§ 4.5 p.m.
§ Debate resumed.
§ THE EARL OF LIMERICK
My Lords, in rising to address your Lordships for the first time I would ask for the customary and generous indulgence of the House. My late father, whose name I am proud to bear, was known to many here present as a man of some wisdom and foresight. He adhered strongly to the view that those with no special knowledge of a subject, whether or not they be seen, were better not heard. For as long as I may have the privilege of a voice in your Lordships' House, I propose to adhere to this precept. Consequently I shall not often, or for long, detain your Lordships.
I venture to address the House this afternoon because I have some small knowledge in fields related to the subject of the debate. These arise from my employment for the last ten year, with an old merchant banking house, which has very substantial overseas business and of which I am now a director; from my prior training in the accountancy profession, and from my current concern, both through my own bank and through the Committee for Middle East Trade, which is an area committee of the British National Export Council, with the overseas work of consultants, architects, insurance brokers, accountants and other professions.
The Report before the House is an admirable and very valuable document. The Chairman of my own bank is now the Chairman of the Permanent Committee which has grown from it. I am glad to see that he is present to hear 543 this debate this afternoon. I am aware that currently the influence of the Committee and the scope of its work are steadily growing. I think that one's first conclusion on reading this Report must be of wonderment at the scant attention which has previously been paid to invisible exporters in contrast to that paid to their visible brethren. When there are questions of concessions, of incentives, and even of exhortations, the invisible exporters have been the Cinderellas waiting to be called to the ball. Happily, the vital contribution which they make to our national economy has now become more widely recognised. I feel that it cannot be too often repeated that invisible trade accounts for over 35 per cent.—currently about 40 per cent—of United Kingdom total trade and that the net surplus of private invisible trade has consistently been more than sufficient to offset the visible trade deficit, excluding net Government transactions over recent years, Another and less remarked fact is that the proportionate contribution of Britain's invisible trade to total trade is consistently higher than that of other countries in the Top Ten. Here one must except Norway and Sweden, whose absolute figures are less than one-fifth of our own and depend respectively on shipping and tourism, whereas our own invisible earnings are very broadly based, right across the spectrum.
Given these figures, I would endorse the plea made by the noble Lord, Lord Aldington, who introduced this debate (incidentally, I must apologise to him for having missed the first few minutes of his speech), that we should make some small gesture of recommendation by extending the terms of the Queen's Award to Industry to include invisible exporters, whose contribution is no less vital to our national economy and is something that I should like to see recognised. Doubtless it would be of some help to Cinderella's morale, and she might realise an unexpected potential if the Fairy Godmother smiled on her in this way.
My Lords, I should like to refer briefly to three fields in which I think some positive action may yield beneficial results to our invisible earnings. The first is in the field of overseas consultancy work. Here I hope that the noble Lord, Lord Crowther, will have some more informed 544 comments to make later. We know that the contribution which is made by these consultants working overseas is very considerable. There are no accurate figures available to us, but what I think is ignored is that the work of these consultants leads often to very substantial direct exports from the United Kingdom. Their work is often out of proportion to the value of the services which they performed in the first instance. Our British consultants have a world-wide and a most enviable reputation for impartiality. They suffer from three particular disadvantages when we compare them with our foreign competitors, these disadvantages being the result of regulations introduced in the first instance for other purposes.
The first, which has already been referred to, is the selective employment tax. If there is any merit in this tax—and this is a point on which I confess I am not yet convinced—it must surely lie in its selectivity. I know of consultants who earn 70 or 80 per cent. of their income overseas, whose staff, nevertheless, is fully liable to this tax, which shows a figure certainly in excess of 2 per cent. of their total costs. This 2 per cent. may be a vital factor in a competitive situation. S.E.T. is a very blunt instrument, and it is hard to believe that it is beyond the wit of some Parliamentary draftsman to give relief where relief is due.
The second point is that of credit insurance available to cover the fees earned by consultants. Here I am talking particularly of the area of feasibility studies. There is, I believe, a need for the Export Credits Guarantee Department to look with a sympathetic eye on these proposals. The credit of one or two years which is currently offered may lead to a loss of competitive edge. Also, the necessity is growing daily for associating with this cover an element for local work, because it is becoming more and more demanding and more necessary that consultants should engage local staff in connection with their work.
My third point, which I concede gives more difficulty because it is much more general in its application, is that where consultants, in furtherance of their efforts, set up businesses overseas they are unable to obtain tax relief for the early losses which would almost certainly be incurred in such a venture. These losses for 545 partnerships still spreading from this country are difficult to finance.
My next topic is that of the banks, and in particular the use of sterling. The recent introduction of the Exchange Control General 67 notice, which withdrew consent for the use of sterling to finance third country trade was peculiarly unpalatable to banks, for three reasons. The first is that it was introduced without consultation—although there is no question of the right of the Government to introduce it. The second is that it followed immediately on the heels of statements by the Chancellor and by the Governor of the Bank of England in which they foresaw no diminution in the international importance of sterling.
My third point—and this is not in the nature of a complaint, but is, I think, relevant to the debate—is that the introduction of this measure appeared to be taken without sufficient regard both to the short and to the long-term effects on invisible earnings. The noble Lord, Lord Beswick, has commented already on this point. I see that the estimate now being used is £50 million sterling. But I think that a return of 8 per cent. payable in full in foreign currency is not a bad return on investment of this sort. As to the sum involved, doubt was expressed that it might grow and get out of control. This was strange to the banks themselves, because in the midst of the tightest credit squeeze of all time they were unable to extend their facilities even if they wished to do so.
I think, however, that the long-term effects of this measure are more serious than has yet been acknowledged. Banks have continuing relationships with customers which depend on the ability of the bank to meet the legitimate needs of the customers. When the customer is overseas, and the withdrawal from him of the right to finance in sterling is virtually without notice, he not unnaturally looks elsewhere for the sterling that he wants. He is not suddenly going to start financing in another country. He will take his business elsewhere and experience shows that, unfortunately, once this is done, it is extremely difficult to get the business back again. So that there are losses in other directions which are not to be measured merely in terms of this one regulation.
546 Looking on the cheerful side, as the pound has become a relatively scarce currency, the banks have moved steadily and progressively into finance and foreign exchange. It is to be hoped that there will be growing recognition now among United Kingdom companies having international businesses—and here I include some of the public sector—that the British banking system can meet a large part of their needs throughout the world in all currencies. Let us hope that they will take advantage of their own national banking system.
Before leaving the subject of banks, I should like, in passing, to make one other point. I discovered recently a tendency among my friends to regard me as a "gnome". I do not feel like a "gnome", and I have never thought that I looked like one; and if one accepts the current Press definition of a "gnome", I am quite sure I do not act like one. The point I am making is that British banks are quite scrupulous over exchange regulations; indeed they cannot afford to be otherwise. Occasionally a customer may express a view to us on exchange parities relating to his current transactions—it is always entirely within the regulations—and to this we tend to reply: "This is your affair, but remember that as a maker of nuts and bolts it is not your business to take this view." Here we recognise a clear distinction between the letter of the law and its spirit.
I could quote examples within my own organisation of ingenious, lucrative and wholly legal proposals which offend against no exchange regulations, but which we have nevertheless turned down because we considered that they might result in a net loss in invisible earnings or a loss of foreign exchange to the country. If my colleagues and I are "gnomes", I suggest that the "gnome" may sometimes be a better citizen than he is always given credit for.
My last point is on portfolio investments and, in particular, on the effect of the provision that 25 per cent. of investment dollars shall be surrendered at the official rate. The thrift of past generations has produced not only substantial invisible income for the country, but also a vital line of defence in our reserves. In a time of stringency such as the present, one can have little complaint of inability to expand this sort of trade. I 547 think, however, there is a legitimate complaint when one sees a constant drain on the small investment dollar pull imposed by the surrender provisions. This has adverse effects which I suggest are cumulative. In the short term there is a direct tendency to push the dollar premium ever higher, and this in itself is bad for confidence. In the medium term it leads to immobility in portfolios, and this can be shown mathematically and quite readily to reduce both the taxable incomes of the companies concerned and the value of the foreign portfolios with the investment dealers themselves. This, again, must be bad for the country and for British reserves.
Finally, in the long term this provision leads to stagnation, and it leads to a loss of management expertise. British-managed pounds consistently out-performed their American counterparts until this measure following on the birth of the so-called "Go-go" funds in the United States, and the managers of such funds in this country are now hesitating in their recruitment of the necessarily expensive staff—expensive not only because they have to be remunerated, but because it is necessary to finance their travel to keep in touch with the market.
We are most grateful to the noble Lord, Lord Aldington, for giving us an opportunity to debate this subject. The Committee on Invisible Exports have produced an excellent Report which covers much new ground, and leaves us now to look forward to their future works. It is much to be hoped that not only will their conclusions be remarked, but that their recommendations may now speedily be acted upon.
§ 4.20 p.m.
§ VISCOUNT WATKINSON
My Lords, it is a pleasant task, as a colleague of the noble Earl on the British National Export Council, to congratulate him on his maiden speech. I think the whole House would perhaps wish, with some sympathy, also to congratulate him on picking up the threads of our debate again after a rather awkward pause, at least from his point of view. We listened very carefully to what he had to say, and, if I may venture to say so, I hope that the noble Lord, Lord Beswick, will also take note of one or two particular points he made, especially about the Queen's Award, which the noble Lord has already 548 mentioned, and about the work of consultants, who I think are rather overlooked in their possible capacity for steering orders to Britain. So, if I may say so on behalf of the whole House, I very much congratulate the noble Earl and we hope that he will speak to us again before long.
I want to turn away to a particular aspect of our debate. I entirely agree with everything my noble friend Lord Aldington said, and said very well, so I do not want to cover the broad ground but wish to deal with one particular aspect which I should perhaps describe as a slightly more visible part of our "invisibles". Speaking as a member of the British National Export Council, I should like not only to join in the tributes to the late Sir Thomas Bland but to say a word of congratulation to Sir Cyril Kleinwort, who had to pick up all this work and has done a very great deal for the Committee in keeping it going and leading on to the formation of the new Advisory Council, which is a very valuable body.
Speaking now as a member of the B.N.E.C., I would say that our thinking at the time of the original Bland Report was that it should not include overseas investments and overseas earnings because it was known at the time that Professor Reddaway was then engaged on his massive study. It was therefore thought right that this subject should be not included in the scope of the Bland Report. None the less, it was clearly the view, and still is the view, of the B.N.E.C. that the invisible export package does contain, as a very large element, our earnings from overseas due to prior investment, as my noble friend pointed out. International investment as a whole was regarded as a good thing until about 1965, when the Government, for obvious reasons, began to voice doubts about this form of trading. It is only fair to say that the facts available did not weigh heavily enough on the side of the case of the real value of our overseas investments, and the first Reddaway Report, the preliminary one, was not only very complicated—that was not Professor Reddaway's fault—but very difficult to read, and seemed to give some support to a policy of applying disincentives to the various kinds of investments overseas that have been so much 549 a tradition in the past of Britain's way of earning her living.
So the tax system—and I do not think there is any disagreement about this—has now been heavily weighted against this form of activity; and although companies still benefit by the limited tapering effects that have been introduced, these have only, I think I am right in saying, about another four years to run, and then the burden on companies conducting overseas operations will tax-wise be very heavy indeed.
It is also fair to say that it has not been much encouragement to many of us who engage in wide international operations that we are actually debarred by the terms of the Queen's Award from making any application, even if we wish to. Now we have the benefit of the full and final Report from Professor Reddaway and again I do not think there will be any disagreement if I say that at least its main conclusion is plain. It is that direct investment by Britain overseas strengthens our balance of payments on current account. Again, to be perfectly fair, I know it can be said that one cannot invest a deficit, and the noble Lord, Lord Beswick, has said that. Secondly, it is only fair to say, too, that one has to find the money to make the investment, and that is a charge against the short-term balance of payments. That, too, I agree with, and I think it is only fair to say so. But, in forming the judgment, I want to put this point—and I think it is a very difficult one for the Government. If it could be shown that we could increase Britain's total earnings of foreign currency, and thus improve our balance of payments, by a policy which restricted Britain's overseas trade almost entirely to direct physical exports sold for cash over the counter, then it would clearly be right to apply heavy discrimination against overseas trading operations.
Let me give a short illustration, in terms of a mythical exporter whom I will call Mr. X, of why I think there is a very grave danger in pursuing this policy. Mr. X's company develops a new product. He wants to play his part in Britain's export trade. He does his homework; he researches an overseas market and launches his product there, and it is a dramatic success. Immediately his exports begin to leap up, and no 550 doubt he would have every right to receive the Queen's Award, and all the rest. But, because of his very measure of success, Mr. X's product begins to hurt the home manufacturers of the product in the market to which he is exporting. I know that this story is very familiar to the noble Lord, Lord Brown, and to many other noble Lords. In other words, Mr. X's export begins to damage his competitors in the home market to which he is exporting.
What do they do? They go along to the authorities. They say, "This will be making our workers redundant. This will reduce our payment of taxes. This will harm our balance of payments". These are rather familiar words. So, despite the safeguards of GATT and everything else, a way is found—and a way always can be found—to make life difficult for Mr. X's product in this particular export market. Well, Mr. X now has a dilemma. What does he do? He may say, "All right; that is the and of that. I have to face steeply decreasing sales in this particular market. Or am I going to make a fight for it?" He makes a fight for it. So he first employs a local agency which imports his product and perhaps helps to distribute it. That does not get him by, so in the end he is forced to set up a local company and, being a wise man, he starts it with local people and has a board of local citizens, and he is back in business. But he is no longer a direct exporter. If you lice, he is no longer entitled to the Queen's Award and should presumably send it back.
But the point I want to make is that his choice—the noble Lord, Lord Frown, would not, I think, disagree with what I am saying in general—was really no choice at all. He either had to give the whole thing up, or he had to get into overseas operations as a way of saving that particular export market. This, frankly, is the dilemma that many of us have faced. We have tried to solve it in the only way we could, and of course one then has to put some money into the market. Then one has to go through all the painful and unpleasant business of going to the Bank of England and being told that, while there is no direct legislative bar to one's doing this, one will be regarded as not acting in the national interest in sending capital out of the 551 country in order to save one's export market.
I am not saying that there are not ways round this situation. I am not saying that the Bank of England cannot be helpful; and one can sometimes borrow the money abroad and so on. But the dilemma that I wanted to stress particularly this afternoon is that there is not a simple choice between saying, "The right course and policy is to apply all the disincentives to overseas investment, because that must be good for the balance of payments", and saying, "It is to apply all the incentives to direct exports, because that also must be good for the balance of payments". The argument is not nearly as simple as that, and I beg that when firms face this kind of situation the kind of argument I have tried to put, as fairly as I can, is taken into account.
To try to make a helpful suggestion here, rather than a critical one, I would say that I often wondered why it is not the Board of Trade that is entitled to be consulted about this kind of problem. I am not sure that I do not carry the noble Lord, Lord Brown, with me on this point. Why is the Board of Trade not consulted when one faces this dilemma? It at least knows the standing of the firm and whether or not its story is probably correct. Why is it that one has to go to the Bank of England and that they are the ultimate and final arbiter as to whether or not one can get on with one's business? So, to try to make at least one constructive suggestion, I hope the Government will consider giving the authority in these difficult cases where clearly an exporter is trying to save his market in the only way he can, by switching over to overseas investment and thus overseas operations, that at least the Board of Trade could be called in to give a commercial judgment which, with all respect to the Bank of England, I do not think they are always well fitted so to do.
So I hope that, in taking note of the Report of this most able Committee, the House will accept what my noble friend has already said, and what I am sure pretty well every speaker in this debate will say, which is that Britain's trading future can be secured only on a "mixed bag" of export operations. If we delude ourselves into saying that one kind of 552 operation is good and another kind of operation is bad we shall get into a difficult mess. Not only that, but even in the relatively short term we shall not secure the sort of results for which we are looking; and, as I have said, if controls have to be applied—and I suppose they do—at least let them be applied by a commercial Department like the Board of Trade, rather than by a financial institution like the Bank of England. For all I know, the Bank may go to the Board of Trade for advice and clearance, but if so they do it privately. Why should they not do it publicly? At least that would give a firm a greater assurance that their particular case (of the nature of the one I have outlined) had been properly considered.
There is one other point that I should like to make, because I think that in these difficult days it is easy for Governments, and for us all, to take excessively short-term views, and I am not sure that these are going to help even our medium-term position—and surely we are all at least interested in the medium-term position. As one so often is under pressure, I feel that we are being driven into shorter and shorter views, into eating next year's seed corn, and doing all the things we ought not to do. I tried to give one example in the too rigid rules that today are stopping quite a number of firms holding on to export markets where they have to switch from direct exports to overseas operation. I can also give instances of a number of firms that want to hold control of overseas firms which want to increase their capital. Again they may have to cede control if Britain cannot provide, or the firm cannot provide, the right proportion of the shares for an increase of capital to hold that control. I cannot feel that this is in our interest.
