HL Deb 21 November 1967 vol 286 cc904-1036

2.44 p.m.

LORD BESWICK rose to move, That this House takes note of the actions of Her Majesty's Government in relation to the exchange value of the pound sterling. The noble Lord said: My Lords, I beg to move the Motion standing in the name of my noble friend the Lord Privy Seal. I believe that in this House we shall all share the same general economic objectives. We want a stable currency, an expanding economy and the material means to improve our social services, to help those less fortunate than ourselves, and to afford a higher individual standard of life. Her Majesty's Government still hold to those objectives and believe that in the present circumstances they can more certainly be achieved after taking the measures that were announced this week-end.

It would be idle to ignore the disadvantages of this change in the parity of the pound sterling, but it would be useful, and is indeed essential, to assess the circumstances in which the step was taken, what its effects will mean, and how we as a nation can use to the full the undoubted opportunities which it presents. No place, if I may humbly say so, is better fitted to discuss the causes and consequences of this action more constructively than this House, and I offer my tribute to the noble Lord the Leader of the Opposition for so readily agreeing to a Motion which encourages a constructive discussion.

Much has been made, outside of this House, of the fact that the two post-war devaluations have been brought about by Labour Governments. That is true, but it is not the whole truth. It is also part of the same truth that twice in the postwar world this country has turned to the Labour Party in times of extreme economic difficulty in which the possibility of devaluation was inherent, if not inevitable. Looking back now, objectively, it was not surprising that the Government which inherited the awful burden of problems in 1945, should, despite that American loan, have found it necessary to devalue. But what was more surprising, frustrating and disappointing is that in the years which followed those post-war Labour Governments we did not build on the economic foundations which were laid. The fact is, as we all know, that by 1964, after a succession of booms and slumps, and the "never had it so good" mentality, we were faced with the biggest ever peacetime deficit; and again in that situation the country turned to a Labour Government.

In October, 1964, when they first came to office, the new Government could have devalued. There were some who urged this course. It would have been an easy option for us, but it would have been at a considerable cost to others. Moreover, there appeared a reasonable chance of winning through with other measures: by the reduction of inflationary pressure; by the better control of incomes and prices, and by energetic and longer-term action to re-shape our industry, to improve productivity, and thus improve our export position.

The Prime Minister and the Chancellor of the Exchequer are said to be open to criticism because they spoke forcefully and consistently against devaluation. No doubt there are noble Lords in this Chamber this afternoon who have their quotations ready. But, given the decision to make the attempt to keep the old rate, all common sense surely dictates that the decision should be forcefully defended. A half-hearted attempt would have been worse than no attempt at all. Moreover, the attempt very nearly succeeded. We were winning. The deficit was being cut. It was halved between 1964 and 1965, and further reduced in 1966. This year, unfortunately, progress has been set back, and by events not under the control of a Government in this country.

Our import bill has been increased by the Middle East crisis, and our exports have suffered as a result of the slackening this year in some of our most important markets overseas. And superimposed on these factors has been the self-inflicted injury of the shipping, and now the dock, strikes. At a time when every pound of exports was vital we have had the terrible spectacle of goods sold to overseas customers, but wasting on the dockside. The anticipated surplus of 1967 is now gone. Instead we may have a deficit in 1967 as much as in 1966. It was this prospect, together with the weakness of the pound in the foreign exchange markets that made it plain that further action was necessary to speed up the urgently needed improvement in our position.

It may be asked whether this decision to devalue was precipitated by the run on the pound on Friday, the 17th. The answer is, No. The Government's decision was based on the actual and prospective balance-of-payments situation and not on movements of short-term capital. Of course the two are linked, and confidence in the markets was affected by the underlying weakness in the balance of payments. But our decision was effectively taken before the happenings in the markets during the few days before Saturday, the 18th.

I might reasonably be asked why the action, once decided, was delayed until the Saturday night. One answer is that the steps which were taken, in great secrecy, to sound out the position of other Governments, together with a very carefully selected new rate, has meant that this serious step, which could have aroused great hostility overseas, has in fact been accorded a remarkable measure of good will. As the Chancellor indicated in another place, had we not secured this co-operation it would have cost us far more than the losses over the exchange in the last days of last week. In the event the step was approved by the International Monetary Fund. They are giving urgent consideration to the application for a standby loan of 1.4 billion dollars, and further credit arrangements for around 1.6 billion dollars have been made with a number of overseas central banks. It was not possible to have extensive consultations with other countries, but advance warning of several hours was given to countries in the Group of Ten, EFTA, and the sterling area.

I know that the devaluation decision is unwelcome to sterling area countries. It will reduce the value of their sterling holdings in terms of foreign exchange. This is a very strong reason indeed for not devaluing. But the purchasing power of these sterling holdings will not significantly be impaired in terms of what they can buy in this country. Most large sterling holders draw a large part of their imports from the United Kingdom. It is also relevant to remember that sterling holdings have earned high rates of interest in recent years. When all these factors are weighed together we believe that the countries concerned will have less reason to regret having held their balances in sterling, as a long-term policy.

How do Her Majesty's Government expect this decision to influence the course of our balance of payments and to affect the home economy? The combination of devaluation and the stiff accompanying measures to reduce home demand will bring about a fundamental orientation of the economy in favour of the balance of payments. A basic point which cannot be over emphasised is that the purpose of these measures is not to reduce total demand and activity but to alter the pattern. They are not deflationary measures. They are designed to enable us to expand output more strongly and steadily than in the past, and to achieve an export-led growth in place of the consumption-led expansion that we have had hitherto.

It will be for the individual exporter to decide how to change his sterling export price quotations. In some cases it may be that the best advantage will be obtained by maintaining the pre-devaluation price in foreign exchange terms which would mean a rise of nearly 17 per cent. in the price of sterling. This would give a very big advantage to unit profits. At the other end of the scale his best course might be to maintain the pre-devaluation sterling price, or raise it only to the extent of any rise in production costs and reduce the foreign exchange price by the full amount of the devaluation. In this case unit profits in terms of sterling would not be changed but the exporter would aim at a big increase in the volume of sales. It seems reasonable to suppose that over the whole range of exports there will be on average some increase in the sterling price quotations combined with a still larger reduction in quotations in foreign exchange terms and thus a big relative price advantage over non-devaluing countries.

Devaluation should also increase the net value of invisible earnings in sterling terms. It will increase the attraction of services provided by the United Kingdom and discourage the use of foreign services which in sterling terms will become more expensive. For example, more tourists will be attracted to holidays in Britain. The exports of the United Kingdom retailer, to which the noble Lord, Lord Redmayne, called attention in our debate of November 7 will be of even greater significance. The sterling value of earnings of overseas investment in non-devaluation countries will rise. The long-term capital account should benefit from factors such as the relative cheapness of portfolio investment in the United Kingdom.

Devaluation will tend to reduce the volume of United Kingdom demand for imports. It will involve an increase in sterling prices for imported goods. It is unlikely that import prices in general will rise by the full extent of the devaluation; foreign suppliers may absorb some of the effect on their own profit margins in an attempt to maintain sales. It will be reasonable to suppose that import prices on average will rise by the greater part of the amount of the devaluation. On the whole, United Kingdom demand for imports is not sensitive to changes in price, because much of what we import is essential food and raw materials for which there is no adequate home substitute. But some fall in volume is to be expected, though perhaps not so much as to offset the increase in sterling price. The fall is likely to be most marked in imports of finished manufactures where home output competes. I should only add that whilst we want and expect imports to be restricted we are a trading nation and we cannot expect to trade only one way.

Devaluation will of itself impose a heavy additional load on our productive resources, partly to supply extra exports, partly to replace imports and partly to invest in extra facilities to meet the changed pattern of demand. Moreover, this extra demand will be superimposed on the expansion that will be taking place in any case partly as the result of the Government's reflationary measures in recent months. Part, but only part of this prospective rise in demand, will be offset automatically by the rise in import prices consequent upon devaluation. Therefore, we have these additional measures of the increased bank rate, the credit restrictions, the hire-purchase restrictions, and reduction of Government expenditure. The prices and incomes policy, which is critical to our success, will be continued and reinforced, and discussions with the Councils of the C.B.I. and the T.U.C. will be of immense importance in this context. There is likely to be an initial small increase in unemployment, but thereafter we expect a continuing but gradual fall at a rate which will depend on the improvement of the balance-of-payments situation.

There will be an increase in the sterling cost of our imports, and consequently some increase in the cost of living, but the rise in the cost of living will not be anything like as large as the change in the exchange rate. First and foremost import costs are only part of the total cost of the goods and services we buy. Secondly, import prices are unlikely to rise on average by the full extent of the devaluation. We estimate that the increase will in fact be something like 3 per cent. As I have said, the great expected advantage is an increase in our exports. Of course, the improvement cannot come overnight. The effect on orders won by our manufacturers will come soon, but the effect on goods actually despatched from our ports will inevitably be slower. During 1968 we expect a surge in exports and a massive improvement in our balance-of-payments position.

I can well imagine, looking at the list of speakers to follow, that some may ask why, if increased exports is the aim of the exercise, do we withdraw the export rebate and why do we need such an exceptionally high bank rate. On the first point, the fact is that the export rebate scheme has been unpopular with our friends abroad. In our view it has in fact been consistent with our international obligations, but it was becoming increasingly difficult to convince our friends of this. The object of the rebate, of course, was to make our exports more competitive. This is what devaluation will now achieve. In these new circumstances we believe it would not be right to continue the rebate scheme against the overseas criticism which it encounters.

As for the increased bank rate, it is justified by three reasons: first, to help establish confidence in our ability to sustain the new parity of exchange; second, to help retain and attract overseas funds by the offer of an exceptional rate of return during the immediate post-devaluation period; third, to reinforce the other measures of domestic credit restraint. These other credit restrictions are designed to prevent home demand from diverting goods which ought to be exported. Clearly it would be wrong to keep back a car from the export market so that a British citizen could buy it on easy terms.

I must add that these accompanying measures designed to reduce home demand are not being applied without discrimination. For example, the banks are being asked to continue to make bridging finance for house purchase. Nor will the farmers be hit by a new credit squeeze when they need finance for promoting import-saving operations. In another respect, too, the Government are, being, rightly I hope we shall all agree, selective. A rise in prices will hit hardest those least able to bear it, and at the appropriate time the Minister of Social Security will announce our proposals to redistribute purchasing power for the benefit of those who would otherwise suffer.

A fortnight ago my noble friend and I put to the House our faith in the economic policies then pursued by Her Majesty's Government. Some may hasten to say that events since that debate have proven those policies wrong. I do not agree. We still need the same fundamentals: the prices and incomes policy, the reshaping of industry, the partnership of State and industry in the creation of new growth areas, the extra help in development areas, and, of course, the emphasis on exports. And we still need, more than ever, a sense of fair play and a society based on social justice. My Lords, sacrifices will still be needed. There is still no substitute for hard work. Unselfishness is still the quality which this country needs. But my claim this afternoon is that the measures we are now discussing will give this country of ours the time and opportunity to show that we still have the qualities called for, and that we can win through to the objectives which we all share. I beg to move.

Moved, That this House takes note of the actions of Her Majesty's Government in relation to the exchange value of the pound sterling.—(Lord Beswick.)

3.5 p.m.


My Lords, there cannot be anyone in this House to-day who does not deplore the reason for the debate this afternoon and who is not deeply distressed by the events of the last few days, not made any the less by the deliberately low-keyed speech of the noble Lord, Lord Beswick, to which we have just listened. I said in a speech in this House about a fortnight ago that in my opinion the standing of this country abroad, at any rate in my lifetime, had never been lower and that the basic reason was economic. Little did I guess at that time that we should so soon see the catastrophic confession of failure announced by the Government on Saturday, the consequences of which are going to be with us for very many years to come. It is right that blame should be placed on those who have brought us to this pass. It is our duty as an Opposition to bring home to the electorate the magnitude of the failure of the Socialist Party. I trust that no one on the Benches opposite will accuse any of us being unpatriotic if we make plain our distaste at what has happened, for it is essential, in my view, that the people of this country should understand the reasons for what has happened.

But, of course, the economy does not belong just to the Labour Party. The consequences of their actions affect all of us. Our standard of life, our position in the world, our influence, are all called into question, and so all of us, to whatever Party we belong, wish to see the steps which the Government have been forced to take successful. I have no wish to say anything which will make the new policies of the Government more difficult than they undoubtedly will be. For, make no mistake, it will need a good deal more courage than the Government have yet shown to take advantage, if advantage it be, of devaluation.

Your Lordships will have observed that the Motion before the House is to take note of the decisions which the Government have made, and you have not been asked to approve them. If that had been so, it would have been the duty of the Opposition to move a reasoned Amendment. And, indeed, I did wonder whether, on behalf of the Opposition, I should not move an Amendment to this Motion making it clear what our position is. There are strong arguments for doing so, but I think there is one argument of great importance against it. In the nature of things, the Opposition in this House would have been able to carry that Amendment, and in so far as debates in your Lordships' House are reported overseas there would have been a possibility that a defeat of the Government in this House would have been taken to mean something rather more than condemnation of their policies. However remote it might have been, it would have been wrong for any of us to cause, even marginally, a lack of confidence in the new value of the pound and in the rigorous measures which, if we are to believe the Government, they intend to put into action. I do not know whether your Lordships will agree with this reason; but whether or not we vote, I intend to speak very plainly this afternoon about the events which have led to the present situation.

My Lords, I do not know whether any of you watched the television appearance of the Prime Minister on Sunday evening. I did, and I came away with a feeling of dismay. It may have been a good television performance, but it was not one that commended itself to me. The Prime Minister ignored the policies which he has initiated and followed for the last three years. He announced a complete reversal of those policies, without explanation. He threw in a few thinly disguised Party political points, and then told us that we are on our own now—it means Britain first.

To take the last point first, I find it baffling to speculate as to whom the Prime Minister had so far been putting first in the three years of Labour Government. For the last three years both the Prime Minister and the Chancellor of the Exchequer have been deeply committed to maintaining the parity of the pound. I do not intend to quote any of the speeches which have been made by either of those two right honourable gentlemen in the last three years, though goodness knows! some of them are quotable enough in the present situation. But it is in the recollection of everyone in the House what the attitude of the Government was; indeed, on numerous occasions the Prime Minister and the Chancellor have told us that the alternative of devaluation was not satisfactory and that it was therefore necessary, in order to put our economy right, that the British people should be asked to make sacrifices in wages and in their standard of living so that, in the end, our economy would be strong and the value of the pound would remain unchanged. We were always told that this was just about to happen, that it was just around the corner—until Saturday. All these sacrifices seem to have been in vain; and the Prime Minister has ordered an about-turn.

If the solution of devaluation was unacceptable four months ago, or a year ago, or three years ago; if devaluation was not considered to be a proper solution to our problems at any time in the last three years, why then has it suddenly become a panacea presented by the Prime Minister on the television? Why is it an opportunity of getting out of our straitjacket?—a phrase which he himself used. What has now changed to make devaluation acceptable?

My Lords, without entering into the argument of whether or not we should or should not have devalued, one thing emerges without contradiction; namely, that the Government cannot have been right in 1964, 1965 and 1966 and also be right in 1967. Even the most dedicated of their supporters must see a contradiction in the complete reversal of policy announced last Saturday. No word of explanation came from Mr. Wilson. He did not even say that he was blown off course, though I think he mentioned the Suez crisis and the dock strike. Bad luck, I agree, from the point of view of the economy; but not sufficient in themselves to cause this catastrophic loss of confidence.

Of course we had the old "inherited deficit" story trotted out in different disguises three times during the Prime Minister's short "non-political" broadcast. And we had it again, rather more delicately put, this afternoon from the noble Lord, Lord Beswick. I do not intend to discuss that. We have had it many times before, and I suggest that before noble Lords laugh they might care to read the leading article in the Daily Telegraph, which seems to me to dispose entirely of that scare. But I would only say this to noble Lords opposite: the action taken by them immediately after winning the Election in 1964, when they used that deficit for Party political purposes, did more to undermine the confidence of our European neighbours in sterling than any single action that I can recall. As an excuse, it simply will not do any more.

I would remind them that immediately after the result of the Election in 1966 was announced, Mr. Brown said—and I would ask noble Lords opposite to note these words: There can be no alibis for us. We are carrying on where we left off. This time we cannot claim to have inherited a Tory mess. The Government really must stop blaming other people. The noble Lord, Lord Beswick, in his speech, blamed everybody except the Government. I believe that a major share of the blame lies with them. I think it is right to comment on the sequence of events which led up to devaluation on Saturday night.

If we are to believe the guidance which has apparently been given to journalists, the Chancellor and his closest colleagues made up their minds to devalue over a fortnight ago. Yet during that fortnight we had two increases in the Bank Rate of a half per cent.—not, I should have thought, the sort of steps that one would expect from a Chancellor who knew the gravity of the crisis through which sterling was passing. Why the half-hearted measures which did nothing to restore confidence?

We also had a speech by the Chancellor in the House of Commons which, in the light of the decision taken, makes curious reading; and, if I may say so, a pretty odd one from the noble Earl the Leader of the House on the debate on the Address, whose optimism (though admittedly it seemed to be based more on the Financial Times than on any particular conviction of his own) makes even odder reading to-day.

We then had the evasiveness of the Chancellor when questioned about whether or not a loan was being negotiated, and I imagine that as a result of the uncertainty which the inconclusiveness of that answer must have generated, we lost many hundreds of millions of pounds from the reserves between then and the actual moment of devaluation. This, to say the least of it, is an unhappy chain of events which did nothing to make easier the eventual devalution. Even when the decision to devalue had been taken the Government managed to muddle its execution.

Well, the decision has been taken, and the pound has been devalued. All your Lordships will have read over the past few months and years the different assessments and solutions to the problem which have been canvassed by our leading journalists and economists. Some said that devaluation was the answer, but no more loans and no more deflation. Some said that deflation was the answer, but no devaluation and no more loans. Some said that a loan was the answer, but no devaluation and less deflation. We have now got the lot. We have got deflation, we have got devaluation and we have got a loan. I suppose all of us ought to be happy. At any rate, it appears to have united the Labour Party behind the Prime Minister, though for how long I am sure I do not know.

But there are several question marks as to how the Government intend to operate the economy and take economic advantage of devaluation. The Chancellor said, as I understand it—the noble Lord, Lord Beswick, will correct me if I am wrong—that wages should be strictly controlled if we are to take advantage of the opportunity to increase exports; that that opportunity will soon disappear if wages rise and our prices become less advantageous than we now hope they will be. But we have heard nothing from the noble Lord, or from the Government, as to how they intend to keep wages down, or indeed if they do intend to keep wages comparatively static. With all the paraphernalia of the wages freeze and the legislation introduced to maintain it, they have had the greatest difficulty hitherto in doing so.

I saw on B.B.C. the other night a programme in which Mr. Cousins and, to a lesser extent, Mr. Woodcock, made it perfectly clear that they did not intend to operate in that sort of climate. How, then, are the Government going to maintain the control of wages? If they do, they would seem to be in trouble with the unions. If they do not, they say themselves that most of the advantages of devaluation will disappear. There is no doubt that prices will rise. The food that we import, the petrol we import, the consumer goods which we import, all will rise in price as a result of devaluation. The noble Lord, Lord Beswick, says that he estimates that the rise will be 3 per cent. I remember that it was calculated some years ago that the rise in the cost of living as a result of Britain's entry into the Common Market would be 3 per cent., and that was considered by noble Lords opposite as absolutely unacceptable. But apparently this is completely acceptable. The cost of living will rise, and there will be great pressure for an increase in wages from those whose standard of life will undoubtedly be affected and undoubtedly be lowered.

I should be grateful to hear from the noble Earl the Leader of the House, who is to reply to this debate, what proposals the Government have, not only for wages, but how they intend to alleviate the hardship which will certainly fall on some sections of the community least able to look after themselves.


My Lords, would the noble Lord allow me to interrupt? He says, quite rightly, that I did not give any details as to how we propose to control wages. Would he care to tell the House whether he is in favour of a compulsory control?


My Lords, we are debating the Government's economic policy. We are not debating the Conservative economic policy. Everything that has happened to-day is the result of what the Government have done. It is up to noble Lords opposite to tell us what they intend to do.


My Lords, if the noble Lord is afraid to say that he is in favour of compulsion or whether he is in favour of a voluntary agreement, surely it is unreasonable to expect me, in the course of the discussions which are now taking place with the trade unions, to say what measures we are proposing.


My Lords, the noble Lord has only to look at the record of the Conservative Party to know what our attitude is about compulsion.



I am glad that noble Lords know that, at any rate. The Government have made very important decisions and it is up to the Government to tell us how they are to carry them out. The Prime Minister was absolutely wrong when he maintained in his broadcast that though the pound abroad will be worth less the pound in your pocket will be worth the same. It will not, and he knows it will not. The pound will buy less, and it is the deliberate policy of Mr. Wilson and his Ministers that it should buy less.

If we are to be sucessful in pulling ourselves out of this dreadful situation there will, alas! have to be some very unpleasant consequences. The measures which the Government have announced must have unpleasant consequences. It really is no use the Prime Minister trying to write-off his political difficulties by pretending that it is otherwise. For it is just precisely that double-talk which has led to the undermining of confidence in the pound and which has contributed to the need to devalue. These are disagreeable facts, but they are the realities of our situation, and to take advantage of the brief respite which devaluation brings we must make quite sure and clear that the urgency of the situation is realised by us, and also the consequences.

I do not believe that if you tell people the truth, the whole truth and nothing but the truth they will flinch from accepting either the consequences or the facts. May I urge the Government and noble Lords opposite to remember that in all that they do, in the speeches which they make in Parliament, in the propaganda which they necessarily make for their own Party, all this is observed abroad. All is read by those abroad whose confidence in sterling is of the utmost importance to us. Though some of us may discount, or hope we may discount, some of the things they say—and I hope I still carry with me the noble Lord, Lord Mitchison; it is not always very easy—


My Lords, what I am waiting to hear is whether in present circumstances the Opposition disapproves of devaluation, and, if it does, what it would have done.


My Lords, perhaps I can keep the noble Lord on tenterhooks for a little longer. It is not always understood or easy for those abroad to appreciate the niceties of Party politics. And if the Prime Minister or the Chancellor of the Exchequer or whoever it may be tries to placate or to underplay, or in any way to underestimate the gravity of the situation and the problems which face us, that in itself is going to lead to a loss of confidence. There must clearly be no rise in expenditure by the Government—indeed, the reverse. And there must be no suggestion that things are all right now because we have a large loan at our disposal and we have devalued. The Government must be seen to be really determined in their efforts to take advantage of the very few months we have as a result of this devaluation, for by itself it will solve nothing; it will only be with the cooperation of every one of us that we can make good this opportunity.

I do not know—and here I am going to answer the noble Lord, Lord Mitchison—but I should imagine that by Saturday evening there was no alternative left to the Chancellor of the Exchequer but to devalue. But, as Mr. Heath said last night, by making the pound worth 17s. 2d. you are not tackling the root of the problem. What you are really doing is to make it necessary for us to export 15 per cent. more before we are back to where we started. We in the Conservative Party have said for a long time that in order to put the economy right there must be encouragement and not restriction—encouragement in personal incentives. People should be allowed to keep more money in their pockets and have more say in how they spend it. And for that purpose, our taxation system must be rearranged and penalties on high wages and overtime must be removed. Our scientists, "back-roam boys" and managers and chairmen must be rewarded for what they dc—properly rewarded and not blackmailed by appeals to their patriotism. There has to be encouragement in pratical terms as well as exhortations.


My Lords, what I am waiting to hear is whether in present international honour and standing has been shaken. Those who banked with us, including some of those who can least afford it, have lost 15 per cent. of their money. This is a bad day for Britain. Three times we have had a Labour Government and three times we have had devaluation. Time is running out for the Labour Party and we must see to it that time does not run out for the country.


My Lords, before the noble Lord sits down, will he recall that the devaluation of 1931 did not come under a Labour Government?


It was as a result of their policies.

3.27 p.m.


My Lords, I will refrain from indulging as a third party in the private fight which has just been concluded, though I must say that it is a temptation to do so. On the other hand, I think it only right to echo the sentiments expressed by the noble Lord, Lord Beswick, and, indeed, those of the noble Lord, Lord Carrington. This is a time for serious concern, but a time at which, for the reasons already given, we have to exercise great responsibility.

I do not yet really understand the Conservative policy which would have been pursued. I should have said that, whatever one believes about the policies of the Labour Party which have brought about devaluation—and we have been one of the first to criticise them in the past—it was crystal clear that the alternative to devaluation would have been massive unemployment on a totally unacceptable scale. Therefore, whatever one believes about the causes, I do not think that the Government had any alternative last week.

There have been many people, some of them in my own Party, who have advocated devaluation as a positive policy going as far back as 1964. But I believe that the Party as a whole was right not to accept this policy, because we felt that political pressure for devaluation might well weaken the pound and embarrass the country. What we have said, and we stand by this, is that if the nation continues to spend far more than it can afford, the currency is bound to weaken, and that, if devaluation is to take place, it should be properly planned instead of being forced upon the country in a hurry and in an emergency. In the result, I am sorry to say, the Government by their policies have produced the worst of both worlds. They have been defending, to no avail and at excessive cost, the pound sterling; and then suddenly, with little or no planning, devaluation was sprung on the world at the end of last week.

We have said one other thing about devaluation which I believe is generally accepted; that is, that it is quite useless unless it is accompanied by other measures of the comprehensive kind which will give us some advantage in the breathing space we now have before us. I believe that this has to be registered at all levels of our society; namely, that devaluation without vigorous and largely unpleasant measures is the beginning of a very slippery slope indeed. It is not the sort of thing you can do every two years. That is why I believe we should spend less time on recrimination and a good deal more time on examining what are the essential other measures that will enable us to make the best of this opportunity which presents itself.

I think we must look at measures which will help in certain definite ways; measures which will help us to get more rapid growth, which will restrain consumer demand and which will encourage exports and the saving of imports. We must see that we do not backslide in the gains we have made on productivity, and we must get more productivity and greater efficiency. We must check imports without control, and we must in every way strengthen the balance of payments. It is against this sort of background that I think we ought to examine critically some of the proposals of the Government. First of all, there is the £100 million cut in defence expenditure. May I ask what form this is going to take? Will it be mostly overseas, or will it be aimed at releasing some of our domestic engineering resources for other uses? Could the noble Earl who is going to reply tell us what is the total of Government expenditure overseas at the present moment, so that we can get some idea as to whether we could save a little more?

