Lords Sitting of 17 July 1968

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

LORD BLACK
Sir William Rushton Black, Knight, having been created Lord Black, of Barrow in Furness in the County Palatine of Lancaster, for life—Was, in his robes, introduced between the Lord Wakefield of Kendal and the Lord Nugent of Guildford.
LORD JACQUES
John Henry Jacques, Esquire, having been created Baron Jacques, of Portsea Island in the County of Southampton, for life—Was, in his robes, introduced between the Lord Rusholme and the Lord Peddie.

JUTE WORKERS AND CANCER RISK
2.25 p.m.
LORD CROOK: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether the Factory Inspectorate has already investigated and, if not, whether it would now investigate, the question of the risk of cancer for jute workers arising from the mineral oils used in the processing of jute, in the light of the report of the research workers in the Department of Public Health and Social Medicine, Queens College, Dundee, that there is a need to reduce the exposure of jute workers to these oils, and to consider the desirability of replacing the oils with innocuous substitutes.]
THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR SCOTLAND (LORD HUGHES): My Lords, it has been known for many years
302
that certain oils used in industry may be carcinogenic, but evidence so far available shows that for jute workers the risk of skin cancer is very low. Where it does occur, the condition is fortunately readily identifiable and responds favourably if treated early. Following publication of the report referred to by my noble friend, the Factory Inspectorate made a special investigation into the types and composition of the oils used in the jute industry and into the incidence of skin cancer among the workers to see whether any new factor had emerged, but found no change in the situation.
LORD RHODES: My Lords, may I ask the Minister whether he is aware that there is no necessity whatever to use mineral oils for lubrication of fibres, either vegetable or animal, and that it may very well be that these mineral oils are being used for the lubrication of machinery? May I draw his attention to the investigations which were carried out in the cotton industry into the disease known as spinners' cancer?
LORD HUGHES: My Lords, my noble friend asked whether I was aware of that situation. The answer is that I am not aware of it.

PROCEDURE: QUESTIONS AND WRITTEN ANSWERS
2.27 p.m.
LORD MANCROFT: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask the Leader of the House whether, without trespassing upon the rights of Members, it may be possible to devise some procedure whereby Questions involving numerous, complicated or divergent matters could be prompted to appear on the Order Paper not as Starred Questions, but rather as Unstarred Questions, or Questions for Written Answer.]
LORD BESWICK: My Lords, I will, with leave, answer this Question on behalf of my noble friend Lord Shackleton, who much regrets that he is unable to be here himself. Without commenting at this stage on the merits of the

303
noble Lord's suggestion, we would welcome discussion of this matter and suggest that in the first instance it might be undertaken by the Procedure Committee.
LORD MANCROFT: My Lords, in that case, may I be forgiven for inquiring whether there are any vacancies on the Procedure Committee?
LORD BESWICK: My Lords, the noble Lord may inquire. I shall make inquiries myself and let him know.
LORD ROBERTSON OF OAKRIDGE: My Lords, does not the noble Lord think that sometimes the representatives on the Government Front Bench might get over this difficulty by being a little briefer in their replies and a little less considerate to those Members of the House who ask many irrelevant supplementary questions?
LORD BESWICK: My Lords, coming from one of the most considerate Members of the House, I find it a little difficult to accept from him that one speaking from here should be inconsiderate to others. But certainly we shall bear in mind what the noble Lord has said.
VISCOUNT ST. DAVIDS: My Lords, would my noble friend agree that this Question itself involves "numerous, complicated or divergent matters", and could very well appear on Line Order Paper as an Unstarred Question?
SEVERAL NOBLE LORDS: No.

NUCLEAR POWER
LORD BESWICK: My Lords, at a convenient moment after 3.30 p.m. my noble friend the Leader of the House will be making a Statement on nuclear power.
CITY OF LONDON (VARIOUS POWERS) (NO. 2) BILL
Read 3a, with the Amendments, and passed, and returned to the Commons.

FINANCE BILL
2.30 p.m.
THE MINISTER OF STATE, BOARD OF TRADE (LORD BROWN): My Lords, I beg to move that this Bill be now read a second time. I find myself in an unfamiliar position this afternoon, for I have never before taken part in the annual debate on the Finance Bill. In considering what I should say, it seemed to me that the guts of the situation with which the Bill is attempting to deal is our national balance-of-payments situation. This is the central topic which I think most deeply concerns all of us. I propose, therefore, to focus all of my comments on that aspect. I trust I shall be forgiven, therefore, for failing to deal with the many other subjects which the Bill covers. No doubt some of these other subjects will be raised in debate, but I shall leave it to my noble friend Lord Beswick to deal with these in his summing-up speech at the end of the debate.
On the Monday evening after devaluation had been announced, the "Twenty-Four Hours" programme on B.B.C. started with a black screen on which appeared a vast figure stating total United Kingdom liabilities, but there was no mention of the counter-balancing assets. I must confess to being very angry when I saw that, for the public find difficulty in understanding national financial issues, and to quote liabilities in this way without showing assets is highly misleading. I was in Australia recently and met a large number of businessmen, reporters and politicians, and the picture in the minds of many of them of this country's financial and trade situation I found to be highly inaccurate. It was a much more sombre picture than is justified, and they welcomed the rather more realistic picture which I was able to present to them. These are two instances, but such examples of over-playing the gloom and the false image that this creates abroad abound to-day. They are depressing the spirits of our citizens, our businessmen and even, at times, our own politicians.
A recently published estimate suggested that the United Kingdom ended the last war a debtor nation with short and long-term debts of the order of £5,000 million total. Set against these

305
there were gold and dollar reserves of well under £1,000 million and perhaps £3,000 million worth of overseas investments—a total of £4,000 million.
LORD AILWYN: My Lords, I wonder whether the noble Lord would forgive me. Could he speak a little slower? It is a little difficult to take in some of his remarks.
LORD BROWN: I apologise to your Lordships. I am afraid it is a fault of mine. I will watch it.
From the 1967 pink book on the United Kingdom balance of payments we find that at the end of 1962, total identified assets had risen to £13,000-odd million and total identifiable liabilities to £11,745 million, giving a surplus of assets over liabilities of £1,355 million. By the end of 1966 our assets stood at £17,800 million, and the balance over liabilities had increased to £1,415 million. An estimate for the end of 1967, taking into account the effects of devaluation on the sterling value of our assets, is not yet complete, but I am advised that it is likely to show that our net creditor position has increased. In other words, since the end of the war we have changed from being a debtor nation to a creditor nation, and this is a fact which comes as a very gratifying surprise to those with whom we trade overseas. I believe it is essential to drive home these facts, for the grossly exaggerated picture of our situation which inhabits the minds of people overseas does damage to our trade relations and makes the job of our exporters more difficult. Those comments have, it is true, to be balanced by some more sombre facts. Too much of our assets is in long-term and too little in quickly realisable investments, and we have incurred heavy, short- and medium-term indebtedness. The need, therefore, for us to earn and sustain a surplus on the balance of payments is paramount. I hope noble Lords will not assume that because I seek a more realistic portrayal of our true position I am in any way depreciating the magnitude and urgency of the task which faces us.
I now wish to draw attention to yet another factor which I think is unnecessarily damaging our imagine among our overseas customers. Noble Lords are well aware that when foreigners withdraw
306
funds from London they weaken sterling, but that nevertheless the act extinguishes a United Kingdom short-term liability, and that if we borrow an equivalent amount, say, from international banking sources to replace the funds wits drawn then no monetary change has taker place on our national balance sheet. I hive no intention of belittling either the assistance provided to the support of sterling by international lending facilities or the seriousness of the situation which has caused us to draw so extensively on those facilities. When, however, I find that businessmen and others all round the world are being led to believe, by the manner in which this subject is being treated in the Press, on television and on radio, not only that such activities to support our international currency are current account transactions—this is the impression which is given—but that we are thinking of enhancing our standard of living on these short-term banking transactions, then I really think that it is high time we attempted to clear the air.
When I visit overseas countries and explain matters in these terms I have evoked surprise and a considerable amount of relief. I am convinced that nothing is so damaging to our exporting prospects as unwarranted gloom or confusion over our own national economic affairs. Misunderstanding of the balance of payments position is also likely to occur in relation to our current earnings. The average deficit per month on visible account so far this year is £70 million. These are the widely-published trade figures, but a more encouraging fact which is much under-played is that whereas in recent years our net invisible earnings have averaged about £13 million per month, in the first quarter of this year they averaged nearly £30 million per month. The visible trade deficit is very serious, but as the House knows it has largely been brought about by a volume of imports which has since devaluation been considerably higher than the Government predicted, some special factors have entered into this; and, moreover, the adverse effects of devaluation on import prices hit us sooner than the beneficial effects on the volume of trade. Happily, June trade figures show a substantial drop in imports, providing some evidence that the measures of the Bill before us to curb consumer spending have at last begun to bite.

307
I believe that we may be observing the start of a favourable trend.
A great deal of advice has been directed to the Government to impose some sort of direct curb on imports. We deprecate this approach. The Chancellor of the Exchequer warned the country from the outset that devaluation would take time to work, but that it will work we see no reason to doubt. Provided we keep to the economic strategy we are pursuing—and this the Government firmly intend to do—we are confident that we shall achieve the balance of payments surplus which we need. It would be foolish in the extreme to be panicked into restrictive measures which would put at risk the expansion of world trade on which our export performance so very much depends.
In the meantime, policies to promote import savings are being vigorously pursued. The Economic Development Committees are devoting much work to the identification of fields where imports could be replaced by competitive home production. The Board of Trade is playing a part in this work. For example, at the request of the E.D.C. for the distributive trades, it is organising a series of meetings between manufacturers and distributors of a wide range of consumer goods. I do not want to attempt to give this afternoon an exhaustive list of all that is being done in this direction, but I can assure the House that much activity is in train.
All work which the Government are doing to encourage a general improvement in the efficiency of British industry is also relevant to import saving. The spate of amalgamations of firms, much aided by the efforts of the Industrial Reorganisation Corporation, is rapidly leading to the existence of a larger number of companies who have the leadership and the resources to increase their investment in the better design and marketing of goods. This leads to more determined efforts not only in export markets but in the home market also. This should lead to reduction of imports. The efforts of thousands of our smaller companies, which have been gaining momentum over the last six years, to market their goods with more sophistication is also enabling them to compete better with some of the very well
308
marketed imported goods which crowd our shops. I visit, in the course of my duties, a large number of small industrial companies in all regions of the country and though this is a sample selected because they are better than average I am deeply impressed with the changes which are taking place.
Turning now to exports I should first like to mention the Export Credits Guarantee Department's activities. Frankly, I believe that we have in E.C.G.D. the most extensive and efficient department of its kind in the world. It is flexible in its attitude and is continuously planning adaptation of its policies and new types of policies to meet the changing situations of world trade. Recent developments in the granting of lines of credit to overseas countries, in collaboration with the City, will allow our bankers to play an ever greater part in assisting our exporters. I make mention of this subject with caution, for their negotiation and operation involves the attention of highly skilled and experienced officials, of whom we have too few at present, and a cautious rate of development is therefore called for.
In May there were placed in the Printed Paper Office of your Lordships' House copies of documents detailing Government export promotion activities. I would recommend Members who have not seen this to obtain it. It is short and factual. The main theme which emerges is the greatly increased extent to which Government services are being used by our exporters. Here are a few statistics to demonstrate the point. The number of inquiries to our Export Services Branch has increased 20 per cent, since devaluation. There are now 110 export officers in the nine Board of Trade Regional Offices making 1,500 visits each month to individual firms, and there are now 36 well-established export clubs in the country. There are 690 commercial officers entirely engaged on export promotion work in our 200 posts overseas.
Here are a number of comparative figures referring to the changed situation between 1965 and 1967. Joint ventures supported by the Board of Trade at trade fairs exhibitions increased from 70 to 241; the provision of British pavilions from 5 to 11; store promotions from 58 to

309
230; inward missions from 28 to 46; outward missions from 45 to 103; and market research missions from 30 to 74.
The very important trade promotion activities of the 230 business men who serve the 12 area committees of the British National Export Council are extremely important and are growing. What is not so fully recognised is the part played by senior chambers of commerce, trade associations and export councils in promoting visits overseas by groups of exporters. Their activities now reach formidable proportions and are growing rapidly.
In the field of consultancy, constructional work, and capital equipment we want our exporters to have the fullest possible support in tackling the great opportunities presented by major projects overseas. We have therefore set up an Overseas Projects Group in the Board of Trade. An operations room is now centralising all information from all available sources about projects overseas. This will build up a comprehensive picture of opportunities for projects and allied consulting work and of how we and our competitors are tackling these opportunities. This will help us to ensure that prospective openings are brought to the attention of those best placed to exploit them and that all the agencies which can assist in securing contracts are rapidly and effectively co-ordinated.
The Overseas Projects Group is presently discussing with the nationalised industries and other Government Departments which are major purchasers in our home market how they may contribute or still further develop their present contribution to aiding British companies to win major contracts overseas. We intend to harness the considerable technical expertise and experience of these national users in combination with private independent consultants in support of the export drive.
A crucial problem facing manufacturers who wish to exploit a new market is the difficulty of finding good agents overseas. Moreover, there are few major manufacturers who have not at least some unsatisfactory agent in some markets. Good agents are scarce, and with the growth of technology and of new sources of supply they are becoming progressively scarcer. Here, then, is an important gap to be closed, and the Board of Trade have devised a scheme, known as the export representative scheme, which has the
310
object of facilitating the format on of groups of manufacturers of non-competitive products who will set up, on a joint basis, their own selling organisatior overseas or, in the case of smaller firms, who will share the cost of employing a direct sales representative in overseas markets.
We are at present exploring the scope for its application in two selected markets, and I feel that this scheme has exciting prospects for increasing exports. There are 700 merchant export houses in this country.
LORD ERROLL OF HALE: All paying S.E.T.!
LORD BROWN: Touché! I have a certain sympathy with them. We have been attempting to sort out this problem, so far unsatisfactorily.
One estimate suggests that these export houses are handling or financing £1,000 million worth of exports each year Unfortunately, they are a somewhat amorphous profession, and it is difficult to identify which export houses can be of specific service to particular would-be exporters. The Board of Trade are financially assisting them to carry out a complete survey of the profession as a means of getting more explicit knowledge of the precise contribution made by each firm and this, they believe, will lead to a situation where many would-be exporters can take far more advantage of their great experience.
As will be seen, the Government already have extensive services for helping exporters and would-be exporters. All this involves the spending of considerable sums and the employment of numerous officials at home and overseas. But not all firms can benefit from the use of these services, and too often time and money which would be of great help to serious exporters are spent trying to help those who are not effectively organised to benefit from that help. Because it is the aim of the Government that the country should get value for money, in the shape of increased exports from the use of these services, problems of priority can at times throw up worrying situations as the load on these services increases.
Exporting is not a haphazard business into which anyone can fall; indeed, some who treat it this way lower the prestige

311
of the great bulk of our exporters by failing to perform efficiently in overseas markets. Before a manufacturer can benefit from Government services he must take stock and prepare himself. There must be the right product, the right attitude to marketing, the right organisation and sufficient production capacity, or the ability to create it rapidly, to see the thing through. If a company does not really mean business on these counts it could be working against the general interest by asking our Government services to invest scarce time and resources which it is not equipped to exploit. Because of this the Board of Trade officials and commercial officers overseas have been instructed to use their efforts to the best export advantage, and if necessary to seek evidence, before providing assistance, that it will not be wasted. I think, therefore, cases are bound to arise where it will be necessary to indicate to some would-be exporters that it would be better that they delay their attempt until they have prepared themselves better, or to seek the services of export merchants with their experience to carry out exporting on their behalf. This is the policy of increased selectivity in the provision of Government services and I think it is a little new in that respect.
The Government have been criticised for acknowledging too little the great help given to our economy by our bankers, merchant banks, insurance companies, shipping companies, international traders and others who earn so much foreign currency for our invisible account. Such criticism is certainly not justified by our current attitude. We are participating in the work of the Committee which has been set up under the chairmanship of Mr. Cyril Kleinwort to keep a close and continuous watch on the whole field of invisible earnings, and we are continuously mindful of the fact that since the second half of the 19th century we have almost always had a surplus on our invisible account.
The average monthly exports over April, May and June of 1968 were £488 million as against the average for the whole of 1967 of £419 million. This represents an increase in value this year of 16½ per cent. British industry and commerce is, I think, to be congratulated
312
on this increase, but it is clear that this is a good start to an effort which must go much further. I have now little doubt that this effort will succeed. I have sought this afternoon to show the active part being played by the Government in providing assistance to these industrial and commercial efforts. I fear I have detained the House overlong but I thought it was worth while grasping this opportunity to inform noble Lords of what is going on in support of exports.
Moved, That the Bill be now read 2a.—(Lord Brown.)
2.53 p.m.
LORD ERROLL OF HALE: My Lords, it is customary for the speaker from this side of your Lordships' House to convey his thanks to the noble Lord who has introduced the debate, and naturally I do so this afternoon. But I do so with particular sincerity, because I think we have listened to an extremely interesting account of the nation's affairs delivered in a very excellent style—perhaps a little fast for some of the noble Lords on the Benches behind me. But the noble Lord spoke at his own pace—and it is a crisp and exciting pace—and I am sure that Machrihanish will expect Kilmun to reply in suitable terms. I should like to congratulate the noble Lord on a very fine discursion on the problems of Britain, and particularly on the opportunities which his own Department is creating. I feel a natural affinity for his present position because I occupied it myself some years ago, and therefore I am particularly delighted that he is carrying on the tradition of what I believe to be an important Office of State in furthering exports by all the means within the power of the Government of the day. So we are truly grateful to the noble Lord for what he has said.
Of course, my Lords, the noble Lord left a lot of things unsaid. It is hard to believe that although we are to pass the Finance Bill through all its stages this afternoon, the noble Lord made no reference to the Bill at all. However, I admire the fact that he was able to refer back to our international position for many years ago and produce new figures which we shall study with care; and was not content to deal merely with the present situation. He tried to set the matter in perspective, and he paid particular attention to the central problem of the balance of payments. Indeed,

313
when I was preparing myself to address your Lordships this afternoon I wondered how far back to go. I also wondered whether I should make the balance of payments, which I believe to be crucial to the situation, the theme of what I am going to say to your Lordships. The noble Lord, Lord Brown, has given me the perfect opening.
I am prepared to go back a little way, and I shall make the balance of payments the central theme of my remarks to your Lordships. To understand the present economic situation—and that is what we are debating this afternoon—I think it is probably right to go back to exactly 12 months ago. Then we were shaken out of our complacency. We had had Mr. Callaghan's "steady as you go" Budget, then suddenly in the middle of July—it is almost hard to remember, but it is true—there were rumours of a serious crisis. Ministers were seen bustling and hurrying about. They took up their usual panic stations. We were told that severe but well-planned measures would be announced, and before we knew where we were we had an economic crisis on our hands with important and severe measures announced in accordance with what we had been told. That was July. So we waited for the gold and dollar reserve figures for August 1 to appear.
In fact, they appeared on August 2, and we learned that the reserves had fallen by a figure of about £66 million, which was not excessive for one month, on a basic total of about £1,000 million. A number of people asked what all the fuss was about. Why had the Government had to take these restrictive measures when the reserves had fallen only by a tolerable amount for one month's trading? Well, my Lords, the answer was in the forward rate, and this was something which was very well concealed at the time.
I hope that noble Lords will forgive a moment's explanation as to how my simple mind works, because I have to put these things in simple terms—not necessarily with the aid of matchsticks, like my friend Sir Alec Douglas-Home, but in simple terms. The Bank of England is concerned basically in regard to its foreign exchange reserves with what I would call a "cash box" position. The gold and convertible currency is a
314
label on a particular cash box. During any particular month all our overseas earnings across the exchanges come into the cash box, and during the month all our overseas dues are taken out. At the end of the month the figure in the cash box is published as the figure of the gold and convertible currency reserves, and that figure goes up or down in accordance with the transactions of the previous month. So, if one looks purely at this gold figure which is published on the first or the second of each month, one can draw certain conclusions.
But there were other forces at work. We have to realise that in that month of July, when the crisis arose, many people over the world feared devaluation of the pound. So what they did was to sell sterling forward, and British importers bought foreign currencies in advance of their requirements. This was the new factor in the situation. The normal corrective, of course, is to allow the forward rate to reflect the hopes, the fears and the anxieties of traders in world markets. If the forward rate falls enough, it is not worth the expense of insuring against possible devaluation in this way and the situation is self-corrective. But for the first time in its history the Bank of England decided, on this particular occasion, to support the forward rate by pledging (and I put it in simple terms) what was in the cash box.
Within a few days during the middle of July of last year the total contents of the October cash box were already committed, and that was why everybody was running around Whitehall deciding what should be done to deal with the crisis, although it was not a crisis that any outside observer could possibly appreciate or understand. Clearly, with such a severe drain on the October cash box at the time of July, that state of affairs could not go on, and the publicly announced emergency measures were designed to prevent this situation from continuing.
Perhaps I may say that the lessons of this sorry and largely forgotten story are clear and have great relevance to our debate this afternoon. First of all, it is clear that if we are to succeed in the years to come with all the efforts of the noble Lord's Department and other Government agencies, the contents of our cash box must increase month by month—the receipts by way of trade must increase

315
and invisible earnings must exceed payments for imports and Government expenditure.
Secondly, if the world lacks confidence in Britain and the British Government, as happened last July, we can go bankrupt very quickly, because of the slender position of our reserves in ready currency. So the balance of payments, as the noble Lord, Lord Brown, indicated in his opening remarks, is the central feature of our economic situation, and that is why this afternoon I shall devote some time to the various forces which come into operation on it.
We got through July and we departed for our summer holidays, as we always do, but the next crisis of confidence occurred in October-November. The run on the forward rate in October-November was such that devaluation was the only course open to the Government. I heard that a number of important British firms who had never before bothered to buy their foreign currency requirements forward on this occasion did so, and that imposed a great strain on our position. But whatever else might be said about devaluation, I agree that it was inevitable at the time because of the lack of confidence in our position.
Devaluation, I should hasten to add, was not necessary for our exports, because we were capable then and indeed were successfully selling our goods abroad at current prices in world markets at a very high level indeed, so there can be no case for saying that devaluation was necessary to help exporting. It was simply because the world at large, and indeed our own importers, no longer had confidence in Her Majesty's Government to maintain the value and position of the pound. The proof of this is to be found in subsequent events.
Though devaluation occurred on November 10 or 11 last year, it did not do the trick. As observers have pointed out, two devaluations since the war by Socialist Governments was one too many. So immediately, and I thought unfortunately from the point of view of our country, there was talk of a third possible devaluation. Ministers and Members of the Opposition and I, in particular, did our best to discount the possibility of a third devaluation. I still subscribe to that view. I am sure there need be no
316
third devaluation if we all do the right things. But it was the talk about a third devaluation which did so much to undermine world confidence in the value of the pound sterling.
After the devaluation, the Bank of England produced a different policy. They allowed the forward rates to fend for themselves and so they reached a record discount by February-March of this year, because people were taking out, in effect, insurance policies against the possibility of further devaluation and the discount—premium, I might call it—for such an insurance policy became so expensive that not everybody was prepared to go along with it. Nevertheless, the situation regarding the forward rate—I stress that it is the forward rate that we must always be looking at—had become so serious that there had to be a scurrying off to Stockholm for another "save Britain" exercise in March, 1968. This staved off the immediate difficulties, because the forward discount fell substantially after the Stockholm agreements were made.
That was all right in trade matters, but in the meantime another situation adverse for Britain was brewing up. Many overseas nations and individuals deposit their money in London, either through sheer force of habit or for the high interest rates obtainable, or for both. For instance, Arab Sheikhs, for whom usury is against their religious code, nevertheless like the high rates available in London. This total—and it is a very big total—is called the sterling balances—that is, the monies which lie here in London, earning good interest, but which can be withdrawn at short call by customers of the Bank of England; in other words, monies that can be converted into another currency across the Exchanges at will.
After November last, many of these holders of sterling balances were still smarting from the losses which they incurred through devaluation. They were worried at the prospect of a further devaluation and some indeed threatened to withdraw their funds. So, hurriedly, the Governor of the Bank of England went off to Switzerland to meet the international bankers, and he came back only a few days ago with a medium-term credit, or standby, of 2,000 million dollars. This will help us to pay out those who no longer want to hold sterling,

317
but to the extent that this is done, to the extent that it is being used, Britain will be saddled with further and substantial debt.
The Basle arrangement, as it is now described, while it is a technical triumph for Sir Leslie O'Brien, the Governor of the Bank of England, is in fact nothing for the Government to be proud of; it is merely an overt expression of lack of confidence on the part of the world in Britain's management of her affairs. Therefore, this standby, important as it is for our sterling balances, does nothing to help our trade and commercial accounts. It is an attempt to allay the new suspicions of holders of sterling, and it will have been achieved at considerable cost if the facility has to be used.
LORD BESWICK: My Lords, I am trying to follow the noble Lord. Can he explain to me how we increase our indebtedness if we exchange one debt for another?
LORD ERROLL OF HALE: My Lords, it is interesting that the noble Lord should be bold enough to ask this question. It was touched on by the noble Lord, Lord Brown, in his interesting observations. What the noble interrogator is in fact admitting is that a number of holders of sterling balances want to get out and make use of this new facility.
LORD BESWICK: My Lords, the noble Lord is twisting in a rather unsavoury way. I asked him to explain how, if we exchange a short-term debt for a long-term debt, we are adding to our indebtedness.
LORD ERROLL OF HALE: My Lords, we hoped that as a short-term debt it would never be withdrawn, but apparently the short-term holders are now going to withdraw their balances and switch into a long-term debt in a form which we shall have to repay to an international monetary organisation with funds which it will be difficult for us to earn.
LORD BESWICK: My Lords, would the noble Lord answer a straightforward question? Does it or does it not increase our indebtedness?
LORD ERROLL OF HALE: My Lords, it does to the extent that it is used, because otherwise it would not be
318
necessary for the facility to be made available.
LORD RHODES: My Lords, may I be bold enough also to ask a question? Is it not right that if this standby loan takes the place of the sterling balances, which at present are held here on fairly high interest rates, it is possible that we should save money, in the long run?
LORD ERROLL OF HALE: My Lords, I am sure that the noble Lord, Lord Beswick, will deal with this point adequately in his winding-up speech. I am quite prepared to debate it but I lave a speech to make, and the noble Lord, Lord Brown, was so good in making a crisp introduction, that I do not want to be too long.
LORD BESWICK: My Lords, I am not asking the noble Lord to debate it. I am asking him to be good enough to withdraw an allegation which is shown not to be substantiated.
LORD ERROLL OF HALE: My Lords, when the noble Lord comes to wind up and if he convinces me, I shall be glad to withdraw then, but certainly not before.
The position is that, even if the standby is not used, Britain has a total of about 7,000 million dollars worth of short-term debt to clear off in this next seven years, mostly contracted in the last three and a half years. This means that we need to have a balance-of-payments surplus—a surplus in the cash box—of about £400 million in every one of the next seven years if we are to clear off the indebtedness, quite apart from whether this standby facility is wed or not.
The question I submit to your Lordships this afternoon is: Can we do it? Can we have a £400 million surplus in each of the next seven years? The monthly figures for the reserves for the last six months show virtually no improvement—indeed, there is a small decrease as compared with the position in December, 1967, and that as announced for June of this year. I will deal with the important question of our trade receipts and our import Bill in a moment, but what particularly depresses me in seeing that there is no improvement in our reserve figures is that over the last three and a half years the Treasury and the Bank have been making strenuous efforts,

