft. They are responsible to member Governments in the institution, which itself is an organ of the United Nations. So I believe it gives a completely false impression if we go about talking of "pressure from foreign bankers" as the act of those who are trying to tide us over our difficulties while we put our house in order. This is not the way to make people understand the true facts.

I can only conclude by saying that to me it seems that the Government have dissipated a surprising amount of good will which has been shown to us over the past two years, and I am sorry that I cannot see how the necessary confidence in this country can be restored so long as the present Government continue in office.

8.29 p.m.

LORD BARNBY

My Lords, this debate is rather an unusual one. For my part, after the flow of wisdom which has gone on for several hours I am now going to return to the beginning. The noble Lord, Lord Shepherd, opened this debate in his usual convincing manner, and many of us will have been almost convinced by his manner that much of the criticism we wanted to utter was incorrect. This was followed by the noble Lord, Lord Carrington, who in his urbane way and in unprovocative language applied a good castigation to the Government, and I am inclined to think that it will be felt that there was justification for saying that much had gone wrong with the Government's timetable. There was an indication by the noble Lord, Lord Shepherd, that with other Bills coming to this House an unusual procedure was going to be followed. I understood him to say there were precedents for it, but when the noble Marquess, Lord Salisbury, challenged him he gave an assurance that this would not be another precedent. These seem contradictory terms.

It was wise of the Government to decide to divide this debate; whether it was from compassion or fear I am not sure. I suspect that had it been compressed all into one day, opposition would almost have run out of steam. After a long membership of this House, I believe there has never before been so many speakers in an economic debate before the Summer Recess. This indicates quite a change in the composition of this House: so many more Members wishing to take part in an economic debate is quite a novelty. In the past there often have been relatively few speakers when a Finance Bill has gone through this House. The intention of this debate was to take the place of the discussion on the Finance Bill when it gets here, by enabling Members to "let off steam" on the Government Front Bench in this afternoon's discussion. There can be few subjects that have not been touched upon, and therefore anybody who speaks now does best just to pick out those points that he feels he particularly wishes to air and which otherwise he will have no opportunity to do before the Houses rises for the Recess.

The question of overseas loans, aids, grants, whatever term is used for the transfer of taxpayers' money to these overseas countries, has been referred to several times. I take this opportunity of raising a reply which was given in this House recently expressing the view that this £225 million, which seems so large an allocation, is certainly justified and the hope that it may even be increased. I cannot, in raising this matter refrain from reverting to the words of the noble Lord, Lord Beswick, in which he deplored a suggestion that we should get out of our own economic difficulties by imposing extra burdens on those so much less well off than we are."—[OFFICIAL REPORT, Vol. 276 (No. 39) col. 366; 19/7/66.] That is the dickens of a philosophy! It means that when you are hard pressed yourself in business and somebody else does not pay what they ought to pay, or needs assistance badly, you must put yourself in a difficult position in order to help them out. That is not business. It is a poor way to run the country's affairs. I feel still, and other have pressed the same view to-day, that these loans ought all to be tied and there should be some selectivity. I think these emotional ideologies override wisdom and practicality. I would also extend this view to the United Nations Special Fund which just soaks up money.

I would appeal for the propriety of foreign private investment. The noble Lord, Lord Shepherd, told us that this was averaging, I think, £100 million a year; the figure I have seen is £94 million a year. It seems stupid to impose impediments on this investment, because the profits that arise from foreign investment contribute to the balance of payments. We were reminded recently that Government overseas expenditure in the invisible acount averaged£272 million per annum. I would refer to migrants' funds. These, it appears, are going to be impounded. Why should the remittance be limited to investment currency and not security sterling? This reminds me of the robbery on an earlier account, when we impounded a migrant's funds and then devalued and robbed him of large parts of his assets. I should have thought migration ought to be encouraged. Goodness knows! expenditure on new towns and social services is such that if a certain proportion of people continued to flow out there would be that much less strain on our resources.

There has been a tremendous emphasis on export. If the Government want more export, let them increase the encouragement by bonuses or subsidies or whatever you like to call it. I was attracted, too, by the views of the noble Lord, Lord Cooper of Stockton Heath, that imports, particularly luxuries, should be restricted. Eight and 8½ per cent. money is not going to give very much encouragement to export; it is going to make much normal overseas selling unviable. Cuts in road expenditure, delays in 'phone installations, could easily be balanced by cuts in the amounts expended on prescriptions and in housing subventions, a point on which the noble Lord, Lord Melchett, put such emphasis. The Rhodesian sanctions and aid to Zambia seem to be a luxurious dogma. Petrol introduced into Zambia at £1 a gallon, inflation of copper prices which are now, it seems, going to cost British industry £125 million—up £25 million or £50 million this year—seems to be another luxury and ought to be avoided. Increased costs in buying tobacco from other than African sources is going again to make a strain on the balance of payments.

The noble Lord, Lord Shaw cross, gave sufficient of a drubbing to the selective employment tax, and other speakers followed. I hope that when the Government spokesmen come to reply they will give us the information which has been asked for before: whence is to come the money for the smaller firms who depend on overdrafts to pay the selective employment tax They can lean only on their bankers, but the bankers are restricted in lending money. How is it going to be dealt with? It seems—this really has been emphasised—a crisis of confidence, and many would have thought that the best evidence to encourage restoration in sterling would be for the Government to cut their expenditure more. Further legislation, steel nationalisation, increased bureaucracy, legislation which makes more civil servants, all discourage the feeling of foreign bankers.

The Government have emphasised that they have made a great many cuts in Government expenditure. But if something like a Geddes Axe had been applied there would have been much greater respect for the prospects of sterling. Let it be remembered that it is not only the foreign bankers, but the aggregate of traders throughout the world who, by the leads and lags of sterling operations, contribute to the feeling of strength or weakness in sterling. I should have thought the dollar premium at up to about 27 per cent. for these many months would have been a strong enough warning to the Government, long before this, that other measures should be taken. The Government Front Bench must have been encouraged because so much admonition with regard to trade union restrictions has been voiced. Everyone knows that they contribute to overtime wangling, to absenteeism, and to other disruptions of industrial efficiency.

I would conclude with one startling illustration. The Chairman of a Commonwealth shipping line reports that a 1 per cent. increase in the turn-round of their ships would make a saving of £120,000 a year. If that be one illustration, goodness knows what could be done in the country as a whole. As so many speakers before me have emphasised, therein lies the possibility of increased efficiency which will contribute to the strength of sterling and of our balance of payments.

8.43 p.m.

LORD MACPHERSON OF DRUMOCHTER

My Lords, may I preface my few remarks by asking the the noble Lord, Lord Hughes, to convey to the noble Lord, Lord Shepherd, my appreciation on his most excellent arrangements for our refreshment this evening? Possibly the excellent of the arrangements explains the emptiness of the Chamber at present.

