ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH

HL Deb 07 July 1970 vol 311 cc41-148

2.43 p.m.

Debate resumed on the Motion moved on Thursday last by Lord O'Neill of the Maine—namely, That an humble Address be presented to Her Majesty as follows:— Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament.

LORD SHACKLETON

My Lords, the first three days of our debate on the humble Address are to be devoted to home affairs, and while we have agreed that to-day we should pay particular attention to economic matters we cannot separate them from the whole state of the nation. I propose, therefore, to range rather more widely than just on economics.

I think we shall all agree that the most tragic aspect of our national affairs to-day is the situation in Northern Ireland. Following the speeches of the Home Secretary and Mr. Callaghan, there is little that I can add beyond expressing a deep sense of horror and anxiety at recent events. I strongly support the words in the gracious Speech where tribute is paid to our Armed Forces. I appreciate that allegations have been made about the conduct of our troops, and no doubt those allegations will be properly investigated, but I am bound to say that I do not believe that in a similar situation in any other part of the world the forces of law and order would have behaved with the responsibility and the restraint that the British Forces have in Northern Ireland. Some of the things that they are accused of, deplorable though they may be, are pretty small when one thinks of what has happened in other countries in such circumstances. This does not surprise me, for, as your Lordships know, I had some knowledge at first hand of the conduct of our troops in Aden, and I paid tribute to their restraint on that occasion. It is not for us to-day to concentrate on Northern Ireland, although no doubt there will be some noble Lords who will wish to discuss the situation further on Thursday, when I understand that the noble and learned Lord who sits on the Woolsack is to wind up.

My Lords, in this debate it is not my intention simply to fight the General Election all over again, but inevitably, in judging the Government and their intentions as expressed in the gracious Speech, or, indeed, as not expressed in the gracious Speech, we shall have to pay some regard to the promises made by the Conservative Party which now forms the Government. It would, I agree, not be reasonable to expect the new Government to have worked out in detail the policies that they will follow, though judging from some of their propaganda they have blueprints for nearly everything. Mr. Heath has told us that he does not believe in instant Government, though he has certainly not funked instant promises, some of which I can only describe as pretty irresponsible. No doubt noble Lords and the Government hope that some will be forgotten: indeed, in the interests of the county I hope that some will be forgotten, though it would be too much to expect us not to point it out.

It is my intention to examine this new style of Government of which we have heard so much. May I start off by referring to the state of the economy? The balance of payments is strong, and will remain strong provided sensible policies are followed. There is no more talk of crisis or devaluation, now that the Tories are in Government. Yet there is no doubt that the Prime Minister, who was, not surprisingly, rather coy about this subject in another place when he was pressed upon it, brought the confidence factor right to the fore during the Election campaign. I have heard no more pathetic excuse than that he was quoting from something that Mr. Crossman was alleged to have said to the doctors. I do not want to waste more time on that. It is part of the new style that we should prefer to forget.

The Government enter office in an extremely strong position so far as the balance of payments is concerned. The contrast with 1964 is striking indeed, although here again Mr. Heath seems to have got muddled over private investment abroad when it suited him one way and not the, other way. It will be for the new Government, however, to make good use of the breathing space that the present situation gives them, and we all urge them most strongly to do so. On the other hand, the previous Government, and, in particular, my right honourable friends Mr. Jenkins, Mrs. Castle and the former Prime Minister, never ceased to warn in Parliament and in the country of the dangers and difficulties that still surround us and that certainly face the new Government.

This is not to suggest that there is not scope for some measure of reflation, or indeed the reallocation of resources by tax cuts, fresh industrial investment or (and I hope the Conservatives will not forget this) the expansion of vital national services, whether they be education, housing or the other social services. It is all a matter of priorities. Although little enough credit was given them for this, the previous Government sought to control public expenditure in ways which were at times exceedingly painful to Ministers and unpopular in the country. They were certainly unpopular with many supporters of the Government, and unpopular in the services for which Ministers were responsible.

The new Government have taken over a much more sophisticated economic planning machine, and Parliament has been made fully aware over a period of years of the future with an assumed allocation of resources based on certain moderate assumptions as to the rate of economic growth and the extrapolation forward of existing policies. The new Government will already be aware that, despite some of their earlier assumptions, there is little scope for fresh public expenditure programmes unless major cuts are made elsewhere. What we want to know is where the economies are to come from in order to pay the election bill to which the promises of the Party opposite have committed them.

Here I should like to address some remarks particularly to the noble Earl, the Lord Privy Seal. As I have already said, if we are to have the misfortune of the Government of this country being taken over by the Party opposite, there is no one I should prefer to see fill the place of the Minister in charge of the Civil Service Department than the noble Earl, Lord Jellicoe. While no doubt the responsibilities for the main machinery of government will rest with the Prime Minister, the skill and knowledge on these subjects rests in his Department. I make no Party point, but it is a point I particularly wish to make, when I say that the noble Earl has in his Department one of the ablest, most brilliant and imaginative group of civil servants to be found anywhere in the world, and I should like to pay my tribute to them. I have no doubt they will serve the noble Earl well, and I hope that he will realise the precious nature of the responsibilities he has taken on in this area.

We shall no doubt have another opportunity to debate the progress with which the new Government will, I hope, carry on the fulfilment of the proposals in the Fulton Report. No one wishes to bring the Civil Service into politics, but I am bound to take exception to some of the things that have been said in the course of the Election campaign about the Civil Service and its numbers. Great play was made by the Conservatives on the increase in the size of the Civil Service in the period of the Labour Government. I should like to give noble Lords, who no doubt believed some of this propaganda—all this "bowler hat" stuff—some of the facts, so that they can see how misleading it was.

It is true that the size of the non-industrial Civil Service went up by something over 60,000 in the days of the Labour Government. It is also worth noting that the total increase went up by something like 30,000 in the last four to five years of the previous Conservative Government, and nobody could say that those were years of dynamic expansion of Government activity. But that is only half the story. If we also take into account industrial civil servants, the net increase during the period of Labour Government of all civil servants was little more than 30,000. It may be a surprise to noble Lords opposite to hear that the total size of the Civil Service, as a percentage of the total population, was almost exactly the same as in 1960 and in 1964. So much for their propaganda on that subject.

The truth of the matter is that, as with public expenditure, the Labour Government over the past two or three years firmly controlled the expansion of the non-industrial Civil Service, and we were working towards a system of manpower planning which I hope and I am sure the noble Earl will foster. These civil servants were not just sitting around twiddling their thumbs. One of the curious illusions among some members of the Conservative Party is that civil servants just sit around doing nothing. They were needed for a number of vital activities of particular service to the community. While I welcome the Prime Minister's Statement that he will not cut the numbers of the Civil Service without cutting out some of their tasks, I, and no doubt they, will be interested to know the tasks which are to be cut and how it is to be done without either undermining their morale or efficiency, or destroying some activity of vital importance to the community. As the former Minister in this field, I am exceedingly aware—and I am sure the noble Earl will be, and probably is already—of the dangers of ill-advised action.

There has been a lot of easy talk about hiving off. Some of the biggest steps towards the hiving off of central Government activities were taken by the previous Government, notably in the Post Office and the proposals with regard to some of the research activities in the field of civil aviation—those were all in train. While I have no doubt that the increasing search for efficiency though training and the introduction of modern methods fostered again by the noble Earl, Lord Jellicoe, will pay off in the future, it is worth noting that in the shape of the Civil Service Department we have provided him and the Government with a most powerful instrument for orderly change and the pursuit of efficiency. I hope he will not be led off too smartly by some of the interesting, if somewhat immature, thinking that emanated from the Conservative Central Office, and from his own Parliamentary Secretary.

It is naïve in the extreme to believe that importing more and more business men into government is going to contribute a great deal. The last Government made better use of business men from all walks of life than any previous Government, but I doubt whether they will be able to teach the noble Earl's advisers much about organisation and modern management methods, whether it is programme budgeting, management by objectives or decision making—whatever the latest cant phrases are. As the Daily Telegraph pointed out, if we have this number of able business men around, would it not be better, under this free and liberated Government, if they went on trying to improve efficiency in the private sector of industry? The Industrial Reorganisation Corporation, in their last report, said that there were too many sleeping giants and industrial coffins in the British industrial scene. That was not the last Government speaking; it was Sir Joseph Lockwood and the noble Lord, Lord Stokes. Many of these business men have a job to do in improving efficiency in the private sector of the economy. None the less, the best of luck to them!

We still want to know—and I do not expect the noble Earl, the Lord Privy Seal, to answer this point to-day—where his economies are coming from, because I suspect that it is within his Department that some of the dirtier and more difficult work is going to have to be done. It would be nice if this Conservative Central Office, blue-printed, computerised Conservative Government could give us some indication of what they have been thinking about in these years.

Provided the Government do not alter too much the Government machine—and all new Governments are apt to try to do this—I have no doubt that their activities will continue to get more efficient. But we still want to probe into where the economies are coming from to pay for the promised tax cuts. Is it in the social services—for example, in the Health Services? There is hardly any mention from the Government of the Health Service; there is no mention of the need to expand, particularly in the field of mental health—a matter in which I know the noble Lord, Lord Aberdare, and others, will be interested. Will the cuts come in the Department of Employment and Productivity? Because there has been expansion there—the previous Government were planning a big expansion in the employment services, getting away from the old concept of the labour exchange and towards a proper employment service. Or are the economies to come from squeezing the education services and the local authorities?

One of the areas where the Conservatives have made, and are still making, quite a bit of play is the high level of unemployment. I have no doubt that the level is too high and that here again some measure of reflation will help. But they totally misconceive the situation—and this is one of the factors that worry me about the new Government—if they think of it in these terms. It is essentially a regional problem, as no doubt they themselves will shortly be arguing, and it is in this area that their past performance and present intentions, so far as they have declared them, cause the most concern, notwithstanding the somewhat dramatic efforts of the noble and learned Lord who now sits on the Woolsack when he was Minister with special responsibility for the North-East of England. I must be careful not to trip the noble and learned Lord on the Woolsack because it is not very easy to spring to one's feet and interrupt from the Woolsack, although I do not doubt that the noble and learned Lord will not restrain himself indefinitely.