319
by legislation, by Statutory Instrument and by regulation, to reduce the outflow from our reserves and to increase the inflow.
May I suggest one or two examples? As to the improvement of the inflow into the cash box, a great effort has been made by the Bank for the repatriation of company funds held abroad. That has been going on for years. Also, the Bank of England now require that no less than one-third of profits earned overseas must be repatriated as soon as they have been declared. This was never necessary before. On any sale of a dollar security for reinvestment in another dollar security by those people and organisations who hold dollar securities, 25 per cent. of the proceeds of each sale must be repatriated into the cash box. Beneficiaries of overseas wills were formerly allowed to keep those receipts in the country where they had accrued to them. Now they must all be repatriated. On the outflow side, capital investment abroad, the tests for capital investment in non-sterling area countries are now so severe as to make it practically impossible for any investment to take place overseas. The test is that the investment must yield profits within three years sufficient to equal the total cost of the investment.
LORD BESWICK: My Lords, I am sorry to interrupt the noble Lord again, but did he happen to hear the speech which my noble friend Lord Brown made, in which he gave the figures of the increase in our capital investment overseas?
LORD ERROLL OF HALE: Then I can only say that the Government's policy is failing, because the tests are really so severe that nobody can invest abroad. If they are investing abroad, that represents an outflow from the reserves which the Government have been doing a great deal to try to protect. The trouble with this Government is that when presented with a choice of evils they always choose both. They try to stop everybody from investing abroad and try to make a virtue out of the fact that everybody is succeeding in doing so. The noble Lord will be able to clear up this absurd situation when he comes to wind up.
LORD BROWN: My Lords, the noble Lord is being very controversial, and that may be a good thing, but is he prepared to support the thesis that to condition investment overseas on the basis that over the next three years it should be recoverable with increased exports is a reasonable proposition, in the light of the amounts that are being considered for this purpose? Is it not the opinion of the business community that this is an extortionate demand to make for this provision to export? I think it is a pity to present it as a ridiculous condition when in fact it has been welcomed by industry.
LORD ERROLL OF HALE: Perhaps I should make it plain that I was saying that the profit must equal the investment; not that the amount of exports must equal the investment. There is a difference and a distinction in those two. I was trying to give a few examples of the strenuous efforts that the Government have made to increase the inflow and restrict the outflow. The fact remains that the outflow has been strenuously restricted. There is, furthermore, a restriction of capital investment in the developed sterling area. The sterling area is no different really from the non-sterling area, because any movement across the exchanges has to be repaid by the export of goods and services from this country. Thirdly, the Government have made a great thing of the travel allowance of £50 per annum. This is a determined effort to restrict the outflow of funds across the exchanges. It has been in existence since October, 1966, and we have not yet been told what the effects are.
Surely, taken together, all these efforts on the part of the Government to repatriate funds, on the one hand, and to restrict the outflow, on the other hand, should have made a considerable impact on the figure of our gold and dollar reserves. But they have not; they have not made any impact at all. I hope that when the noble Lord comes to wind up he will be able to give us an explanation. He was kind enough to ask me what I was going to say in my speech this afternoon so that the could answer me, and I gave him notice of that point. I studied the Bank of England Review. It is an excellent Review, but it remains

321
quite silent on this subject, though it is very voluble on many others.
What is the combined effect of this restriction of the outflow and scooping in of the inflow? I suggest that it certainly ought to be by now, after three and a half years of persistent and calculated effort, no less than £200 million per annum. Where is it all going? If it is not coming in, why pursue the measure? If the restriction of the travel allowance to £50 does not make any difference, why have the restriction? If it makes a big difference, then let us know the value of the restriction, so that it may become slightly more tolerable to the British public, who resent it very much. I suspect that this £200 million a year is disappearing into the hands of those who wish to reduce their sterling balances. That is a figure that has not so far been made public, but I hope that it will be before this debate is finished.
We are left with the contribution of Britain's invisible earnings. Here I am grateful to the noble Lord, Lord Brown, for having informed your Lordships that invisible earnings are running at the rate of £30 million a month this year. I appreciate very much that the noble Lord has admitted at long last, on behalf of Her Majesty's Government, that invisible earnings are of real value and are making a substantial contribution.
I turn now to the trade figures and the trade matters about which the noble Lord told us so clearly this afternoon. While the exports are at a high level, it is worth remembering that, despite devaluation, the June trade figures are still below the figures of January, 1968. Of course it is important that Government assistance in a number of different forms should be given to our exporters, and the noble Lord was eloquent on the variety of measures which are being given. Nearly all of them, of course, were started by the previous Administration, but I am glad to see that they have been added to and strengthened by the present Government. I appreciate particularly his reference to senior chambers of commerce, and what they do, because I am personally involved in that particular capacity. But let us not imagine that because the export figure has gone up by £9 million from May to June our exports are yet doing brilliantly, after the stimulus that devaluation was
322
supposed to give them. They are still at £492 million for June, some £8 million below the figure for January of this year. In any case, their high level and what is being done is largely thanks to private enterprise firms who in very difficult conditions seek out these contracts and this business round the world.
As regards imports—and, of course, a fall in imports is just as valuable to the balance of payments as a rise in exports—it is interesting to know that there has been a small fall for the first time this year, between May and June, of just under £40 million. Nevertheless, the import bill remains at over £600 million for June, just as it has for every month of this year. So we welcome this drop in the figures, which, as I say, have been and still are, over £600 million for each month of this year. But I am not one who believes that the import figures are likely to fall very much. Why should they? Food, raw materials, semi-manufactures, which come mainly from countries which have not devalued, are going to cost more, not less, than they did in the past. Nor is their volume likely to be reduced, except only on the margin. I think the important alleviation is in the devaluation of New Zealand. New Zealand butter costs no more; and the Danes have partially devalued. But, for the rest, we are having to pay more in terms of imports of the same amount than we did before. We are a country that makes specialised machinery which goes to many countries abroad. Equally, we buy from advanced industrialised countries their specialised products, which now cost us more. There can be no import substitution here. We simply have to pay more for the same things that have been on order and which we must have now and in the future with which further to modernise our industry.
We are left only with the narrow field of so-called luxuries and non-essentials. What is a luxury and what is a non-essential? I mentioned this point in the debate on the Prices and Incomes Bill a fortnight ago, so I will not elaborate further. May I give an example? Three months ago I went to a departmental store in one of the provincial towns of Sweden, and in that departmental store they had a "Carnaby Street" corner, where we, the Britons, were selling very skilfully our "trendy" export clothes—

323
a very good export and unnecessary luxury for Sweden, as the Swedes might argue. In the Strand, at a menswear outfitters, I saw on my return ready-to-wear men's suits, and the label said: "Precision-built in Sweden". Another unnecessary luxury import. But this is what trade is all about. So do not let us get too excited over the marginal fringe of so-called luxury or inessential imports, because in fact we shall go on having these imports if we are to retain the freedom to export to other countries on uninhibited terms.
The noble Lord, Lord Brown, was frank enough to admit this important matter, and his colleague, the President of the Board of Trade, I thought, made a very courageous speech in the other place last week, saying that there was no question of an imposition of import controls by Her Majesty's Government. I should like to congratulate him and the Government on a statement which is courageous in the present circumstances. I apologise to your Lordships for being so long, but I have been interrupted far more than the noble Lord, Lord Brown, was.
I now think it is important to turn to the post-devaluation policy of Her Majesty's Government, because it is that which governs the economic situation to-day. Once they got over the trauma of devaluation they sat back and did nothing, except make warnings about a painful Budget to come. It was going to be advanced from April 5 to March 19. All that time we were told that severe and painful measures were going to be taken. So what did the public do? They went on a spending spree, because they knew it would be worse after the Budget than before. It is very interesting to notice the difference between a Tory Administration and a Socialist Administration, because our great trouble was that in the months from January to April the retail and manufacturing interests came to us and complained that nobody would buy anything because they were expecting taxes to go down in the next Budget and they would therefore wait. Nowadays, every year there is a spending spree between January and April, because everybody knows that taxes are going to go up. It has happened each year without any exception. The noble
324
Lord, Lord Beswick, can refute that, if he dare, when he comes to wind up the debate this evening. So, of course, we have a spending spree. We always do under a Socialist Government before a Budget.
However, after four months' waiting a Budget was introduced, and a very serious, tough Budget it was, because it increases taxation by, in round figures, £900 million in a full year. The theory behind this—and it is a theory which I am sure all economists would regard as eminently acceptable—is that consumption in this country will go down because of the higher taxation, for two reasons. Individuals and companies will have less money to spend and, on the other hand, prices will be allowed to rise as devaluation works through the economy, in addition to rises due to tax increases, and the result will be a lower level of home demand and therefore a lower level of imports—good for the import figures—and more domestic goods thereby freed to increase our exports. That is the classical and traditional way of looking at things. And I must admit that the June trade figures show the first faint glimmerings of this trend, but it is much too soon to he certain—
LORD BOWLES: Terrible!
LORD ERROLL OF HALE: I said, "the first faint glimmerings of this trend", but no more.
LORD BOWLES: The noble Lord does not like it, does he?
LORD ERROLL or HALE: I like it very much. I am not one of those "sour" members of the Establishment of whom the Prime Minister was so critical. I think that the noble Lord, Lord Brown, would agree that I do a great deal of work to help our export drive. So if the noble Lord is shooting at me on this, he is shooting at the wrong target.
I say that it is much too soon to be certain, and for very good reasons. The Chancellor of the Exchequer says that prices must be allowed to rise, and in that I would agree with him. On the other hand, Mrs. Castle's Department, "Min. Prod."—[Laughter.]—Well, the Ministry of Technology is called "Min. Tech."; that is what the Minister of Technology called it. Why should we not

325
call the Ministry of Productivity, "Min. Prod."? Mrs. Castle's Department, "Min. Prod.", is working feverishly to keep prices down, and with the help of the Prices and Incomes Board is trying to get reductions, and, loud hurrahs!, they have succeeded, with all the apparatus of P.I.B., in all these years of existence of the P.I.B. in getting one price reduction—in soap powders. Congratulations to Her Majesty's Government!
Secondly, the first test of the wage freeze "Mark III," namely the rail go-slow, found the Government putting pressure on British Rail to concede an inflationary increase. The "wreck of Penzance", as it was described in the Economist article last week. I should be too long if I were to go into this matter, but it is quite clear that this was an inflationary wage increase conceded by Her Majesty's Government. Thirdly, I should like to know, and I am sure that other noble Lords on this side of the House would like to know, what Her Majesty's Government are going to do with the extra £900 million they are collecting out of the public in the first full year after the new Budget increases. It is one of Parkinson's lesser known laws that expenditure always rises to meet income—although it is a well-known law to any husband who is rash enough to tell his wife that he has had a pay rise. With all this extra money coming into the Treasury and into the Government Departments, will they really have the willpower to resist spending it? What are they going to do with the surplus? Lock it away in the vaults of the Bank of England? Of course not. They will be spending it before very long.
A NOBLE LORD: What would the noble Lord do?
LORD ERROLL, OF HALE: We should not have created a situation in which it was necessary for this sort of taxation increase to have occurred. My noble friend Lord Dundee will deal more particularly, I think, in his winding-up with the question of the impact of Government expenditure—
SEVERAL NOBLE LORDS: Hear, hear!
LORD ERROLL OF HALE: Well, I want to leave him with a few points. But at this stage I would ask the Government this question. As unemployment
326
rises during this winter, will they be strong-minded enough to resist reinflationary measures by means of increased Government expenditure in order to bring the unemployment total down? Will they? I leave the noble Lord who is to reply to answer that question.
In the debates on the Finance Bill in another place a great deal of emphasis was placed on personal savings, and what has emerged from the debates there, and indeed from those in your Lordships' House, is that personal savings are well down on earlier years, and lukewarm support— no more than that—has been given by the Chancellor of the Exchequer to personal savings. All he offered in the Finance Bill was an increase in the value of certain Premium Bond prizes and a proposal for a national lottery—a proposal which was firmly turned down in a later debate in another place. Of course, with the prospects of higher prices in future it is far better to buy now than to save now. This is one A the Government's dilemmas.
But this is only part of a situation which I see to be most unfavourable and unsatisfactory. The fact is that savings and personal wealth are now under attack. Why should this be so? In the Finance Bill we have a retrospective extension of estate duty from three years to seven years, diminishing after five. We have aggregation of income of minors with that of parents, creating many extremely hard cases which the G3vernment have done nothing to all,wiate, except possibly in the case of the thalidomide "babies. We have the special levy on savings incomes, which is of course really a wealth tax. We are told that it is to be once-for-all, but we realise full well that this is only a trial run for a permanent wealth tax.
Why are the Government doing all this? Not because the money is needed —because they are going to have £900 million extra a year which they do not propose to spend. It is not because the unions will moderate their pay delmands—because the Government are doing this to those who have savings. Oh, no! We already see from the settlement of Penzance that this has nothing to do with it at all. They are doing it for a quite different reason. The Government are in fact using Britain's economic troubles, which are of their own creating, as a

327
cover for their basic socialist policy, to destroy private savings, private wealth and private companies, little by little. Noble Lords opposite may laugh, but the Minister of Defence gave the game away at Leeds on March 24, when he said that the 1968 Budget was
"the most socialist one since the war".
That is from the Yorkshire Post of March 25—I always believe in quoting my references. That was Mr. Healey; and only Mr. Healey—not one of the Economic Ministers, by the way—has had the honesty to state the Government's real intentions in this Finance Bill.
If this were a private quarrel on a self-sufficient island in the Pacific it would not matter so much. It would be only a matter of the natives' redistributing the palm trees and the coconuts between themselves. But the countries which have lent us, or promised us, so much money are watching us, and this is why I have dealt with this matter in some detail. These other countries believe in the creation of private wealth through savings and wise private investment. They practise vigorously the system of private enterprise in industry and commerce. However, they see a British Government which denigrates private enterprise, and which uses the false cloak of economic necessity to destroy private savings and private wealth. Small wonder that they have little confidence in the present, and temporary, Government! Certainly, we on these Benches have none.
However, in this situation there is nothing wrong with the British people.
LORD BROWN: My Lords, is the noble Lord aware that the percentage of the G.N.P. raised in Germany and France in tax is higher than in this country?
LORD ERROLL OF HALE: Oh, yes: very much indeed. I am fully aware that we are not the most highly taxed nation in the world, as the Prime Minister himself said. But where he mistook the point is that we have the highest rate of marginal tax, which is quite a different story. If the noble Lord would like to pursue the argument I can show him that we have a far higher rate of marginal tax in this country, and that is what really affects enterprise and initiative.
LORD BROWN: It was just that the noble Lord did not use the word "marginal" when he spoke about taxation previously.
LORD ERROLL OF HALE: Then the noble Lord's intervention will of course set the Record right. I was about to say that in this situation there is nothing wrong with the British people.
SEVERAL NOBLE LORDS: Hear, hear!
LORD ERROLL OF HALE: The nation's resources may be slender, but the "all doing spirit" of the first Elizabethan era can be re-created and suitably rewarded—and at reasonable marginal rates, too. All that is needed is leadership of courage, imagination, purpose and compassion.
3.34 p.m.
LORD BYERS: My Lords, I sense that the House is in rather a naughty mood this afternoon and I shall have to tread warily, but I should like to thank the noble Lord, Lord Brown, for the way in which he has introduced this Bill this afternoon, and also for the fact that we are having this debate, because it gives us an opportunity of hearing the maiden speech of the noble Lord, Lord Balogh. How he is going to keep his maiden speech non-controversial is something which I shall be awaiting with the greatest possible interest, although I am sure he will.
The Finance Bill comes to this House so long after the Budget that it is probably better to look forward to the next Budget rather than to job back to the old one, but I think it shows that the Government can at least claim that some effects of devaluation are beginning to bite, and some of the Budget measures are having the deflationary effect which was intended. I am glad, as is the noble Lord, Lord Erroll of Hale, that the Government are eschewing import controls, but the fact is that benefits in the form of lower imports and better exports appear to be beginning to flow. This tempts one to ask two questions. First, why was devaluation delayed so long? Secondly, why was the spending spree between December of last year and the Budget allowed to continue as it did?
As to devaluation, this poses a serious dilemma for all responsible leaders of all political Parties. I do not think it

329
is any secret that we in the Liberal Party were under very strong pressure indeed from all our young economists, almost without exception under the age of 35, to come right out in favour of devaluation from late 1964 onwards. If we had done so, we should have been accused of rocking the national boat and therefore causing a flight from the pound. Therefore we did not do it, but surely the Government were in a better position to judge than we were, and with hindsight it certainly seems that putting off devaluation and imposing instead the most severe deflation we have had since the war produced the complete industrial stagnation which we suffered in 1966 and 1967. I am sure anybody can make an error of judgment, but one cannot help feeling that an examination should be made of the way in which Governments are advised in these matters, because as a result we lost a tremendous potential growth. If we assume a growth rate of only 3 per cent. per annum in each of those years, we can reckon the loss in production at something like £2,000 million. That is the whole of the defence budget for one year or about one-third of the money we spend on our welfare services. On top of this, heavy international debts have been incurred, which must inevitably retard our economic growth for some years.
Given that this is the cost of not devaluing earlier, I still fail to follow the Conservative line, which seems to be that we should not have devalued at all, which presumably would have meant over one million unemployed. From what the noble Lord, Lord Erroll, said, I gather that this is Conservative policy, although perhaps I misunderstood him. It seemed to me that he was wanting more unemployment this winter, whereas personally I should like to see more people gainfully and efficiently employed. But I cannot see how one can sustain the argument that there should be no devaluation.
On the question of the spending spree, the House may remember that I put down a Question at the beginning of February, asking whether some action should not be taken before the Budget to stop that spending spree. I received the surprising answer from the Government that a spending spree was not taking place at all. How can a Government be so badly informed? I believe
330
the answer lies in the tremendous delay in getting the official statistics. They were about three and a half months too late, and the result was that although I could see people buying cars and washing machines, the Government statistics did not reflect that. Therefore, I should have thought there was a case to look back to that period to see why the Government were not properly informed as to what was happening in the shops and the motor car salerooms. At any rate, I hope sincerely that the national outlook is getting better and that we are beginning to overcome our problems.
May I now ask what exactly is the measure of the international indebtedness which we now face? How big a burden is it likely to be on our efforts to achieve a plus balance of payments? I believe that the balance of payments is so crucial to this country that we ought to have the facts and not make Party play over this issue. We ought to stop pulling the rug from underneath one another at unstrategic moments. I was indeed glad to hear the noble Lord, Lord Brown, if I understood him correctly, say that we had got ourselves into the position of a creditor nation; that our assets were in excess of our liabilities. I am glad that in saying that he took credit for the overseas investments. I wish he could persuade some of his Left Wing friends in another place that it is a good thing to have overseas investments. Not only do they help on the credit side of the balance sheet but they also help British exports in countries overseas.
On the other side of the balance sheet, may I ask whether we are making any progress towards relieving this country of the full responsibility of acting as the banking trustee for the sterling area? I do not understand the argument that was put forward by the noble Lord, Lord Erroll. I should have thought that the new Drawing Rights at least broadened the base and took some pressure off this country so far as meeting the sterling balance problem was concerned. But I have said for some years now, id so have my noble friends, that we think it is very unfair that Britain should always "carry the can" for the sterling area. Would it not be possible to move forward, now that we have got these Drawing Rights and have established the principle of international self-help, and get

331
a much broader based reserve currency which is not always going to provide a problem for this country alone?
I should like to turn to the future, and particularly the future of the taxation system in this country. I believe there is a pressing need for reform and simplification of the tax system. We have got to the stage now where the tax system of this country really is a "dog's breakfast". It has been built up over many decades by all Parties; everybody has had a go at it; and there are so many different bits and pieces now that it takes a pretty experienced accountant to find his way through, or quite often around, the system. I believe that one of the difficulties is that to get a firmly based new system will probably take anything from five to seven or even ten years. But it will be worth it; and if it takes that long it is likely to span the life of several different Governments. I ask, would it not be possible to try to get this on to an all-Party basis, to set up an all-Party Committe working with officials, taking advice where they wish to take it, to see whether agreement cannot be reached on the main taxes which are appropriate for this country? If we could get that agreement on structure, different Governments could very the rates of different taxes, they could alter the incidence, but at least we should have a clear system and preferably a simple one.
My own preference would be to keep the taxes to the minimum types, and I hope that the main indirect tax might be a value-added tax, one which taxes business costs as well as profits. If this were taken at a reasonable rate, something similar to that in the Common Market, it would enable income tax and corporation tax to be reduced, and purchase tax and stamp duty to be abolished. There is a great deal to be said for abolishing the selective employment tax. I should like to get rid of National Insurance contributions and substitute a social security tax on payrolls, which could be varied according to regions and according to the incidence of unemployment. But these are my views; others will be put forward. What I am saying is that I believe it would be possible to get all-Party agreement on a simple, understandable tax structure in this country.
332
I believe also—though this may be more controversial—that the time has come to abolish surtax and to iron out the sharp steps in income tax as income increases. Instead of the irregular increases in the marginal rates which exist at present, there should be a smooth progression towards higher rates based on a simple percentage system. This would avoid what is happening now, where the weight of the income tax burden is being placed so firmly on the shoulders of people with incomes between £800 and £1,500 a year. In addition the tax rates should also be reduced at the surtax level, and I think it would be possible to bring the upper limit down to something like 70 per cent. This would cause very little drain on the Exchequer, because the existing revenue from surtax is only 2½4 per cent. of the whole, but it would reduce the disincentive to work which undoubtedly occurs from the high top rates which prevail at the moment. What I am pleading for is that the tax system should be looked at as a whole and should be looked at from the point of view of the national interest, not something which one dresses up in a Party manifesto and tries to use as a vote catcher. This is too basic for the whole future of this country to have it as a platform for each Party to bid against the other for better and lower taxes.
In considering variations of the tax system I believe that there are many ways of creating additional incentives and tremendous scope for improving efficiency in industry and business and increasing profitability, by the judicious use either of income tax relief or other forms of encouragement by the Government. I should like to see much more study made of schemes which permit employees to become shareholders in a company or firm. One method which commends itself to me, one of which I have some experience, is where the employee sets aside a monthly sum from his salary or wages to purchase employees' loan stock with a guaranteed rate of interest. He can either retain the stock or convert it at a previously agreed price, and if it is a growth company, with luck it will eventually be advantageous to him. This provides a form of compulsory saving with a reasonable rate of interest.

333
I believe that we should consider allowing, even now in a period of wage restraint, a number of salary and wage increases to take place, so long as that increase is ploughed into something like an employee loan stock, something that will take that spending money out of the market for the time being but will allow a rate of interest to be taken as income and will allow for the stock itself to grow over a period. There is no reason why employees should be confined to taking shares in their own company. It may be much better to encourage them to start up funds in which shares can be taken in investment trusts, units trusts and so on. The Government should give consideration now to the various plans which are being thought out, some of which are in existence, others which are being put forward, to encourage savings. Various schemes have been put forward by the Wider Share Ownership Council, by my own Party and by individuals. I know the C.B.I. has done a great deal of thinking in this direction. I am convinced that the Government have a wonderful opportunity here of looking more closely into schemes to encourage savings, preferably from salaries and wages. I believe the old slogan, "The more we save, the less we have to raise in taxation" is true. Moreover, it is another painless way of inducing people to save rather than to spend, and to reduce consumption when we want it reduced. I believe the Government have a great opportunity for laying the foundations of a new, simple structure for the tax system, coupled with the encouragement of savings among our people. I hope they will take it.