I have now listened to two debates and the current debate in this House on the economic situation, and I agree with a great deal of what has been said, particularly with the most impressive speech of the noble Lord, Lord Shawcross, who made a brilliant appraisal of the whole position. It was gratifying, too, to hear the noble Viscount, Lord Chandos, touch on the necessity for incentives, and again from the noble Lord, Lord Melchett. But are we tackling this problem on the right lines? My remarks are not directed solely at the present Government but apply equally to the past Administration: and I appeal to your Lordships to take this issue out of the orbit of Party politics. The situation is far too grave for either political Party to try to gain over the other.

I should like to quote from a paragraph of The Times of July 15, which sums up the position as I see it to-day: A stroll past any building site, a visit to any factory gives the real clue to the country's troubles. There are too few people doing a full day's work and this does not exclude management or many of the ancillary service industries. The present state of our industrial anarchy cannot go on. If it does, the day of reckoning will inevitably come. With the greatest respect to the Prime Minister, it is no good appealing to people's better nature to work harder. As he must now have learned, this does not work. There are only two ways to increase productivity: the first through fear, and the second by incentives. Dealing with fear, people will work harder if their livelihood or way of life is threatened. I think this was shown during the last war, when the whole country, inspired by the leadership of Sir Winston Churchill, settled down to do the job in hand and worked. Productivity is usually high when there is underemployment, when there is a definite incentive to keep one's occupation. This fear caused by unemployment is not a solution anyone in this House would advocate. I hope that those days have gone never to return; and I am against a controlled economy which brings this about.

This leaves the only other alternative: incentives and payment by results. It must be borne in mind that even this remedy has been lessened by the Welfare State. I am in favour of most of the social improvements of the past twenty years or so. But in my father's time it was necessary to work hard not only to keep your employment, but to save to educate your children, in case of sickness and for your old age. To-day, even if it were possible to save, it is not so necessary as the State now looks after you if you are sick or unemployed, the State educates your children and, lastly, looks after you in your old age. These are all wonderful advances, but they all tend to reduce the necessity to save. Furthermore, if you should accumulate any funds these funds will depreciate at an alarming rate year by year due to the depreciation in the value of money. If, on the other hand, you invest your savings, which is greatly in the national interest, you are penalised by various types of taxation on unearned income.

We have to find a way of creating incentive if we are going to tackle this problem. I am suggesting incentives not only for the factory worker, but from the bottom to the top. Top management must have the incentive to remain in this country to lead our industries and businesses. In the same way, the operators and workpeople generally must have incentives to produce more. I am also suggesting incentives for companies, banks and businesses of all kinds, as the noble and so wise Lord, Lord Shawcross, says, to produce a bigger cake and thus increase the overall prosperity of this country. In order to implement my suggestion, I realise that it will be necessary to revise completely our present taxation system so that everyone in this country can earn more and retain this extra benefit.

It is no good encouraging (shall we say?) the South Wales miner to put in more hours and thus earn more money if the increase in his wage packet puts him into a higher taxation bracket, which of course means that he will then lose the bulk of his additional earnings. In the same way, the keen executives, inventive scientists, creative designers, have to be treated so that they do not lose all their additions in surtax.

The trade union movement must cooperate, and I am pleased to say that they are showing signs of a more realistic approach to this problem, but not enough and not soon enough. The trade unions must realise that payment by results under full employment, which we virtually have to-day, is not only in the interests of the country but in the interests of their members, who if they are prepared to work, can improve their standard of living at a much faster rate than at present. To restrict the income of any section of the community is basically wrong, if a country and its people are to prosper and to continue to expand their economy. This can only be achieved by higher wages coupled with increased productivity. This will be obtained by hard work which, in turn, will only be achieved by incentives.

I do not propose to deal with restrictive practices—words which are much bandied about. We all know that it is wrong, but very little is done to change the position. This problem must be tackled without delay together with the other archaic systems. The whole concept of freezing prices and wages and of increasing taxation is fundamentally wrong and will not solve our problems. Most people in this country dislike restraint, restrictions and Whitehall supervision. What we all desire is a chance to improve our position, which in turn can be harnessed to the solving of the country's problems.

To sum up my suggestions, a non-Party study group in conjunction with the trade unions and management should be set up to suggest ways and means of changing our taxation system and harnessing labour and management to an incentive basis. I am not suggesting a Royal Commission which will report in two years' time. This whole question is vitally urgent and must be settled, not even in months, but in weeks. An entire new approach has to be put over to the people of this country, an approach which I am sure will be welcomed by everyone who has been waiting in despair for tangible leadership, giving action and not words. There is an old proverb that says "Where there is no vision, the people perish". We have the resources, we have the skill, and I believe we have sufficient labour force not only to tackle our economic problem, but to give everyone a chance of achieving a very much higher standard of living.

8.55 p.m.

THE EARL OF PERTH

My Lords, I have done a sum, and I find that I am the twentieth speaker to-day; that there are half-a-dozen to follow me, and we have had three noteworthy maiden speeches—all on the economic ills and remedies of to-day. Then, of course, on Monday we are going to hear yet more speakers on this subject. I do not intend to be controversial, because I do not think this is the right time for controversy; but I must confess that I am tempted to be so, when I think of the folly of nationalisation of steel at the present time and the issue for this purpose of £500 million worth of bonds.

I do not know whether your Lordships realise that the measures which we have heard announced these last few days will result in about £500 million of spending being clawed back from the consumer; yet the same sum is shortly to be issued in Government credit. That must inevitably be inflationary and must lead to great consumer demand. I hope that the Government may consider whether they could not at least delay this issue; indeed, this whole affair of steel nationalisation. I know that it is wrong; many of us know that it is wrong at this time; and the "Gnomes"(whoever they may be) know that it is wrong. I leave it at that.

I intend to devote my speech, which I hope will not be very long, half to general points and half to Scotland. The first point I want to make is one which I hope is constructive, and will, I believe, be extremely popular. It is in reference to what I would call the monstrous regiment of civil servants, be they Central Government or local government. I should not like it to be thought that I am against the civil servants as such—far from it; many of them are my friends. But as a body they have a characteristic which must be ruthlessly checked; that is, that if left alone, the Civil Service grows and grows. The present Government have recently encouraged this growth, with new forms of taxes and new forms of Government administration. I know that each Department tries very hard to check its own number; I know that the Treasury, as the overall watchdog, try to do the same thing. But I also know that they have completely and utterly failed. We have heard the story of the growth in the area where they are accommodated in London at present, and we have also seen the figures showing that they are increasing every year.

What I have in mind is that a Committee should be set up to use the pruning knife on the Civil Service—I nearly said the "Geddes axe", but that perhaps is far away, and it was a pretty vicious and destructive axe. But I have more in mind the work done by the May Committee some thirty years ago. I should hope that work by such a Committee would cover both local and Central Government authorities. At the same time—and this would be most important—this Committee should be charged with the special work of trying to cut down paper work. We all know the countless forms which we have to fill in, in duplicate, in triplicate, and even more. Paper is the growth-food of the Civil Service. Furthermore, and even more serious, the private sector is compelled to fill in these forms, and the amount of labour needed to undertake this task is even greater than the number of civil servants required to deal with the papers when they are returned.