I really do not understand the decision regarding car hire purchase. I would ask how often this regulator has been used by this Government. Why is it that this seems to be the Government's main regulator? It certainly has a most disruptive effect on industry. If one wants evidence of the lack of planning of this devaluation, one has only to realise that we had reflation using this regulator in June or July, and then suddenly we put the whole thing into reverse with devaluation in November. This has a disruptive effect, not only on the motor car industry but on all the other industries which are harnessed to that very important industry of ours.

Next, I should like to ask about the bank rate. I understand the reason for putting in a figure as high as this immediately, as an emergency measure, but I cannot believe that it can be sustained. If it is, it will quite likely make sterling so much more attractive than the dollar that it will weaken the dollar itself. It would be a fantastic side-effect of British devaluation if we weakened the dollar to the point where it had to be devalued itself. This is something which needs very careful looking at, for not only does it have international repercussions: we have to realise that a great deal of loan money and working capital has to be found for exports and for the import-saving industries, and borrowing at 9 per cent. to 10 per cent. for export is no fun at all. This rate is going to have a self-cancelling reaction, unless the Government watch the position very carefully indeed. And it is not just in exports and import savings. General industrial development may well be retarded by a bank rate of this sort. I am sure that the noble Earl, Lord Cromer, will have more to say on this subject when he comes to speak.

Then there is the 42½ per cent. corporation tax. I understand it if it is put in to placate the trade union movement; but is it not going to be an irritant? Is is not going to be an irritant to the export industries to have this little bit extra added on to their present taxation? Is it necessary always to do something like this, when you are asking other people in the country to pull in their belts?

I listened with interest to what the noble Lord, Lord Beswick, said about the export rebates, but surely we are not immediately going to bring the curtain down on the export rebate system. It is something which, presumably, has been taken into consideration in making contracts. It has been added in or perhaps subtracted from tenders which are still outstanding, and if we are not careful this step is going to have the effect of disrupting once again some part of our ex port drive. I hope the Government realise that exporting is not something which can be tampered with on the basis of doing one thing to-day and another to-morrow. There is a great deal of continuity when one is engaged in this sort of activity. It is a very sensitive thing, and I believe we must be extremely careful how we tackle it. I would therefore ask the noble Earl who is to reply: what are the intentions so far as export rebates are concerned, and can they not, if they are to be ended, at least be phased out intelligently?

I find that there is very little indication that the measures which the Government have suggested, together with devaluation, form the coherent economic policy for which I asked when we had our debate on the gracious Speech. I doubt very much whether they are adequate. I doubt very much whether they are radical enough. At the expense of being told by the Leader of the House that I am producing another string of platitudes, I should like to put to the Government some proposals which I believe should be considered. These are only a few and I do not pretend that they form a comprehensive policy, but I do say that there should be a comprehensive, co-ordinated policy, and a policy which can be understood, to go along with devalution.

First of all, would it not be an opportune moment, and would it not be a good thing, to try to arouse the comprehension of the country by instituting, inaugurating, a tremendous "Buy British" campaign? Can we not consider this? I am sure that many people are still not considering whether, given the choice of two or three different cars, wireless sets or other things, they should not, at least for the next few months, think about buying British in order to give the country the benefit of selling on the home market, instead of going in for imports from abroad.

Secondly, I would echo what the noble Lord, Lord Carrington, said. How are we going to plan to deal with incomes? Another straight wage freeze will merely invite more trouble than it is worth, and I put forward proposals some time ago for an alternative, which was to freeze the pay-roll rather than the individual wage. I think that this suggestion merits reconsideration as a policy, so that the total paid out in wages and salaries is not increased, and higher individual wages can be achieved only by cutting—


My Lords, may I ask the noble Lord how he would deal with such a proposal in an expanding industry?


My Lords, the noble Lord has missed my next point, if he will allow me to make it for myself. But if he will look up the speech which I made before, he will realise that I made the proposal then. What I am saying is that all you can do in such a situation if you freeze the pay-roll, is either reduce your manpower in the firm or cut the salaries of the higher executives—and I know which choice would be made. This would be a very interesting way of reducing the manpower in a number of industries.

Of course, exemptions would be needed for expanding firms and industries, and these would have to be given by the Board of Trade or the Ministry of Labour or somebody else. But if we find this too difficult for private enterprise, why not make it a principle in dealing with the Civil Service, the nationalised industries and local government? Why should we not say, "Not another penny on the pay-roll, and if anybody wants higher wages then you must show us a way of reducing manpower". This would be a very good example which the Government could start to-day, and I believe it is worth considering.

Coupled with this, could we not consider a scheme for private enterprise which would channel increases in wages and salaries, preferably those achieved through higher efficiency and greater productivity, into something like employee investment schemes? There are many ways of doing this, but could we not look at the principle of giving people incentives in such a form that they are not encouraged to use them for immediate spending? This, I believe, would be a real incentive, and this is one of the reasons why I very much regret the attitude which the Government have taken on such things as stock options. I believe that stock options ought to be given right the way down, so that people have something to work for and can improve the wealth of the company and share in it, but share in it in such a way that the cash does not get into the supermarket the next day, or does not go on H.P. the next day. There must be ways of doing this. The Government have at their beck and call experts on these matters. Surely the principle must be right, to give incentives which do not turn into immediate cash. In any event. I hope that there will not be too many across-the-floor wage increases, except possibly where it is necessary in the case of the lower-paid worker. But even there it is probably done better, as I think the Government intend to do it, through family allowances.

Could we not take this opportunity to try to improve the organisation of our unemployed manpower? I do not believe that the statistics mean much at the moment. I believe that the unemployed are being wasted and frustrated. Surely, the Ministry of Labour ought to know at any given moment of all vacancies which exist, instead of those which the private companies have merely put into the Ministry of Labour, usually for the lower-grade jobs. I believe that we have to face up to the need for a Notification of Vacancies Order. We have to make much more progress on standardisation of job descriptions. I know that some work has been done on that; but we have to get a system, perhaps like the Swedish labour market boards, where, on a regional basis, real efforts are made to match the man to the job. I am sure that a great deal will have to be done in this direction particularly if we are going to expand, as I believe we are.

We must be able to foresee the vacancies which will come forward, and I believe that we must link this up with our training system. We have got to identify the jobs that are going to be wanted, and we have got to take the unemployed and do a deal with private enterprise—and get them now. The Industrial Training Boards cannot handle this, but private enterprise could do a great deal of training in anticipation of the expansion which we hope to see. This is what I mean by part of a comprehensive, co-ordinated policy to have a manpower programme which really is looking forward and anticipating our needs. I believe there is also need for further measures to shake out the labour-intensive industries. Although it may seem an odd thing to say at a moment of devaluation, I think we ought to look at selective tariff cuts, which will shake out the manpower in some of our declining and slow-moving industries, so that the manpower, properly trained, will be available for the expanding industries when the time comes. It is things like this that I believe will have to be done to show that we understand the opportunity this fleeting moment gives us. And, as I say, there are many others.

But, having said that, my Lords, may I ask this question? Is there no way in which we could get the International Monetary Fund, or some European institution, to share with us the burdens of being a world banker? Many of these nations, I should have thought, ought to be prepared to play their part in taking some of this burden, instead of always leaving it to sterling to be under pressure. I believe that the Chancellor of the Exchequer has this point well in mind, but surely this is the moment when we should have a new initiative to see whether something can-not be extracted. I repeat, all the measures that we adopt in the economic field must answer the tests: are they making for growth at a rapid rate? Are they helping the growth of exports? Are they helping to build up the reserves? Do they make for a strong balance of payments? In this connection, I ask: what proposals have the Government to deal with the dock strike? It makes no sense at all to get everybody geared up to a tremendous export drive if we cannot get the goods into the ships.

Finally, on the social side, I would say that we must now recognise that we have to satisfy ourselves that not one penny goes out on our social services to people who do not genuinely need that help, and that no one who genuinely needs help is deprived of it. I believe that within these brackets a new policy of social justice can and should be worked out—a policy which would in no way jeopardise the growth of the economy. Indeed, I believe that if that sort of social justice could be obtained it would improve the growth of the economy.

The Government and the country must look at our post-devaluation future as something which needs a coherent, coordinated domestic policy. I believe that we have a chance. We have a chance to go somewhere now, and we must not miss it. We are all in this mess together, and it is only by working together that we shall get out of it. In the process, some unforeseen fortunes are going to be made. I would rather see some fortunes made, if it helps the country to be prosperous, than for the nation to sink beneath the waves because the Government have been so busy watching profits and private enterprise that they have not noticed that the ship was sinking. I believe that the country has to be shown that there is a comprehensive and coordinated plan to make the most of the present situation. If it is shown a coherent scheme which is businesslike and competent, then, my Lords, the country will respond.

3.45 p.m.


My Lords, it is with a heavy heart that I rise to take part in this debate to-day on the humiliation that both the pound sterling and our country have been brought to suffer. I feel, however, that it is my duty as a Peer, and as a Member of your Lordships' House, to speak to-day, particularly having had the privilege of serving as Governor of the Bank of England during part of the background period leading up to this crisis, and having had the honour of working there with what is certainly the finest team in the field of central banking that exists anywhere in the world. It is appropriate, too, I think, that I rise to address the House from these Cross-Benches, because it is not my design, having served half my working life in Crown service, to try to pick upon Party points as such. But that does not mean that I am not critical.

Let us first of all be absolutely clear from the start that this devaluation, this default of 2s. 10d. in the pound, need never have occurred if determination to put the integrity of the country—surely the first responsibility of Government—had been given credence by appropriate policies as well as by fine words. As the fine words became more tarnished with wear and repetition, and as it became more apparent that the Government either could not or would not face up to taking the actions necessary to fulfil the fine words, so confidence continued to decline; borrowing became more difficult, and in the end, like the noble Lord, Lord Carrington, I am surprised that last Saturday there was any choice in front of the Prime Minister. That there should have been an alternative at all at that time surprises me.

The final act—that of devaluation and default—has come, of course, as the culmination of a series of crises of confidence in the Government's intention, and even their ability, to create a climate in which the vast potential of skills and resources that we are fortunate enough to possess in this country could develop to the nation's benefit. It is true that when the Labour Government came into power in October, 1964, there was a substantial but not unmanageable financing problem to be faced. Within about six weeks of that time, through failure of the Government to accept the consequences of various Government decisions and indecisions, we had a major financial crisis on our hands. This was accompanied by the impression created by the Government, rightly or wrongly, fairly or unfairly, that they were determined to give first priority to Party political dogma.

The Bank of England was able at that time to rally sufficient international support to save the pound. This support—and, indeed, all subsequent support of which I have any knowledge—was given without any ties, strings or conditions, relying solely, so far as the central bank credits were concerned, on the integrity of the Bank of England, in the knowledge that it was not a political institution. But the lesson of that crisis was very clear for all to see, all who were not blinkered by preconceived political prejudices or wholly unjustified optimism. It was clear—and I certainly cannot now be accused of having been too secretive about my opinions—that unless we took steps to reduce our expenditure and consumption as a nation, both at home and abroad, we should find ourselves with a day of reckoning, as we did last Saturday. The International Monetary Fund, composed as it is of those representing Governments and not of international bankers, was more specific in making clear to the British Government the essential need to get our house in order.

But, my Lords, Government expenditure, both at home and abroad, due to insufficiently considered policies, continued to increase while various palliative measures were intermittently resorted to in an effort to offset the inevitable consequences of this rake's progress. As successive crises of various dimensions, and scurries in between, occured in May, 1965, in July, 1965, in May, 1966, and in July, 1966, confidence burgeoned feebly from time to time as the recollection of each crisis dimmed, only to wilt away again as the next crisis loomed up. It has been a period during which events were allowed to dictate policies, with the inevitable result that the measures tended to be too little and too late. Had these self-same measures been introduced earlier, had the initiative been seized with foresight—and there were some who were looking ahead—it is likely that more permanent confidence could have been created and the need to devalue last Saturday would never have come about.

There is one bogey that I should like to lay at this point. At no time has it ever been the advice of any bankers I have met, at home or abroad, that any solution to our problem was to be found in the creation of vast unemployment. To start with, it is absolutely no solution to our problem, and as a social and economic concept it is wholly and completely unacceptable.

As if being buffeted from pillar to post through failure to take the initiative were not sufficient, the more positive elements of Government policy contributed massively to the disillusionment, confusion and waning confidence of the financial and business world. The corporation tax, a measure to which, in itself, I take no exception whatsoever, was an immensely complicated piece of legislation, attracting, I believe, a record number of Amendments—not only from the Opposition but from the Government itself. It was scarcely well considered. There were the selective employment tax, again, scarcely the best considered of fiscal measures, and the capital gains tax, with its all-embracing stranglehold. All these, as I mentioned the other day in my speech on the humble Address, distracted to a fantastic degree the energies of those who would have been better employed in building businesses and earning wealth for themselves and the nation. It has been a serious failure of judgment to introduce such measures and other abrasive measures, in the midst of continuing crises. There has in my belief been a tragic conflict of purpose between promotion of Party political dogma, generally most untimely, and insufficient policies calculated to make the country prosperous, standing in her own right, confident in her own resources and wealth in the world.

It is scarcely to be wondered at, my Lords, that there should have been these series of crises—crises of confidence. Without the changes in policy which were so very clearly called for, it has come as little surprise that we have now had to face the reckoning. But now that we have faced the reckoning, are there more grounds than existed last week for an increase in confidence to-day? Is there more likelihood now that the Government will proclaim policies that will justify confidence rather than consume the price advantage that has been obtained? Is it any easier for the Government now to follow the even more drastic courses called for to take advantage of devaluation than it was to pursue less onerous policies before? Is it more likely actually to happen?

Is it more likely now that the Government will proclaim policies that will justify confidence rather than consume the price advantage we have taken to ourselves—taken to ourselves at the expense to a considerable degree of those overseas who trusted us and our currency? We cannot afford another failure such as we are suffering from now. Integrity and confidence are something that we like to think is close to the heart of every Englishman. To a banker it is essential in those with whom he deals. Are those abroad who have seen their sterling balances devalued by 2s. 10d. in the pound, or those who have seen this happen to others, likely to have great confidence in a nation whose Government bring this about?

The compulsory sacrifice of the small saver and investor in Government bonds at home similarly, I think, gives food for serious thought. It was the destruction of savings in Germany in the interwar years, in the later 'twenties that brought into power Nazism and Hitler. This devaluation is quite different, as I think the noble Lord, Lord Beswick, said, from that of 1931, and quite different from that of 1949. This devaluation is the outcome solely of this Government's policies. Before October, 1964, no one in any responsible position had in mind the possibility of the need to devalue. There were certain Left-Wing academic thinkers; but no-one in a position of responsibility thought that this was likely to be imposed upon us. How can those responsible for this default, and those who condone a default, command respect as worthy leaders of this nation?


My Lords, may I put one point to the noble Earl who is making what is certainly, for an ex-Governor, a very unusual speech? Since he must share a considerable responsibility for the financial policies of the first eighteen months or so, would it not have been more appropriate for him to resign?


My Lords, I do not think it inappropriate to report to the House my feelings of the situation which has now arisen.



I think it proper that the House, in these very general terms in which I am speaking, should be aware of the situation.

My Lords, we have a hard task ahead of us to re-create confidence and to obliterate by our future efforts and performance our past indulgences. None of these indulgences, we are now told, are to be interfered with. It is our friends abroad, those who have helped us most, who are most disillusioned over what has now occurred.

Having involuntarily passed out of the fool's paradise in which we have been li%ing, let us hope, for all our sakes, that we take stock of our affairs and plan our future from now on in reality. The vast debts that we have incurred, both as part of our financial arrangements and as part of our purchase of foreign arms and aircraft, will of course become much more onerous in sterling terms as they have to be paid for in foreign exchange subject to devaluation; as also does the interest on these loans and the continuing interest and repayment of the 1947 loan. Against these figures, this is a very sobering thought. None of us outside Government really knows what these figures are; but against this background the proposed reduction of some L200 million per annum in Government expenditure next year seems to me to be wholly inadequate to give credence to the belief that the Government have even now taken the measure of our problems. It is barely a token figure when compared with the total of central and local government expenditure in 1966 of £14,491 million. Two hundred million pounds off that sum is not going to make a great difference to confidence. It appears that all the sacred cows are to be allowed to continue to deprive others of their seed-corn.

My Lords, we have to live in the world of reality—the world in which we as a nation have to earn our living. The Government have chosen a new parity for the pound. We have to act with conviction to justify this new parity. We have to make sure that this price advantage is not dissipated; we have to throw away both the crutches and the shackles and put ourselves and our money to work in the most profitable way that we can. And the best safeguard against dissipation and the greatest opportunity for judgment on earnings—as soon as the smoke clears and the dust settles—lies in taking, an entirely new look at the elimination of Exchange Control paraphernalia. With this new parity there should be no justification for it. Whether or not it has served a beneficial purpose in the past is a matter of opinion. I am well aware of the opinions of the practical businessmen who used to come to see me when I had to administer Exchange Control.

But be that as it may, with the new parity of sterling, continuing deprivation of freedom comparable with that in other industrial countries can serve no purpose other than an indication of lack of confidence in ourselves or hankering after some form of authoritarian rule which has been rightly rejected by all the other industrial countries of the Free World. Indeed, I would go so far as to suggest that it is a necessary endorsement by the Government of their belief in the new parity.

My Lords, another issue, which has been touched on by the noble Lords, Lord Carrington and Lord Byers, is the urgency now created for a revision of the tax system in order to ensure that those who want to earn more by their own efforts can enjoy the benefits, and a move towards a greater use of indirect rather than direct taxation seems called for. I should also like to endorse the suggestion put forward by the noble Lord, Lord Byers, that at this time we should take an urgent look at our tariffs. They are very diverse, but we do have very high tariffs in a number of fields, and if ever there was an opportunity to create competition, this is it.

My Lords, I have the greatest confidence in this country and its potentialities; but only by honesty with ourselves shall we rebuild confidence in ourselves, and only by honesty with others shall we rebuild their confidence in us—a confidence which has been so rudely brought to its nadir by this devaluation.

4.0 p.m.


My Lords, it would be idle to deny that devaluation has been a great shock to the people of this country, regardless of their political opinions. It has indeed been a shock to their sense of pride. But I think it is generally accepted that devaluation has been forced upon this Government because of circumstances which, I should have thought, deserved the serious consideration of this House. Listening to the speeches, both political and non-political, I must say that the non-political speeches intrigued me even more than the political. I recognise that one of the necessary attributes of an Opposition Front Bench speaker is the possession of a short memory. In that regard the noble Lord, Lord Carrington, has given a fair indication that he has not been deprived of that attribute. He intended, I am sure, to have something of a field day to-day, and to some extent the noble Lord had it. But I am sorry that he had to write his speech before he had had an opportunity to hear the speech of my noble friend Lord Beswick, otherwise he would not have asked the question: What are the circumstances which have caused devaluation? The noble Lord would have known the answer.

It is perfectly true that Government policy and Government efforts over the past three years have not succeeded in solving the recurring balance-of-payments problem, but it is false to suggest, regardless of where the suggestion comes from, or to say, that Government policy and the measures which have been taken have created the problem. The problem was there long before the Labour Government came to office. The noble Earl, Lord Cromer, stated in a most categorical way that this was solely the responsibility of this Government, and that the circumstances which have created the crisis were due to this Government giving first priority to political dogma. What did the noble Earl mean by "political dogma"? He did not go on to indicate precisely what political dogma means. If by political dogma the noble Earl means many of the social developments and social expenditures upon which this Government have been engaged, we do not deny it. Indeed, we would claim that had there been more social expenditure of this kind in the past, the general productivity and the standard of education of the people of this country would have been higher than it is to-day.

This Government have pursued policies which meant that some burden would be placed upon the community. That is true, and in dealing with this situation I would ask the noble Earl, Lord Cromer, how far his conscience is clear. What was his first real contribution towards the settlement of these problems during the period when he held high office? It is very easy for him to claim to be making a non-political speech but to give vent to statements which are political in every aspect. This is no time for recriminations, but I think that it is necessary to say that much of the malaise which has plagued industrial life for a long time springs from an attitude of mind that fails to reconcile itself to the grim fact that effort and reward, productivity and pay, are inevitable corollaries. That is the fundamental lesson which has to be learned to-day, and tomorrow, and which was not learned during the period when noble Lords opposite were in office. During the last Administration the problem was present, but there was a phoney sense of lush security which lulled people into a false sense of security. They were the days, as has already been stated, when "You never had it so good". That made a contribution to a mental attitude which has contributed towards current problems.

The noble Lord, Lord Carrington, gave an indication to the House about how noble Lords opposite would deal with this problem. "Allow the people to keep more money in their pockets" was his statement. Noble Lords opposite certainly did that during their period of office, because in 1960–61 (and I draw the attention of the noble Earl, Lord Cromer, to these figures) income in this country, nominal income, increased by £1,200 million. Production in the same year increased by £630 million—a clear and visible indication which must have been recognised by the noble Earl, Lord Cromer, and by the noble Lord, Lord Carrington. But I fail to recollect one single word in any speech by either of those two noble Lords in that significant year which drew attention to that basic defect in our economy—a defect which mast inevitably have created economic difficulties and, in the long run, brought about a series of events leading to devaluation. Therefore it ill becomes people who held high office in those days to come along with a smooth and easy condemnation of this Government, which, with all their defects, have had the courage, persistently and consistently, to draw attention to the serious problems which confront us.

The Government have not been afraid to introduce measures which nobody would claim were likely to win votes. No one would claim that, and therefore they showed courage and honesty in embarking upon those measures. I challenge the two noble Lords to say whether they made reference, in the year I mentioned, to the basic problems of our economy. Not a word! If they had indicated to me that they had done so, my reply would have been that it was a pity that the Government of that time did not take account of such warnings.


My Lords, may I ask the noble Lord, Lord Peddie, a question? Surely the whole of Mr. Selwyn Lloyd's pay pause at that time was directed exactly to what the noble Lord is talking about.


Exactly, my Lords. There was a pay pause, and they tackled the problem by concentrating solely upon limitation of pay, and gave a clear indication at that time of their reluctance, if not their inability, to deal also with profits and prices.


My Lords, in fact it was a squeeze on exactly the same basis as the one we have recently had.


It was a selective squeeze. I know that nurses might be more attractive to squeeze than a squeeze in other directions, but that was the sort of squeeze undertaken at that time. I repeat that this is no time to bring forward the slogans which we have heard from the Benches opposite to-day.

This country has carried a lot of old burdens and has incurred new ones, and believed that we could afford them; but as a nation we have failed to produce the growth of wealth to match those burdens. For years that go far beyond the Labour Government, home demand has been rising too fast in relation to output. Inadequate exports have created a recurring balance-of-trade problem which has necessitated restrictions which checked growth. Therefore we have had the grim dilemma of a balance-of-payments problem which checked growth and which in turn could not be solved without faster growth. The devaluation will, at least for a temporary period, break this vicious circle. Devaluation of the pound and loans from the Central Bank and I.M.F. will give a breathing space, but all noble Lords who have spoken recognise that it is no more than a breathing space. If that breathing space is used as a pleasant lull between storms, the next storm will be far more devastating than the present one.

It is true that devaluation has been a shock, but we must admit that at least it has been determined at a level which will not cause instability in world currencies generally. It also means that while we are given a new opportunity, the room for manœuvre is not very great and we cannot afford to waste any part of it. The effect of import costs will be felt earlier than will be the export advantages. That is something which has to be made clear, because it would be disastrous if the public believed that the act of devaluation in itself provided the means of getting us out of this economic impasse. It provides only a breathing space, and it is necessary not only for the Government but also for the people of this country to recognise that.

The amount of room we shall have for manœuvre is determined by two factors. The first is the obvious one that the devaluation gives industry a clear but temporary advantage to increase exports and will facilitate a major shift of national resources to exporting industries. But I would utter a serious word of caution. While there will be this price advantage, it is essential to remember that price is not the only factor in determining the competitive strength of our export trade. This involves delivery dates, after-service and so on, most of which are the responsibility of management. I know that unofficial strikes and restrictive practices by the workers can, and have, created difficulties, but by and large management is mainly responsible for providing those facilities which can be, in addition to price, determining factors in selling our goods abroad.

The second factor is the longer-term advantage, the strength of which will be determined in the short term—namely, by the extent to which this brief period of relief from recurring balance-of-payments crises is used to expedite the changes and development in technology, expertise and industrial attitudes necessary to ensure that we shall avoid being faced again with this situation.

In my association with the Prices and Incomes Board I have seen for some time now many of these factors which, in combination, have contributed towards weakening our economy. I cannot point to one particular sector and blame it, either labour or management. All have made their contribution. But all too often the emphasis and the blame are placed on the shoulders of labour. I think it is right, in this House particularly, to draw attention to many of the defects in management which over past years have made their contribution towards causing this economic shortfall we have had for so long. There has been inadequacy in management in the use of both capital and labour. There are restrictive practices of many kinds totally out of keeping with the practice of modern industry. These are bad and should go. Frequently restrictive practices have been tolerated simply because there was a measure of complacency and it was recognised that the additional cost could be passed on in the form of higher prices. It is clear that this Government have made some contribution in their firm resolve to make their prices and incomes policy work. And to-day it is becoming a little less easy to pass on additional costs than it was a few years ago. We also see antiquated wage structures, involving permanent differentials, the foundation of which belonged to the 'thirties and not to the 'sixties.

I have indicated some of the fundamental structural changes that have to be made, not only in industry itself but also in our thinking and attitudes of mind. I repeat the criticism and challenge that I made at the beginning of my speech. The Party opposite, during the period when they were in power, made a considerable contribution towards developing and encouraging those attitudes of mind that we find such a serious restriction upon our development to-day.