THE NUCLEAR POWER INDUSTRY
3.41 p.m.
THE PAYMASTER GENERAL (LORD SHACKLETON): My Lords, I apologise for interrupting the debate just before my noble friend Lord Balogh makes his maiden speech, but, with permission, I should like to repeat a Statement which my right honourable friend the Minister of Technology has been making in another place about the reorganisation of the nuclear industry. This is the Statement:
"In the debate on May 23, I summarised the Government's objectives
334
in seeking a reorganisation of the nuclear industry following the report of the Select Committee on Science and Technology on this subject.
"I have now had the opportunity of considering the matter further and have had the advantage of hearing the results of the informal consultations conducted by the Industrial Reorganisation Corporation.
"I have to-day written to the I.R.C. to invite them to help in the reorganisation of the industry and I am circulating the text of my letter in the OFFICIAL REPORT. The Industrial Reorganisation Corporation of course, be free to recommend to the Government such other measures as it considers advisable to reinforce the new structure. Until the new structure of the industry is fully operative, the Atomic Energy Authority will continue to meet all the obligations it has undertaken or offers to undertake. Arrangements will be made to ensure that thereafter commitments previously entered into will be fulfilled.
"I am asking the I.R.C. to assist in the creation of two design and construction organisations to be established in place of the three commercial firms and the design teams working within the Atomic Energy Authority. We have in mind a close integration between these two organisations and the manufacturers of the main constituent elements of nuclear 'islands'. The proposed two new corn panics would need to work in close conjunction with the highly successful fuel organisation set up by the Atomic Energy Authority, which is already operating on a commercial basis.
"The Government have decided that to make this co-operation more effective in the exploitation of reactor systems, it would be advisable to establish the Authority's fuel business as a publicly owned company under the Companies Acts with the initial share capital wholly subscribed by the Government. In order to emphasise the interdependence of fuel and reactor design and supply the Government intend that the fuel company should take up and hold a minority shareholding in each of the two design an' construction organisations. Since the establishment of the fuel company will

335
require legislation, I am proposing that initially the Government shareholding should be taken by the Atomic Energy Authority.
"The exploitation both at home and overseas of new reactor systems, as well as the Advanced Gas cooled reactor, would then primarily be the responsibility of the new companies, whose activities we would seek to concentrate geographically in such a way as to make the fullest use of the existing services and facilities built up by the A.E.A. at Risley.
"In addition, when the proposed new industrial structure takes shape, the Government have in mind the establishment of an Atomic Energy Board on which the Atomic Energy Authority, the design and construction companies, the fuel company and the generating boards would be represented. This Board would concern itself with research and development programming, export co-ordination and major policy matters. The two new design/construction organisations should be well able to stand up to international competition abroad and should be capable of a powerful effort in overseas markets.
"As part of these arrangements, the Government will have to consider the necessity for some modification in the organisation of the Atomic Energy Authority in the light of the proposed legislation for the fuel company and the rearrangement of responsibilities for the exploitation of reactor systems. The necessity for these new arrangements arises from the great success that the Atomic Energy Authority has achieved in developing commercial reactors. The reorganisation will be designed to secure that the most effective possible use should be made of this great national asset, not only in support of the new organisation of the nuclear industry but also in conjunction with the Government's own research establishments in the development of industrial technology.
"These then are the lines along which we hope to see a reorganisation of the nuclear complex achieved. The industrial aspects of this are the most urgent, since it is new design and construction organisations upon which the task of selling our reactor systems
336
abroad will fall. They need certainty for the future and I hope that we shall soon be able to reach an agreement at least in principle, which will allow us to exploit our national research and development in atomic energy to the full.
Following is the letter referred to in the Statement:
"I am writing to you, as Chairman, to ask whether the I.R.C. would be ready to help to carry through a reorganisation of the nuclear industry, which has now been under discussion for well over eighteen months.
"In our earlier talks about this, you were kind enough to advise me personally from your own long experience of atomic energy matters, as a part-time member of the A.E.A. Board. Later you and your I.R.C. staff also took informal soundings from all the parties involved both on the recommendations of the Select Committee and on the development of their thinking in the light of the Committee's report. All this has been most helpful.
"We have, of course, discussed this very fully with the A.E.A. throughout and have now had an opportunity of considering your suggestions in the context of the Government's objectives which I summarised in the House of Commons on May 23 as follows:
"First, to make the best possible use of all the existing resources in this field, cutting out overlapping and duplication, of which there manifestly is some;
"Second, to allow those who have worked in the Atomic Energy Authority full scope for carrying their work forward into the exploitation and sale of the systems which they have developed;
"Third, to get the maximum possible advantage of the technical standardisation, coupled with the most effective design competition in engineering detail and construction method;
"Fourth, to try to link and co-ordinate the effort in such a way as to relate reactor systems to the fuel elements and reprocessing business at which the A.E.A. has excelled, both technically and commercially, through its fuel production group;
"Fifth, to create an organisation which permits the sort of international industrial links which will be of critical importance in all sectors of advanced industry and not just in atomic energy;
"Sixth, to do this with a special eye upon the future of the European nuclear industry in co-operation with our partners in Europe;
"Seventh, to change the emphasis of our national effort in such a way as to increase it on the exploitation side and see that future nuclear research is guided and shaped more directly by the needs of the market at home and abroad
"Eighth, to establish a creative partnership between the public and private sectors as far as possible by reaching a consensus of

337
agreement so as to allow all the other objectives I have described to be achieved.
"With these in mind, I am writing to invite the I.R.C. to assist the industry in the creation of two design and construction organisations to be established in place of the three commercial firms and the design teams working within the Atomic Energy Authority. I have in mind a close integration between these two organisations and the manufacturers of the main constituent elements of nuclear 'islands'. The I.R.C. will, of course, be free to recommend to the Government such other measures as it considers advisable to reinforce the new structure of the industry. Until the new structure of the industry is fully operative, the Atomic Energy Authority will continue to meet all the obligations it has undertaken or offers to undertake. Arrangements will be made to ensure that thereafter commitments previously entered into will be fulfilled.
"The proposed two new companies would need to work in close conjunction with the highly successful fuel organisation built up by the Atomic Energy Authority, which is already operating on a commercial basis. The Government have decided that to make this co-operation more effective in the exploitation of reactor systems it would be advisable to establish the Authority's fuel business as a publicly owned Company under the Companies Acts, with the initial, share capital wholly subscribed by the Government. In order to emphasise the inter-dependence of fuel and reactor design and supply, the Government intend that the fuel company should take up and hold a minority shareholding in each of the two new design and construction organisations. The establishment of the fuel company will require legislation, and I would propose therefore that initially the Government shareholding should be taken by the A.E.A.
"Exploitation both at home and overseas of the new reactor systems, as well as the A.G.R., would then primarily be the responsibility of the new companies. The design units of these two new firms, together with the fuel activities, should be, so far as is possible, concentrated geographically in such a way as to make the fullest use of the existing services and facilities built up by the A.E.A. at Risley.
"When the proposed new industrial structure takes shape, the Government have it in mind to set up an Atomic Energy Board, including representatives of the A.E.A., the fuel company, the two new design and construction companies and the Generating Boards. This Board would concern itself with the composition and financing of R & D programmes (to which the two new design/construction companies, and the fuel company, would be expected to contribute), the co-ordination of activities in the export field and major matters of policy. These proposals have already been the subject of discussions between our respective officials. The two new design/construction organisations should be well able to stand up to international competition abroad and should be capable of a powerful effort in overseas markets.
"The Government, as part of these arrangements, will have to consider the necessity for
338
some modification in the organisation of the Atomic Energy Authority in the light of the proposed legislation for the fuel company and the rearrangement of responsibilities for the exploitation of reactor systems. This reorganisation would be designed to secure that the most effective possible use should be made of this great national asset, not only in support of the new organisation of the nuclear industry, but also in conjunction with the Government's own research establishments in the development of industrial technology. The necessity for these new arrangement arises from the great success that A.E.A. has achieved in developing commercial reactor systems.
"These then are the lines along which we hope to see a reorganisation of the nuclear complex achieved. The industrial aspects of this are the most urgent since it is the new design and construction organisations upon which the task of selling our reactor systems abroad will fall. They need certainty for the future and I hope that the I.R.C. will be able to achieve an agreement, at least in principle, as soon as possible.
"Sir Frank Kearton. 0.B.E., F.R.S."
3.53 p.m.
THE EARL OF BESSBOROUGH: My Lords, we must thank the noble Lord for having repeated in this House that Statement. I think it will probably be greatly welcomed by your Lordships, especially the decision to create the two design and construction companies, and especially in the light of the Conservative view on the Select Committee and in the light of our debate on May 8. I think that your Lordships on this side of the House and our colleagues in another place may perhaps take some credit for this.
I should like to ask the noble Lord one or two questions. First, will the two new companies now come in much earlier, not only in design and construction but also in earlier research and development into new reactors? Secondly, in regard to the fuel business I under-stand from the Statement that this will, at any rate initially, be wholly publicly owned. Will there be the possibility of European participation in this company, too? I gather from the letter attached to the Statement (which I have not yet been able to read carefully, though I will do so) that the two design and construction companies will be encouraged to have international links, and that the whole future of the European industry will be considered.
Thirdly, it is clear that we must stand up to international competition, as the

339
Statement says, and step up our power to sell abroad. Can the noble Lord tell me what the future of the British Nuclear Export organisation is to be? Fourthly (I hope I am not asking too many questions) can the noble Lord say whether any decision has been taken, or whether the Government have taken any view, on the proposal that a Joint Select Committee of both Houses should be appointed to consider this subject—a point also raised in our debate? Finally, when will the new set-up come into being? The letter says that it has taken 18 months to come to this decision. I do not know whether or not these have been 18 wasted months; but I should like to know when this decision will be fully implemented.
3.55 p.m.
LORD SHACKLETON: My Lords, I think the noble Earl is justified in expressing some satisfaction. Whether the Government listen to the views expressed by your Lordships or whether "great minds think alike", at any rate certainly noble Lords who advocated this particular arrangement (and I think in that interesting debate they were the majority) should be pleased at the result. The two companies will of course come in earlier. This is the most important and most urgent of the arrangements. And of course it is true, although I cannot at this stage say precisely how it will work, that we, and I am sure the industry and all concerned, do attach importance to the European links. This question of foreign investment in nuclear power companies is a subject upon which I would rather not express an opinion; but the noble Earl rightly drew attention to the point that the Statement says that initially it will be wholly publicly owned, which would seem to imply that there is a possibility of further investment. But again I think it is early to speculate.
In answer to the noble Earl's comment, I would not myself think that the 18 months have been wasted. I know that a number of your Lordships, among them the noble Lord, Lord Sherfield, and the noble Viscount, Lord Mills, who has had so much experience in this matter, were pressing the Government hard to take an urgent decision. This is a most complex area. I think that the proposed solution represents a rather interesting mixture of public and private enterprise.
340
I remember being critical at one time when the noble Viscount, Lord Mills, hived off the Atomic Energy Authority from the Ministry of Supply. I am bound to say that history has justified his decision, as I hope that history will justify the decisions that have been taken on this occasion.
I am afraid that the noble Earl defeated me on certain questions. I cannot answer the question on British nuclear exports. I may have an answer before we conclude. On the point of a Joint Select Committee, which is an interesting one, and in which I personally am interested, I have always thought that your Lordships' House had a particular role to play in these technological subjects. Whether this must wait on House of Lords reform is a question on which I would not speculate now.
3.59 p.m.
LORD BYERS: My Lords, I should like to thank the noble Lord, Lord Shackleton, for making this Statement. I am sure that the British nuclear industry could have a great future. I believe that part of this great future will depend upon the strength of the marketing organisation in the export field; and we shall certainly study this Statement closely to see what strength there will be in export promotion. I am sure the market is there; and I am also sure that our designs are right. But the real problem, as the noble Lord will agree, is, to get into the market.
LORD SHERFIELD: My Lords, is the noble Lord aware that the progress represented by his Statement will be widely welcomed by all those who are concerned with the Atomic Energy Authority and the nuclear industry, particularly because it seems that in principle the kind of integration which is contemplated appears to be the one best suited, at least in my judgment, to lead to an excellent result.
VISCOUNT MILLS: My Lords, I shall not detain your Lordships for more than a minute, but I should like to say that I was very relieved to hear the Statement by the noble Lord, Lord Shackleton. Three weeks ago I visited Dungeness, and I was very impressed with what the Atomic Energy Authority, private industry and the Generating Board had done in combination. It was a wonderful show. We ought to be very proud of it. I think the plan which the noble Lord

341
has presented to us will work. It must be a very great temptation to the Government to set up a monolithic structure consisting of one Government-controlled Corporation. They have resisted it, and I am very glad that they have. I think the proposal makes sense.
LORD PEDDIE: My Lords, there is one point on which I think certain assurances would be welcome. At the present moment, the Atomic Energy Authority is involved in a highly important bid in the erection of a nuclear reactor in Finland. I had a certain major personal involvement in this at the time when I visited Finland recently, and it may be that if there is any suggestion that the continued existence of the Authority is in some doubt, it may have some ill bearing upon this bid and the attitude of the Finns. I am sure that all would welcome at this point an assurance that, whatever commitment is involved on the part of the Authority at this moment, there will be no challenge at all to that in any developments which may take place as a result of these suggestions.
LORD SHACKLETON: My Lords, I am grateful for the reception given to the Statement by the noble Lords, who have spoken, and particularly Lord Sherfield and Lord Mills. I think this is an important development. We should not underestimate the difficulties of bringing this scheme into effect, and I must stress that, while the Minister has made his Statement, as it was right to do, certain negotiations have to take place and there is no suggestion of a diktat in this matter.
I think I could now answer the noble Earl, Lord Bessborough, about B.N.X. The answer is that this is still to be decided, but probably the Atomic Energy Board—the new Board to which I referred, and which brings all forces together—may supersede it, but we cannot speak further on this. The point made by the noble Lord, Lord Peddie, is, I think, worth stressing. It is extremely important to make quite clear that there will be absolute continuity, and the Atomic Energy Authority will continue to prosecute with all energy its present responsibilities, and no doubt enter, if necessary, into new ones. I think we ought not to leave this subject without paying tribute to the Atomic Energy
342
Authority: it has been a great centre of technological development, and the country owes a great deal to it.

FINANCE BILL
4.4 p.m.
Debate resumed.
LORD BALOGH: My Lords, it is, I believe, the gracious custom of your House to extend to the novice special indulgence. I hope I may count on this kindness for at least one additional reason. While there have been, and are, among your number, distinguished people whose origin goes back to the Continent from diverse periods, starting perhaps from the Saxons, or, as the noble Baroness, Lady Emmet of Amberley, would have it, the Romans, I think, I am the first Hungarian-born subject to be so honoured, and I fear that I shall contribute a further accent to those to which you are more accustomed.
I hope on this occasion I shall be permitted not to follow the two previous speakers in controversy, however strange that may appear on my part, but concentrate on certain long-term considerations on the place of financial control in the armoury of policy-making. By far the most important condition of success in this respect is, I believe, a ruthlessly honest realism about the limitations of the various weapons at hand. Only in this way can the machinery of decision-making he so fashioned as to obtain the package best adapted to the task.
In this country a rational approach to these questions is somewhat impeded by the ceremony surrounding the annual Budget, going back to the annual harvest. This, with its Box, if not bell; and candles, and its breathless secrecy, is a special occasion differing from that of almost any other country in the world where financial legislation is preceded by intensive discussions between the Executive, the Legislature and the private interests concerned. Chancellors, like recurrent annual prophets ascending with their somewhat less-weighty paraphernalia to the Principal Floor rather than descending from the summit, reveal the somewhat transient commandments at one go. In parenthesis, it might also be said that post-First War Chancellors

343
also shared the fate of Moses in that they were at most permitted to glimpse a view of the promised land, but never got there.
All this mystery tends to exaggerate the importance of the occasion and threatens to upset the timing of the measures which can be taken. It is also intimately connected with the tendency to embrace simple technical, mechanical theories to explain deep-seated and complicated problems in terms of impersonal and quantifiable—and therefore scientific-looking—economic factors such as the volume of money in circulation, or the Budget surplus, or deficit. Nothing is so inherently stable in economic life as the theories about it. Despite 25 years of almost continuous trial, and perhaps more of error and failure, there is still a persistent and fallacious belief that all our tribulations would be over if we could somehow prevent too much money chasing too few goods, which can best be dealt with by fiscal measures.
It may appear paradoxical, when discussing what is by far the most exacting Budget, to call attention to its limitations, yet this seems in order. As we have had ample opportunities to observe, the influence even of harsh fiscal measures can be, and has been, offset or more than offset by sudden resistance on the part of the public. A Budget surplus could be frustrated, for example, through individuals using their cash reserves, diminishing their savings or, indeed, selling assets, or borrowing. But these factors flag in importance in comparison with two which have bedevilled the British economy ever since the First World War. One of these weaknesses is on the way to being mended, though it is by no means completely cured. This is the tendency of our financial system to generate overseas investment far beyond our capacity to sustain, a tendency which is due to the historical development of London and of Britain as a focal point of the world financial and economic system. Should the national reserve currency system, as we all hope, be superseded by an international arrangement and overlending duly curbed, this problem will have been solved.
The second, I fear, is as yet far from solution, but before I deal with this point
344
I should like to say that I have followed the activities of the Prices and Incomes Board with interest and admiration, and I hope to collaborate with them in future. This second cause of our malaise is the consequence of our costs rising faster than those of other competitive economies. It is the consistent decline of our share in manufactured exports, and the equally persistent increase in our manufactured imports, both dating back over the last twenty years at least. This is a problem which cannot be dealt with by liquidating our foreign assets, because they would soon give out and our problem be made much more acute by the loss of revenue from them. Nor can it be solved by imposing import controls or surcharges, however necessary these may be as temporary expedients, as shown, for instance, in the current case of France and our own measures in 1964. They cannot be dealt with by such expedients because the effect of these is once and for all, while the basic forces responsible for our discomfiture are persistent and cumulative. No one in his senses would suggest that we could, especially without provoking retaliation, embark on an inevitably cumulative process of progressively increasing surcharges or reducing quotas.
Our type of difficulty is not the violent monetary explosion customarily associated with the booms of the nineteenth and early twentieth centuries. It is really no more complicated than that old saying that you cannot get a quart out of a pint pot. It is a self-sustaining increase of costs, self-sustaining in the sense that the increase in costs through higher incomes creates the demand to sustain the increase in costs through higher prices. Yet we cannot without deadly danger to our balance of payments increase our costs; that is to say, we cannot increase our incomes relative to the increase in productivity at a faster rate than other countries. If our competitors are able either to repress wage demands through unemployment or other measures, or to induce their trade unions to hold back wage demands until they correspond more closely with the increase in productivity than ourselves, we are bound to get into periodic exchange crises. Our relative weakness in industrial efficiency will then be further increased because the stop phase of

345
the stop-and-go cycle is forced upon us and investment would have to be re-judged.
Much of the so-called industrial superiority of the Federal Republic of Germany is not due to aggressive entrepreneurship and better sales organisation; they are certainly not in advance of us in scientific investigations and development expenditure. The steady expansion of their share in manufactured exports has been buttressed by the disinclination of the trade unions in that country to incur the odium of responsibility for higher prices. It is also due to the fact that industrial units are larger and their trade unionism more centralised, which allows more flexibility in plant bargaining while it avoids that bidding against one another of different crafts, which seems to be one of the main causes of malaise in this country.
The Government have, since their inception, tried to tackle this central problem from both sides, by accelerating the increase in productivity and by keeping incomes from going up too fast. But the first, which depends on a restructuring of industry (as Mr. Cousins, who was Minister of Technology, ought to know best), is not an easy task or one which yields quick dividends. All the effort—and it was a tremendous effort—that has gone into the attempt to accelerate increased productivity has only recently begun to bear fruit: despite a fall in employment the rate of this increase has more than doubled in 1967–68. There is now in the British economic system a reserve of productive capacity greater than has been experienced for many a year. It is obvious that, if our balance of current account improve; through increased exports and import substitution, in the first instance, and we are able thereafter to expand employment and production, the increase in productivity might be prodigious. Then we should be able to enjoy the fruits of a virtuous cycle instead of a vicious circle.
It is the "if" in this which is the rub. There is reason to fear that, unless the attitudes of both sides of industry alter, the fruits of the increase in productivity will be anticipated prematurely through an overly increase in costs and the competitive advantage of devaluation eroded, and the possibility of steady expansion
346
will once more be frustrated. The fact that our balance of trade is slow in improving makes this even more menacing as wage-round follows wage-round. We shall have to accept changes in our social institutions by which the concentration of economic power, which is an accomplished fact, is matched by a capacity for conscious co-ordination and by the development of the institutions needed to undertake that co-ordination. The establishment of the National Prices and Incomes Board is a crucial piece of social reform of which the country can only be proud. In all countries, even the Communist countries, the relation of incomes to production is the most burning problem, and like many other political and social institutions this country may have originated a new organ which others will in the future imitate, just as they imitated Parliamentary and Government institutions in the past.
This task of social engineering is not easy to make acceptable, as we all know. Yet it is only through the realisation of individual and group responsibility and restraint that we can advance towards a steady and continuous upward trend without reverting, as the French and Italians have done, to an increasing inequality of income and acute strife among broad social classes. This depends in its turn on social cohesion. But then this country has always led the world in this respect. The need for restraint is especially acute in the case of the higher income earners. Once recovery has started and the country has been permanently established on a more dynamic rate of progress the need for this restraint will be less acute. From this viewpoint it is unfortunate that the Donovan Committee's Report was not based on an advanced economic analysis of our inflationary problem set against a world picture of increasingly accelerated change in other countries and did not deal adequately with the role of the structure of the unions and the T.U.C. in that context. It is to be hoped that such an analysis and adequate recommendations for a structural change will now emerge from the Congress itself.
The Budget then, in this broad framework, can play an essential role. This role, in my opinion, is not, as the new conventional wisdom asserts, through its influence on monetary conditions or

347
on global demand. No practicable measures of taxation can restore export competitiveness. What it can do at most is to create unemployment through a lessening of demand for home products and incidentally for imports and thus improve the balance. It is much more the social implications of the Budget which, in my opinion, will be decisive, and here again the usual popular notions seem the reverse of what I regard as the evident truth. The persistent increase in wages has not, over the last fifty years, had much, if any, effect on the distribution of income. The free-for-all has in fact led to temporary gain of one group of workers against the others. This was to be expected once it was realised that the regular yearly round of wage bargains concluded between powerful companies and equally powerful trade unions would by itself provide a self-generated increase of demand to clear the market at higher prices corresponding to higher wages. Thus it is evident that wage bargains cannot influence the national distribution of income, for wage demands are met only because prices can be raised.
What the Budget could provide is the creation of conditions needed for social cohesion by varying the distribution of income to accord with the demands of the day. Even in this respect, however, the Budget must be supplemented by a careful watch over prices either indirectly, by promoting freer markets, or directly, through the pressure exerted by public opinion activated by the National Board for Prices and Incomes. In addition, such restraint on prices will be indispensable if we are to reduce the added pressure for wage increases emanating from increases in prices.
Thus fiscal policy and prices policy must be closely dovetailed into an integrated framework for a coherent incomes policy. I think that this country could be at the beginning of the end of that horrendous and excessively long period, when policy had perforce to concentrate on the elimination of menacing deficits in our balance of payments; when the dominant need to emerge from dependence on foreign aid precluded discussion of the really interesting and strategic choices inherent in economic and social policy.
348
What this country has been denied for the last fifty years is genuine freedom of action. The cause of this was chronic and persistent, indeed cumulative, economic weakness. This is not to be cured by one Budget or by any Budget. It can be solved only by changed social attitudes and concerted policies. The Budget must therefore be judged from the viewpoint of whether it contributes to this change, and not merely by its immediate effects. Once the country has regained its freedom, economics should, and will, fade back to their proper place. They are means and not an end. The proper subjects for debate in a relatively affluent society are very different from the balance of payments. It is not even the standard of living, but the standard of life. Are we to aim at greater equality, less competitiveness, more tolerance or a further acceleration of material standards? If it is to be the latter, should it be concentrated on further refining private consumption, or devoted to an increase in public consumption? These are the true themes for political debate.
But this freedom of action, this freedom to lift one's eyes above the day-to-day task of trying to fend off crises, and of anxiously waiting for the monthly trade figures, can be attained only if the restraint of incomes and the necessary institutional arrangements are accepted freely; if the individual temptation to snatch advantage, which can only be transient, is successfully resisted. In the end, the success of economic policy depends on, and will come only through, a deep sense of individual and group responsibility.
4.23 p.m.
LORD ROBBINS: My Lords, I am sure that your Lordships on born sides of the House will join with me in congratulating the noble Lord who has just sat down on his stimulating and felicitous maiden speech. He did not altogether avoid controversial questions, yet such was the temperateness of his utterance that I doubt whether the blood pressure of a single occupant of this Chamber was raised one degree by what he said. He has given us much food for thought, and I hope that he will give us the opportunity of further nourishment in the future.

349
I should like also to congratulate the noble Lord, Lord Brown, on an absorbingly interesting account of his stewardship in the management of our international trade, and to express my agreement with his fundamental position that the economic state of this country can be depicted in colours which are too dark. But I am afraid that what I have to say this afternoon may not altogether harmonise with the rosy hue which may have appeared as a penumbra to his observations. I agree with what speakers favourable to the Government have said, in this Chamber and elsewhere, that the news from Basle and the improvement in the trade figures are grounds for some satisfaction. But before we follow Mr. Aubrey Jones—or more exalted authorities—in talking of economic miracles, I think we should recognise, in the interests of realism, that all that has happened so far is that the situation has been prevented from becoming worse. Whatever may be the extent of our deliverance in the future—and I agree with the noble Lord, Lord Balogh, that there is a fair chance of that happening—we are still months, even years, away from a state of affairs which can be free from deep anxieties.
Let us take the Basle agreements, or what we know of them at present. It is indeed very good news that the danger of massive withdrawals of the sterling balances seems to have been averted, and I am sure that the gratitude of us all is due to that great and good man, the Governor of the Bank of England, for the ceaseless and dedicated labours which have brought this about. In my opinion, we do not pay sufficient tribute to the men like Sir Leslie and his illustrious predecessor, the noble Earl, Lord Cromer, who by their vigilance and shining integrity have sustained our financial reputation in quarters which have power to help at a time when there was some reason to fear that that reputation was in danger.
But what has happened is essentially that a great disaster has been prevented. If, without support from elsewhere, there had been withdrawal on a large scale of funds hitherto held in London by the central banks of the sterling area, nothing could have prevented a catastrophic fall in the external value of the pound, with all the internal damage and international
350
chaos that that would have involved. But there is nothing in what has happened which positively improves our position on current account. There is nothing which finances the present deficit. And if the transfers take place, and our obligations to pay in sterling are transformed into debts to members of the Bank for International Settlements, then in the long run the burden on the balance of payments may be actually increased by obligations of repayment which might not otherwise have taken place. There is not much cause for jubilation here, but some cause for quiet thankfulness.
The improvement in the trade figures, especially the drop in imports, is indeed more positively relevant. If it persists, it will certainly be an indication that the devaluation is beginning to wonk and that internal policy is at last on the right lines. But how premature to proclaim recovery! We are still running a deficit on current account. At the present rate of recovery it is difficult to believe that we shall be breaking even much before the end of the year. As has been said already, if we are to repay the debts which we have incurred recently, still more if we are to accumulate reserves adequate to the business of a great industrial and financial nation, we shall have to run surpluses of at least £400 million a year for years to come. I do not suggest that this is impossible. When one looks around and sees what has occurred in other centres, such as Germany or Italy, which 20 years ago were in a much worse position than we are now, it is clear that it can be done. But it is early days to speak as if it were far on the way. Many years of effort and restraint lie ahead, and at the present time—let us face it—we are still in a position of danger.
In this connection, my Lords, it is worth remembering the narrowness of the margin available. The devaluation was comparatively small. I am not arguing that it should have been greater. I still find it difficult to believe that, given proper internal restraint, the pound was greatly overvalued; and since we were not accompanied downwards by many other centres, as happened in 1949, the cutting edge of what has happened, so to speak, is very extensive. But when due account has been taken of increased costs of imported raw materials, the

351
abolition of export rebates and so on, the advantage to our exports cannot be much more than 10 per cent., if that. It would not take much internal inflation to wipe that out, and to sustain a disposition to import far beyond our present means. It is clear, then, that it is overwhelmingly important that the rate of spending in general, both internally and externally, shall not run ahead of what we can afford; in particular, that incomes shall not rise faster than productivity, and that consumption shall be so restrained as to allow appropriate internal investment and the creation of an external surplus.
My Lords, this brings me to the occasion for to-day's debate—the Finance Bill and its implications. Let me say at once that I am in broad sympathy both with its aims and with its methods. This is not to say that I think that our system of public finance is in a particularly healthy state. I think it has been ailing for some time—longer than the term of office of the present Government—both on the side of expenditure and on the side of taxation; and I certainly think that its ailments have been increased by some measures introduced by the present Government—the capital gains tax without an index number clause, corporations profit tax, and S.E.T.
The immediate need of the situation this spring was a drastic curtailment of consumption; and I agree that, given the instruments at his disposal the Chancellor has done the right thing to get it. I have not much use for the so-called once-for-all special levy: it will not raise a great deal of money and it will impose special burdens on some who have provided for retirement. But if it was the political price for an otherwise sensible policy, perhaps it was not too much to pay. The main tendency to shift to some extent to indirect taxation seems to me in present circumstances to be wholly welcome. Admirers of the Communist system will note that, in spite of some inequality of income, the main instrument of taxation in Soviet Russia is a turnover tax. In this respect, I submit, the Chancellor has done a wise and courageous thing.
Nevertheless, I submit that we should deceive ourselves if we were to regard the present situation in this respect as entirely satisfactory; if we were to think
352
that, so far as public finance is concerned, all that needs to be done now is to sit back and wait for an economic miracle. I think that much needs to be done to improve our system of taxation, both in respect of incentive and in respect of justice. I think, too, that not nearly enough has been done to restrain the growth of public expenditure. In this connection I do not wish to give countenance to the vulgar view that within the limits of present policies there are vast areas of waste to be remedied by immediate economies. I mean rather that there are, in my judgment, large fields of expenditure where we need rethinking of fundamental policies—areas of outlay where more selective expenditure would allow at once more to be given to the really poor but less given to others not in need.
Much more immediate is concern for the present volume of spending. In spite of the Budget, and in spite of some reduction in sales in some shops, it seems to me that the disposition to spend is still too high for our present state of convalescence. Taxation or no taxation, too many people have got into the habit of preferring consumption goods to reasonable liquidity and investment. This tendency was already widespread because of continuing inflation; but it has certainly been considerably strengthened by the long delay in introducing the post-devaluation Budget.
With great respect and admiration for the present Chancellor of the Exchequer, I have racked my brains to discover valid grounds for his failure to act earlier; but I have found none. Why on earth did he hold his hand? In the weeks following devaluation this people would have taken anything in the nature of restraint and austerity. As it was, as has been said already in the debate, the delay gave rise to a vast orgy of spending, which must be held largely responsible for the uncertainty regarding the future of sterling which has persisted ever since. Even now I doubt whether the habits thus engendered have been fully abandoned. "After us the deluge" is still too much the prevailing mood in many quarters.
In this connection, I believe that far too little attention has been given by this or earlier Governments to effective encouragement of saving. We all know that