I will not try to give instances of this growth of paper work, as most of your Lordships could give your own examples; but I was impressed by what happened a little while ago in the stores of Marks and Spencer. Your Lordships may recall that they announced they were going to do away with all internal office invoicing. Many people said that this would be disastrous; that they would lose a lot of money, and that they would certainly get into trouble. The result was exactly the opposite. They did very well; they had no losses, and everybody rejoiced at the reduced paper work required. I am quite clear that whoever thought that one up ought to be a member of the Committee which I am proposing if the idea were to be taken up, another member of the Committee should be a professional business efficiency expert, who would be able to comment on Government machinery and the countless new jobs which have been created. I repeat that if the Government did appoint such a Committee they would be doing something which was extremely popular and would help us all to be better tempered and to get on with the productive work that we all want to get on with.

My second general suggestion arises from something which I read in the papers at the same time as the trouble in the dockyard over the new timber-loading machinery, which the noble Lord the Leader of the Opposition mentioned earlier. Your Lordships will recall that this meant using 16 rather than70 men on a particular job. I read in a paper about the experiences on the Pacific Coast of America. Many of your Lordships will recall that fifteen years ago the ports on the Pacific Coast of America were very nearly dead. For example, I remember seeing San Francisco where nothing at all happened. This was due to strikes, and the strikes were started through fear of redundancy and of modernisation.

Perhaps the leader of the strikes, and the leading cause of all the trouble, was a gentleman called Mr. Harry Bridges, whose name in those days was anathema in the country. The article I read told how all that had changed; how to-day Harry Bridges and his men are after the employers and the dock authorities, saying, "Get on with the modernisation; get on with efficiency", and everybody is prospering. The employers are benefiting; the work in the ports is done more quickly, and the workmen are making a great deal of money. My suggestion is either that we should ask Mr. Harry Bridges and one or two of his colleagues to come over and explain to the employees and employers here, their philosophy, and how they are making things work; or, alternatively, that we should send over appropriate representatives of the port authorities—and I have particularly in mind the unions; the workers as well as the employers—to see for themselves whether there is not something they can learn from this extraordinary turnaround which has taken place on the Pacific Coast.

I should now like to turn to Scotland, and first I would say that I feel very much with the noble Lord, Lord Fraser of Allander, that many of the troubles there have been caused by the policy for so long of low rents for houses. At one time an attempt was made to get this situation put right, and there has been some improvement; but I beg that this effort is pushed further and that, one way or another, the local authorities are forced to raise the rents, except, of course, for the hardship cases. There is no doubt that that policy is stultifying; that it prevents the building of new houses and causes the effects which the noble Lord, Lord Fraser of Allander, outlined.

There is another point that I want to make about Scotland. I think I have detected over the last six months or a year a change in the policy which concentrated on developing in the growth areas. Toothill said that the correct thing to do was to work on the growth areas and develop from there. This policy proved very successful, and we all know how Scotland is getting out of its ills. But recently I have detected a change. The whole of Scotland, except for Edinburgh, is a development area, and I think there is a danger that in looking at the country overall we shall lose what has been happening with the particular. As I say, I have in mind these growth areas, and I hope that the noble Lord who is to wind up this evening will be able to give us an assurance that there is no change of policy in this respect, and that the Government will concentrate particularly on encouraging where things are going slowly. Nothing succeeds like success.

Lastly, I want to turn to the selective employment tax, which many of your Lordships have already mentioned. I am not against a poll tax as such, but I am with the noble Viscount, Lord Chandos, the noble Lord, Lord Shawcross, and others, in the belief that as it is now this tax is wrongly conceived. I would rather have it the other way round. If I were going to give any encouragement to hoard labour, I think I would give it to the service industries, rather than to manufacturers. What I am quite clear about is that many of the manufacturers are the worst of all for hoarding labour; and hoarding labour for producing things which, in face of our present economic problems, are of no importance at all.

On the other hand, we have all read how important it is to have better selling abroad. Who sells better, or who is more important in the selling, than the merchants and those organisations whose special job is selling overseas? Yet they are all penalised. This seems to be the wrong way round, and if this is true in relation to the general position, how much more true is it in relation to Scotland? We know the difficulties of Scotland. We know the difficulties in many areas of trying to develop employment. In many areas tourism is an essential, and perhaps the only, industry in which there is real promise of greater employment. Yet we know what happens. It is condemned; the money has to be taken away from them, they have to pay the tax, and they have no relief.

I am not going to elaborate on this aspect, because other noble Lords, better qualified, are to speak on the subject. But I would ask the noble Lord, Lord Hughes, to seek from the Government that a new category of selection—that is, a geographical category—be considered and, indeed, included in the legislation. If only we could have a geographical category, which of course would include the Highlands, and perhaps some parts of Wales, then a great many of the difficulties facing Scotland would disappear. When I say that I hope there will be a geographical category, I would ask that a line be drawn in the six Highland counties which would not be asked to do anything. They would not be asked to send a return one way or the other. This would be a good example of saving unnecessary paper work, and they would simply be excluded from the whole of the legislation. Paper work would go out of the window; everybody would be happier, and the Highlands would benefit.

To conclude, my Lords, I would recall the three things on which I set particular store. First, and above all perhaps, there is the idea of a Committee—and it should be an outside Committee, not connected with the Government—specially charged to try to cut down the number of civil servants at the present time, particularly in relation to the new creations of Government Departments, and so forth, and to the new laws which entail form-filling. If that paper work were cut down, we should all rejoice. Secondly, I hope that earnest consideration will be given to the idea of trying to learn from the experience of the West Coast of America in regard to their ports. Lastly—and I should rejoice in this as much as in anything—I hope we may be told that the Highlands, as a new, geographical category, will be entitled to enjoy the benefits of exclusion from the selective employment tax.

9.9 p.m.

THE EARL OF CROMARTIE

My Lords, I should like to draw your Lordships' attention for a moment to the White Paper issued by Her Majesty's Government entitled, The Scottish Economy 1965/70, A Plan for Expansion, and in particular to paragraph 25, on page 8. I quote: An increased demand in the growing industries cannot, however, be achieved without continuing purposive and vigorous efforts by the Government and by industry in Scotland which is still going through a process of transformation and change. My Lords, how does the selective employment tax encourage this pious note? I submit that nothing could be more discordant than this particular Hungarian Rhapsody. Again, in the same document, I would draw your Lordships' attention to paragraphs 22, 23 and 24, which indicate that, in 1964, 76 per cent. of labour in the Highlands of Scotland was engaged in services. An average proportion of only 10 per cent. is engaged in manufactures in the Highland counties compared with about one-third in Scotland as a whole. Is this not a striking index of the problem of the Highlands? This new tax will hit the Highlands and Islands disastrously, and will have a detrimental effect on the social and economic development of this, the largest area of Scotland.

How completely all this is at variance with the Government's alleged policy of developing and improving the economic position of the Highlands! As was so well expressed in your Lordships' House during the debate on agriculture, the farmers and farm workers have shown a shining example to many other industries when it comes to productivity and economy of labour. Yet this most productive of industries is now forced to make an interest-free loan to industries who far too often have a very poor record in this respect. Productivity and economy of labour are essential virtues in our present condition. To collect and repay this imposition will no doubt require yet further civil servants.