As another example of this short-term thinking, I feel that in the same way as we are tending to concentrate on "flogging" what we can in the short term for cash we also concentrate too much on the narrow idea that in some ways we are a kind of trading satellite of Europe. If we were to adopt this more liberal attitude to overseas investment, we should find, to give an example which I certanly personally know about, that there is no difficulty in getting into the E.E.C. There is no difficulty in trading 553 profitably and expanding within the European Economic Community if you have taken the elementary precaution of either merging with a company there, setting up a company or buying your way in. You are then inside and you can flourish if the Community flourishes. If we had done more of this we should now be a fairly dominant financial influence inside the Community, in the same way as the Americans have done, merely by not arguing about politics and policies but going in and buying up companies and putting capital in.
There is another side to this problem, therefore. We could have established a much firmer base inside the Common Market if we had adopted the more liberal policies of encouraging firms to establish overseas operations. However, in mentioning this as an example I hope it will not be felt that I believe we should give some kind of special treatment to the E.E.C. In my view, encouraging firms to increase their investment, or to put an investment into Australia, is equally important—and perhaps more so—in the long term.
So I only wish to say that our short-term view of exporting, perhaps forced by events but none the less very bad, even in the medium term, for our country, is also being paralleled by a similar short-term view on our international markets. We seem more and more to think that every overseas marketing policy should be subordinate to our entry into the Common Market at almost any cost. I support our entry into the Common Market, as I always have done, but we must not take our eyes off chances in Australia, for example.
We must be ready to talk to the new American Administration as soon as it is formed, not only on how best they can push us into Europe—which I think is a short-sighted view that we might take—but saying to them, "We must be a world trading Power like yourselves. We cannot be as big as you are, and we are no longer as powerful and significant as you will always be in the world, but at any rate let us talk as a world trading partner and not as a subordinate, whom you will regard as somebody to be pushed into Europe in order to help the European situation, perhaps for the Americans' own ends". Time will not 554 wait on this, my Lords. I think it is the middle of January when thc new President takes office, with his new Cabinet, and I hope we shall approach them in these broad terms. I do not make any particular plea for any set of initials, whether it is AFTA or NAFTA or E.E.C., but do let us talk to the new American Administration as a world trading partner and not as a small country that wants to become an appendage of Continental Europe.
What I have tried to say is this. Despite all the difficulties (and one cannot have been a Minister for al long as I was not to appreciate the difficulties that the Government must see themselves surrounded with at this time: though most of us feel that they have not surrounded themselves with the right difficulties—but we cannot go into that now), I do not think it wrong to press—perhaps to beg—the Government at this time to try to take the broadest view of our trade and to go for the "mixed bag" and not for the narrow division. Secondly, in seeking markets in the trading world let us make it the world and not the smallest possible market.
§ 4.38 p.m.
§ LORD REMNANT
My Lords, it is with some diffidence that I rise to take part in this debate, realising as I dc that there are many noble Lords who have much experience and knowledge or this subject. Indeed, this afternoon we have had another example of that in the speech made by my noble friend Lord Limerick, with whom I am very glad to sneak for the first time in a debate in your Lordships' House. Nevertheless, I am emboldened so to do in the deeply held belief of the value to the people of this country of the financial expertise which is available to them in the City of London. This is available to them not only directly as individuals but also indirectly, due to the valuable part which the City of London plays in the economy of the United Kingdom as a whole. Therefore, I trust that my comments may be of some assistance in our deliberations on this subject.
Where quoting specific figures, I intend to take those of the investment trust movement, partly because this is a sphere of which I can claim some knowledge—and here I should declare an interest, 555 since I am a director of a number of companies which themselves have overseas interests—partly because useful figures are readily available relating to overseas portfolio investment uninfluenced by extraneous factors, and also partly because the investment trust movement is a fair example of a combination of a number of private individuals and corporate bodies combining to take advantage of professional investment knowledge in the City of London.
The contribution which has been made to the country's invisibles by the appreciation in value of overseas funds has been substantial. We know that in so far as dollar assets are concerned, the value of those assets held by investment trusts increased over the five-year period from December 31, 1960, from 1,352 million dollars to 2,142 million dollars—an appreciation of 58 per cent., which includes nothing for the net cost of dollars purchased through the investment dollar pool. This appreciation of 790 million dollars has been achieved at no cost to the country, for the operation of the investment dollar pool ensures that any new dollars acquired can be purchased only from existing United Kingdom holders.
We have, therefore, in the investment trust movement alone a substantial increase in the value of overseas assets at no strain on the country's economy. More than that, however, there is a yearly benefit to the country's reserves due to the receipt of dividends and interest in dollars, exchanged at the Treasury at the official rate of exchange. Here again, for the investment trust movement alone, over this same five-year period from December 31, 1960, these yearly receipts have increased from 38 million dollars to 62 million dollars. This covered a period of relative freedom in investment management and may be taken as some sign of success by professional investment managers in those conditions. Since that date it has been necessary to restrict overseas investment in various ways. As a result, the previous remarkable growth has not continued, and we find that the value of the overseas assets of investment trusts over the two year period from December 31, 1965 has remained static. The yearly receipts of dividend and 556 interest as estimated for 1968 is the same as that for 1966.
May I now refer to the programme of voluntary restraint? On May 3, 1966, in his Budget Statement, the Chancellor of the Exchequer brought in a voluntary programme for the restriction of overseas investment. In so far as portfolio investment is concerned, the aim was to ensure that there was no significant increase in total holdings of the relevant securities by the corporate investor over the subsequent period. The area of restriction was divided into two halves, first, the developed sterling area, comprising Australia, New Zealand, South Africa and Eire, and, secondly, countries outside the sterling area. In so far as investment in the latter area is concerned, it was already regulated by the operations of the dollar pool, which in effect mean that British investors as a group may not in any event increase their stakes in those investments. In so far as the developed sterling area is concerned, the effect of the voluntary programme has been to prevent the skilled institutional investor from participating in expanding economies such as Australia.
It is worthy of note that in spite of the recent heavy fall of Australian share prices the Sydney all-share index has improved from its level of May 3, 1966 (namely, the start of this programme of voluntary restraint) of 327 to its present level of 570. This does not reflect any increase in pound sterling terms due to devaluation. During the whole of this period it was open to foreign investors in European countries to take advantage of this situation. These voluntary restrictions did not apply to the private individual but solely to the corporate investor. We have, therefore, the anomalous situation that the private investor may invest his savings wheresoever in the world he desires, subject only to the normal exchange control regulations, whereas if he is prudent enough to take professional investment advice by placing his savings through the medium of investment trusts or insurance companies, the investment of those savings is inhibited in the way in which I have described.
I do not seek to question the right of the authorities to take whatsoever action they deem necessary in any situation as it arises. It is, however, important that those authorities should appreciate that 557 restrictions of the type which I have described, if remaining in operation for lengthy periods of time, have a lasting and increasingly adverse effect on the appreciation in value of the overseas assets of this country.
May I summarise under two headings. First, I believe strongly that the City of London through its professional investors has benefited the economy of the country through a steady build-up of overseas portfolio investment. Secondly, I believe that best value can be taken of this expertise if it is enabled to operate without restriction. I trust that this can be achieved before too long.
§ 4.47 p.m.
§ LORD TANGLEY
My Lords, I am very happy indeed that it falls to me to congratulate the noble Lord, Lord Remnant, on his maiden speech. Many of us knew his father he was an old friend and colleague of my own, and it has been a great joy to me in the City to appreciate the growing respect for the wisdom and judgment of the present holder of the title. We have seen glimpses of it in his speech to-day, and I hope, as your Lordships all will hope, that we shall have a fuller view of it in many speeches in the days to come. While I am on this subject of congratulations, may I humbly add my own to the noble Earl, Lord Limerick? I thought that both these maiden speeches were just the sort of speech which your Lordships love to hear, quiet, thoughtful, informative and useful, and I hope that we shall hear many more of these from both our maiden speakers to-day.
I am going to profit from the wisdom of the noble Lord, Lord Remnant, by descending from the general to the particular. It is almost impossible to take part in a debate of this kind—and we are all indebted to the noble Lord, Lord Aldington, for introducing it—without dealing in generalities. Generalities, however, are rather unreal, because the invisible exports are an aggregation of all kinds of activities, and I am going to invite your Lordships, as the noble Lord, Lord Remnant, has done, to consider one. It would be possible to take many others, but I think it would be helpful just to consider one, and I am going to ask your Lordships to consider in a little more detail than did the noble 558 Lord the contribution of investment trusts to our invisible exports. I refer particularly to the dollar assets of the investment trusts.
I have to declare an interest. I am a past Chairman of the Association of Investment Trusts, and I am a director of a number of investment trusts and actively concerned in their management. As many of your Lordships know, and I hope, may I say, to your advantage, the main advantage of an investment trust is that it provides expert management, a world-wide intelligence system and a diversification of risk for the modest investor which only a very wealthy and large investor could hope to obain for himself. Most of our holders are quite modest investors. Diversification means not only a spread of investments, with their accompanying risks, over concerns in this country but also participation in the dynamic economies of countries abroad, and particularly, I would mention, in the United States and Canada. It is these dollar investments that I particularly want to refer to this afternoon.
Prior to the last war substantial dollar investments had been built up t y the investment trusts and by other institutions. During that war, quite rightly and properly, most of these investments were taken over by the Government and disposed of on the market for the purpose of raising dollars. In the in crests of winning the war this sacrifice of capital assets was amply justified. I may say, in passing, that the marketing was most successfully carried out by one of the ablest investment trust managers whose services the Government secured for this purpose—I refer to Mr. Carlyle Gifford, of Edinburgh, to whom we all owe a great debt of gratitude for his work in that connection. However, the sad result of the disposal of these investments was that at the end of the war the investment trusts were left only with those investments which the Government had not thought it worth while to take over. They had sunk to a very low level of value.
Contrast the position twenty years later, in 1966. The value of the trusts' dollar investments had risen to not less than £900 million, and the income annually remitted to this country and converted into sterling amounted to 62 million dollars that is, about £22 million. 559 This is a remarkable achievement, I suggest, and your Lordships will probably agree that the Prime Minister was perfectly right when, not so long ago in an important speech in New York, he claimed that these assets constituted one of the invisible supports of sterling. I would guess that if you added to the investments of the investment trusts those of other institutions, you would probably be able to treble the figures that I have given. The figures I have given are accurate and can be relied upon; the rest are guesswork.
How have these funds been built up? It is most important to realise that they have not been built up by sitting back and peacefully riding upwards on the back of the "Dow-Jones Index". Every individual investment is carefully and continuously watched. In this task we are aided by a host of agents and friends all over the United States working with us and for us and constant contact is made by innumerable personal visits. If we believe that the management of a company is slipping, or that an industry is declining, or that a particular company is not holding its own in its own industry, or that the price has risen to a point where the yield is not commensurate with the risk involved, then we sell out and we reinvest in something we believe to be more promising. It is this process, which goes on day by day, all through the year, that is called portfolio management. There is no mystery about this. But anything that impedes this skilful portfolio management impedes the growth of these assets.
Your Lordships may ask, and I think rightly: what net outflow of sterling into dollars has been involved in this great growth of assets? The answer is, none at all. Throughout the period of twenty years to which I am referring we have been subject to exchange control regulations. One effect of these regulations is that it has been impossible, as the noble Lord, Lord Remnant, reminded us, to obtain dollars to buy an investment except from some other resident in the sterling area—who has dollars available through the sale of an investment.
§ LORD BALOGH
My Lords, may I ask the noble Lord whether he would 560 not agree that certain current income up to 1965 entered the dollar pool, amounting, roughly speaking, to between £60 million and £80 million?
§ LORD TANGLEY
My Lords, I was going to mention that point in a few moments, if I may be allowed just to follow out my argument.
This growth of assets to which I have referred has been financed entirely out of the existing stock of dollars. These dollars are known as investment dollars, and the stock of them is known as the investment dollar pool. Not surprisingly, these investment dollars command a substantial premium in the market. This is sometimes called the dollar premium, but it is not really a premium on the dollar at all. You buy your dollars at the ordinary current rate of exchange, but in addition you pay a premium in order to find a resident in the sterling area who is entitled to sell you these dollars. Naturally, this premium varies from time to time according to the state of supply and demand. In recent years it has been rising rapidly and is now in the region of 50 per cent.
My Lords, I have gone over the history of this matter in order to explain the build-up of this great national asset and the way in which it has been done. It has been greatly to the advantage of the nation, and one might reasonably expect encouragement to continue the good work. Unfortunately, every possible obstacle has been placed in our path. I know that, as the noble Viscount, Lord Watkinson, indicated just now, there are reasons for it. But this is the effect. I will refer only to two of the obstacles. The first is the provision with regard to corporation tax—which has already been mentioned indirectly this afternoon.
When corporation tax was introduced provision was made to avoid double taxation of the same profits. So if an investment trust invests in a British company and that company pays corporation tax, dividends from that company received by the investment trust do not suffer corporation tax again in the hands of the investment trust. This is what we call franked investment income. But, my Lords, this provision was deliberately limited to British companies. Where an investment trust has invested in an American company, the American company pays 561 American corporation tax and the investment trust pays British corporation tax on the dividends it receives; it is not franked investment income.
The double taxation treaty with the United States was re-negotiated, with the effect that the investor in effect pays double tax, American corporation tax and British corporation tax. The only allowance is for the American 15 per cent. withholding tax. This provision was introduced in order to discourage the process of building up dollar assets which I have tried to describe. I accept as reasonable, as any reasonable man must, that in a period of dollar stringency there must be some control of the amount of dollars bought for investment abroad. This control can be exercised by the Treasury so long as the emergency continues, through the administration of the exchange control regulations. But what has been done is to write a permanent disincentive into the very structure of our tax system. Surely that is a dreadful thing to do. Too little is perhaps known about these somewhat recondite provisions; that is why I am taking up your Lordships' time to make the point as simply and emphatically as I can in this debate.
The second impediment to which I refer has already been mentioned, and is the requirement that if a dollar asset is sold, 25 per cent. of the proceeds shall be surrendered to the Treasury at the current rate of exchange regardless of the dollar premium. With a dollar premium standing at about 50 per cent., this represents, in effect, a capital tax of 9 per cent. on the sale of a dollar investment. If your Lordships would be good enough to recall my description of how a portfolio is managed and built up, it is not difficult to see what a dead hand is imposed. In addition to the considerations I have mentioned which call for a change of investment;, we now have to take into account this capital tax which greatly inhibits the proper management of the portfolio.
I believe—and perhaps I may have misunderstood the noble Lord on this point—that the Treasury is receiving some £60 to £70 million a year through this arrangement. What the Treasury does with the money I do not know. If this money goes into the reserves, the monthly statement of which, of course, is awaited all over the world with bated breath, all 562 that has happened is what a trader would do if he took stock off his shelves in his storeroom and put them in the shop window. That is no addition to the stock. The trader would be guilty of self-delusion if he valued his stock in that way and thought that he had added to his assets. Certainly if he added to the value of his stock in that way for the purposes of a prospectus, I am afraid that the Director of Public Prosecutions would look upon him with a very jaundiced eye. If the Treasury utilises these sums for the repayment of debt, then they are using what is virtually confiscated capital to repay current debts. This, to echo the words of the noble Lord, Lord Cromer—repeated here to-day by the noble Viscount, Lord Watkinson—is "eating the seed corn".
My Lords, I am grateful for your Lordships' forbearance in allowirg me to come down from generalities to particulars what I have been saying can be illustrated from many other activities which lead to invisible exports—but I have done so in order to put the situation in the simplest language that I can think of. My plea is that these impediments to the successful management of an existing dollar portfolio—and I emphasise "existing" dollar portfolio—are contrary to the national interest and should be removed.
§ 5.2 p.m.
§ LORD MANCROFT
My Lords, like the noble Lord, Lord Tangley, to whose interesting speech we have just listened, I too would like to concentrate on the dollar market. I should like to do so because it is the market with which I am most familiar by reason of my chairmanship, which I took over some 18 months ago from my noble friend Lord Watkinson, of the American Committee of the British National Export Council. I do not think this is entirely irrelevant because the United States and Great Britain between them account for over 40 per cent. of the world's total earnings in invisibles. I believe that this country's share this year will be nearly £400 million, and the American share will be not far less. I use the word "believe" advisedly because the statistics are a little confusing. The Board of Trade and the United States Office of Business Economics do not use the same methods of calculation. For instance, I think the 563 figures for transportation in the American figures are also counted in visible export figures so far as c.i.f. are also included in these.
This is a problem, and it is quite an important one, which my friend Mr. Cyril Kleinwort's Committee might investigate when they come to rationalise some of the economists' language in our two countries. My noble friend Lord Aldington referred to the strange jargon of the economist, and how right he is. Mr. Kleinwort's Committee might also deal with the dubious use of the word "average" in calculations used by both the Americans and the British. I suppose if a man is standing with one foot in a refrigerator and the other on a red hot stove you might say, on an average, that he was fairly comfortable, but this is not an argument which I think should be used in a precise science.