353
saving is not something that you encourage in the depths of depression. But I imagine that most of us would agree that, at any rate during the last 20 years, the tasks of all. Governments in this country would have been materially eased had the disposition to save been greater. One of the main reasons why this was not so was, of course, the fact of inflation itself. If the value of money is falling, as it has been falling pretty consistently since the war—under Conservative Governments as well as under Labour Governments—then even high rates of interest may not be a sufficient compensation for the loss of purchasing power; and sooner or later people find this out.
This frame of mind cannot be wholly eradicated while the expectation of inflation persists. But I suggest that far more could be done than has yet been done to reverse the tendency. The tax system as we have it at present positively discriminates against savings: it taxes the incomes out of which savings are made, and it taxes the incomes which they reap; and it adds insult to injury by designating as "unearned income" what a man receives from the provision he has made against retirement. I strongly commend to the Chancellor the serious consideration of measures to rectify this anomaly, and if he has any trouble with the theory involved there is an excellent book by a Mr. Nicholas Kaldor which, in this respect at any rate, would be very helpful to him.
But reform in this direction must necessarily be a matter for the future. Meanwhile, we have to live through the crisis, and here, surely, as the noble Lord, Lord Balogh, commented to us, we must be eclectic. We must use all the instruments that are available. For this reason, in spite of the inconveniences involved, I make no objection to the additional restraints on bank lending which have recently been imposed. Nor would I personally wish to indulge at this juncture in criticism of the Government's incomes policy. I do not believe that this is a long-run solution: in the long run, I fear that it may breed anomaly and injustice, and I doubt whether it will be economically effective. But in our present predicament anything which restrains inflationary cost increases in the short run is to be welcomed. I should not wish to call in question the intention which lies behind
354
the attitude of the Government in this respect; rather, indeed, the contrary. I hope to see the incomes policy made more effective, particularly in the public sector, where, if there is not an incomes policy all the time, things are apt to get cut of hand.
And if I may conclude on a somewhat sombre note, I would say that any gratification that we may have felt in the last two weeks at the outcome of the Basle negotiations and the tendency of the June trade figures must be considerably mitigated by the apparent breach of the incomes policy by the settlement on the railways. There is a disquieting story going around of pressure brought by the Government on the Railways Board to influence the conduct of the dispute. I should like to ask the noble Lord, Lord Beswick, who is to reply for the Government whether there is anything in these rumours. I hope sincerely that he can deny them, not merely on points of detail but on the broad substance of the allegations made. For if they were even only broadly true it would be a matter for serious concern.
4.42 p.m.
LORD MONSON: My Lords, I should be grateful for your kind indulgence, not only because some of the things am going to say will, I am afraid, be somewhat controversial—although I hope only mildly so—but also because I am obliged to be at London Airport early this evening in order to catch a flight which was booked many months ago before the date of to-day's debate had been fixed. If, through necessity, therefore, I have to leave before the end of this debate, I hope very much that noble Lords will forgive me.
My Lords, there are three things that I want to discuss, two of which are fairly directly connected with this Bill. All have to do with ways in which specific groups of individuals are, in my submission, being unfairly treated by our fiscal system. I should like to deal first with Clause 53 of the Bill. This may seem to be a relatively unimportant clause but, in a roundabout way, I chink an important principle is at stake here. Let me explain. The clause, in fact, does nothing more than to provide that taxpayers, whether individuals or corporate, whose tax is overdue must start to pay interest two months, instead of

355
three months, after the due date. In effect, it adds further weight to a provision in the 1967 Finance Act which raised the rate of interest on such overdue tax from 3 per cent. to 4.
Both these provisions are, in my belief, perfectly fair and reasonable. We live in highly inflationary times, and in consequence interest rates are historically high; and, leaving aside any apportionment of blame for the inflationary situation, the State has to-day, I feel, to be businesslike about monies owing to it. But fair is fair. An individual who owes the State money is rightly being made to pay the proper rate of interest on it, so when the State owes the individual money exactly the same principle, surely, ought to apply. But at the moment it certainly does not.
What I refer to specifically is post-war credits. Here I cannot avoid being controversial. It must be said that no Government since 1946 can escape criticism in this matter. Certainly a start was made with the provision that a tax-free increment of 21, per cent. of the balance outstanding should be added annually from 1959 onwards; but at the present time this is quite inadequate to keep pace with inflation. I know that there are other people who suffer most unjustly from inflation—long-term holders of War Loan, for instance; but however much the latter may have been inveigled into buying War Loan and then into accepting a reduction in the rate of interest from 5 per cent. to 3½ by appeals to their patriotism, in the final analysis theirs was a voluntary act. Those to whom post-war credits are still owed have, and had, absolutely no choice in the matter. I therefore urge Her Majesty's Government to consider raising the annual rate of interest on outstanding post-war credits to 4 per cent., in line with the rate of interest on money due from the taxpayer, to help preserve the purchasing power of the credits outstanding, pending their eventual re-payment.
My next subject is one on which both Clause 15 and Clause 31 have a bearing. It deals with the anomalous and, as I hope to convince your Lordships, totally unfair tax position of children who inherit money, however small a sum, from a deceased parent. Here I must declare an interest, although it is purely in my
356
capacity as an administrator and trustee. It may help if I cite the particular case in which I am interested as I think it may be typical of many. The father of the little girl in question was an officer in the Fleet Air Arm who tragically was killed while still in his twenties. His daughter's share of his net estate came to a little over £1,600—I think the exact figure was £1,670. This sum now produces an income of just over £100 a year, which is a little less than £2 a week. Here I must say that I am not in any way criticising Service pensions or State benefits of any sort; I am dealing only with the situation as it affects a person's private income.
Under Clause 15, this £2 a week will, from 1969 onwards, be amalgamated with her mother's income (which, itself, is far from substantial) for tax purposes; and really this is not going to help things very much. But although, with difficulty, I can see that some sort of case can be made out for Clause 15, I can see no justification whatever for what comes next, which is this. Whenever any switch is made in the investment from which the child's income derives, even when it is a question of Government stocks reaching their redemption date, the child—and this goes for any child in a similar position—must pay capital gains tax at a higher rate than a single man with an unearned income of £3,900 a year or of a single man with an earned income of over £7,000 a year. I said that the child pays; in fact, her trustee pays; but the ultimate effect so far as she or he is concerned is the same. The excuse for this completely unjust situation is that the child's interest in the capital is contingent upon he or she attaining the age of 21 years or marriage, if sooner. I must interject here to explain that in the particular case I am dealing with the father died intestate. But this is hardly relevant; for nearly all well-drawn-up wills also prudently provide for the child's interest in the capital to be contingent upon its attaining its majority. I have tried to put myself in the position of the Inland Revenue to try to see what it is that they fear will happen if the rate of capital gains tax were to be linked with the child's income, as is the case with all individuals who have an absolute interest in their capital. Do they fear that lightly taxed capital may ultimately pass into wealthier hands? My Lords, the average age of a child who

357
inherits money in this way is 10½—in other words, midway between the day of birth and the 21st birthday. Or perhaps more accurately, it is 10, given that some marry before reaching the age of 21. I am told that actuarially the chances of a child of 10 dying before reaching the age of 21 are 0·3 per cent.; that is to say, 997 out of every 1,000 10-year-olds do survive at least to the age of 21.
In the sad cases of the three who do not survive to whom would their capital pass? Surely my Lords, either to a brother or a sister, if they had one, who would be unlikely to be better off than themselves; or otherwise, in all probability, to their mother who herself is statistically most unlikely to be a high surtax-payer. So I do not believe there are any genuine grounds in practice for the Revenue to worry that an amendment of the law would lead to tax evasion. If it were thought absolutely necessary, such amendment could be hedged around with all sorts of safeguards. It could be restricted to cases where one or both parents were dead. It could be restricted to gains of a relatively modest nature: or, alternatively, a leaf could be taken out of Clause 15 and provision made to treat the child's capital gains as if they were gains of the parents' so that the children of those few surviving parents who happened to have extremely high incomes would be effectively excluded from any benefit. However it is arranged, I feel that something ought to be done.
My Lords, let us return to the nub of the matter. I have already said that a child in this situation pays a higher rate of capital gains tax than a man with an unearned income of £3,900 a year or an earned income of rather more than £7,000 a year. This was the case until March 19 of this year, but since Budget Day the situation has become even more anomalous and unfair, for in Clause 31 the Bill provides that individuals whose net gain in the year does not exceed £50 are to be relieved altogether of capital gains tax.
The result is that if one of the children in question, even if his or her income is as little as £10 a year—which is quite possible—were, because of an unexpected takeover bid or the redemption of Government stock, to make a capital gain of
358
£49 in a year (and remember, my Lords, that this is only a paper gain: there can be no question of spending it as "income", which I believe was the phrase used when the capitals gains tax was originally brought in) they, or rather the trustee on their behalf, would have to pay 14 guineas in tax on that £49. But if Mr. Paul Getty, or someone of his financial status, made exactly the same net gain in the course of the year (which, incidentally, he would be able to spend as he wished), he would not pay one single penny in capitals gains tax.
My Lords, I am afraid that I have been rather long-winded in trying to explain this slightly complex matter. Bu: it is because I think that these things are not widely known, and because I honestly believe that noble Lords on both sides of the House, having had them explained, may wish to see them rectified, that I have ventured to speak to-day so strongly on this subject.
Finally (this is a very "long shot" which, pessimistically, I do not suppose has very much chance of coming off), thanks to Press publicity, most people in this country are now aware of the extraordinary state of affairs affecting quite a large number of unfortunate individuals who had put their savings into houses, mainly terraced houses in the older parts of our cities. These houses may lack certain amenities, damp courses and so on, but most of them—not all: one must concede that some were slums and genuinely due for demolitior—are, by any objective standards, homes where families were able to lead tolerably happy lives. Yet the householders, to their amazement, find their homes declared unfit for human habitation; and they are ordered to quit them upon the payment of an amount of compensation which, in the majority of cases, quite derisory. Happily, this appalling state of affairs has now been rectified for some people, and all credit is due to the present Government for finally getting round to achieving this. But as matters stand at present, only the owners of houses acquired after April 23 this year will benefit.
My Lords, we have seen plenty of retrospective legislation during the past few years. Most of it has been heavily criticised in practice, and above all in principle. Nevertheless, the precedent has

359
been established. How pleasing it would be if the fact of this precedent of retrospective legislation could for once be used to benefit the individual vis-à-vis the State, instead of vice versa! I think that very few taxpayers in this country (and after all the burden would ultimately fall on them) would begrudge substantial concessions being given to the owners of such houses compulsorily purchased prior to April 23 of this year.
If some form of additional cash payment must, for one reason or another, be ruled out, perhaps the owners of such houses—who may, for example, have paid £500 for them only to have them taken away for a derisory compensation amount of £50--might at least be allowed to set the £450 loss, however long ago it was incurred, against any direct tax which they may now be paying or may have to pay in the future. I realise that there would be a great deal of effort involved, much research and much reopening of dead files; and much money expended and paper work caused. But if there is any action that could be taken to bring belated justice to these people I am convinced that it would be universally welcomed by the people of this country.
4.58 p.m.
LORD ABERDARE: My Lords, it is my privilege to be able to congratulate the noble Lord, Lord Monson, on his maiden speech, to which I know your Lordships listened with great pleasure. It was well thought out and extremely interesting, and I know that we would all express the hope that the noble Lord will address us again in the near future. As I am the first to speak from this side of the House since he made his speech, perhaps I may be allowed also to congratulate the noble Lord, Lord Balogh, on his maiden speech. It strikes me that the two noble Lords who spoke for the first time are in somewhat different categories, one being a professional economist and the other, I would assume, an amateur. But just as at another scene of frantic activity, in this House we recognise only "players", and we all play without hope of financial reward. I hope that both noble Lords will play their parts here on future occasions.
I do not wish to make any comments on the individual items in the Finance
360
Bill, although I would make just one general comment following on a remark made by my noble friend Lord Erroll of Hale. It is to express my dislike of what I consider the retrospective element in some of the provisions in the Bill. Not so very long ago, in the course of the Second Reading of an education Bill, there were some retrospective provisions. The Government sought to justify themselves—and I fully agree with their justification—on the ground that they restored the law to what everybody thought it to be before. Certain changes had been made in schools in the belief that they were in accordance with the law. A legal judgment concluded that the law was different and that those changes were illegal. In that case retrospective legislation, restoring the law to what it was supposed to be and granting immunity to those who unwittingly transgressed it, seems to me to be a justifiable use of retrospective legislation.
But there are provisions in this Bill which affect actions taken in the past by those who knew the law as it then was, and who now find that, at a wave of the Government's wand, the law will be different. I have no quarrel with the right of the Government to alter the law for the future, but certain provisions of this Bill cause grave hardship for people who have entered into commitments on which they cannot go back. I believe that this is objectionable and a bad principle.
I wish to devote most of what will be a short speech to the state of the economy as a whole, and I would confine myself to one theme, which I call financial discipline. I know a number of professional economists and I know that there is a danger of over-simplification, but, on the other hand, the professional economists often err on the other side and fall into the danger of over-complication. Certainly few of them seem to agree among themselves, and I am emboldened, as none of them have turned up with the right answer, to "have a go".
Despite what the noble Lord, Lord Balogh, said, I consider that enemy No. 1 of our domestic economy is inflation. That is also the case with our overseas trading position, because it is bound to affect this adversely. Everyone is familiar with the expression: "Too much money chasing too few goods." This is

361
an over-simplification, as the Radcliffe Committee pointed out in their Report in 1959 on the working of the monetary system. May I remind your Lordships that they concluded that:
"The factor which monetary policy should seek to influence or control is something that reaches beyond what is known as the supply of money. It is nothing less than the state of liquidity of the whole economy."
It is my conclusion from that that our inflation is due to an excess of liquidity compared to the production of goods and services.
Over the last three years, the Government have been in process of a policy of deflation to reduce this excess of liquidity. They have sought to reduce domestic demand by raising taxes on income and expenditure and by the restriction of credit facilities. Unfortunately, the policy has failed. The liquid funds at the disposal of private persons have risen year by year, from a figure of £290 per head in 1962 to the astonishing figure of £400 per head in 1967, representing a total in that year of liquid assets in the hands of private persons of over £22,000 million. These figures are based on only selected liquid assets and are contained in the April edition of Financial Statistics.
Why has this deflationary policy failed? The simple reason, in my view, is that while more money is being taken out of the economy by taxation, at the same time the Government's total expenditure on current and capital account has exceeded their income and therefore has put more money back into circulation than it has taken out. I am not making a Party point. The story over recent years since 1961 has always been the same. The nation's income and expenditure account has shown a surplus, but this surplus has been more than spent on capital account, principally as a result of loans to local authorities and public corporations.
The figures speak for themselves. For the six years from 1961 to 1966 we had a surplus on income and expenditure account of £3,813 million, but over the same six years capital expenditure amounted to £5,653 million, leaving a deficit of £1,840 million. This may seem a large figure, but the same deficit during last year, 1967–68, according to the Chancellor of the Exchequer in his Budget speech, was some £1,449 million in that one year alone—almost as much as in
362
the six previous years. It is this excess of overall Government expenditure over income, sometimes called the Borrowing Requirement, that is the all-important point if we are seeking to control inflation. There is no need for this Borrowing Requirement to create an inflationary situation, if it is met by general borrowing from the market. The point really is: How is it met?
I referred to this matter on the Second Reading of the National Loans Bill on February 27 and the noble Lord, Lord Beswick, was kind enough to give me some figures for the year 1966–67, a year in which the Borrowing Requirement was a mere £740 million. From those figures it is clear that about half was found by general borrowing from the market, raised by the issue of tax reserve certificates and gilt-edged securities, though Treasury Bills and National Savings actually showed a deficit in that year. This therefore represented a general reduction in liquid assets held by the private sector of £360 million.
But what about the other half—£380 million? Of this, £53 million was raised by overseas borrowing, which in no way reduces internal liquidity; £125 million came from the issue of notes and coins, and the remaining £202 million came from the banking sector. It is to this last figure of £202 million that I would draw your Lordships' attention. It is an internal arrangement between the Treasury and the Bank of England without limit and without in any way reducing the liquid assets of the personal sector. If this item in 1966–67 was £202 million, when the Borrowing Requirement was £740 million, what was it, I wonder, in 1967–68, when the Borrowing Requirement was almost double? If the noble Lord, Lord Beswick, is able to give a figure it would be extremely interesting to know, because this is the crux of the matter. The Government make a surplus on their income and expenditure account. This surplus is transferred to capital account, now the National Loans Fund. But the surplus and the Government's borrowing from the market are insufficient to meet their long-term loans to public authorities. The remainder that is required is met by the banking system.
This, to my mind, explains why inflation has continued despite deflationary taxation measures. This is where I believe we should seek to reimpose financial

363
discipline. I think we should have two Budgets: we should have an income and expenditure account, more or less on the lines of the present Budget, and we should have a capital account Budget. This capital account Budget should be credited with the surplus (if there is one) from the income and expenditure account, and debited with the estimated long-term loans to public authorities; and the difference would have to be met by genuine borrowing from the market by means of gilt-edged securities, saving bonds and so forth. These must be made sufficiently attractive to ensure the necessary flow of funds—and I fully agree with what was said by the noble Lords, Lord Byers and Lord Robbins, on this matter.
To those who say that the figures are too large to be met by the market, I would merely make two points. The first is that the borrowing requirement of this year, 1968–69, thanks to a tough Budget, has been considerably reduced to a figure of £358 million. The second, reverting to what I said earlier in my speech, is that liquid assets of the personal sector last year were over £22,000 million. Surely, out of this £22,000 million liquid assets held by individuals we can somehow raise, by borrowing in the market, the sum of £350 million or so if we make the terms sufficiently attractive. The objective must be to finance Government lending by Government borrowing from the market. Yet figures show a disturbing tendency for the private sector to switch its resources increasingly from long-term investment into short-term liquid assets. This is the vicious circle that we must break. As the noble Lord, Lord Robbins, pointed out, inflation causes loss of faith in the value of money and a reluctance to invest in long-term securities, particularly fixed interest securities, such as gilt-edged. But until the Government can borrow their capital requirements from the market, inflation will undoubtedly continue.
I do not pretend to be able to answer the problem. I think, however, that we should have made a start if it could be spotlighted in an annual Budget, and pressure put on the Government—on any Government—to exercise strict financial discipline in their expenditure. I believe it is financial discipline that is required to defeat inflation, to remove the
364
need for a statutory prices and incomes policy, and to give the citizens of this country faith in our financial future.
5.14 p.m.
LORD BOOTHBY: My Lords, we nave had two notable maiden speeches to-day, and at the outset I should like to make a brief reference to the maiden speech of my noble friend Lord Balogh. He has been a friend of mine (now a noble friend) for the last 35 or 40 years. All I want to say about his speech, which we all listened to, and shall study with great interest, is that I, for my part, welcome his transformation from an eminence grise to an eminence brillante, which is what he now is in this House. I never altogether liked him in the capacity of eminence grise. Now we have him here, we can hear what he has to say and evaluate it; and it is worth evaluating. I should like to congratulate my noble friend. I am delighted that he is here. We hope to hear a great deal from him again, no longer enshrouded in the recesses of that ghastly Treasury but from the much more healthy atmosphere of the red Benches of this House.
This has been a hard Budget. It had to be. Nevertheless, our present system of progressive taxation on earned incomes does amount to what my noble friend Lord Robbins once rightly described as:
"a discrimination against enterprise and ability such as has never before existed for any long time in any large-scale civilised community."
I think that is true, and I do not think my noble friend Lord Robbins would wish to withdraw that statement. Although I do not for a moment suggest that the Chancellor of the Exchequer in this particular Budget should have reduced taxation of any kind, direct or indirect, I agree with the noble Lord, Lord Byers, that a radical reform of the whole system of taxation is necessary. We have had a Royal Commission on this subject. Our present system is out of date. I think we are lumbered up with a mumbo-jumbo of Finance Acts and everything else which makes the position almost impossible. Every stockbroker now, in addition to everybody else, has to be a chartered accountant. I have spent a few sleepless nights (I must say it does not get me any further) trying to find out what

365
taxes I ought to pay, where, when and how; and I think that that goes for everybody in this House and in the country.
What I deplore above everything else is the enormous wastage of labour involved in going through these intricate tax accounts and systems. I say to Her Majesty's Government that they must simplify the position; they must get it a bit better. My chartered accountant has had a nervous breakdown; and I am not surprised. Almost every chartered accountant in the country has had a nervous breakdown, and Her Majesty's Government must do something about it. The other disadvantage of this enormous rate of taxation on earned incomes is that to-day no one can save out of earnings. People have to gamble or speculate if they are going to make any money: and that, in the long run, is not a healthy situation for any community. At any rate, that is a thought that is worth consideration.
What is the root cause of our high taxation? Here I agree with the noble Lord, Lord Aberdare, who preceded me. The root cause is, of course, excessive Government expenditure. That is the real trouble with this country to-day. The Government have cut, but they have not cut enough. Here lies the failure—and I go so far as to say that I think it is the only one. But it is a big failure.
I have now, for my sins, been a Member of Parliament—because this House is still part of Parliament—without a break for forty-four years. I have seen a great many people come and a great many go, and I have seen a lot of things happen. But I have never experienced a campaign of personal vituperation such as has been waged against the present Prime Minister for the last eighteen months, with the possible exception of Baldwin, when he was under major attack by Lords Rothermere and Beaverbrook.
LORD GLADWYN: And Lloyd George.
LORD BOOTHBY: Lloyd George had a rough time, too. He fell because he did not accept the verdict of Parliament, but accepted the verdict of the Conservative Party; and it was a disaster for this
366
country and the world. But Baldwin stuck it out. What I admire about the present Prime Minister is that I e has stuck it out. He has not talked much; he has not said much. But he must have felt quite a lot when he has seen this going on, day after day, vituperative, bitter—I almost said "bloody", but I think that that is not a Parliamentary expression, so I will withdraw it.
This criticism of the Prime Minister is in my view almost wholly unjustified. It has been said repeatedly that he is a man of no principle. That is quite untrue. He has had, of course, to lead a coalition. All Parties are coalitions. The Tory Party is a coalition; the Labour Party is a coalition to an even greater extent. The Liberal Party, before the outbreak of the First World War, was a coalition between the Liberals and the Irish Nationalists. And you have to hedge a bit and edge a bit when you are leading a coalition. And of course, the Prime Minister has a coalition. Whether you call them the intellectuals or the trade unionists, or whatever you like, it is a coalition. But, given that fact, he has stuck to principles as much as any man whom I have ever known and who has been Prime Minister of this country. Upon the basic necessities he has never deviated.
These basic necessities, according to him, are increased productivity related to wage increases—he has never stopped saying that for a single second since he became Prime Minister—and the modernisation of industry, including a technological revolution. I am bound to say that rigid adherence to these principles has at times made some of his speeches rather boring, because technology is a slightly boring subject in itself. But he has hammered on and away at these. And it is beginning to happen, my Lords. We are not going to have an economic miracle. The Prime Minister cannot walk on the water to-day, as he was depicted doing in a cartoon in the papers the day before yesterday, but I believe hr may well be walking on the water the day after to-morrow. It is going to be a hard slog; but I think it will culminate, if things go as they are going now, in success. If I have any criticism to make of the Prime Minister, it is not that he suffers from a lack of principle but on occasion, as in the case of Rhodesia,

367
from an excess of principle. He sometimes carries principles too far.
Again, on prices and incomes he has been inflexible. He has insisted that increased wages must be conditional on increased productivity, and taken legal powers to enforce this. I must confess that I myself was extremely doubtful of the wisdom of this. But when he said that he regarded it at the present moment as essential, and when he was supported by Lord Citrine, in a most remarkable speech on this subject, I swung round and said, "All right. Well, I accept it. If he thinks it is necessary, it is necessary ". And I am very glad to say that your Lordships took that view and did not divide against the Prices and Incomes Act. I think it is an Act that is going to work. I think it is a courageous Act—brave, and a good Act. Why should not we sometimes praise somebody? Everybody these days is "narking" away at each other and saying they are no use, and this and that. I think it is about time to hand out some praise, and I hand out some praise to Her Majesty's Government for the Prices and Incomes Act, which I think is a brave and courageous action which will come off.
My Lords, let us face the facts. I do not want to quarrel with my ex-Party, but the Conservative Government handed to the Labour Government a bankrupt concern. That is all. There is no answer to it. We were still a world banker. Sterling, with the dollar, was still a world currency. But our liabilities far exceeded our assets. That was the simple story and you cannot get away from it. And I have always noticed—at least, I have been taught and noticed it from experience—that a bank whose liabilities are far greater than its reserves is apt to get into trouble from time to time. Look at the result; and this result is not entirely due, or even mainly due, to the present Government. To-day we owe £1,234 million to the I.M.F.; £95 million to the Bank for International Settlements; £380 million on the U.S. Aircraft Loan; about £1,000 million on the Central Bank "swap" credit, and now another £834 million under the Basle sterling area scheme: in short, something between £2,000 million and £3,000 million.
I think the British public does not altogether relish this diet of loans on
368
which it has been force-fed by successive Governments since the war. It does not like to be so grossly "in the red". It does not like to be in debt to this tune, because it feels that our creditors may call other tunes—and so they may—and it would like to get out of it all if it possibly could. To use an atrocious pun which is at present in current circulation, we have been "Basled" out too often. And we were "Basled" out again just the other day. Why? Well, my Lords, I am nearly at the end of my remarks, but the reason is, of course, because the international monetary system is not working. It is not right. It all stems from Bretton Woods, that monstrous agreement. I divided the House of Commons against Bretton Woods. I do not know whether the noble Lord, Lord Balogh, was on my side or whether he was against it, but I do not regret it. I divided the House of Commons against the American loan as well, and got into a lot of hot water and trouble. That is why I never held office in this country. But I do not regret it at all, not for a moment.
Not only is the international monetary system not working; it is not even improving. Three of the four largest trading nations have serious balance-of-payments problems, and the fourth seems reluctant to play any part in relieving the others. I say, with due respect to the noble Lord, Lord Balogh, that the international Central Bankers, the economists and all the boys round the I.M.F. and everywhere else should hang their heads in shame. They have had 20 years since the war to evolve an efficient, adequate international monetary system, and how far have they got? They have got nowhere. It is worse than ever. And we are suffering from that.
The late Governor of the Bank of England—the ex-Governor, I should say; thank goodness he is not "late" yet—Lord Cromer, in his famous speech at Stockholm said:
"Confidence in money is essential to continuing and enduring prosperity in the modern industrialised state. There can be no doubt that continuous inflation is corrosive of confidence in money and ultimately of investment. And there is no baulking the fact that the continuing magnitude of the United States deficit and the forced devaluation of Sterling last November has shaken confidence in money in many places. We are now living in the