It might interest your Lordships to consider very briefly yet another absurdity. A thriving, progressive firm in Inverness—I refer to A. I. Welders, Ltd.—wish to expand, but to do so will subject them to this tax. It would appear that, to qualify as a manufacturing industry, office staff must not be more than 50 per cent. of the total staff in an establishment, an establishment being any part of the company's premises not split by a public road. A.. I. Welders are split by a public road, and the most suitable area to which to expand is on the opposite side of the road from the office. The firm may therefore have to reconsider this project. The same firm employ for over eight hours a week a grand old lady of 84, so the pay-roll tax will be levied and will be repayable due to the age of the woman—but by a quite different Ministry, my Lords. I think John Knox would have had to coin an even stronger phrase than "monstrous regiment" had he been referring to civil servants and not to women.

In the long and painful history of taxation, can there ever before have been a tax where less thought had been given to the unhappy but inevitable consequences? Why should farmers and many others of real worth to the country subsidise a manufacturer of sticks for lollypops? That may be an exaggeration, but it goes to describe what I mean Turning for a moment to the effects on local government so far as it applies to the Highlands, I would point out that the White Paper states that arrangements are to be made to offset the effect of the tax on local authority finances, although excluded are local authority services which are in direct competition with private enterprise. But nothing is said about direct labour departments. Others have stressed the quite unjustifiable burden which will be placed on the developing and catering and hotel industries, and which will be so very damaging in the Highlands where tourist trade finance is vitally important and does much to stabilise, and even increase, our dwindling population.

In certain sectors, confined to the Scottish industrial belt and England, there may be some justification for some part of this tax; but for the Highlands it is utterly destructive and makes a mockery of the Government's much published desire to halt the loss of our people from their homeland and make the Highlands and Islands a land of greater opportunity for its sons and daughters. The Government have so far refused to vary this tax in any way; but would the Minister not agree that there are areas of Britain where this tax will bear too heavily and that there is a case for regional differentiation?

9.15 p.m.

LORD BALERNO

My Lords, it is very interesting that the noble Earl, Lord Perth, should have spoken about the question of the rents of council houses. I should like to support him in what he said. I think it is a scandal of which Scotland should be thoroughly ashamed that we are such national mendicants in the matter of these low rents which are charged for council houses compared with the rest of the United Kingdom. I do not think any particular Government can be blamed for this; it is a sore which has been running for too long. I am sure the Government would have the support of all Parties if they were to take this particular bull by the horns and to insist that council house rents in Scotland be brought into line with council house rents in other parts of the United Kingdom.

From the "bull by the horns" I should like to go to the problem of the dairy cow. The dairy cow is the very basis of the agricultural economy of Scotland. Cattle represents over 50 per cent. of the total marketed agricultural output; and the production of beef in Scotland is dependent—up to 80 per cent. at any rate—on the calves that are produced from the dairy herd. There is a lot of slack that can be taken up in this respect. Imported dairy produce has increased in value considerably in recent years. Taking only the jump from 1963– 64 to 1964–65, and taking only the dairy produce imported from Australia, New Zealand and Canada, there has been an increase from £94 million to £110 million. If a small proportion of that difference of nearly £16 million had been injected into the dairy industry of this country—only a small proportion through the medium of the Price Review—that extra amount spent on imports could have been saved. I submit to the noble Lord who is to reply that in the Price Review more consideration should be given to adequate remuneration to the dairy farmer; because without this there will not be the further expansion in Scotland, which must be primarily in livestock. We are limited in the amount of further increased production which we can get in cereals. Any further increase must come from livestock production, and it cannot come in this way unless we solve the problem of the dairy cow.

My Lords, another problem facing Scottish farmers relates to the question of their bank advances, which come to nearly £72 million. That is a greater sum than the industry earns in a year. If there is to be a squeeze on bank advances to farmers, inevitably there will be a reduction in agricultural output. I believe that the increase in the bank rate represents an additional bill to Scottish farmers of some £700,000. I welcome the statement by the Minister of Agriculture, Fisheries and Food, made in another place on July 26, that these matters would be taken into account at the next Price Review. But that often represents hope deferred, and farmers like to know a little more about what might happen at the Price Review. It would therefore be a good thing if some greater assurance could be given.

I congratulate the Government on their decision regarding brucellosis eradication. This represents an important and an enormous step forward and will lead to more efficient production, whether in respect of milk or beef. I also welcome the scheme relating to the health of pigs, which should yield substantial results. Both are long-term projects and it is a welcome thing that they should be announced at the present time when one might have expected a tendency to say that money should be saved. One is extremely grateful to the Government for having taken a decision on these matters.

From agriculture, I wish to turn to one of the matters which affects agriculture—that is, the price of electricity. It was recently announced that the South of Scotland Electricity Board was proposing to increase its charges by 6 per cent. I understand that this increase has been deferred. It should have taken place on July 25. One hopes that the Government will make certain that these increased charges are not imposed on the nation, and particularly on the agriculture industry. There is a point about these charges to which I should like to draw the attention of the noble Lord, Lord Hughes. A rate of increase of 6 per cent. was announced by the Board, yet two examples were given in which the increase was more than 9 per cent. There are consumers who have been able to do their sums in respect of their own consumption of electricity and who say that for them the increase might be as much as 10 per cent. or 12 per cent. When a nationalised industry, or board, such as the South of Scotland Electricity Board, states that an increase is to be 6 per cent. it should make sure that the increase is not 9 per cent. or more.

My Lords, from the fuel for the farmer I should like to come to fuel of another kind which derives from a farm product, namely, Scotch whisky. In another place the information has been given that it has not been possible to estimate the revenue expected from the increase in the duty on Scotch whisky, but over all spirits the increase is expected to be about £12 million in a full year. Most of the countries to whom we export Scotch whisky base their customs duty on our own excise duty, and if we increase our duty they increase theirs, and thus the export of whisky tends to decrease. I can hardly expect the Government to look very sympathetically upon this suggestion, but it is a point to which I think their attention should be drawn.

Time is going on my Lords, and I am not going to say all that I might have said. But I notice that the Secretary of State for Scotland has said that, so far as Scotland is concerned, we are sheltered from austerity cuts, and that he sees a silver lining to the National Economic Plan. Pray God that this is so!

9.27 p.m.

LORD FERRIER

My Lords, as the last of a long line of speakers I shall be unable to restrain myself from dotting some "i's" and crossing some "t's", but as we are all looking forward to the speech of the noble Lord, Lord Hughes, I will be as brief as I possibly can. The first duty I have is to congratulate the noble Lords, Lord Fraser of Allander and Lord Cooper of Stockton Heath, the last two maiden speakers we have had in this debate, on their matter and to express the hope that we shall hear from them again.