I would end by stating that the long-term solution of our problems does not lie exclusively with the Government. The Prime Minister made that clear in his admirable speech a few days ago. Even with all the regulations and decisions of Government, in matters economic in the long run the future prosperity and progress of this country depend upon the people themselves. The claims made upon us to-day can never be met out of the small change of Party political recrimination. Even financial manipulation on an international plane can never provide a permanent solution. This rests entirely on our ability as a nation not only to produce more but to produce more efficiently, so as to ensure the better use of existing assets. I believe that although this devaluation has been forced upon the Government, the Government have had the courage to face the situation and to provide a breathing space that will give the opportunity for the people at large to recognise that in the long run the real destiny of this nation relies on their efforts; and I believe we have a Government to-day conscious of their responsibilities in that direction, who will not flinch from facing them.

4.20 p.m.


My Lords, the noble Lord who has just sat down has done his best to make a good job out of a difficult case. During the course of what he had to say he made some observations on which in my industrial capacity I should agree with him. But he made some observations about my noble friend Lord Cromer, who spoke before him, which surprised me. However, they did not surprise me anything like as much as the intervention by the noble Earl the Leader of the House. The extraordinary idea that a former Governor of the Bank of England, much respected, greatly thanked by the colleagues of the noble Earl the Leader of the House at the end of his period in office, should not be able to come to this House and give us his frank advice and tell us what his feelings were at the time when he was in office, is a proposition that I cannot understand the noble Earl the Leader of the House in putting before us.

Perhaps I may add this, in case the noble Earl was indicating to us that there Was something improper about what my noble friend said. I did not hear anything from his lips to-day which I have not heard in one way or another from him in public announcements during the time when he was Governor of the Bank of England. During all that time he—as, indeed, has his successor—took every opportunity to remind the Government and the public of this country of the dangers of excessive Government expenditure and wrongful Government measures.


My Lords, I do not want to interrupt the noble Lord, but if I heard the noble Earl, Load Cromer, aright, he said that the Prime Minister put politics first. I am not aware that he said this when he was a Government servant.


My Lords, I never put any words whatever into the Prime Minister's mouth.


My Lords, I think we can leave it there, and perhaps on reconsideration the noble Earl the Leader of the House will wish later on this evening to withdraw his intervention against my noble friend.

It is a great comfort to me, after certain events that have lasted six or seven weeks, to be speaking after my noble friend Lord Cromer and taking the same course as he has taken. Though it is a comfort, I must say that he has said, in words far better than I can use, many of the things that I should have liked to say. So I am going to make my speech in my own words, with my own experience—part industrialist, part banking and part, I am not ashamed to say, political—behind me.

I want to talk about what was done on this humiliating Saturday and how it was explained. I think, first, I should like to refer to the explanation. In the Prime Minister's remarkable television broadcast, I was stupefied, not just with some of the things that he said but with his manner, when he was talking to us as if he had found, as my noble Leader has said, some panacea for our problems. I listened this afternoon to the noble Lord who started this debate, speaking in much quieter vein. He could not, of course, omit to remind us of the deficit of 1964. But, as has been said—and I say it again—we were told then by the Government—and we have been told now by an ex-Governor of the Bank of England—that the problems then were quite manageable. It was because they were thought to be manageable that the Government acted as they did.

This figure of £800 million which is bandied about is, of course, a combination of a much smaller amount of deficit on current account—only, I think, £375 million; and what is seldom added in explanation is that on private sector account, on trade and invisible, there was, even in 1964, a surplus. It was only because of Government expenditure that there was this great deficit. In fact, if I may put the point here, I think it is true to say that in recent years there has been only one year (I think it was 1955) in which on what I might call private account, trade plus invisible, excluding Government expenditure, there has not been a sizeable surplus. It was perhaps with that in mind that people believed that that was a manageable situation in 1964. I imagine that in 1965, and again last year, the Government still took the view that it was a manageable situation; and they still took the view in July of this year that it was a manageable situation.

Now let us see why it is that the decision announced on Saturday was taken. If one listened to the Prime Minister, one might have thought that there was some positive advantage, as a policy, in devaluation. I think that the noble Lord, Lord Byers, and many of his friends think there is, and have thought so for some years.


My Lords, may I correct that? We have thought there could be an advantage only if certain other comprehensive policies were put into effect at the same time. Without those, it is the worst thing you can do.


I do not wish to misquote the noble Lord. I think I know his point of view. But he takes the view that there can be positive advantages in devaluation as a policy, as opposed to just doing it because your costs structure and the state of confidence forces you to do it. I think that is the difference between him and me.

I should have thought that the Government would take the view that the reason for devaluing was that they were forced into it: confidence had gone and costs had risen, or were expected to rise, so much. But when I listened to the Prime Minister it seemed far otherwise. It seemed that he had forgotten all the things that he and the Chancellor of the Exchequer had been saying: right things, that were applauded and supported from this side of the House in debate after debate. It seemed that he was now saying: "Ah! we have found some way out of our straitjacket in which we have been"—for the famous 13 years and since—" and we now have a springboard." He may have been making the best of a bad job. However, I should like to know from the noble Earl the Leader of the House this evening whether it is the view of the Government that, as a positive act of policy, devaluation can sometimes be a good thing, and not just the view, which I thought they would put to us, that when confidence has gone, when costs for one reason or another either have risen too much or are threatening to rise too much, you are then forced to devalue.

I can understand the second reason; in fact, it is difficult to understand anybody who can object to it. But it is important to be clear on the point, because if we really have a Government that is saying to the world: "From time to time in the future the British Government, when they get into difficulties about expanding their exports, when they get into difficulties in keeping in balance at home and overseas, may well resort to devaluation"—which was one inference that could be drawn from what the Prime Minister said—if that is the policy, then God help anyone who leaves sterling in this country for long! I make the point, and I have made it quite deliberately, because I hope that the Government will give the firm answer that they devalued this time because they were forced to do it by a combination of facts and loss of confidence.

There were several other things in the Prime Minister's speech which upset me. One was his reference to speculators, as if it had been speculators who had caused this crisis. I do not know whether noble Lords remember the authoritative analysis given about so-called speculation when we had the July crisis. Perhaps I can read some words: Before I come to the basic balance-of-payments questions, I think that we should perhaps eliminate from our thoughts the somewhat naïve caricature that what has been going on "— this was in July, 1966— is a machination of some bearded troglodytes deep below ground speculating in foreign currencies for private gain. Of course, there is a speculative element"— these are, of course, the words of the Prime Minister; your Lordships can gather that from the "troglodytes"— based on the hope of private gain. But in fact—and our detailed analysis which we carried out of what happened a year ago bears this out—one does not need to look for sinister interpretations. I would distinguish two main elements in the monetary movements. In the first place, we have the large international companies with substantial trade in and with this country which, in periods of doubt, are tempted to reduce their holdings of sterling for purely precautionary reasons—precautionary, not speculative". I did not hear the word "precautionary" in the Prime Minister's broadcast to the nation.

He then went on to refer to some American companies, and said this: But even more important than the dispositions of some of the big international companies is another feature—the rapid intensification of a problem with which right hon. Gentlemen opposite were painfully familiar, arising from the way in which our trade is financed. The external trade of the United Kingdom alone—quite apart from the rest of the sterling area—is on a massive scale. Our imports in the past year were just under £6,000 million and our exports were just over £5,000 million. But we have to take account of the transactions of the sterling area as well. If payment for all sterling area imports from the rest of the world for just one week were made one week early this could cost our reserves over £150 million immediately. Of course, there can be an element of speculation in this, but to be realistic I think that the precautionary motive rather than the hope of speculative gain must be the motive we have got to attribute to these transactions."—[OFFICIAL REPORT, Commons, 27/7/66, cols. 1716–27] What has happened to turn precautionary motives into speculative motives? I think noble Lords can give their own reasons for that. The other thing that disturbed me greatly—


My Lords, before the noble Lord leaves that point, may I ask whether he is trying to say that there have been no speculative actions on the part of interested people in the City since last Wednesday?


My Lords, I am trying to say exactly what the Prime Minister was trying to say in July, 1966: and I would guess that his analysis of what happens—and I have read word for word what he said—in these situations is a correct analysis of what happens in each of these situations Of course there are movements, and we call them, and the Prime Minister called them, precautionary. He called them precautionary at a time when he was defending the pound. He does not call them precautionary any more; and I think it was an error. They remain precautionary.

Incidentally, if I may add this, I happen to be, as the noble Lord knows, a banker throughout the sterling area, and I seem to recollect words from the Prime Minister and the Chancellor of the Exchequer saying that speculators would burn their fingers. I am not conscious of any so-called speculator having burnt his fingers. I am conscious of the fact that sterling area countries, Commonwealth countries, developing Commonwealth countries, which have confidence in this country and kept their pounds here, have burnt their fingers. And when we come to talk about planning of devaluation, which the noble Lord, Lord Byers, talked about, I must say that I find it very hard to see how one can plan a devaluation. But at least here nothing seems to have been done to keep the Commonwealth together. We have had remarkable differences. My noble Leader has experience of one country; I have experience of a number of others. I hope that the problems caused to the Commonwealth will be sorted out at discussions over the next few weeks and months, but certainly nobody can say that this was a Commonwealth unifying exercise.

The last point I want to take in regard to the Prime Minister's speech is this—and I think that all these points are important, because of what my noble friend Lord Cromer said. Confidence in this country is a vital factor, and confidence in its Prime Minister is a vital factor; and for the Prime Minister to say to the people that the pound in their pockets and the pound in their bank will still have the same value after devaluation as before is "double-talk". I cannot think of any way of better expressing what the truth is than that in the cartoon heading the front page of the Daily Mirror of Monday, November 20, with a picture of a bulldog, who had a curiously familiar face, having bitten a chunk out of a pound. Underneath appear the words: "Every dog is allowed one bite".

My Lords, why is it that our costs either had got out of hand or were expected to get out of hand?—and I would guess that it is the latter. My guess is that it was the clear certainty in the Government's mind that, for one reason or another, the balance of payments in 1968 or 1969 would not be favourable, or sufficiently favourable, that forced them, and through them, through this fact, forced international confidence into the position which resulted in devaluation. Now why is that? Surely it is this question to which we have to find an answer; otherwise this is going to happen again.

I shall have some words to say in a moment about the future, but before I come to that I should like to deal with one or two of the so-called advantages of devaluation. Nobody will deny that opportunities are created for exporters; also, to be fair, for those who help to earn invisible income. Let me take the latter first. At last we have found some incentive to overseas investment. Over- seas investment, which has been cried down, has suddenly proved to be highly profitable. That runs rather counter to some of the opinions that we were told before.

But let me look at the visible trade, at exports. Of course I share the desire—everybody in industry shares the desire—of the Government to stoke up those exports. But it is not going to be easy even to earn as much foreign currency as we earned last year from exports, because we shall have to export in volume something between, say, 6 per cent. and 14 per cent. more than we did last year in order to record the same earnings of foreign exchange. It is difficult to quantify exactly what the increase must be: it depends upon the countries to which the exports go; on the ability of industry to keep up their prices, and on a number of other things. But we start a few handicapped lanes back in the race, before we even catch up with what has been done before. I do not think that it is going to be very difficult to do that. But I must warn the Government—and they know this; they must do—that it is not easy sharply and quickly to increase the whole range of Britain's exports just on price grounds. There are other problems—delivery, the making of the goods, getting them through the ports, and so on. I am sure that everyone will try to do this, and the Government can legitimately say on their side that at least it will be more profitable to the average company to export than it has been before. That is the one advantage that can be claimed, and the one certain boost that there should be to export effort in the country.

I am sorry that the noble Lord, Lord Berwick, repeated what has been said in the newspapers and in another place about the export rebate system that we have had in the past. I myself saw nothing contrary to GATT, contrary to international understanding, in a different taxation system from that in Germany or in France. We tried to bring about the same effect as the rebate on the added value tax, or value tax added. It seems to me wrong to indicate to the international community that there was anything illegal or unfriendly in that. Perhaps I may express the hope that we shall move to an added value tax here as quickly as possible, and then we shall get the same advantages as we had from the export rebate. In addition, we must remember that industry will not have the advantage over the whole range of its activities of the selective employment tax. All those things together show that there is some difficulty in industry achieving the results that are expected of it, but I have no doubt that big companies and small companies will do everything they can to that end.

May I turn now, just for a moment or two, to the big problem—what of the future? How can we be certain that we shall not have this situation again? All sorts of points are taken by noble Lords and by experts outside this House about what is wrong with Britain. There is supposed to be something wrong with the structure of industry. The noble Earl, Lord Cromer, and I have had an argument in one respect as to how the structure of industry might be improved. That argument is going on. There are arguments about the importance of automation, of "computery", of business schools, of industrial training, and so on.

All these things are important, but what has always seemed to me to be important, from my experience in industry and in banking, is to get good managers and good management, and this means straight thinking and straight talking. In fact, it is my experience that British managers are nothing like as had as they have been painted by people who write in newspapers, and by enthusiastic Members of Parliament of all Parties. Of course they have shortcomings, but they have become—and so has the City and the workpeople in industry—somewhat of a whipping boy, and I think it would be a good thing if they could get a little confidence in themselves. I want to suggest to the Government that they should accept the responsibility of trying to manage this nation's economy as well as they ask, in attractive ways, industrial leaders to manage industry.

There are all sorts of things that we could say about the economic policy: there is the taxation system and incentive and reward, mentioned by the noble Lord, Lord Peddle. I am going to leave that and concentrate on one item. This can be summed up in the phrase "Government expenditure". First, overseas expenditure. It really is astounding how overseas expenditure has increased in the last 12 years. When I had the honour to be in office I think the net Government overseas expenditure was something like £70 million; last year it was £480 million. It has continually crept up, not only under this Government, for what seemed to be very good reasons. But it is far too large, and it is overseas Government expenditure that is directly responsible for our deficits.

But that is not the only thing. There is also Government expenditure at home. The full figure was given by my noble friend earlier on—£14 billion, or thereabouts. That is an enormous amount in itself, but the important thing is that as a proportion of the gross national product it has been increasing sharply over the last few years, and indeed under the National Plan was expected to increase by 4½ per cent., at a time when our gross national product was expected to increase by 4 per cent. That might have been maintainable, but the Government have cone on with this increase and in fact have increased it, when the gross national product was not increasing by anything like that.

What is wrong in Government expenditure? I am not a hard-hearted person and I am not against welfare. I have spent a large part of my political life trying, with my colleagues, to improve the social services of this country but, after all, basically they depend upon a sound currency and a well-managed economy. But in that large lump of public authority and Government expenditure there is an enormous amount which is expended for purposes which are not immediately productive. Some of it has an immediately productive effect, but much is not immediately productive and of that expenditure a great part—in fact the vast majority—is for purposes which we all applaud. But, my Lords, surely we have learned by now that there must be some limit to what a nation can expend for purposes which are not immediately productive. It is certainly my experience in industry that if you allow your overhead expenditure—for whatever good purpose, even if it is vital research or important buildings, and so on—to rise too fast you get into trouble.

I would say the main reason why we have got into trouble and why we have not been able to show the growth in recent years that we wanted to show, is that we have been putting too large a part of our resources into projects which are not immediately productive. I can only say that it seems to me we have gone over the limit. I am no economist, and I cannot give the right figure. All sorts of figures have been bandied about recently—


My Lords, the noble Lord mentions "projects" in general terms: would he care to specify one or two of these projects that he has in mind?


My Lords, I know this game—we play it in politics. I was subjected to it (if I may detain the House for a moment) when I did the mammoth television broadcast with the Prime Minister for two hours and fifty minutes. We talked about Government expenditure, and I asked the Prime Minister whether he agreed that Government expenditure ought not to rise more quickly than the gross national product. He thought I had asked quite another question, so he made exactly the same sort of reply that the noble Lord, Lord Beswick, made. Fortunately, the broadcasting authorities cut the whole thing! We have all done this. I have done it with difficult supporters of the Conservative Party when I was in Government. I am not going to be drawn on that, any more than I am drawn by a manager in any industry with which I am connected who says to me, "You have told me that I have to cut my overheads—which am I to cut?" I tell him that it is his job to decide that.

I am not saying that the Government ought to have a major slash at all their social services. Of course I am not saying that. I have tried to play a part—in fact for more years than the noble Lord—in building them up. I do not want to see them slashed. What I am saying is that the amount of our increased resources that we put each year into that part of our life must be limited. This is really common ground, and I am saying to the Government that they are now over the limit. They must re-examine it, and they must answer the questions which have been put to them about how these advertised reductions in Government expenditure are going to work.

We are told that there is to be a cut of £100 million in Government expendi- ture planned for next year. But what figure was planned for next year in the first place—£100 million off what? If it is off £14,000 million it is very little indeed and will not have any effect at all. Then we were told by the Chancellor yesterday that there is to be a reduction of £400 million from the expected rate of growth of Government expenditure. But what was that expected rate of growth? I have no idea. Was it the figure of 4½ per cent. that the Chancellor might have allowed, or that much larger figure that we all know Departments put into the Treasury at the beginning of the annual exercise? What do these figures mean?

What I think we all want to know, and what the world wants to know if it is to regain confidence in noble Lords and their right honourable friends, is that there are going to be sensible limitations on Government expenditure, so that at last we get back to some sensible management of our country's affairs in which we here can have confidence—and we here having confidence, that confidence can spread overseas.

4.50 p.m.


My Lords, I was struck by the opening speech of the noble Lord, Lord Carrington, when he spoke about the Government's prospective efforts to pull the economy round and to deal with labour problems. In that discussion he posed the question: what are you going to do to keep wages down? I think I can answer that—I do not think it is too difficult. The Trades Union Congress has had not only its national Congresses but special meetings of the executive councils of all the unions in this country; and we have had long debates as to whether there should be restraint in wages. They were not easy debates to participate in, because the argument always ran, "Why should the trade unions be the only ones to exercise restraint?" But after a couple of years discussions of this character the trade unions have been able to show that they have kept wages down in this country. It is not a matter of opinion: it is a matter of fact.

I want to pose a question to the noble Lord, Lord Carrington. How would his Government keep wages down? I would remind him of the history of the method that has always been used to keep wages down—and effectively; and that method is to have unemployment. I know because I suffered that. And the answer to the noble Lord's question is that the Labour Government's assurances to the T.U.C. have been sufficient to enable us to apply a measure of restraint on wages.

It can well be argued, I think, that we had to have a certain amount of legislation in order to get a six months freeze, when wages stood still. The noble Lord may well argue that dividends did not rise during that period, and I think he would be right. But I seem to remember (I have not had time to look it up) that in the Financial Times there was a graph showing the extent to which incomes had risen during the six months freeze. For incomes below the £1,000 per annum level there was a dead straight line, and above the £1,000 per annum level there was not a dead straight line: it went up. These things are noticed by trade unionists. Can you blame them if they say, "Why should we be selected to carry these particular burdens?"

If the noble Lord wants a further illustration of what has happened in respect of wages, let him have a look at what has happened to wages on the Continent. They used all, without exception, to be lower than in the United Kingdom. To-day, without exception, the wages in Europe are higher. We have done this to help the economy of this country—and not only the country, because nobody works for the country just in an unselfish attitude; he hopes to get something from it. What we hoped for was some export, some growth.

Who have been the recipients of the benefits of low wages, and, indeed—do not forget this—low security? The very private enterprise the noble Lord, Lord Carrington adulated when he spoke. I have an admiration for private enterprise, and it is not just a word-of-mouth form, because my record, my speeches and statements, show a genuine admiration for private enterprise when it is enterprising. But if private enterprise, with low wages, low security benefits, cannot compete with outside countries, cannot get the exports, and then tries to lay the blame on the Government for the loss of that achievement I am left in astonishment. What does private enterprise blame? It blames taxation. If we take the gross taxation in this country on industry (I am speaking particularly of industry), it is not more than the gross taxation in any country in Europe. So we are left eventually with a situation where the trade union movement of this country has placed itself in a position where its sacrifice ought to yield some dividends by way of growth and higher standards of living and has been thwarted. And thwarted by whom? By the Government? I do not think that is true. I think it is private enterprise that has not been sufficiently enterprising.

The noble Lord, Lord Aldington spoke as a banker. Let me put to him one of the problems we in the trade union world have. We are told that many industries are overmanned. I have faced it across the negotiating table and argued the case. And then I am asked by my own members, who can do simple arithmetic: "Why does the bank rate fluctuate as it does at the moment?" If the bank rate fluctuates from 3 per cent. to 7 per cent.— or, let us be more realistic, from 5 per cent. to 8 per cent., as it has done now; if you take an industry in this country where there is £100 million investment it is self-evident that 3 per cent.— the difference between 5 per cent. and 8 per cent.—is £3 million; and if that sum is equated with the cost of labour, it will pay 3,000 men £20 a week. So the fluctuation of the bank rate by 3 per cent. can provide almost the total manpower required by a modern capital intensive plant. And then you expect me to go to my members and say, "We want you to take a man off here and a man off there to save the situation". My Lords, the idea is so ludicrous to them that they tell you to go back to the people who own the money, the people who arrange these things, the international bankers, and tell them that if British industry is to succeed it cannot have fluctuation of the bank rate as at the present time. You will not get the working people of this country to respond in the future as they have in the past unless some attention is given to matters of this particular character.

The noble Lord, Lord Aldington, spoke of the structure of industry. When we talk about overmanning, we compare it with America, where almost every unit of plant is bigger than ours; and very often each unit is bigger than the whole of the industry in this country. In those circumstances one would expect to get a lower manning per ton than in this country, with its smaller plants. I am not at all sure that in this country we can compare ourselves with a country like America. If we could, I should advocate trade unions on the American style, where Walther Reuther had a six weeks' strike and, as a consequence, raised his members' wages to £3,000 a year, with a year's guaranteed income. That is the sort of security I should be looking for. But we do not live in that atmosphere. We live in a country where our industrial inheritance leaves us with mediocre plant—not obsolete because if you talk about "obsolete" plant you have to say what you compare it with; and if you compare it with Europe our plant is pretty comparable. So we are talking now about how we live in Europe, with the type of plant we have, the type of private enterprise we have, the amount of money that we have, and the type of labour that we have. I should have thought that at a time like this we would have done with condemnation, because this is a political pleasure in which everybody is entitled to indulge, and would have got down to an argument about finding a way out of the particular difficulties that we are in, of which I have instanced one.

The next question I want to ask the Opposition is this. Is it the trade unions' job to keep down wages? What do you think our members say to us when they do not even have to argue the case with the employer? The trade union vetting committee sits. I have sat in the chair of that vetting committee, and claims which are legitimate by any standard except compared with growth are stemmed at the source. Can you imagine the resentment that would arise through the country if those claims were taken before the employers? I have seen them taken before the employers. The employers now argue the demerits of the scheme quite off-handedly, but quickly come to the point where they say, "There is a wage restraint on in this country and you have no right to put forward a claim". The employer uses the argument of the trade union, instead of the argument which should be used in order to deal with those claims. You will never succeed in getting productivity claims through so long as that attitude exists on the part of management in this country.

They themselves want productivity claims. I should like to bring some of the atmosphere of the negotiating room into this Chamber. I argued a productivity claim in Wales. It cost the management nothing. My members got an increase; it was well worth while. I went to another part of the country with precisely the same claim, but there was not room for a productivity argument there as there was in Wales, because already the manning was tight. In that part of the country they had negotiated tight manning, because they appreciated the difficulty that existed in the industry of the country. In one part of the country where they negotiated rather heavy manning they got an increase in wages under productivity agreements. Where in another part of the country they had a conscience and had not done that, they were not entitled to a productivity agreement although they were doing the same work. I am not blaming the Opposition for this. I am not blaming the employers for it. I am talking of some of the problems of trade unions in negotiations. That is all I want to bring out. I think my record is good enough to stand examination so far as productivity in this country is concerned.

Now a word on strikes. I represented a union as its chief executive officer for 14 years; I was a negotiator for 30 years, and a member for over 50 years. We never had one official strike in all that period. While I was the chief executive officer we had four men who decided that they were going to have an unofficial strike. On behalf of the executive I sent a telegram to them, telling them that if they struck they would be crossed off the list of officers of my union. They were laymen; they were not full-time officers, but part-time men. They threw the telegram on the fire. My executive council discharged those four men from office.

That had a sequel. This was a large works, and most of the branch officials in that works resigned in sympathy with the four rebels. Everybody said that my future was behind me. But I was convinced, and I am still convinced, that no organisation can be successful unless it has discipline within it. I said this openly and freely. For a month we had virtually no officers in that works—just a few loyal officers—and we did not collect one halfpenny in contributions. We collect our money through shop stewards on the shop floor. For a month we collected nothing. Then those men decided that this had gone on long enough and asked to be reinstated. I told them they had to be re-elected because they had resigned, and only the branch could put them back. But the four men who had stopped because they said they would go on with the unofficial strike were not allowed to come back.

The important point is that in the first month we collected no contributions; in the second month we collected the contributions and arrears; but in the two months together we collected more money than we ever collected before. In my opinion, that justified a trade union in standing out for the agreement it had, and in having discipline—self-imposed discipline—within the union itself.

Did you read all this in the papers? Did you see it on television? Has it happened in other unions? Do you know? No. But, by God!, if there is a dock strike the whole place knows about it. The trouble in this country and in this world is that where you have responsible trade unions, as the majority of them are, you never hear anything about them. But let there be one rebel union, even one individual rebel within the union, and they stick him on television, and the impression and image given of British trade unionism is completely false in that respect.

The British trade union movement is responsible. I state that most emphatically and I think I have proved the effect of responsible trade unionism on the economy of this country over the past two years. If any blame rests with any section of this community, it is not with the trade union movement and it is not with the workers—that, despite the dreadful things that have happened and have interfered with imports.

Where did we go wrong? We got out a National Plan. I would remind noble Lords opposite that the National Plan was evolved in "Neddy". We had employers there, and praised them; we had trade unions, and we had the Government. We had two Governments, because the Conservative Government had set it up. Together we hammered out how we could have some sort of planned economy and not the distorted private enterprise activities that we had previously.