369
aftermath of the latter event. It was a traumatic event, coming as it did, not as the outcome of any international holocaust, but after many years of high world prosperity. It was very much more than a mere technical adjustment ".
If there was any greater recognition of complete and total failure, I do not know of one. That is what Lord Cromer's speech amounted to.
My Lords, the proper solution to this problem, to the problem which we temporarily solved by devaluation, would have been a massive long-term loan to Britain from the International Monetary Fund. Impossible. Why? They have not the money. They do not have the resources. Maynard Keynes proposed an international currency, internationally backed, which he called "Bancor", amounting to 25,000 million dollars. He was brutally defeated by Harry Dexter White, and on top of that he was forced to submit to the fixing of the price of gold, the only commodity whose price was fixed at a wholly artificial rate; and gold was then, and still remains, the basis of international credit. It was fixed at Bretton Woods. How did they know? They did not know how the world was going; they did not know what the trade was going to be; they did not know what the production was going to be, yet they fixed the price of the basis of credit—the only commodity whose price was fixed at a ludicrous figure.
I fought a long battle with the late Richard Stokes on the subject of the raising of the price of gold. It is a subject on which a large number of people are raving mad; and the maddest of all are the Americans. They are raving mad on the subject of gold. They forget altogether that President Franklin Roosevelt hauled the world out of the greatest depression it has ever known by raising the dollar price of gold, in the teeth of opposition from every single central banker and economist in the world. They were all meeting in London under the presidency—God help them!—of Ramsay MacDonald at the time, and when they heard that President Roosevelt had raised the price of gold they all had to be carried out on stretchers. But it was done, and it saved us. And it could be done, and should be done, again.
When all is said and done, gold remains the basis of international credit and exchange; the only
370
medium in which the world as a whole has complete and total confidence. It may be irrational, as the noble Lord, Lord Beswick, said the day before yesterday, but it remains—as I see it—a fact. This situation has gone on for two or three thousand years; it will go on, hazard the suggestion, for another two or three thousand years, so we had better adjust ourselves to that fact. The amount of international reserves that are at this moment held in terms of gold is colossal.
LORD GLADWYN: My Lords, I hesitate to interrupt the noble Lord, but will he tell me why it is that this highly prized commodity is now going down in price on the world market?
LORD BOOTHBY: Because, my Lords, the United States of America are trying to force gold on to the market, and they are pushing it on to the market because they will not buy it themselves. Indeed, that is the next point in my notes. I have written in my note: that it would be helpful if the central banks resumed purchases at 35 dollar; an ounce, which the United States are resisting because they are determined to force down the free price if they can.
LORD BESWICK: My Lords, if I may interrupt the noble Lord, supposing more gold was forced on to the market, could the noble Lord say what we are going to do with it?
LORD BOOTHBY: Buy it, keep it, look at it and love it! My Lords, if I had a few gold blocks in my fiat I should be very much happier than I am to-Jay; and I daresay the same goes for the noble Lord. It would be a thousand times more helpful if the central banks paid 40 dollars an ounce. That would give us all time in which to evolve an international currency system which would really work. We have not done it.
The truth is that in the long run gold will beat the Americans. It will beat the noble Lord, Lord Beswick. Gold has beaten everybody in the past, and it will beat everybody in the future. He had better recognise that fact and face up to it, and we shall all be better off. If the Americans persist in their present attitude it will be at a heavy cost, not only to the Free World but also to the Starving World, because the amount of liquid reserves available for the Free World is not sufficient to sustain the

371
volume of production and trade all over the world, and in particular it is not sufficient to sustain relief and aid to the under-developed areas.
I should like to see the transformation of the I.M.F., with built-in gold security, into a Central Bank for central banks, equipped like them with powers of credit creation and contraction. It will take time, which a rise in the price of gold would give us. The noble Lord, Lord Beswick, himself said, the day before yesterday—and I carefully copied out his remarks from Hansard:
"Gold has always had a fascination for mankind… It still is, in an important sense, the basic element in the international monetary system."
And—this is the point I was looking for—
"It accounts for about 40 billion dollars out of the world's total of about 70 billion dollars of international rescrves."—[OFFICIAL REPORT, 15/7/68, col. 12.]
The noble Lord, Lord Carron, said in the same debate (col. 22).
"Gold is the basis of the international monetary system."
So it is, my Lords; and so it will remain for a long time to come. And we had better work on that assumption.
What we really need, in the words of the noble Lord, Lord Balogh is:
"the automatic use of an increasing portion of persistent creditor balances for long-term investment in under-developed areas; and the gradual transformation of the two Bretton Woods institutions—the Fund and the Bank —into an effective force to stabilise economic growth."
One could not have anything more concise or more lucid than that, and that is why I was glad when I heard that he was to advise the Government. But I am rather glad that he has now stopped advising the Government and has come over here, because we can now listen to what he has to say and what the advice is.
Meanwhile, my Lords, we continue to carry what the Sunday Times has rightly described as "the expensive and thankless burden", with the United States, of maintaining the world's monetary stability, without any reserves, without any resources. As against the United States, who still have some resources, we are in pawn to the world and, above all, to the United States. It is high time
372
this burden was lifted from our shoulders and shared among all the major trading countries, including the Soviet Union. If gold were introduced into the new international monetary system I believe the Soviet Union would join it, because they are considerable gold producers. This could result in a world-wide reduction of interest rates. I hate dear money: it is costly; it is no good for the balance of payments, and it leads to a diminution of public and private investment. Our money in this country to-day is far too dear.
The S.D.Rs in the International Monetary Fund Bill will do nothing to solve our balance-of-payments problem. They are not a funding of the sterling balances, but simply a recognition of the fact that our attempt to maintain a reserve international currency without any reserves cannot possibly succeed. As an international banker we are no longer credible; and we had better make up our minds to accept that. The future of sterling is not yet settled, but I am sure of one thing. We cannot bear the burden of being one of the only two reserve currencies of the world, nor can we bear the burden of the sterling area as it is at present organised for much longer. It puts far too great a stress and strain upon our resources.
I was very glad to read in the Sunday Express last week-end an article by Mr. Maudling in which he said he thought things would get better on the whole, and that he really took a bright view of the situation, and bucked things up. I was horrified by a speech made by Mr. Heath which was repeated on television last night. In all my life (and I have heard a pretty good lot of nonsense talked on television, and talked a pretty good lot of nonsense myself) I have never heard such clotted nonsense as Mr. Heath put out over television solely for Party political purposes—and squalid Party political purposes at that: all this business of the Labour Government selling the sterling area down the river; about how we were diminished in stature, and all that "bunk". If Mr. Heath is going on in this way the Tories will have to wait for a very long time before they get back into power.
That is perhaps not germane to the subject of the debate. But I did say on

373
November 2, 1937—that is, 31 years ago —in the House of Commons:
"Any man with power and authority who makes a speech or gives a Press interview which brings about a diminution of confidence does, by that very fact, deal a blow not only at the economic system of the United States and this country, but also at the democracies of the world."
I believe quite firmly that Mr. Heath delivered such a blow last night. It could only diminish confidence. It could not possibly have done any good. He was quite wrong. The Labour Government, the present Government, are not selling the sterling area down the river at all: they are only beginning to realise that we must get an international monetary system which will take some of the burden of maintaining it from our shoulders and put it on the shoulders of others who ought to be playing their part but are not at present doing so.
I believe that the odds are in favour of the impending slog—not miracle, but slog—culminating not in a miracle but in success. I am sun:, that the Chancellor of the Exchequer is applying himself to this problem, and I am particularly glad that the lively and imaginative mind of Mr. Harold Lever has been bought to bear upon this problem, because he and I have had many discussions on this question over the years, and I know of nobody who has a keener appreciation of all the difficulties, all the obstacles, that lie ahead, and yet at the same time is an invincible optimist. I met him in the street the other day, and he said "Bob, it is going to be all right". My Lords, what more do you want than that from the Financial Secretary to the Treasury?
This I would say, in conclusion. If world production and trade continue to expand— and this is dependent very largely on what I have been talking about—all will be well. If they contract, then everything Her Majesty's Government can do, Budgets and everything else, will end in ashes.
5.44 p.m.
LORD WILLIS: My Lords, I should like to join with other noble Lords in congratulating the noble Lords, Lord Balogh and Lord Monson, on their maiden speeches and to echo the praise given to those speeches. I do not know whether the noble Lord, Lord Boothby, noticed that when he was making those
374
kind remarks about the Prime Minister a shaft of rather thin light came through the window. Obviously, high places, congratulate him.
I listened with some attention to the noble Lord who opened the bowling for the other side. If I may borrow a phrase from John Arlott, the noble Lord seemed to be having a good deal of trouble with his footholds; because I listened in vain for any new theme, any new strain, any new and exciting forward-looking contribution towards a solution of our problems. There was none. There was not even a variation in the old notes. In fact, all we had was a very old, familiar speech from the noble Lord opposite and I am beginning to know the words by head:. Whenever we have an economic debate it keeps coming back like a song, a very old song from a dog-eared songbook with nothing new in it at all and nothing that is at all relevant to the problems of Britain in the 'sixties and 'seventies.
I wonder whether it is not true, too, to say that there was a slightly different tone in the speech to-day, just as one has noticed recently a slightly different tone in the speeches of many critics of the Government. Is it, I wonder, that those people who only a few weeks ago were already reading the burial service over the Labour Government are now beginning to have second thoughts? Is it that those people who only a very few weeks ago were only awaiting a fine day to have the public execution of the Prime Minister, are now beginning to see that there are in fact many kinds of objective: evidence that we may be in sight of the corner if not turning it? It is strange that this little ray of sunshine has brought such a cold chill to so many stout Tory hearts. The great pompous and optimistic attitudes of a few weeks ago which were already distributing the Cabinet prizes around seems largely to have: disappeared.
I should like to deal for one moment with one specific criticism that has been made, and keeps being made, about the Finance Bill and the Government's economic policy—that is, the so-called lack of incentive which is given to, top executives and businessmen because of the excessive and so-called penal taxation. This is a constantly recurring theme. It is of course true that our tax

375
system is in need of reform, and I absolutely agree with the noble Lord, Lord Byers, all the way down the line on this. It needs simplifying; it needs working out, it needs an all-Party Committee of the kind the noble Lord indicated. It is ridiculous, for example, that a married man called Jones, who has three children and earns £30 a week, should get back £174 a year, or over £3 a week, in family allowances and tax relief, whereas a man next door called Smith who earns only £10 a week with the same needs gets back in fact £2 a week less than his neighbour. That is the kind of inequity we have at one part of our scale so far as taxation is concerned. That is a clear injustice and this Bill does nothing to put it right. I believe that there is a great deal to be said for reforming the tax system.
I believe, too, that personal taxation, as it affects people earning between £2,000 and £3,000, or £3,000 and £4,000 a year, is sometimes a real disincentive; and it becomes so particularly for a man and wife who are joint earners. It can and does stop wives going to work, particularly women with professional qualifications. We do not hear a great deal about this group. All we hear, all the moans and groans, are on behalf of people at the top of the ladder, the people earning £8,000, £9,000, £10,000, £20,000 or £30,000 a year. These are the people for whom our compassion is requested.
The other day, the Daily Mail published a maliciously witty article about the Prime Minister's take-home pay and his "perks". Fair-do's. I do not think the Prime Minister would mind. But now let us hear a little about the "perks" of some of our top businessmen, the people who we are told have only £5,000, £6,000 or £7,000 a year left out of enormous salaries after tax. Quite clearly, in the face of their figures they cannot afford to buy a Rolls Royce. So who pays for them? Where do these Rolls Royces come from? Clearly, they cannot afford to have a chauffeur. Who pays his wages? They cannot afford to run a town flat as well as a home in the country. Who leases these £5,000 a year apartments in Mayfair for them? Who, then, buys the luxury flats for £75,000? Who bought the flat overlooking Lords that cost £110,000 cash? Who furnishes it and
376
provides the services? I know a managing director, a hard-working man who deserves his position and everything he has, who listed the fringe benefits of his job as follows: car, chauffeur, world travel, telephone, London apartment, theatre tickets, private dining room, drinks, cigars, and the occasional use of a helicopter, all on the firm.
LORD ERROL or HALE: My Lords, I would only say that there is a difference between Ministers having these "perks" and businessmen having them. Having been a Minister and now being a businessman, I know the difference. In the case of a Minister there is no assessment made on the personal use of these facilities, whereas in the case of a businessman assessments are made on the personal use of such facilities. That is an important difference.
LORD WILLIS: My Lords, I was coming to the point about Ministers in a moment. Do not think that I am saying I necessarily object to our top businessmen being taken care of. I am all for saving nervous energy. I do not expect them to ride on buses and tubes. But the amount that is taken into account is very marginal. Most of these things are bought by the firm. We all know that many of them, instead of taking a £3,000 a year rise have it delayed and put in the pension fund so that when they retire they can live in the style to which they are accustomed. I am not necessarily saying this is bad, but the noble Lord must not expect me to weep tears for them.
I believe that we are stupid in our treatment of Ministers. I think it is ludicrous that we should put a Ministerial car at the disposal of a Minister, a man who is working 14 or 15 hours a day in his job, and expect him to leave that car and take a bus or his own car when he goes to a political meeting. I think it is wrong, and I believe that those people who are working hard for the country should have a car put at their disposal without any strings. So, as I say, I cannot find it in my heart to weep too much for the top-paid executives, and to say that there is no incentive. They know how to look after themselves, and they do not do too badly; and I believe that the best of them feel insulted and degraded by the

377
suggestion that the only thing that matters to them is their pay packet. When I read, as I did last weekend, that one fifth of the homes in this country have no bathroom, and that on the Hamble River alone there are 3,000 yachts insured for a total sum of £20 million, I am afraid I cannot get very worked up when the noble Lord, Lord Erroll, talks about a tax on personal wealth. I think it is time that we got our priorities right.
I should like to turn now to one smaller aspect which was raised in another place on this Finance Bill and what I feel is the rather shameful injustice in the operation of the selective employment tax. I am not one of those people who condemn the tax outright—I think there are many goods things to be said for it —but it has set up a certain number of anomalies which are wrong and which should be ironed out. I consider it is wrong, for example (and here I must declare an interest) that film-making should be deemed to be a non-manufacturing industry and should have to pay S.E.T. But that is an anomaly.
What I want to refer to is a downright injustice in the area of book publishing. In fact, I believe that the Government themselves are a little ashamed of this one. Two years ago in this House the noble Lord, Lord Shackleton, promised that the Government would examine thoroughly the effects of S.E.T. on book publishing. The "late" Mr. Gunter—I mean the former Minister of Labour—twice received deputations with expressions of great sympathy about what he would do to help book publishers in the matter of S.E.T. And Mr. Taverne, in the other place, only a month ago in the debate on the Committee stage of this Bill admitted that when one looks at the position of book publishers one sees a glaring anomaly. He then went on to say that the Government really could not do much about it, because if they conceded the issue to one they would have to concede to others; which is a little like saying that if a man in gaol is, after all, found to be innocent of the crime for which he is condemned, then you cannot give him a free pardon and release him because all the other prisoners would demand the same right.
I am not again going to deploy all the arguments, but briefly summarised the
378
case is this. When S.E.T. was first put before Parliament the newspapers protested that some of them would be put at a serious disadvantage. They pointed out that those newspapers which carried out their own printing on the premises would receive the refund and the premium of S.E.T., whereas those newspapers and periodicals which employed outside printing firms, even if they were only across the road, would have to pay in fall and get no refund; one newspaper was being penalised as against the other. The Government not only saw the injustice of that, but, such is the magic and the power of the Press that within four day:, after a deputation led by the "late lamented" Mr. Cecil King waited upon the Government, the Government put down an Amendment to save all newspapers from paying selective employment tax. But, for some strange reason, when the book publishers pointed out that they were in an exactly similar position, the Government made sympathetic noises but did nothing. Is it because book publishers cannot publish banner headlines every day, or is there some other reason?
This has resulted in a strange, not to say bizarre, situation. We have a situation now where some book publishers pay S.E.T. and others do not; and usually it is the smaller publishers who pay because they do not own their own printing establishments or print on the premises. Thus, for example, the British Printing Corporation, which owns some 13 separate book publishers, the International Publishing Corporation, which owns 17 book publishers, and the Thomson Organisation, which owns 9 book publishers, all in some measure gain a refund and premium of S.E.T. These groups all publish newspapers and periodicals as well. But the story does not end there. Within those firms which are left, which are not connected with newspapers but are concerned solely with book publication, there are still further anomalies. Collins, the well-known publishers who publish in Glasgow and print on their own premises, get a full refund on their Glasgow establishment. But Macmillans, Heinemann, Hodder and Stoughton and other important publishers who do not print on the premises and do not own their own printing works do not get a refund. It is rather like subsidising Woolworth's and Marks and Spencer's and putting a tax on the little

379
corner shop. That is, in fact, how this tax has operated.
The real idiocy of the situation is indicated when you compare the situation of the two University presses. In the interests of efficiency, a few years ago Cambridge moved its printing press from Cambridge. Now it is penalised for this and has to pay S.E.T. Oxford, which was not so far-sighted and still prints on the premises does not pay S.E.T. These are two exactly similar firms in the same line of business. One has to pay a huge amount of tax and the other has not. There were many reasons for introducing S.E.T., and some of them are good, as I have said; but, clearly, it was not intended that one section of any industry should be penalised while its competitors in the same field draw a bonus. We are not here discussing a small and trivial and minor matter. I beg your Lordships to listen carefully, On a turnover of £140 million the publishers exported last year £60 million worth of books-43 per cent. of their total. They are one of this country's biggest and most important exporters. This is a staggering performance. The reward is—what? A kick in the teeth; a slap in the face.
There is a moral aspect to this question. As Sir Alan Herbert has pointed out, Parliament refused to put a tax on books in 1940 when Britain was at war and had her back to the wall. Is it not ironic and sickening that what we would not do then we are doing now? Let an author ask for a small royalty from the public lending libraries, and what an outcry there is! I have had it. It is said, "This would be a tax on knowledge. This would be a tax on reading. The free libraries are one of the most important backbones of England", and so on. But what is selective employment tax on books other than a tax on knowledge?
I ask the Government: Why are you so obstinate on this point? Why will you not make a concession which it was widely believed you were going to make up to only a few weeks ago, a concession which would be welcomed on all sides? I have heard that it is because it would cost £1 million. That is one story. But this is an injustice. Are the Government prepared to continue to take £1 million from the pockets of publishers which they have no right to
380
take and which is clearly unfair? Are the Government going to put up with a situation in which they kow-towed to the newspapers because of their power, but because they are not afraid of the publishers they are prepared to milk them of £1 million? I am speaking in rather strong terms, but this has been going on for two years. We have had discussion after discussion with the Government. We have had all the most sympathetic noises in the world; and nothing is done. Will the Government now give an assurance, before the publishers march in in serried ranks and organise a sit-down in your Lordships' House, that they will think again about this, and not only think about it, but that they will do something about it?
I want to say one final word on one other matter. As the noble Lords, Lord Boothby and Lord Robbins, and others have said, there are signs that we are beginning to crack the vicious circle of economic crises. We all want the breakthrough to be permanent. But if this is to happen, in my view we must give some long term consideration to the problem of participation by ordinary people in industry and in all forms of decision making.
My Lords, we have to face the fact that there is in our society a growing sense of alienation of people from decisions, which was reflected in its most militant sense by the student activities. There is a feeling of "them" and "us". This is one area in which I feel the Government have not done enough. If Socialism means anything, it must mean the destruction of the "them" and "us" situation; it must mean drawing the people in at all levels of Government and industry. With respect, I believe that the Government have too much respect for so-called "experts and businessmen". We have some excellent businessmen and administrators in this country. We also have some rotten ones. It is said that if you get seven economists in one room you will get seven different opinions. I do not think any of our expert economists—and I speak with the greatest respect—can take too much credit for the various schemes we have had put forward in the last few years. There is really not very much there to inspire the Government with confidence in the wisdom of experts. We must have them,

381
I suppose, but do not let us worship them as gods or regard their specialised knowledge as being the be-all and end-all of everything.
I have met directors—and so, my Lords, have you—of important companies, great companies, that I would not give house-room to. I would not put them in the kennel with my dog. I could name a dozen, fifty, shop stewards, trade unionists and other ordinary people of all classes who could do better. It seems to me that a lot of people who get on to our boards of directors are there because they went to the right school, had the right connections, the right name, play the right game and probably vote the "right" way in both senses of that adjective.
I think the Government could do a great deal more in the way of advancing the talent that is there among ordinary people. It should not be mesmerised by university degrees or board room qualifications. A B.A. is not necessarily a mark of real intelligence, and twenty years of board room experience does not necessarily indicate talent. There are many potential Ernie Bevins and Aneurin Bevans in this country who should be given their chance to serve, and if the Government tack its eye off the bridge for just one moment and looked down into the engine room it would find many people who could breathe fresh life into the board rooms both in our national and our private industries, and even put a bit of life into such august bodies as the Arts Council, the National Theatre, the B.B.C., I.T.A., and all those other bodies. We go round in too many circles choosing the same sort of people when we think of these things.
LORD BOOTHBY: My Lords, may I interrupt the noble Lord for a second just to tell him that if anybody ventures to criticise the Governor of the Bank of England at any time, it can be taken as absolutely certain that he will never get on any board in this country.
LORD WILLS: My Lords, I am happy to say that I have not, as yet. criticised the Governor of the Bank of England, but in order to show good faith I am willing to join with the noble Lord, Lord Boothby, in a joint protest.
I want to ask the Government seriously whether they would consider setting up a high-level commission to investigate the
382
whole question of participation by people in industry in the nationalised and the private industries. The sort of thing that the noble Lord, Lord Byers, was talking about, all those things, could be investigated—the buying of shares, the bringing in of people on to boards of a management, the promotion of people to be directors, the seeking out and finding of the great talent that is there in the country which is not being used but which is, in a sense, turning in or itself, out of a sense of frustration. What has happened among the students has happened in another way among the adults, and that is that as far as politics is concerned in the last few years we have had a certain apathy they feel it is "them up there" taking the decisions. The recent by-election results were not really a success for the Tories so much as a failure for us and an expression of apathy by people faced with some of the political decisions which they feel they can not influence.
I should like to end on the note on which I began. By and large, I believe this Government have got it right. They have not only got it right but they have stuck to it, and that is what I like most about what the noble Lord, Lord Boothby, said. They stuck to it—and I wrote this note before he spoke—through the worst barrage of criticism and mud-slinging that any Government have had to face. I have had to criticise them at times and I cannot promise I shall ever stop. I thought the reintroduction of prescription charges was a paltry and unnecessary measure, and there were other things which I, for one, would criticise in detail. However, by and large they have shown nerve and courage, and not least the Prime Minister has shows great nerve and great courage. It is a sign of good government, if not great government, when a Government is prepared to risk electoral defeat and loss of popular support to carry through policies which it believes to be in the long-term interests of everyone. That is what has been happening in this country, and I believe that the people are beginning to realise just that. I think they will fully realise it before long, and I say this to the noble Lords opposite: "Make yourselves very comfortable, because, barring any Act to reform this House, you are going to be sitting on that side of the House for a very long time".
6.6 p.m.
LORD MOWBRAY AND STOURTON: My Lords, I, too, should like to start by congratulating the noble Lord, Lord Balogh, on his interesting maiden speech. I should have liked also to congratulate the other noble Lord, Lord Monson, but I was unavoidably out of the Chamber when he spoke. However, I am sure I should have enjoyed his speech if I had been here.
Having listened to the last two exciting and provoking speeches I should like to pick out of the speech of the noble Lord, Lord Willis, a continuation of his theme on selective employment tax, because I want to draw the attention of the Government to the effect of this on security companies, which provide security guards and night watchmen for the protection of premises against fire and crime. I must declare an interest here, because for many years I was closely connected with one of the bigger of these companies, and have a friendly and loose business connection with one of these companies.
Having said that, I would add that the reason I am going into this rather small detail of these groups of companies dealing in crime and fire prevention is that this problem would have been raised in another place on July 4, but although it was one of the two Amendments selected for debate on S.E.T., unfortunately it did not come up or get debated. In the other place one of my honourable friends, Mr. Rees-Davies, the Member for the Isle of Thanet, supported by six other Conservative Members of Parliament, did put an Amendment down on what was then Clause 47 of that Bill (in the new Bill as amended in the Commons it is now Clause 52). I want just to draw the attention of Her Majesty's Government to this anomaly which we think exists, and which unfairly discriminates against the security companies. It is generally agreed, certainly by the Home Office and by the police, that security companies are doing a very good job in helping the forces of order and protection.
The main complaint lies in the fact that if a company which is engaged in manufacturing work which is entitled to a refund on S.E.T. has more than half its men employed on productive work, then, as we know, the company is entitled
384
to get back on the less than half in office work, or other parts of work in that industry, building, factory, or company the S.E.T. as well. In this case we are talking about guards employed by these companies from professional companies which supply guards trained for the purpose. If it were just a question of people being allowed to do this, all would be well, but the relevant section of the Selective Employment Payments Act 1966, Section 10(6)(a), specifically says:
"For the purposes of this Act—
(a) a person's employment shall not be treated as employment in, or carried out from, any establishment unless it is an establishment of that person's employer;"
My Lords, obviously no security company which sends men to a particular industrial premises will own that industrial premises. These security companies are penalised because of the anomaly that the firms which use them cannot get the tax back. If these companies use their own old-fashioned type of retired men, they are able to claim back the tax. It is fairly obvious that the large factory, which is at enormous risk, can afford to have a large security force. It is able to employ a large force and get the tax back. But in a smaller company, with only one or two watchmen, it is impracticable for such a company to have watchmen on duty all night.
The essence of security is that one has to have people checking all through the night; inspections have to be carried out, and people's backgrounds have to be gone into. Generally the security companies are better able to provide security, and in the event of illness other people are sent out immediately, so that a firm is guaranteed proper security. If a firm has only one or two people, then if anything goes wrong "old Bloggins" or "old Tompkins" tends to be at a loss. He tries to telephone somebody, who may not be at home, or who may be in bed asleep, and he himself is not equipped to do very much in an emergency.
In the particular firm with which I have business connections, and with which I am very friendly, out of 5,000 premises which are watched over by their guards some 3,750 of them, or 75 per cent., are engaged in export work, and the firm's employees qualify for S.E.T. rebate. Not all of them are directly engaged upon exports: some are indirect exports, such as the supply of component