We have heard much this afternoon about banking and insurance, and they obviously occupy a prominent place in our invisible export earnings. There is a difficulty in the American market of precise assessment of how we are faring, and because the protectionist lobby in America is still fairly strong reticence is advisable. Neither the British insurance world nor the British banking world like to be over-vocal about their achievements. Indeed, you can find many Americans at a fairly humble level who do not actually realise that they are working for a British firm—and I think it is an understandable state of affairs.
Insurance has had a rough time in America in recent years, as we all know. Nevertheless, 50 per cent. of insurance on the Boeing 747, the 360-seater, has been placed on the London market which shows at least that the Americans still have confidence in our insurance stability. Americans are queueing up to become members of Lloyds, not a cheap occupation, particularly in view of the disastrous years through which Lloyds have recently gone, and this mostly arising from losses arising from American
I should like warmly to support the remarks made by the noble Lord, Lord Remnant, and the noble Earl, Lord Limerick, in the two excellent maiden speeches to which we have just listened, in hurricanes.
564 which they stalwartly defended the "gnomes" of the City of London. They require no defence in America, where the expertise of the City of London is widely acknowledged and widely respected. Regret is frequently expressed in American commercial circles that this expertise is sometimes lost in political subservience.
The other invisible export to which I should like to draw attention may surprise your Lordships. A cynic would say that the most obvious invisible export in the American market at the moment is the British motor car. I say that as a result of having stood on the steps of Pittsburgh University last Friday afternoon and watched the graduates departing. I had been lecturing at Pittsburgh University on the British economy—not an easy task at the best of times. My task was made no easier by the fact that half-way through my speech a note was passed up to me informing me that the Prime Minister and the Chancellor of the Exchequer had both resigned, thus somewhat unbalancing my peroration. As the chairman was bidding me farewell, I looked around and all I could see was row upon row of Volkswagens. I could see no British cars at all. Of course I am being unfair—there are a very large number of British cars in America. We 'are doing better. The British motor industry has had a rough time with dock strikes, with the difficulties of meeting the American safety regulations, and indeed with the difficulties of meeting the demands which arise out of the acceptability of the article.
We have had much talk this afternoon about marketing. This is the point to which I wish to draw particular attention, because I regard marketing as one of the most important of our invisible exports. I am not being lighthearted in describing the absence of a British car from the market as an invisible export. But the reason for that, and the reason for the poor export performance—and let us be frank about it—of the British car trade in America is lack of marketing, lack of prompt delivery and lack of after-sales service. Nothing is more infuriating than to order a British car, which you know has done well and has a fine reputation, and to find that the firm has fallen down on delivery dates or that the car has been paralysed for six months for lack of some small part.
565 The figures for British exports are happily rising. They are 28 per cent. up on last year, but the Japanese and the Germans are doing equally well if not better. We hear few complaints about the quality of our cars. The Austin America, specially designed as a second family car for this market, is doing well. It is being produced at the rate or 500 to 600 a week, and over 8,000 have been shipped already. Nevertheless, the complaints about delivery dates and after-sales service of other cars persist. They are too widespread to be ignored. I base this on the experience of eight visits to the United States within the last 12 months, and the complaint is widespread. We are getting better, admittedly. I am sorry to say this. I do not want to cry "stinking fish", but I must report the evidence of my own eyes and ears.
The two best British salesmen in America are a prompt delivery date and a stitch in time. I welcome, therefore, the improvement that has occurred in our after-sales service of late. The B.M.C. export of spare parts is up by 60 per cent., and a plants depot is being built in New Jersey at this moment. The same improvement applies to other British cars, but it also applies to the Japanese and the Germans who are making equal progress in this vitally important market. And why, my Lords? Because their cars are better? No; because their marketing is better, and also their prompt delivery and their after-sales service. Why has the Volkswagen been so successful? It is not a very new or distinguished car, but it has been supported by the most superb example of marketing in the whole of post-war commerce in the United States. A lot of nonsense is talked about marketing. It is really quite a simple operation. You find somebody who wants what you can make, you learn all about him, and then you look after him. That is all marketing is, and that is what the Germans have done with the Volkswagen. That is what we have failed to do in one or two notable examples.
I do not want to make a sweeping generalisation. Much of our marketing of British cars has been good, but too often we have fallen down on this basic principle. With the Germans, it has also been a question of public relations. A lot of nonsense is also talked about public relations. Public relations is merely the 566 art of re-arranging the truth so that people will like you. That is what the Germans have done with the Volkswagen. They have repaired the aggressive and unhappy image which their war record had created by producing a timed and quiet little car called the Volkswagen, supported by a very fine piece of marketing and public relations. If only our industry can copy the invisible expert expertise which the Germans have put into the Volkswagen, a great improvement will be made in our own balance of payments.
If only the British motor industry, with, admittedly, their marked improvement in the last two or three years, could copy the British tourist trade in its marketing a further improvement could be claimed. This trade, as your Lordships know, is our biggest dollar earner. Here must declare a financial interest. As your Lordships may remember, I am a Deputy Chairman of the Cunard Line. Whether the sale of the "Queen Mary" and the "Queen Elizabeth" constitutes a visible or an invisible export the economists have not been able to explain to me, but I. am very happy with the idea of the old "Queen Mary" out in California and the Queen Elizabeth" now in Florida propping up the United States of A Tierica like a couple of gigantic book-ends. When I remind your Lordships that the tourist trade is the biggest dollar earner, I should like to pay a tribute to my noble friend Lord Geddes, Chairman of the British Travel Association, of which I, by virtue of being President of the London Tourist. Board, am a member.
Unless this should be immodest self-praise, may I call in evidence one of our sternest critics, the American travel industry, with this quotation from de current number of the Asta News, the American Society of Travel Agents News, written by Mr. William Patterson, a distinguished authority. This is what he says, referring to last year's programme:But the single most striking development was the decisive margin by which Great Britain consolidated its new position as the unchallenged No. 1 destination for American tourists in Europe. Some 868,000 Americans spent 190 million dollars visiting Great Britain, surpassing the traditional leaders, France and Italy, both on numbers of American visitors and on earnings from American visitors. France has traditionally welcomed more American visitors and Italy has heretofore earned more from American visitors than any other country in 567 Europe, but Britain has not only moved ahead last year but clearly dominated both these vital tallies—the only country to do so in recent years and the first to do it two years in a row.Now comes the point about marketing which I was seeking to apply to the motor industry:The British have proved one of the most basic laws of marketing. If you have a good product and promote it more steadily and more skilfully than your competitors, you will obtain a dominant share of the market.That, my Lords, is what we in the tourist trade have done. We have moved up from fifth to first place, as regards the United States of America, since 1949. Here again I should like to pay tribute to my noble friend Lord Geddes and his staff for the part which they have played in that magnificent achievement.
This year we shall welcome something like 880,000 visitors. The rate by 1970, on a projection, will be running at about a million visitors from America each year. There are in America 4 million passport holders, all potential visitors to this country—unless of course the Americans change their policy in respect of export of visitors. You will remember that President Johnson attempted to impose an embargo on visitors out of America. It was not a law, merely on exhortation; but it did a great deal of damage to our trade because people obeyed it patriotically. President-Elect Nixon has gone on record as saying that he does not believe in such restriction, and we should heave a sigh of relief (though we do not ourselves come into court with clean hands, owing to our own absurd £50 allowance), but I am told that there is a risk that, even if President-Elect Nixon himself does not carry out such a policy, American officials in the Treasury may try to revive it.
Assuming that not to be the case, what is our policy in this country to reinforce the success? What policy have we in fact to increase the quality of our after-sales service to the Americans—this vastly lucrative invisible market—who have bought a holiday in Britain and bought it in America? I will not weary your Lordships with a detailed list of the things we could do. I will merely refresh your memory, and that of the noble Lord, Lord Brown, should he need it, with a few of the principal needs.
568 We need, and we are still woefully short of, good middle-class hotels acceptable to American standards—this, despite the efforts of the noble Lord, Lord Crowther, and Mr. Max Joseph, and other hoteliers who have done a good job of work. I am happy to think that the Government are bending their minds to this and bending the taxpayers' purse to it. There could be no better thing to do. If only the Government will bear in mind what will happen when the jumbo-jet comes into service. Two or three days ago I was down in Atlanta, going over the Lockheed C.5A, a huge military aircraft which is capable, when converted to civilian use, of carrying about 800 people. Just imagine what will happen when two of those are diverted in a fog from London Airport to Prestwick or Manchester. I hope that we are making the necessary preparations.
I welcomed therefore, on a trip to Memphis, a visit to Holiday Inns, the biggest and most efficient American hotel organisation, who are planning to build about 100 new hotels in Europe, many of them in this country and a considerable number off the beaten track, in places away from the centre in places where they are badly needed, like Chester, York, Exeter, and so on. I understood them to say that they were meeting some difficulty in regard to planning regulations. I do not ask the noble Lord for an immediate answer to that question this afternoon, but if in due course, he could assure me that there is nothing untoward occurring in that matter, I should be relieved, because we welcome very strongly this American intervention of capital and know-how in providing a facility which is so badly needed. We also need more convention facilities, and more facilities for people visiting this country from America on business to show their wares. I hope that somebody in the Board of Trade has had a look at the trade marts in Atlanta and Dallas.
I now propose to do something which may horrify your Lordships. I propose to speak well of a Government Department—and the Foreign Office at that! There has been an immense change in the last three or four years in the attitude of the Foreign Office and of the Board of Trade towards our diplomatic representation abroad. The old days of the 569 diplomatic representative whose sole occupation appeared to be that of exchanging pleasantries at cocktail parties on Nicaragua National Day have gone. There are some 20 diplomatic consular posts in America at the moment, and I have had the privilege of visiting all but three. They are now all highly commercial. Commerce is no longer a "dirty" word. Some are more expert than others. Some, or all, of them are making themselves as expertly commercial as they can possibly be. For this I think that we should thank the Foreign Office and the Board of Trade warmly, and particularly the present British Ambassador, Sir Patrick Dean, who is about to retire and who, with his officials, has paid special attention to this commercialisation of our posts abroad.
My only regret is that more British businessmen who visit America, this vitally important market, do not avail themselves of the services of the posts, and indeed of the advice and guidance of the four British/American Chambers of Commerce, which owe so much to my noble friend Lord Watkinson for their existence, and to your Lordships as taxpayers, for their continued existence, and which, in harmony with the 20 consular posts, provide British businessmen wishing to make their first invasion of this market with unrivalled expertise. I said "British businessmen", but in fact too many of them by-pass those offices; too many of them send the office boy. Americans do not want to see the office boy: they want to see the chairman. Let the chairman go there; and by all means let him take the office boy as well, and anybody else he wants to take with him to this inviting, welcoming, friendly and wholly lucrative market. The more people who go there the better.
§ 5.21 p.m.
§ LORD CARRON
My Lords, I should like to be associated with the congratulations extended to the noble Earl, Lord Limerick, and the noble Lord, Lord Remnant, for the very interesting and excellent maiden speeches which they have delivered. I am sure that those of us who are interested in the subject under debate will have taken note of much of what they said. I sympathise with the noble Earl in his allergy to being included among the "gnomes". It is well-known 570 that, unlike in an earlier period of my life, I now have some association with the City myself, and my allergy could be greater, because it is more likely that I would be taken for a "gnome" than the noble Earl—although, because of my Irish ancestry, it might be a leprechaun.
It has been said, and I am sure everyone agrees, that we should be tl- ankful to the noble Lord, Lord Aldington, for the way in which he spoke about this very interesting Report. Unlike the noble Lord, Lord Tangley, it is not my intention to dwell on it in detail; in fact, I shall roam rather widely. The figures contained in the Report are extremely interesting and illuminating and, in spite of interpretations of the figures—and interpretations of any figures can vary—the sum total is that our invisible exports play a very important part indeed in our economic well-being. We should regret very much indeed any serious disturbance of them or our being without them. I say that, because there are still quite a number of people—misguided people, perhaps; those who are not well enough acquainted with the subject—who would write off almost overnight the value of our invisible exports and would suggest policies which would do very serious harm in that field.
Consideration of invisible exports cannot be divorced from the institutions engaged in those activities. It has been said previously that those institutions and agencies located in the City play a major role to-day, as in past times. The expertise and status of those institutions are well recognised, and overseas it is acknowledged that they are excelled by none elsewhere in the world. With our natural propensity for self-denigration we here, as in most other cases, tend to be quite unjustifiably critical, where in similar circumstances other nationals would be boastful of achievements. While no one would be foolish enough to assert that the City institutions are perfect, least of all those who control them, nevertheless a good deal of the destructive criticism voiced springs from ignorance, suspicion and prejudice. Ignorance is the major cause of the suspicion, and to some extent of the prejudice.
Arising from many causes, some understandable, some not quite so evident, financial operations have tended to be, and largely still are, veiled in secrecy. 571 Thus what is really a mechanism necessary for the conduct of trade and commerce in a complicated, sophisticated world assumes in the minds of the great majority of people something mysterious and thereby sinister. This gives a distorted and inaccurate picture. Naturally, attitudes so generated promote a degree of reaction and so unnecessary conflict ensues which can, and does, become both menacing and unnecessary. Fringe elements exacerbate this situation, and thus a picture is established which to people at home and abroad depicts a bitter feud between the Government and City. One hardly need dilate upon the dangers arising from this misconception, or upon the adverse impact it has on our national fortunes.
Of course there is criticism in the City of the policies of the Government; criticism which was also voiced of the previous Government, although possibly not so sharp as that which has emanated from some quarters in recent times. But is criticism of Government confined to the City? May I suggest that I have not found wanting in that respect those engaged in the manufacturing and service spheres of activity? In the trade union field is there not criticism? Apart from our natural bent in that direction, one would be more surprised if there were no criticism in times when, because of circumstances, Government have to apply necessary measures in the national interest—measures which bear quite heavily upon those affected.
Unquestionably, City interests of various kinds have been adversely affected and are naturally resentful. Surely it is realised that the City has not been singled out in this respect. Are not the people with whom I have such a long and close association affected by Government measures as greatly as City interests, possibly proportionately even more so? We all know that they are very resentful, but is it not a fact that many in the City consider unjustified the resentment by working people that they should have a halt in wages? It would be completely unjust if, in the position in which we find ourselves, one section of the community should be exempt from bearing at least a fair share of burdens which national necessity imposes.
572 Arising from this kind of situation, there is a marked tendency for the assumption that, because the City has been adversely affected, the Government are pursuing some kind of vendetta against the City. Would it not be equally logical to assert that because working people have had to bear burdens, the Government are pursuing a vendetta against them? Surely that kind of assumption is the nonsense which I certainly believe it to be. I am equally convinced that there is no inbuilt vendetta in the City against the Government. There is criticism of Government on the one hand, and by Government on the other. Individual hostilities, yes; but not vicious, total antagonism.
Much has been said about the recent City rumours, and I should not wish to add much on that topic. What can and must be expressed is mortification and regret that the incident was so damaging to the country. While most of us would dearly like to know the origin of the rumour and to pinpoint the responsibility, I feel that investigation would be a futile exercise, with no result. Such rumours can never be traced to the point of origin. I myself could have theories. Such a rumour could emanate from agencies outside Britain. It should not be overlooked that there are substantial world influences who would be pleased to see the complete collapse of our Western financial system and to profit by the ensuing disruption and chaos. If to affect Britain or any of the Western democracies would help to bring about that situation, I have no doubt that any step would be taken to secure that objective.
May I just say that, parallel with assailment in that sphere, disruption of our activities internally, which has an adverse effect on our economic wellbeing, is a course which has been pursued by certain elements for a considerable time. It is not without significance that in recent times such disruption has increased in scale, with corresponding heavy impact on our unfortunate balance-of-payments situation. That is the area where, I consider, lies the real and vicious vendetta against the Government—difficult indeed to establish, chiefly because the vast majority of our people are unwilling to believe it.
573 My Lords, in all debates concerning aspects of our economy international factors are mentioned, especially international monetary and exchange arrangements and institutions. Almost invariably heavy criticisms are voiced at the inadequacies of the regulating arrangements. The existing institutions and arrangements are far from perfect, and should be modified. That is a task far more formidable than some of the critics appreciate, but. I would say without hesitation that whatever may be involved there must of necessity be rules and codes of conduct. A considerable factor in the current unhappy and dangerous international monetary situation is the fact that those who devised and operate the system have almost all of them broken the rules. As is usually the case, everyone who has done so has the perfect excuse, just as the unpunctual individual always has the perfect reason for lateness. There is no doubt whatsoever that whatever mechanism is devised internationally for monetary exchange and trade regulation, rules will be necessary and obedience of the rules essential if effective operation is to ensue.
My Lords, everyone welcomes this debate on this important sector of our economy. I am sure that the recommendations made in the Report, many of which are now in process of study and, I would hope, of being brought into effect, will be further pursued; and I am quite sure that in the fields appropriate, short-term and long-term, the Government themselves will take notice of what has been said in this debate, and will take those steps which the present situation demands.
§ 5.33 p.m.