As I said earlier, I praised private enterprise. But I sat on the Iron and Steel Board for many years. The trouble with the Iron and Steel Board, which had to assess how much capacity we in this country were to have, was that they never knew what the motor-car industry was going to do; they never knew what the engineering industry was going to do; they never knew what any of their consuming industries were going to do. They had to guess. Often they guessed wrongly. Often they were told wrongly. If anybody says that that is the way to run a country I will sit down and let the country go on in that way. But, of course, you have to plan the investment in this country. You have to see what the capacity is going to be and you have to assess the market to the full.

For that reason we got out a plan. We assessed the growth at something like 4 per cent. I remember that it was assessed by a previous Government at something higher than 4 per cent., but at that time there was no plan. What happened? Everybody sat down and everybody did what this Chamber seems to be doing at present. They said, "The Government have now decided what we are going to do in the country, we can sit back and we'll be O.K." That is what happened. Well, if you make a plan, can everybody sit back? Surely the basis of a plan is the assumption that everybody will work to achieve its objectives, that everybody will work for exports. We can pull away from the idea that we are going to be protected by tariffs. When the noble Lord, Lord Aldington, spoke about the export rebate he said he did not know that there was any objection to it. I can tell your Lordships that there was. I sat on the Consultative Committee for EFTA, and there was considerable opposition to it and of course, to the surcharge on imports into this country—there was a great outcry about that surcharge.

The noble Lord, Lord Aldington, also mentioned the different methods of taxation which can be used—the added value tax, and so on. These ideas are worth a lot of study and will help, but they will not cure the situation. There is only one thing that will cure the malaise from which this country is suffering at present, and that is better use of the money we have (and that will not be achieved with an 8 per cent. bank rate) and a better use of our manpower. The manpower which is situated in Scotland, on the North-East Coast and in Wales must be left there if it is at all possible to do so. We must divert industry there, but not if it will not pay in the years to come. There must be no charity about this; it must be a common sense movement.

I do not want to go over all that this Government have done, but they have done a considerable amount in diverting industry to these parts of the country, so sharing out the prosperity we are going to have, rather than to have 10 per cent. unemployment in one part of the country and 1 per cent. in another. Ten per cent. unemployment in one part of the country is not only a matter of manpower; it also means that 10 per cent. of one's money, one's capacity, is unemployed. This is as vital to the employer as it is to the trade unions. My Lords, I dislike this devaluation as much as anybody does. I hoped that we should never come to it—but we have. I suggest that, having got off our chest all the fine eloquence about whose fault it is, we should then come down to decide who can put it right. If we can have the C.B.I. controlling dividends, as the trade union movement has controlled wages, we shall get out of this situation.

5.14 p.m.


My Lords, the speech we have just heard is very relevant to our debate to-day. One heard the noble Lord, Lord Douglass of Cleveland, with all his experience in the trade union movement, with all his knowledge of the difficulty of getting industries efficiently manned-up, saying, "We have done all we could do in the trade union movement. We are not to blame." If the result of all the efforts which have been put in on that side of industry, as well as on the other side, is devaluation, we really have a very hard problem indeed.

Why are our wages in certain industries in some cases lower than those on the Continent? Because we have to use more men for the same process. If we used fewer men—and maybe fewer managers, too—we could pay them more. The noble Lord, Lord Byers, said rightly that he had some idea that we ought to limit the total payroll. I do not know how practical that proposal is, but I know that if you are in an international business and you employ three men where two men will do, your wages have to be lower than those of the manufacturer who has succeeded in employing only two. These are the facts of life.

I do not think we shall ever forget this day of exposure of weaknesses and the bad faith which confronts us. I wonder how much further downhill we are going before people cry "Halt", and pull them-selves together and show what Britain can do by her own exertions. I am quite sure that a turning point will come, but after what has happened this weekend I cannot believe that it will come while Her Majesty's present Ministers are still in office. We have had three years of a Government which, whatever may be their majority in the other House, have not had the authority in the country to do what was necessary to put our economy right.

The present Government came into office with the good wishes of a very large part of the people, including a great many who did not vote for them. I myself was one of those. We had confidence—I did, at any rate—that Mr. Wilson and his friends knew how to manage the economy in a different way and how to manage sterling better. They had told us that they could do that, and after 19 years—covering the period of the Attlee Government and then a succession of Conservative Governments, when we had had one major devaluation and several bouts of deflation, all of which had failed—it was very reasonable to give a second chance to the Labour Party. I hoped that when they came in they would at least be able to do two things we had not been able to do.

In the first place, I thought they would be able to control incomes in relation to production better than we had been able to control them. I do not mean by compulsion: I mean by consensus. I mean that for which the noble Lord, Lord Douglass of Cleveland, appealed in the last lines of his speech; that is to say, a partnership between the Government and both sides of industry. Well, they swiftly threw away their chances of that consensus by doing things which, clearly, were the opposite of what they said they wished to achieve: an efficient economy. I will come to that in a moment.

The second thing I hoped was that Labour economists, whether they were Ministers or Back-Benchers in another place, or experts brought in from outside, would between them have some new constructive ideas to deal with our chronic troubles in regard to the balance of payments. I do not know whether I may remind your Lordships, but in one of the earlier debates on the subject I ventured to say that those constructive ideas would have to cover both the mechanism of the sterling area and the structure of our import programme. I will say something more about that a little later.

But all these hopes were quickly dashed. The Government threw away the confidence with which they had been greeted on their arrival in office. They threw it away in the classical manner—that is to say, Ministers were always contradicting each other; or they were saying one thing and then doing the opposite. There is no more sure way of losing the confidence of the country than to cause people to doubt both your brains and your word. They praised expansion in words (the noble Lord, Lord Douglass of Cleveland, referred to the National Plan), but all the time they were doing things which made it quite impossible to carry out that National Plan. It was this sense of contradiction between words and deeds which so undermined the consensus which I hoped they would establish between themselves and those of us in industry.

Since they had no new ideas for dealing with the balance of payments, they had to choose between the two old remedies, both of which had failed before—devaluation and deflation. They rejected devaluation (which I personally think would have been quite a good gamble) the moment they came into office, and they chose deflation. Now deflation does a lot of nasty things, and one of the things it does, which is quite contrary to the whole of the rest of the policy, is that it hits the growing industries hardest. They are exactly the people who want cheaper money, as the noble Lord, Lord Douglass of Cleveland, said, and they are exactly the people who need an expanding market in which to push their way through. They have a very hard time under conditions of deflation.

Of course, output was held back, and we had unemployment. But we were told that if we endured these things we should get a respectable surplus on the balance of payments. But what happened? In spite of the enormous investment in plant and machinery that went on during the very active last two years of the Conservative Government, and which came on stream only in 1964, 1965 and 1966, production has stood still. We have more unemployment now than ever we had under the Conservative deflations; we have put a serious check on private investment abroad, which is a good way of helping overseas countries; we have endured a savage cut in our travel allowances; interest rates have been kept very high—and here may I remind the noble Lord opposite of who it is who puts up the bank rate to 8 per cent.? It is not the wicked bankers, but his own Chancellor of the Exchequer. It is to him that the noble Lord should address complaints about the present level of interest rates.


My Lords, may I ask the noble Viscount a question? Is it always the Chancellor of the Exchequer of a country, independent of any outside influence, who deals with bank rates? I do not know; I am simply asking the question.


My Lords, no one is wholly independent in this country, but if you are in a position of authority you must act and you must take the responsibility. And, indeed, that is precisely what Mr. Callaghan very bravely said yesterday in the House of Commons.

What have we for all those things which we have suffered? First of all, we have no improvement in our visible reserves. Secondly, we have sold some of oar dollar assets. Thirdly, we have built up new fresh debts abroad; and, fourthly, we have devaluation. If so much damage has been done in the first three years of the Labour Government's term of office, what can we expect in the next three?

That brings me to the central trouble, which is this Government's lack of authority in the country. As I said before, you cannot successfully run any business when your managers doubt both your brains and your word, and the present package of devaluation is a further support for those who are sceptical about both. The Government are saying, as loudly and as confidently as they can, that the 143 per cent. devaluation will lead to such an increase in exports that in a year's time we shall be earning a handsome surplus of foreign exchange, with which we can repay some debts and start to replenish our reserves. That is what they are telling the ordinary people will happen as a result of this package. I wonder how many of the managers in the export industries are saying to themselves, "This is just one more pretence which has been put up, like Mr. Brown's National Plan."

Of course, my noble friend Lord Aldington is perfectly right. All of us who are in businesses which have an export trade are going to do our very best—as, indeed, we have been doing, and particularly over the last two years—in really looking for new markets. But consider what this 14.3 per cent. means. First of all, we have the abolition of the export rebate. Personally, I think £100 million could never have been more foolishly spent on stimulating exports. The use of £100 million in a selective manner might have made a very great difference to our exports, but the butter has been spread so thin—1¼ per cent. or 1½ per cent. on export turnover for most big companies—that it has made little or no difference to whether they went out for additional orders. Then there is the S.E.T. refund, of, I think, another £100 million, to manufacturing companies in the Midlands and the other big production districts.

If those two losses to industry are added together they come to anything between 2¼ per cent. and 2½ per cent., and therefore that 14.3 per cent. is reduced to 12 per cent. From that 12 per cent. you have to take off the automatic increases in costs. I know very well that different firms have a different proportion of imported materials in their processes. I have asked one or two sizeable firms, and it is rather interesting that their first rapid calculations differ only as to ½ per cent. below and ½ per cent. above 4 per cent. Of course, there will be extra fuel costs, raw material costs, and all the rest of it. The firms say that there is nothing they can do about that. So 4 per cent. will be added automatically on to their costs. That reduces the 12 per cent. to 8 per cent.

So 8 per cent. is the export incentive which we have, and I must now say that in reducing this to 8 per cent. I allow nothing for any rises in wages that may come as a result of a rise in the cost of living. I am assuming that the noble Lord, Lord Douglass of Cleveland, and his friends, together with the employers, will hold wages where they would have been if there had been no devaluation. Of course if they cannot, then the 8 per cent. will be immediately frittered away. Anyway, let us suppose that we have 8 per cent. What sort of expansion in exports are we going to get? In the first place, we will not get a straight 8 per cent., because our competitors are not going to take it all lying down.

Noble Lords will remember that when we had the 10 per cent. import surcharge, most of our suppliers overseas adjusted their prices in one way or another and the import figures showed that, though the Treasury made a nice killing out of the 10 per cent. import surcharge, it did not stop the imports coming in. This is the nature of international trade, I think I may say; that people are—


My Lords, I wonder whether, in the course of the inquiries which the noble Viscount made, he inquired of the Leyland Motor Company. Would he care to remind the House of the amount of reduction in the price of their export products, which they have given us this last week?


My Lords, I am afraid that I do not know the answer. I have not asked the Leyland Motor Company. But whatever it is, it will be out of stock which has been made before. Wait till these additional fuel charges and the rest really come in. They have not come yet. I am afraid the noble Lord will have to excuse me for not giving an exact figure, but I have a big stock of something in one of my companies. This is a very good opportunity to "flog" it, and I shall try to do so. But when it is gone it will be replaced with the same material having cost us more.

I must also point out that I do not know exactly what the expansion of exports must be in order to pay the higher prices for our imports, but it must be of the order of some hundreds of millions extra exports in order to stand where we are. I think noble Lords will probably agree that in a situation such as we are in now it is probable that the terms of trade will turn against us; that is to say, we shall have to pay even more because of the inelasticity of quite a number of the prices of goods we buy. We are not the same market as we used to be. There was a time when Great Britain bought such a high proportion of the total of many international commodities that we had a great influence on the prices, but I do not think we have that influence now. I should think that Australia has not followed us precisely for that reason.

There is more hope really if one looks on the other side of the balance sheet. One of my noble friends mentioned that Government expenditure overseas is running at the rate of (I think he said) £480 million a year. Let us take it that that is £400 million in terms of non-devalued currencies. That means another £60 million exports a year just to stay where we are with our present overseas commitments. The bill is enormous that will be presented to us.

If we look at the import side of the balance sheet, I myself think that there is there more hope; but only if the Government will get rid of the out-of-date structure of the United Kingdom import programme. I have mentioned this before to your Lordships, but I do not apologise for doing so again. When the Labour Party came into office they said that to substitute goods which could be made at home for imports was one of their economic policies. But, of course, they never did anything about it—one more example of saying something and then not doing it. They had, as I pointed out, a very large opportunity in agriculture and in textiles; but they have done nothing in either to substitute home-produced goods for imports.

My Lords, the import programme that we have is constructed in the manner of a rich country which can afford the luxury of subsidising quite a number of its most important suppliers. I want to make it quite clear to your Lordships that I am 100 per cent. in favour of helping the underdeveloped countries as much as we can. Nevertheless, we have to consider the way in which we do it, as well as our own people. Let me first start with the way. Consider three cornmodifies—first, sugar. We have a Commonwealth Sugar Agreement, and we pay millions of pounds a year for sugar over and above the world price. We are rr embers of the Wheat Agreement—we are, I think, the largest importers of wheat—and we pay for our wheat a price well above what it would be in the world if there were no such agreement. Who gets the benefit of that? North America and Australia. I wonder whether we are really in a position to subsidise the farmers of North America and Australia.

Then take textiles. Is it fair that the United Kingdom should have a so much greater burden put on her textile industry by the import of low-cost textiles from the East than all her other trading partners in the industrial world? Why do your Lordships think Hong Kong devalued so swiftly after we did? It was because they wished to maintain their power of penetration into Lancashire, where they are very rapidly smashing up the smaller textile firms. That we should, so out of line with other countries, weaken our own economy, is not sense.

Then we must consider the volume of aid—because otherwise I shall not get into focus the argument to which I am coming. I wonder whether it has been sound sense to stop the investment of private capital in developing countries and yet to continue inter-Governmental aid. My impression is that a given sum of private capital is better spent and strengthens the economy more than do inter-Governmental loans. I know that such loans are much liked by Ministers, but I doubt whether we are in a position to provide them. Because, my Lords, look what has happened. We are like a father who has gone on giving large presents and making allowances to his children when all the time he has been running up an overdraft. Suddenly, one day, the banker comes, and the father has to cut the children off. That is not the way to be kind to your children.

How does it all add up—our aid? We give all these pounds to these overseas countries, and as a result of that we have to devalue all their sterling balances. I wonder on which side the benefit really comes out. I was always brought up to believe that one should give away as much as one could afford, but that one must give it out of a solvent budget; out of something that one had; and that it was not at all wise—and, indeed, hypocritical—to pretend that one was so much richer than one was. I think the Government must look again at the whole structure of our import programme, which has for so long been out of date.

Moreover, the overseas countries to whom we have been giving this aid, the members of the sterling area—or a good many of them—have not been slow to notice that the very operation in their favour of all the subsidies we have given them has been weakening our pound. And what have they done? They have broken their side of the sterling area mechanism. They are under a commitment to put into our pool here their non-sterling earnings. That was part of the bargain. As their non-sterling earnings came into our pool, so we were able to let them draw their sterling balances and convert them into whatever currencies they liked. But over the last five years, I think it is, they have broken away, and no less than £800 million in gold and foreign exchange has been accumulated by members of the sterling area in their own private reserves. All of that money should have come into our pool. Why did it not come in? It was because they were already losing confidence in sterling and they said, "We have got to insure a little bit by creating our own reserves".

My Lords, we cannot carry on with a sterling area mechanism in which both sides do not play the game. I ask your Lordships: after what happened last Saturday, is it likely that confidence will be restored and that the overseas sterling countries will now put all their earnings into our pool? Of course not. Their desire to have something of their own in New York or Basle, or wherever they want it, will increase. We must therefore overhaul the sterling area mechanism. It would be perfectly possible to earn £500 million credit on trading account and not get one penny into our reserves, so creaking is the sterling area mechanism now. Unless we have larger reserves, this cannot be operated; and it is no good our trying to do other things if the drain upon our own exiguous reserves means that the pound is once again indefensible.

I therefore hope that, in the realm of policy, the Government will re-think the import programme, will re-think the sterling area mechanism and will (and here, of course, I come back to what some of my noble friends have said) spend less money themselves. It is the fact that in Budget after Budget in which they talked about efficiency and expansion they have brought forward measures for the spending of public money which did nothing to help efficiency and expansion. Indeed, in many ways these measures made it harder for us. They must get rid of that contradiction. If they believe in efficiency and expansion, then what they do in the Budget must back it up. But, of course, more important than anything else is again to get a Government who have authority in the country. That means a Government who trust men and women and are trusted by men and women. We have not such a Government to-day, and I reckon it impossible to consider myself the citizen of a proud country until we do get such a Government.

5.39 p.m.


My Lords, earlier to-day it was suggested to me that I should acquaint your Lordships of the fact that I am an accountant. I suppose that was in case it was thought that, on a day like this, on seeing me stand up for the first time your Lordships might think I was the bailiff. A little later, by coincidence, it happened that I was lunching with the President of my professional institute and with members of his council. I asked him what he thought about the way I should introduce myself. He said, "Of course, you must not mention that you are an accountant; it is unethical". Therefore I have not done so.

I have to recognise that I am addressing the House at a time when there is an atmosphere of tenseness. Outside this House, the whole country is similarly charged. In many countries of the wider world people who still respect our country, and want to see it endure as a bastion of freedom and justice, are watching, wondering, questioning and hoping. The last days through which we have passed were grave ones for Britain's future, when, above all else, courage in making the inevitable decision was needed, even though it involved deep disappointment and shock. But there are widely divergent views, not only among politicians and economists but also among the British people, as to what the ailing patient's medicine ought to have been.

I have chosen to speak in this hour of intense controversy following devaluation of the pound; and it is my understanding that, so far as possible, a maiden speech should be non-controversial and brief. In that respect, taking account of earlier speeches this afternoon, I found the average time taken was 21.43 minutes. I will try to devalue that down to 14.3 minutes, or even less; and to the utmost of my ability I shall conform to that basis of non-controversiality. But I hope that I can anticipate your Lordships' tolerance and understanding if I am a little off course at times.

My Lords, for some thirty years I have had an intimate connection with many kinds of businesses, for I belong to that often maligned profession which views firms like an X-ray, sometimes reconstructing or rehabilitating and at other times winding them up. But throughout that same long period I have also been intimately involved with the trade union movement, here and abroad, and therefore I am in the perhaps unusual position of having come to this House with a background of working concurrently on both sides of industry, labour and management. That situation brought splendid opportunities for trying to understand the often opposing attitudes to various industrial problems of management and labour; and there grew up inside me the desire to stimulate opportunities for bringing together the heads of business and of the unions to talk with one another in a relaxed mood and in utter openness, instead of their merely meeting together over the trials and stresses of the bargaining table.

So, my Lords, when I promoted the Trades Union Unit Trust some seven years ago as a vehicle to channel for the first time a portion of union reserves into industrial ordinary shares, it was not only because I believed fervently in the long-term future of the prosperity of British industry (and may I emphasise that I still look forward to the future of British industry?), and considered equity investment anywhere along the line as a sound hedge against inflation, but because I knew the trust would lead to better understanding among union leaders and negotiators of the function of capital in industry, of the meaning of risk capital and of the reasoning behind dividend policy. It would also be the means of bringing trade unions and the City a little nearer towards an understanding of one another and help to remove at least some of the outmoded prejudices.

These considerations apply also to the Foundation on Automation and Employment—of which the noble Lords, Lord Carron and Lord Robens of Woldingham, are respectively Chairman and Deputy Chairman—which studies the human impact of advanced technological change. The Council comprises men of great eminence from the automation industry, from the unions whose members are directly affected by automation and from the users of sophisticated electronic or similar equipment. These men discuss together frankly the problems involved in a more rapid introduction of automation, organise meetings to consider them and search out ways of eliminating human hardship. Management bears the responsibility for taking decisions to introduce automation or data processing and must recognise the need for boldness and for educating middle-management to be receptive of change. Responsible trade union leadership knows—and the T.U.C. itself has said—that more automation is needed urgently in Britain; because without it there would most likely be greater unemployment due to greater foreign productivity and competition.

My Lords, I have occupied your time in connection with these two bodies (which prima facie are unconnected with the devaluaton debate) only because I feel strongly that this is also an issue where we must pull together for a common purpose in bringing Britain quickly back to economic good health. Now is not the moment in our political and economic history to conduct a serious inquest into the immediate past. Indeed, the origin and history of our economic ills goes back to long before the period of this Government. I submit respectfully to your Lordships, and to right honourable and honourable Members of another place, that this is not the occasion for "shouting the odds" about what has gone before. When the ship of State is ploughing through very rough seas to calmer and brighter weather beyond, you do not distract the captain and the crew by arguing about the route along which the ship has voyaged. Without having been on the bridge before the oncoming storm you do not know in detail the conditions under which those in charge have made their calculations and set their compass.

This is an hour in the economic history of Britain when Party political in-fighting ought to be temporarily halted; when harmful debate over devaluation should be cast aside and searching after scapegoats called off—while everybody in this Realm unite to win the battle for exports, to speed the advance towards greater productivity and to stride rapidly forward through this great new age of technology.

My Lords, during the majority of postwar years, Britain's exports increased by a smaller percentage than those of Western Europe as a whole; while in 1952 and 1958 our exports, in volume, actually declined. That dismal record must be halted at once if we are to be saved the ignominy and suffering of national bankruptcy. In those last few hours before the announcement of devaluation, some City financial experts publicly observed that devaluation meant disaster. Now, I understand and hope—in spite of what I heard this afternoon from some noble Lords—that most of them have modified their thinking to a belief that if we do pull together we can ensure a successful ultimate outcome from the decision to devalue.

But the Government will need to concentrate on the underlying economic ills and to tackle them ruthlessly if devaluation is to succeed. It is said that devaluation must certainly cause some food prices to rise by from 2 per cent. to 3 per cent. within a short period, due to the high proportion of our food which is at present imported from countries which have decided not to devalue. In that respect, one must be glad of the assurances already given of measures to remedy the adverse effects on the less-well-off people in the community.

But there is already one important indication of management co-operation which has come to my notice. Last night the chairman of one of Britain's supermarkets (he has allowed me to indicate that it is Tesco) assured me that his organisation would immediately review all its buying arrangements—even if that meant changing suppliers or buying from different foreign sources—to ensure that there need be no price increases over a wide range of imported foods, and only the very minimum increases where it was absolutely unavoidable For many years another great multiple chain store, Marks and Spencer, has been well known for the quality and value of its merchandise. I believe that standard was achieved, and is being maintained, largely by the organisation's rigid internal policy of quality and price control within its purchasing departments. And let us remember that that organisation, which has a reputation extending well beyond our shores, has built it up on the certain fact that 99 per cent. of the merchandise offered in its stores is made in Great Britain. These two examples show what can be done where there is a will, and neither of these famed British retail organisations is, I believe, considered to be unprofitable. I can tell your Lordships that the Trades Union Unit Trust is interested in both of them.

Any fairminded person has to admit that mistakes have been made by this Government. I happen to feel that people have heard, perhaps, a little too often about the legacy of the £800 million balance-of-payments deficit which the present Government inherited from their predecessors. I feel that there is some justification for the claim that the over-publication of this position helped to reduce foreign confidence initially. It is also my view that too much was attempted at once in the sphere of taxation. I consider that the corporation tax and the capital gains tax, both very desirable, would have been best introduced with, say, a gap of a year between them, especially as the commencing date for the corporation tax was delayed, as we all know. I am sure, too, from my practical experience that the selective employment tax hardly succeeded in its declared intention. It also contains anomalies which need early rectification.

I think, too, that there is an urgent need to re-examine the entire tax system. But, as the leading article in yesterday's Financial Times honestly stated, The present Government is not the only one to blame for what has happened. The country has been living beyond its means for years past: one crisis has succeeded another with monotonous regularity, each more severe than the last. The Financial Times went on to say that the final outcome has been delayed for so long only because other countries, fearful of the effect on themselves of a sterling devaluation, have been prepared to grant us one large loan after another. But the sand has at last run out. The risk of lending has come to seem greater to them than the risk of a devaluation and they have let the pound go. We should be grateful to them— to our foreign creditors. Another loan would merely have postponed the day of reckoning. The Financial Times is not opposed to devaluation in itself. And there are undoubtedly advantages to be gained from the fact that it has taken place as part of an international operation. My Lords, I believe our duty at this time is to put into the background the events of the past, for nothing can change them now, except the course of immediate future progress. I am confident that my right honourable friend, the Prime Minister, and his colleagues, struggled hard and sincerely, and against heavy odds, to steer us through the economic crisis without devaluing sterling, in the hope that the expected improvement in the balance of payments would sufficiently materialise before international monetary support was exercised. But that was not to be, and devaluation became inevitable. There have been several oft-repeated causes which need not be catalogued for the final failure to ward off devaluation. Some of them were wholly unforseeable and others tragic. Certain sectors of industry have totally failed to promote exports successfully, or have preferred to concentrate on the easier home market; and it is notorious abroad that British after-sales service needs an urgent overhaul even now.

There has also been undue reliance placed on traditional design, without regard to changing tastes or local or national needs. We have tried too much to push on to people a design or a model because it happened to have been made in the Victorian era and some of us still think it is good. Management and labour share responsibility for the painfully slow rate of rising productivity, so vital under modern competitive conditions. I derived encouragement from the noble Lord, Lord Cooper of Stockton Heath, when during the debate on the gracious Speech he admitted that: There is need for modernisation in the trade union movement. We have to recognise the priority of the national interest over our sectional interests, and that in industrial bargaining the strike should be only a weapon of last resort."—[OFFICIAL, REPORT, col. 8; 31/10/67.] I believe that the views of this experienced leader of a very large and important union are shared by a growing number of his colleagues on the General Council of the T.U.C.

My Lords, there must be an urgent transfer of productivity and resources from home demand to exports. I believe the new measures can achieve that, but there must be energetic support from all who work in industry. I agree with my right honourable friend, the Chancellor of the Exchequer, that there is a realistic probability of unemployment starting to decline early in the new year, since the obvious aim is not to deflate total demand, but rather to move on at once towards an export boom, followed closely by an investment boom and coming back only then to a revitalised home demand. What is wanted now, more than ever, is a sign of industrial discipline on the part both of management and of labour. Let us go to it and make the new measures work as quickly as possible for the sake of Britain, and that means all of us. As the Chairman of the T.U.C. said in his Broadcast last night: It is un to us to make the best of the job. The new situation offers great opportunities.

6.0 p.m.