It is noteworthy that our concern about Conservative policy is particularly shared in the development areas, where the whole of the Government's gains in the Election, despite unemployment, were negligible. We should like to know what the Government are going to do about investment grants and regional employment premiums. At one time they told us that they intended to cut them and substitute investment allowances. Or is that not so? We do not know; and I am quite certain that none of the noble Lords opposite knows either. On I.D.C.s, judging from an answer the Minister of Technology gave in another place they are carrying on with the previous Government's policy, but they are none the less considering altering the criteria. This matter is vital to the life of the development areas. If the Government are really concerned with unemployment—and they made something of this issue in the Election campaign—and intend to do something about it, it is here, urgently, that we want their policies spelt out.

We should like to know, too, what their policy is with regard to the rundown of some of the older industries, particularly coal mining. One of the most striking achievements of the last few years has been the way in which the coal-mining industry has been run down, with adjustment of the responsibility and effectiveness of both management and unions, in a very difficult situation. It is really an example of how to tackle an older industry. It has been made possible only by relatively generous redundancy and pension payments. Do the Conservatives intend to continue with the Coal Mining Industry Bill? If we are to have a satisfactory national policy the Government will need to pursue energetic industrial programmes to strengthen employment in the regions, and to tackle the older industries in the way the Labour Government did. Unless they do this, long-term unemployment and dereliction will be inevitable for many of our citizens who live in the affected areas. A prosperous Southern England and Midlands does not make a prosperous nation.

The gracious Speech talks about "liberating industry from unnecessary Government intervention". What do the Government mean in this connection with regard to the Clyde, Cammell Laird? What is this "liberation"? For some of these industries it will be the liberation of death, unless the Government in fact re-think such of their policies as they have already revealed to us.

The Party opposite, and the path that is followed, are no doubt like the path to Hell, full of good intentions. We suspect, however, that they are too sluggish or half-hearted to get to either Hell or Heaven. They really must recognise that an essential concomitant of economic progress is a just society. They will now no doubt point out that they are giving old-age pensions to the over-eighties. Well, it is for them to judge the priorities in this matter. But why, then, do they not adopt the national superannuation proposals which were already before Parliament?

We know that they have accepted two items in the proposals—constant attendance allowance for the more seriously disabled, and improvements for certain younger widows—and we welcome that. But they have not accepted the grand scheme—and it was a grand scheme. Furthermore, it was one which I should not have thought inconsistent with Conservative philosophy; I should have thought it not inconsistent at least with the views of some noble Lords I know opposite. Why did they not adopt this scheme, in which everybody would contribute throughout his life to a pension related to his earnings, which was protected against inflation, and enabled participation in increased living standards? Why is this now to be completely dropped?

So far as we know, the Government say they are going to rely mainly on an improved flat-rate scheme, perhaps with some slight improvements here and there, and on occupational pensions schemes. My Lords, good as many of the occupational schemes are, half the working population still have no occupational pension scheme. And many of the schemes which do exist, even some quite good ones, are tied to continuation of employment with the same firm. Yet the retention of pension rights earned throughout an individual's life is, in my view, fundamental to individual freedom. And the gracious Speech refers to the concern of the Government for individual freedom. It is equally essential (and the noble Earl, Lord Bessborough, will appreciate this point) to ensure that pensions can be either frozen or transferred, but are not lost, if we are to meet the challenges of advancing technology—if people are going to change their jobs. This is fundamental to economic progress as well as to individual freedom. If we are to raise productivity and achieve satisfactory industrial relations, it is just as important as any expansion of the employment service, which we shall not now see, or of the re-training into which we are promised an inquiry.

What is the new style so far? Nothing, so far as I can see, is particularly encouraging as to method, as to promise, or as to intention. We were promised a new style of Government. Perhaps the most worrying aspect of the Government's new style is their way of approaching the method of reforming industrial relations. I would urge noble Lords opposite, including all noble Lords on the Front Bench to read (there may be some who have not yet read it) or re-read the Donovan Report. The Government told us that they have their proposals all ready and will introduce them in the First Session of Parliament. Is this undertaking to be honoured? I, for one, shall not quarrel if the Government have second thoughts and admit that they have been misguided in this matter. Whatever the previous Government may have managed, or have failed to manage, in regard to industrial relations, the Tories' plans are a recipe for disaster. I say that absolutely seriously to noble Lords opposite. We shall seek to pursue this subject further, particularly to-morrow.

I am bound to say that this is one of the most crucial areas, involving management and trade unions; involving trust and understanding; involving a realisation that in every industrial dispute, however misguided one may think a particular view may be—and I have had quite a lot of experience of negotiating where I have thought the other side misguided in wage negotiations—the fact is that by the time a settlement is reached one always lands there is: at least a valid point of view. It is not by bringing penalties of the kind that the Conservatives will product:—bringing the matter into the field of the law—that we shall succeed in developing a sense of trust, both in Government and in management. I acknowledge the difficulties of the problem, but I beg the Government to be very careful.

My Lords, it is against this background that we have to look at one of the more important claims of the Party opposite; namely that they were going to deal with inflation. I find it very difficult to take this seriously, because one of their special Election gimmicks concerned the subject of doctors' pay increases. Again—and I hope noble Lords on the Front Bench opposite will not object to my giving them a list of reading which they must do if they are going to do their jobs properly—I wonder how many Conservatives have in fact read the original Pilkington Royal Commission Report. Secondly, I am astonished that they were more concerned to use, as instance of economic peril—a warning to frighten the electorate—the then Government's decision to get a second opinion from the National Board for Prices and Incomes on the total amount of payment to the higher paid doctors, and that they preferred to make use of this, and to say that they would have paid it, than they were to consider the consequences.

I really do ask noble Lords opposite whether they have any proposals on prices and incomes. Taking this narrow subject of the doctors, what would the Government do about the senior civil servants? They also had a pay award which was staged. The Judges are falling behind; even the Field Marshal:; are getting a bit restive. Have the Government thought about this? At a moment when we are having to negotiate with workers whose pay is £13 to £14 a week, they make it clear that they would have paid the lot. This of course shows that they had not thought about it. We now know that, following the change of Government, and despite the fact that a large number of the doctors were not in support of their leadership, they have now said, "It is fine. So long as the Government will reconstitute Kindersley we are happy." My Lords, the Labour Government did not abolish Kindersley. Why are the doctors now content with this? The truth of the matter is that there is no substitute in this area for proper machinery, and I beg the noble Lord to salvage that part of Mrs. Castle's Bill on the Commission for Industry and Manpower which related to the special panel for recommending pay for the higher paid members of the public services.

What are the Government going to attempt in this area of prices and incomes policy? Is there to be any impartial machinery? No one should minimise the difficulties, but we were making progress: we had a Bill before Parliament. Do the Government intend to set up some impartial machinery, or is there to be a completely uncontrolled incomes and wages rise, with prices booming as well? This was one of their first obligations, but there is not a sign of any action; and time is passing. Have we to wait until the autumn for this? Are they going to do anything about prices? They say that they are going to reduce the burden of taxation. Whatever they do, I hope they will not put any more work on the already overworked Inland Revenue Department.

My Lords, we are promised a new style of government. We suspect that it will be a unique collection of broken pledges. The Opposition were warned of the seriousness of the economic problems facing this country, notwithstanding the strength of our balance of payments. And what are we now going to have? So far as we know, we are to have a return to the 11-plus in the most reactionary areas. The majority of Conservative councils have already moved to comprehensive legislation. We have a hint of an 80 m.p.h. speed limit, which obviously ranks rather high with noble Lords opposite.

Most striking of all, and most irrelevant of all, we are to have commercial radio. What on earth is this going to contribute to the country? What proposal could be more frivolous at the moment, or less becoming to some noble Lords who sit on the Benches opposite? I will not embarrass noble Lords whose opposition to this type of thing I know from the past. What will it do? It will lead to the demise of some local newspapers. Is this another example of Tory freedom? No doubt a number of new companies are being formed—I would not accuse any noble Lords on the Front Bench opposite, although I know that one noble Lord in the past was interested in commercial radio. What is this, as an example of modern style of government, going to do for the country?

My Lords, I deeply regret that these are the only fruits that so far have come out of Tory Government. I shall say nothing to-day on defence and foreign affairs, because on Thursday we shall debate the proposals, such as they may emerge. But I am deeply concerned, not merely about the cost but, from what we have heard, about the damage that some of these proposals may do to Commonwealth relations, which are sufficiently strained at the moment, and we shall probe the Government further on this aspect.

I think it is as well that the new Government are taking a little time to think, but we shall expect their thinking to be better than it seems to have been so far. We have been promised a new style of government. We hope that it will not be just the predictable kind of old-style Toryism—a manner of government which so far is already creating uncertainty, is socially divisible and makes a nonsense of the noble concept of "one nation", about which we have heard from the Prime Minister. My Lords, I can promise noble Lords opposite, consistently with what I said on Thursday last, that we shall look with seriousness at their proposals, but I can also promise them a determined Opposition such as has not been encountered before in your Lordships' House.

3.18 p.m.

THE LORD PRIVY SEAL (EARL JELLICOE)

My Lords, the noble Lord, Lord Shackleton, has favoured us with the comprehensive, comfortable and, on the whole, pleasant and good-humoured speech that one would expect from him. I must confess, however, that there were elements in that speech of what I would term "instant Opposition" and I also thought that at times the noble Lord—if he will forgive me for saying so—tended to take us in a slightly patronising sort of way down rather parochial paths. I shall be answering one or two of the specific questions which the noble Lord put to us, and my noble friend Lord Bessborough will be answering some others when he winds up the debate. But I must confess that in general, listening to the amiable speech of the noble Lord, Lord Shackleton, he almost convinced me, although not quite, that he had almost convinced himself that the last Government had been a smashing success. I do not propose to bandy words with noble Lords opposite as to whether we have inherited the strongest economic position in living memory, or a serious position, or a very serious position, or a crisis. I would prefer to let the facts speak for themselves.