I have little to add to the enormous amount that has been said already and will confine myself to Scottish matters. As for S.E.T., I feel inclined to emphasise what the noble Lord, Lord Shawcross, said. This is a rotten tax ab initio. We may try to urge the Government to soften the effect on the Highlands and Islands, but it is a rotten tax, if only because it will add to the enormous amount of paper work. I would add to what my noble friend Lord Cromartie said about hotels that the season in Scotland is so short, and a tax of this nature adds greatly to the cost of a business which is already handicapped not only by the short season but also by the Catering Wages Act, which limits the amount of work done by people who would gladly give more time if they were not prevented by law. I would agree with what has been said about the inequity and iniquity of low council house rents.

My noble friend Lord Perth suggested sending deputations to the Pacific Coast of America to study the working of the docks there: deputations of dockers, yes: but not of employers. This has been tried over and over again in many other industries and when the deputations have come back here, their efforts to improve efficiency and economy in operation in this country have been frustrated by the restrictive practices of labour which the employers in other parts of the world do not have to face.

As regards electricity, to which my noble friend Lord Balerno referred, I look forward to hearing that this standstill will be well established, because when we come to have a debate on the Scottish economy soon after the House reassembles, I imagine that this will be a major problem in the matters which we shall have to consider. As for the monstrous regiment of civil servants, I feel that one suggestion that can be made, which has not been made already, is that the Government should maintain, and increase, if they have it already, a careful job analysis in regard to the jobs done by these people. There are far too many people doing jobs which could be done by fewer. In that connection, I would refer the noble Lord, Lord Hughes, to the speech yesterday of my noble friend Lord Stonehaven in connection with agricultural housing in his part of the world.

So far as tourism is concerned, as much has been said as is necessary at this juncture. But I feel that we should keep a sense of proportion about the industrial viability of the Highlands and Islands. There is too much moonshine in suggesting that more could be done in some of the islands which are better left to concentrate on their indigenous undertakings. We must also keep a sense of proportion on the matter of emigration. The fact is that work abroad has great attractions for the Scots—abroad not only overseas, but also in England. I was myself an export for thirty years, and one must face the fact that there are more Scotsmen abroad who call themselves Scotsmen, and nothing else, than there are in Scotland to-day. Above all, let us do all we can to retain our Scottish reputation as workers.

This leads me to the main burden of my contribution. The other day I took a taxi in the City and asked to be driven to the House of Lords. "Oh Gawd!", said the taxi-driver, "you don't know what you're asking." I said, "What's wrong with that?" "Garden Party", he said. That I had forgotten. So I said: "Then, if it is all the same to you, take me to Mansion House station and I will take the Underground." "O.K.", he said, "but that gives me only five minutes to say what I want to say." I said: "What about?". He replied: "About the economic situation." He went on: "I am self-employed. This is my cab. I do a full day's work, and I tell you half the people in this country are not doing a fair day's work." Numerous noble Lords in the course of this debate have mentioned the matters which this man put most concisely. He said: "It's 'Couldn't-care-less. Over to you. Why should I? It's not my job. Take it or leave it.' That's why we've got in the mess."

We had a very short continuation of the conversation because I had only a short journey, but the taxi-driver cited some instances in his work in which he came across this problem of restrictive practices. We spoke of the case, which has not been mentioned to-day, of the trifling oil-rig repair which was refused by some East Coast repairer at ten minutes to five because, he said, he knocked off at five. It would have taken only twenty minutes, and I understand that the stoppage in the rig was costing £250 an hour. So my talk with the cabdriver ended, but he had voiced what many of us feel to be the basic cause of the economic situation throughout the land not only in Scotland, but in England, and everywhere else. Can nothing be done to connect an honest day's work by each individual to the welfare of the State? Too many individuals seem to believe that the Welfare State owes them a living. Yes, my Lords, I believe that somthing can be done, and the noble Viscount, Lord Eccles, touched on it in his speech. It can be done, I do believe, by re-establishing a wholesale respect for absolute integrity—integrity in everything; and this must start right at the top.

Let us all be honest with ourselves. Let us stop talking of "the Labour Government"," for instance, when as a matter of fact it is a Government of doctrinaire Socialism. Let us stop talking about "bringing industry into public ownership". It is publicly owned right now, not only by investors: every holder of a life insurance policy is a part owner of British industry. "Nationalisation" does not mean bringing into public ownership: it means bringing the people's investments under Government direction and control. Why cannot people stop using the words, "the working man", as a sort of backhanded sneer at management—a sneer at the boss? Can we not stop preaching the abolition of class with one voice, and provoking class suspicion with another? Management, certainly in my experience, does not sneer at the working man. The nation's suspicions are reserved for the trade unions, which too often frustrate management plans for efficiency. The stranglehold which some of them have at the very throat of productivity was exemplified by the rush of seamen to sign on for long voyages before the seamen's strike.

I also feel that there is an element of "living a lie" in this talk of redeployment, when in fact we mean unemployment. The Council of the T.U.C. may make their decision, but why do they not control their members? Let us face the fact that it is morally wrong for voters to be kept in debt to a Party by uneconomic rents for State-owned houses which should be subsidised only for the needy. Lastly, let Government, of whatever Party, remember the words: This above all: to thine own self be true And it must follow as the night the day Thou can'st not then be false to any man.

9.38 p.m.

LORD HUGHES

My Lords, your Lordships will forgive me if I start my reply to this very long day's debate by taking particularly the Scottish points. My justification for doing so is that originally my intervention in this debate was to be in the middle to reply to a purely Scottish debate, but it has not quite worked out that way. I must also say to noble Lords from Scotland that they must forgive me if part of the answer to their particular points must be deferred in a general answer to the debate, because some of the Scottish points which were made are merely aspects of the national problem, and it would be wrong to try to deal with them in isolation.

I think all Scottish noble Lords who have spoken have referred particularly to the effect of the selective employment tax in Scotland, and in particular to its effect in the crofting counties. I must say I was very much impressed by the rather unusual suggestion made by the noble Earl, Lord Perth, that the easiest way was to except the crofting counties from the legislation bringing into effect the selective employment tax. This is indeed a revolutionary suggestion, and none the worse for being that. It would, however, perhaps have been easier for me to do so if I could have found even the slightest precedent in the activities of the preceding Government. If, for instance, when they had increased the tax on whisky they had excepted the crofting counties, as the largest producer, from the effect of the tax, it would have been a help; if they had said, "There are so many people in the North of Scotland who are not so well to do, we will except the crofting counties from the payment of income tax", it would have been an even more useful precedent.

I am afraid, however, that if I were to go to my right honourable friend the Chancellor of the Exchequer and suggest at this particular time so revolutionary a fiscal measure I should not get very far. But it is an interesting point to keep in mind, and when perhaps in a future debate there is criticism of the extent to which the resources of the country are being used by the Highlands and Islands Development Board for the benefit of the crofting counties we can remember that the suggestion was made, quite properly, that they can get more than at first glance might be regarded as their fair share of the nation's resources.