My Lords, it is a very happy tradition of this House that he who follows a maiden speech has the privilege, on behalf of your Lordships, of offering congratulations to the speaker, and I am sure that noble Lords on both sides of the House would wish me to do so on this occasion. I felicitate the noble Lord, Lord Hirshfield, for his thought-provoking and temperate speech.

The hour is getting late and I shall not detain your Lordships with a lengthy inquest into our misfortunes. First, I should like to align myself very strongly with those who hold that this is no occasion for rejoicing. We can surely all agree that we have suffered a great setback. We have incurred a deep humiliation. It may be that one has some sense of relief that the claims of one's creditors are reduced to 17s. 2d. in the pound, but a man must be very insensitive morally who does not feel ashamed that their confidence has been thus misplaced and to that extent we have let them down.

Moreover, when we express pleasure at the increased scope for our exports, let us always remember that, contrary to the increase claimed by a recent broadcast, the real value of our money incomes has been reduced and is likely to be reduced. We shall certainly find this when we travel abroad, if we attempt to go tomorrow. We shall certainly find it when the inevitable rises in the cost of living at home have begun to take place. Nor do I think that there is any reason to expect diplomatic benefit from what has happened. I suggest that we fool ourselves if we think that what has happened will make any impression on those abroad who are implacably resolved to extract the last ounce of humiliation from their late comrades in war.

Having said that, I must confess that I cannot associate myself with those who put all the blame on the present Government. In spite of what has been said this afternoon, I myself believe that the claim is true that in 1964 they inherited a bad situation. It is possible, I agree, that this situation might have been handled with more firmness by an alternative Government, but those who argue that such a Government could have ridden out that crisis, with an overheated and over-extended economy, without an abrupt change of policy, fail to convince me. I think that they cherish a most dangerous delusion.

I also think it is true that after a period of (how shall I put it tactfully?) some infirmity of purpose, the present Government, in July, 1966, imposed restraints which no former Government had succeeded in imposing. I hasten to say that I do not think that the present Government's general economic policy has in other ways been such as to reassure business and promote enterprise—quite the contrary. But I am inclined to believe that there is at least something in the claim that on this occasion there has been particularly bad luck. It was not long after the imposition of the July measures that demand in continental Europe began to undergo some recession, and the economy of the United States went into a condition which is described over there as a "pause". Nor, surely, should we underestimate the effect on confidence in the pound of the troubles in the Middle East, the closing of the Suez Canal and the dock strike, for which, after all, the Government cannot be held to be responsible. I also think it is only right to say that the present Chancellor of the Exchequer has defended an unpopular policy with great courage and has argued his case like a man. Therefore, although I am opposed root and branch to many of his policies, I feel very sorry for him in his present position, and I personally hope that he will not feel obliged to resign until the rest of his companions resign, too.

Be that as it may, I am bound to say that in the circumstances that had developed by last week, last Saturday's decision seems to me to have been unavoidable. I confess I could wish that it had been taken some days earlier, especially since we have heard from the Government Front Bench this afternoon that the decision took place more than a week before the decision was announced last Saturday.


My Lords, on a point of historical fact, that is not quite correct.


I understood the noble Lord, Lord Beswick, to say so.


My Lords, I think it was I who said so. I said that guidance had been given by the Press that the Chancellor had taken the decision a fortnight previously.


My Lords, it is not for me to refine on these minutiæ of history. I stick to the point I made, that if a decision was impending some time ago, it is a pity that effect was not given to it until last Saturday. But I go on to say that I think that in those circumstances it would have been wrong to run still further into debt in what would probably have been a vain attempt to cope with a loss of confidence in sterling which had piled up. It would have been wrong to have burdened our future for a chance which was intrinsically so precarious. In those circumstances, I think that we had to devalue. But I do not rejoice in the decision and, contrary to some authorities, I do not regard it as a prelude to an easy time.

The great question is: will it work? And the answer, I suggest, is that it all depends: it all depends on policy. In spite of the slight doubts which have been insinuated by the noble Viscount, Lord Eccles, I know no serious reason to suppose that in the present circumstances of the world, with our present prices what they are compared with prices in the rest of the world at the new exchange rate, this degree of devaluation should not do the trick and bring our balance of payments into equilibrium again, always provided that it is not offset by inflation of prices and incomes at home. I am equally sure that if it is so offset, it will not work; still more, if ham-handed financial measures blunt the incentives of the new exchange rate—for example, an increase in corporation profits tax. If that is so, then we shall soon be where we were before. We shall be in the position in which France was before the advent of de Gaulle. We shall be like some Latin American Republic, staggering on from one humiliating crisis to another and destroying civic virtue and self-respect in the process. So that in the last analysis the question is a question of nerve and clarity of purpose.

In conclusion, may I utter a word of warning? We shall not solve our troubles by mere exhortation, by phrase-making on television like "modernisation of the economy", of which no one really knows the concrete significance, and which sounds hollower and hollower every time it is uttered. Nor should we rely on vague talk about incomes policy. Of course there must be an incomes policy in the public sector. If there is not, there is chaos. Of course we must hope that responsible trade union leaders will bear in mind the national interest in putting forward their claims. But—and this surely is all-important—they are not likely to be able to restrain their followers if there is a general inflationary tendency abroad. The trade unions would have to be staffed by archangels to exercise self-restraint in such circumstances, and neither Mr. Cousins nor anyone else in that area is an archangel.

The more one thinks about the present situation, the more one is forced to the conclusion that there is no excuse for the Government to shuffle off responsibility on to anybody else. There will be no excuse if the Government stifle export incentives by unwise tax measures. There will be no excuse if they do not reduce expenditure. There will be no excuse if they do not keep firm control of the credit base. I am not clear that this is as generally appreciated as it should be. Public finance and the volume of money are the instruments which are ultimately at the Government's disposal. The nation will watch very anxiously to see how they are used. And all of us should examine our heads and hearts to see whether our criteria and our aims are clear. We must surely all beware at this time lest we fall into the frame of mind described in Arnold's famous poem Empedocles on Etna: Ye would have all things well, yet will use no harsh means.

6.12 p.m.


My Lords, I have been given the privilege of saying just a few words before the noble Lord, Lord Francis-Williams, and I am grateful to him for allowing me to do so. I should like to say from these Benches how much we enjoyed the maiden intervention of the noble Lord, Lord Hirshfield. Although one could not agree with everything he said, I think that everyone in this House, with the possible exception of the Government Front Bench, agreed with his comments on the selective employment tax; and for those we thank him: inch ed, I think that most of the Government Front Bench themselves, in their heart of hearts, agree with his comments on that atrocious tax. We hope to listen to the noble Lord many times in the future.

So far as the noble Lord, Lord Robbins, is concerned, I do not propose to go into the slight difference between him and the noble Lord, Lord Aldington, about the events of 1964; but, leaving that aside, there was not a single thing which he said with which I could not wholeheartedly agree, and especially his comments about the Chancellor of the Exchequer. I think that everyone in this country, irrespective of politics, has a high and affectionate regard for the present Chancellor of the Exchequer and, in spite of events, a trust in him. The tragedy is that it fell to the present Chancellor of the Exchequer and his two predecessors who had to devalue before him, Sir Stafford Cripps and Philip Snowden, also men of the highest integrity, upright, selfless servants of the public, to undertake acts which we know they themselves deplored, which in the case of Sir Stafford Cripps hastened his early demise, and which we are all sad about to-day.

I should like to say in regard to the speech that we heard from the noble Lord, Lord Douglass of Cleveland, how much I was in agreement with what he said. He is not in the House at the moment, so I will say what I should not like to say to his face: that if we had had in industry more men of the fibre of Harry Douglass, both on the management and on the trade union side, our position in this country would be much better than it is.

There has been a tremendous spate of words in the Press, on television and in Parliament on devaluation, and it is difficult to think of anything new to say. I want to make only one or two remarks on the general question as it seems to me as an ordinary individual who has spent his whole life in industry and is now more or less on the retirement list. The necessity for devaluation of any national currency is a public confession of failure of its national policy. I believe that this cannot be contradicted. It is proof positive that people all over the world have lost confidence in that nation's economic policies and in the Government of that nation. I am not disputing that, in the circumstances in which we found ourselves this last month and the desperate state to which we have been reduced, devaluation was almost inevitable. I am not going to be one to argue that in these circumstances the wrong decision was made.

But do not let us delude ourselves as to the immediate consequences. Mr. Callaghan, of whom I have just spoken, made quite clear in the famous speeches that he made during the summer the disastrous consequences to the ordinary wage earner in this country if we had to devalue. The words which he uttered then are, of course, true to-day. The House will remember that he went on to say that if we were going to reap such benefits as there were in devaluation there must be a wage freeze, even when prices went up.

It was said on television the other night, I think by the Prime Minister, that we are a proud people. We can certainly be proud of the exploits of our nation and of all the great things that our country has done, both in the remote past and in the immediate past. But can we be proud to-day of our present action? I think not. We have broken faith with those who trusted our word that we would stand by the value of the pound sterling. Trusting, they gave us their money to keep for them. We have broken faith with those people, and that is certainly not something of which any of us in any quarter of the country can be proud.

My Lords, can we claim ourselves to be a proud nation when we find ourselves in a position where we have to go, cap in hand, to Germany, whom 18 years before we defeated in the greatest war in history, to beg and borrow a few dollars to keep us going? Can we be a proud nation, whatever we think of the main question, when a small country, which for one reason or another we have been by sanctions endeavouring to bring to its knees, finds itself strong enough to maintain its currency, while we have to devalue? I would suggest that, rather than claim we are a proud nation, we should be to-day a very humble nation, and the Government a very humble Government. With the Government and the nation there should be determination to correct our position and to do everything we can to win back the confidence of the world by every means in our power, for until we have done that we are by no means out of the wood.

What makes me so anxious is that it would appear that the Government, from what they have said up to now, are determined to pursue, and indeed to intensify, the same policies which they have been following for the last three years and which have largely contributed to this sorry pass. If my memory is not at fault, when I was first interested in politics many, many years ago one of the first speeches I ever heard, while sitting in the Gallery of the House of Commons as a young man, a student of politics, was that of the late Sir Alfred Mond, who said roundly, "Socialism will not work in this country". My Lords, forty years later, I would suggest to you, the electorate is having to learn that lesson all over again.

This devaluation, as has been said in the House many times, does give us, at a price, a little time, if we use it. Are we going to use it well to restore confidence—the one key to the situation? I am frankly appalled at the amount of propaganda which presumably has come from Government sources and which endeavours to portray devaluation as a splendid thing, as a type of victory, as a good thing in itself, when of course it is nothing but a resounding defeat. I think Mr. Douglas Jay went very far on that line when I was looking at television last night. He was fortunately punctured by the questioner very sharply. The Chancellor of the Exchequer himself told us exactly the opposite only in July last. I think it is dangerous to have all this talk about boom next year, or boom in 1969, or a surge for exports early next year, as I think the noble Lord, Lord Beswick, remarked to-day. This is entirely the wrong impression to give to the nation when we are up against it, when we are not on the threshold of a boom or upsurge, unless we make it so. Surely what we have to tell the nation is of the necessity for hard work and new policies, if we are to claim to win through to the end.

To those who are optimistic that once we have devalued all is going to be well, I would say that it is early days to say yet. My information was gathered only at lunch time, and things may have changed this afternoon, but we put the bank rate up to 8 per cent., which in normal times would bring an immediate surge of foreign money into this country, and there was no sign this morning in the City, I am informed, of any foreign money coming in. More sinister than that, the dollar premium, which should have gone down to 17½ per cent. because of devaluation, had surged up again by lunch time to something like 22 or 23 per cent., showing that even to-day with our devaluation there are people all over the world who are still anxious to change even devalued pounds for dollars.

There seems to be a belief in many circles that devaluation of 15 per cent. means in itself an automatic 15 per cent. advantage for exports. I am very glad that my noble friend Lord Eccles in his speech showed that this is far from the case. There are some countries which are following our lead in devaluing. Most important from that point of view is Hong Kong. There are some countries in the Commonwealth which are not devaluing: Canada, Australia. New Zealand is devaluing only in order to bring itself into line with Australia, and not into line with us.

If we take two of our great exporting textile industries, cotton and wool, where the raw material content is very large, we see that wool has to come in from countries which have not devalued. We have to pay the full extra price for our wool imports. But a great proportion of our wool exports go to the less developed countries, and they will not be able to get the advantage of the 15 per cent.

In cotton, as Lord Eccles said, we have to compete mainly with Hong Kong. We shall have to buy our cotton at the full price from America or from Egypt, and we have to compete, just as we have had to compete before, with Hong Kong, with no advantage to the cotton industry. Yet the cotton industry and the textile industry are being penalised, in that the Government are removing from those industries help they have been giving in S.E.T. provisions and export bonuses, and are putting up the tax against them. The textile industry, especially cotton, in my opinion (and I had a considerable amount to do with the cotton industry for many years), may well be worse off in its export markets and home competition than it is to-day.

We heard in the television programme "Panorama", I believe last night, some speakers from the motor industry in the Midlands. We heard how the export manager had worked out the position closely, and he reckoned that the only advantage he would get was 6½ per cent., which was close to what Lord Eccles said. So do not let us run away with the idea that we are in for a surge and boom in exports whatever we do. It is going to be a very hard row. There will be advantages, but to nothing like the extent that has been suggested.


My Lords, the noble Lord is just coming on to a point, and I was going to ask him this question. If I agree with him that it is dangerous to talk about boom—and I certainly did not mention the word "boom"—does he not think there is also a danger in having too much gloom?


My Lords, I am not so sure about that just at the moment. I think that gloom, possibly, will strengthen determination to get out of the difficulty, while too much talk of boom—the noble Lord did not use that expression; it was used in another place, I think—engenders complacency, and complacency is the worst possible thing at the present time.

Enough has been said this evening about the main reason for the difficulties we are in which relate to excess Government expenditure. I would make only one remark to the noble Lord, Lord Beswick, who wished to know how we thought we might reduce Government expenditure. I do not know whether this is true, because I have not been able to check it, but I was told to-day that the new count of all the civil servants in this country connected with the national Government (not local government), including all the periphery of economists, training establishments and so on, is now approaching no fewer than 700,000 people. That is Parkinson's Law, and I believe the number could be very much reduced. If that were tackled, it would be one of the fertile fields for finding people for industry.

I have one further comment which I should like to make before I come to my peroration. I apologise for keeping your Lordships so long. If the 8 per cent. bank rate continues for more than a very few weeks it will cause the utmost hardship to a most deserving section of the community—the small trader, and especially the small shopkeeper. This is the time of the year when the small shopkeeper—the backbone of our life in many ways—is stocking up for the Christmas trade. He has to go to his bank for money to pay for his stock, and if he has to pay 10 per cent.—because the bank rate is 8 per cent. and he is probably paying 2 per cent. above that—it will make life very hard for him. I hope the Government will regard this excessive bank rate, which may be absolutely necessary to tide us over the two, three or four weeks of the upheaval and upset, as being purely temporary, and that it will be re- duced at the first possible moment, because I believe it will do a great deal of harm to many people who cannot do anything about it.

In conclusion, may I say this? I believe there is only one way in which we can win through this really serious crisis. We have heard that we must cut expenditure abroad and expenditure at home, but, even more, I think we must do everything we can to encourage, to sustain and to reinforce the initiative of the individual in this country, who built this country and who has been frustrated during these last few years to an extent possibly never known before. To inspire the people of this country to accept sacrifices in income and the standard of life, and to a determination to work, and to continue to work, to the best of their ability, is the task of our Government. The community needs encouragement, it needs an incentive for its endeavours. I urge this Government to see to it that the community gets this encouragement, or this Government should make way for another.

6.34 p.m.


My Lords, may I say at once that I find myself a little out of step with many Members of this House. I confess that I feel neither humiliated nor depressed. If I have any feelings, they are rather like those which might affect a man who had found himself engaged to a girl with very expensive tastes, whose upkeep was draining his purse dry and who was wondering how he could honourably get out of the engagement when, by good luck, she came along and gave him back the ring. We have been jilted by the pound sterling, and I think that is a very good thing, for reasons that I will endeavour to explain a little later on.


My Lords, may I ask the noble Lord whether, in his flight of fancy, he had borrowed large sums of money from the girl before the engagement was broken off?


No, my Lords; I had to borrow them from my friends in order to pay her restaurant bills, and that was what made me want to get out of it.

The noble Lord, Lord Carrington, told us, I thought with a certain sort of pleasure of a prophet proved to be right, that in an earlier debate he had told your Lordships that the standing of this country abroad was lower than it had ever been, largely due to economic circumstances; and that now this event had come along to prove the case even more. I must say that I travel about the world quite a bit, and I do not find the standing of the people of this country lower than it has ever been, at any rate not within my experience. But then, of course, I perhaps have the advantage of mixing, on the whole, with intelligent people.

I was a little surprised when I heard repeated over and over again by noble Lords how bitter a blow this had been to our reputation. The Times, in its report, said that there were few capitals in the world where devaluation came as a surprise, and few where it had been greeted with disapproval. On the whole, the decision has had a good Press abroad. It has more than once been called "courageous". Is it not about time that we stopped explaining and telling ourselves—and everybody else—how wrong and humiliated we are, when everybody who understands anything of the financial and foreign exchange system knows that, rightly or wrongly—and in many cases I think wrongly—since this Government came into power they have been fighting an honourable if, perhaps, misguided battle to keep up the exchange value of the pound against all odds? They have done that because they realise that the pound is an international currency and they felt (again I say rightly or wrongly) that they had an obligation—an obligation which inflicted very heavy penalties on the people of this country—to try to retain that balance, and they kept it up almost beyond the point of no return. To have fought such a fight, even if in the end it proves that they have been trying to hold an indefensible position, cannot be regarded by anyone with any fairness as "humiliating". And I am glad to see that, so far as one can gather from the reports, the major capitals of the world do not take that view.

We have been told by various noble Lords that the Labour Party has been governed by dogma. "Dogma", of course, is a word for a philosophy that you do not happen to like. I think if there is to be a charge made against the present Labour Government it should be that they have not been dogmatic enough; that they have, on occasion, abandoned their Socialist philosophy in order to fight a battle imposed upon them by external situations—a battle which it might have been better if they had refused to regard themselves as properly engaged in. I will give Lord Carrington the. Wilson television broadcast. I admit that I did not think it was one of his best, It was almost, but not quite, as bad as Ted Heath's the next day.

The noble Lord, Lord Carrington, even when one does not agree with him, is a pleasant and civilised debater. I must say that I find it difficult to express the same feelings towards the noble Earl, Lord Cromer. The only thing I can thank him for is that he took 37 years off my age. I closed my eyes and thought I was back in the Governor's Parlour of the Bank of England in the days when I was a financial editor listening to Montagu Norman. But at least Montagu Norman had this great merit: that he did not believe in speaking in public; he kept quiet. And I could not help, as I listened to Lord Cromer, feeling that if this was the advice that this Government depended upon in their first period then it is an amazing thing that we are not in a much bigger mess than we are.

What were his ideas? All the old tired clichés that one can hear coming out from every third-rate, fourth-rate financial or would-be financial thinker anywhere. Government expenditure must be cut; no indication of what kind of Government expenditure is to be cut. Income tax must be cut; no indication at all that income tax is a means of financing, as anybody knows, the necessary and desirable activities of Government, and that it is impossible to cut income tax without cutting what may be essential and desirable expenditure. But income tax must be cut in order that those who, in the eyes of Lord Cromer, deserve it, shall be able to keep more money in their pockets and have more money to spend. Who are these people? I did not hear Lord Cromer objecting to Lord Carrington when he asked who is going to keep wages down. I assume that the noble Lord is in favour of that—indeed, we are all intelligent people, in favour of keeping wages and all in-conies under some control until we have got out of this difficult situation. But not Lord Cromer, Lord Cromer wants the wages and incomes of those at the top scale to be increased: they must have more money in their pockets to spend as they like.

And we have this philosophy (I could call it a dogma) which one often hears from some noble Lords—not all—on the Opposition Benches; and some, though certainly not all, on the Cross-Benches: that the only incentive that will make people, particularly top people, work is if they are going to get more and more money out of it. Perhaps I have been fortunate. I have managed most of my life to earn what would seem to me a reasonable income, though I do not for one moment imagine that it would seem so to the noble Earl, Lord Cromer. And I think I can honestly say that I have never consciously done anything simply because of the money that it would bring in. I have done it because I found interest and satisfaction in doing it. I may be very fortunate, but I am glad to say that most of the friends I have, friends of all sorts of income levels, and all kinds of classes, are in my experience motivated by something higher than just the insistence that they shall have the maximum amount of money in their pocket to spend as they like. They are moved by all sorts of wishes and desires to express themselves and their talents; and they are also moved (though it seems to be increasingly unfashionable to say so) by a desire to return to the society to which they belong as much as they can out of their talents. If that seems to the noble Earl, Lord Cromer, and those who agree with him (I am sorry he does not seem to be here at the moment) a strange attitude, then I can only say that I am very sorry for him.


My Lords, I beg the noble Lord's pardon. Did he tell Lord Cromer that he proposed to attack him, because if he did not it is hardly fair to comment on his absence.


My Lords, I always endeavour, when I am myself taking part in a debate, to stay so that people taking part can answer points I have made. I do not assume I must first of all send notes round to every Member of the House saying, "It is just possible, because you have taken part, that I may refer to you".


My Lords, I think if the noble Earl, Lord Cromer, were here, he would probably ask the noble Lord how he accounts for the brain-drain.


My Lords, I would say to a large extent—and I say this having looked at the other side, having seen a number of people from this country who have taken part in the so-called "brain-drain" and gone to America—that in most cases the major reason for their going has not been money or dogmas, but the belief that they were not being given a full opportunity for the exercise of their talents in British industry and British management, and would get more there. So far from diminishing my argument, as the noble Viscount would seem to wish, my own experience suggests that the brain-drain reinforces it.

I said earlier that I felt a certain relief in our departure from this old exchange rate because I think that for years, long before the Labour Government came in, we have been fighting an old-fashioned kind of trench warfare, digging in to surround and defend the pound, occasionally moving forward a few yards and then going back, when we were, in fact, engaged in the wrong war altogether. I personally hope that one outcome of this present situation will be that we shall speed up enormously the requests we have put before the International Monetary Fund for consideration of a new international currency. Money has become a great commodity, a commodity to be dealt in and to have profit made out of; and it is no longer feasible or possible for this country to finance the whole world with sterling, as one of the two now major currencies, any more than it is any longer possible or feasible for us to go on policing the world with an immense Navy. We have to abandon the old Victorian concepts and come down to reality.

That this is so, many in the City will agree—because there are a certain number of highly intelligent pockets in the City. One of them, as I am sure the noble Lord, Lord Robbins, will agree, is in Cannon Street. You turn your back on the Bank of England and walk smartly away in the opposite direction for about five minutes. I was most interested in a series of articles in the "Lombard" column of the Financial Times dealing with the purely monetary situation, the purely monetary aspects, in which he said, what I think is quite true: The United Kingdom will have to consider making a frontal attack on the whole question of how far sterling is to be used for international settlements if we are really going to get a lasting solution to the reserves nightmare. Britain will be well advised never again to be caught up in the system in the way she has done during the past few years, whatever sacred cows of economic and financial orthodoxy have to be sacrificed to this end. My Lords, I think it is high time that a few of those "sacred cows" of the City were sacrificed. A foot-and-mouth outbreak is nothing to what they do. I think we have to press with infinitely greater force and vigour for a new international currency which will release these pressures on sterling.

In the meantime, I suggest that the City ought to be required to be a little more careful with the "hot" money it constantly handles: for it burns not only its own fingers but all of ours as well. It is possible to borrow money in London on a day's rate or a fourteen days' rate and so on. The "Gnomes" of Zurich, abort whom we have at times heard a greet deal—the Swiss bankers who, whatever one may think about them, are wise "Gnomes"—do not handle this kind of money. Not only do they require money to be loaned for a longer period, but they actually charge a penalty rate if it is withdrawn too soon according to the original lending proposal. I think that we might well learn from this and consider whether this immense amount of "hot" money which flows into and out of London, almost at the drop of a hat, placing immense strains on our exchange position and our whole economic position, is any longer to be regarded as worth the perils and the costs it brings with it.

My Lords, I have spoken long enough. All I want to say now is that although the exchange and monetary side of our crisis is not the only difficulty, and of course there are things that need doing badly on the industrial side, the main thing we need to do is to have confidence in ourselves and to stop being quite so humiliated about something we have no reason to be humiliated about.

6.56 p.m.


My Lords, at this late hour I intervene in this debate with considerable humility because I am well aware that my attendance is fairly infrequent. Indeed I shall considerably cut short the remarks that I had intended to make, and I hope that the noble Lord, Lord Francis-Williams, will forgive me if I do not follow him in all the remarks that he made. I see that my noble friend Lord Cromer is now in his place, and therefore needs no assistance in defence from me, either in your Lordships' House or in the City. I will content myself merely by saying that I found myself in as complete disagreement with almost all the noble Lord, Lord Francis-Williams said—and I disliked the rather sneering tone in which he saw fit to deliver his speech—as he found himself in disagreement with the speech of the noble Earl, Lord Cromer. I hope, therefore, that he will allow me to pass on from there. I wish in all seriousness to make that position quite clear, to save my noble friend whom, although he was sitting on the Cross-Benches, we all on this side of the House completely support in what he said and the way he said it.

Today, we have had a considerable amount of discussion on the actual fact of devaluation. Like the noble Lord, Lord Beswick, in his opening speech, I think it right that it should be a serious and sombre debate. I do not propose to spend any time discussing how this situation arose, or the reasons for it. This has been debated from both sides of the House. I must, however, say just one thing which is most important for the future. We have a new catchphrase in journalism and politics to-day. We talk of the "credulity gap". As your Lordships know, the "credulity gap", of which I first heard in the United States during the early part of the Vietnamese war, is the gap between what politicians say and what it is tolerable for people to believe. This gap is getting wider and wider. This has been found to be nothing new in the last few days. During the last few days it seems to have been stretched to its absolute limit. To be asked by the Prime Minister to believe that devaluation was a carefully thought out act of great statesmanship, and was the design of the Government's policy, is really going too far. We cannot be asked to believe that. It is not really different from the case of a man who, having gone bankrupt, files his petition in bankruptcy. That is exactly what happened.