SEVERAL NOBLE LORDS

What are they?

ERAL JELLICOE

I am rather surprised, at the start of what I had intended to be an impartial and good-tempered speech, that the noble Lord, too, is tempted into instant opposition. I would prefer to let the facts speak for themselves; and there are three dominant features which stand out when one surveys the economic scene at the present time. First, while the balance of payments and the position of sterling are strong, there are elements of very real potential difficulty. Secondly, we have gone through a period of only modest economic growth in the domestic economy associated with a very high rate indeed of unemployment by any post-war standards. Thirdly, we are at the same time—and this is the important element—witnessing a very rapid advance indeed in wages and prices, an unhealthy and unusual development in view of the absence of excess demand in the economy as a whole.

Before I deal—and at the start of this long four-day debate I shall necessarily deal in rather general terms—with the strategy which the Government propose to pursue, I should like to assess, as calmly and dispassionately as I can, the significance of these three features. As regards the balance of payments, we can all, and we do, welcome unreservedly the much improved situation of 1969. It was certainly absolutely essential that such an improvement should come, after the unhappy performance of 1967 and 1968. The turn-around is an achievement of which the whole country can be proud, and I should like, at the outset of this debate and at the outset of this Parliament, to pay my tribute to the work of all those who have contributed to this improvement, and not least to those so-called "invisible" exporters—some of them quite visible in your Lordships' House from time to time—who have played such a splendid part in supporting the achievement of our manufacturing exporters. Visible and invisible alike, they can be pretty certain that it will be one of the major concerns of the new Administration to lend all possible support and encouragement to the work they do. In saying that, I should like to pay my tribute to one noble Lord, the noble Lord, Lord Brown, who, I know, in his long period at the Board of Trade, has had these particular interests very much at heart. But we do no service either to their efforts or to the long-term solution of our problems by avoiding reservations which I feel bound to express about the balance-of-payments position and the outlook for the future.

The improvement we have seen owes a great deal to devaluation, for which we have been paying a large price in a number of spheres. There are other elements in the situation to-day—and I am purposely using measured words—which are less than comforting. It can hardly be regarded as entirely comforting that the volume of our export of goods has shown little sign of increase since the third quarter of last year, while at the same time the volume of imports has shown a marked increase. In the latest three months, from March to May, imports by volume were over 3 per cent. higher than in the previous three months, and over 4 per cent. higher than a year earlier, Moreover, the prospect for growth in world trade, vital to our exports, seems to be one of less rapid expansion during the remainder of 1970 than we have been accustomed to in recent months. Thus, even without the longer term threat to our position which must inevitably arise if we have too rapid an inflation in our internal costs—and I will come to that point in a moment—there could certainly be no ground for complacency about our overall situation. And I would not claim for one moment that the last Administration were expressing a tone of complacency, except at times on the hustings.

This is all the more obvious when one turns to consider the very heavy burden of debt repayment which this Government have inherited and which still remains to be discharged. Once again we can all unreservedly welcome the news that the former Chancellor gave in his Budget speech last April, that our short and medium term debts have been scaled down by roughly a half from the forbidding peak of nearly £3,400 million which had been reached at their height at the end of 1968. But the hard fact remains that, even with the further repayments which have taken place since then, a massive total of around £1,500 million sterling of such debt still hangs over us and must be dealt with in the next few years. This is a formidable commitment, with formidable implications for the balance-of-payments position in the future. It means that in our overseas accounts for some time to come we as a nation will have to run very hard indeed just to stand still.

When we turn to the situation in our home economy, we find a position which I think almost everyone would agree is not only unique but also disturbing, a situation in which a very rapid advance in wages and prices, faster in many respects than anything we have experienced for the last twenty years, is combined with a relatively slow rate of economic expansion and with a high level, by historical standards, of unemployment. The past 18 months have been a period of sluggish economic growth. I should not necessarily wish to suggest that the recent improvement in the balance of payments was gained at the cost of a severe setback in the level of economic activity, but it is nevertheless true that there has been a marked slowing up in the rate of growth in recent months and recent years. Following an advance in total output of about 3½ per cent. in 1968, the rate of growth fell to under 2 per cent. in the year up to the second half of 1969. And, moreover, the recently published Estimates of national income and expenditure indicate that, far from continuing the recovery evident in the second half of last year, the advance of the economy was again checked in the first quarter of this year, and indeed it seems that total output has fallen in the first quarter. My Lords, I would not wish to lay undue emphasis on the statistics for a single quarter in sketching the background of our economic position to-day. But it would certainly seem—and I put this as impartially as I can—that the judgment made by the former Chancellor in his Budget Speech last April, that output in the latter half of this year should pick up and grow in time with capacity, from such indicators as we have at present, has not, at least as yet, been sustained by events.

I said at the outset of these remarks—and I make no apology for their rather pedestrian aspect; I believe that the backdrop of our economic position is important—that the third dominant feature of the situation we have inherited is the rapid upward movement of costs and prices. In 1968 and 1969 retail prices in this country increased at an average annual rate of over 5 per cent., and the latest figures for May indicate an increase of 5½ per cent. as compared with May of last year. This year alone prices have risen by over 3½ per cent. in the first five months. Rates of increase of this magnitude sustained over such a long period are, to put it mildly, unusual. There is in fact no parallel at all for this in recent years. The above average rate of increase in 1968 and 1969 is admittedly partly a reflection of the effects of devaluation and the associated measures of indirect taxation which were aimed at restraining personal consumption. But I do not believe that these factors now are any longer really significant. Nor, in view of the current level of activity, can the continuing rapid pace of inflation be attributed to an excessive pressure of demand. It is basically associated with a rapid increase of wages, though an increase in seasonal food prices has admittedly played some part in this.

These, then, are the key problems in the economic field to which the new Administration must turn their attention—a serious bout of inflation, which could in time threaten the hard-won improvement in the balance of payments, coupled with sluggish production. Our objectives, therefore, as was made clear in the gracious Speech, must be to strengthen the economy and to curb that inflation. Success in achieving one of these goals will make it easier to realise the others: for a rampant inflation may reduce that confidence in the prospects for the economy which is needed to secure a higher rate of investment—just what we have lacked in this country, year after year after year—and a more rapid growth in productivity and the standard of living will, on the other hand, make it easier to check rising prices.

There is now mounting a considerable body of evidence of the scale of the wage push (to use that rather technical term) over the past year. In the first quarter of 1970 the average rate of settlements becoming effective was 9½ per cent. more than half as much again as in the corresponding period of last year; and the average for April and May exceeded that of the first quarter. For their part, earnings—and here of course we find a reflection of wage drift on top of the increase in basic wages—were almost 10 per cent. higher in April, 1970, than in April, 1969.

My Lords, in these last five and a half wasted years of Opposition I have had some slight first-hand experience of industry. From that experience I should like to state categorically that the inflationary spiral represented by the cold and rather dull statistics which I have just related are a threat to our whole exporting effort. It threatens to erode the standard of living of our people and our ability to pay our way as a nation in the world. The Government are under no illusions at all about the difficulties which they are likely to face in dealing with the current trend of incomes and prices. Experience demonstrates that the classic type of inflationary pressure arising from excessive demand will yield to orthodox fiscal instruments. But if we are trying impartially to see the economic position we are in at the present time, the point which we must recognise is that our present inflation is not of that type. Although the pressure of demand is higher in manufacturing industry than one might expect from the general level of activity, demand as a whole in this country appears to be running well below capacity.

As I have already said, the pressures are coming from the wages front. There is no doubt that the trade unions are becoming a great deal more militant in their demands, and with real incomes in this country rising so slowly, despite substantial rises in money incomes, it is little wonder that the unions have felt compelled to take action to protect the interests of their members. Nevertheless, it is clearly vital for the country as a whole that we should try to seek a more reasonable relationship between the growth of money incomes and the growth of productivity. The effects of the present inflationary spiral would eventually be felt, and be bound to be expressed in an impact on our balance-of-payments situation.

Of course, I am well aware, as are noble Lords opposite, that inflation is not confined to this country or to any one country, but it would be foolish to rely on the continuation of similar movements abroad. If other countries have a greater degree of success in bringing their price movements under control than we have—and we are not alone in the concern which we feel, as anybody reading the Financial Times this morning will realise from the action taken by the Federal German Government—then the repercussions on our balance of payments are bound to follow the same old dreary consequences of squeeze and freeze and deferred expectations with which we have all become too familiar. I will reject the easy temptation of saying "in the last five-and-a-half years"; we in this country have all become far too familiar with this in the last two decades. In any event, the faster rate of advance in productivity hitherto enjoyed by our competitors means—and this is most serious—that in order to maintain our cost position in the world to-day either our rate of increase in money incomes will have to be lower than that of our main competitors, or the rate of increase in our productivity will have to be accelerated. There is no escape from one of those two conclusions. That, I hope, will sink home in this country.

The sad fact remains that looking at this matter semi-historically—I make no apology for doing so at the outset of this Parliament and of a long debate—unit costs in the United Kingdom in the period since 1963 have shown an increase of 20 per cent., which is appreciably more than in any other industrialised country in the West of which I am aware. This phenomenon, that our unit labour costs are increasing faster than those of our competitors, has not been confined to the period since 1963; it goes back into the 1950s, as the noble Lord, Lord Robens, has reminded us in a series of articles which are appearing in The Times at the present moment. I certainly should like to express my endorsement of the conclusion which that noble Lord has drawn; namely, that the basic solution lies in the direction of stepping up our productivity growth which, as he puts it, can be raised to much greater heights than most people realise or are prepared to admit".