§ LORD ABERDARE
My Lords, I was very hesitant about putting my name down to speak in this debate when I realised the number of experts that there are in this House, and I am even more hesitant now, having listened to the debate so far, starting with a brilliant introduction from my noble friend Lord Aldington and including a number of highly valuable contributions, including those from two well-qualified maiden speakers. But I put my name down for two main reasons. One was the, to my mind, immense importance of the subject, and the other was the excellence of the Report that is the subject of the 574 Motion. I found it fascinating reading, and I should like to add my humble congratulations to the Committee responsible for it. Not only did I find it interesting to read, but I found it mercifully well arranged, in that one could read the arguments running through the chapters without having to bother with a mass of statistics and figures, which were relegated to an appropriate appendix to each chapter.
Whatever we may think of the individual recommendations and conclusions of the Committee, I believe there are two achievements that cannot be denied. The first is its historical analysis of the past in the matter of the balance of payments, and the second is its most useful pinpointing of the statistics required for the future if we are going to take proper account of our invisible earnings. The historical analysis, which appears in Chapter II, emphasises without any doubt the enormous importance of our invisible earnings. It takes figures for the last 175 years, in 168 years of which our visible trade has been in deficit. Yet in every one of those years we have had a surplus on our invisible account, and that surplus has always been large enough to cover the def cit on visible trade—if, of course (and his is the big "if" that was made by my noble friend Lord Aldington), we exclude altogether Government spending. This is the crux of the matter, as my noble friend made clear; and it is in view of some research on figures for th.3 last sixteen years that I should like to put these figures in a certain way to your Lordships. These are figures over the sixteen years from 1952 to 1967, which will shortly be published.
Over those years, on visible trade our deficit was £3,273 million. As against that, from the provision of services such as shipping, insurance and finance—but excluding any earnings from our overseas investments—purely the service trades, as it were, the invisible servicing for our exports, we earned £3,148 m Ilion, leaving an overall deficit of only £125 million over sixteen years in what might be called our private trading activities. When our net earnings from overseas investment are taken into account, that small deficit becomes a considerable surplus. But when, of course, further one 575 takes into account Government expenditure overseas that handsome surplus is, unfortunately, more than swallowed up. Over a ten-year period from 1958 to 1967, whereas we earned net from our private investment overseas over £4,000 million, we spent in net Government expenditure overseas over £6,000 million.
My Lords, what can be done to put this balance right? The first, obvious method is to increase our exports to give us higher earnings from our visible trade. This is a familiar topic, and it is not the subject of to-day's debate. I do not intend to say anything more about it, except that I am sure we are all agreed that it is the right policy, and I know that all of us feel that the noble Lord, Lord Brown, is doing a great job in trying to achieve a greater export surplus. But I would point out two difficulties. One unfortunate one is that the countries whose currencies we most want to earn from our exports are themselves trying hard to achieve an export surplus, and we come up against the old paradox of international trade: that whereas it is a virtue to have an export surplus, it is statistically impossible unless someone else has an import surplus. The other difficulty arises, again, from the research to which I referred over the sixteen-year period 1952 to 1967, and this is that over this period, at any rate, our exports and imports had a tendency to balance. Over those particular years, our total exports were £83,670 million, and total imports £83.795 million. The suggestion which the figures show is cyclical swings but, in the long run, an overall balance. I only hope that the noble Lord, Lord Brown, can do better than the past statistics.
The second way in which we can improve our balance is by reducing Government spending overseas. I would assure the noble Lord, Lord Beswick, that I am not making a Party point. I fully realise that this is easier said than done, but I should like to make one suggestion, if possible. The noble Lord, Lord Beswick, knows my opinion that in our internal economy it is most important that our Government capital expenditure should be financed by raising loans in the market. I also feel that this should be applied to Government capital expenditure abroad. I mentioned earlier the excess of Government expenditure over net earnings from overseas investment, a 576 figure of nearly £2,000 million. Of that amount, some £1,500 million was made up of overseas grants and loans, mainly to developing countries. This kind of grant and loan is essential; but it is, in effect, capital expenditure which we are trying to finance out of our income from overseas earnings. I wonder whether this kind of loan could not be financed by ourselves, raising the money from the World Bank. Could we not ourselves negotiate a long-term loan with the World Bank from which we could make grants and loans to overseas countries? The Report, on page 170, pointed out that our long-term creditor position is far stronger than our short-term debtor position. I wonder whether, in view of this fact, we could not negotiate a long-term loan which would give us the capital to make grants and loans and on which, as far as the balance of payments is concerned, we should be finding the annual interest.
The third method of improving matters is by increasing our invisible earnings, which is the subject of the Report we are debating to-day. Its importance has been abundantly proved and, above all, the Report points to the fact that the most important earner of our invisible earnings is overseas investment. Of all of the items that contribute this is the one which is growing fastest in absolute value and at a faster rate on average than it is elsewhere in the world. If one has had any military training I am sure one will remember the military adage: reinforce success. I feel that this is one very good reason why we should do our best to increase our earnings from our overseas investments. I take the point made by the noble Lord, Lord Beswick, that in times of financial stringency and balance-of-payments problems it is difficult to export capital which may affect the balance of payments. Yet I think it is worthy of notice that in the ten years from 1958 to 1967 the outflow of capital from the United Kingdom never exceeded the net inflow of income. In fact, over those ten years it was £800 million less; and while our income inflow from overseas investments has been rising at a rate of 8 per cent., our capital outflow over those ten years showed a slight decrease.
Like my noble friend Lord Aldington, and unlike the noble Lord, Lord Brown, 577 I did read the Business Supplement of The Times this morning. I think it would be helpful if the noble Lord could comment on what is contained therein. If the report is true, I very much hope that this is an exercise for the purpose of following up the Committee's Report and of ascertaining facts rather than imposing restrictions. But I cannot help believing that in the long run our investment in great developing areas of the world, such as Australia and South Africa, will be of the utmost value to this country in the future.
My Lords, there is one vital question that affects the whole of our future earnings: Can we continue to expand our invisible earnings despite our difficulties over sterling and despite rising world competition? The Report throws up one hopeful example and one rather unhopeful one. The hopeful one—and a healthy feature—is the enterprise of the merchant banks and other financial institutions in developing a new international money market in Eurodollars and a new international capital market in Eurobonds. Whatever the future of sterling, these new initiatives will continue to bring invisible earnings to the City of London and deserve high praise. On the other hand, the Report contrasts with this the sad fact that we have lost our lead in efficient and low cost telecommunications. How we fare in the future will depend on the efforts of private persons and private companies; but will require the encouragement of the Government.
I conclude, therefore, that it is important to do all in our power to increase our visible export trade; it is important to economise on Government expenditure overseas and, if possible, to finance our long-term lending by ourselves raising long-term loans from the World Bank; and thirdly, and most hopefully of all, it is important to develop and to expand our invisible earnings, particularly our overseas investment income.
§ 5.47 p.m.
§ LORD CROWTHER
My Lords, like the noble Lord, Lord Aberdare, I hesitated for quite a time before I decided to impose myself upon your Lordships for a second time within six days, but I reflected that I had perhaps some special knowledge of some sections of this country's invisible trade which might be useful to your Lordships, and that there were 578 points that ought to be made that might otherwise go by default. In the end, I came to the conclusion that I should follow the advice of the poet, or, more accurately, of the poetess:So shall I join the choir invisibleWhose music is the gladness of the world.Before I tune my harp to that particular song, I should like to digress for a moment to comment on the remarks made by the noble Lord, Lord Beswick, on the treatment in the Press of last week's debate—the relevance of which to our present purpose is that nothing is more important to the future and health of the invisible trade than that relations between the City and the Government should at least not be made out to be worse than in fact they are.
The noble Lord said that we had last week two sour speeches. He identified one of them, if I did not misunderstand him, as that of the noble Lord, Lord Shawcross. I hope that I was not the other guilty party. Let me say that I did not suppose that all my remarks would be found agreeable to the noble Lords who sit behind the Ministers; but I was, I thought, at great pains—as seemed to me to be only decent and proper in a maiden speech, and particularly by a newly enobled Peer—to make clear that I was not putting anything forward in a partisan spirit. I think I made only one reference—and that was of the most glancing kind—to the Government. I was therefore, I must say, surprised and disconcerted, indeed dismayed, to see myself billed in one newspaper on the following day as laying made—I have forgotten the exact words but it was something like "a vicious attack on the Government"; while another newspaper, one that one would have thought was most responsible and careful, put words into my mouth as a quotation that bore no resemblance at all to anything that I had uttered. I must therefore say that I have great sym lathy with the noble Lord when he complains. If the report of that debate is a sample of the present reporting of Parliamentary proceedings, then I think he has some justice on his side. It would be a pity if standards in this respect fell to the Johnsonian level of always making sure that at least the "Whig dogs" did not get the best of it.
579 My Lords, I mentioned that I was in a position to know something about invisible exports. I am chairman of two companies engaged in that business, and in two different aspects of it. One of them is an hotel company which may be known to some noble Lords. This is not the occasion to go into a general disquisition on the hotel industry. The gracious Speech foreshadowed legislation bearing on the tourist industry in general and the hotel industry in particular. When that legislation comes before this House I shall hope to have the opportunity of saying something more general. Indeed, I raise the question of the hotel industry in this debate only to use its experiences in recent years to make a general point.
There is indeed a most singular contrast to be pointed. Here you have an industry which is one of the very largest of all the invisible exporters. The Report of the B.N.E.C. Committee which we are discussing to-day credits the travel industry with receipts of something over £200 million a year, and the hotel and restaurant industry with more than half of that. I must remark, in passing, that one of my company's hotels alone cashed over £1 million worth of foreign travellers' cheques in the course of a recent period of twelve months. That is one side of the contrast. On the other side it would be difficult (I hope that I am not being too subjective about this) to find an industry which has been more set upon and bedevilled by a whole series of Governmental actions in the last four years than precisely that same industry.
We thought, four years ago, that as an industry we were pretty badly treated. Almost alone among industries we had to pay purchase tax on the tools of our trade; we are not allowed to depreciate our buildings, though they are as purpose-built, and alas! obsolesce as quickly, as any industrial factory. But if that were so four years ago, how much worse is the picture since! One thing after another has been done to us. Entertainment expenditure was wholly disallowed. I will not enter into the merits or demerits of that decision; I will only say that it fell with particular heaviness on those sections of the hotel and restaurant industry which, as it happens, have the highest 580 proportion of invisible exports—that is to say, those in the West End of London. The next blow was that investment allowances on the contents of our buildings, as distinct from the buildings themselves, were removed, and it was made clear that we were not to be eligible for the investment grant that takes their place.
Finally, of course, there was S.E.T. I will not attempt to voice my opinion of S.E.T. now—indeed, I am not sure that I could bring it within the bounds of Parliamentary language. I will simply make one point. The avowed object of S.E.T. was to free labour for transfer into what was called productive industry; yet this tax was applied to the hotel industry where a very large proportion of our labour, perhaps as much as half, is allowed into the country only on the express condition that it shall not move into any other industry. But that did not exempt us from having to pay the tax.
It is true that there is a promise now, in the proposed legislation to which I have referred, that we shall receive grants in aid of new construction. I do not wish to be put in the position of looking a gift horse in the mouth, and particularly before it is securely in the stable, but here I would just make the point that if such legislation eventually reaches the Statute Book—and, if I may mix my metaphors, I am anxious not to count any chickens before they are hatched—it will be small compensation. I think that my own company has as large a development programme as any—at least we are proposing to build from the Highlands to Devonshire—and we have calculated that even if all our plans come along as quickly as we could hope; even if everything fits into place at exactly the right time: if the contracts can be let and they are carried out quickly—even then we shall hope to receive in grants in the largest year only about one-quarter of what we have lost in S.E.T. and withdrawn investment allowances within the lifetime of the present Government.
My Lords, I do not make these points to excite your sympathy or to ask for relief, though I am perfectly prepared on another occasion to do both. I want to use them to make a particular point. Whether or not you think that the grievances that we -had a few years ago were justified, it must surely be a curious 581 policy to impose these repeated, direct and heavy blows upon an industry that was earning more than £100 million in invisible exports. One cannot imagine it happening to any visible exporter. Why then did it happen? Nobody supposed that it was deliberate. Not even the most jaundiced hotelier thinks that somewhere in the recesses of the Treasury or the Board of Trade there is somebody who says, "Here is an invisible exporter. Let's hit him on his invisible head".
No, my Lords, this was done because it appears to be nobody's business to think ahead and to consider what the effects of these measures might be on this vital sector of the national life: that is, our invisible exports. This is because so many people in this country seem to be blinded by the strangest of latter-day delusions that services are useless disposable frills, not to be mentioned in the same breath with productive manufacturing industry. I am genuinely puzzled to know how this idea has obtained such wide credence in this country—and I say "in this country" because it seems to be limited to this country.
In most other countries that I am aware of the development of the service industries is regarded as a sign of economic progress. There is even a phrase for them—"tertiary production", the implication being that that is of a higher order than secondary production and two orders higher than primary production. Why is it that we hold the opposite view in this country, I wonder? Is it perhaps—and I offer this suggestion perfectly seriously—because, generally speaking, the trade union movement is weak in the service industries? So much of our discussion of economic policy in this country to-day takes the form of a bilateral, or trilateral, form between the T.U.C., the C.B.I. and the Government. The service industries are very poorly represented on the C.B.I. side, and even more poorly represented on the trade union side; and this may perhaps be the explanation why the service industries are so widely disregarded. Let me say, in passing, that I should not like my remarks to be taken as indicating that I would wish to exchange our present position for complete recognition plus the "closed shop". But, whatever the reason is, it appears to be the case that so many people have got it into 582 their heads that making things—be they only bingo cards or fruit machines—is somehow a more worthy form of economic activity than the rendering of services.
This, my Lords, is the ultimate indignity of S.E.T., not the money side—though, heaven knows! that bur: badly enough. It is the thinking behind it; that the activities in which w; were engaged were not worthy of support and recognition for the contribution they made to the balance of payments. Of course I am not arguing—nobody could—that all service industries are invisible exporters. That would obviously be untrue. But it is very nearly true that all invisible exporters are service industries, and the two are obviously very closely corrected. Until we can get rid of this idea that service is somehow inferior to production it will be difficult, I think, for the invisible exporting industries to secure the recognition and support they deserve.
should like now to turn to the other company of which I have the privilege to be chairman, and to ask your Lordships' forgiveness for naming it, as otherwise you might not follow what I am going to say. It is the Economist Newspaper Limited. Over 50 per cent, of our gross receipts are derived from overseas, but I want to speak particularly of one of the companies in the group, the Economist Intelligence Unit Limited, which engages in the business of economic consultancy to which the noble Earl, Lord Limerick, referred in his maiden speech—and I should like to join in the congratulations to him on his speech.
This company has been pioneering, in the last decade or so, in what is an almost wholly new industry of international, economic consultancy, with, so we think, some success, and with profit both to ourselves and to the nation's balance of payments. But in doing so we feel that the Slate turns a very cold shoulder upon us. I will not mention S.E.T. again, though I could do so. Let me be more particular and refer, first of all, to the attitude of the Export Credits Guarantee Department. Generally speaking, the E.C.G.D. will not give any assistance for consultancy contracts. Perhaps your Lordships are not aware how large some of these contracts are. Some involve the collecting of teams of professional consultants from many different professions 583 and industries and working them as a team over several years. The total fee can in some cases be as large as £1 million for a single contract.
These contracts are gained in the fiercest competition. Moreover, they usually lead to further business. Most of them take the form of what it is fashionable to call "feasibility studies", and if the answer is that the project is feasible, then there follow construction contracts and purchases of plant and machinery. It does not follow automatically that those contracts and purchases go to the same nation that does the feasibility study, but, as your Lordships will readily realise, there is a natural tendency for that to happen. At least we have observed that when the original economic feasibility study is done by a consultant of a different nation, the British contractors and engineering firms rarely get a look in. So the business is considerably larger than the initial fee given to the consultant himself. Nevertheless, the E.C.G.D. sticks to its position that though it will assist the contractor and exporter of machinery, it will give no assistance at all to the consultant, who in so many cases acts as the pathfinder and clears the way to a much larger volume of business than he himself is concerned with.
Secondly, we have some complaint against the attitude of the commercial officials of our Embassies and High Commissions abroad. The noble Lord, Lord Mancroft, paid a tribute, which I am sure is deserved, to the great improvement in the attitude of the commercial sections of our Embassies and consulates towards visible exporters. This change has not extended to the invisible exporters. These officials seem to suffer in a high degree from what I call the tangible illusion that if you cannot touch it and put it on a truck and take it away, it cannot be of any value.
The other day I read a report from one of our staff which referred to the senior commercial counsellor in our Embassy in one of the most important capitals in the world, certainly the capital where there is more business of this kind to be won than anywhere else. The report was that he seemed to be completely uninterested in the possibility of 584 selling British services and, indeed, seemed to be completely unaware that it was possible to do so. We have suspicions (I should put it no higher than that) that British officials have been known to refer foreign companies to consultants of their own nationality for jobs in Britain, when we could easily do the business ourselves. Again, this is not a piece of deliberate sinfulness on the part of these officials. One suspects that they have not received adequate advice from London as to the attitude they should take and the results they should help to secure.