385
parts to export industries. But they qualify for rebate. It seems unfair that those firms are being penalised as compared with other firms which do not have efficient security.
Last year in this country the figure for fire damage alone in industrial premises was something like £90 million. I think that that is nearly double the amount of money lost by crime. It is a frightening figure. In the company with which I am associated 555 cases of fire were detected by the night watchmen or guards involved; it may have been at night, at the week-end or in the day-time but they were detected in time. Of those 555 cases, only 19 did damage costing over £100, and only five did damage of over £1,000. When one thinks of some of the fires which one has read about, causing damage amounting to hundreds of thousands of pounds, it is very important to encourage the use of professional people who are trained to look for the causes of fire, such as electric fires and electric kettles left on, bare wires, and so on.
The Home Office and police forces in the country are very grateful to have the assistance of these extra forces who are well trained, well looked after, and supervised so closely. This is all to the good in prevention of disruption in the export field. Therefore the firms who wish to employ these people should not be penalised, and if the Government were to give this matter their attention it would be a service to the country. It would help the production industry and would assist in the better security of premises. The security industry is trying to modernise and improve itself. It is hard to do this when it finds itself penalised by firms' being encouraged to use cheap, unsupervised labour, which obviously is not so good as genuine approved and supervised staff. I would ask Her Majesty's Government to give this matter consideration.
6.15 p.m.
LORD MILNE: My Lords, except to re-echo congratulations to the two maiden speakers, I trust that noble Lords will bear with me if I deal broadly with some criticisms of the Bill rather than follow them in the economic debate. In doing so, however, I support the noble Lords, Lord Byers, Lord Robbins, Lord Boothby and Lord Willis, in their plea for a simplification of tax law. The three criticisms which I have selected are the
386
drafting of legislation by so-called reference, the lack of consideration which it is alleged this Finance Bill has received, and the complexity of tax law generally. These three criticisms may not seen very important, and they are certainly very dull, but they concern me and others very deeply.
Most of us have heard the after-dinner speaker who makes play with the wording of an Act of Parliament. Well done, it can be quite funny, but it is far easier to criticise than to construct. In some Bills it may be possible to re-enact sections from past Acts, or to reprint and attach as appendices the sections of earlier Acts to be amended. But with Finance Bills, where every word tells, one is defeated at the outset by the very manner in which our tax laws have been built up. Personally, my sympathy is largely with the draftsman in his struggle between brevity, clarity and accuracy. His personality often leaks through in the little explanatory comments which he interjects into the references.
As to lack of consideration, this House having no powers to amend such a Bill, it is essential that it receives proper consideration in another place. Here, perforce, we take its contents for better or for worse. After reading the reports., and in spite of opposition in St ending Committee, can one really feel that this Bill and others have had proper scrutiny, or that the representatives of the people have had time to judge the contents of this Bill and to consider and comprehend what is involved? I am now thinking of the fantastic spate of Amendments tabled and passed through the various stages of this Bill, rendering the first and the last Bill entirely different animals.
In my view, lack of consideration is largely due to the manner in which fiscal legislation is handled. At the time of the Income Tax Management Bill in 1964 I put forward a suggestion that pure budgetary legislation should be divorced from amending legislation. While I accepted then the reply that amending legislation would affect the revenue of the ye we now have the precedent of mini-Budgets scattered throughout the year con pared with which the fiscal effects of technical amendments would be trivial. It n ay be thought that recent Acts like the Capital Allowances Act to some extent meet my point, while revision has been promised

387
of certain aspects of tax law which are thought capable of isolation. Nevertheless, unless and until the whole of tax law is reconsidered, I am convinced that time should be found each year for some tidying-up operation.
This brings me to my last point, to which reference has already been made in this debate, which is the complexity of taxation and what can be done about it. I find myself here presuming to answer yesterday's speech by the Leader of the Opposition. Of course he is right, but, without being defeatist, it is far easier said than done. We go on piling Pelion on Ossa, building a crazy edifice of amendments and case law upon a foundation designed for an earlier century. This, however, is inevitable in a democracy where the complexion of Government changes every five years or so and where tax is an implement of policy, changing like last year's fashions.
It is naive to think that even if there were a best method of taxing income it would be followed for long. Taxation in a sophisticated society is bound to be complicated if equity is to be preserved, and even then anomalies will abound. Simplification will almost always be achieved with a loss of some equity. In my opinion it is impossible to isolate one section of taxation from the rest unless new concepts are to be introduced. While the gestation period of such concepts may be the period of Opposition, even then the active life may be only five years or so.
Corporation tax is such a tax. Presumably conceived in Opposition, it is vaguely related to the then conservative thinking of taxation on the actual profits of the year. Even ignoring the transitional provisions it is only relatively simple, but there are one or two features of interest in it. First, it is stated as a percentage of the income tax. Secondly, in the final analysis it accepts a measure of inequity in that it is possible to set off tax at the then standard rate against a varying rate of corporation tax. Thirdly, it was founded on the new but unpopular concept of the separation of the company from its shareholders, whereby company taxation could be isolated from the taxation of the shareholder, whose dividend nevertheless came
388
to him taxed at the standard rate of so much in the pound.
Estate duty is another tax which, at first sight, may be considered in isolation and presumably might be consolidated. If so, we should then lose our old friend the Finance Act 1894, which occurs in almost every Finance Act. In fact, however, this tax is an aspect of the taxation of gifts, and such a consolidation, even with annual afterthoughts, would probably last only as long as present thoughts on the subject.
Capital gains tax, on the other hand, is a new tax and as such was able to be brought in fairly quickly. As a result, it was not completely thought out. As its name suggests, it is an aspect of the taxation of capital. I do not think its best friends would consider it a good tax. Like surtax, it is expensive to collect and is wildly complicated and tedious in operation. It is purporting to tax capital profits, but without a provision against inflation it almost certainly erodes savings.
What then can be done? Who can find the time and the expertise to attempt something which, due to our method of government, may be abortive from the start? Some societies have suggested a Select Committee—a ball which, once more in cricketing terms, the Chancellor blocked pretty smartly. But whatever the Chancellor of the day may say, this is the germ of an idea. Any major reconsideration of tax must come from Parliament. But even if in other branches of taxation the underlying concepts are to be transitional, it seems to me that the simplification of personal taxation could, and should, be attempted on a basis agreeable to both sides of the House, and in this I follow the noble Lord, Lord Byers.
We, in the second half of the 20th century are still using methods of collection conceived in the 19th century to tax the high incomes of a few. In this age of computers and of electronic handling of vast quantities of information, it seems to me that there is real scope for approaching taxation as such with a view to its assessment and collection by these modern and advanced methods. As promised, I have made no reference to detail, although much might be said of the inequities and anomalies of many clauses of this Bill to which reference has already

389
been made by one of our maiden speakers.
6.26 p.m.
THE EARL OP DUNDEE: My Lords, I doubt whether anyone unfamiliar with your Lordships' debates who had listened to our discussion in the last four hours would have guessed that we were supposed to be talking about the Second Reading of the Finance Bill. But it is one of the advantages of the lenient, liberal Rules of Order which we have in this House that we are able to expand on these subjects.
We have heard two excellent maiden speeches. The noble Lord, Lord Monson, has been a Member of your Lordships' House for the last ten years, which I do not think he mentioned, and I feel that his speech is a little belated. He has been a long time in screwing up his resolution to come and make his maiden speech here. But now that he has done so, I think your Lordships will agree, first, that it was well worth while, and, secondly, that, we wish he had thought of doing so long ago. His speech showed great knowledge and great diligence of study on these economic questions which we are discussing, and I hope that he will now try to make up for 10 years of neglect by speaking as often as he can.
The other maiden speech was that of the noble Lord, Lord Balogh, whose presence in this House is greatly welcomed by all of us. I particularly welcome him, because he happens to be a Fellow of my College at Oxford. He is also a very distinguished economist, not only in the academic field but also in the literary field, and we were very interested to hear all that he said this afternoon about the balance of payments, about the trade unions and about many other things. Your Lordships will not imagine that I should be able wholly to agree with all the political and economic opinions of the noble Lord, Lord Balogh. In the first speech I ever made from this Box, in a debate on the Address in 1964, just after the noble Lord had been appointed Economic Adviser to the Cabinet, I implored the Government not to take the noble Lord's advice. I am not at all sure that they ever have taken his advice. I also feel that they have made an even greater mess
390
of our economy than they would have made if they had taken it.
My Lords, it was the noble Lord, Lord Brown, who started the debate with a speech which I think was thoroughly appreciated and enjoyed by everybody. There was not a word in it about the Finance Bill, but it was none the worse for that. The noble Lord gave some very good and relevant figures, to which we ought to pay attention, about our deficits compared with our assets, both long-term assets and other assets abroad. He showed that under the present position we actually have £17,000 million worth (I think he said) of assets abroad which he very rightly took trouble to talk about to the people he met in Australia who were worried about the financial position of Great Britain. I could not help wishing that these who lead the Government of which the noble Lord is now a member had all done the same in the autumn of 1964, when, on the contrary, they were inclined to say that they had been left with a bankrupt economy.
Here, my Lords, I really must very flatly take issue with my noble friend Lord Boothby, with whose views about the International Monetary Fund Bill I agreed so completely the other day. What happened was that, if you allow for the change in the value of money, in 964 we had assets very much the same in amount as we have now; and as the noble Lord, Lord Brown, pointed out, we had built up these assets since the end of the war from something like £4,000 million to £13,000 million by 1964. At the same time if you take the whole of our trading, credit and debit balance,—some years a deficit, some years a credit—up to the end of 1964 we still had on the current account a net credit balance of £71 million including and in spite of the large deficit of 1964, nearly half of which had consisted of those foreign investments to which the noble Lord has referred with such gladness.
LORD BROWN: My Lords, the noble Lord is claiming that in 1964 this Government were going around saying that the assets of this country were less than the liabilities. This Government have never concentrated on that. What they did concentrate on when they carne into office was the fact that they had a deficit

391
on current balance of payments of nearly £800 million. That was a fact, and the Party opposite have always objected to attention being drawn to it, although we have had no hesitation in drawing attention to the facts, as I did this afternoon, for instance, when I said that for the first six months of this year there has been a deficit of £17 million per month on average. We are quite frank about this: we say that it is an awful situation. Why should the previous Conservative Administration deplore the fact that we draw attention to a simple fact which was extremely embarrassing for us?
THE EARL OF DUNDEE: My Lords, we have never wished to diminish the fact that there was this trading deficit in 1964. More than that, we did what I think this Government have never had enough foresight to do yet: we predicted a deficit on this scale at the time of the Budget in April. And when Mr. Maudling said that he expected a deficit of these dimensions he also told the House of Commons the measures which he had taken to deal with it—the guarantees which he had got under the General Arrangements to Borrow and with the International Monetary Fund and the Swiss Banks, so that by the end of the year this deficit was fully covered. There was not the slightest need to take the panic crisis measures which the Labour Government took as soon as they came into office and which I believe to have been the beginning of all their present problems—and it was done, I am afraid very largely because they wanted to make out that they had been left a bankrupt economy, whereas nothing could be further from the truth.
The noble Lord, Lord Boothby, cannot have been listening to what the noble Lord. Lord Brown, said at the beginning of his speech about the relationship between our assets and our liabilities. But I agree with what Lord Boothby went on to say, which I think contradicted what he said earlier: that the disadvantage to all trading countries was the inadequacy of the reserves in the International Monetary Fund. He reminded us that he divided the House of Commons against the International Monetary Fund; and not long ago, when I was reading the biography of Lord Keynes, I noticed that, according to his biographer, when
392
the "General Agreements on Principle" arrived at at Bretton Woods were discussed by Lord Keynes with a group of Conservative Members of Parliament, Lord Keynes's explanation was received "with some rumbling growls by Mr. Boothby". This was also mentioned by the noble Lord, Lord Byers, who I do not think was in the House the day before yesterday, for our debate on the International Monetary Fund Bill.
LORD BYERS: Yes, I was.
THE EARL or DUNDEE: In that case, may I just refer to what he said about the S.D.R.s, which he hoped would be a complete solution to all our difficulties.
LORD BYERS: No—a beginning, a basis.
THE EARL OF DUNDEE: I do not know about their being a beginning, but I hope the noble Lord is bearing in mind that they cannot even be activated until 1969.
LORD BYERS: My Lords, I think the noble Earl is not intentionally misleading the House as to what I said. I said that here is an opportunity where different nations are beginning to take responsibility for helping the sterling area, to build it into something bigger.
THE EARL OF DUNDEE: My Lords, I quite accept what the noble Lord says as to what he said. I have no doubt he did; but the difficulty is that this opportunity is such a very tiny one. According to the noble Lord opposite in his reply, after it has been activated in 1969 it is expected to increase the reserves of international credit only by about 1,000 million dollars every year, and that is much less than 1 per cent. of the total volume of world trade. However, I agree that we should hope for the best.
My Lords, since I have mentioned the noble Lord, Lord Byers, may I just say that I listened with particular pleasure to-day to his speech, in which he demanded the abolition or reduction of almost every kind of tax, including surtax. I tried rapidly to calculate, as he was speaking, how much it would cost the Revenue to remit the taxes which he wished to remit. I am afraid that I could not keep pace with him, and I completely lost count. But he did go on to say—and I agreed with his argument entirely

393
—that the taxes he wanted to abolish were having a bad effect on our economy because they were discouraging productive saving and investment, in which I think the Government do not really believe. I feel very strongly that this is true.
The noble Lord did not shirk his duty —not his duty; but when you say, "We are going to abolish all these taxes", the natural question is, "What are you going to put in their place?", and the noble Lord mentioned the added-value tax. I can speak only for myself on this, but I have always been in favour of it. I do not know whether or not my colleagues in the Conservative Party would be when the time comes, but I think it is a thing which obviously ought to be favourably considered. What has been decided by those colleagues of mine who decide our policy is to abolish one of the taxes which the noble Lord said he wished to abolish, and that is the selective employment tax.
The noble Lord, Lord Robbins, who we all wish could come here more often than he is able to do, argued, again I thought very rightly, that our economy requires more incentives for saving and investment. He made two suggestions, of one of which the Conservative Party is now positively in favour. One was of some kind of selection in the social services so that we shall be able to give more to those who need it most. The other was one which rather surprised me to hear from him and one about which I do not think our Party has come to any conclusion: I was interested to hear him mention it. It was that he thought we should abolish the distinction between earned and unearned income in the matter of taxation. I was even more interested to hear that a book or an essay in favour of this had been written by Professor Kaldor. I am often in favour of a little bit of real reaction. No doubt the noble Lord, Lord Robbins, is familiar with the Report of the Royal Commission on Income Tax in 1856 which, I think, gives a very brilliant analysis of this question and which reaches the unanswerable conclusion that there should be no distinction between earned and unearned income. That conclusion held the field until the beginning of this century when a distinction was introduced.
LORD ROBBINS: My Lords, if the noble Lord will permit me to say so,
394
I should be sorry if the House were to be misled by anything that I have said in regard to Professor Kaldor's views. The book by Professor Kaldor to which I ventured to draw your Lordships' attention was entitled Consumption Tax; and his argument was that our present system of taxation hits savings twice. I should doubt whether he would wish to abolish altogether, in conception, the difference between earned and unearned income. My remarks about the injustice of tax on savings made for retirement must not be attributed to him.
THE EARL OF DUNDEE: My Lords, I am grateful for that elucidation. I had understood the noble Lord to say that Professor Kaldor was in favour of either abolishing or reducing this distinction. I must confess that I was surprised to hear that he should be; but I think it is a very interesting point.
LORD ROBBINS: My Lords, Professor Kaldor has been in favour of a great variety of taxes which cannot, obviously, all be imposed. I commend to noble Lords this particular book on the tax on consumption in which he produces an argument which I think was first developed by the mid-Victorian, John Stuart Mill, that income taxes hit savings twice. It is an interesting and important idea and one that deserves more attention than it has receive d in the 100 years since it was put forward.
THE EARL OF DUNDEE: My Lords, that was the argument of the Royal Commission in 1856 and it was accepted by all Parties until early this century.
My Lords, the noble Lord, Lord Willis, made some rather emotional observations about rich people which I shall not pursue. But I think it is a usual mistake made by many members of the Party opposite: that because there are a lot of exceedingly rich people who, so far as we can see, are not doing any particular social good (and of whom we may perhaps be rather envious and may resent what they are able to enjoy) we are therefore justified in discouraging others from trying to accumulate substantial fortunes. I think it is to the general economic benefit of the country that savings, under a graduated system of taxation, should be encouraged It

395
is no argument against this to say, "Oh, I saw two or three millionaires in a yacht the other day. It surely cannot hurt them to have these taxes!"
My Lords, I will conclude with a few words about the Finance Bill, which is what we are supposed to be talking about. The thing I dislike most about the Bill is that it is not only retrospective but viciously retrospective on certain points. Retrospective legislation is a bad thing not only in law, which has been referred to, but also in finance. On the aggregation of insurance policies taken out by those who cannot benefit themselves from them, I think this is very wrong. I think it is wrong to aggregate them in any case; but it is morally as well as economically wrong to make this aggregation retrospective in respect of policies which have already been taken out; because this upsets the calculations of people who had acted according to the fiscal laws of the country as they stood. They had acted in the belief that those laws would not be altered before the person who took out the policy died; or, if they were altered, that they would not be altered retrospectively, but that the new law would apply only to those who took out policies after the alteration.
When the Government, two or three years ago, put an end to the exemption from taxation of charitable or educational covenants, they did not do so retrospectively. I think it was a pity that they did it at all. But you cannot complain, if they think it right, that they should say that no future covenants shall be exempted from taxation. The injustice of retrospective legislation was not committed in the case of educational covenants. If all the people who had accepted these endowments in the knowledge that they would be able to get them only because the beneficiary did not have to pay tax on the benefits they received, it would have been a great injustice. And on death duties, when Sir Stafford Cripps prolonged, in 1948, the period during which the donor of a gift inter vivos must live before the gift became exempt from death duty, from three years to five years, Sir Stafford Cripps did not make it retrospective. Anybody who made a gift after the Cripps Budget would have to live for
396
five years before the gift became exempt from duty; but Sir Stafford Cripps did not provide that anybody who had made a gift two years before, and had already lived two years would have to live another three years before the gift became exempt from duty.
That is what this Government have done although they have made a small concession about the so-called "tapering period". I think it is economically and morally wrong. Equally, I am very much opposed to the aggregation, again retrospectively, of children's income and gifts which have been made by other people. If you think it right to treat an income tax family under a kind of family means test do it for the future; say that any future gift which does not come from the parents shall be aggregated with the income of the parents. I think that would be an economic mistake; but it seems to me both morally and economically wrong to apply it to gifts already made by people who made them in the belief that children would be able to receive an income without having that income reduced by aggregation with the income of their parents. There are all kinds of consequences of this which I do not think the Government have thought out. I believe it is a fact that if a young unmarried mother is given a maintenance grant under an affiliation order, that will have to be aggregated with the income of the parents with whom she is living and will therefore reduce the value of the affiliation order that she gets.
I do not think that another place has considered this matter at all. They have not had time; the thing has been rushed through too quickly, and we cannot do it in your Lordships' House. I do not think that there is any constitutional method of rectifying these anomalies before the Bill reaches the Statute Book, but I hope that the noble Lord will try to see whether these very undesirable anomalies cannot be corrected if this is continued next year. Here again, this is one matter on which the Conservative Party is committed. We do not intend to continue this aggregation of children's income with that of parents.
My Lords, I shall not say anything more about the Bill. I think the case against the Government's policy was very fully put by my noble friend Lord Erroll

397
of Hale at the beginning of the debate. The only part of his speech which I did not like was near the end, when he suddenly said that he expected me to talk about Government expenditure, which I had not thought of doing. However, I will say one thing about Government expenditure, and that is that I think excessive Government expenditure is the main cause of inflation in this country. I do not think inflation is caused primarily by trade unions pushing up wages, prices going up, and so on. I think it is caused primarily by pan of the Government's expenditure below the line having to be paid for, not by borrowing in the open market, which would take money out of the economy, but by the issuing of notes, or Treasury Bills, or some other kind of very liquid asset, which has the effect of increasing the purchasing power of somebody in the country. If that is done to an extent which is in excess of, or out of proportion to, our economic growth, it is bound to cause inflation through whoever's hands the new currency passes.
I thought my noble friend Lord Aberdare put this case very well indeed when he pointed out how much of the Government's present expenditure, their "borrowing requirement", is in fact met not by taxation, which takes money out of the economy; not by borrowing from private investors in the open market, which again takes money out of the economy and puts it into the Government's purse—that is, the "borrowing requirement"—but, in effect, by issuing new money. The issue of new money is usually greater than the amount which the Government have aimed at extracting from the economy in one of their "stop" Budgets, one of the deflationary Budgets. My noble friend gave good reason for thinking that severe though this Budget is, and large though the figure may be which he desires to take out of the economy the Chancellor may find that he has put back more than he has taken out because of this inflationary borrowing outside the money market.
My Lords, when the Government, any Government, are asked to reduce public expenditure, they always reply, "All right, tell us how to do it. Do you want to cut pensions? Do you want to cut education? Do you want to cut roads?"—or this or that But the real point is that Government expenditure, which
398
always keeps on increasing, should not be allowed to increase out of proportion to the growth in the economy. I think that is the essential point to keep in sight.
I do not know whether the noble Lord saw a very interesting article in The Times newspaper on April 4, which gave figures which I have done my best to check and which I think are right. The article stated that after having made their National Plan the Government proposed to accompany this five-year plan with a five-year programme of expenditure. Since they abandoned the National Plan and reduced the growth target from 25 per cent. in six years to whatever it is now, plus whatever we can do in the next three years (it is not likely to be more than 15 per cent.; and it has not yet been more than 7 per cent. or 8 per cent. for the first 3½years) Government expenditure below the line had been actually more up to now than the proposed expenditure under the National plan; although the basis for it, the growth in our economy, had almost entirely disappeared and although the National Plan itself had been abandoned. That, my Lords, is, one reason why, in spite of all he can do, I am afraid that the Chancellor may not make much impart on rising prices and internal inflation, and why our economy may not recover as soon as we would all wish that it could. No Government has ever been completely successful in planning the relationship between its expenditure and its revenue and its estimated economic growth; but between 1951 and 1964 we did manage to reduce taxation by £2,000 million.
In terms of the gross national product, it came down, I think, from 30 per cent. to 23 per cent. of the gross national product, but it has now gone up again to 28 per cent., or 38 per cent. if you include the insurance contributions and local taxation. We did that, and at the same time we increased our expenditure, largely on social services, from £4,200 million to £7,400 million in these 13 years having nevertheless made this very large reduction in taxation which benefited every section of the community. In that period we increased the standard of living of this country by no less than 50 per cent. My Lords, if the Government can do anything like that in the rest of their term of office, they will really be entitled to claim credit for having performed the

399
economic miracle which is now nothing more than a prospect.
6.57 p.m.
LORD BESWICK: My Lords, I am grateful to the noble Earl, Lord Dundee, for explaining how we are able to use these procedures to get the Finance Bill through in one day. His explanation will probably be helpful to me in the later stages of the Bill and it may also explain why, although we are nominally dealing with the Finance Bill, I shall not deal in detail with some of the detailed points which have appeared in the Bill. The noble Earl himself made a closely reasoned argument about certain aspects of the Bill. I shall not take up the time of the House in trying to controvert what he said. But what he has said, and what was said by the noble Lords, Lord Monson and Lord Milne, will, I can assure noble Lords, be considered.
There seems to be one point on which we are all largely agreed. The noble Lord, Lord Byers, made a very strong plea for the simplification of the tax system. This was taken up by the noble Lord, Lord Boothby; by the noble Lord, Lord Monson; by the noble Lord, Lord Milne, and my noble friend Lord Willis. I shall take back to my right honourable friend the information that if we are agreed on one thing in this House, it is that the taxation procedures should be simplified. I doubt, however, whether the proposal for an all-Party Committee on this would be as fruitful as was almost the case on certain other matters we have had to discuss.
My Lords, with one curious and outstanding exception, I think it can be said that there has been something in this discussion much nearer a note of optimism than for some years past. We are really, it seems, as my noble friend Lord Balogh phrased it, at the beginning of the end of the horrendous period. I hope that phrase will not qualify for the strictures that the noble Lord, Lord Robbins, had for what he called a premature proclamation of recovery. It was a good deal more modest than the "economic miracle." Nevertheless, both phrases in their respective contexts, approximate to the truth.
The reference to that quotation of my noble friend brings me to my first pleas-
400
ant duty—to congratulate the two maiden speakers. In a sense I agree with the noble Lord, Lord Boothby, that it is not quite correct to say that my noble friend Lord Balogh has made his maiden contribution in your Lordships' House to-day. As an eminence grise his words have been frequently quoted by noble Lords opposite, often incorrectly, for the purpose of refuting them, and I share the pleasure of the noble Lord, Lord Boothby, at the prospect that in future my noble friend will be here to present his own ideas and will be able to challenge those who endeavour to controvert them.
I think it was my noble friend himself who called attention to his accent. If that accent springs from the plains of Hungary, I imagine that the accent of the noble Lord, Lord Monson, is influenced by the playing fields of Eton. I agree with noble Lords who have said how warmly we welcome both noble Lords and how much we look forward to hearing them, accents and all, in future debates. I sincerely congratulate my noble friend and the noble Lord, Lord Monson. I would also express my sincere congratulations to those already voiced from the opposite Benches and from behind me to my noble friend Lord Brown for his impressive progress report, for which he is personally responsible. I thought he added a note of realism to our debate.
The note of exception to the general optimism was of course that struck by the noble Lord, Lord Erroll of Hale. I think that we all admired his efforts to maintain foreign confidence in sterling. He went about it, however, in a somewhat curious way. It is not true to say as I understood him to say, that the Bank of England followed procedures in forward foreign exchange dealing in recent months different from those under the Conservative Administration. None of their procedures has been changed in this respect, and it is wrong to suggest otherwise. It is equally wrong for the noble Lord to suggest that we have somehow squandered our overseas assets. That is not true. I do not believe that the noble Lord could have been listening to what my noble friend Lord Brown said in this respect. The fact of the matter is that the total identified assets and liabilities have gone up since the