LORD SHACKLETON

My Lords, I am listening with great interest, but I interrupt the noble Earl because I am slightly mystified by one or two things he has said. I entirely agree that a rise in productivity is vital, and in fact there have been some encouraging signs lately of increased productivity. I am referring to productivity and not production. But in view of the noble Earl's remarks, which I do not directly dispute, I am mystified that the fact remains that our export prices, according to the latest Treasury statistical returns, are still as competitive as they were immediately after devaluation. It is important to hold them at that. But the noble Earl gave rather a worse picture in comparison with other countries.

EARL JELLICOE

My Lords, I do not wish to get into a detailed statistical argument with the noble Lord. All I would suggest is that in our export prices there is usually a time lag before the effect of wage increases works fully through; and what concerns me is the fact that this spiral, which is going up, is mounting even more rapidly than it was last year. I think that that is the danger, and it is the danger above all to which I was wishing to draw your Lordships' attention.

LORD CITRINE

My Lords, before the noble Earl leaves that point, would he give us the source of his information as to unit costs?

EARL JELLICOE

My Lords, I must confess that it was derived from Her Majesty's Treasury.

LORD CITRINE

The point is that I do not believe that such data exists.

EARL JELLICOE

Well, perhaps Her Majesty's Treasury, the noble Lord, Lord Shackleton, myself and the noble Lord can go into that matter together and try to get to the bottom of it.

LORD BESWICK

My Lords, the noble Earl made a statement which intrigued us. He said that since 1963 unit costs had gone up more rapidly in this country than in any other country of which he knew in the Western world. That is contrary to what we understand. I am sure the noble Earl did not take a handout at the Treasury. Would he give us the figures on which he bases that statement?

EARL JELLICOE

My Lords, I do not want to back-track in this particular debate. I am quite prepared to, but I really think that this is a matter of statistical argument and I do not wish to weary your Lordships with it.

Casting forward, what I believe we need to do is to create a climate and secure a framework in this country in which enterprise can really flourish. That brings me, in conclusion—I have purposely not wished to speak too long to-day—to the policies which we wish to pursue in Government. I should like to preface my remarks in two ways: first. I shall be speaking here in the general terms which I believe to be appropriate to the start of a new term, with a new head boy and a new body of prefects; secondly, it has been no part of our case against the former Administration that the situation with which we have been confronted on entering power has been one of immediate crisis. The situation is one of very great difficulty indeed in the economy, and it has been no part of our own prospectus, and it is no part of our prospectus, that we have some magic overnight answer to this country's undoubted economic problems. My right honourable friend the Prime Minister has made it clear on a great many occasions since he took office that the style of this Government is to be one of careful thought, followed by considered and deliberate action What we promise is a properly thought out programme of economic reform—not stitched together from gimmick to gimmick—matching deep-seated problems with the strategic remedies which they require.

No one can doubt that the key problem to-day is the problem of inflation. One of the first priorities of this Government—indeed of any Government faced with the situation which I have tried, perhaps very boringly but I have done by best, to describe impartially—must therefore be to bring that inflation within bounds. It will not be easy. It can be accomplished neither by a stroke of a pen in the humble Address nor, indeed, by any single act of policy. But your Lordships can rest assured that we shall take whatever action we judge to be needed to achieve this vital end. In particular, we accept that the Government itself, as the biggest employer in the country, has a duty not only to exhort others to virtue but to set a sensible example in handling its own affairs.

Yet what I want to emphasise perhaps most of all to-day is that no short-term policy, however right or necessary, can succeed unless it forms part of the right long-term strategy. As I see it, the basic task before this incoming Administration—in the economic field at least—is to recreate an economic climate in which people are willing to save and to invest; a climate which restores to us all confidence in the future, which draws out all that effort and enterprise of which we know our people to be capable and which can help to bring about a real and fruitful co-operation between Government, companies and people in facing up to our problems. That is the heart of the economic policies which have been spelled out, time and time again, by Conservative spokesmen during the recent Election campaign, and it is embodied in the Conservative Manifesto on which we fought and, to the surprise of some noble Lords—I think they are still a little surprised—won that Election.

In the same way, it is this strategy which forms the heart of the Queen's Speech which we are debating to-day, and I should like to summarise it in these words. First and foremost, I would declare and reaffirm our intention radically to reform and reduce the burden of taxation in the lifetime of this Parliament. I believe that such reforms and such reductions are essential if we are to release that energy and the spirit of enterprise and initiative which is still latent in the British people. But such changes entail consequences. As the Prime Minister has made clear in another place, the necessary review of public expenditure has already been set in train, and the results will be laid before Parliament in due course. Secondly, we propose to introduce in this Session of the new Parliament—and here I am giving a direct answer to the direct question posed by the noble Lord, Lord Shackleton—a major Bill to establish in this country what already exists in almost all other modern industrialised societies: a fair and up-to-date framework for industrial relations, together with a code of good practice as a guide to all those concerned with these matters in industry, whether on the management or on the union side of the fence.

The main lines of these proposals have been clearly set out in our Election Manifesto, and I do not myself—but I speak here subject to correction by noble Lords, many of them opposite, who have far greater expertise in these fields than I should ever be able to claim—believe that they are nearly as unpopular with the bulk of the trade union movement as some trade union leaders would have us believe. They will, in any event—and I should like to emphasise this—be the subject of the fullest possible discussion and consultation with the representatives of management and unions, and we shall welcome all constructive suggestions in achieving our aims.

Thirdly, the Queen's Speech sets out our plans for a whole range of Government policies to provide a new framework of incentive to British enterprise. For agriculture we propose changes in the system of financial support which we believe are vital if the industry is to have a proper chance to flourish and expand. For industry generally we have stated our intention to review and extend the facilities for industrial training and retraining and for management education; no less important, to free firms from unnecessary interference and intervention from Government and the agencies of Government; and to introduce more effective policies for the the economic and social development of the less prosperous regions, in particular by increasing their economic attractions and improving their amenities and their infrastructure. Taken together, I believe that these and the other policies which we shall develop and lay before your Lordships will go far to help to create the new economic climate of which I have spoken and which I believe it is absolutely necessary that we should create in this country.

My Lords, may I just say, in conclusion, that I believe our first task in order of priorities must be to try to take the virulence out of the inflation which at the present time is gripping and could, if allowed to go unchecked, bedevil our economy. Beyond that, I believe that our task—and indeed I believe it should be the task of any Government in this country—must be to secure for this country what we have failed to secure for the last two decades, and that is swifter and sustained economic growth. I would only remind your Lordships that among the major countries cited in a recent O.E.C.D. Report Britain for the last decade has had much the lowest rate of growth of any industrialised country in the world—and I can say that on this occasion without fear of challenge. It has been a mere 2¾ per cent. per annum against 4 per cent. for the United States, over 4½ per cent. for Germany, over 5½ per cent. for both France and Italy, and over 11 per cent. for the front runner, Japan.

LORD LEATHERLAND

My Lords, I wonder whether the noble Lord would permit me to ask him a question on that point. The noble Lord talks about a 4½ per cent. growth in the United States, but has that not been accompanied by 4½ million unemployed in the United States?

EARL JELLICOE

At times I think it has, yes.

LORD LEATHERLAND

At the present time?

EARL JELLICOE

My Lords, the trouble is that our miserable 2¾ per cent. growth has been accompanied by the highest historic rate of unemployment that we have known in the last two decades.

LORD LEATHERLAND

What is wrong with the United States?

EARL JELLICOE

My Lords, to secure a higher rate of sustained growth must be the aim of any Administration in this country to-day. Without it, as a nation, we cannot do any of the tasks which are crying out for action in the 1970s. We cannot modernise our basic infrastructure. We cannot remove those blots on the industrial landscape left by two industrial revolutions. We cannot do what we should do to preserve and enhance our environment. We cannot deal once and for all with the shame of seedy towns and miserable housing conditions. We cannot remove all those pockets of poverty which stand out like warts on the face of our society. We cannot do any, let alone all, of the tasks in which I believe all political Parties in this country have a common purpose. But, my Lords, more than that, we cannot exert that influence in the world—by and large, that influence for moderation and common sense and civilised dealing—which it is within our potential to exert. We cannot play our full part in contributing to security or in helping to close that ever threatening gap between the richer and the poorer nations.

Finally, I believe that further dangers lurk in the path of this nation unless we can somehow find that clue to sustained growth—the clue which seems to elude us alone among all the industrialised nations of the West. Only ten years ago this country, apart from two exceptions—little Luxembourg and, I think, Sweden—had the enviable distinction of having the highest national income per head in Western Europe. But now we have been overtaken by our closest neighbours. I believe that that is a fact—and it is a sad fact—which has not yet fully sunk into the consciousness of the British people. However, my Lords (and this is a deep conviction which I am now expressing), I believe that unless we can reverse this trend, the truth of what is happening will in fact soon dawn upon the people of this country. I also believe that the realisation, when it comes, of our continued poor national performance could in the long term breed profound discontent in this country, and with it very serious consequences indeed to the health of our society as we know it to-day.

For far too long this country has been in the grip of a vicious circle of high taxation, inflation, restriction and consequent frustration. The new Government's prime task, as I see it, is to break out of that circle and to try to establish in its place—and, Heaven knows! this is going to be difficult—a more "virtuous circle" in which, by reducing taxation and releasing the forces of economic vigour, we can generate the resources for faster growth and social advance. It is the aim of this Administration, in the economic as in other spheres, to help to get this country firing properly in all its cylinders. Whatever our political differences in your Lordships' house, I am sure that that, at least, is an aim which will commend itself to all parts of your Lordships' House.

3.53 p.m.

LORD BYERS

My Lords, I am sure that the noble Earl, Lord Jellicoe, will not accuse those of us on these Benches of instant opposition—permanent perhaps, but not instant. I was glad to hear from him that there is no immediate crisis. If I may say so, that is a different message from the one that came from that quarter in the last three days of the General Election. What the noble Earl has done for me is to confirm the economic case and analysis which we consistently put forward throughout the Election. We shall look forward to examining the policies which are brought before the House by the Government, to see how far they can deal with the situation as the noble Earl has described it. I think we have made some progress, at least, by getting a proper intelligent analysis of what really is wrong with the economy.