Thirdly, we should like to see some change in the attitude of those British subjects who are appointed to or seconded to the United Nations and similar organisations by the British Government. I know that once they are appointed they are supposed to be impartial, but we observe that all their colleagues from other countries seem to have little difficulty in being impartial on the side of their own nationals when it comes to the distribution of contracts, and consultants coming from those other countries can always rely on pressure to secure that they get at least their fair share of any business that is going. It seems to be only the British who are such perfect gentlemen that they lean over backwards not to show any partiality, thereby, one suspects, convincing all their foreign colleagues that they themselves do not think very much of the British consultant. None of these things is evidence of original sin but evidence of ignorance and of the absence of direction. If our invisible exports are to grow and flourish, we need to have an active awareness of the opportunities that they present.
I agree with the noble Viscount, Lord Watkinson, that it would be wrong to push invisible exports at the expense of the visible. There are no bad exports. All exports are good. I also agree with the noble Lord, Lord Aberdare, that there is great wisdom in reinforcing success. There are two reasons why opportunities for growth in invisible exports are greater than for visible. One is that they can be expanded with very little import content. We do not need to import raw materials in order to increase our invisible exports. Secondly, it is one field where we in this country still have a manifest 585 differential advantage over other countries. For these reasons I believe that effort put into the expansion of invisible exports will bring a higher reward than in almost any other field. If the excellent Report we have been discussing and this debate have contributed to that more lively awareness, then they will have been well worth the time and effort that have been spent on them.
§ 6.7 p.m.
§ LORD BALOGH
My Lords, like the noble Lord, Lord Crowther, I hesitate to inflict my voice twice on your Lordships' House, but as I am one of the few on these Benches who has worked for a decade in the City and knows some of its workings, I think that perhaps I might chance it. I do not wish to follow the noble Lord into the special topics which he illuminated with such unparallelled knowledge, I very much agree with some of his criticism. I should only like to say that S.E.T., when it came, came into a taxation system which did not tax services at all, unlike most other systems of taxation. In this country services are still relatively little taxed in comparison with merchandise. Our tax system is mainly concentrated on alcohol and tobacco and on merchandise, and our indirect taxation is on the whole not lower than in other countries. It seems to me that the spreading of the taxation load over services was a good thing on the whole rather than a bad thing, and it does not follow that there is a "gnome" in the Government who thinks that services are especially hateful things.
This has been an instructive debate, but I was reminded of the timing. The noble Lord, Lord Aldington, put his Motion down before these little occurences. There is an apposite little jingle from Jay Gould's poetry, which I shall quote—I am much more vulgar than the noble Lord, Lord Crowther—He who sells what isn't his'nMust buy it back or go to prisonI hope that this will apply literally to the gnomes who had those two wild raids on the pound sterling. I hope that they will be caught and punished for it. Of course, in a way (I hope that I do not cause any pain on the other side) this attitude of selling "what isn't his'n" obviously has applied to our foreign investment policy. We invested "what wasn't ours"—we borrowed it. While it 586 would be silly to say that a bank is bankrupt because it borrows short and lends longer, there is a point, as we know from the Baring crisis of 1890, from the Knickerbocker crisis of 1907 and from 1931, at which the net short-term indebtedness grows too high and certain very unpleasant things follow. I hope that this will not be the case in some of the ventures which have been started recently in the C.I.E.
The noble Lord, Lord Beswick, has given the figures of the enormously greater investment activity on our part than was really justified by the balance of payments, and I do not wish to go into this. The Times to-day (like the noble Lord, I have read it) gives an interesting example of what I mean. They state on page 5 in an article on an Army base:Begun as late as 1957 (for reason; which senior officers now find hard to recall) and completed only in 1964"—so we are not guilty on this side—in some style and comfort at the cost of more than £8 million … the grass cutting alone comes to £19,000.There are very few noble Lords even on the other side who could afford £19,000 for grass cutting.
From some of the speeches that have been made (I am sorry that the noble Viscount, Lord Watkinson, is no.: here, because I shall have to refer to his speech) one might imagine the City as sort of torture chamber, with the rack really going round like mad, and the pressure enormous. But I do not think this is altogether a justifiable picture. It was most noticeable and interesting that on the other side hardly any figures were quoted. We had little tales by the noble Viscount, Lord Watkinson, of this terrible hardship which happened to companies which started out in a wonderful way and then could not follow on because the Government were very naughty. But I have looked at my figures for private investment in the last few years, and it is interesting to see that private investment abroad by this country only once sank below the £300 million mark, and that was in 1962 as a result of the ministrations of Mr. Selwyn Lloyd. The interesting thing is that even that sort of prohibition of sterling loans to third markets of which there was such complaint on the other side was invented by Mr. 587 Selwyn Lloyd and imposed immediately. This Government, to my mind wrongly, did not impose it immediately the crisis occurred, but put it off.
I would not call this investment in all areas of £267 million chicken feed. I am not a member of quite such an affluent society as noble Lords opposite, but still it is not altogether chicken feed. This dream-world impression which was evoked by the contributions from the other side was strengthened, I think, when I reflected that there were Japan and Germany, both countries which were not altogether unsuccessful in defending their export markets. The Japanese came up from nought, and are now at 11 per cent.—they are just above our share in the manufactured goods export markets of the world; and the Germans are more or less double our share. Neither of these countries has ever had a large foreign investment. The Germans now pretend that they have a large foreign investment, but, of course, they have not. What they do is to lend out through swaps and loans, and there is a sort of new conventional behaviour in statistics that has grown up that allows them to count what are really short-term credits as long-term credits. And they keep their hands at the throat of the people to whom they give credit, because short-term credits can be revoked. So that there is a sort of invasion of the markets through these credit tactics of the Germans and their exports are at a maximum.
I must congratulate the noble Earl, Lord Limerick, and also the noble Lord, Lord Remnant, on their maiden speeches; but, if I may humbly and respectfully suggest it, even in the case of a maiden speech, theirs was not altogether a balanced statement of the situation; because, of course, people who really are experts in investing funds (and the noble Lords spoke about the people who are the sort of crême-de-la-crême of the investing world) know very well that if they borrow in America they can manage their investment absolutely freely. I am not saying that perhaps certain difficulties have not been caused by this 25 per cent. rule. But perhaps it would be fairer to the Government to say also that, in those cases where portfolio management is very important, means have 588 been found to enable the managers of portfolios to manage freely, and those portfolio managers who have not availed themselves of this possibility, are not the crême-de-la-crême.
§ LORD TANGLEY
My Lords, before the noble Lord leaves this point—and I think he has just about finished with it—surely he is not suggesting that this liberty to borrow in the United States is anything more than a small contribution to solving the problem. He would not suggest for one moment that the power to borrow offsets the difficulties with regard to the 25 per cent. surrender which the noble Lord, Lord Remnant, and others, including myself, put forward? If he does, then I should like to ask him what are the total borrowings of investment trusts in the United States compared to the assets involved. We should need to know that figure before we know whether there is any validity in this point.
§ LORD BALOGH
I do not think we need to know that at all, because borrowings are needed merely to effect the changes of portfolios. When I first came to this country in 1930 I was introduced by Keynes to his insurance company. There was an interesting manager there who told me of Keynes's first remark when he joined, after the First World War, the National Mutual Insurance. A very noble Lord, Lord Curzon, was one of the members of the Board. He wanted to bait Keynes and said, "My dear Keynes, we welcome you with bated breath. Do tell us what in your opinion would be the best policy for an insurance company." And Keynes, with out batting an eyelid, said: "My investment company or insurance company would have only one asset, and change it every day."
§ LORD TANGLEY
If I am not being offensive, perhaps I may interrupt the noble Lord once more. We are listening now, if I may say so, to the "super cream" of the academic world. I am talking only about some rather skimmed milk of one of the largest investment trusts. I hope the noble Lord will take it from me that this power to borrow in the States is nothing more than a tiny palliative of the problem, and is absolutely no solution at all. I have borrowed as much as I can prudently, and it is no solution to my problem. 589 This is the practical "skimmed milk" of the matter. I do not think what Lord Keynes said a generation ago really helps.
§ LORD BALOGH
On the contrary. The noble Lord suggests that you have to have so much borrowing that you should be able to change all your investments every day. I would not agree with him.
Then there is the corporation tax issue. It is interesting to note that it is true to say that the corporation tax left us still with a balance in favour of foreign investments, because certain expenditure can be offset against unfranked income. This is a very complicated issue, and I do not wish to bore your Lordships with it, but it is so.
§ NOBLE LORDS: Order!
§ LORD TANGLEY
Points are being put that these things can be done and should he done. In practice I agree that it is an extremely complicated matter, but again this ability to set certain expenditure against unfranked income is not, in our experience (if I may put it that way), a solution to the problem. I will not interrupt again.
§ LORD BALOGH
I am sorry, my Lords, but again I must maintain that these are problems which at least ought to be mentioned, if only to be dismissed. I fear that there is also a fundamental issue involved—and this is a more academic point. I am sorry to bore your Lordships with it, but it is an important question and we ought to discuss it freely and frankly. Of course, the corporation tax ought to strike the whole of the income repatriated into this country. It has to. Of course the foreign taxation ought not to be offset, because if it were offset it would mean that it would be a matter of indifference to a British subject or firm whether he or the firm invested in this country or in America. From a national point of view, the income from America after tax must be equal to the income from a home investment before tax, because we pay tax to the British Government and they pay tax to the American Government. Therefore, from a social point of view, from a national point of view, if the market mechanism is to work well what has to be equated is 590 "after-tax" revenue from abroad and "before-tax" revenue at home.
We have had a most interesting debate and I have been impressed by how extremely representative the House of Lords is of the highest order of economic life. There is hardly any industry, sub-industry or sub-sub-industry which is not fully represented here. The "invisibles" have this enormous importance in this country as against other countries because this was the heart of a large Empire, the biggest Empire the world has ever seen. This Empire built up these assets because there were political advantages of having an Empire; there were the invisible preferences; and as a remit of that there were also the shipping lines, the bunkering and the coal industry in which Britain took an absolute lead. The coal bunkering stations became Colonies, and therefore these invisible exports mounted and mounted and we obtained for these services our food and raw materials. This position has now changed, and I am bound to say that a great many of these "invisibles" are going to go down. They are bound to go down because the situation of Britain has changed and therefore certain of the services will one after another be eliminated, just as industries such as the textile industry were, as other countries take over. I refer to those pioneer industries which the British have started.
These "invisibles" are very varied and the global figures are sometimes a little—shall we say?—suggestive of things which they ought not to suggest. The services performed by the City amount to only £144 million per annum. Even those services performed by the City are of an extremely varied character, and certain of the services can be performed whether or not we have a control over foreign investment. For instance, insurance represented almost a half of this, and even in the most fierce, the most savage, exchange control days its functioning was permitted. And it functioned very well.
§ LORD ALDINGTON
My Lords, before the noble Lord leaves the book which he has in his hand, may I say this. He said, in rather a defeatist fashion, that "invisibles" are bound to go down. If he will look at his book he will find that they have been going up. Why are they bound to go down? Those 591 of us who are engaged in them find no such tendency. If we do find that tendency around, we take every step to see that they go up.
§ LORD BALOGH
My Lords, I wish the noble Lord the best of luck. I do not say that they will go down absolutely. I merely say that, relative to the old situation, they are bound to. This does not apply to every aspect, but they are bound to, because Britain is no longer the centre of art Empire, and that is a sufficient reason for it.
Out of the £3,000 million total invisible earnings £1,000 million represent shipping, aircraft and telecommunications. This has very little to do with it, and we are going to have, we are bound to have, fierce competition here and it is bound to affect us. The hotel industry represents £236 million, and then there is the investment income of £1,000 million. I think we have therefore to be very careful when policy recommendations are made on these figures. If we were to interfere with industry for the £40 million or £50 million a year—which is a great deal of money for the individuals but very little in national terms—if we were to pursue a policy which may harm industry and manufacturing, that would be mad—quite mad.
Then I look at the investments, especially at the direct investments, yielding 6 per cent. after foreign tax. That is very much less successful than the American figure. The American figure is not 6 per cent.; it is 14 per cent. And the portfolio investment is very much less. I agree with the noble Lord, Lord Tangley, that the yield on portfolio investment ought not to be measured merely by income but also by capital appreciation, which I agree was colossal. Nevertheless, it is a problem for a country to receive currently from its investments something like 2½ per cent. to 3 per cent., and pay out in interest payments on its debts 8½ per cent. or 9 per cent. This is not the way to do it.
I looked up the headline which the noble Lord, Lord Aldington, quoted, on "The Bank acts to check on investment". Surely Lord Aldington would not want to criticise the gathering of statistics.
§ LORD ALDINGTON
Yes, my Lords, I think one ought, if I may say so, if only to get that statement from a member of the Government. If we have that statement later on it will be very agreeable.
§ LORD BALOGH
There is one lesson, I think, in this debate. "Invisible" income has been the mainstay of Britain. Long may it remain the mainstay and prosper!, we all agree. But, in my humble opinion, it must not call for privilege. In my humble opinion, this country in her new situation in the world can prosper only by technological improvement and technological advance. Whether this advance is to be "invisible" or "visible" it does not matter, but it seems to me that policies to be pursued which will expose the manufacturing industry of the country to periods of "Stop" after periods of very slight "Go" are not in the interest of the country.
§ 6.30 p.m.
§ LORD POLWARTH
My Lords, your Lordships will be relieved to know that I do not propose to make a speech of any length, having returned only a week ago from a somewhat arduous three weeks on the other side of the Atlantic, trying to increase our dollar earnings from the invisibles; and I certainly do not intend to follow the somewhat depressing attitude of the noble Lord who has just spoken, who seems to think that our invisibles face a decline in the future. If I have anything to do with it that will certainly not be the case.
I wish first to support strongly the earlier remarks made by the noble Lord, Lord Tangley, about the contribution to our invisibles of the investment trust movement, and I speak as one who is involved in a particularly active part of that movement, namely, Scottish Investment Trusts, who pioneered dollar investment and, I still maintain, are leading it to-day. In this connection, all I would say is that we do not seek privileges for our own form of investment; we seek only fair and reasonable treatment. The sums which have been invested in the dollar have grown and multiplied. It may be true that the income from them 593 is only 2 or 3 per cent. to-day; but what of that? It is the growth of that income, and the growth of the capital on which the income comes, that has contributed so much to our reserves.
I wish to speak on only one other aspect, because I do not think it has received much treatment in this debate: I refer to the contribution made by the British insurance industry to our balance of payments. I am connected with one of our leading British insurance companies, and particularly one of our leading companies in the North American market, and it is from there, as I have said, that I have just returned. The income we are earning has cost the country remarkably little in outflow in investment. The figures of the current income from the industry are not easily put together. This is one of the criticisms in the Report, and it is due to the fact that they come under a variety of headings. However, a figure is given of an estimate for 1965 of some £81 million, and I would surmise that by this year it must be nearer £100 million, despite the hazards and difficulties facing the industry in the last few years.
Taking only the case of my own company, our total capital sent to the dollar market to build up our industry there over the last 68 years has been 5¼ million dollars. This year, in one year, we are bringing back in remittances alone 5½ million dollars—more than the total that we have laid out to build up that investment—and over that period we have brought home some 75 million dollars. So I should like the contribution that is being made by the insurance industry to our balance of payments to be put on record. And these results have been achieved in the face of considerable difficulties, not merely the natural hazards which we exist to counteract, but the restrictions on the rates that we may charge in the United States of America, and in difficulties at home, such as the taxation system, which has already been spoken of sufficiently and which I do not propose to follow up.
Last, but by no means least, there are the considerable demands recently added by the new Companies Act, in the form of returns and statistics which have to be made by insurance companies to the Board of Trade. These requirements were 594 reasonably introduced in regard to the British business as a result of the unfortunate failure of a number of "fly by night" companies. But when these requirements for multifarious returns are extended to one's individual overseas territories the total burden of additional work is quite fantastic; and I can only say that in a meeting recently with our accountants and auditors in the United States I was told that only with the greatest difficulty would they be able to produce the accounts at the normal time—if indeed they could do so within some time of that date.
That is all I wish to say, my Lords; just to place on record the contribution of that industry and to express the hope that it may receive the treatment that is due to it in carrying out its part.
§ 6.36 p.m.
§ LORD TERRINGTON
My Lords, at this late stage I wish to intervene for only a short while on one or two points, but before doing so I must declare a special interest as a member of a Stock Exchange partnership with considerable overseas interests. In this capacity, I wish to confine my remarks to encouraging foreign investment in United Kingdom securities, with particular reference to America, which I visit with considerable regularity.
As the Report points out, there was a sharp increase in foreign portfolio investment in the United Kingdom in 1963 and 1964, although this does not indicate the extent to which this was derived from the the United States. However, from my own personal experience in America at that time, I would say that we were making useful progress there despite a number of obstacles, to which I wish to refer.