401
end of 1962 from £13,100 million to £17,800 million at the end of 1966. These are increases in our assets. It is wrong, and it does not help anybody, him or us, for the noble Lord to suggest that we have been running down our foreign assets.
The noble Lord, Lord Aberdare, and again the noble Earl, Lord Dundee, took up an argument which we had in a previous debate about the way in which, as they allege, the Government inject purchasing power into the economy, though the Chancellor of the Exchequer by fiscal means takes it out of the economy. I am grateful for what the noble Lord said and also for the pamphlet which he sent me, which I read with great interest. I shall study again what he has said because I was not in the Chamber throughout his speech.
The noble Lord asked about the proportion of the borrowing requirement met by the banking sector in 1966–67. The figure I am given of the total borrowing requirement of the Government is £1,134 million—£231 mllion of which was met by the banking sector. I would not think that this was injecting an undue amount of purchasing power through the back door, as it were, into the economy.
The noble Lord, Lord Erroll of Hale, asked about the effect of earlier efforts to help the balance-of-payments position. He was good enough to give me notice that he would ask about the expenditure of our tourists overseas. The figures do not suggest that there has been a massive saving. What they do indicate is that there has been a restriction on the previous rate of increase. In 1958 the expenditure outside the sterling area was estimated at £112 million. In 1966, our tourists overseas in the non-sterling areas spent £222 million, or something of that order. It is estimated that as a result of the action taken by the Government there is a saving of £20 to £25 million a year to our balance of payments—not a lot hut it is helpful.
The noble Lord also asked about our overseas investments, and we had some exchanges on this. What he does not realise was that there is no contradiction between the statement, which I claim to be a fact, that our overseas investments have been increasing (this can be shown) and the fact that the rate of increase has
402
slowed down, as a result of the steps which have needed to be taken during the last two years. The figures given to me show that we have arrested a sharp upswing in direct investment abroad. It reached a peak of £316 million in 1965 but subsequently fell to £283 million in 1966, and to £244 million in 1967. These are still large sums, although we have done something to curb the increase.
The noble Lord, strangely enough, made some comment, again an inaccurate one, about the way in which we are restricting investment in the developed sterling area countries. In fact, the one area where our measures have not been so successful has been in the developed country of Australia, where the estimated portfolio outflow in the first quarter of this year was about £45 million, compared with the normal figure of about £5 million. So the noble Lord may make the point that we are failing in wt at we profess to be trying to do, but at any rate, he was inaccurate in the criticisms he made in his opening speech.
LORD BYERS: My Lords, is that the money actually remitted from this country to Australia? That cannot be right.
LORD BESWICK: My Lords, I was about to say something about remittances, but this is the money actually invested in Australia from here. The important factor here is the extent to which the sterling counterpart to this portfolio outflow will be held in the Australian reserves here, rather than being converted into Australian currency.
The noble Lord, Lord Byers, also asked about the total amount of our foreign indebtedness. I am sorry that I cannot give him that figure. I am told that it is a figure that is not normally given. My noble friend Lord Willis, and the noble Lord, Lord Mowbray and Stourton, had some rather scathing things to say about the impact of selective employment tax. The case put by the noble Lord. Lord Mowbray and Stourton, was a telling one, but I must say to him that a concession for security companies would lead to a great deal of pressure for similar treatment by other services, such as industrial canteens run by caters, firms undertaking industrial and office cleaning, and manufacturing and secretarial agencies. It would, as I think he will see, open

403
the area to a very wide number of other service employments of similar kinds.
LORD MOWBRAY AND STOURTON: People employed on office cleaning and canteen work do not need any particular skills. The point I was trying to make was that this was a form of security which involved supervision and training.
LORD BESWICK: That is a point of view expressed by the noble Lord. I am bound to say that I admire the skill of those who clean the offices which we occupy in this building. There is, nevertheless, the point that it would be difficult to draw a line here. There are services which have similar if not stronger claims. The export houses have already been mentioned as one case in point.
My noble friend Lord Willis made a most eloquent plea for the publishers. As he knows, their case was considered at great length in the other place, and it was not found possible there to make any concession. I am afraid that what my right honourable friend was unable to do in the other place I cannot undertake to do in this House. The best I can do for him is to say that the Publishers' Association have been told that the Government do not feel precluded from reconsidering the matter when circumstances are more favourable.
My noble friend Lord Balogh made, I thought, an extraordinarily powerful case in support of our prices and incomes policy. I am sorry that he was not here when we were discussing the Prices and Incomes Bill. All that he has said will, I hope, be considered most carefully by some of those in our own Party who have had their reservations to date. What the noble Lord said was echoed by another economist, the noble Lord, Lord Robbins. It was interesting to see that two economists from different parts of the political spectrum should have come so closely in agreement on this particular point. They emphasised the importance of a credible incomes policy, especially at the present point of time. My Lords, since the noble Lord, Lord Robbins, asked me the question, I tell him as firmly as I can that the Government accept that view. They would not have accepted the electoral penalties that have
404
gone with the Prices and Incomes Act if they did not believe that it was the right view to take.
In this respect, I should like to say one thing about the remarkable intervention of the noble Lord, Lord Boothby, in regard to the Prime Minister. I was moved by what the noble Lord said about the attacks made on the Prime Minister of this country. He is a human being, after all; and so is Mrs. Wilson, his wife. The pernicious attacks that have been going on, go far beyond the bounds of reasonable democratic politics.
I was talking about this unpopular prices and incomes policy, and I was asked specifically by the noble Lord, Lord Robbins, about the rail settlement. He asked me whether the rumours were true that there had been an intervention by the Government to bring pressure on the Railways Board to reach the settlement which was reached. I have asked that this question be considered, and my answer to the noble Lord's straight question is: No, the Government did not intervene. They were informed, but they did not intervene in the way that was suggested, for example, in the Economist. The Government have throughout indicated their support for the British Railways Board in its stand in accordance with the policy of productivity, prices and incomes, and they have asked that increases in rail pay be related to increases in productivity. They are determined that this principle should be maintained in the continuing negotiations. Although one may say that one sticks one's neck out by saying that again, we shall see on September 2, or whatever is the date, the extent to which the requirement, that the settlement be absorbed in the productivity agreement, is in fact carried out.
EARL BATHURST: With respect, would it not have been better if there had been Government intervention? In that case, presumably, there would have been no "go slow" strike; the terms of acceptance would have been just the same, and the British public would not have been inconvenienced. It seems most extraordinary for the noble Lord to say that there has been no intervention.
LORD BESWICK: What seems so extraordinary to me is that certain noble Lords on the Benches opposite think that

405
industrial relations in this country can be handled so easily as all that.
EARL BATHURST: We are aware of that.
LORD BESWICK: I was about to say, against this background of the rail settlement and the prices and incomes policy, that I was particularly interested to hear what the noble Lord, Lord Erroll, and other noble Lords, including, I think, the noble Lord, Lord Robbins, said about depriving executives of financial incentives. The question of material incentives to human beings is a fascinating subject. I have tried to study it and to get to the truth of the matter. I wonder sometimes whether financial incentives are as important as all that. I wonder whether the noble Lord, Lord Erroll. would have said that financial incentives were all-important when he was in uniform in Burma in 1944. There are cases where one makes a great effort not simply because of the financial rewards at the end of it.
In any case, I agree with my noble friend Lord Willis, I am not sure that these bright young executives are as financially deprived by the present tax system as is sometimes suggested. My noble friend said something about the Rolls-Royces that are provided. There was, in fact, a party not very far from here, given by someone not unconnected with this House, and there were many of these bright young executives there. I was told that one count showed that there were no fewer than 17 Bentleys and 5 Rolls-Royces drawn up in the drive outside the particular house. I cannot see how these machines can be acquired if the situation is as bad as the noble Lord suggests. And I do not think he is really as naïve as all that. I believe he knows how the opportunities of life assurance are exploited in order to give rather more than appears on paper. It will be extremely interesting to see what comes out of the reference to the Prices and Incomes Board with regard to the payment of higher executives.
But the justification for this criticism, as put by noble Lords opposite, is that it makes it impossible to increase the capital in this country. But even here their fears are not justified by the facts. The gross domestic fixed capital forma-
406
tion has gone up. At 1958 prices, in 1956 it was 3,297 million; and in 1966 it was 5,634 million. The rate of accreton slowed down certainly just after 1966, but since then it has been going up again. So it is not really true to say that it is not possible to accumulate capital in this country. And, my Lords, is it really honest to justify on economc grounds, at this point of time especially, that extra payments to the highly paid are all right, and yet to get so hot under the collar if we should award an increase of 8s. a week to a shunter on the railway who is getting a basic pay of £13 3s. Od. a week. Why is it that extra awards in the higher paid groups are considered incentive, and in the lower paid groups inflation? I feel that in this matter we run very close to kidding ourselves. We are not being honest with ourselves when we look at this matter on some occasions.
The noble Lord, Lord Byers, asked about the possibility of sharing the sterling balances. He hoped that this would help us "carry the can", as he put it. The Basle agreement—I am sorry it was criticised again by the noble Lord, Lord Boothby—was in effect a funding operation. Of course, any further steps along that road would be a matter for international discussion. The noble Lord, Lord Boothby, made an impassioned attack on the Bretton Woods Agreement. I think that every time he makes it it sounds better. I have heard him now over many years. I am not sure that in the early days of 1946—was it?—I did not also say a few words in the Commons against the agreement, and I am not absolutely sure that I did not vote against it. He will agree with me that the strains on the international monetary system since that day have, to say the least, not helped the economic situation in this country.
There is no need for me to go into all the details of it: the weakening pf confidence in the two reserve currencies, sterling and the dollar, and the associated rise in the speculative demand for gold; the constant pressure on world liquidity and the inevitable threat posed for the future growth of international trade; the long-standing problem of sterling balances, and the effects fluctuation in these balances have on the British economy and our management of it. That is the problem. I agree with the noble

407
Lord about his identification of the problem. I disagree with him when he says we have done nothing about it. We have in fact in recent years, recent months, indeed in recent weeks, done a very great deal about it.
LORD BOOTHBY: My Lords, it the noble Lord will forgive me for interrupting for one moment, I did not say you had done nothing about it; I said you have not done enough.
LORD BESWICK: Well, my Lords, we have never done enough. I think that as the noble Lord goes through life he learns this more and more clearly. We have not done enough, but in recent months we have seen the emergence of at least the beginnings of solutions.
In Washington last March the Central Bankers reached agreement on the establishment of the two-tier gold system, which served to insulate official monetary reserves from the impact of gold speculators. Soon afterwards, in Stockholm, agreement was reached in the I.M.F. on the establishment of the Special Drawing Rights scheme. And, despite the doubts expressed by the noble Lord and by the noble Earl, Lord Dundee, I still insist that when ratified, as we hope by the end of this year, it will open the way for an appreciable increase in the supply of world liquidity. Now, only 10 days ago, agreement has been reached in principle among leading central banks for this "standby" arrangement for sterling balances. The noble Lord, Lord Erroll, really was in error when he said this was a further increase in our indebtedness. It just is not true that if you exchange a short-term debt for a medium-term debt you are increasing your indebtedness. It is not true, and he serves no good purpose in suggesting that it is.
The vital point in that scheme is that we do gain time by transferring an obligation for highly liquid debts to medium-term debts. The immediate significance of all these different developments, in the international monetary sphere, is that they give us greater latitude, greater breathing space, in which to concentrate on the fundamental problem here at home. That problem, basically, is to get our whole economy into such shape that
408
we can make and sell enough goods, and offer enough services, abroad to enable us to meet all our overseas obligations. Lord Brown showed that, despite all the fears of financial crises and despite all the moans of discontented politicians, there are British men and women who are tackling successfully this basic job. I cannot think that all this (what shall I call it?) taking of the economic temperature has helped the men and women who have been working in the factories and in the offices up and down the country. The truth is, it seems to me, that we have been getting near becoming, as a nation, economic hypochondriacs. Every twitch in the indicators has been seized upon, examined and analysed ad nauseam. The time now has come to "snap out of it". With these international monetary developments strengthening, as it were, our external bulwarks we have a chance of putting our economy in order once and for all.
Only one more thing I would add. The noble Lord, Lord Balogh, gently reminded us of what he called the true themes for future discussion. What sort of society do we want to build with any new economic resources? My noble friend Lord Willis, too, was right when he said that material advance is purposeless unless there is genuine participation in the planning of that advance by the people in whose interest the advantage is supposed to be. My Lords, in asking the House to give a Second Reading to the Finance Bill I echo those pleas: that we should recognise that any economic advance is a means, as the noble Lord, Lord Balogh, said, and not an end, to a better life.
On Question, Bill read 2a; Committee negatived.
LORD BESWICK: My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Finance Bill, has consented to place her interest, so far as it is concerned on behalf of the Crown, at the disposal of Parliament for the purposes of the Bill.
Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of July 15), Bill read 3a, and passed.

REDUNDANCY PAYMENTS EXCLUSION OF MERCHANT SEAMEN ORDER 1968
7.27 p.m.
LORD HUGHES: My Lords, I beg to move that the Redundancy Payments Exclusion of Merchant Seamen Order 1968, a copy of which was laid before the House on June 11, be approved. The direct effect of this Order is to exclude merchant seamen from the provisions of the Act. As a corollary, it enables the Secretary of State, under Section 31 of the Redundancy Payments Act, to make refunds of Redundancy Fund contributions to employers of excluded employees. The reason for making refunds under Section 31 of the Act conditional on exclusion under Section 16 is so that employers who, at substantial cost to themselves, have set up their own arrangements to deal with redundancy in their own industry, and have thereby eliminated the need for claims upon the Redundancy Fund, can, by this provision, be relieved of the burden of contributing to the statutory Scheme as well as financing their own arrangements.
A good example of this policy of exclusion and refund is provided by the docks industry. The National Docks Labour Board has a statutory duty to provide from a levy on port employers a weekly fall-back wage to registered dock workers when they terminate employment with an individual port employer. Registered dock workers cannot become redundant from the industry as a whole except by a reduction in the numbers registered, in which case compensation is normally agreed between both sides of industry.
The position in the Merchant Navy is somewhat similar. For many years now the shipping industry has had its own decasualisation scheme, known as the Merchant Navy Establishment Scheme, which provides payments in supplementation of unemployment benefit and, in suitable circumstances sickness benefit, to seamen temporarily unemployed between voyages. In the year ending March 31, 1968, this scheme cost shipping employers £797,000. Various improvements to individual contracts of service are being negotiated which will add at least £400,000 a year to this bill. Your Lordships will nevertheless appreciate that to
410
exclude any section of industry from participating in the benefits of an important social measure like the Redundancy Payments Act is a serious step. Such a step would not be contemplated by the Secretary of State unless she were satisfied that an exclusion order was desired by all sections of the industry.
My Lords, I am pleased to say that this condition is amply fulfilled. As long ago as December, 1965, the Department of Employment and Productivity was approached by the National Maritime Board, which is the joint negotiating body for the shipping industry and on which are represented the employers and the unions serving the various categories of seamen. The National Maritime Board submitted a draft redundancy scheme to be substituted for the statutory scheme when the exclusion order came into operation. Since Merchant Navy Establishment Benefit already covered the situation of the seaman who was unemployed between voyages but who still remained within the industry, this scheme was designed to deal with the seafarer who became redundant from the industry as a whole, bearing in mind that from the nature of their calling redundant seamen had particular difficulty in obtaining equally remunerative work ashore. The details of the scheme have been the subject of protracted negotiations and discussions, not only between the parties concerned, but also with the Depart bent of Employment and Productivity and the Board of Trade. The Confederation of British Industry and the T.U.C. have also been kept fully informed of the progress of the negotiations.
The finally agreed scheme is substantially more generous than the statutory provisions. For example, the statutory scheme imposes a maximum of 20 years' reckonable service, whereas the agreement allows 25 years' service to count; under the statutory scheme the weighting for age is limited to one and a half weeks' pay for each year of service over forty years, whereas the agreement additionally allows two weeks' pay for each year of service over 50; under the statutory scheme pay up to £40 a week is taken into account, but under the agreement this limit is raised to £50 a week. Moreover, all seagoing service, whether with one or more employers, is aggregated.

411
But, my Lords, neither employers nor employees are tied to the agreement for all time. It is provided that any of the organisations signatory to the agreement may terminate the agreement so far as that organisation is concerned provided six months' notice of intention is given. Your Lordships will of course appreciate that in the event of this happening the Secretary of State would wish to review the position regarding exclusion. She would also wish to review it if there were a substantial fall in the value of benefits provided under the agreement compared with the value of contributions refunded.
I must now draw your Lordships' attention to one other provision in the order. Article 3(2)(a) specifically excludes a merchant seaman who is neither domiciled nor has a place of residence in Great Britain. These seafarers, although outside the scope of the National Maritime Board Redundancy Agreement, are by definition unlikely to qualify for benefits under the statutory scheme, and it is therefore right that contributions paid on their behalf by employers should also be refunded. I beg to move.
Moved, That the Draft Redundancy Payments Exclusion of Merchant Seamen Order 1968, laid before the House on June 11, be approved.—(Lord Hughes.)
On Question, Motion agreed to.

FIELD BEANS SCHEME 1968
7.35 p.m.
LORD BESWICK: I beg to move that the Field Beans Scheme 1968, copies of which were laid in draft before this House on July 4, 1968, be approved. The grant is intended to encourage the development of field beans because of their importance as a break crop for cereals, particularly wheat, and also because they are a source of protein, which saves imported feeding-stuffs.
We discussed all this in some detail during the passage of the Agriculture (Miscellaneous Provisions) Bill, and I am sure it is not necessary for me to go into further detail now. The scheme comes into operation as soon as both Houses have approved the Order, and it relates to the crop year commencing July 1, 1968. I beg to move.
Moved, That the Draft Field Beans Scheme, 1968, laid before the House on July 4 be approved.—(Lord Beswick.)
On Question, Motion agreed to.

HIGHLANDS AND ISLANDS DEVELOPMENT (SCOTLAND) BILL
LORD MITCHISON: My Lords, I beg to move that this Report be now received.
Moved, That the Report be now received.—(Lord Mitchison.)
On Question, Motion agreed to.
Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of July 15), Bill read 3a, with the Amendments, and passed and returned to the Commons.

LOANINGDALE APPROVED SCHOOL, BIGGAR
7.37 p.m.
LORD FERRIER LORD FERRIER rose to ask Her Majesty's Government whether, in the light of the evidence in a recent murder trial in Edinburgh, they will institute an inquiry into the administration, security and discipline of the Loaningdale Approved School at Biggar. The noble Lord said: My Lords. I beg to ask the Unstarred Question which stands in my name on the Order Paper. On Saturday, August 6 last year, a fifteen-year-old schoolgirl did not arrive home, although she had said "Goodnight" to a girl companion at about 7 o'clock in the Biggar High Street, and set off to walk the mile or so through the main road to her parents' house. The next morning her body was found in the cemetery by that road; she had been strangled, partly stripped and horribly mauled. Had she not been a good girl she might he alive to this day.
The occurrence stunned the town and countryside, and the people hardly dared to think that the culprit might be an inmate of the approved school, 500 yards away. However, police inquiries did in fact trace the murderer to the school. The boy had slipped out of the school in the dark and then slipped back half an hour or so later when he realised what he had done, and proceeded to clean up and destroy nearly all the clues to his guilt. The piecing together of the case against

413
him took a long time, and I need not worry your Lordships with the details. He was convicted at the Court of Session in Edinburgh on March 7. An appeal followed on a point of law, but this was rejected and in May the conviction was upheld.
I would assure, your Lordships that had the case not remained sub judice for such a long time I would have asked this Question long before this. When your Lordships debated the Court Lees case on October 25, 1967, I referred, without mentioning names, to this school, and I hope that it will suit your Lordships if I quote extracts from my speech on that occasion as probably the quickest way to complete the background to my Question. I said then, inter alia:
"There is an approved school in Scotland, close to a prosperous little town of, say, 1,500 to 2,000 inhabitants."
I went on:
"It is my present intention to put down specific Questions, one for Written Answer, and to follow this up as time goes on. The school of which I speak—the only one of its kind in Scotland, one which was accepted as an experiment—was established in 1963. Many people in the locality were surprised that it had been located in a property so very close to the town. But the public was assured that the boys to be sent there were those who appeared likely to make good as decent citizens in the minimum of time. It has been suggested, actually by one of the governors to me, that the townspeople did not try to co-operate. This was not at all my impression. They were naturally hesitant, as any country community would be, at the arrival of an organisation of this nature, but in general they were absolutely willing to help, despite the absence of a member of the town council or, indeed, of the locality at all on the Board of Governors.
"Unfortunately, from the first, discipline was such that the boys started making trouble almost straight away. Had they not done so, things may have been very different, because the sympathies of the neighbourhood were directed towards helping the whole scheme, and these were in a measure alienated from the beginning. If you want the local people to help, please make certain that discipline is adequate ab initio. Unfortunately, the trouble has continued, and in the case of which I speak the damage done to neighbourly relations of the locality is now so serious that it will take years to re-establish, if indeed that is ever possible."—0FFICIAL REPORT, 25/10/67, col. 1694–51
I would remind your Lordships that it was not known to me or to the public at the time I said this that the murderer had in fact been apprehended and that he was an inmate of Loaningdale School.
The murder was the climax of the local anxieties and reactions which I described at the time. Not that I wish to raise the matter as a parish pump complaint but rather in the very much more important context of the whole problem of the place of the approved school and of the importance of its task in our social environment and the absolute necessity for the future of taking advantage of experience such as ours has been, no matter how bitter. The story of Court Lees and its aftermath of local trouble under a new régime is there to see.
Let me turn to the further history of this school and the various errors of judgment which have bedevilled the whole undertaking. As I understand it, the position is this. First of all the school was intended to be near Haddington in a place which was an Approved School before, and perhaps it was a mistake that that school was ever closed down. Be that as it may, the Board of Governors, under the chairmanship of Lord Birsay the much respected Chairman of the Scottish Land Court, were drawn from East Lothian or from the neighbourhood of Edinburgh.
When one turns to the Articles of Association, it is indeed interesting to note that after Sir Harold Leslie, now Lord Birsay, there was Sir Gerald Reece of Bolton Old Manse, near Haddington; G. M. Carstairs, a professor in Edinburgh; Norman Murchison, Edinburgh; David Wyllie, a farmer in East Lothian; Mrs. Macdonald Watt, a married woman from Dalkeith, that is nearby; another lady; a farmer from Dunbar; a lady from Edinburgh, and a Mr. Walker from West Lothian.
When the building in East Lothian was found to be unsound, the house at Loaningdale to which I am referring, some 400 yards or so from the outskirts of Biggar in Lanarkshire, was purchased. That was some 60 miles away front the house in Haddington. In my view, error number one was that at that juncture the Board of Governors was not adjusted to include local people. We have seen from these Articles that it was obviously the intention of the original plan that such should be the case.
I would turn to the letter I had from the Church of Scotland Committee on

415
Social Service, whom I had consulted, wherein appears the sentence:
"The Managers of our Approved Schools are the Social and Moral Welfare Board, which is of course a Committee of the General Assembly. In addition, in respect of each individual school, however, we have a local committee of management, on which the Board is represented, and on which there is a majority of local people, including a member or official of the local authority of the particular area."
Error number two, as I see it, was that one of the several available houses not so close to the town as that of Loaning-dale might have been considered more suitable by a Board with local knowledge, which, as I have shown, the Board did not have.
Error number three was that although the property is only just outwith the burgh boundaries, little or no effort was made to make contact with the Provost or the council of this township which was to be an integral part, as it were, of the scheme to rehabilitate the boys by associating them with the community during the period of their treatment at the school. One side effect of the school is that it pays no rates to compensate the township for the extra load its existence places on the town finances, such as extended street lighting.
Error number four was that very considerable latitude, putting it mildly, was allowed to the boys by the headmaster. They were not only allowed into the town, often unaccompanied, but their unruly behaviour and dirty language caused great offence and had a bad effect upon the youth of the town, both boys and, I regret to say, girls. As for the latter, no doubt with the best intentions an invitation had been issued to the girls from the town to join in specific dancing parties—"Bring your own records" sort of thing—no doubt properly supervised in the school. That was a mistake because thus acquaintances were started up which eventually went a good deal further than was intended, especially as the boys could and did get out at night.
As to the cost to the public purse, in October I said that I would ask more questions on that topic, but I never did so orally, because of the long-drawn out trial with all its unpleasant details and grim legal arguments. It was the first
416
time that tooth marks on a body had been used as evidence in a murder trial in Scotland. However, I put down a Question for Written Answer, and I elicited the fact that the original price of the property had been some £20,000 and that, as at March 31, 1967, a further £150,000 had been spent on extensions and equipment—and much more must have been spent by now. I must say that the school is a fine place and splendidly equipped, fully staffed with skilled and dedicated people. I have it on good authority that last year the running costs approached some £40,000 for an average of some 20 boys. The figures for previous years were given in the Answer to my Question for Written Answer, and they were: for 1964–65, £20,600, for an average of 16·6 pupils; for 1965–66, £20,200 for an average of 15·1 pupils; for 1966–67, £23,800 for an average of 17·1 pupils. The Answer to my Question also indicated that the number of pupils were thirty or so last Autumn.
Here I come to error number five, which consists of a combination of the number of pupils and the outlay, and in this matter I have considerable sympathy for the headmaster. The original plan was that the school should contain, say, 20 or 30 boys "who appeared likely to make good as decent citizens in the minimum of time", as I quoted before. It was enlarged to accommodate 40 or 50 boys, and the Department, I believe, despite the headmaster's protests, started sending boys to the school who had a number of convictions, and who were thus mixed in with the originally intended types, some of whom had no convictions at all. The influence of the new intake was a serious matter—trouble, trouble and more trouble ensued; driving away cars, housebreaking, shopbreaking, petty theft, minor assaults, carrying weapons. All this placed a heavy burden on the police and magistracy and a gradual crescendo of protest from the public. In some respects the community's pattern of life was changed. I can say that because it has even extended to the surrounding country, including the village in which I live some three miles away.
After two years, in 1965, two local people, including the Provost, had been co-opted by the Governors. So far, so good. After the murder in 1967, the

417
Member of Parliament met the burgh council, and the Under-Secretary of State, Mr. Bruce Millan, has taken a close personal interest in the matter, meeting the council and introducing changes to widen the Board and to tighten the discipline. Two more local governors were appointed earlier this year, one being the minister of one of the local churches and the other a local doctor—both valuable additions. When the two original local directors had completed three years, one retired, and the other, the Provost, was not invited to continue. Two more local individuals were invited, but they refused, perhaps because they felt that the local authority should be entitled to nominate. This is my own conjecture. I make the conjecture because this point has now been conceded, and forthwith the burgh council nominated a lady councillor and another man who was in fact the brother-in-law of the murdered girl. So things have changed very much for the better.
But have the steps taken gone far enough? As I have said, I have a considerable measure of respect for the headmaster and for his theories, although he must bear his share of the blame for what has happened. He is dedicated to a permissive approach to the redemption of young delinquents which may ultimately be the right one. I wonder how many of your Lordships heard the item on the B.B.C.'s programme this morning called "To-day", about the Ipswich open borstal experiment, which I found quite fascinating.
I look forward to the Minister's reply to my Question, and hope that the Government will institute an inquiry, with the broadest terms of reference, to establish if nothing else, what went wrong: because, make no mistake, my Lords, a great wrong has been done. I repeat, over the past few months great strides have been made to meet the clamour of the burgh—a clamour which, in my view, should never have been induced. But the present strict control of the boys if they leave the premises, is contrary to the main theme of the experiment.
What, then, is to be done? If the permissive experiment in all its details is to be continued, it is fair to suggest that this might be done elsewhere. Why? Because it seems to me to follow that a
418
continuation of the experiment where it is will mean a return to the comparative freedom of the inmates' movements, but from now on in a deeply injured and consequently antagonistic community. Would this be fair to the future of the school? It might take a generation, perhaps more, in a countryside such as the southern uplands, for what has happened to be forgotten.
Another point is that if it is too early yet to assess the success or failure of the experiment, in overall terms of the end-product who have passed through it, what are the present indications? We know that another horrid murder has been committed by an ex-inmate. We know that there have been fire-raising troubles. But I should like to know: are the after-care services adequate? If not, should permissive experiments be continued until the after-care services are adequate? Such and such would be the questions that an inquiry might answer.
It could go further. It could deal with such questions as: Is the screening of entrants adequate? Should a school of this size be established cheek by jowl with so small a community as 1,500 to 2,000 people? Has the headmaster power of summary expulsion? In a good establishment this would be punishment indeed, and a warning to other pupils. Should such a school have an active local committee of governors? If the chairman is not a local man, should he appoint a local deputy to act in an emergency? Has the extensive experience of the Church of Scotland's Social Services Committee been drawn upon?
Whatever happens, I look forward to some sort of public admission that mistakes have been made over Loaningdale, mistakes which have had terrible consequences, and the burden of which—an unnecessarily heavy burden—has been laid on a neighbourhood. The great bulk of the people—and I am one—say "Carry on with the experiment by all means, but do not continue here. Despite the heavy cost, cut the loss and start again elsewhere." Cannot the premises be used for some other social services?
My Lords, I conclude with a sentence or two from a letter I have had from a much-respected Scottish lawyer. At the end of his letter he says:
"There is, I fear, an increasing and dangerous clash of opinion appearing between the