Perhaps I may clear up one point that has arisen in the debate, a point mentioned by my noble friend Lord Robbins—and I trust that noble Lords will not think two speakers from the board-room of the Financial Times is more than they can tolerate. When we are asked by the Chancellor to believe that the really serious events on Thursday and Friday of last week were really necessary in order that he should have the appropriate discussions, it is too hard to believe, and I must say that from inquiries I have made it is hardly strictly accurate. As I understand it, the Press were led to believe by the Prime Minister and the Chancellor that the decision was taken by them to devalue on Wednesday, November 10. I understand that it was not approved by the Cabinet—this is known, I think, to everybody in the City, and in journalism—until the morning of Thursday last week; and then it is reported that the decision could not be made until the I.M.F. meeting that night. The I.M.F. was expecting this; it was ready for the discussion, and it seems incredible to me that it should have taken ten days—particularly as the rate of 2.40 dollars has long been agreed in the circles which discuss these affairs as a rate which was likely to be tolerable to central banks throughout the world. There was nothing peculiar about the rate of 2.40 dollars. Everybody knew that if there was going to be devaluation at all the rate would be 2.40 dollars, so one did not suddenly spring it as a great surprise. I would say to the noble Lord, Lord Francis-Williams—and in view of his remarks I am astonished that he is not in his place: I am not very sorry; I am just astonished—that everybody knew the rate was 2.40 dollars, and the truth is that this whole operation was extremely badly handled.

Having said that, I must agree with my noble friend Lord Robbins that it has always been my view that no country, and in particular Great Britain as the centre of the sterling area, can afford indefinitely to maintain an uneconomic exchange rate for its currency. I entirely accept from the Government that, faced as they were with what was a total failure of their economic policies, there was no alternative but devaluation. For myself, I wish that it had been done in February, when the freeze and the squeeze were still on and Part IV of the Prices and Incomes Act was still in force. I believe we should have got a great deal more value out of devaluation at that time than the rather botched-up affair last week.

Turning to the future, I think that it is unwise and certainly unprofitable to speculate too much on the outcome of this devaluation, since too much that is unexpected may happen. My experience is that it is extremely difficult to assess time factors. When all is said and done, it does not matter much what is said now. What matters is what the economic condition of this country will be like in 12 months' time. But what must be realised—and I am concerned even now as to whether the Government realise this—is the extent to which this country has suffered a crisis of confidence both at home and abroad. Anybody who has travelled recently in Europe and in the United States, and who in the course of his daily business is in touch with the financial centres of the world, knows that in recent months there has been an intense deterioration of confidence in this country, and it is going to take a long time to build it up.

The question has been asked: will devaluation work? My Lords, it has got to work, and we have all got to make it work. The fact is we cannot go through this again. This is almost an academic question and goes far beyond the realms of Party politics. This position we are in, for better or for worse, has got to work, and people abroad—I say this in the most uncontroversial way I can—have got to be persuaded that a British Labour Government, elected in a properly democratic way, by a large majority, to carry out Labour policies, can conduct the affairs of this country in a way which will not inevitably end up in financial crisis. This is the confidence that must be built up abroad. I do not wish to refer too much to 1931, 1949, or 1967, because I accept that in each case the circumstances were quite different. But the Government must now show that they can govern the country in a way that is going to make it economically viable. Do not let us forget that yesterday, in another place, the Chancellor of the Exchequer paid tribute to the other central bankers for what he called their understanding of this country's position. Surely the Chancellor does not need to be told by me that the central bankers of Europe understand the financial position of this country extremely well, and are extremely well-informed as to what is happening.

What are we going to face at home? A great many points have been raised today, particularly by the noble Viscount, Lord Eccles, and I should like to touch on a few of them. I do not believe the Government appreciate the time spent and the frustration caused both to management and to labour by the introduction of new methods of taxation—I refer to the introduction of corporation tax and S.E.T. I myself would be much more inclined to support the principle of corporation tax, whereas I feel that the principle of S.E.T. is wrong. The Acts were produced in great haste, one on top of the other, along with capital gains tax, and this has caused great confusion. There are many minor matters in this category, such as Section 65 of the 1965 Act and the way in which Section 28 of the 1960 Act is now being applied. The effect of much which was contained in the 1963 Budget is still not understood and is still being debated by lawyers, accountants and Government departments—one almost gets as many opinions as one asks questions. There is almost always conflicting advice as to what these things really mean. I can assure the Government that to my knowledge many re-organisations and reconstructions are held up while these matters are being investigated by people who do not really understand what the wording of the Act means. I believe that it would be extremely helpful if the Government would consider very carefully bringing in amendments in the 1968 Finance Bill in order to clear up many of these anomalies which are not properly understood.

The second point I should like to mention—and I am glad that it was raised by the noble Earl, Lord Cromer—is that I am amazed that it had never been realised what devastating effects on the prosperity of this country arise from the exchange controls. Curiously enough, these are the most readily accepted by the public at large, yet in my opinion they are the most harmful of all Government regulations. They were bad enough when they were statutory; they were bad enough when they had to be to some extent liberalised. But now, when they are being tightened and, even worse, when many of them are semi-voluntary, such as over capital movements to Australia, they bring nothing but frustration and restriction of legitimate business. If this devaluation does anything, one of the things it should lead to is a liberation of our economy over the world exchanges.

In looking to the future, one must ask these questions. Can the Government, having allowed Part IV of the Act to lapse, deal with prices and incomes without statutory machinery at their disposal? We cannot at this date afford a rate of inflation in this country faster than that of other countries abroad. Secondly, can the Government deal with unofficial strikes? I am fully aware of the difficulties here, but constant reference has been made in your Lordships' House this afternoon to the disastrous dock strike. So I ask: can unofficial strikes really be dealt with without legal powers to do so? I must say, frankly, that it is my belief that the Government do not request these powers from Parliament simply from fear of splitting their own Party. I should be very surprised if I could be given any categorical assurance that these strikes can be dealt with without powers, and it is on this aspect that the whole of the economy is going to depend. The Government must know that to depend on voluntary restraint, when they have lost the confidence of employers and unions alike, is to take a terrible risk with this country's economy.

But the tragedy—and to me it is a tragedy—is that in fact the internal position of this country is not nearly so bad as it is made out to be. Is it realised that we have in England to-day one of the lowest-cost countries in the Free World? Perhaps I may be excused if it, together with my noble friend Lord Robbins, direct the attention of noble Lords to the middle page of the Financial Times to-day, where there is a very good table which makes very clearly the point that we are a low-cost country. We have not taken full advantage of this fact. We have to accept (and here I am entirely in agreement with the noble Lord, Lord Peddie) that it is not only price that affects our exports: we have to consider also dates of delivery, poor service and sometimes faulty quality. There is no doubt that management and labour must both apply themselves to these matters. But they must not be diverted from these main occupations by all the irrelevancies and examinations of taxes and controls which take up a tremendous amount of time.

I wonder how widely it is realised that in the City of London we have a huge capital market, far larger than any in Europe, and, I believe, far more efficient. I should be surprised if anybody noticed in the Financial Times on Saturday, at the end of the week when there had been all that convulsion, that a company named William Morrison Supermarkets went to the market to raise just over £500,000 capital. That is a company with a good background, and is more than entitled to make use of the market to raise the rather modest amount of capital required for its development. At the end of last week that issue, was over-subscribed 170 times. Over £100 million was applied for. I imagine that people put in for more than they expected, because they realised that it was going to be oversubscribed. But there are vast resources of capital available in the City of London—amounts comparable even to what can be raised in New York—for industry, both public and private, if they are required. This is something which no other country has; and the proper use of these vast resources is being frustrated.

I believe that at the present time industry is being disrupted and taken off its main objectve by threats of reorganisation schemes on a sort of voluntary basis, with no one quite knowing what part the Government are playing. Sometimes they deny involving themselves at all, and at other times they boast that they are turning industry inside-out. I think that a very much clearer definition of the Government's intentions in this direction, and a greater clarification of which agency is responsible, would help people to get on with their job.

The Government and other people have talked about devaluation as being a great opportunity. I am not sure whether or not it is a great opportunity. It is certainly a very great challenge. I learned many years ago, as indeed all of us in the Services learned, that you had to defeat your own side before you won the war. I believe, and I think it is the view of many people in industry and commerce on all levels, that one of the real enemies we are fighting to-day is the restrictions and controls and policies of the present Labour Government. I believe that if the Government can take a completely fresh look at their policies, without in any way abandoning their social aspirations; if they conduct a sound economic policy, and if the people of this country are allowed to have the opportunity of doing the job, they will succeed. It is only on those conditions that this devaluation will have proved to be anything except a total disaster.

7.16 P.m.


My Lords, my noble friend Lord Hirshfield made a maiden speech which seemed to me to be quiet and knowledgeable, and that is particularly to be welcomed in an atmosphere in which recriminations were inevitable. Of course, we have had many of them, and I can quite understand that. I must admit that if I were sitting on the other side and the position were reversed, I should probably be doing very much the same as the Opposition are doing at the present time. But I am bound to say, like my noble friend, that I am not sure that this is doing the country any good, particularly in the circumstances. There are times when, clearly, we must drop the Party dog-fight and get down to the task of trying to get out of any difficulties which we might be in.

As I say, recriminations are perhaps inevitable, and the more so because this House divides, in the main, between two opposing sides. But I value enormously the Cross-Benches in this House, and we have had the pleasure of listening this afternoon to the speech of the noble Lord, Lord Robbins. That is a speech which deserves careful study by the Government and, certainly, by every Member of this House. It is one of the essential values of this House that we have the Cross-Benches, and I sincerely hope that in any reform which we may have we shall not entirely eliminate the noble Lord, Lord Robbins, and those who can contribute so much from the Cross-Benches to our debates.

The noble Lord, Lord Poole, admitted that his attendances are infrequent, and we know it, but I listened to him with a respect which stems from a period in the other place when I grew to appreciate something of his qualities. I agree with him, particularly, that there is much to be proud of in Britain to-day, and we must not spend too much of our time denigrating this country of ours; that we must spend some of cur time, perhaps, engaging in the dog-fight which is going on, but also in trying to make it clear to the people of Britain that here is an opportunity, and there always has existed an opportunity, if we use it right, to place Britain in an unassailable economic position. I believe this is absolutely true.

Clearly, I cannot agree with the noble Lord on some of the things that he said, particularly on the point of the delay in the date of announcement of devaluation. I agree more with The Times, which said to-day that the machinery of consultation has worked in so far as there has been no chain reaction as might have been feared when Britain devalued. I should have thought there was something to be said for that; that, first of ail, you enter into consultation and then try to ensure that when you actually take the decision the other countries will not start the chain reaction which The Times mentioned.

The noble Lord, Lord Poole, also mentioned unofficial strikes. He probably knows that my background is wholly trade union, if he has ever thought anything at all about me. My Lords, it is extremely difficult to find a solution to unofficial strikes. I wish I knew; I wish the noble Lord, Lord Douglass of Cleveland, knew. Despite what he said about trade union discipline within a particular union, my knowledge is that you can do it in certain unions fairly easily, but in other unions it is practically impossible. It has to do with the powers that the trade union itself has over the livelihood of the man, and trade unions have not always got this. The idea that all you have to do to solve the problem of unofficial strikes is to pass a law forbidding them is much too glib, much too easy. It simply will not work so easily as that.

Those who saw what happened during the war years, when some people tried to use legal powers (which were perhaps justifiable then) on others who were behaving in a recalcitrant and quite wrong manner, saw that if these people had not been very careful they would not merely have acted against a small bunch of members of a particular union but would have caused a strike of the whole of the trade union members of this country, for they would have come out in solidarity, perhaps in mistaken solidarity, with those who were in fact being proceeded against legally. I make this point because, whatever we do in this connection, for heaven's sake! do not let us make the mistake of thinking that there is an easy solution to this problem, which I am sure—and here I agree with the noble Lord—is a blot on the sort of organisation of industrial relations that we so badly need in this country at this time.

When I spoke in the Economic debate a fortnight ago, without attempting to range over the whole field I said it seemed to me that we were trying to do much too much about policing the whole world, and that we simply could not afford it. I believe that still is the case. By our defence commitments we are trying to do something which we did very well in the last century but which we cannot do in the post-Second World War period. I am hoping that the Government are making a careful examination of this defence expenditure, which I would regard as wholly unjustifiable in the present circumstances of Great Britain. The other thing I said a fortnight ago—and I am sure I must have upset my noble friend the Leader of the House when I said it—was that I thought that the Government were embarking on reflationary measures much too early. I felt then—and I still feel it—that by letting the hire-purchase possibilities extend we were making a big mistake. But, my Lords, I suppose I must not rub it in.

I make no pretence of any inside knowledge or any special prescience in the matter of a possible early devaluation. I certainly did not when I spoke a fortnight ago; but anyone having any knowledge of or interest in economic affairs must have felt that unless we could cure the chronic and continuing imbalance of our international payments the pressures on sterling would continue to build up, and that however much we struggled to avoid it devaluation would sooner or later become inevitable. Devaluation has come. The decision to devalue was undoubtedly an unpleasant decision for the Government to have to take after struggling for three years to avoid it. But the decision has now been taken, the die has been cast, and I suppose that we must now make as much of a virtue of the necessity as we can.

Of course, the effects will not be wholly bad. Indeed, if, among the other effects, the shock effect is such as to make all of us aware of the cliff-hanging situation in which we have been living for so many years now, it may be wholly to our advantage. If it shakes people out of this sort of complacency, that will be all to the good. But will it? And what a problem it is, my Lords, to bring the economic facts home to each individual citizen, and to have him or her translate that knowledge into that trifling increase in effort which would be sufficient to make our country economically sound once more! It is only a trifle that is needed by each and every one of us, if somehow we could manage to feel that this is part of our job, that we belong here and that we must try to make this country work, and work in such a way that we ensure prosperity for all of us.

I felt this particularly when watching television last night. A number of noble Lords have referred to this programme. I saw workers in a car factory answering questions about the possible effects of devaluation. Almost without exception they blamed "they". Whether they were referring to this Government or to the situation left by the last Tory Administration, it was always "they". Not a single one of them said. "It is partly us, the workers, who have failed "—not one. I suppose one can really understand it in a way, but there it is; it is part of this climate of opinion which undoubtedly exists. Then I watched the microphone being thrust under the noses of people in the City. They were standing outside, in the street. They were not allowed in the Stock Exchange or those other places where normally they get together and conduct their business. Those men in the street equally blamed "they". There was never a thought that perhaps they themselves could have helped a bit more; never a thought that perhaps successive crises may not have been due so much to a withdrawal of foreign balances as to speculation by United Kingdom citizens, and that, out of consideration for the overall interests of the economy, they might have refrained from making money out of Britain's situation. I could not quite understand—I am sorry the noble Lord, Lord Aldington, is not here, but I am not going to attack him—why the noble Lord said that there was no speculation; that these things did not seem to happen. To-day I read an article in The Times Business News in which I saw this passage: Yesterday the Bank of England was taking stock and wisely decided not to issue the new sterling parity margins to dealers until just before trading is due to commence this morning. At last the Bank holds the trump card and everything points to a massive squeeze on all those who sold short". Selling short is, I suppose, part of this whole business of speculation. It is the second part of what happens in relation to the foreign investors in this country.


My Lords, may I suggest to the noble Lord that the point is this. I believe that technically what the Bank of England can do can really affect only foreign speculators. I think the measures they took would in fact hardly apply to an English speculator who was short of pounds. I think it is the foreign speculator and not the English speculator who is affected.


My Lords, I sincerely hope that the foreign speculators, having, as they say, sold short, will be thoroughly well squeezed. As far as our own speculators are concerned, there is something called leads and lags which are not unknown as part of the operations in that part of economy known as the City.

The blaming of "they" is very largely the fault of us politicians ourselves, for the "Outs" always say of the "Ins", "If only 'they', the Government, would adopt the policies we recommend to them, all would be well." Or, much more often, "If you replace them by us, your problems will be solved." It is not surprising to me that many noble Lords opposite said that if we changed sides the whole problem would be solved—forgetting the 13 years in which these problems were not solved. The chronic imbalance of payments remained throughout that period. And it has not yet been solved. We must try to solve it.

There are a number of things which clearly we have to do. I rather liked the remarks of the noble Viscount, Lord Eccles, who must have read the Westminster Bank Review, as I did, in which there was an article written before devaluation by a Mr. Conan on the problem of sterling. In that article he turned upside down the phrase so often used, "The world does not owe us a living" into, "The United Kingdom does not owe a living to the rest of the world." It is something of a shock thought; and it is one which we must consider. Mr. Conan went on to outline some of the possible remedies. I will not go into all the remedies that he mentioned, but he did assert—and I think this is important: At present the United Kingdom gets the worst of both worlds: as a banker for the overseas sterling area it has to forgo all the proceeds earned by its surplus with that sector and it has also to forgo, substantial amounts of foreign exchange because of the failure of countries like Australia to honour pooling commitments. There is thus a twofold drain on the reserves which is unlikely to be remedied by either devaluation or deflation. Mr. Conan was talking about the sterling area generally and the pooling arrangements which exist, the substance which, it seems, is being whittled away—and this is a great pity. Mr. Conan also questioned, as did the noble Viscount Lord Eccles, whether we can continue a Commonwealth preference system which, as he puts it, (inter alia) guarantees the free entry for virtually 100 per cent. of the exports from advanced countries like Canada, Australia and New Zealand, but not of course for United Kingdom exports to those countries. Those countries are advanced industrial countries, and the time has come, I think, to make careful examination of the position in relation to the flow and exchange of goods between those countries. I hope the Government are studying the effects of the sterling pool and the Commonwealth preference system that Mr. Conan has mentioned, for it appears to me that there is a considerable measure of truth in his points.

My Lords, all that study can go on, but what the Government have to do—and what all of us without exception have to do—is to try to ensure that the shock of devaluation is not lost, and that our involvement in the nation's difficulties is clearly understood and firmly established. If this devaluation—which I regard as undesirable and which I do not welcome, though I recognise that it is inevitable—has this effect on all of us in this country, good will yet come of it.

7.35 p.m.


My Lords, the noble Lord, Lord Champion, sits habitually so near the Cross-Benches that it seems to me, as I listen to him speaking, that the moderate and gentle method of argument which is normally used from those Benches has become an influence on his own manner of speaking. Indeed, I could have expected a speech like that to come from the Cross-Benches themselves—and, no doubt, one of these days he will find himself drawn to his spiritual home.


My Lords, I have left it a little late.


The noble Lord spoke, as he said, as a politician. I am afraid that to-night I speak not as a financier, not as an expert in the City of London, but also as a politician.

Some months ago, at the time of the decision of the Government to apply to the country a severe form of deflation, I asked your Lordships to consider what would be the effect on world confidence in Britain, and on Britain's confidence in herself, if at the time of financial crisis there emerged in this country a "Government of National Reconstruction". In that context I invited your Lordships to consider what would happen politically in this country if, by the Christmas that lies a few weeks ahead of us, unemployment had risen to a total of something like 500,000. I suggested that a relatively high level of unemployment would inflict an intolerable strain on the morale of the Labour Party, who would crack, and that this, in turn, would inevitably lead to a new financial crisis in this country and to devaluation. I suggested, in fact, that we were not facing a financial crisis but a political crisis—and a crisis which could not be solved by a Government dependent on a Labour or a Conservative majority in the House of Commons.

In their winding-up speeches, the noble Earl the Leader of the House and my noble friend Lord Aldington (who happened to be replying for the Opposition) both pounced en the heresy of which I had been guilty. Divided in almost everything else, they were united in their repudiation of the idea that there could be any chance of the two great Parties in Britain coming together so that we might face the difficulties and dangers of Britain in peace time with the same resolution and concerted strength as we have in the past faced the perils of war. Subsequently, one noble Lord, of great political experience, warned me that I should choose the timing of my speeches on such subjects with great discretion. Such a theme, he said, might be appropriate two or three crises from then.

To put it in a simpler form, what that means is that before Britain can regain a sense of purpose and self-respect, before we can hope to cease to be the object of polite contempt to the Japanese, the Germans and the Swiss, before we can effectively counter the malice of the French Government, before we shall again be an effective force in Europe and in the world, we must experience at least one grim episode, and perhaps two or more episodes, of humiliation and defeat such as we observed last weekend. I agree with what was said by the noble Lord, Lord Peddie, earlier, that unless we take full advantage of the situation which devaluation provides for us, the next storm, when it comes, will be a violent one indeed.

In the process of going through this series of crises, political and financial, I think it very likely that the people of Britain may lose some of the freedoms which they have achieved so painfully over so many years, and lose some of the long-descended advantages which otherwise might have been preserved. I am well aware that at this moment there are very strong antipathies to any idea which smacks of a Coalition. A writer in the Evening News last night said that the idea was supported by only a few excitable Tories, and that no sensible Conservative would contemplate teaming-up with the "dead-beats" who form Her Majesty's present Administration.

My Lords, it is generally accepted that if devaluation is to provide an opportunity for national recovery, which alone would make the Government's decision justified, certain things must happen. In this country we have to face a period when prices are bound to rise, and incomes, and particularly wage levels in the export industries, must remain more or less static if we are not to lose our new competitive power. Wages must be kept static, the House will realise, at a time when full employment, which no doubt will be restored in a relatively short time, places in the hands of the trade unions the power to force wage increases; at a time when, to them and their members, such increases would seem amply justified by the rise in price levels. It is right for the noble Lord, Lord Peddie, to refer to the importance of associating such increases with productivity, but we know from the experience of the last twenty years, and more, that where there is an inflationary situation demands for wage increases to prevent a lowering of standards of living are inevitable and become increasingly powerful as prices rise.

The Government have said they are going to cut public spending, and £200 million, divided between the Civil and the Defence Votes, so to speak, is the target in mind. But they have also said that they intend to safeguard the interests of the most vulnerable sections of the community, and this must, and I assume does, involve an increase in pensions and welfare payments within the next twelve months, and probably a good deal sooner. Indeed, I see from the "tape" that the Prime Minister is reported, when speaking at the Parliamentary Labour Party's meeting this morning, as saying that the first run on sterling in 1964 was the direct result of the decision of the Government at that time to increase pensions, or the announcement that they intended to do so. I do not know whether that is true, but, from my own observations, I should think that is absolutely accurate.

My Lords, by next summer the shadow of the next General Election will begin to agitate the minds of Labour Members in the House of Commons. If the morale of the Parliamentary Labour Party collapses when the level of unemployment reaches 500,000 at the end of the first Session of a new Parliament, how can it stand up to the pressures likely to be directed against it in the third and fourth Sessions by those sections of the community whose support is most vital to its Parliamentary survival? The tragedy—and it is a tragedy, my Lords—of the Labour Party is that the things which must be done to get out of our troubles are precisely the things which make the greatest inroads on the emotional and moral resources of the Labour Party's Parliamentary Party and its leaders in Parliament.

We on the Conservative side know something of this from our own experience. We can take an example from recent history. Between 1956 and the Election of 1964 the Conservative Party was forced to take actions which ran directly counter to the basic tenets of its faith: in the Commonwealth, in overseas policy and, to some extent, in Britain. By 1962, the Party was under the severest possible pressure, both moral and emotional. Goaded by an exultant Opposition; afflicted by petty scandal; at daggers drawn with the Press, the Party suffered what can only be described as a breakdown.

Let me put it this way, in the case of the Labour Party. In these next two years if the policies of the Government following devaluation are to succeed, they must be framed in such a way that they will break the Labour Party. If the Labour Party do not follow those policies, which will involve action to control the trade unions; to limit effectively wage demands; to prevent unofficial strikes; to stop the rising cost of living from being fully compensated by increased benefits in the Welfare Services (quite apart from any action which they may take against profits and dividends) the financial crisis which will follow their failure to do so will bring a further devaluation and will break the Labour Government. I do not think, frankly—and I am speaking politically—that the Labour Government can lose politically by devaluation in the short run; and I do not think they can win politically by it in the long run.

To some extent the same problems face the Conservative Party at the present time. Do those who lead the Party seriously think that it will be easy to bring the trade unions under control, to reform them, or whatever it should be? A classic effort on the part of Labour to reform the longstanding anomaly of the dock labour system has contributed powerfully to the present crisis. As we have already heard this afternoon, a few thousand men, misled, perhaps exploited, by a handful of dedicated Communists, have, so it seems, been a major factor in shaking the financial structure of Britain and forcing a Labour Government with the greatest majority in the Party's history not only off course, but into a line of action which makes them electorally vulnerable, and, whatever may be the excuses and justification produced by Government spokesmen this afternoon, is one which is against the deepest political instincts of their leaders and their political judgment.

The fact is that the problems which face the Conservative and Labour Parties to-day, the things which divide people in this country, the decisions which have to be made in these next few years, are, in my view, completely different from those which divided us and created the differences of opinion in the past. Old attitudes, old divisions, and many old policies, no longer make sense. I say to you, my Lords, and I say it with conviction, that most of the things which I came into politics to pursue and forward, most of the problems with which I was familiar when I came into politics thirty years ago as a professional politician in the Conservative Party, and a servant of the organisation (so I have been right "died-in-the-wool"), no longer matter or make sense in the contemporary political scene.

I realise that no Coalition, no Government of National Reconstruction, will last long; nor is that the intention. But it would last long enough to give us a chance to do as a united nation some of the things which the Labour half of the nation and the Conservative half of the nation cannot, in my view, successfully accomplish on their own. It would enable a realignment in domestic politics to take place, so that the new divisions of opinion, for Europe or against, or whatever those divisions may be, might be properly and accurately reflected in the Party system, which remains of intrinsic importance to constitutional democracy in Britain.

I remember, as will your Lordships, that Mr. Disraeli once said that Coalitions were not popular with the British. But the expedient of Coalition, the expedient of a National Government, has time and time again been used by the British to mobilise themselves to cope with dangers abroad and to adjust the structure of national Government to new situations at home. I would say merely—and I speak only for myself—that I do not believe, as a politician, that a way out of our present troubles will be found until we have used that expedient again.

7.52 p.m.