Apart from the points raised in the Report, to which I shall come in a moment, we had to contend with a number of rather special problems. For example, there was a lack of regular progress reports from companies over here, and there was the difficulty of calculating earnings to suit the Americans owing to the differences in our tax systems. Also, of course, there was the high level of United Kingdom withholding tax on dividends received by U.S. investors, which was a considerable deterrent to a number of American portfolio managers. These 595 particular problems are much less serious now because United Kingdom companies are more forthcoming in their reporting at intervals during the year. Also, the change in our tax system has helped our research departments to present earnings in a form intelligible to American managers, and United Kingdom withholding tax on dividend income is now in line with the American rate for overseas investors.
There are other deterrents, however, on which the Report which we are now discussing makes specific recommendations. These are set out in paragraph 289, and it is on these that I wish to make a few observations. From personal experience I can confirm that the Americans have a rooted objection to paying our stamp duty, and although there has been a reduction from 2 per cent. to 1 per cent., I would suggest that bona fide foreign investors might be relieved of this penalty altogether.
I should like also to endorse the recommendation contained in the Report for an increase in the number of fixed interest securities free of tax at source to non-residents. At the present time, about 60 per cent. of all British Government stock in issue, including undated securities, is free of tax to non-residents, but of the dated stocks with a life of over ten years only about 55 per cent. are in this category, which seems to me to offer scope for broadening the field in favour of the foreign investor.
Finally, I wish to refer to the recommendation in the Report regarding shares of no par value. I do not think this has been mentioned this afternoon, and it is certainly an issue of some importance to the American investor, who is accustomed to these and not to our methods of describing shares. Having said that, my Lords, I must now refer to the biggest stumbling block of all to American investment in this country, which is certainly not of our making. Just at the moment when we seemed to be poised for a further breakthrough in the selling of United Kingdom securities to American managers, the then President Kennedy introduced his Interest Equalisation Tax in March, 1964, retroactive to 1963. Understandably, this was done to discourage portfolio investment outside the United States on a temporary 596 basis in order to ease their balance-of-payments problem. Unfortunately, as is so often the way with short-term measures, this tax has been renewed in subsequent years, and recently the rate has been increased by President Johnson. As a result, I have to admit that the scope for interesting American investors in United Kingdom companies has been severely limited since 1964, and must remain so until this tax is repealed or modified. But on this point I remain an optimist, and I am encouraged to be so by the recent views expressed to me by a number of American friends and connections over here in London at the present time.
For this reason I would be grateful if, in his reply, the Minister could answer some questions of which I have given him notice. Will Her Majesty's Government give serious consideration to two specific suggestions: the waiving of stamp duty for foreign investors, and an increase in the number of British Government securities free of tax at source to non-residents? At the same time, could they perhaps give an indication that shares of no par value will be included in the next Companies Bill, which I understand has been promised during the life of this Parliament.
Those of us who are concerned with the task of trying to persuade American funds to invest over here can do a great number of things for ourselves to improve this contribution to the invisible exports; but the Government, it seems to me, could certainty provide additional help and encouragement if it were to implement the recommendations contained in the Report that we are discussing this afternoon.
May I now turn for a brief moment to a point which has been very fully covered and discussed by other noble Lords. In my work I am as much involved with investment by private individuals in United States' securities as I am with trying to sell United Kingdom stocks to the American funds. I would entirely endorse the plea put forward by the noble Lord, Lord Tangley, regarding the 25 per cent. surrender rule. I of course recognise that the investment trusts are the major factor in the field of American portfolio management, but I think it is fair to say that the size and number of 597 privately owned portfolios is not insignificant
The noble Lord has pointed out that the investment trust managers continuously watch their individual investments and they make frequent visits to America in the course of their work. Those of us who are concerned with privately owned portfolios do very much the same thing in order to try and ensure that these funds are properly managed. I would, therefore, add my plea to that of the noble Lord when he said that such impediments to the successful management of a dollar portfolio should be removed. In fact I would go a bit further and underline another disadvantage of this surrender rule which has already been mentioned by the noble Earl, Lord Limerick, in his most admirable maiden speech. I am certain it is the case that the operation of this rule tends to contract the pool of available dollars and to discourage sellers, which in turn forces the premium artificially higher. It seems to me that a high premium is not in the national interest and that anything which makes it so artificially should be very carefully examined.
§ 6.43 p.m.
My Lords, first I must declare two interests: I am President of the Chamber of Shipping of the United Kingdom and a director of shipping companies, and I am also Chairman of the British Travel Association. The Report that we are discussing recognises just how imporant shipping and tourism are in the balance of payments. Depending on how one does the sums, these two industries can be said to earn about £800 million gross of foreign exchange per annum. This figure speaks for itself, but those of your Lordships who share my difficulty in grasping the significance of a figure of this order of magnitude may wish to be reminded that less than 500 million minutes have elapsed since the arrival in this country of that famous traveller William the Conqueror. I have therefore a special concern in the present Motion and I should like to thank the noble Lord, Lord Aldington, for raising it.
There could hardly be a better time to discuss our invisible exports and their contribution to the economy. Incredible as it may seem, relatively few people have been aware of the size of this contribution.
598 As has been said, we export over £8,000 million worth of goods and services a year, and of this about 40 per cont., or approximately £3,100 million worth, is the contribution of the so-called invisibles. These are the real growth point it world trade.
The economic background to our debate needs few words: internationally, a major crisis of confidence in the value of currency; at home, the most serious difficulties that we have faced since the 1930s. The source of our trouble is known. Our external accounts cannot be brought under control and into reasonable balance. Despite an avalanche of controls and measures of one sort or another, despite tough talking and prophecies of miracles, the net result is that the deficit on our visible trade account this year—and I emphasise visible—has been most recently estimated at just about £800 million. What it will be next year is hard for anyone to forecast with any degree of confidence. But let us be clear: a deficit in visible trade there will most certainly be.
And yet our invisible earners—and I exclude what the Government themselves do—are giving a positive net balance this year of about £700 million. Historically, invisibles have always been substantially in surplus, while visibles have been almost always in deficit. But Government policy seems to be mesmerised by the virtues of visibles. By comparison, the conviction that services are not really productive seems still to persist. Lip service may be paid to the importance of invisible earners, but selective employment tax remains the embodiment of the contrary conviction. It penalises the successful by imposing a heavy burden on services. It foolishly hampers the ability of invisible earners to hold, and indeed increase, the country's share of the most rapidly growing sector of world trade. The time has surely come for a major re-think about visibles and invisibles, about their relative contribution to the balance of payments and consequently about what Government policy towards them ought to be. People and Government must see the true picture. The fact that one sector of our national effort is in the red should never be a reason for handicapping another part which is consistently and well and truly in the black. So much by way of general background.
599 For shipping, the first essential is to know what one is talking about. Here the official publication on balance of payments—the Pink Book—can be misleading. Its shipping account covers all the country's transactions in foreign currency attributable to shipping, whether British or foreign. This means that the net balance on shipping account is more often than not taken to be the balance-of-payments value of United Kingdom ships. Such an approach is quite different from that used for visible trade. There is, for example, no machine-tool account which aggregates the exports of British firms and the imports of foreign machine tools. There is also another point of difference. In calculating the contribution of United Kingdom shipping, overseas expenditure is deducted from gross earnings; for example, the cost of bunkers lifted abroad. But for manufacturers the cost of the imported fuel oil which they consume is not deducted from their contribution. For these reasons it is difficult to compare shipping with visible trade industries so as to get a fair comparison.
Indeed, there is one more source of confusion. Because of an international convention on balance-of-payments analysis, United Kingdom shipping in the Pink Book includes a debit for foreign ships employed on time charter, mainly by the oil companies. The outcome is that the value of United Kingdom ships—over 2,000 ships totalling 18 million tons flying the Red Ensign—is concealed and is undervalued. Your Lordships will be glad to know that discussions are now under way with the full co-operation of the Government's statistical services to clear up this confusion.
The export value of the services of such ships in 1967, calculated so as to be comparable with a manufacturing industry, was over £450 million. Even after deducting foreign disbursements, the net worth of United Kingdom ships to the balance of payments was over £200 million. And these figures take no account of the very considerable import savings made. In brief, United Kingdom ships are major earners of foreign exchange. We can go further. As producers of foreign currency per pound of capital investment and per employee, ships are more effective than almost all of our visible trade industries.
600 Shipping, both nationally and internationally, is developing rapidly. Two, factors stand out: the use of containers and the use of large bulk carriers in the oil and dry bulk cargo trades. Their effects will be widespread—on world transport costs, on port development and location, on internal transport systems and on the siting of industries. There may be painful changes to be faced, but there will be great opportunities to be seized. Whether, in the past, they have all been seized is arguable. What matters now is that British shipping is an industry on the move. Of that, no one who has any knowledge of it can be in any doubt whatever. The Committee of Inquiry headed by the noble Viscount, Lord Rochdale, is due to report to the Government next year. I do not, and could not, know what that Report will recommend. The real issue is how shipping can best maximise its already massive contribution to the balance of payments—how in fact to exploit to the full its power to convert domestic investment into foreign exchange earnings.
It is true that successive Governments have done much, as far as the general fiscal system allows, to help the industry. This we recognise; but shipping is an industry with no home market. It is wholly exposed to world competition—all of it keen; some of it not governed by normal considerations of profit and loss. The impact of our tax structure, designed primarily to regulate the affairs of people and companies within this country, is therefore disproportionately distorting. It really is a bit of nonsense to enwrap such an industry in the intricacies and convolutions of our unbelievably complex tax system, and then seek to lighten the load by vet further complications, however well meant. Would it not be better to take a fresh look at the whole problem? If there is, as we think, a strong enough and valid enough case for unorthodoxy, let us be unorthodox. But, mutatis mutandis, my plea extends to the whole range of invisible earners. The need is great; and so, too, are the possibilities.
This brings me to tourism. Tourism is the largest single item in world trade, and it is growing faster than visible trade. In 1967 about £5,000 million was spent throughout the world by international tourists. Britain has benefited from this 601 impressive growth. It was not until 1955 that the number of visitors to this country passed one million per year. This year the total will be 4 million, and by 1970 it could well be 5 million. Our earnings from visitors in 1968 should exceed £370 million. Of this, about £110 million is paid by them on international fares to British carriers, and £260 million is spent within Great Britain. The latter figure includes, as well as the major items of accommodation and catering, expenditure on all types of services. Even our hairdressers earn 1 million dollars a year from overseas visitors. I do not suppose that many people ever thought of a haircut as an export; but it can be.
The United States provides more of our visitors than any other country. Britain, indeed, is their favourite choice in Europe, and they spend here over £100 million a year. This is more than the value of any single commodity—including whisky or cars—that we export to the United States. Yet for so long the word "tourism" in this country meant British people going abroad. The thought of tourists coming here seemed somehow unnatural. But this has all changed. Britain is now a major tourist country. And as, not surprisingly, we do not sell Britain on the strength of our weather, we can offer a longer season than many Mediterranean resorts. If only we can provide the facilities, there is an enormous potential for growth. But if we do not, people will go elsewhere, because like other export trades, tourism is sharply competitive.
There is, therefore, every justification for giving tourism real incentives for expansion and higher productivity. The case is as good as that for any manufacturing industry. Moreover, tourism requires very few imports. Yet, through the imposition of currency restrictions on overseas holidays, the Government are prepared to put our own tourist earnings at risk. The example that we have set has not gone unnoticed by the American and French Governments. We really must stop one sort of export—that of the bad example that might rebound on us.
The Government's recent statement on tourism is a welcome development, so far as it goes. Over a year ago, the British Travel Association pointed out to the Government that the ability to promote new traffic to Britain and the opportunities 602 for massive increases in overseas visitor business were outstripping the rate of expansion of tourist services and amenities, and asked that greater resources should be deployed in the whole field of tourism. We recognised that the Association, which is a company limited by guarantee, directed by a volunteer board of whom only a minority are appointed by the President of the Board of Trade, might not be a suitable vehicle for the expanded operation. Instead, the creation of a statutory Board to take over the work of B.T.A. is now contemplated. But I emphasise that the changes now proposed have been necessitated not, as is so often the case, in any way by failure, but by the dramatic success of the British Travel Association in carrying cut its appointed task. I am sure that your Lordships would wish to join with me in paying tribute to the staff and many volunteer workers through whose efforts this success has been achieved.
Having said that, I must add that the real question is whether the proposed organisation goes far enough. The new Statutory Board should be able to play a more effective role than has been possible for B.T.A. in planning the development of tourist facilities and in co-ordinating the work of those many interests, such as the Countryside Commission and the Forestry Commission, which contribute their part to the country's increasing range of tourist services and attractions. At the same time, it is of paramount importance that the new Board should preserve the harmonious relations with all sectors of the travel trade which have been characteristic of B.T.A.'s operations.
The Association has not changed its view that overseas its promotion work, and within Britain the information services and the co-operation with the travel trade in organising tours and holidays in Britain, represent the key to the development of tourist traffic. It seems to me that the Government should confirm that these basic tourist functions are to be given their due priority. And here I would express the hope that the direction of the new Statutory Board is placed in the hands of people experienced in the industry, and that the heavy hard of bureaucracy is not allowed to blunt the edge of its efficiency. The Minister's statement gave no assurances in these 603 vital matters. Instead, the Minister emphasised the hotel incentives scheme and the hotel registration scheme, which are a means to an end, but secondary tasks. The Hotel Development Incentive Scheme is a temporary measure to alleviate the growing burden of taxation on hotels. The registration scheme will need careful study, and the likely benefits will need to be more clearly established in relation to its cost, which will be considerable. Such a scheme could be carried out on a voluntary basis. After all, the success of the "Michelin Guide" in France is not based on statutory powers. It is disappointing to hear that the Government assume that the prime tasks of promotion, planning and co-ordination can all be carried out for a sum of about £3 million, which is approximately the amount of the present Treasury grant to the British Travel Association. Parenthetically, it may be noted that through the purchase of liquor and tobacco, and through purchase tax, foreign visitors contribute something of the order of £10 million per annum to the Revenue.
To secure more trade from abroad there must be more investment in marketing, not only in the countries where 24 overseas offices have already been established, but in additional countries where there are now new prospects of travel. Quite apart from promotion, the new organisation will have other duties in development and research, and in supporting regional tourist organisations. The British Travel Association has enjoyed substantial support from industry and this could well grow, but not if the Government's contribution towards the principal tasks is actually to be reduced. In the meantime, throughout 1969, the British Travel Association will continue its work and will assist the Government in establishing the new structure. It hopes to hand over to the new body what many of our competitors now consider to be one of the most efficient national tourist offices in the world.
Summing up, my Lords, my main intention has been to emphasise the urgency of taking a truly radical and constructive look at who contributes what towards our balance of payments. I cannot believe that this has yet been done. If it had, invisibles would have had a better deal. If the Government are 604 to get their priorities right and cure our economic sickness—for that is what it is—they must look at one essential, the effect on balance of payments. At the moment, there is, unhappily, no evidence of success. Recent measures may help; but talk about underlying trends is little consolation if the end result continues to be one of deficit. For too long invisibles have tended to be taken for granted. As has already been said, more than once, to-day, they do not even qualify for the Queen's Award to Industry, which was specially created to encourage the export trade. There are signs that this attitude is changing, but the pace of change must quicken. For shipping, the noble Viscount, Lord Rochdale, and his Committee of Inquiry may help set the perspective right. For travel, the Government's new plan for a statutory authority shows that they are aware, albeit belatedly, of the importance of tourism's contribution towards our balance of payments. I hope that this debate may encourage the Committee on Invisibles to further its work, and the Government to pay practical heed to the balance-of-payments sectors that are successful.
§ 7.3 p.m.
§ LORD ARWYN
My Lords, I must apologise for having been away from the Chamber for so long, but something very unexpected happened. I have missed the maiden speeches, but I shall look forward to reading them to-morrow.
My Lords, we all know that no economic war can be waged successfully without the means of assessing the strength and weakness of the opposing forces. I should like to describe one Pyrrhic victory of the taxman. It is a fact that it is more profitable for an individual, as well as a company, to exploit an invention in such a way that the monetary reward is not brought home here at all. So while many inventions are conceived here, care is taken that they are born and grow up and prosper outside this country. British, as well as foreign, patents get registered in the name of some Swiss or perhaps Bermudian company or in one of many countries. The chief beneficiaries can leave the country and enjoy a much lower rate of tax once they get there. These are some of our saddest "invisible exports". An amount of income is lost to the country which cannot 605 be properly assessed, and it accumulates elsewhere.
Professor Trevor Roper once said that our taxmen seek to influence the phenomenon by changing the rules. But, my Lords, every time some tax loophole is "bunged up" another incentive is given, especially to patent owners, to leave the country, bag and baggage; so the question of "bunging up" the loophole becomes academic, and in his attempt to secure higher taxes the taxman loses the lot. The inventor finds it intolerable and moves overseas.
The Treasury should seek instead to alter the rules to suit the phenomenon. That which applies to the individual inventor applies to companies. Such a company can have a manufacturing subsidiary here working on a small margin of profit, or even a loss, by overcharging on materials and labour, and make its profits on its overseas sales company. So the increase in exports results in no net gain to the country in terms of foreign currency, but the foreign country gains through the subsidiary whose profits attract less tax. Believe me, my Lords, this is far from fanciful theorising. We must realise that we are, in these matters, not only in ordinary competition with other countries but with their tax systems in comparison with ours.