During the course of the Election it became clear that the phrase "the national economy" was being used in far too many different senses to permit a reasonable discussion, and we tried to get discussion going during the Election because it is vital that there should be a proper understanding of it. To Mr. Wilson, "the national economy" meant the balance of payments, but the balance of payments was only one feature of the economy, as the noble Earl has quite rightly said to-day. Mr. Richard Crossman, who always tells the truth in the most embarrassing way, let it be known that the economy was not really strong enough to find the money for the full award to the doctors. I think he was probably right, if one is talking about the strength of the economy in that sense. To Mr. Heath, the trade figures which were published towards the end of the Election implied an economic emergency and the suggestion of a possibility of devaluation, which to my mind has by no means been borne out by what the noble Earl, Lord Jellicoe, has told us to-day. That implication had a very damaging effect on the two Parties who were opposing the Conservatives at the Election.

I do not want to make this into a Party political speech. As we saw it—and this has been confirmed by the noble Earl—the truth was that the balance of payments was in substantial surplus, but economic growth was virtually nonexistent, and wage increases, largely unrelated to productivity, were bound to increase costs which might well price us out of a number of export markets, thus making an attack on the balance of payments and eroding it over a period of months. That was the analysis which we made and we brought forward solutions in order to deal with the situation.

I believe that the whole key here is: how do you get economic growth? It is not merely a matter of the last eighteen months; it is not a matter of the last decade. Relative to other countries, this is something which has been going on since 1951. In that year we were number two in the growth league of the industrialised countries, and the United States was at the top. In 1969 we were second from the bottom, Italy being at the bottom—she was at the bottom in 1951—and the United States was still at the top. This problem has been with us throughout the last 20 years and we have to get to grips with it.

The second misunderstanding of the position of the economy has been repeated by both the Government and the Opposition on numerous occasions, and it is exemplified by the way in which this week's debates have been arranged—today, economics; to-morrow, industrial relations. In his analysis, the noble Earl, Lord Jellicoe, gave the lie to this, because we must understand that half the battle for economic growth and greater productivity rests with the ability to solve the problems of industrial relations.

LORD BROWN

My Lords, may I interrupt the noble Lord? The noble Earl, Lord Jellicoe, and the noble Lord, Lord Byers, have both commented on our relative increase in production without making any reference to a fact which is very seldom mentioned; that is, that the countries with which they are comparing us all have large residues of population left in agriculture and are importing labour on a wide scale, whereas we are able to do nothing. The failure to refer to that fact puts this country's efforts in a much worse light than it should be.

LORD BYERS

My Lords, I do not agree with the noble Lord. That is one point of special pleading, but it is no use trying to hide this problem. We are not geting economic growth. Any number of statistics can be used—and the noble Lord has a first-class record in industrial relations for geting people to increase productivity. What I do not want to go out from this House is a statement from him implying that we are quite satisfied and smug and complacent about the economic growth that we are achieving.

LORD BROWN

Nor do I.

LORD BYERS

If we want to import more labour, why do we not do so? We are keeping people out at the moment. The point I want to make is that the questions of economic growth and industrial relations are so interdependent that we really must look at them together. That is why, as noble Lords know, we have consistently put forward from these Benches a comprehensive policy on the economy which is aimed at achieving economic growth, partly by better industrial relations and partly by a fair wage system.

I do not want to minimise fiscal policies and confidence which industry can have—investment policies and so on—but to my mind it is absolute folly to think that you can improve industrial relations by legislation aimed against the unions. That is not the way to get better industrial relations in this country. We shall study with great interest the proposals which the Government bring forward, and they will be bitterly opposed if they merely take the form of legislation to take people to court if there are industrial strikes. We have to provide a system in which there are incentives to get efficiency and productivity, disincentives to strike, and incentives to management for more meaningful capital investment.

EARL JELLICOE

My Lords, I hesitate to interrupt the noble Lord, Lord Byers, because with a great deal of what he is saying I agree. But I credit him with having read our proposals on industrial relations and, if he has done so, he must realise that it is a travesty to say that they are merely a question of taking people to court because of a breach of an industrial contract. The noble Lord must realise that.

LORD BYERS

I did not say that, my Lords. I said that if they are they will be bitterly opposed. But let us hope that they are not. This is a warning shot across the bows; because I do not believe that that is the way to handle industrial relations.

I believe that if we are to try to check inflation, and to get some sort of price stability, there are certain things that have to be done; and some of them are fairly revolutionary. So far as inflation is concerned, I am sure we have to get rid of nation-wide trade union bargains which are unrelated to productivity. This ought to be done by subjecting these nation-wide agreements to the approval of the Restrictive Trade Practices Court, just as other, much less dangerous, restrictive trade practices are to-day. It is quite a simple thing to do, and I believe that it would have a very big effect on the inflationary situation in this country. Wage bargains must surely be struck, not at a national level, but at plant level, where productivity and merit can really be assessed.

Secondly, there is the need for a revolutionary improvement in communications within companies and organisations, by the creation in all firms over a certain size of statutory works councils or committees on which all sections of workers and management can be represented, and where wage negotiations can be carried on with all unions at once, as they did in the SOGAT dispute—the newspaper strike in Fleet Street—to avoid the bedevilment of leapfrogging. This is something that should be done, and it should be accompanied by much more information to the workers. There is no reason why a great deal more information should not be given. But if such a scheme is to work then it will need a great deal of training of management, and of workers and staff, in the practices of negotiation, in the practices of communication and so on. This, I believe, could be a tremendously fruitful field in which we could operate.

Thirdly, people must be given an incentive to work hard for high earnings, and an incentive not to strike. I do not believe that this can be left to the good will of the employers, although in my own view self-interest itself should dictate that this is the line which it follows. The proposals will have to be either mandatory or achieved by tax incentives; and I believe we should look at the experience of France, Germany and Yugoslavia to find suitable forms of profit-sharing and share-ownership schemes to help those engaged in the enterprise to have a financial stake in its profitability. If they have a stake in its profitability, they have an interest in making the enterprise profitable.

I was remarkably interested the other day, when I went over to attend a board meeting (I am not a member of the board, but I attended the meeting) in France and met the workers' representatives who sit on the board. A decision had been made to double the capacity of the plant. The company has a compulsory profit-sharing scheme, and the workers' representatives on the board brought a message from the workers to say that they were glad indeed that the plant was to be expanded and that they did not mind putting off their share of the profits for two to three years: they were glad to be in an industry which was forward-looking and going ahead. The attitude to work in this plant is absolutely different from that in an identical plant in this country.

The number of days lost by strikes in France is much smaller than in this country at the present time, and I believe that there is a lot to be learnt. I am not suggesting that we should just adopt the French system: what I am saying is that we must find ways of associating people with the profitability of enterprise, so that they can be taken into the confidence of those running the enterprise to make it profitable. I believe that these are the ways in which we shall secure long-term growth in the economy, by tackling the very basis upon which people work in industry.

Immediately, I hope the Government will have a look at some of the other proposals which we in the Liberal Party have put forward for a number of years. In my view, there s a strong case for telling the nationalised industries to look to the market for capital which they may need for expansion, instead of to the Government. I believe that there is a case for looking again at tolls for the road programme, and for having a revolving fund such as was suggested almost 40 years ago. You can get money for expansion if you have a guaranteed income coming in.

Then a great deal more must be done to reallocate resources of manpower by imaginative re-training schemes. The emphasis must be on re-training, and I am glad to see that mentioned in the gracious Speech. I believe that our re-training facilities at the moment handle about 20,000 people. This is ludicrous for a population of our size, and with an unemployment problem such as we have at present. What we want is to have about a quarter of a million people being re-trained and encouraged to go to the growth industries, the export industries, the industries where they can make a great contribution.

I think we have to ensure less protection for industries, by selective tariff cuts and by revising our import policy—for instance, coal imports. I can see no reason why we should be keeping coal imports out at the present time. I believe that we need to strengthen anti-monopoly measures if we are to keep down prices. We must also try to get the whole idea of devaluation as a weapon out of our armoury. I hope that the Government will examine the proposals, which were put forward in the Election and which have been put forward by us before, to have not a fixed exchange rate but a floating exchange rate. This is working in one or two parts of the world, and it is something which I believe the Treasury ought to study.

I am surprised that we have had no reference at all to the effect which an American recession might have on the economy of this country, and I hope that at some time a considered statement may be made as to where we stand in relation to what the Government believe is going to happen in the United States. Many decisions on such things as capital raising, capital investment, and all the rest of it, depend very largely on industry's having confidence in the Government's policy. That is why I hope that it will not be too long before we get a comprehensive view of what the Government are going to do and what advice they will give to industry about reflation, capital investment and so on. We shall not be a Party of instant opposition: we shall indeed be critical, but it will at all times be constructive criticism.

4.7 p.m.

THE EARL OF DUDLEY

My Lords, this is an awe-inspiring place, and it is a frightening experience to speak here for the first time, especially when the thought of it has robbed one of sleep. So I hope noble Lords will be indulgent if I speak slowly on a complicated subject. My Lords, the economy of this country must get air-borne. It must cease resembling the jumbo jet—grounded un-profitably by a strike of air crews. As noble Lords have heard, Britain has a balance-of-payments surplus after devaluation, but monetary restraint and financial stringency have led to a stagnant economy and to excessive unemployment. If the Government were to follow the traditional policy, they would now reflate, unemployment would decline and the economy would get some uplift; but home demand would rise still further, imports would grow and the trade balance would deteriorate, calling for corrective action again from the Government. Jumbo would soon be back on the runway, with a thump!

