HL Deb 17 July 1968 vol 295 cc342-408

4.4 p.m.

Debate resumed.


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 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 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 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 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 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.

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.


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.

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 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 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 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 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 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.


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 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 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 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 £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 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.


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 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 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 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 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 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.


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 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.


And Lloyd George.


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 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, 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 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 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 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.


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?


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.


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?


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 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 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 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.


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 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 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 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.


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.


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 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 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 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 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, 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.


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.


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 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.


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 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 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.


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 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 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 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 been made by one of our maiden speakers.

6.26 p.m.


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 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.


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 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?


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 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.


Yes, I was.


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.


No—a beginning, a basis.


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.


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.


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 —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.


My Lords, if the noble Lord will permit me to say so, 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.


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.


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.


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 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 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 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 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 economic miracle which is now nothing more than a prospect.

6.57 p.m.


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- 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 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 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.


My Lords, is that the money actually remitted from this country to Australia? That cannot be right.


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 the area to a very wide number of other service employments of similar kinds.


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.


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 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.


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.


What seems so extraordinary to me is that certain noble Lords on the Benches opposite think that industrial relations in this country can be handled so easily as all that.


We are aware of that.


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- 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 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.


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.


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 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.


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.