Many of us in your Lordships' House concerned with industry have been the victims of bland assurances by civil servants and academic economists that there is very little or no evidence of loss to the country by these means. This is but one instance that such matters are not susceptible to proof by evidence. All such "evidence" leaves the country with the setting up of schemes designed to safeguard the rewards of a good invention. But, my Lords, those professionals who advise us realise what goes on and, in the interests of our country, are much concerned about it. The tax authorities will react by seeking other ways to prevent these things from happening, but again, might it not be another Pyrrhic victory?
If it be a Briton's duty to be British and remain British, in not giving him the full benefit of his inventiveness or his flair for exploiting inventions, is he not faced with the problem of duty versus his own interests? Such people are too valuable to be lost; but unless and until 606 their interests as individuals, or companies, are made to coincide with their duty, we shall continue to lose their wealth, and the reserves of the banks of other countries will mount up at our expense.
We want to emphasise that the exploitation of our national talent to invent deserves a major priority. I would go as far as to suggest that it is an urgent matter which we cannot neglect any further. I do not suggest, as yet, the setting up of a Royal Commission—heaven forbid!—or another Committee, but an investigation perhaps by an independent body, maybe a top-ranking industrial consultancy (they have been doing some work, as we know, within the precincts) empowered to recruit those executives in industry of the calibre such as there are in Beechams, where royalties have climbed in eight years to £6 million a year. There are several others, whom I need not mention. We need a comprehensive appraisal of how we can get the maximum benefit from our inventions. This is a rarely mentioned part of the economic war in which we are involved. The result from each sector is very important to our future.
My Lords, I have dealt with one. As we have been told by other speakers, there are many others. We export expertise, as we have also heard from various speakers to-day. Our various consulting engineers, architects and others are not encouraged to expand their consultancies by finding their tax bill is much greater here than if they were domiciled in the country where the money is earned. The whole position requires an entirely new assessment. My Lords, I think we need to say "To hell!" with precedents and our deep-rooted prejudices in every sphere, starting with the pattern of Treasury thinking.
§ 7.10 p.m.
§ LORD NATHAN
My Lords, we are all grateful to the noble Lord, Lord Aldington, for having introduced this debate; but I am particularly grateful since it has thrown light in dark places—dark to many of your Lordships as to myself, dark to those outside this country. Over the past five years or so I have had the opportunity in America of meeting a wide variety of people in different areas, and it is extraordinary how little information gets through about the basic facts of our 607 economy on matters such as our exports and imports. What is known is that they are in deficit. What is not known is how much we export. There is no information abroad as to what we produce in the way of services; and if this debate, coupled with the excellent Report, fills that gap, then that itself will have achieved a great purpose. I hope, too, that following upon this debate sonic consideration may be given to the presentation from time to time of our balance of payments position. It has been suggested that the reports instead of being monthly, should be three-monthly. Perhaps some consideration should be given to giving an overall picture, including invisibles which, as we have seen to-day, form a substantial and important part of the global picture.
The Report which we are debating today is on services, services paid for in foreign currencies or in sterling by people living abroad. I thought that it was a commonplace that, with the growth of wealth in an economy, there develops simultaneously an expanded requirement for services. There is, of course, the desire for enjoyment and the ability to pursue that enjoyment which takes the form of, for example, travel for fun.
But there is a further reason for the increase in the demand for services. The increasingly sophisticated organisation of international business necessarily involves an increase in the services, and in the sophistication of the services, to be provided. Banking, insurance, law, accountancy are but examples of fields in which increased services both in volume and in quality are required. We in this country are particularly well-qualified to provide these services, as is shown by the Report, and by the use of our services by people throughout the world. To build upon our past success seems to me an obvious course. To clamp down not merely by taxation and other disincentives, but also by creating an adverse public opinion to those providing these services must be contrary to the best interests of the country. By so doing it becomes increasingly difficult to recruit the quality of personnel required and nothing but the best quality will do at the top any more than it would in a manufacturing industry.
I personally would regard a boost to morale and therefore to recruiting as more important even than equality of 608 treatment for tax purposes in other fields equally productive of foreign exchange, and I have noted that the noble Lord, Lord Crowther, also places the priorities in the same order. I regret that the noble Lord, Lord Balogh, is not here, but perhaps I may refer to his remarks when he said that the future of this country lies in technology and the development of technological industries. I agree that that is so, but I do not agree that we should go technological and cease to develop on the success which we already have in the expertise which we possess. We should do both and I see no conflict between the two.
I should now like to turn to what I hope are two constructive suggestions in regard to what your Lordships may feel are minor points which do not appear in the Report but which I feel are relevant to what we have been considering, particularly in connection with the field in which the noble Lord, Lord Geddes, is interested; namely, travel. In both the instances I should like to place before your Lordships I place in the forefront the emphasis on London (I think that London is what I mean rather than the United Kingdom for geographical and communications reasons) as even more of a world centre than it is at present. I believe that by so doing one can stimulate the requirement for services from this country which we are debating to-day and we can also stimulate our visible exports of goods. If we can make London the centre to which people from all over the world naturally come to meet together even more than they do at present, I believe that we shall achieve in some measure that end.
Some time ago there was a proposal for a Convention Centre to be built on the site of the Covent Garden Market. That proposal incorporated the suggestion of a large meeting hall with smaller meeting halls in one complex, coupled with three or four substantial buildings around it, one of which would be an hotel and the others a base for institutes of learning and other institutes dealing with particular topics. Whatever the rights or wrongs of that scheme—and I think it was turned down on planning grounds—it seems to me that such a centre would be an immense boon to London. I believe that it would draw people from all over the world to such 609 a centre, properly equipped with television and radio facilities and all that is required in a modem Convention Centre. The United States is not ideal for a world centre for this purpose. It is a long way from Europe. We are not. London has the benefit of speaking the same language as the Americans and it has proximity to the Continent. It is a cross-roads in the world of air travel. Therefore I believe that the country would be well served by having such a centre and that it would be well worth spending money on developing such a centre here. I should be interested to know whether Government have any view on this and, if so, what it is. At one time, when the Covent Garden Market scheme was proposed, I believe they were concerned about this matter. They have already given support to the proposed International Press Centre in London which is progressing. This seems to me to be a move in the right direction to make London a real focal point.
The other suggestion I have to make is that the position of headquarter companies of international groups in London should be considered and reviewed. There are an increasing number of companies whose shareholders may be in one country or in many countries. These companies operate in many parts of the world, and many of them have set up and many more wish to set up a controlling co-ordinating company—a centre from which they will operate either world-wide or, in the case of American companies, they sometimes wish to have one in this country or on the Continent of Europe to govern their interests outside the United States. This is for them a convenience of communication. It would seem to me only of advantage to this country if London were regarded as the point where such headquarters companies should be established. Your Lordships would not wish me to say where they are at the moment; some are in London but many are not. Many of them are not here because of certain tax disadvantages, not only for the company itself but also for the senior people in it. I should therefore like to place before the Government the suggestion that some consideration be given to the encouragement of the establishment of headquarters companies in this country. 610 Both the convention proposal aid that proposal are designed to attract to London the top people, the focus of the world.
§ 7.21 p.m.
§ THE MINISTER OF STATE, BOARD OF TRADE (LORD BROWN)
My Lords, perhaps I may start by thanking the noble Lord, Lord Aldington, for initiating this debate. It has certainly been a very successful debate in achieving the purpose of focusing our interest on the subject of invisible exports—not, I would most sincerely add, that Her Majesty's Government are not already interested; indeed, I think it is true to say that nobody who has been in Government could fail to be interested. The figures have always been available in particular forms—but I think this debate has been valuable from the point of view of focusing the interest of the country at large and of its industrial leaders lip on this extremely important topic. Before I go further, may I pay my tribute to two notable maiden speeches from the noble Earl, Lord Limerick, and the noble Lord, Lord Remnant. I am sure that we look forward to hearing further contributions from them in the future.
If one looks at this Clarke Report, which I join with other noble Lords in praising to the fullest extent, one faces the fact that, to put it in grossly oversimplified terms, we have here a different analysis of the invisible exports from that which has been given for a long time in the various Government publications. One has an industrial analysis instead of a functional analysis, and to this extent it is very important. At the same time, I think that in the enthusiasm—I was going to use the word "euphoria", but perhaps that is the wrong word—that has been expressed for this Report what is likely to be overlooked is the extraordinary complexity of attempting to analyse invisible exports under industrial headings—if I may use a term which does not quite fit, because there is no other term which I can think of. Functional heading analysis is easier and more accurate to achieve, and I hope that the Committee which is now sitting will, through its work, be able to refine the figures in a way that is called for in the Clarke Report itself.
611 One of the results of the complexity of this fresh analysis here, and indeed of the whole subject of invisible exports, is that many of those who manage manufacturing companies have regarded the operations of the City, of the banking system, of the Treasury itself, as a sort of undisclosed mystery and have attempted personally to steer clear of it altogether, leaving it to their advisers to help them through these difficulties. One constantly hears—and I heard and felt it when I was in industry—that it is a rather dangerous mess with which to get oneself involved. It is a matter for professionals to guide one through it. It is this air of mystery, not generated deliberately by the City or anything like that, that has led to this peculiar attitude of lack of appreciation of the essential part played in our balance of payments affairs by invisible exports.
Those who earn invisible exports overseas have become very vociferous in recent years in deploring what they regard as this lack of interest, and at times they have gone so far as to suggest that the Government show a lack of interest. I do not think that is true. I think it is society as a whole that seems to do this. There has never been a time when the Treasury or the Chancellor has not been fully aware of the importance of this matter—and I am talking about the Treasury at all times, and Chancellors back through the years at least to the last war. The trouble has always been the difficulty of making simple but accurate statements about the contribution of the various types of activity.
If I may just take an example, I will take the case of export houses. The Clarke Report suggests, after making some quite large approximations, that they earn £26 million worth of invisible income each year, as a sort of average. I am in no way challenging the usefulness of export houses. How could I? They handle (to use another vague word) £1,000 million worth of exports every year. Some buy goods in the United Kingdom and sell them overseas. Some handle them on commission, and the invoices sent to the customers overseas include those commissions. Are those invisible earnings or are they simply part of the cost of direct exports? The Clarke Report has come down on the idea that they are part 612 of the invisible earnings, but another way of looking at it would be to say that they are part of the cost of the physical exports that are going out. Certainly, if a manufacturer handled the negotiation and shipment himself, he would not consider that the cost of doing so constituted invisible earnings when included in the price charged to the customer. I am not questioning at all the validity of the Clarke Report. I am merely throwing up some of the complications of the conceptions surrounding the whole issue.
My Lords, if this is true of the rather simple business conducted by export houses, how much truer are these remarks of the much more complex operations conducted by banks, insurance companies, merchant banks, shipping companies, and so on? These really get into a stage where there are no clearly defined boundaries under which they can be discussed intelligently, one person with another. I think this is the reason why there is this—not lack of appreciation, but lack of understanding. I hope that the effort of the Committee that has now been set up will contribute to a deeper understanding than at present exists.
I must now turn to a subject which has been mentioned by the noble Lord, Lord Aldington, and others in this debate. I refer to this newspaper article. I did not particularly want to do so, but I am going to do so fairly rigorously. I have been handed a copy of it and the heading is:The Bank acts to check on investment flow to sterling area".What has happened is that the Treasury have decided, as the Clarke Report people decided and as this new Committee have decided, that they want some more information about portfolio investment. This newspaper article carries that heading simply because the Treasury are seeking some information. The article goes on to say that:… the Government will now have—and presumably act on—detailed knowledge of the effect of the portfolio investment cost to the United Kingdom balance of payments".The noble Lord, Lord Aldington, quite fairly, says: "Tell me what the Government are going to do". All of us in this House know that asking Governments their intentions about matters like that, about devaluation and so on, is asking questions which no Government in their senses would attempt to answer. 613 I merely say that the Government have acted to get more information.
Then this same paper, a week ago last Friday, had the headline:France devalues the franc".It did not apologise on the Saturday for a gross piece of misinformation. To my personal knowledge, a year ago this paper published a complete inversion of a statement of some importance which I had made. They were sent for the next day. They did not deny it, and they were asked to put me right in the eyes of those who thought I had behaved like a perfect fool. They published a clear statement without pointing out that they had put false words into my mouth. Subsequently, I wrote to the Editor and I said,This is an act of lack of integrity. Your paper is not honest.He replied saying,These are very serious charges indeed which you have levelled at us. I will investigate them.But, my Lords, in spite of a reminder from me a month later, that apparently he had still not investigated these serious charges, I have still not heard from him. Can we put up with a newspaper that has done these things and is doing them repeatedly, and raising these issues in the House?
We are all, in a way, "suckers". We politicians—if they must call us that—sometimes make remarks which are quite clear to each of us across the Floor of this House, and then some newspaper like this one puts a construction on them which starts a row and we get into a terrible discussion about the "gnomes" of the City, or something like that. But it is all started by a newspaper, not by us; and the public gaze upon us, squabbling over these stupid affairs, and our status is lowered. The real "nigger in the woodpile" is some of these members of the Press who like to make news, and who, if they are short of what they regard as good news, manufacture it. So much for that. I do not want to say any more about the Press but, as your Lordships can see, I am feeling rather "hot under the collar" on the subject.
Now let us turn to the analysis of this matter of overseas investments. During this debate a number of noble Lords 614 have spoken about the size of our overseas investments—the noble Lore, Lord Aldington, the noble Earl, Lord Limerick, the noble Viscount, Lord Watkinson, the noble Lord, Lord Aberdare, and I think one or two others as well. It is difficult to keep a note of all the comments that everybody makes about everything. I have some figures here which I do not think are fully appreciated by everybody in this Howe, and I am going to bore your Lordships with a few statistics, if I may. Direct investment by the United Kingdom overseas—that is, direct investment by industry and the like—in the four years to 1967 runs like this: £263 million, £308 million. £276 million and £267 million. Total investment (that is, including portfolio investment and elsewhere) runs like this £396 million, £353 million, £303 million and £424 million. There has not been a falloff. But where the fall-off has occurred is in the net balance of inward and outward investment. That has been: £254 million, £117 million, £23 million and £29 million. That was the effect that had to be produced. It has been brought about largely, of course, by measures which have prevented our overseas investments from rising, as I think they would have risen substantially, and by a very big flow of inward investment into this country.
Now when the noble Viscount, Lord Watkinson, draws attention to the difficulties in which some firms find themselves in not being able to follow up, I sympathise. He knew I sympathised. I have been in this position myself. But let us not confuse this individual case, where somebody is stalled in plans which would be helpful to our indirect exports, with the general case that there is a tragedy going on in this country of a very severe limitation in overseas investment. In one way it might be better if it were a good deal more limited than it is at this moment of time. Bit let us realise, as the Government have repeatedly said, that this is intended as a temporary restriction to help what we hope is a temporary balance-of-payments situation. It is not a policy which we like pursuing.
We in the Government know very well that the revenue arising from past investment overseas is a very valuable part of our economy to-day. We have 615 no wish to kill this off; but shortish-term measures must be taken. The figures of Professor Reddaway were quoted. I was surprised when I read it to realise that there might, by restricting investment, be a benefit to the United Kingdom balance of payments for a period of ten years. I thought it would be a much shorter period than that. I was amazed that it was such a long period. However, let us hope—and I think there is reason for hoping—that we can rapidly get into a balance-of-payments position which will enable us to take a more liberal attitude to the pursuit of overseas investment and the building-up of invisible exports to succour us when we run into trouble in the future, as they are helping us so much at the present time.
I should like to say a word about Government expenditure overseas. My noble friend Lord Beswick has already referred to this, but I think it is worth emphasising. There is a great deal of anxiety about the rate of Government expenditure here at home. I am not going to enter into that argument. I think it is over-emphasised. But when one looks at these figures of the rate of Government expenditure overseas one has to realise that this Government have done an extremely good job in this respect. In real terms, the amount has fallen—and we have yet to receive the benefit of the curtailment of our Forces in the Far East, a benefit which will take several years yet to arrive but which is in train, as we all know. So if these Government figures decline in the future, as I hope they will and as I think there is every evidence that they are going to do, then we shall see the net balance of invisible exports rise. That is a matter which should be emphasised in this debate.
I have a note here to the effect that the noble Lord, Lord Aberdare, drew attention to the idea, which I admit I had not heard before, of financing Government overseas investment, as it is called in the books—that is, aid and other types of capital exported by the Government—by drawing on a long-term loan from some international source. I hope I have understood him correctly. I shall certainly have this looked at. My immediate reaction is to suggest that if we were to finance our overseas aid, our loans and our grants, by these means, I doubt 616 whether we should be able to tie aid as we do to-day; and if we were borrowing long and lending short in this way, and allowing these loans to be used for the import of goods from other countries. I am not so sure that in the long-term the deal would be helpful to us. It might be the other way round. I think that is the point which would most cause me to look very carefully indeed at this suggestion; but we will have it looked at. I must acknowledge the very kind remarks which the noble Lord made about me personally, for which I am extremely grateful.