My Lords, I have read with interest the Study of the Economic Research Council, and while I agree with most of it I do not agree with their views about the helplessness of Government when faced with the trade cycle. On the contrary, to break out of this familiar cycle the Government must make it their first priority to protect our trade surplus and to repay our external debts. Here, my Lords, I must take issue with the noble Earl the Lord Privy Seal, because I believe that our debts are still very much higher than he indicated. I think the Lord Privy Seal, in his figure of £1,600 million, was referring to drawings from the I.M.F. and to short-term debts owed to the Central Banks of the United States and other countries, and was excluding the original North American loan borrowed in 1945–46 in dollars—and because it was borrowed in dollars it still stands, after two devaluations, at £1,600 million. Whatever the figures are, there is a substantial sum to repay within, in my opinion, five to seven years—and it will not be £1,500 million but nearer £2,000 million. It is clear that the Government must ensure a substantial surplus on external account: in my opinion at least £300 million to £400 million per annum. To have less conscience about repaying our debts to the United States and to other countries than about selling arms to South Africa or finding subsidies from borrowed money for underdeveloped countries is the economics of the Mad Hatter's tea party, a throw back to the Boston tea party.

After twenty-five years of "boom or bust", the nation is tired of playing Sisyphus. Since 1967 we have rolled the rock about half way up the hill and we must ensure that it does not once again come crashing down on our heads. To prevent this the Government must be careful about how much money is released to personal income through reduced taxation. I agree with the Minister that tax reductions can be made and I expect them to be matched by a growth in personal savings. From 1951 to 1964 personal savings rose by an annual average of 17.4 per cent. In current monetary terms this means £400 million per annum, balancing the amount we require on external account and equivalent to over one shilling off income tax in any year. There is the precedent; but to repeat it would require vigorous promotion. I pay tribute to the late Lord Mackintosh of Halifax for his outstanding achievement when faced with the same problem.

To pay our way we must have increased productivity. I must remind noble Lords that increased productivity comes only marginally from extra effort or extra hours' working; it comes in the main from the amount of money invested per capita of working population. It is totally illogical to look for increased investment in industry—and especially in labour-intensive industries—in the present industrial climate of trade disputes and strikes. This is an international problem as well as a national one, but we are here to-day considering our economy. I look to the Government to negotiate, I look to the managements and unions to co-operate, and I look to the Government and the T.U.C. to work together to reduce unofficial strikes and stoppages. I am sure that a great deal can be achieved by good will and negotiations. But if this hope is not fulfilled, and if we are to have action before peace, let us have it soon and get it behind us. It is not reasonable for the economy that we should live in this state of flux. Industrial peace is essential if we are to increase productivity in the private sector.

The productive capacity of manufacturing industry has been almost static since 1961—an intolerable situation in the light of our need for an expanding economy. To correct the situation will cost money. I estimate that an additional £500 million annually must be channelled into investment in the private sector. That represents an increase of 15 per cent. over the present level of capital formation in the sector, excluding dwellings. It is also necessary that we do something for the people in regard to rising prices. Here I should like to suggest that we reduce corporation tax by 9 per cent., from 45 per cent. to 36 per cent. That would give industry room to manæuvre and would cost about £340 million per annum. To offset that, it would be possible to cut the investment grant from 20 per cent. to 10 per cent., which would save from £300 million to £350 million. I believe that a substantial reduction in corporation tax will enable us to bring prices quickly under control and also help the market in rights issues. That would be more helpful to industry in planning for growth than the higher rate of investment grant.

My Lords, I have spoken in this debate because of the anxiety with which I view the problems which face the country and the Government. For a quarter of a century, half the span of my lifetime, I have seen the people of this country turn from one Party to another in dismay according to their disappointment over the past or expectations for the future. As a supporter of the Government, I should like to believe that on this occasion the people's hopes will not again remain unfulfilled.

4.17 p.m.

LORD ROBBINS

My Lords, I imagine that from all quarters of the House there would be the wish that I should congratulate the noble Earl, Lord Dudley, on the lucidity and the robust intrepidity with which he faced the excruciating ordeal of a first speech in your Lordships' House. If those anxious small hours of the morning to which he alluded were due to any apprehensions on that score I can assure him that they were unnecessary. He has given us ample food for thought, and I am sure that your Lordships will all join with me in hoping that we shall soon hear from him again.

My Lords, I must begin my observations with an apology to noble Lords in general and to those coming immediately after me on the list—and particularly to the noble Lord, Lord Balogh—for having to leave this place on a humble public duty, fixed many months ago, where I have to preside and where cancellation of that duty would be impossible. I am deeply grateful to the Government Whips for giving me this opportunity at this early stage in the debate for my few brief observations.

The subject of to-day's debate raises questions relating both to the past and to the future, both to what has happened and to what may happen. As regards the past, as a Cross-Bencher I profoundly desire to avoid Party recriminations, I do not think that such recriminations help much in understanding the difficult problems with which we are faced. But I do believe that there have been errors in the pas t on both sides, and I think that there is some purpose to be served in attempting to draw some lessons therefrom. I have three such lessons particularly in mind. Thus the first: if we go back to the years before the late Administration took over, I think it is clear from that experience that, if there is any danger to the balance of payments, to make a dash for freedom in the hope that an increased production will take you over the hump is very dangerous indeed. I do not question the good will of the policies of that period, but, equally, I do not doubt that these policies did leave an extremely difficult problem to those who inherited them. Perhaps it was talked about too much, but that is another story.

My second point is that if you inherit a balance of payments problem, if you do not intend to devalue you must make sure that your internal policies are sufficiently tough to restore the position at the old rate of exchange. I still think that in 1964 there was no need to devalue, and I respect the motives which led to the decision at that time to retain the old parity. But I also think that until 1966, when it was certainly getting very late, the policies adopted were very inadequate for that purpose. In 1966 things were different. I think the policies then adopted might have been adequate had it not been for considerable external bad luck and eventually the shipping strike—one of the very few strikes in my lifetime which can be said to have done really serious damage to the economy.

Thirdly, once you have decided to devalue, as we did in 1967, you cannot afford to delay for more than a few days or weeks the stiffening of fiscal and monetary policy which is necessary if the devalued exchange is not itself to be an aggravating factor. This especially, my Lords, if you tell the public that the money in its pocket has not lost any power to purchase. I think that the delay from December of that year until the normal Budget time, the delay of appropriate tax policies, was a mistake; still more the failure at once to impose strict control on the supply of money. After that, however, not perhaps without some tactful prodding from the authorities at the I.M.F., the correct medicine was administered; and I think Mr. Jenkins and his colleagues in the late Government might indeed claim considerable credit for vindicating expectations emanating from elementary economic theory. We are not out of the wood yet, my Lords, not by any means; but certainly some progress has been made.

Turning from the lessons of the past to the prospects of the future, I see two sets of problems; connected perhaps, but sufficiently distinct to be capable of disentanglement; problems of general financial policy and problems of immediate action. As regards general policy, I have little doubt that some of the measures of recent years have left the tax system in a terrible mess—S.E.T., capital gains tax, corporation profits tax. Frankly, my Lords, S.E.T. is a monstrosity with its absurd discriminations. Only a mind insulated from reality by a very amiable disposition to excessive intellectual acrobatics could have thought of it. I hasten to add that I hope that the Chancellor in one of his more Messianic moods will not try to remedy things by simple repeal; releasing some hundreds of millions of pounds of additional purchasing power. Better, I suggest, for the time being to turn it into an overall payroll tax, without exceptions and capable of rapid adjustment up and down to meet the needs of the changing situation. Better, at any rate, until we know what we have to do if we succeed in getting into the Common Market.

To the capital gains tax, my Lords, I have no objection whatever in principle; but while it remains without an index number provision then in times of inflation it is, inter alia, an annual capital levy, with all the disincentive to saving and prudence which that sort of tax implies. You put your money into equities; the price level rises 10 per cent., and the price level of equities may rise 10 per cent. or it may not. But if it does then, to and behold! you are taxed—although the real value of your capital has remained constant. Why Mr. Callaghan, who is a humane and honourable man, should have countenanced such an anomaly in his measure passes my comprehension.

As to the corporation profits tax, perhaps the least said the better. I learned my public finance from a great teacher of economics, not popular on this side of the House, the late Hugh Dalton. He taught me that taxes on company profits, as distinct from taxes on individual incomes, were both inequitable and uneconomic. I think it was a great pity that, at a time when in other parts of the world people were getting tired of this sort of thing, we should have landed ourselves with this thoroughly reactionary measure which will take years and years to unscramble.

Then, my Lords, beyond all the troubles created by particular measures there is the general problem of the very considerable disincentive created by the excessive weight of marginal taxation of incomes. I know that the existence of such a disincentive effect is disputed—and I do not need to be reminded that some of the finest work in the world is completely uninfluenced by pecuniary considerations. But I know, too, that the impulses of many ordinary men and women are so influenced, and I think that it is wisdom to legislate for a community of middling motivation rather than for a community of Franciscan idealists. We should all agree, surely, that a marginal tax rate of 20s. in the pound would have a dampening effect upon effort. Why should the dampening effect cease if it. is 19s. or 18s. 6d.? I suggest that something ought to be done about this; and in my judgment it would be a good thing if it were laid down that rates should be such that no man should be penalised by the loss of more than, let us say, 50 per cent. of his income. But all such changes of general policy need time and prudence.

Meanwhile, the present situation, if not immediately catastrophic (and I agree with noble Lords on the Opposition Benches that it is not yet catastrophic), is—and here I agree with the noble Earl, Lord Jellicoe—sufficiently disturbing. In recent months the income inflation in this country has been at the rate of something in the neighbourhood of 10 per cent., against a growth rate which just recently has not been very much above zero. This situation simply must not continue. And it is no use trying to shrug it off by saying that other countries also are inflating. I doubt very much whether many are inflating so much against so small a growth rate, and if they are not then it is only a matter of time—it may be some time; I hope it is—before we have further external difficulties. But even if we are all going up at the same rate, the fact of absolute, as distinct from relative, inflation would still be incompatible with distributive justice and economic stability.