My Lords, nobody said "Hear, hear!" at this moment from either side of the House, but I should like to say with what interest and profit I listened to the penetrating analysis of the noble Lord, Lord Alport. I think there is a great deal of truth in what he said. Speaking for myself from the Cross-Benches, I must say that I am greatly saddened by the accusations and counteraccusations which are thrown across the House in these crises in our affairs—in particular in this one, because I do not believe that any of us have yet found the answer, although we have all an overwhelming interest in trying to find it.

I believe that devaluation was inevitable, given the situation which had been created by the policy pursued by the Government. I am extremely sorry for Mr. Callaghan; I think that he has been an enormously courageous Chancellor. He has taken action which was enormously unpopular with the members of his own Party, and he has received a good deal of support. But it is sad that he has not got away with it. I do not think that it is entirely his fault. I should like to say more about that presently.

I am not really interested in assigning blame for what has happened, but I should like to draw your Lordships' attention to the relatively smooth way in which this dangerous crash operation, affecting the trade of the whole of the sterling area, one-quarter of the population and trade of the world and one of the two principal reserve currencies, has been achieved. This is largely due to the close contact maintained by the people who make economic policies through the Economic Policy Committee and Working Party Three of O.E.C.D., through the Group of Ten, and especially through the International Monetary Fund. One must be grateful for the penetration and care with which the members of all these bodies study our affairs and each other's affairs, so that when action of this sort has to be taken no economic war or anything of that sort follows.

I want to look to the future. It is obvious that we must have more exports. We have a small advantage. The noble Viscount, Lord Eccles, told us that it was about 8½ per cent. I have calculated that it is about 9 per cent., but it is not very much. I am rather sorry that it is so late. I am very sorry that the export rebate has gone. I think that the Government have been foolish to give up this extra incentive to exports. In the debate in this House on November 7, I urged that we ought to think up some other system by which our exports could be encouraged, and as there is only a balance of advantage of about 9 per cent. now, I want to repeat the recommendation which I made then, that we again consider a value-added tax, which can be refunded to exporters and which is in accord with GATT and other international obligations, in a way which the export rebates were not. I was interested to hear the noble Lord, Lord Aldington, say that this might be a good idea; but I think it could only be recommended as part of a general reform of taxation. In this debate a number of noble Lords, some of them great experts on this question, have said that the burden of taxation should be shifted to some degree from direct to indirect taxation. A value-added tax would certainly serve to do that.

We shall only enjoy this export advantage, such as it is, if we keep our costs in order. I warmly support what has been said on this subject. We shall only secure the exports we need if we get our ports in order. It has been the practice in some London docks for a good many of the gangs to unload most of the goods from a ship and leave a few goods on board until the next morning or, if they were not given overtime pay, even until the next week. The next day, of course, these goods are moved in a few minutes. The gang sit down and, as they cannot be transferred to other work they are paid a whole day for doing nothing. This intolerable sort of abuse is one of the things that is at the bottom of the dock strike, and I think it is a good thing that a serious attempt has been made, as part of the radical improvement in the conditions of port employment, to break this sort of racket—because that is what it is. I earnestly trust that this will be carried through and that it will be seen to soon. A good many of the dockers have gone back and some of the docks are working again, but the Port of London has received a blow from which it will not recover for many years. I think the same applies to Merseyside, but about that I have less direct information.

I feel that the poor Chancellor is left to control the demand side of the economy. Whenever the economy gets a bit overheated, the Chancellor is expected to apply the brake, to have a stop, to impose a squeeze, to put up rates of interest and discourage almost everybody from doing anything. But there should be a balance between supply and demand, and more action ought to be taken to increase the supply side of the economy. As I see it, the Chancellor's colleagues have not given him adequate support in this field.

I am sure that there are a great many things that could be done. I mentioned a good many of them on November 7 and I will not repeat what I then said. To people abroad the British look rather like a cow standing in face of an oncoming train, wagging its tail and its jaws, chewing the cud—consuming its own assets. One wonders when the crunch will come. Now that we have had the crunch, one wonders when the next crunch will come—because it may not be so long delayed.

I am particularly anxious on this subject, because the pound and the dollar must to some degree stand together; and the dollar is not in a very good condition, any more than the pound was. I would call to your Lordships' attention that the French are obviously "gunning" for the whole lot of us. They have taken an extremely tough line in the last ten days. They really believe in changing the value of gold, and I think they might well cause a serious international crisis which would not be even in their own interests. Therefore it is most important that we should now put our house in order so that we are not "shot at" any more.

I believe that one of the principal duties facing the Government at the present time—and a number of noble Lords have already referred to this—is the problem of getting the British back to work. There are a considerable number of unofficial strikes, and so on, which have an influence quite out of proportion to the total number of people involved. Even so, the numbers are quite considerable. We have been losing something like 2½ million to 3 million workdays a year, by comparison with which the Germans in the same year—that is, 1965—lost 48,000, and the Swedes hardly any. It seems obvious that we are making a much less good show than our competitors. I do not want to exaggerate the influence of this situation, but it seems quite apparent that Mr. Jack Dash is out: to "bust" the Port of London. He has probably done nothing illegal, but it does not make sense to me that quite a few men can be allowed to ruin the greatest port in Europe—at least, it used to be the greatest port in Europe—and to reduce the earnings of their workmates up and down the country.

The fact is, I think, that the present stale of the law is wrong. This is where the trouble stems from. The Chancellor of the Exchequer has been cutting down demand, but the Ministry of Social Security are paying supplementary benefits to the families of the men who are ruining our trade and the earnings of their workmates. This, to me, does not make sense either. But what else can we expect when the law makes no distinction between a strike that is justified and one that is not? It is the law that is at the bottom of half of our troubles; and this explains why our admirable trade union leaders—and many of them are great men—cannot keep control of the situation. It really is out of hand.

I have not stood up to speak just to criticise, and I want to be creative on this subject. I believe that effective and strong trade unions are necessary for the proper functioning of our economy, and that it is the function of the present Government to have a trade union law reform which will set the trade unions up in a position to control themselves and to contribute to the wellbeing of the community and the standard of living of the workers in a way in which they cannot now do. The trade unions must become an essential means of communication between the workers and management. At present, this means of communication does not seem to work properly, except in a few industries. I believe that the status of the trade unions must be raised, that they will have to be given specific functions, and that they should be made subject to the processes of law—I repeat, "processes of law"—like other responsible elements in the community.

One of the troubles is that we have too many trade unions. At present there are about 900. We ought to go over to a modern system of industrial union rather than craft union. We cannot abolish the craft unions, but I believe we could create industrial unions. I would suggest that some means like the following might well be adopted. The Ministry of Labour might designate a trade union—and it would use the great trade unions that we have already—to service the great industries, and that trade union, when designated as the official trade union for the industry would be officially responsible at any required level, shop, factory, firm or area, for representing the workers' interests both to the employers and to any relevant industrial organisations. It would also be assisted to organise training courses for shop stewards and union officials. I should like to emphasise the point about training courses. Some of our unions, like the E.T.U. and other big unions, do this, but many are too small to have training courses; and none of them, I believe, has research facilities. This is an astonishing contrast to what happens in Sweden and Germany.

I know that what I have said sounds appallingly revolutionary, but it is what the British themselves enabled the Germans to do after the war, and it is what the Swedes themselves did under their new Labour Government after it came into power in 1932. If the Germans and Swedes can do it, I do not believe it is impossible for us.

The next point in the programme which I venture to suggest is that agreements between employers and trade unions on conditions of work and pay would be negotiated always for a specific period, with appropriate periods of notice of termination of the agreement or of individual employment. Such agreements would, on taking official effect, have to be registered with the Ministry of Labour and with the labour courts which I shall mention in a moment. I think that we ought to adopt a system, which works so well in Sweden and Germany and in many other countries, by which no agreement can be altered by either side without the agreement of the other side. If the employers expect the men on the shop floor to go without a tea-break, that may be contrary to the agreement. Any decision would have to be taken by agreement. If new processes, and so on, had to be introduced, that would probably involve the making of extra agreements. The system must obviously allow for, and promote, progress and change; and I think there ought to be a standard clause in the agreements providing for such an eventuality.

Once agreements of this sort, which are valid for a period, have been made it is quite possible to have a system of courts to judge whether the agreements are being infringed or correctly interpreted. I think we should have a system of special labour courts, with specialised judges, assisted by assessors from both sides of industry, in order to do this. The agreements are very complicated. Practically every shop and every wharf has its own provisions and arrangements, and the court would have to take account of those. Obviously, in this way the processes of carrying out such agreements could be made subject to law.

In order that the body of case law, which would be built up by these courts, should correspond to the public interest, the labour courts should, I suggest, be entitled, and expected, to hear the views of the Ministry of Labour and, if necessary, of the national or regional planning authorities, as well as of the T.U.C., on any major disputes before the court. Nevertheless, one of the objects should be to have courts which could reach swift decisions.

The position would then be much the same as it is in Sweden and Germany. Strikes and lockouts could occur for periods when the agreements had ceased to be valid; but I would propose that they should be illegal and should be prevented by legal process during the validity of the agreement if they happened in such a way as to break the agreement. Breaking the agreement would be an offence, punishable by law, for which the parties concerned would have to answer to the courts.

I personally should like to see special arrangements made by which any stoppage or lockout or strike which happened in the sort of factory where it can put half of England out of action—for instance, in the power factories—would be subject to special delay dates before even an official strike could be declared.

The processes of conciliation, and if necessary of arbitration, ought to be made mandatory and obligatory before any stoppage, strike or lockout could be legally allowed. The noble Lord, Lord Cooper of Stockton Heath, in moving the Address, hinted at some such possibility. I suggest to your Lordships, with great temerity, that we are really working round to that.

It is clear that there must always be a contingent right to strike. You cannot abolish the right to strike unless you are prepared to force men to work, and that is a state of affairs into which I hope we shall never fall. But I believe that the right to strike ought now to be canalised, like the right to fight a duel or carry arms and shoot your fellow man. It does not make sense to me that we should continue to live in a sort of Wars of the Roses, and let matters decline to the point where quite a few people can damage the standard of living of the whole community and bring this great country into general disrepute.

At the risk of speaking for too long, I would say there is another interesting system in Germany. Every works has to have a works council democratically elected by secret ballot, and the works council elects a member to serve on the board of directors. The trade unionists do not like it, and as a matter of fact the directors do not like it either; but it happens that they are thereby obliged to inform each other of their point of view; and I am sure this is one of the reasons why Labour relations in Germany are a model for what might be done in other places.

The general system which I have suggested would obviously require adaptation to take account of the conditions in different industries and different parts of the country, and I suggest that the T.U.C. and the C.B.I. would be invited to cooperate with the Ministry of Labour in promoting a smooth transference to the new system.

I have spoken at inordinate length on this subject because I believe that it is one of the principal duties of the Government now: to get working conditions in our great community put right. We have fallen into a state of disagreeable social and economic war in our internal affairs, and until and unless we can put that right I do not believe we can get the exports we ought to have, or get the productivity which the great genius of our workpeople and employers deserves. I believe that at the present time the threat of a strike is so often made and so damaging that it has demoralised management, especially middle management, in a great many firms, and that they do not apply the labour discipline which they could and should apply.

8.15 p.m.


My Lords, I have listened to a wealth of advice given to Her Majesty's Government in 16 not altogether short speeches, and one or another of Her Majesty's Government has also listened to those speeches. I do not propose to offer very much advice except on two points. I think it is time that your Lordships heard the squeak of a humble victim. But before I go further, I should like to congratulate the noble Lord, Lord Hirshfield, on his maiden speech. As a humble and unworthy member of his own profession, I would say it was very welcome to me, and I hope we shall hear him often on other occasions.

I have lived through three devaluations, and on the first two occasions, at any rate, the occasion was marked by a great deal of advice. We were told that it was a great opportunity provided that we observed certain conditions; and in the past, to a modified extent, some of those conditions have been observed. But there is one matter in connection with the first occasion on which I had strong opinions and strong feelings. I had them at that time, and will venture to repeat them, because they are entirely contrary to all that the noble Lord, Lord Alport, has just said.

I say that if Her Majesty's Government are in difficulty they should themselves take the proper way to get out of that difficulty, but, for heaven's sake!, do not let us have a Coalition. In those days I thought Mr. Baldwin's advice was utterly wrong. It was very wrong for Labour; it was very wrong for the Conservatives. The matter for the Labour Party was accentuated by the sudden and untimely death of Mr. Graham, whom we all lamented, and thank heavens Lord Attlee did not die at the same time! I implore Her Majesty's Government, if they are in difficulties, to take the measures they think, as a Government, will get them out of those difficulties, but do not have a Coalition, because in so doing you get the worst of both worlds.

It is sixty years since I took any interest in economics, and I have a sort of recollection that in those days we said that if there was a run on the pound there was one obvious policy for Her Majesty's Government. One policy was to reduce all taxation except what was absolutely necessary for the payment of debt, and to raise bank rate until it was worth the private citizen's while to invest the money left in his pocket. Unfortunately, that is not very feasible to-day, because we have capital gains tax, which makes a man very averse to investing in the future except on terms that are completely safe, and we have a great many other taxes which make it very difficult for taxation on the individual to be reduced. But that was the old plan. To-day, I recognise that that is probably impossible. But I speak as an ordinary, humble citizen, and the opinions I am giving your Lordships are those which I formed at the time. I am not jobbing back.

When this Government first came into power the Prime Minister made an announcement that the country's finances were in a dreadful state and the country in fact was bankrupt. If Sir Paul Chambers to-morrow were to make a similar announcement about I.C.I., I think that, in spite of the very strong position of that great organisation, it might find itself in difficulties in consequence of that announcement. Speaking as a citizen of this country, I am bound to say I was very much shocked by the Prime Minister's making an announcement of that kind. I should hesitate, if I were the chairman of any board of any company, to make an announcement like that. I should take a great many other steps first and save my assets in every possible way. I am not casting stones on the past; I am merely giving you the impression in my mind.

When the announcement of devaluation came, I and my household went to listen to the Prime Minister. I think I must tell Her Majesty's Government that the Prime Minister's announcement did not fill me with hope. It seemed to me that taxation was to be increased; that nothing, really, was to be modified. The people at large were told that they were going to have a glorious time, and no suggestion of sacrifice was properly made to the country. I am bound to say that my heart sank. It seems to me that in the past, at any rate, the necessary steps have been taken after devaluation, but on this occasion the Prime Minister was putting all that aside and simply telling people that they would have the same amount of money and the same amount of spending power as they had had in the past and that nothing was going to be done.

That caused me far more sorrow and despair and distrust for the future than the actual devaluation. And I am sorry to tell your Lordships that I was confirmed in that feeling by the attack made by the noble Earl, Lord Longford, this afternoon on the noble Earl, Lord Cromer: because it seems to me that what Lord Cromer was saying was sound sense and was true; and the attack seemed to indicate that Her Majesty's Government as a whole took the same line as the Prime Minister and that they were just going to carry on the same as usual.

I was very sorry to hear that, and as a citizen of this country it does not fill me with hope. I am reporting that to Her Majesty's Government quite frankly, because I honestly think it is urgently necessary for the Government to take hold of the reins and put their horse at the obstacles in a conscientious and sensible way, instead of riding slap-dash at their fences. If they do so, they will come through the crisis; otherwise, not only will they fail, but they will have lost the confidence of the country, which they need in order to do what is necessary to be done.

8.22 p.m.


My Lords, this has been a fairly long debate, and these last few days have been long and rather grim days for those of us—and that means all of us—who love this country. But this has been not only a rather grim debate; also I think (and indeed I hope) it has not been altogether too happy a debate for noble Lords opposite. Having said that, I should like, if I may, to congratulate the noble Lord, Lord Hirshfield, on his quiet, lucid and independent-minded maiden speech; and when I say from these Benches that we very much hope to hear him again frequently that is not a mere politesse on my part.

The sober and muted speech with which the noble Lord, Lord Beswick, opened this debate was a far remove from the complacent tranquilliser with which the noble Earl, Lord Longford, the Leader of the House, sought to lull us only two weeks ago. Seldom has complacency been so rudely and quickly confounded. I would hold from this debate that the Government stand condemned on three main counts. They stand condemned for bringing this country to its knees, to a position in which devaluation was probably inevitable; they stand condemned for the way in which they bungled the actual operation, and they stand condemned for the inadequate and hastily-assembled package of measures which, as yet, is all that they have been able to devise. I hold, my Lords, that the Government stand condemned on those three counts.

Listening to the noble Lord, Lord Beswick, no one could possibly have imagined that any possible blame could possibly attach to this best of all possible Governments in this unkindest of unkind worlds. He trotted out, semi-apologetically, I must admit, all the familiar old alibis of the shipping strike, the dock strike, the Arab-Israeli war and, of course, the Labour Government's stony inheritance from a Conservative Administration. Of all other favourable factors we heard nothing. For example, we heard nothing about the improved terms of trade (nothing, I assume, to do with the Government) worth at least £250 million a year in our balance of payments reckoning. We heard nothing of all those errors of omission and commission with which the last 37 months have rendered us all too familiar; those errors which have led to the erosion of confidence in, and the credibility of, the present Government; that erosion of its authority, both at home and abroad, to which my noble friend Lord Eccles rightly drew our attention. I should like to say that I do not think I have ever heard my noble friend Lord Eccles make other than a good speech in your Lordships' House, but I thought he made a particularly good one this afternoon.

We have heard a great deal this evening of the Labour Party's tired old alibi of the inheritance which they came into, that so-called deficit of some £800 million which seems now to have become firmly embedded in Socialist mythology. I do not wish particularly to job back over these last three wasted years. I am sick and tired of these Socialist alibis and I suspect, with the noble Lord, Lord Hirshfield, that the country is becoming rather sick and tired of them, too. However, I feel compelled to nail this particular myth.

The Government now take the line—it was implicit in every candid twist of the Prime Minister's political broadcast last Sunday—that it was this deficit which has hung like an albatross round the necks of this accident-prone Government and brought them to the present sorry pass. But, of course, three years ago the Prime Minister was piping rather a different tune. I should like to remind your Lordships of what he said on October 26 three years ago, after the General Election, and after he had opened the books. He then said: The Government have satisfied themselves that with the facilities available the strength of sterling can and will be maintained". I am fortified in my view about this by what my noble friend Lord Cromer has told us this afternoon. For some reason the noble Earl the Leader of the House wishes to gag my noble friend Lord Cromer, who told us that the deficit which the present Administration inherited was substantial (we would all grant that) but not unmanageable. He went on to say that no one in any responsible position considered devaluation as in any way called for at that time by the position in October, 1964.

What was the nature of this deficit? This is something which the Government always take care to gloss over. It was a deficit composed of two almost equal parts. One was the current trading deficit and the other, almost half of the whole, a deficit of some £350 million-plus, on capital account, productive investment abroad—the investment to which so much importance is rightly attributed in the recent Report of the Committee on Invisible Exports. The largest single element in this half of the deficit is already coming back on the right side of the present Government's books through the Shell Company's sale of its half share in the giant Montecattini petro-chemical complex.

But this is not all. There is nothing unique about a Government inheriting a deficit on current account. It is not only the Labour Government which has inherited such a deficit. In 1951 the Conservative Government inherited a vast deficit on current account from the Attlee Government, and as my noble Leader Lord Carrington reminded us, in its leading article to-day the Daily Telegraph pointed out that at to-day's prices that deficit would have amounted to some £600 million. That was the deficit inherited by the 1951 Conservative Administration, 50 per cent. more than the 1964 deficit on current account. In the two succeeding years, 1952 and 1953, the Conservative Government secured a surplus of well over £400 million. Indeed, over the whole period of Conservative Administration, the 13 years which followed that, there was a net favourable current balance of payments of over £700 million. Over this whole period our trading account was therefore in favourable balance, and 2.80 was then, and demonstrably, the value of the pound.

Contrast that with the Labour record: three years of deficit and the admission by the Chancellor only yesterday that he could not see the balance of payments coming right in 1968. I think it is time we stopped playing this game of deficits. But if we are forced to play it by this constant Labour whining about the deficit of 1964, the comparisons are not odious for the Conservative post-war Administrations.

The Government also stand condemned for the way in which they actually carried out this humiliating operation. I should like only to touch on some of the events of these last few sad weeks. First there were the two little nibbles at bank rate, the two successive rises of ½ per cent. These nibbles, in my view inevitably, and I would hold predictably, served to diminish, not to augment, confidence. Then there was the handling of the 250-million dollar loan which was negotiated through the Bank of International Settlements. Reports of this loan began to leak out over the weekend before last. But the only immediate reaction from the Treasury was a rather sulky silence. Eventually, a day or two later, last Tuesday, the Government acknowledged the fact of this loan. It was in fact a purely technical loan, one making it easier to repay some of our drawing on the I.M.F., and I can see no reason whatsoever why the Treasury should not have immediately and promptly acknowledged our acceptance of this loan. Again their reaction, their shiftiness, inevitably, and I would hold predictably, diminished confidence.

Finally, there were the rather extraordinary events of last Thursday. First the Press leaks of a major loan being mounted to support sterling. I do not know how these leaks occurred, and I do not wish in any way to blame the Government for them. But inevitably there was a build-up of expectation. The build-up was enhanced by the report that the Prime Minister himself was to answer one of the two Questions addressed to him. And then came the anti-climax, that non-statement of the Chancellor. Again I would hold that the result was inevitable, and indeed predictable, namely, the catastrophic hæmorrhage, the flight from sterling which took place last Thursday afternoon and all through Friday. But from the Government there was only embarrassed silence. There was, of course, one exception, the even more embarrassing non-silence of the noble Lord, Lord Chalfont, in Paris.


My Lords, may I ask the noble Earl whether he has read a transcript of what I said in Paris?


No, my Lords, I heard him speaking on television; I did not need to read a transcript. But if it was off the record and non-attributable I stand corrected. Perhaps the noble Lord was merely striving to "out-Cripps" Cripps. Perhaps—and I suspect this is the real explanation—he was just not in the know.


My Lords, may I ask the noble Earl what, in circumstances of this kind, he thinks a Minister of the Government should have said when questioned about the possibility of devaluation?


My Lords, I should have been inclined to keep my mouth shut had I been the noble Lord; but I admit that he was in a difficult and embarrassing situation. I certainly should not have said what he did say, if he was in the know.


My Lords, the noble Earl was criticising my right honourable friend for his statement in the House of Commons on Thursday. He is now suggesting that my noble friend should have done the same thing.


My Lords, I was suggesting that he should have kept his mouth shut. In any event, the noble Lord said what he said, and I do not think that his remarks tended to restore confidence. But all the rest was silence, and one of the most expensive silences which any Government have ever held. I do not know what that "Black Friday" cost us. I have seen many estimates: there have been many reliable estimates. It may have cost us upwards of £300 million—some 1,000 million dollars. In another place to-day I think that an estimate of £500 million was given. If this is true, and if this money is now flowing back, then we must have lost, inevitably and irretrievably, as a direct result of the Government's inept handling of the situation, over £400 million in one day.


My Lords, could the noble Lord tell us where he has seen these particular estimates? They are a good deal higher than I have seen in the newspapers.


I have seen them in the newspapers.


Which newspapers?


The Times.


The £500 million?


If the noble Lord had been attending and not interjecting so violently he would have heard me say that that figure was given in another place to-day, I understand.


By whom?


By a Conservative Member of Parliament.


My Lords, is the noble Lord opposite suggesting that it is an exaggeration? Because it is intolerable to deny these things.


My Lords, can the noble Lord tell us what his estimate is? The Government of course defend themselves—any animal does. They argue that this hæmorrhage was justified by the need to secure international agreement to our devaluation. Although I must point out that this Government have not always been particularly scrupulous about their international obligations, I would not contest their need to carry our monetary partners with us in a devaluation. This was the point which the noble Lord, Lord Beswick, made in his opening remarks, and I would not for one moment seek to contest that. But if it is true, and and I have not seen it contradicted, that the Chancellor had decided on devaluation at least a fortnight ago, then it is really very hard to see why he was not in a position last Thursday to announce the act without delay and to staunch the hæmorrhage, and nothing in what the noble: Lord, Lord Beswick, said has cleared up this mystery to me. I hope that the noble Earl the Leader of the House when he replies can clarify it, and in particular if he could clarify that my understanding of what the Chancellor said in another place yesterday is correct. He was asked: Would the Chancellor confirm that he made this decision a fortnight ago?—"[OFFICIAL REPORT (Commons) 20/11/67, col. 941.] There was another question following that, and the reply was: Yes, Sir. My question is a very simple one: whether that reply, "Yes, Sir", was referring to the first question.

I should now like to turn to the mix of measures which the Government have now announced. Like, I suspect, other Members of your Lordships' House, my eye was caught by a passage in the leading article in last week's Economist. I must apologise to the noble Lords who represent the Financial Times in your Lordships' House, but it happened to be in the Economist. What it said was this: When the foreign pumps are finally not available a new policy will be worked out, after purposive, thorough-going, detailed, deep probing analysis lasting for about one panic-striken week-end. Foreign pumps were available, but not sufficient to pump out all the water which Captain Wilson and his first mate had let into Lord Hirshfield's ship of state. But the resulting policy package bears all too many signs of hasty and makeshift assembly. It bears all too few signs of being part of a carefully thought-out strategy, that longer-term strategy for which the noble Lord, Lord Byers, called this afternoon and called for two weeks ago, and on the necessity for which I find myself in entire agreement with him. I do not find a coherent strategy here.

But I should like to put three specific questions to the Government about the actual measures which they have announced. To some extent this follows ground already covered in your Lordships' debate this afternoon. My first question concerns the withdrawal of the selective employment tax premium to most manufacturers and the cancellation of those export rebates which the Chancellor extolled only a few months ago. I hold no brief whatever for S.E.T. as an instrument of fiscal policy, but I had always understood that the rationale behind it was to encourage a switch from our service industries to our manufacturing industries because of the contribution which the latter made to our exports.