The noble Earl, Lord Perth, also said that he detected a change of policy in regard to the Government's attitude to employment in Scotland, and in particular to the growth areas. It is correct that there is a change: a change to the extent that we do not consider that the problems of Scotland can be solved by concentrating all the development in a few selected areas. We accept the principle, of course, but in the last eighteen months we have been working on the basis that growth must be spread over a much greater area of Scotland, and in fact when we announced this policy the main criticism which came from some noble Lords, and to a very large extent from Opposition Members in another place, was that we had not carried it all the way, and the fight was not to confine it to a few growth points but to seek to apply the same benefits to Edinburgh. If we are wrong in excluding Edinburgh then we cannot be wrong in refusing to confine it to a few selected areas in Scotland, and in fact the Government have already carried the policy into operation in a way which has been welcomed in Scotland, for instance in the Border areas, where we are seeking to obviate the effect of concealed unemployment by depopulation, by extending growth activities into that whole area, and an area where we can make a direct contribution to the economy of the United Kingdom.

By finding jobs for the men in the Border territories we can provide for the women, for the wives and daughters, for whom the woollen industry is crying out. We have had the spectacle that here is an industry which in relation to its size makes probably a greater contribution to solving our export problems than any other in the country, yet it has been cutting back for the simple reason that the men leaving to find jobs elsewhere have taken their wives and daughters with them. Thus a really prosperous export industry has had to cut back on what it could do, or to try to set up its factories elsewhere, and it has extended into other parts of Scotland.

The noble Lord, Lord Balerno, referred, as did others, to the policy of low rents for council housing. I would remind your Lordships that earlier in the afternoon I answered a Question from the noble Duke, the Duke of Atholl, and I was asked in a supplementary question whether this meant that I was resorting to the policy that "the gentlemen in Whitehall know best". Noble Lords opposite must make up their minds which way they want it to be. The policy of central Governments, including the present one, has been that in these matters it is for the local authorities to decide and that the most the Government can do (and the present Government have done exactly the same as the previous Government) is to indicate the extent to which they think they should go further in applying more realistic rent policies, and in applying a limited measure of financial sanctions. The financial sanctions imposed by the previous Government are being operated by the present Government in Scotland, and this is not a policy in which, if we are to be realistic, we can expect any sudden and dramatic change overnight. It must be a gradual one, and it is in fact taking place.

I know the noble Lord, Lord Fraser of Allander, is no longer here; he is under doctor's orders and he was kind enough to tell me he would be leaving early. But this is a point to which he also referred, and he referred to it in the most extraordinary manner. By some process of reasoning I was quite unable to follow, he attributed to the low council rents in Glasgow the need for the revaluation of property in Glasgow which has increased substantially the valuation of office and shop property in that city, as elsewhere. This is absolutely nothing to do with council rents. This is a policy carried out by the previous Administration, in which, by a change of the law, they required the revaluation to take place each five years, and this happens to be the second review that has to take place under that provision. The obligation is very clearly laid on the shoulders of the assessors that they must take into consideration what are the reasonable market values of property, including housing. In many cases the assessed rent which has been placed on housing is higher than the rents which have been fixed by local authorities, so it is not the case that one particular type of property has been singled out for revaluation.

LORD BARNBY

My Lords, before the noble Lord leaves that point, could he indicate why it would be impossible to give direction, with certain appropriate guide lines as to the manner in which this subject of housing subsidy should be more properly dealt with?

LORD HUGHES

It would not be impossible if we were to accept the principle that this was a case in which the gentleman in Whitehall knows best, and I thought this was a principle to which noble Lords opposite were completely opposed. But it would appear that in housing one can have a policy of apartheid in which the decision that the gentleman in Whitehall knows best is right in this field, but wrong everywhere else. We think the people who, at the end of the day, have to carry responsibilities for housing rents are the locally elected councillors, and if the people in the area think the rents are not right they have the remedy in their own hands—change the councillors and put in councillors who will increase rents. If they do not do so, then presumably it is because they prefer those they have got, with the low rents. It is not because the people in council houses are the majority of ratepayers, because they are not.

I want to make one further Scottish reference, and then anything else I have to say on Scotland will be part of the general remarks. The noble Lord, Lord Balerno, went out of his way to compliment the Government on certain decisions which had been taken in the agriculture field. For that I am grateful. Before Lord Balerno made this remark, I had in an aside to my noble friend Lord Rhodes said, "You will find that the Scottish Peers will be raising subjects to which they wish to get answers, because they want to be helpful rather than seeking to make Party points". Then the noble Lord, Lord Balerno, immediately followed by not one, but two, complimentary references to the Government. I thank him for it. I am very sorry that pressure of time prevents my giving the more detailed answers to his points which I should have done if I had been replying to a purely Scottish debate. But I have been warned that not long after we return there is to be a debate on the Scottish economy. I have no doubt that there will be many opportunities for putting questions to me then and I hope I shall then be freer to answer in more detail.

I believe it would be correct to say that during this debate our major preoccupation has continued to be with the balance of payments, and I think it would be right that, in the time to which I must inevitably limit myself at this hour, I should devote most of my remarks to that subject. I think it might help us if we tried to distinguish the more fundamental and underlying aspects of our condition and the appropriate remedies from short-term and temporary afflictions and the cures appropriate to those.

Notwithstanding the admonitions against going back, I think I must ask your Lordships to cast your minds back, not in any recriminatory sense but from the point of view of looking at recent history, to the happenings over the ten years up to 1963. Over that period as a whole, cumulatively the balance of payments may not have been far out of equilibrium, if one allows for the fact that we appear to have substantial recurring receipts which are not recorded. Of course, there were rather violent fluctuations from surplus to deficit, broadly corresponding to the alternations between "Stop" and "Go" in the domestic economy.

It is difficult to see the trends through these ups and downs, but it seems clear that there was an underlying deterioration during that period. In the first five years, the balance of monetary movements was favourable by over £300 million in all. In the second five years it was adverse by nearly the same amount. Each period included both an upswing and a downswing in the domestic economy.

Now I turn to 1964. In that year there was superimposed on the underlying weakness the effects of too rapid an expansion of the economy during 1963. Between 1963 and 1964 the gross domestic product increased by 5½ per cent.; imports rose by 11 per cent. in volume in that period, and rising prices brought the value increase of our imports to 14 per cent. Despite a vast expansion of world trade, our exports rose by under 5 per cent. There were also heavy investments abroad, and, as is well known, and as noble Lords opposite will forgive me for repeating, the deficit on current and long-term capital transactions shot up to over £750 million.

This is the briefest and broadest account of those ten years; but I think it entitles me to make two observations that are relevant to much that has happened since. First, this evolution of the balance of payments under the previous Administration meant that the vulnerability of sterling to external pressures was enormously increased. The introduction of convertibility at the end of 1958 is a good starting point for a calculation which I wish to give to your Lordships. Our reserves have been far too small in relation to our liabilities throughout the post-war period, but from the end of 1958 to the end of 1964 the excess of our short-term liabilities over our short-term assets was swollen by over £1 billion—I think that, nowadays, is regarded as £1,000 million, in case there are any old-fashioned people who think that £1 billion is £1 million million; we are not quite so difficult as that.