As regards distributive justice, inflation means that all with fixed incomes are penalised: pensioners, owners of Government and fixed-interest bearing securities, all whose salaries or wages are adjusted only at long intervals. I know it is sometimes said that this can all be put right by more frequent adjusting. Very well. But, if that is said, let us not forget that the adjustment, to be just, must be continuous; and if the adjustment is continuous, the inflation loses all its stimulus. If all incomes and prices go up together, the net effect is just like adding noughts to all the figures in the account books, or altering the accounting from, shall we say, Arabic to Roman numerals. As to stability—I say it without exaggeration—if this sort of thing gathers momentum, I do not see how it can be stopped without shocks to expectations which may have very serious consequences. Our whole system is getting geared up to ion-stop inflation—witness the present level of interest rates. Do we really think that eliminating this is something that can be done without trouble?

What then are we to do? I should have thought that another wage freeze was not "on", at any rate for the time being. A large section of opinion, some of which I respect, still clings to the idea of a permanent incomes policy—P.I.B. for ever. I confess to doubts about this. Of course there must be a public incomes policy, otherwise the Government, as employer, is not discharging its duty in that respect. If the Government is not willing occasionally to say, "Thus far shalt thou go and no farther", what are we to expect of employers in the private sector? I submit that we have seen the disadvantages of this quite often recently.

But elsewhere, outside the public sector, throughout the rest of the economy, it is not at all clear to me that long-run success is to be expected from this sort of policy. Indeed, my fear is that the remedy may prove as bad as the disease. I doubt very much—I say it with trepidation—whether in recent years the P.I.B. did very much to restrain inflation. I would go further and say that I suspect that the setting of norms, so-called, may in fact have made things worse and prompted claims that might otherwise have been more moderate. This may be the reason why the so-called Phillips point seems to have shifted upwards. Anyway, it is clear to me that, as a permanent long-run policy, control of prices and incomes from the centre can work effectively only with much more interference with individual liberty, and much more control from the centre than the majority of this people are as yet prepared to put up with. I find it a significant circumstance that the resistance to this idea comes quite as much from the majority of moderate and helpful trade union leaders as from any who might be farther to the Left.

Whatever emergency measures may be forced upon us—and we are moving in very unknown waters at the moment—in my judgment the time has come to return fundamentally to the original conception of stabilisation policy. Agreed that the Government has a duty to provide against deflation and mass unemployment. We all agree about that. But it should also be agreed that it has no duty to provide the money to finance inflation. It must not be committed to a full employment policy, whatever the demands on the gross national product may be in the shape of claims for increased incomes. That way lies eventual hyper-inflation.

The Government should be prepared to say to all concerned, "We undertake, either by fiscal means or by monetary means "—and I am an eclectic in this respect—" to endeavour to maintain such a volume of aggregate demand as will sustain reasonably high employment at income rates rising with productivity; but, beyond that, we are not prepared to provide the money. This is the point at which you, individuals and organisations with dispersed initiative, must choose. It is not for us—the Government—to be forced into steps which lower the value of money and penalise all with fixed incomes".

Some may say that this is an impossible conception for a modern democratic community. I agree that so far since the war there has been very little on these lines, under any Government, at any rate in this country. But consider the alternatives: either total control of incomes, leading to a good deal of control of almost everything, or continuing inflation and all that that implies. My Lords, I suggest that we have to talk this out in a grown-up way, and I have yet to be convinced that among this people, if such talk takes place, reason and persuasion have not some chance in the end.

Meanwhile, in conclusion, may I venture to express the hope that the Chancellor will eschew the siren voices suggesting yet a further stimulus to aggregate demand while incomes are still rising faster than productivity. It may be that the income inflation has gone so far that a total and immediate application of the brakes would be unwise. There are grave international liquidity problems hovering around. But let no one think that in our present position the utmost prudence is not necessary when contemplating this kind of stimulus. It is often said—it is a commonplace of uninformed discussion—that if only production is stimulated enough, nothing more is needed. In my opinion, my Lords, this is just wishful thinking. I agree, of course, that if production could be so increased as to bridge the gap between a 10 per cent. increase of incomes and, say, a one per cent. rate of growth, this would be all right. But does any serious-minded person think that that is immediately possible? How agreeable it would be for us all if things were as simple as that!

4.40 p.m.

LORD BALOGH

My Lords, I should like to join the noble Lord, Lord Robbins, in congratulating the noble Earl, Lord Dudley, on his remarkable maiden speech. I hope to hear him often in the future, because I shall on those occasions perhaps contradict him, which I will not do to-day. I should like also to congratulate the noble Earl, Lord Jellicoe, on his appointment, and to assure him that his first tutorial went reasonably well. I want to reflect on Lord Robbins's—I almost said Professor Robbins's—speech by saying that it was agreeable to see that he wanted to abolish roughly £2,500 million worth of taxation and have no inflation. Perhaps the noble Earl, Lord Bessborough, who is to wind up the debate, will explain how that is to be done, because of course it is part and parcel of the Tory Manifesto.

My noble friend and Leader admirably conformed to the commands of etiquette, so I thought that I need not waste any time on those but proceed to the matters in hand. Before I do so, however, I should like to say—and this is not a matter of etiquette—how impressed I was with the economic sentiments expressed by the noble Lord, Lord O'Neill of the Maine. It was the late Lord Keynes who said that politicians are inspired by the scribblings of defunct economists. I, for one, have not had that experience. It is hard facts that make politicians move, and economists follow at some considerable distance afterwards. The hard facts of Ulster have softened the noble Lord, Lord O'Neill, to State intervention. He has been taught the hard way. I hope, for our own sake—but I must confess that I do not trust—that the education of the new Ministers will be more expeditious and perhaps less painful.

I intend to deal first of all with the events of the past which brought us to to this gracious Speech, and to go on to the problems which we are facing in the future. I have no complaint to make about the line which the noble Earl, Lord Jellicoe, took during the Election. As one would expect he sailed under his true colours: the flag of laissez-faire, the Jolly Roger, skull and crossbones and all. That was honest. One might disagree with him and one may think that the tactics employed by some of his comrades were loss honest; but he openly declared himself. His diagnosis of our problems is not dissimilar to mine, though I differ with his appreciation of the present and, of course, of the period to come.

But what should one think of those Members of your Lordships' House who skulk on the Cross-Benches, only to dart out from the ivory tower to deliver themselves of crassly partisan political nonsense, shyly wrapped in the white garments of a neutral vestal virgin? There is something distasteful in the spectacle. Take, for instance, the noble Earl, Lord Cromer. He must be congratulated on having achieved the remarkable feat of producing a violently politically slanted rhetorical—or should I say theatrical?—and literary intervention which for a long time to come will be a teaching aid, a text to facilitate both essay writing and examination setting, by containing in the most compressed form possible mistakes, confusions and fallacies to which this admittedly complicated and complex problem can lend itself.

The noble Earl confused stocks, such as total British capital and debts abroad, with flows. He attributed special merits to invisible earnings, though they are still much less than half of visible exports; he assigned to visibles a Socialist blemish (I did not know that we had socialised the export trade), while lauding invisibles as the true mark of respectable private profit-making. I think that some industrialists on the opposite Benches, if they could understand at all what the noble Earl was driving at, might perhaps take a different line. He further con- founded the so-called net adverse balance with the total liquidity balance; and confused the gross liquidity balance with the net change of the net liquidity balance. If I were a better logician, I could certainly find some more pearls, statistical mistakes and analytical fallacies. The noble Earl, for instance, seems to believe that private "hot" money is less unstable than money borrowed from central banks, an error of judgment which Montagu Norman, or his old friend Schacht, would not have committed. I am very sorry to see that the noble Earl, Lord Jellicoe, who otherwise is a most sensible man, has fallen for the same mistake. I think, on the whole, that the noble Earl, Lord Cromer, would be well advised if it: is the truth he is after, to change his statistical clerk.

There is, however, perhaps just a small chance that the noble Earl was not after pure knowledge. We have it on the high authority of the political editor of The Times that Lord Cromer, in his acute sensibility, was weighed down with the problem of the propriety of attacking a Government that he had served, fortunately only for 18 months. I seem to remember no such reticence, and at any rate one might regard the period of quiescence, if any, as a sort of preparation for an alibi of impartiality.

However that may be, he did not seem to have been so coy in broadcasting his views in the middle of the Election campaign when he could inflict the maximum possible damage on the Government. His intervention, indeed, might be likened, both in the authenticity of its contents and in its aim and its effect, to the so-called Zinoviev Letter—though the noble Earl is not at all like Zinoviev. This Election might well be called in the future the "Cromer Election"—which should give him some satisfaction at having carved out a niche of immortality not given to many.

As he was the Governor abetting Mr. Maudling in unloosening the tremendous upsurging demand in 1963–64 of which the noble Lord, Lord Robbins, spoke, and which led to the maximum deficit for which we had to borrow so much; as he was the Governor who staunchly opposed every single device for limiting that deficit under the Labour Government, except of course unemployment at home; as he was so staunchly opposed to devaluation, which had become necessary as a result of the inflation he engendered, it is indeed fitting that his commemoration should take this form. It is to be hoped, however, that after this contretemps Labour Chancellors will adopt and generalise the very sensible policy of the present Prime Minister, of removing, if not sacking, all important civil servants in his entourage.

There is another case—that of the noble Lord, Lord Kindersley. We had ample proof of his economic erudition on the occasion of his evidence to the Tribunal on the bank rate leak. His recent contribution to economics, which played an equally important role in the Election, might well be called a concoction of bad methodology, fallacious or misleading statistics, and bamboozling assertions, confounded with an incomprehensible delight in giving advice which must inevitably lead to a further twist in the inflationary spiral, the cure of which is the first economic priority in the gracious Speech. But, of course, such of his Committee members as knew anything about this affair are almost directly interested in the maximum possible increase in the salaries of the doctors because their own income is dependent on it. Their anticipation of an unchecked further inflation, implied in the award, will haunt this Government, so eager in cutting Government expenditure and in keeping down public prices and charges. As the Business News section of The Times has shown, the proof that the doctors' pay lagged behind was based on assertion rather than analysis. Only the actuaries' salary structure could be compared to that of the doctors, and it was not possible to make a comparison because of the different structure of their profession.