Like my noble friend Lord Eccles, I hold no particular brief for the export rebate scheme. However, if these schemes were the success which the Government claimed, then this seems an odd moment to throw them overboard, at the very moment when our country depends, as it has never depended before, on hitting its export targets. The Government may claim—I think they have claimed—that our exporters will have an ample margin in the 14 per cent. which devaluation has won for them. I hope that this will prove to be the case. But that 14 per cent. is bound to be eroded by higher import costs—my noble friend Lord Eccles put a figure of some 4 per cent. for the margin of erosion—and it will vanish like snow in spring unless the Government can control wage pressures. I confess, therefore, that their action over S.E.T. and the export rebates somewhat surprises me, and I should like an explanation on this point if in replying the noble Earl has the time and willingness to give it. I hope that that explanation may include a willingness on the Government's part to have a proper look at the advantages of a value added tax. I share the feelings of my noble friend Lord Aldington about a value added tax.

My second question relates to the Government's curious decision, as part of their package, to increase corporation tax by 2½ per cent. to 42½ per cent. I find this increase virtually inexplicable. If there were ever a time when we needed to encourage productive investment in industry to keep up the pace of modernisation, surely this is the time. The increase in corporation tax can only be a disincentive to such modernisation, and I should like to ask the noble Earl how the Government can possibly justify this increase at this particular time. Is it just a sop to the Left? Is it a sort of union geld? I should like to know what are the reasons and the justification for that increase.

The third question relates to the Government's policy towards wages in the present situation. We all know that if the new policy is to be successful we shall certainly find ourselves back in this same mess in six months, twelve months or eighteen months time unless, somehow, this time the wage front can be held. The trouble here is that one doubts the ability of this Government, who have lost so much credibility, have lost so much confidence, have lost so much authority, to give the lead which is here required. I would hope that they may be able to do so, and I should like to ask in this connection what they are proposing, as a start, and by way of example, to do with the many wage claims with which they are now faced, or are shortly to be faced, in the public sector.

Now for the future, which I think is far more important than recriminations about the past. We all know that devaluation does not of itself go to the root of our problems. It can be a springboard to a successful recovery, or it can be a trapdoor through which we can fall further. Many of us in our time have witnessed the successive and futile devaluations of the Fourth French Republic. I think we all witnessed the successful devaluation of the Fifth Republic. I hope—and, given the Government's past record, I confess that I am hoping against hope—that they will not stand condemned on a fourth possible count. I hope that they will make a real success of what is bound to be an extraordinarily difficult operation. I do not think any of us would wish to minimise the difficulty of the operation on which they have now embarked.

I could wish that there were more signs (I hope that we may hear of them from the noble Earl the Leader of the House) that may reveal something more of a fresh approach, of new, fresh thinking on the Government's part towards our problems—because they are great; and everything which has been said in your Lordships' House this afternoon, in almost every speech, has urged the need for a fresh departure. In many ways this will mean new policies. I think those new policies are perfectly compatible with the maintenance by the Government of their major social objectives.

I have already granted that the failures of the Government may have made devaluation inevitable last Saturday. However, a forced devaluation, the sort of "shotgun" devaluation which we have just witnessed, is, as I think many of your Lordships will agree, the worst sort of devaluation. In any event, it is important to realise that we as a nation have not here bought a soft option for ourselves. We have not been give devaluation as an alternative to deflation. As my noble Leader pointed out, we have devaluation and deflation, and considerable foreign loans, too. We have in fact chosen a very hard option indeed, and I hope that we shall not "kid" ourselves about the hardness of that option, or allow the Prime Minister to "kid" us. This devaluation involves a substantial, a real, reduction in our standard of living.

There was much that I personally found distasteful in the Prime Minister's broadcast last Sunday, but I found nothing more distasteful than the glib assertion that the devaluation would not mean that the pound in our pockets has been devalued. We all know this to be untrue; and every housewife will soon learn the untruth of this statement. Devaluation involves a real reduction in our standard of living. But it involves much more. Devaluation involves a real measure of national humiliation. It involves breaking faith with Governments and private citizens overseas, those Governments and private citizens to whom my noble friend Lord Aldington referred. It involves the placing of additional strain on the Commonwealth. It involves further and savage cuts in our defence expenditure and involves the further erosion of our ability to play a major part in the affairs of this peculiarly troubled planet.

I have felt this sense of humiliation deeply this last few days. I have felt it because, like all other Members of your Lordships' House, I am proud of this country and I hate to see it humiliated. This is a proud people, so Mr. Wilson told us in his winning way last Sunday night. My Lords, so it is. It is too proud to suffer the humiliation of three more years of Labour misgovernment.

8.51 p.m.


My Lords, I cannot remember an occasion of this kind when my own supporters so completely outnumbered the Opposition. Except for the Front Bench and the ex-Ministers and one or two other of the faithful, there is practically nobody at all behind noble Lords opposite. This is at least suggestive of something. It implies that we at least believe in the policy of our Government, while the Opposition leaders—


Are sickened by it!


The Opposition leaders, as the noble Lord said, are sickened by the policy of the Opposition. So we start, at any rate for once, with a balance of advantage there. The noble Earl, Lord Jellicoe, said of the noble Viscount, Lord Eccles, that he cannot make a bad speech, and as far as I know that is true. The noble Earl, Lord Jellicoe, cannot help making an entertaining speech, and sometimes he strikes a note of real brilliance, because we know his massive intellect, but sometimes a note of pure farce, and to-night he was putting on a farcical turn. For years the Tories, with the best will in the world, have put up with the ineluctable fact that they left a record deficit. And now, after three years, they are beginning to try to explain it away. Frankly, it is extremely unconvincing. They are the men of the record deficit. I am not the one who dragged this in to-night, so noble Lords must put up with it.

We have had what in many ways has been a very constructive debate. I am grateful to the noble Earl, Lord Jellicoe, and to other speakers for the well-justified tributes paid to the noble Lord, Lord Hirshfield, who already, I see, is approaching the Front Bench after such a very short time here—and rightly so. He might take my place before I am much older! At any rate, that is a very welcome movement. We all applauded his speech heartily. He used one particular expression which I know represents the feeling of the House. He said that we must all pull together for the common purpose. That is certainly the message which I know goes out from the hearts of noble Lords. Those most closely concerned with industry were perhaps even more constructive than those who are more active in politics. The noble Viscount, Lord Eccles, and the noble Lord, Lord Aldington, are politicians of note and also industrialists; and wearing their industrialist hats they offered sage advice. From the other points of view, the noble Lord, Lord Douglas of Cleveland, made a very impressive contribution.

I should like to be able to say the same of a great public servant, the noble Earl, Lord Cromer. If I misinterpreted anything he said, and I believe I did misinterpret certain words, I apologise to him. I understood him to reflect on the integrity of the Prime Minister and the Chancellor of the Exchequer. He shakes his head, and I am glad he shares my view, which is a very high one, of the integrity of those gentlemen. He nods his head and I am glad to have that at any rate confirmed. But I am afraid that, having made that apology regarding the words used by the noble Earl, Lord Cromer, I must say a word or two about his message. He comes here and speaks very sharply, and clearly from the heart and with much sincerity, about the record of the Government. The policies to which he referred were embarked on during the period when he was Governor of the Bank of England. He referred to the capital gains tax and the corporation tax as among the major iniquities. Well, who was the Governor of the Bank?—he was. I do not want to be personal, but he has the special glory of having shared in the Conservative record, too. So he comes to us with that background. I can only point out to him, as I said earlier, that if he really took that view about these policies, I cannot think why he continued to serve the Government.


My Lords, may I ask this question of the noble Earl, for information? Does he think that it would have been for the stability of the pound in overseas countries if the Governor of the Bank of England resigned?


My Lords, I certainly do not, but if a Governor was thoroughly dissatisfied with a Government he could find ways of passing on quite quickly and quietly without a sensational resignation, so there was no need for the noble Earl to stay for 18 months if he disagreed as profoundly as that. I have no doubt that the noble Earl's remarks will be widely circulated to-morrow, and in some papers at least they will arouse a great deal more attention than the remarks of all the rest of us put together. I doubt whether these humble observations I am making will be printed in papers favourable to the noble Earl. So let it not be thought that we regard him as a kind of impartial oracle who has descended from above with a non-partisan background. We regard him as someone who has spoken sincerely, but who has made a speech which could do a great deal of damage.

Now let us pass to other subjects which are slightly less painful, in other words, the speech of the noble Lord, Lord Carrington.


My Lords, may I intervene for a moment? The noble Earl suggested that this afternoon I made a very unusual speech. Can your Lordships imagine circumstances more unusual than devaluation? What I said this afternoon is in essence what I have said many times in public before—so much so that when I went into the Guest Room of your Lordships' House after having made my speech I was greeted by one of my fellow Lords who said, "How nice to hear your speech again; you must have made it many times. "So I do not think I introduced anything very new. But I am disturbed by the suggestion made by the noble Earl the Leader of the House that such crumbs of wisdom as one may try to pick up in life, even in Crown Service, which is where I have picked up such few crumbs as I have, are not to be shared with your Lordships.


My Lords, let us be careful in view of the fact that the noble Earl, Lord Jellicoe, said that I was trying to gag the noble Earl. I am not speaking now as Leader of the House. I am simply offering an opinion as a Member of the House that it was a speech to which there has been no parallel in my now rather overlong experience in this House. I feel quite certain that though the noble Earl has often obtained well-deserved publicity in the past, it will be nothing to the publicity he obtains to-morrow. Therefore, in that way it was a very remarkable speech.


My Lords, if I may, I would apologise for usurping any space that my speech will take in the Press from any other speech to-day.


I am told that the plans are already well made to publicise his speech; that is my information.

Let us come on to the noble Lord, Lord Carrington, who again, like the noble Earl, Lord Jellicoe, cannot fail to entertain. I will not deal with the warmer parts of his oratory, because it is so long ago that the effect has somewhat worn off. I would deal with one or two serious questions he raised, as did the noble Lord, Lord Byers. The noble Lord, Lord Carrington, and the noble Lord, Lord Byers, both asked what we intended to do about prices and incomes, and the noble Earl, Lord Jellicoe, raised the same point. We would agree that this is a key question.

There are people in the country who may believe that we think this is an easy way out. I hope noble Lords will finally disabuse themselves of that. A difficult task lies ahead of us. Anything like a price-wage spiral would erode the advantages of devaluing the pound. I cannot say that too often; it has been said by Ministers firmly in another place. That is why the Government have already begun talks with the T.U.C. and the C.B.I. to see how they can work together to ensure that there is the necessary restraint in incomes and prices. The C.B.I. are consulting their membership on the problem; the T.U.C. will be considering it at an early, meeting of their General Council.

I hope that when I have finished an air of harmony will prevail, but at this stage, in reply to many sharp things that have been said, may I put it on record that we in the Government do not consider that, up to now, we have had very full co-operation from our Conservative friends in regard to prices and incomes. We have tried desperately hard to tackle this problem, but the Opposition have not seen it as we have seen it, and I hope that there will be a closer understanding in future. But certainly it is essential that price increases should not be made unless they are necessitated by dearer imports. It is equally important that the small rise in prices which is inevitable should not set off a round of wage increases. These things have been said, and they will be said again; but I must say them this evening.

I shall not commit the impertinence this evening of referring to any noble Lord's platitudes. I certainly should not call a "payroll freeze" a platitude. If anything is wrong with the idea, it is over-ingenious; but let us hope that in time to come perhaps it will fructify. But at the moment all I can say is that we do not think it is a practical idea as presented by the noble Lord, Lord Byers. But let him stick to it and, like other good ideas, it may find some practical application.


My Lords, may I ask the noble Earl whether he would accept that the principle ought to be examined of not spending any more money on the Civil Service and on the nationalised industries' payrolls, but rather of saying to them that if they want to increase wages they must reduce manpower? That is the principle which I wish to introduce.


My Lords, I am afraid that I cannot say any more than I have said. I promise to have the matter looked into, and if the noble Lord and I, or others, can think of some adaptation of it, then so much the better.

Then the noble Lord, Lord Byers, asked how the reduction of £100 million on defence will be made. I believe that a statement will be made—I am under the impression that it will be to-morrow; but if not then, it will be very soon. But as has already been explained, the cuts will involve the cancellation of certain programmes, some reduction in research and development expenditure and certain building cuts and a reduction in stocks. That has already been stated, but I think—I am not certain—that there will be fuller information to-morrow.

The noble Lord, Lord Byers, also asked about the Government's intentions on the export rebate, and the same point was brought up by the noble Viscount, Lord Eccles, and the noble Earl, Lord Jellicoe. I can answer definitely the question which the noble Lord, Lord Byers, raised. The date of abolition has not yet been settled, but it will probably be next April. This move will save the Government just about £100 million a year, and I gathered from the great industrialist who spoke, and also from the noble Earl, Lord Jellicoe, who is a banker, that they have never been very keen on that rebate. I think that is so, and therefore I hope its abolition will be recognised as quite a small offset to the advantages of devaluation.

The noble Lord, Lord Byers, asked about the 8 per cent. bank rate. We quite agree that an 8 per cent. bank rate is unpleasantly high, but the present rate is needed to establish confidence as quickly as possible, to attract and retain funds and to support credit restraint. We do not, of course, intend to retain this rate longer than is strictly required. I hope the noble Lord, Lord Byers, will feel that I have given him a little more satisfaction than I gave him last time when we debated economics.

I do not want to keep the House for very long, but perhaps I may now come to the main themes. I am not going to involve myself in what might be called the reply to a general economic debate, though a great many very wise and important things have been said about general economics. I shall adhere rather closely to the question of devaluation. The first question which I thought might be posed rather more controversially to-night was: was it right to devalue? The noble Lord, Lord Robbins, has said that in the circumstances of Saturday it was unavoidable. I do not think that anybody has offered any other opinion. Certainly I have not heard any other opinion offered tonight. I have not heard anybody suggest that by Saturday there was some other device open to us; that we ought to have tried to borrow a lot of money, or to introduce import controls or anything of the kind. So I think we must take it that it was agreed that by Saturday this course was unavoidable.

Perhaps I can put it to noble Lords in an almost academic spririt, that it is quite interesting that this view should have been taken, whereas about a fortnight earlier the Government were still hoping that it might be avoided, and certainly this House was hoping it might be avoided, but by Saturday there was overwhelming agreement that this had to be done. Here I come to certain dates which the noble Earl Lord Jellicoe, put to me. I do not think there is any great mystery, and if there are textural points to clear up perhaps we can do that elsewhere.


My Lords, perhaps I may just interrupt the noble Earl, because he seems to be extremely satisfied with the statement which he has made—that everybody is agreed that by Saturday devaluation was necessary. The point that we have all been trying to make on this side is that maybe it was necessary by Saturday, but it was because of the mismanagement of the economy by the Government.


My Lords, I am aware that the noble Lords think we are incompetent, and we think the same about them. But this gets us no further forward, if I may say that. It is just a difference of point of view—the working of the dialectic. But that does not help us. I am going to keep the House for only a few minutes.


My Lords, would not the difference be that noble Lords opposite have been shown to be incompetent, while the noble Earl only thinks that noble Lords on this side are incompetent?


My Lords, on one side there are three years of alleged incompetence, and on the other side there are 13 years of actual incompetence.


My Lords, would the difference be, perhaps, that the incompetence of the Government invariably leads to a devaluation, and the alleged incompetence of the Opposition does not?


No, my Lords. I am not going on with this question of whose legacy was left, and all the rest of it. Let us return to these rather dry but edifying economic considerations. The noble Lord, Lord Robbins, has said, and it has not been contradicted, that by Saturday it was unavoidable. The noble Earl, Lord Jellicoe, has not disputed that, so far as I am aware, but he does say that the operation was bungled. I was taken to task mildly and in a friendly sprint by the noble Lord, Lord Carrington, for quoting the Financial Times on the last occasion, but with his permission I shall quote it again.


My Lords, I hope the noble Earl will be luckier this time.


My Lords, it was not so bad then. I have nothing which I want to unsay from the last occasion. But the Financial Times to-day says this about the new rate. The present evidence is that the new exchange rate has been fixed at just the right level, the lowest possible without forcing other major countries into retaliation. A general upheaval has been avoided and we ourselves have gained a valuable competitive advantage. The Financial Times goes on to say: The operation was"— I should like the special attention of the noble Earl, Lord Jellicoe, who I know is already giving me all that might be expected. But may I call his attention to this? The operation was carried out after consultation and therefore with international goodwill and the help of sizeable support credits". So far this operation has, in face of all of the difficulties, been very successful. We must say this clearly, because for once the noble Earl has not been doing his homework. He does not seem to realise that it has gone well. This is the fact: that these other countries have accepted that it has been done in the best possible way. I therefore hope that the noble Earl, the next time we debate these things, will withdraw his remark that it could have been handled inner. I feel sure he would tell us that if only it could have been done 24 hours or 48 hours earlier we could have saved the flight of a certain amount of money; but, on balance, to have the goodwill of the whole financial world is of much mare importance to this country—and that, I think, is generally recognised.

If I may say so to the noble Lord, Lord Robbins, I was rather sorry that he followed the noble Earl, Lord Cromer, or that they combined in this talk of national humiliation. I regard all that as—I was going to use an unpleasant word, and I am just trying to think of one which is not unpleasant but which would convey my meaning. To feel national humiliation at this moment is unnecessary masochism. I think there is no need to feel this humiliation. We have tried extremely hard to behave correctly to those who trusted us; and, in fact, as The Times said, The decision has had a good Press abroad". Why should we be humiliating ourselves about it? I should say that we ought to hold up our heads.


My Lords, I am trying to follow the noble Earl as well as I can. Does he suggest that when one files a petition in bankruptcy it is not a humiliating thing to do? I rather think it is.


I am afraid the noble Lord misunderstood me earlier, and I am afraid I may be misunderstanding him now. I cannot follow that argument. The point is that the countries of the world are satisfied that we have done everything possible in the circumstances.


My Lords, may I ask the noble Earl whether any date has been set for the national celebrations?


If the noble Lord is as pleased with that joke as he appears to be, I am really sorry for him. The awful thing is that he was my pupil, but I did not teach him that kind of humour. At any rate, perhaps I may now proceed.


if the noble Earl insists on misinterpreting what I have said, I should like to make it clear that I do not think this is an occasion for the complacency which he is displaying.


If I must reply, I do not think this is an occasion for the facetiousness that the noble Lord displayed just now. Perhaps I may now go back to the rather dry subject—


My Lords, may I—


Just one more, but I think the House will want me to get on.


It is on this question of a sense of humiliation. I should like to ask the noble Earl this question—and it is a genuine inquiry. He has told us that Her Majesty's Government had decided on this step quite a considerable time before they took it. Did they inform so friendly a Government as Australia of this fact?


I am afraid the noble Lord misheard me—I am sure that it is my fault. I did not say that the Government had decided it a considerable time before they took this step. In fact, as is well known, the decision was reached last Thursday, at the Cabinet meeting on that day. That is the fact, and the operation was carried out on Saturday night.


But, my Lords—


If the noble Lord will forgive me, I will continue now in order to release noble Lords before midnight. I think I must try to push on.


As this point has been raised, may I ask: if in fact no decision was taken until Thursday, why did the Prime Minister inform the Press that it had been taken the Wednesday before?


I am afraid that I have no cognisance of what the Prime Minister informed the Press. I think we can take it, if we are being completely candid, that the Prime Minister and the Chancellor of the Exchequer are likely to have made up their own minds before it came to the Cabinet. That stands to reason. May I finish?


But it was the week before.


Was the noble Lord there?


I am saying—and this is known to all the Press, because it was not made in private and it was reported in the Press—that the decision was made by the Prime Minister and the Chancellor on Wednesday, November 10.


I take leave to doubt that statement. The Prime Minister and the Chancellor are in a position (perhaps the noble Lord will allow me to finish, because I really think the House will want me to get on) to recommend something to the Cabinet, and obviously they make up their own minds before they do so. But they are not in a position to take the decision; and I would have thought that somebody of the noble Lord's great experience would understand that very elementary point.


I accept that.


I thank the noble Lord. My Lords, that will cut short some of the rather full answer that I had hoped to give to the noble Lord, Lord Aldington, whose attention has been lost in the meanwhile. I was going to give a very full answer to the noble Lord, Lord Aldington, but some of his colleagues have cut short the time that the House will think bearable, and I must therefore answer him rather briefly.

The noble Lord picked on a great many phrases in the Prime Minister's broadcast, but I am not going to follow him over that ground. He wanted to know why this had been done. I think the short answer is that the improvement in the balance of payments was not proving fast enough. The noble Lord is well aware of that—in fact, he himself quoted it from that angle. I need not go over the ground we covered here last time, but that was the situation: we had cut down this deficit. But I will not say much about that because it arouses the passions of the noble Earl so rapidly. The deficit had been halved between 1964 and 1965, and it was reduced again last year. Nevertheless, owing to the happenings of this year, with which we are fairly familiar, instead of a surplus in 1967 it looked as though we were going to have a deficit as large as that of the previous year.

The question may be raised—and I put this to the noble Lord, Lord Aldington, quite calmly: Were we competitive? It is argued that we were not competitive. I think the word "competitive" is an ambiguous one in this situation. We needed a very marked improvement in our relative competitive position in order to put the balance of payments position right. The prospects were that even in 1968 we should still have a deficit. In those circumstances it became inevitable that devaluation would take place. That is the short answer; and I do not know that, however many words I might expend on it, I should add to its effectiveness.

The noble Earl, Lord Jellicoe, asked about corporation tax. This point was dealt with in a fairly long Answer by the Chancellor of the Exchequer on November 20. He pointed out that in view of the very large increase of profitability in industry that is likely to take place over the next twelve months, and in view of the fact that we are asking the whole of the community for sacrifice, it seemed reasonable to expect some sacrifice from industrial profits. That is putting it shortly.

My Lords, there is another thing that I should like to say. It is a point which has bothered me, I can fairly say—I am speaking as an individual member of the Cabinet. How would this affect the holders of sterling? As a member of the Cabinet in the last three years, one has allowed oneself to wonder whether devaluation was the right course. What has not troubled me so much is the likely effect on Britain. I was always ready to take an optimistic view over that; but the question of the holders of sterling troubled me. I should never personally have agreed to devaluation unless every possible effort had been made to safeguard their position. Undoubtedly the interest of these holders has been one factor which has long made us reluctant to make the move. This should be understood in case the question is asked, "Why was this not done sooner?" The answer is that we were anxious to avoid it, if only to avoid any kind of damage to those who had trusted us.

In the event, the holders of sterling have shown great tolerance and understanding, and this has been a real help. There are considerable mitigating factors in the apparent damage to their interests. For example, countries such as Australia and New Zealand, and the developing African members of the sterling area, have drawn on their balances to trade extensively with Britain; or perhaps they have these balances available to meet outstanding sterling obligations. In neither respect do they face a loss. Some of these countries have chosen to devalue with us while others have yet to reach their decision. Devaluing countries, to the extent that they trade among each other in sterling, again face no loss, or at any rate, a much-reduced loss on their balances.

Finally—and this applies to all holders of sterling—they have for many years been earning a high rate of interest on their balances. This has meant some compensation for the present fall in the capital value of those balances. May I say, therefore, that while this was clearly a factor which would make some of us—and me personally—reluctant to agree to devalue, in the circumstances I think the least possible loss has been incurred.


My Lords, the noble Earl has just qualified the "least possible loss". The noble Earl cannot really believe that. This sterling will very likely be used to buy things from this country; but those things will be, in sterling terms, more expensive because of the increased import costs and other things. To say, as the noble Lord, Lord Beswick, said and as the noble Earl has just repeated, that interest is a compensation is really the most remarkable statement. Are we to understand that all British holders of gilt-edged stocks are drawing the interest that they are because the Government know that the currency is going to be so inflated that they are going to lose the value of it? That is a terrible argument.


I have given the noble Lord an answer which means quite a lot to me. I cannot attempt to expand it.

There is one further point. It is something in which I know the noble Lord, Lord Chalfont, is much interested. May I say that I thought the remarks about Lord Chalfont were rather wretched. Everyone knows the position in which he was placed and everyone knows what a wonderful job he is doing for this country. To drag in this previous nonsense was below the level of the noble Earl who employed it. However, these things happen in these exchanges. I would say one thing about the E.E.C. Devaluation has not changed the Government's policy in regard to the European Community. Our application for full membership stands. One thing has already been made plain by the Commission; that is that their recommendation for negotiations to begin is unaffected. We welcome that. To conclude, devaluation does not lessen our determination to join the European Communities; and it will put beyond doubt our ability to accept the obligations of membership. We shall continue to pursue our application with vigour, and to look forward to an early and favourable response from the Governments of the Community as a whole.

My Lords, I will wind up in a moment or two. There was one question which I have not gone into, but I am afraid that everyone will know my answer in advance and the author of the proposal has left us. The noble Lord, Lord Alport, proposed once again a Coalition—and here I know that I am at one with the noble Lord, Lord Carrington, and perhaps, if I may say so, with the noble Earl, Lord Cromer. I hope that I can come into harmony with everybody in rejecting a Coalition—yes; we are back again on what I like to think are old friendships! Therefore we can all agree, particularly as the noble Lord, Lord Alport, is not here and cannot suffer any pain from the evident contumely which has been heaped on his proposal. The noble Lord, Lord Saltoun, disagreed with him, and although the noble Lord, Lord Alport, made a gallant and charming attempt to draw my noble friend Lord Champion on to his side, I did not think for a moment that he was likely to be successful.

We have had a spirited debate. My noble friends, Lord Francis-Williams and Lord Peddie, spoke strongly from this side of the House, and strong speeches have been made from all parts of the House. The noble Lord, Lord Poole, did not doubt the challenge, but questioned whether it was right to call it an opportunity. My Lords, I feel sure that this is an opportunity, but only if we make it into one. Each one of us at this time of difficulty or—if one likes to call it so—of crisis, has to draw on his inner sources, his inner moral resources. But those inner moral resources, in a community such as this, are surely enhanced and strengthened by the life we live with each other. I feel that a debate of this kind has a positive value, not only to us but also, I hope, to much wider circles. Therefore, my Lords, I am grateful for the spirit which the House of Lords has shown this evening. I take an optimistic view, but only if we redouble our efforts to prove ourselves much better men and women than in the past. I beg leave to withdraw this Motion.


Do not withdraw it.


Well, my Lords, I venture therefore to ask the House to accept this Motion.


Typical indecision!

On Question, Motion agreed to.