Secondly, it is difficult to understand how our predecessors in office thought it would be possible to expand the economy as fast as they did and to sustain its expansion without taking any serious measures to improve the performance in the balance of payments. Even in 1962, when the economy was stagnant and unemployment nearly2 per cent., the balance of payments showed no surplus.

This leads me to the analysis of the situation made by the present Government under the policies they have put into effect, and to which they still hold. We recognised the underlying weakness and the fact that it could not be remedied overnight. The measures which were appropriate, and which were taken, would in many cases take time to act. The whole performance of the economy had to be jacked up to secure higher productivity and better competitiveness. The main lines of these policies are as follows: the drive against restrictive practices; improvements of labour mobility by industrial training, and the redundancy payments scheme. Noble Lords opposite asked for these things to be done. We have been doing them to an extent never before practised by our predecessors. Then there is fuller use of our resources through regional plans within the National Plan.

What I have said to my noble friends from Scotland (if I may call them that) has a bearing on this. We have sought not to confine the use of Scottish resources to a belt running across the middle of Scotland, but to bring in areas including the Borders and the Highlands. In fact, the Highlands and Islands Development Board was an instrument in the extension of those policies. Then I would mention the new investment grants and the selective employment tax. The noble Lord, Lord Carrington, called for the Government to give to the private sector the necessary encouragement. No Government have given greater encouragement to the private sector than this Government have done, through their policy of investment grants.

LORD CARRINGTON

My Lords, is the noble Lord really suggesting that they have given incentives through investment grants? They have cut them.

LORD HUGHES

I thought I was suggesting so.

LORD CARRINGTON

Well, the noble Lord is wrong.

LORD HUGHES

This is the difference between the honesty for which the noble Lord, Lord Ferrier, was asking and actual practice. When I differ from the noble Lord opposite, I am wrong. The only residue of righteousness and correctness, in the minds of noble Lords opposite, must always rest on those Benches. We believe that what we have done on these investment grants is better than has been done before, and we believe that time will show we are right.

SEVERAL NOBLE LORDS: No.

LORD CARRINGTON

Is the noble Lord really suggesting that the present Government have increased investment grants?

LORD HUGHES

Yes.

LORD DRUMALBYN

My Lords, may I ask the noble Lord this question? While it may be true that the Government are introducing investment grants, would he not say, if he wants to tell us the whole story, what the grants are replacing?

LORD HUGHES

Noble Lords opposite do not require me at this hour of night to tell them what has been done. They are as well aware of it as I am. But for the purposes of this debate it suits them to ignore the situation. The noble Lord said in an aside that we cannot get away with it. But we will get away with it, for the simple reason that, just as with our policy on the Highlands and Islands Board, which was condemned the day before it was published by the leading Scottish spokesmen as having been written by Karl Marx, it is now something which all Scots, Tories as well as Labour, think is a wonderful device. I suggest that before noble Lords are so sweeping in their allegations that we are not doing more for the private sector than has been done before, they would be well advised to wait and see the policy more fully in operation than they have yet been able to do.

LORD DRUMALBYN

What we were complaining of was that the noble Lord was talking about investment grants as if they were something new, introduced on top of everything else. This was the impression we were given. We are entitled to complain that that was the impression the noble Lord was giving.

LORD HUGHES

If I had been talking to a class of schoolchildren on elementary economics, they might have been forgiven for thinking so; but I made the perhaps unwise assumption that noble Lords opposite knew what their Government had done before and knew what we were doing. I thought that by subtracting what they had done before from what we are doing now, they would know the difference.

LORD CARRINGTON

But it is not so.

THE EARL OF PERTH

My Lords, may I make just one point? I have read the papers, and I am sure that the noble Lord, Lord Hughes, has read the papers, but I have not read of a single industrialist who has said that he is better off as a result of these investment grants.

LORD HUGHES

Perhaps if the noble Earl was comparing someone in the less fortunate areas with the areas to which he wishes the benefits to be even more widely preferential, this would be the case. But I come back to my point. Let noble Lords wait and see the policy in operation. Its effects are already being seen in Scotland, and will be seen quite definitely, just as well, in other parts of the country.

The noble Lord, Lord Carrington, made a number of points in his opening remarks to which I think I ought to refer, because, after all, a great deal of what the noble Lord said was subsequently adopted by other noble Lords on the other side, indicating the extent to which they agreed with him. He said that it was the duty of noble Lords opposite to support the Government in measures for the defence of the pound: that it was not their duty to support the Government, but it was their duty to support the pound; and in so far as the Government took the right measures they would support them. But he reserved to the Opposition, as he is perfectly entitled to do, the right to decide whether he thought the measures were right or wrong. This must inevitably be a matter of a difference of opinion.

But while noble Lords opposite appeared to be exceedingly happy when the Government's measures were being criticised (and the noble Lord, Lord Carrington, gave his full measure of criticism to all that was being done), when the noble Lord, Lord Robbins, made what I found an exceedingly helpful speech—not one which praised all that the Government did, but one which accepted in broad measure the Government's policy, though indicating dissent or disagreement with details of that policy—I looked at the faces of noble Lords opposite, and one would have thought that the noble Lord, Lord Robbins, had announced a national dis- aster. There was a complete difference of reaction when an objective analysis was being made of what the Government had done, as distinct from the recrimination against which the noble Lord, Lord Robbins, advised, and against which the noble Lord, Lord Shawcross, advised—although unlike Lord Robbins, Lord Shawcross then spent the next twenty minutes in full-scale recrimination of all that the Government had done since October, 1964.

I suggest to noble Lords that, if they are anxious to help the pound, they could take a leaf out of the books of their Scottish colleagues and seek to concentrate on the points which would be helpful to the country and helpful to the pound, rather than seek to make Party points. Some of the speeches in your Lordships' House (and I am not including my own) are highly regarded, and are thought of great importance not only in this country but in knowledgeable circles elsewhere. But there are many people who can be affected by debates and who are not able to distinguish between speeches such as that made by the noble Lord, Lord Robbins, and other speeches.

The noble Lord, Lord Carrington, said that the impression is left abroad that this country is down and out. I do not know with whom that impression is. It certainly is not with our principal creditor countries, because they have indicated quite clearly, for instance, at the ministerial meeting of the Group of Ten after the statement at The Hague, their support for the measures, as well as their confidence in our ability to carry them through and to put our payments position right. So the ministerial representatives of the Ten do not think that this country is down and out—and I do not see why the noble Lord, Lord Carrington, should consider that that is a subject of amusement.

The noble Lord said that, with good management, we could restore confidence; and at the finish of his speech—which, I must admit, had a much higher entertainment value than anything I could hope to emulate—he said that if the Government were not competent they should make way for those who are, the implication being that we should make way for those who, despite all that they have said in seeking to evade responsibility, have had, by all comment from people who can claim to be impartial, more of the responsibility for to-day's events placed on their shoulders than has been placed on those of the Government presently holding office. So that, if we have to make way for those who should do better, then the only people who could apparently hope to benefit by this—because they have not had a shot for a very long time—would be those on the rather depleted, remarkably depleted, Liberal Benches.