419
Judiciary and the Executive, and at the moment the civil servants are winning. The balance may be redressed when the general public, as in Biggar, see where this is leading."
As I can only ask my Question, I should like to thank in advance any noble Lords who take part in this debate. I could have said much more, but I have tried to be as objective and as restrained as I can. The English Press carried hardly a word of the affair, which in my opinion is far more dreadful than the Court Lees case. There were, of course, banner headlines in the Scottish papers, so it will not surprise your Lordships if I remind you that feelings in Scotland have been deeply disturbed. One result of the experiment has been to show that error and miscalculation in planning can result in cruel blows to innocent people. Let us do what we can to atone and to provide that such a thing does not recur. My Lords, it is for that reason that I beg your Lordships' leave to ask my Question.
7.55 p.m.
LORD BALERNO: My Lords, before I intervene I must declare a certain interest in this matter. For nearly thirty years I have been a manager of an approved school in Scotland, and for about eight years I was chairman of the board of management. Since I joined your Lordships' House my visits to the approved school have been fairly infrequent. What the noble Lord, Lord Ferrier, has said about the anxiety of the people of Biggar over this sad case at Loaningdale is entirely true. But I would say this from my limited experience: that what has happened at Loaningdale could, I think, have happened at any approved school. I would go further and say that it does, unfortunately, happen elsewhere in society to-day; therefore, sad as we are at this event, we must not pin it, as it were, too precisely on this one particular school.
I do not know the headmaster—I have never visited Loaningdale—but I have every reason to believe that the headmaster is a most admirable man. Lord Ferrier supports me in that. I am informed that he is most sincere in his methods and in his ideas, although his methods are not those that I think would be generally accepted by those who are responsible for the running of senior ap-
420
proved schools in Scotland. I suppose the noble Lord, Lord Ferrier, expressed it rightly when he said that it was exceedingly permissive. The headmaster seems to be experimenting, and this one incident should not, I think, be regarded as a failure of the experiment. There can be no doubt whatsoever that a measure of freedom is of great therapeutic value in redeeming this type of boy. It is not easy to know where to draw the line, just as it is not easy to know where to draw the line in the administration of discipline. Discipline and freedom go together. But there is one lesson which we must learn from this particular incident: that in an approved school of this nature it is most important to have adequate night security. Lord Ferrier has drawn attention to the lack of this.
LORD FERRIER: My Lords, if I may interrupt the noble Lord, this has now been put right.
LORD BALERNO: My Lords, I am glad to hear that. The other point also made by the noble Lord, Lord Ferrier, is that of the value of close contact with the local residents. I can speak from experience and say that if you do not have the closest association with certain local residents then you are almost certainly bound to have trouble between the school and the community. The school of which I was chairman and of which I am a manager had, and has, members of the local authority ex officio. They are appointed by the local authorities to the board of management. Such persons are busy. They are on other committees of the local authority as well as being managers of the school. It is not reasonable to expect them personally to make very frequent visits to the school, but I maintain—and I speak from actual experience of having difficult incidents, not so bad as that which the noble Lord, Lord Ferrier, has recounted—the importance of having local authority representatives knowing about the school on the board of managers, because, sure enough, at any approved school there will come a crisis and they are invaluable people to have at your back at a time of crisis and to go to for guidance. For the day-to-day running of the school it is important to have other managers who are drawn from persons of experience and

421
who are willing to spend, say, up to a couple of days a month at the school in contact with the masters and getting to know some of the boys.
Loaningdale and Court Lees seem to me to be merely the symptoms of a malaise which is due to the expediency of the moment being allowed to postpone long-term action. The purpose of an approved school is to rehabilitate and to educate the toys. It is quite unreasonable to think that this can be achieved with many of the boys in less than one year. The decision for a boy to be released from an approved school must rest on the headmaster's recommendation and be approved by the managers or by the chairman of the managers.
The consideration of the approved school cannot be separated from that of borstal. I beliese that a boy sent to borstal as a rule serves a shorter period than if he is sent to an approved school —at any rate, this certainly is a current belief among juvenile delinquents in Scotland. Such ones, if sent to an approved school, on occasion, perpetrate a crime which necessitates their being committed to borstal. Release before the time is ripe must not be done in order to clear a place for another boy, and that is what is liable to happen at the present time. The throughput at these approved schools or at borstal must not be art the expense of completion of the training of the boys who are already at the institution.
I am not entirely certain of my facts as regards the relative length of time at borstal and at approved school, and I would therefore, like to ask the noble Lord, Lord Hughes, who is answering, whether he can give us an indication of the average length of time spent by a boy at borstal compared with the average length of time spent by a boy at a senior approved school in Scotland. Further accommodation for these delinquents is urgently required both at borstal and at approved school. In approved schools, to achieve success, treatment must be in groups, not too large groups, and it will not succeed if it is applied in the mass. The forward thinking of those who are concerned is for houses for small numbers, and these houses may indeed be linked to the existing approved schools and used for the final period of training.
422
The noble Lord, Lord Ferrier, has spoken of the cost of the construction of Loaningdale, and it is something of which we must he fully aware that for accommodation for something like 30 boys the taxpayer has to put up a capital of something approaching £200,000. It is costing, according to Lord Ferrier's figures, something like £2,000 a year to keep a boy at Loaningdale, apart from finding the capital. Nevertheless, I think it is important that some of the schools that we have in Scotland should be brought more up to date than they are and, if necessary, further schools should be opened.
As a result of my experience of the school of which I am a manager and of meetings at conferences of approved schools which I used to attend regularly, I am convinced that in Scotland—and doubtless the same is so in England, but my experience is of Scotland—a most dedicated set of men are the headmasters and the masters of approved schools. They are men who have set themselves very much apart for this particular kind of work. They are desperately interested in the boys and in their rehahilitation and education. They are men of great humanity, and their anxiety and determination to adjust their methods to meet the changing circumstances of the times, the changing circumstances of the juveniles, of the boys, is quite outstanding. They are always willing to try fresh ideas, and they must always be encouraged to do so. The Social Work (Scotland) Bill, which we have been discussing will, I think, lead to an increase in demand for places at what will be called "residential institutions". I would ask whether the Government are considering making provision for this when the Act comes into force.
I should like finally to re-echo what the noble Lord, Lord Ferrier, has said about the work of the Church of Scotland with boys of this type. I should not confine it to the Church of Scotland only; the Roman Catholic Church has done, and is doing, outstanding work, and I had the fear when we were discussing the Social Work (Scotland) Bill that full recognition might not be made, when the Act is put into force, of the work that has been done by the churches. I would reinforce the plea of the noble Lord, Lord Ferrier, for full consideration to

423
be given to getting the assistance of those in the churches who have such experience and humanity in this type of case.
8.9 p.m.
LORD MITCHISON: My Lords, I apologise in advance for intervening in this discussion, but I shall not take long. I am only speaking on this matter—about which I know little more than what I have heard to-night—because a letter from the noble Lord, Lord MacLeod of Fuinary, was handed to two of my friends and they asked me (I hope it was not too irregular) to put his views before the House. His views are very definite. First of all, he thinks, as we all do, that this was a most deplorable incident, and I am sure he would agree with me in saying that we are in no position, any of us, to decide questions between crime on the one hand and irresponsibility or ill-health, or whatever it was, on the other. He thinks that the school was a very good one indeed and it was a very valuable experiment. That is what I rise to say in the first place to your Lordships.
The second point which I want to mention is in his letter and it has been strengthened a great deal by what I have heard this evening. This is not at all a hopeless situation. It is not a case where the school must be moved. On the contrary, the events which have followed on this crime, for such it was, are not unlike what, with foresight, one might have expected. It was natural, particularly if there was a little local feeling already, that it should become much stronger at this stage on both sides.
I hope that the noble Lord, Lord Ferrier, will not think me condescending and impertinent if I humbly congratulate him on the complete fairness of what he had to say. I thought it was absolutely fair to both sides. That being so, an inquiry might do a great deal of harm. The trouble about litigation and inquiries is that people who are not certain of their views and who were prepared to listen to the other side of the case become a little more convinced of the rightness of their own case by what happens. It was suggested by the noble Lord, Lord MacLeod of Fuinary, that for that reason an inquiry might be a mistake.
I did not understand the noble Lord, Lord Ferrier, to be pressing the question
424
of an inquiry. Indeed, towards the end of his remarks he said something which was most encouraging for the view which I am humbly submitting to your Lordships—I know how humble an English-man has to be over Scottish matters—that is, that there had been a distinct and marked improvement. Anything formal in the nature of an inquiry might make it rather difficult for that improvement to continue, as one hopes it will. Is it not a matter which perhaps is better dealt with by the kind of inquiry which already seems to have occurred? I notice that Mr. Bruce Millian was there. I know him personally and would regard him as a very fair-minded man. Therefore I hope that the Government do not commit themselves to anything too formal. I express the hope, which I think we all feel, that this matter, I was going to say may blow over, but that is not quite the right term—may lead to an improvement of what obviously has been, and still seems to be, a very valuable experiment.
LORD FERRIER: My Lords, may I point out that I put down the Question on March 21? Many of the improvements have taken place since then.
LORD MITCHISON: My Lords, may I repeat how very fairly I thought Lord Ferrier put the whole matter. I hope that he will forgive me for intervening in what is only vicariously my business.
8.12 p.m.
LORD BANNERMAN OF KILDONAN: My Lords, it is with some diffidence that I intervene, especially after the noble Lord, Lord Balerno, but I feel that what was said by the noble Lord, Lord Ferrier, about the proximity of this school to the small town of Biggar must have some relation to the disturbances and incidents which occurred in the school. There can be no question at all but that the staff of these approved schools are of exceptional quality; I have visited several of them and I know from first-hand experience. But in this case is it not right that there should be an inquiry, not necessarily into the administration, security and discipline, but into the actual siting of the school so close to the small town of Biggar? No one is more sympathetic than I am to the tremendous work that is done for the rehabilitation of these boys, but, at the same time, we

425
have a duty to have regard to the communities where these schools are placed. The trouble which has taken place, according to my reading of the affair, is that a great measure of the difficulty—even the tragedy—arose not from ordinary circumstances of discipline and administration, but mainly from the school's dangerously close proximity. For that reason I would back an inquiry, not necessarily into the type of administration or its quality, but most certainly into the location of the school so close to Biggar.
8.18 p.m.
LORD BROOKE OF CUMNOR: My Lords, I wonder whether the noble Lord, Lord Hughes, will forgive me if I intervene very briefly before he comes to reply. I feel particularly apologetic to him because, if eventually he makes a long reply, I may not be enabled to remain to hear the end of it. I know that I am only an Englishman, but I am very interested in approved schools. I venture to think that if there are lessons to be learnt from this tragic Loaningdale story, they will be of value to approved schools throughout England and Wales, and not only in Scotland.
In listening to this debate I have been greatly impressed with the fairness and balance of all the speeches, and I was particularly glad that the noble Lord, Lord Bannerman, paid his warm tribute to the staffs of approved schools. It would be tragic if a debate like this were to take place in your Lordships' House and any of the men and women who work so devotedly for the benefit of the boys—and sometimes, too, of the girls—in approved schools were to get any impression that we were not fully sympathetic with them and failed to understand the tremendous difficulty with which they are coping, day and night, and the considerable success which in many cases is accompanying their efforts.
The Loaningdale story seems to me to emphasise the tremendous amount of care that needs to be taken in the allocation of boys to approved schools. I do not know how large a choice there is in Scotland. In England it is fairly wide. I am quite certain that, although the arrangements for the allocation to particular schools have been improved, there is continuing scope for further improve-
426
ment. This is particularly important. If a school is going to be established with a permissive form of discipline, it is most important that the right boys sho rld be selected, particularly in the first year or two of the school, so that it shall have every chance of proving the experiment a success and gaining the confidence of the locality.
When I heard my noble friend say that not only had a boy at the school committed murder but that a boy who had been discharged from the school had also later been convicted of murder, and other-serious crimes were thought to have been committed by boys who had been in that school, it made me wonder whether there were boys in that school who should have been in borstal. I assume that there is under Scottish law, as there is under English law, provision—under proper safeguards, of course—for the transfer of a boy from an approved school to borstal, if experience shows that he is not really suitable for the approved school régime and that he is likely to do better at borstal. I must say that at first sight, I should have wanted to ask whether the boy who committed a murder while he was at this school had been behaving before that time in such a way as to raise the question whether he should have been in borstal; and whether in fact the arrangements were flexible and swift enough to ensure that the moment a question like that arose it was thoroughly considered.
My last point, which has been brought out in all the speeches, is the importance of gaining and winning the support and sympathy of the locality. The noble Lord, Lord Bannerman of Kildonan, questioned whether one should have an approved school near a small town like Biggar, which I happen to know. In this case, Biggar has quite clearly been put through a deeply traumatic experience, and I can well understand my noble friend Lord Ferrier asking whether, in all the circumstances, an approved school should remain there. In principle, I do not think it should be said that there should never be an approved school near a small town: one has to take all the circumstances into account. But when a new approved school is being started, just as when a new detention centre or a new borstal is being started, a tremendous amount of trouble must

427
be taken to seek to ensure the understanding, the good will and the co-operation of the local community; and certainly it sounds to me, from what my noble friend said, as if there were defects in that respect on this occasion.
It appears to me to be even more important if the school is to have a permissive type of discipline, because that means that the boys will be about the place, outside the school grounds, the more. It is extremely important, therefore, that all who are living in the neighbourhood should be fully alive to what is being done in that school, and should be listened to if they have complaints to make. The obvious way of ensuring that complaints are quickly listened to is by building up a body of managers for a school, or a board of visitors for a borstal, largely from among people in the neighbourhood, so that the people in the neighbourhood know exactly with whom they should have a talk. If they know that Mr. So-and-So or Mrs. So-and-So is a manager, then that is an outlet for their complaints, and a channel through which their views can be conveyed to the authorities. There, again, it sounds to me from my noble friend's account that things did not get off to the right sort of start in this case.
I happen to know how much publicity the tragic event of this murder and its relationship with the approved school attracted in Scotland, even though it was hardly reported in the English papers. I am quite sure, therefore, that my noble friend Lord Ferrier was amply justified in raising the question. I simply express the hope that, whether there is an inquiry or not, all the lessons that can be learned from what has gone wrong in this case will not only be learned but will be disseminated through the approved school system in England and Wales, as well as in Scotland. There has been tragedy here and it is incumbent upon us to do all we can to see that that tragedy is not repeated.
LORD FERRIER: My Lords, the noble Lord, Lord Mitchison, was kind enough to say that I had been fair but I might have been fairer. In view of what the noble Lord, Lord Brooke of Cumnor, has said, it is only right that I should say that the headmaster himself told me that he did not want this boy any
428
more, and he would have been moved within a day or two if things had not happened that way. He had already decided that the boy who committed the murder was not fit for the place.
8.25 p.m.
LORD HUGHES: My Lords, I should like to say at the outset how much I appreciate the way in which this Question has been put and discussed. Particularly I would express thanks to the noble Lord, Lord Ferrier, for the way in which he stated the case, coming as he did from the community concerned, and inevitably having stronger personal feelings on the matter than any other Member of your Lordships' House. I disagreed with only one thing he said, and I shall come back to it, because it was also touched on by the noble Lord, Lord Brooke of Cumnor.
May I say how very much I appreciated what the noble Lord, Lord Balerno, said, particularly coming from his experience. I think he was absolutely right when he pointed out that we could not possibly regard the school as having failed because of an accident of this kind, since the one thing which is quite certain in this life is that there is no way of recognising a potential murderer, whether a boy of 16 or a man of 80. There is no such thing as the murdering type who should be recognised.
A variety of subjects have gone through the remarks of all noble Lords who have taken part, and one of those is the question of selection. The boys who are admitted to Loaningdale are accepted if they satisfy certain selection criteria, as I think the noble Lord, Lord Brooke, expected would be the case. They are, for want of a better description, not so bad boys as are admitted to other approved schools. No boy has been taken who did not measure up in the first examination to these requirements. But, naturally, there have been those who have proved on closer examination to be unsuitable. Some boys have been transferred to other schools to complete their training, and when a Loaningdale boy commits an offence in the locality he is automatically moved elsewhere.
I must point out the difference between the position where a boy is known to have committed an offence and the position where there is suspicion that an

429
offence has been committed by a boy. One of the unfortunate things (and I do not suppose this is confined to Biggar or to Loaningdale) is that when there is an approved school in a particular area there is a tendency to regard everything which happens in the area as having been committed by the boys from the approved school. So when I say that a boy is moved, it is when he is known to have committed an offence; and this movement is automatic. This is a special arrangement in relation to Loaningdale, because of the special nature of the school, and this is something which is not ordinarily available at other approved schools.
As the noble Lords, Lord Ferrier and Lord Balerno, have both made quite clear, this school is trying new methods which, among other things, involve release after a fairly short period of detention—about six to nine months—and the results, so far as they are measurable, are being closely watched. So far, the proportion of Loaningdale boys appearing before the courts following their release is rather less than the proportion for the system as a whole; and this, considering the shorter period of training, may be regarded as a favourable sign. Evaluation of methods in the rehabilitation of delinquents is notoriously difficult, and more experience of a greater number of boys is necessary before any sound conclusions can be reached.
It has been suggested that discipline within the school, as well as outside it, falls short of what may reasonably be expected. There have been—not here—allegations of uncontrolled misbehaviour and of rudeness. Some of the incidents which have been looked into have shown cause for concern, and the managers have assured my honourable friend the Joint Parliamentary Under-Secretary of State that they will try to ensure that behaviour by all connected with the school will not give cause for offence.
My Lords, while I deplore any shortcoming on the score of conduct, I am bound to point out, as I have already suggested, that in the case of some of the incidents reported it seems very doubtful whether any Loaningdale boys were in fact involved. And, of course, occasionally difficulties arose when the boys were, quite properly, in the town unescorted. On this point I should say
430
that the managers had not previously received any complaints about behaviour. They would be very ready to investigate any points brought to their notice, and naturally it is important that incidents should be reported both quickly and directly to them.
So far as behaviour in the school is concerned, I understand that the general philosophy of the régime is to encourage self-discipline rather than to impose a discipline of conformity. Relations with the staff are deliberately informal, so that a responsible attitude may be achieved. This does not mean, however, that the boys are given licence to behave as they please. All are e expected to behave in a civilised way, and unacceptable conduct is penalised by loss of privileges or by extra duties. In general, sanctions are applied by the boys themselves, but the staff and the managers of course ensure that misbehaviour does not go undealt with.
On the subject of selection, this brings me to the one point in the remarks of the noble Lord, Lord Ferrier, which I regretted—and it was something to which the noble Lord, Lord Brooke, referred. That is when he said: "Another horrible murder has been committed by a former inmate". My Lords, the situation is difficult. Obviously, the community is not going to be helped, and the boys in Loaningdale School are not going to be helped, if there is any suggestion that all the boys in the school are potential murderers. I know that nothing that the noble Lord, Lord Ferrier, said could be construed in that way. But I had reason to believe that there might be reference to this other murder, because it was so very recent. I think it would put things in perspective (and I am sure the noble Lord, Lord Brooke, will be interested in this) if I were to give some information about this other case.
The boy concerned was admitted to the school in March, 1963, at the age of 13 years and 3 months. The only offence of which he had been guilty was persistent truancy (he came from an exceedingly bad home), and he went to the approved school for that reason only. In April, 1964, his conduct had so improved that he was released from the school. I have said that he came from a very bad home. The home circumstances were such that in July of the same year—that

431
was four months later—the boy was readmitted to the school, and he remained there until March, 1965. He left the school at the age of 15-. Subsequently he got into trouble in different places; he was in borstal in England; he eventually came back to Scotland at the beginning of this year, and a month later he murdered his grandmother—an offence of which he has now been found guilty.
My Lords, how could that possibly be regarded as a criticism of Loaningdale in the case of a boy who, at the age of 13 years and 3 months, came in because of truancy; who, during the period he was in the school, was responding well to the treatment; and who left at the end of a year and then came back, because of the unfortunate effects of his family life, for another year? How could anyone in the approved school, in any institution, even in your Lordships' House, possibly be expected to know that a 13--year-old truant was to become an 18-year-old murderer? My Lords, this is so completely removed from any aspect of approved school administration that I have felt justified in giving the details of this case in order that your Lordships may realise just how completely different the outcome may be from anything which may be anticipated in the beginning.
On this subject of security, it is probably unnecessary for me to remind your Lordships that approved schools are not penal establishments. All schools have their share of absconders, but this is not, I am happy to say, a major problem in any of them. Indeed, so far as information is available from the police and from the school, abscondings from Loaningdale have not been numerous, although there have on occasions been undetected absences. The managers fully appreciate the need to assure the community of Biggar that the school does not constitute any sort of threat to them, and the security arrangements at the school, and the liaison with the police, have been strengthened to offer as great a safeguard as possible—short of adopting absolute prison standards—against abscondings. In particular, the managers have installed a night-alarm system in the dormitories, and have now also appointed a night supervisor. The daytime routine is such that the chances of a boy's absence re-
432
maining undetected for more than a very short time are now very slight indeed.
On this subject of administration, local interests must certainly have a voice. At the same time, Loaningdale, even more than other approved schools, is carrying out a special kind of task with boys drawn from all over the country, and it seems right to have a broadly based board—and the noble Lord, Lord Balerno, stated this in a way which I could not possibly better. Thus, its members include those who have practical experience and interest in dealing with delinquent youth, and representatives of the County Councils and the Counties of Cities Associations, as well as representatives of the community. If a mistake was made—I do not think it can possibly be denied that it was in the beginning—in not having sufficient local representation on the board, as the noble Lord, Lord Ferrier, has been very fair to point out, this has now been remedied. It was not in fact until June, 1965—and I think he said this—that the Town Council had the opportunity of appointing a nominee, and another local person was adopted into membership at that time, too.
LORD FERRIER: My Lords, may I interrupt the noble Lord? Is he sure that at that time they were nominees of the Town Council?
LORD HUGHES: One was.
LORD FERRER: With respect, I suggest that they were nominated by the governors.
LORD HUGHES: Yes, one was adopted by the governors, but he was the nominee of the Town Council. I think it was then that Provost Telfer went on the board, and there was another local person, not a nominee, who also went on. So at that point there was one from the Town Council and one other.
Following the difficulties which arose last autumn, the number of local representatives has now been increased to four, two of whom have been nominated by the town council; and the noble Lord, Lord Ferrier, named these two representatives. It seems to me that these changes will ensure a reasonable balance of interest and should improve the lines of communication between the

433
school and the community, which I must admit have been deficient in the past.
On the subject of costs, the noble Lord, Lord Ferrier, quoted figures which by and large, are as accurate as I think we could expect, except in one thing. He under-estimated—I think it can only be an estimate on his part—the average number of boys. Although he did not turn it into a cost per pupil, he misled his noble friend Lord Balerno into an erroneous calculation. The noble Lord worked it out at almost £2,000 per boy. In fact, the estimate for the current year will be £1,180. It is very slightly more than the average for approved schools up and down the country; and having regard to the special nature of the school I do not think the figures are out. I would not have mentioned costs except that by taking the average at about 20 it produced an inflated figure; although the total running costs which Lord Ferrier quoted are accurate.
I should like to say that there has been a most careful appraisal of all the matters involving the management and the conduct of the school and the interests of the community, which have been most strongly, and I think properly, up-held by the town council. The changes which have been made should not be taken as a criticism of the able management and leadership which the school has enjoyed since its inception. I think they will offer a sound basis for re-establishing the good relations which are a necessary component for the success of the school. My honourable friend Mr. Millan has written in the past few days to the town council conveying to them assurances from the managers on the important points at issue. I am certain that closer links with the community will make for a better relationship—not necessarily immediately, but, I should hope, improving gradually and steadily.
I may say that before I came into the Chamber this afternoon I was handed a note of the reply which Mr. Milian received from Provost Telfer. It would be wrong for me to read the whole of the letter; but I shall read a little which I think is typical of the whole. It says:
"All of us appreciate that you and your officials and managers are pushing reform to the limit, consistent with the original concept
434
of the running of the school. As you state, the measures may not conform in entirely with views held here, but that does not meen that we hope we are proved right. On the contrary. My sincere thanks to you personally for your deep interest in the matter, and I shall pass on the contents of your letter to my town council as soon as possible".
For these reasons—and as the noble Lord, Lord Ferrier, pointed,out, his Question was put down a very long time ago and he has very reasonably held it back while a lot of things were being done—the Government have come to the conclusion that an inquiry is not necessary.
I had intended to mention the reference that the noble Lord, Lord Bannerman, made to having an inquiry for totally different reasons from those stated in the Question. It was on the subject of whether the school was in the right place. It is true to say that most approved schools are in large communities; but I do not think that it can be argued that this is the only right place for them. I should like to point out that this matter came to a head because of this tragic murder. There would have been just as much outcry about it if the murder had taken place in the city of Glasgow or in Edinburgh. The impact on the community was very much greater because the probability is that everybody in the town knew the girl concerned. In a bigger community it may well be that there would be twice as many people who knew her; but they would represent only a fraction of the total population of the community.
For all these reasons the Government feel that what requires to be done in relation to Loaningdale has already been done as a result of a great deal of work done by all concerned, locally and in the Department. We therefore do not propose to instigate an inquiry such as has been requested. The noble Lord, Lord Ferrier, would accept that what has been taking place since his Question was put down originally has, in fact, been a very continuing inquiry into most of the subjects which he has mentioned as being suitable for inquiry. I would join with noble Lords in hoping that the tragedy and the unfortunate aspects of this school now all lie completely in the

435
past. I know it will be more difficult to have complete acceptance in a small community than would have been possible in a much larger community, but I am satisfied, from what has been said during this debate and from the reception which the Provost has given to action taken by my honourable friend, that real efforts will be made by all in the town and in the approved school itself to make certain that the relationship in the future is as good as it can possibly be.

DURHAM COUNTY COUNCIL BILL
Reported, with Amendments.
GREATER LONDON COUNCIL (MONEY) BILL
Reported, without amendment.
HOUNSLOW CORPORATION BILL [H.L.]
Returned from the Commons agreed to, with Amendments: the said Amendments considered, and agreed to.

GREAT NORTHERN LONDON CEMETERY COMPANY BILL [H.L.]
Returned from the Commons, agreed to.
House adjourned at fourteen minutes before nine o'clock.