The noble Lord, Lord Crowther, raised the question of E.C.G.D. and their resistance to the insurance of feasibility studies and consultancy projects overseas. I will undertake to have this matter looked at again. One knows that one of the chief barriers to this form of insurance is that normally the policy is used as a means to get money quickly from the bank, and if the policy is used in this way the bank must have recourse to somebody. Recourse cannot be given normally to a consultant firm, which seldom has any physical assets which would make it a viable matter. I think this is the chief barrier to E.C.G.D. insurance of nonphysical exports of this kind. But I undertake to have this matter re-investigated. I have not heard a lot about it recently, and I will see what we can do. If I have anything encouraging to say about it, I will write to the noble Lord.
A great deal has been said in this debate about hotels and tourism. The noble Lords, Lord Aldington, Lord Crowther, Lord Mancroft, Lord Geddes and Lord Nathan had something to say on the periphery of this subject, which I will come to in a moment. What is clear—and this remark might cover a great deal of the debate—is that very many people are against taxation, especially when it affects them. One might dare to make this remark: that this House is celebrated for the fact that for any particular debate it can call on a range of people closely associated with the subject which is under debate. There is one disadvantage to that, and it is that those who come from (in the case of this afternoon) areas associated with invisible exports come here not only to inform the House out of their experience but also as advocates for lower taxation for their own 617 operations. I believe it would not matter what area we were discussing: if we had experts from an industry or from a profession, or whatever it may be, giving us their help in a debate, they would also be advocates for the relief of their particular profession from those forms of taxation or other matters which were felt to press upon them.
I always remember that when I ran factories in industry I was, in a very light way, a student of Keynes. I understood from Keynes that differential increases of payment to one sector of a large group constituted a differential reduction of pay to the rest of that group; they had gone down. This was very true of industry; and we came to the conclusion that the only way to give anybody an increase in pay was to get it agreed upon by all. This may sound an impossible undertaking, but it worked out very well indeed. It seems to me that if we could have everybody who through the years had taken part in debates and made pleas for some betterment of the lot of their profession or their type of business, meeting together so that they could all simultaneously make claims on the Government for a reduction of taxes or for more benefits, we should see where we stood in this matter; everybody would be claiming something, and all would then realise that, on the whole, the differential fairness of the current position was not quite as inequitable as it previously seemed. That, really, is my main reply to the many comments which have been made about the various forms of onerous tax which bear on various parts of our invisible export earners.
I think that on the whole hotels and tourism have done better than the rest. I look at the figures of the amounts provided to help them to stimulate their particular form of earnings and compare what is being spent—the noble Lord, Lord Geddes, referred to £3 million being available for the new Boards—with the £280 million of invisible earnings as a ratio to the amount I have to spend on physical exports at the Board of Trade in ratio to their £6,000 million. I think the noble Lord, Lord Geddes (he is associated with the British Tourist Board), knows that he is very lucky indeed. I draw a differential comparison. I am not suggesting that this is a lavish amount; it may be that we ought to 618 spend more. But we must look at differentials in this matter.
While I am referring to the noble Lord, I should like to thank him for the welcome he has given to the recent Government statement about the changes proposed—and, indeed, the changes made necessary, I acknowledge, by the sheer success of the preceding institutions; or perhaps they are still existing. I am a little rusty on this. It is their success that has made these moves possible, and I am glad that the noble Lord welcomes them. May I add that we have no intention whatever of allowing the new statutory board to become unrealistic or over-bureaucratic. All boards are bureaucracies really; but they must be efficient, forward-looking, dynamic, business-like bureaucracies. I can assure noble Lords that this is our urgent desire in the selection of people. I suspect that the noble Lord, Lord Crowther, does not know how critical he can be at times.
§ LORD BROWN
My Lords, I shall not go on with my comment. The noble Lord, Lord Nathan, referred to the Covent Garden scheme. I will take note of what he said. I or somebody else will write to him about this. I am not briefed on this subject, and I should not like to attempt to answer at this stage. When the noble Lord referred to the idea of the City providing headquarters for some of these overseas companies who wanted to set up a centre to keep control of their international investments, I became quite excited. I thought, what a good idea! I thought he was going to impress on the City the idea of getting together and thinking about it. And then suddenly I heard him say that they will not do it unless the Government do something specific about tax. The idea of relieving individuals, I take it, or companies, of tax specifically to attract these to the City is something that could not be entertained. There are other and bigger reasons for dealing with tax than that. No doubt the City will take note of his remarks, and despite the handicaps of our present taxation system let us hope that Lord Nathan's dream will, at least partially, come true.
619 My Lords, I was very surprised that nobody made any reference to civil aviation, one of the means of earning invisible currency that I think is possibly more likely to develop in the future than any other. The noble Lord, Lord Geddes, referred to the matter of the difficulty over the statistics of the shipping industry, and I am glad that he acknowledges the fact that the Government Central Statistical Office have indicated their full co-operation in attempting to get better statistics than are available. I wish them luck in their endeavours. The noble Lord referred to the fact that the British shipping industry, by the services it provided, was providing invisible exports to the extent of £450 million. I must say that I think this is something of an exaggeration. I do not know whether, in giving this figure, he has taken into account the costs of the shipping bought overseas or other forms of capital investment that go with it. I make these remarks not to throw doubt on the great value that the shipping industry is giving us in this country—nobody could question this—but to suggest that it does not do any good if any degree of euphoria is allowed to develop in support of the figures which are claimed for various sectors of the invisible exporters. There is beginning to emerge a slight touch of euphoria, a building up of figures. I think this a pity. We must keep our feet on the ground.
The noble Lord, Lord Terrington, raised three subjects. I think I have three unsatisfactory replies to give him, but nevertheless I shall give them. First, stamp duty. I am informed that certain provision was made in the Finance Act 1967 that relieved the situation a little; but that any further exemption would be too costly to the Revenue at the present time. The second subject was a proposal for an increase in the number of fixed interest securities free of tax to non-residents. I understand that, here again, recent Government issues have been on this basis. This recommendation will be borne in mind as regards other fixed-interest stocks. But noble Lords should be aware of a disadvantage in that the United Kingdom tax forgone would go to the non-resident's Government and not to the non-resident. The third point—one about which I know a 620 good deal more—is the question of no par value shares. The Government have accepted the principle of no par value shares; but the question as to when we move on this matter is not so clear. The timing of legislation is not yet decided. I will leave the matter like that. I will not commit the Government to a definite date. The principle is acknowledged; and I hope that we shall be able to do something before the end of this Parliament.
My Lords, I could spend a great deal of time on the question of selective employment tax; but I am grateful to my noble friend Lord Balogh for drawing the attention of noble Lords to the fact that the reason for this tax being introduced was largely because the differential tax on services, as against goods, was considered to be much too low. I have been given figures which show that at one time the tax on services was as low as 2 per cent. and on goods as high as 40 per cent. I do not really know what these figures mean; they are the result of some very theoretical calculations. On the other hand, in the four years before S.E.T. was introduced, 1,100,000 people joined the labour force of this country. Of those, 140,000 joined industry; the rest went into services. At that time I was at the Board of Trade and was constantly faced with large concerns who were unable to quote for major engineering projects overseas. Why? Because they already had order books longer than the labour force they could acquire on the market. They were short of 400, 500 or 600 people and could not risk taking more contracts at that time because they could not be sure of getting the labour force. All I know is that figures like this were quoted at me. Within a few months of the introduction of S.E.T. I heard no more of that.
I think that S.E.T., despite all the criticism, has resulted in a slowing down of the rate at which the services grew and, therefore, the provision of rather more labour in the manufacturing industries. When we think of invisible exporters and and their groans about S.E.T. (I admit they are entitled to groan; anybody who thinks he is unfairly treated must speak out in our society) one may conclude that perhaps there is an element of unfairness in this.
621 One has to remember that the service industries in this country cover a very much wider field than our invisible exporters. We all recognise that. They cover luxuries not so easy to come by in wealthier societies than ours. We have more help in our homes than is found in most American homes. We have more help than in many European homes where perhaps the incomes are larger. We have the luxury of a driver and a conductor on our buses when in many countries overseas only one person operates the bus; and we have all sorts of inefficiencies in our services and all sorts of lavish services in our retail trade and delivery systems that we must get rid of. One way of doing that is to tax them more heavily and make the taxes less able to be borne by the industry in question. This results in everybody looking afresh at their employment of labour to see whether they can do with fewer people, so that we can make use of more labour in other industries and export and help our balance of payments. I think that this is the case for S.E.T. I agree that it has been crudely applied. The manager of an American buying house in London, whose sole function was to purchase British goods and export them to America came to see me because his firm was being charged S.E.T. I thought that then I had reached the extreme case of unfairness.
But the difficulty is to segregate one type of service from another. One has to remember that it is commonplace to find firms being not only invisible exporters but invisible importers as well. It is extremely difficult to be able to segregate them and decide who should bear the tax and who should not. Serious studies have been made by the Government to discover whether we can discriminate further. I hope that we shall be able to do so in the future. I hope that the matter is not finished; studies are now going on. I acknowledge that there is some unfairness, but I do not think that the total case has been made out against S.E.T. I believe it to be a very sound form of taxation, and I say that with the utmost sincerity.
The noble Earl, Lord Limerick, made the point that the withdrawal of third country credit (if I may put it that way; I think we all recognised what is meant by that term) was a tragedy because the 622 returns on it to those who were giving this credit was about 8 per cent. Here I wish to correct a possible mistaken impression. It may have yielded invisible earnings of £4 million in a year, or something of that order, but to the extent that this country's deposits were reduced by £50 million this country would have to replace them from overseas and interest would have to be paid on them. So if you take the total account, nationally, so to speak, instead of looking at it purely from the point of view of a city firm or the bank giving the credit, the figure is not 8 per cent. but a very much lower figure. This is hard on the people who have to start a traditional trade. I hope it is temporary and that we may get into a position where we can reintroduce this credit. But I think it right that it should have been curtailed in this way.
Finally, on the subject of the Queen's Award, I know that there must have been severe trepidation when it was introduced, because the singling out of part of the national effort for an Award in this way is an obvious form of discrimination which may raise all sorts of protest elsewhere. It was based on physical exports, direct exports of goods, because there are several features of direct exports which are different from other forms of exports, invisible exports. First, they are all invoiced and can be physically recognised. Secondly, most of the concerns that are exporting goods are not also large importers.
Very often invisible exporters may be putting up an extremely good show and producing a substantial margin of invisible exports. They may perhaps be earning two, three, four or five million pounds; but very often you will find that the two, three or four million pounds is the product of a very large import of invisibles as against a still larger export of invisibles. In other words, whereas the import content of manufactured goods averages somewhere between 10 per cent. and 15 per cent., the operations of the City, with all the substantial earning of overseas currency, are international in character and it is the margin that is valuable. If you look at the Clarke Report figures with the invisible imports and the invisible exports you find that they are two enormous figures with a very small difference. This difference is, 623 however, of very great value to this country. In this situation it is more difficult to take invisible exports earned without netting them, and when you begin to net them you throw up the question whether you ought not to net also the physical exports of manufacturing industry. All these questions come up and have to be considered. At one stage the noble Viscount, Lord Watkinson, had a discussion with me about that. We discussed the complexities, and I agree about the unfairness.
One thing, for me, which has come out of this debate is the possibility that, whereas it would be difficult to extend the Queen's Award in its present form (though we shall be looking at it: I think that 1970 is the due date), one might devise some equally attractive insignia of excellent performance and award that. I hope that it would be left to a committee of some City people to decide who should award it, because I should be very reluctant to have anything to do with reaching decisions on a matter like that. I am quite sure that when it comes to making the Award there will be a fair amount 01' criticism. That is the sort of trouble that can be met, and I take that idea away from this debate.
My Lords, I must apologise because I am quite sure that I have failed to cover many of the questions that were asked, and many of the comments which were made. Noble Lords will realise, however, that this is a complex subject and that the hour is late; and I think that your Lordships would welcome my sitting down rather than going on to try to answer everything. I close by saying again that I am very grateful to the noble Lord, Lord Aldington, for initiating this debate.
§ 7.58 p.m.
§ LORD ALDINGTON
My Lords, I should like, in two or three minutes, to express my thanks to all noble Lords who have taken part in this debate. I would start by expressing a special word of thanks to the noble Lord, Lord Beswick, who spoke in what I thought was a very good-humoured and helpful way. He got the debate going in a tone that was carried on right to the end. I should also like to thank the noble Lord, Lord Brown, for the cheery way in which he met some of the difficult balls that 624 were bowled to him. I think he dealt with them in a fairly aggressive manner. I was not absolutely certain that he was right in all his replies. I think that if he looks carefully again at what he said about the point put by my noble friend Lord Limerick, he will rind that he has not got the answer quite right. I say this from my own experience, but I have not had a chance of talking to my noble friend.
Before I come to the two maiden speeches, there is one comment that I should like to make. Noble Lords opposite are really sensitive about what The Times says. I shall be interested to see what The Times makes of their speeches to-morrow morning. I have some experience of being misreported by The Times and other papers, and I know that it is absolutely infuriating. But I hope that the Government do not become too sensitive about what The Times says, otherwise I do not know which newspaper they are going to read.
§ LORD ALDINGTON
Very good. The noble Lord, Lord Robbins will be delighted to hear that. I understand that noble Lords opposite had to give up reading the Daily Mirror earlier in the year, and if they had to give up The Times, that would be very sad.
I am very grateful to the two noble Lords who have honoured with their maiden speeches a debate which I started. I cannot think of two speeches which have been more agreeably received in your Lordships' House or more delightfully delivered, with the modest authority of men who know exactly what they are talking about. I personally look forward very much to hearing much more from both noble Lords.
I think that the House will feel—and I think the noble Lord, Lord Brown, feels—that a powerful case was made out, in the way in which we meant it to be, for getting a better understanding of invisible earnings. This case was challenged, it seemed to me, by only one noble Lord who spoke—the noble Lord, Lord Balogh. I feel that the noble Lord has a defeatist approach to the future of invisible earnings, and if that were really the feeling of the House, we should have failed in what we set out to do. The noble Lord made the case that these 625 invisible earnings arise out of our old Empire and that once the Empire is gone down go the invisible earnings. The statistics do not show that at all. I would refer the noble Lord to Table 7 in the Report, which shows the invisible credit per capita for the various countries in the world. On the noble Lord's analysis, one must assume that those at the top of the table are great imperialist countries. Let me read them out: "Norway, Switzerland, Netherlands, Denmark." I do not think of Zurich as the capital city of a great empire. So I trust that the noble Lord will re-think his defeatist approach. I much prefer the attitude of the noble Lord, Lord Nathan.
I hope that the noble Lord, Lord Balogh, will accept from me that a good man engaged in business to-day, whether in invisible or visible trade, does not take this rather analytical approach. If such men find that in something which was begun one way all the advantages they used to have are gone, they look round and find another way of doing it. I believe that that is what has been happening in the invisible earnings field. That is why these earnings have gone up, and that is why they will continue to go up. That is why we have heard cries of help from my noble friends Lord Tangley, Lord Terrington and Lord Remnant, who are looking to see how they can do even better, albeit for themselves, but certainly also for the country, in their portfolio investment in dollar countries and elsewhere. I hope that when the noble Lord has had time to consider what he said, he will have a more robust and optimistic view about these matters. I am afraid that I am a tremendous optimist about what can be done, and I had hoped to get some of your Lordships to follow me in that optimism. And I think that that was the general tone of the debate.
I should perhaps regret that nothing was said about oil this afternoon, but we 626 cannot cover everything in a few hours. My noble friend Lord Watkinson made a perfect speech about direct investment overseas. This is a subject very dear to me, one which I have tried to study, but I cannot imagine the case for it being put more lucidly and more concisely than it was put by my noble friend, and I am afraid that, in spite of what the noble Lord, Lord Brown, said, I would still back my noble friend in a duel with him.
I sensed a cri de coeur from the noble Lord, Lord Crowther, who is an expert on hotels. His speech reminded me of a book I read when I was young, Odtaa, which, being interpreted, means "One damn thing after another." I think that was what he felt had happened to hotels since he first knew them. I think he has a good point about consultants and their overseas earnings, and the attitude of Government to them. We heard the noble Lord, Lord Geddes, on tourism, travel and shipping, and I cannot think of a better expert than him Others of my noble friends, and other noble Lords, made speeches on subjects about which they are acknowledged experts.
I take last, but not least, the speech of a man I regard as my noble friend—Lord Carron, whose speech will repay reading by everyone outside this House. From my knowledge of him I would say that if ever I wanted a man to blow away all the nonsense about human relations, I would send for him. He did, for me, explode the "vendetta" idea between City and Government in the simplest and most thorough way, and I thank him for it. I feel that the debate was worth while just to have those words put on record. With these words, my Lords, I would ask leave to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.
§ House adjourned at six minutes past eight o'clock.