The noble Lord, Lord Carrington, said that there was no doubt that what was needed was a heavy measure of deflation, and I do not think it can be denied that this is what the Government have given. I was glad to hear him say that, although I was very sorry that, having said that we needed a heavy measure of deflation, he went on to criticise and, by implication, to disagree with every single measure which the Government had taken. He doubted the value of the cuts in the expenditure of the nationalised industries. He said that so much of the expansion that was necessary must rest upon these industries, which were fundamental. But your Lordships must recollect that frequently noble Lords opposite—and I do not think that the noble Lord, Lord Carrington, has ever dissented from this sort of statement—have objected, year in year out, to the amount of money that had to be found from under-the-line expenditure to finance the capital developments of the nationalised industries. Noble Lords cannot object to a Budget finding the money necessary to lend to nationalised industry, and then, in a period when we diminish the amount that can be made available to them, question the wisdom of cutting back. If it is wrong to give the money in the first instance it cannot be wrong to cut it back in the second.

LORD DRUMALBYN

My Lords, may I ask the noble Lord, as he has made certain statements here, whether he can give one single quotation to support what he has just been saying?

LORD HUGHES

Not at this hour, but if the noble Lord would like to give me sufficient time I could undertake to give him a dozen; and I will give them in the way done by the noble Lord, Lord Kahn—documented by column and date.

LORD CARRINGTON

It ought to have been done before.

LORD HUGHES

No, it is not necessary to do it at this stage. I have not made any allegation against any individual noble Lord. I have not stated what any individual Member of the Opposition said. I said "noble Lords opposite", and that I did not think the noble Lord, Lord Carrington, had ever dissented from this sort of thing. Of course, if he wishes to get up and say that he has dissented in the past from objections to expenditure on nationalised industries, I will make way for him.

He went on to say that he doubted the value of the cuts in tourist moneys, and again the faces of noble Lords opposite were a delight to watch when they were reminded of the Budget of the noble Lord, Lord Butler of Saffron Walden, when, almost immediately he got into office, he cut to this amazing figure of £50. Why should £50 be such a right figure in 1951, when there were fewer tourists going abroad and when the costs were less, and be so terribly wrong in 1966? In fact, if I remember aright, he followed up three months later by cutting it to £25. The noble Lord, Lord Carrington, doubted the value of—

LORD CARRINGTON

My Lords, I do not want to interrupt, but I did not doubt the value of it; I wondered whether it was wise to do it.

LORD HUGHES

Well, I am very sorry if I have paraphrased the noble Lord, but I doubt very much whether it is straining the English language to use the form of words I used. I know that I do not speak the English language in the same accents as every Member of your Lordships' House, but I think I understand it.

Then the noble Lord, Lord Carrington—and I thought this worth mentioning—castigated the Government and said that we must learn to speak with one voice. Coming from the Party from which on this particular subject we had talks and speeches from Mr. Macleod, Mr. Heath and Mr. Powell, for him to tell us that we ought to speak with one voice is very much a case of the pot calling the kettle black. If the advice which had been given not to indulge in recrimination had, in fact, been carried out during the whole of the debate we then could have had something which would have been helpful to our economy.

Now I should like to say that I accept that the measures the Government have announced are deflationary or disinflationary, whichever word you prefer. The measures announced by the Prime Minister on July 20 will, in fact, reduce the demand on home resources by over £500 million, and to this must be added the effect of the selective employment tax. This is the point which I had in mind when I said to noble Lords from Scotland that the answer to some of their points must come in reply to the general debate. The effect of the selective employment tax, which is to come into operation in September, is also to give a disinflationary effect of something like a further £200 million. So what the Government have announced in July, added to the effect of the selective employment tax, entails a figure of something like £700 million a year.

As the Prime Minister indicated, the result may be that unemployment will rise to, perhaps, 1½ per cent. or 2 per cent. But in contemplating this figure we must have a sense of perspective. Unemployment in the country as a whole at the present time is quite exceptionally low. At 1.2 per cent. in the first half of the year, it was the lowest for ten years. Between 1959 and 1964, not usually considered a depressed period in our economy, the average rate of unemployment was 1.8 per cent. The Government believe that it will be possible to secure the necessary redeployment of labour on an extensive scale without a very pronounced increase in unemployment. Any idea that the bottom is going to fall out of the labour market is quite wrong, since in the first place—and I was interested in the fact that the noble Lord, Lord Robbins, touched on this point in his penetrating speech—it is a shake-out (this is the phrase the Prime Minister used, and used very properly) in which people displaced from one job find another in a labour-hungry industry, or a labour-hungry firm in an industry, within a reasonably short space of time. After all, we are still in a position where there are a tremendous number of unfilled vacancies. These people are not going to be thrown on to the scrap-heap so long as these unfilled vacancies are waiting for so many of them.

I think it is worth recalling the way in which the Government's approach to the problem to our overheated economy differs from that practised in the past. In the first place it is a selective approach, inasmuch as it discriminates between regions, applying the restraints in their full vigour to the congested regions of intensive labour shortage, and shielding the development areas from them so far as is possible. Secondly, the Government have not been prepared to throw the whole burden of adjustment on to the curbing of home demand, with the disadvantageous effect that this necessarily has, for example, for productive investment and the long-run rate of growth. We have not hesitated to use measures bearing directly on the balance of payments where these are appropriate. I refer, in particular, to the way in which we have used the tax system and other measures to limit the outflow of private capital, which had reached a level excessive in relation to what we could afford, and to the export rebate which is already proving a useful incentive to exporters.

My Lords, in these measures the Government have not been deterred from taking steps which are in direct conflict with the long-term objectives of a Labour Government. We recognise—just as I have indicated took place during the ten years—that progress to a higher level in our standard of living and to the maintenance of that higher level will not necessarily always be carried out in an ever rising line. There will, inevitably, be periods of less rapid expansion. There will be periods of, if I may use the phrase of, I think, the noble Lord, Lord Butler of Saffron Walden, "the plateau". This may well be the position which has to be accepted by members of Her Majesty's Government; but it must also be accepted by members of Her Majesty's Opposition, whether in this House or in another place.

We believe that in the policies which the Government have sought to carry out we have reached a reasonable balance as between all sections of the community. We believe that they will be accepted by the community, particularly as their effects are seen to work. I would remind your Lordships of what my noble friend Lord Shepherd said when initiating this debate, when he drew the attention of Members of your Lordships' House to the success which had attended the efforts of the Government by the end of 1965; when we had reached the objective which we had set ourselves for that year of cutting the external balance-of-payments deficit to half of the figure which we inherited.

There have been circumstances during this year to which reference has been made which have upset some of these calculations, and some of the measures which have been taken during these past ten days are the effect, or in some ways a direct result, of these more extraordinary measures. We in Her Majesty's Government will not be deflected from what is our main purpose: to give to the people of this country, through an expanded economy, a standard of living to which we think they are entitled to attain.

EARL ST. ALDWYN

My Lords, on behalf of my noble friend Lord Swinton, I beg to move that this debate be adjourned until Monday next.

Moved accordingly and, on Question, Motion agreed to.