Both the solicitors and university teachers, as we have seen in the Press in the past few days, have already used the Kindersley Report to ask, like Oliver Twist, for more. Altogether, their conclusions are based on an erroneous interpretation of the Pilkington Report, which itself has been made obsolete by the previous general report of the Review Body, and they choose completely to ignore that. Their assertion that the load on doctors has increased is not true. On the other hand, the shortage of doctors has been due to the lamentable Willink Report, and the steps which the last Tory Government took in following it and limiting admissions to medical schools.

So far as emigration is concerned, there is not a shred of evidence adduced to prove that the older, higher paid doctors are migrating. Moreover, apart from a very limited number of famous specialists, who can get professorships and thus quickly establish a good practice, the workaday consultant, without any publications to his credit, would find it exceedingly difficult to transfer at equal advantage to the United States, and far less advantageous to go to Australia or New Zealand. So far as the younger ones are concerned, their interest is as much, if not more, in having more hope of a consultant position which depends on there being more consultancies, rather than on higher pay. The Review Body, even though they based their calculations on probable life earnings, completely ignored this possibility.

On any account even the concessions made by the late Government were excessive, and very likely to push the vicious inflationary spiral into a further gyration. What the present Government will do, I shudder to think. Nothing shows more crassly the need for a unified treatment of income—price problems in both the private and public sectors, and not only in the public sector, as this lamentable lapse. The attitude of instant opposition violently expressed by the friends of the noble Lord opposite will indeed haunt them and damage the country.

My Lords, having dealt with an important if not very attractive aspect of the past, I now turn to the central problem of the future. The noble Lord, the Leader of the Opposition in this House, has pursued a number of topics of great importance, such as regional policy, and policy with respect to the Civil Service, on which he speaks with unparalleled authority, and I am not going to follow him. He has left me, therefore, to concentrate on one single, essential point. The main problem now, as it was yesterday, and the days before yesterday, back to 1921 or, in a sense, 1885, is the tendency of British costs and prices to exceed foreign ones. This induced periodic crises, some four in the inter-war period and eight since the war. Consequently, the monetary and fiscal brake had to be jammed on, investment fell and consumption stagnated, unemployment rose, yet inflation continued.

When the noble Earl, Lord Jellicoe, speaks on high unemployment may I remind him that a Professor Paish—a close adviser to the Tory Shadow Cabinet—thought that 5 per cent. would be needed to attain stability of the sort which the noble Lord, Lord Robbins, advocates. I agree with Lord Jellicoe that the problem of inflation is very serious, but I do not think he has brought a shred of evidence to this House that they have mastered it, or that they know where they are going.

The noble Earl, Lord Jellicoe, picked his figures rather carefully—not explaining, for instance, the upsurge in 1964, how it was done, and at what cost—but the post-war performance has been far better than the inter-war misery or even the record of the oppulent, tasteless and pretentious Edwardian period. It was wholly insufficient to satisfy the growing expectations of the people of this country such as were recently expressed on television, especially in the Tory political television contributions. When the noble Earl, Lord Jellicoe, declares that by setting free industry, commerce and finance we shall get over our difficulties, I can only reply that history does not bear him out. I am delighted to hear that the noble Lord, Lord Robbins, agrees with me with regard to how a dash for freedom might be a dash into the abyss. I do not agree with these new Whiggish laissez-faire attitudes which the Tory Party have found themselves in since 1950. I back Joe Chamberlain, not Asquith, in this matter. We had Free Trade, we had laissez-faire untrammelled by the Welfare State. The consequences were there for all to see.

The rate of increase in the first decade of this century was one half of 1 per cent., a fifth of the figure quoted by the noble Earl. The rate of increase in the inter-war period was rniniscule—far less than was attained after the war. Under this new régime, which noble Lords opposite wish to introduce, Britain had lost its lead in the old industries and was never able to create a single new industry. The latter grew up after Protection was introduced and the Bank of England undertook the sort of intervention which the much-maligned I.R.C. is undertaking now. The I.R.C. undertook it in very much more timid fashion than Montagu Norman Where is the company for industry? Where are all the holding companies which intervened and rationalised the shipping industry before the war? The Bank of England did it. I must confess I had never in my life dreamt that I should extol in earnest, to a Government which governs the country in 1970, the late Montagu Norman as an example of Socialist intervention.

Now it is possible that the Labour Government made mistakes. I will not say that I have not made mistakes—certainly I have made mistakes, and everybody does so. The greatest mistake was that we abandoned the prices and incomes policy. The sort of measure which noble Lords opposite are advocating now will not lead to the benefits which we all wish to share. We all wish to have a better life; we all wish to have more resources. It may be we wish to distribute them a little differently, but the basic aim of more: resources is shared by the two great Parties, I think even by the Liberals—though I must say that when I heard the noble Lord, Lord Byers, I found that he does not want to live in this century but to go back to the last century. The sort of measures now advocated will do nothing to further a solution of our problems Strikes are the result, not the consequence, of the basic problem of the failure to maintain our competitiveness.

It is possible to imagine the deep calling to the deep: Ministers whispering to the industrialists so that they will not be heard on the other side of the negotiating table, saying that they should not grant wage increases, even though the granting of wage increases is individually and personally more profitable to the management than to have a strike. It may be it will be so. I very much doubt it. I doubt whether they will be successful without causing deep recession. In this respect, two facts speak very clearly. You only have to look—of course you must be outward looking. Just look at the poor man Nixon, transfixed on the dilemma between inflation and unemployment, having 5½ or 6 million unemployed five months before an election.

The root of our trouble lies in the fact that we no longer live in a competitive world. A Maudling dash will not lead to an improvement in the matter; it will lead to a crisis. We live in a world of market power where wage claims do not depend on current demand for labour. This obviously is unknown to even the most admirable and most admired upholders of neo-classical economics in your Lordships' House. Wages do not depend on current demand because they themselves create the additional demand needed to sustain wage concessions through price increases. The structure of industry has changed. Neither fiscal manipulations nor monetary tricks will lead us to salvation. Both can stop inflation only if unemployment, stagnation and the fall of productive investment—the one thing which the noble Earl. Lord Dudley, deplored—are produced on a large scale. The bankruptcy of the largest railway in America, the threatened bankruptcy of the biggest conglomerates and some of the air-space industry, the leaders in American industrial development, provide the last warning to reverse engines, to keep institutions intact which can, if need be, intervene.

I would never have believed that the present Government would adopt measures which would have been regarded in the 1920s as retrograde. The lack of economic literacy is exemplified also by the Prime Minister's promise to reduce taxation at some future date, which was again reiterated in this House. He apparently ignores the elementary connection between expectation and action. If people expect a tough Budget they roar to the shops; and the reverse is a redoubled backlash afterwards.

If we take it that the Industrial Relations Bill will cause untold mischief on the Labour front, with redoubled pressures for higher wages before it comes into being, one begins to perceive the most splendid recipe for a continued loss of value of the pound which will, after a pause, due to foreign inflation—I do not agree with the noble Earl about his analysis of the present position of the country, but I do agree with him in the analysis of the medial short-term if these policies are going to be followed—force us to devalue or, worse still in those circumstances, to float. Floating in an idyllic pool of languid waters is one thing: floating down towards a bottomless Niagara is another. If price increases due to depreciation are answered by wage demands, an endless plunge will follow. Here, again, the character of the Election fight will impede sensible action.

Looking back on the past six years a proud accomplishment can be perceived on both the economic and social fronts. It was the cost, that is, income induced inflation and not the least our inability to deal with top salaries, and the restriction on expansion which had to be applied, which were at the bottom of our difficulties. I have, as I have said often before in this House, the greatest sympathy with the trade union leaders. They are under hard pressure. They cannot possibly be asked to lead the movement towards restraint until much more positive earnest is given by the Government and management that the increase in productivity will be accelerated and that equity will be enforced. They have, however, never realised that industrial action alone can never increase the share of wages in the national income. Only price control and taxation can, and the extension of social services. For this failure they will pay. I only hope that they will learn. The next Labour Government will willy-nilly have to combine stability and expansion. They were engaged in a rearguard action when rising prices and scares about sterling got the better of them. Now, however, we have taken a road which leads to the slippery slope at the end of which lies the Gadara Sea of economic chaos.

5.7 p.m.

LORD BOOTHBY

My Lords, I should like to join with those who have tendered congratulations to the noble Earl, Lord Dudley, on his admirable maiden speech, delivered so fluently and without a single note. I disagreed with about half of what he said, but that does not make his speech any less effective. I think it is time that the voice of a genuine expansionist was heard in this Chamber. It will come as an antidote to the dismal dirge to which we have just listened from the noble Lord, Lord Balogh. I have not heard any real plea for genuine expansion yet from either side of the House, except from the Leader, the noble Earl, Lord Jellicoe; and from him in rather mild terms.

I am an unrepentent expansionist, and I intend to strike a breezy note, if I may, this afternoon because I think it will buck us all up a bit; and it is time we bucked up because we really are feeling too doleful about the national economy. The Chancellor of the Exchequer is—let us face it—faced with a new phenomenon. It is one that did not happen before the war. It is a wage-cost inflation accompanied simultaneously by a recession. The same problem is faced in the United States, where economic growth is even more stagnant than it is in this country. It is not, as the noble Earl, Lord Jellicoe, said, a demand inflation; it is a wage-cost inflation, and as such requires completely different treatment. There is in fact only one way out and I think we are all basically agreed about this: increased overall production and increased productivity. That is the answer to a wage-cost inflation.

We cannot do it without increased investment in industry. This involves a steady flow of capital into industry under the stimulus of confidence and anticipated profits. This doss not exist at the present moment in this country. The truth is that an attempt to cure a wage-cost inflation by drastic deflation is like trying to cure a sore thumb by cutting off your arm. It does not do any good at all. Basically this is a crisis of liquidity, both international and domestic. Hence the present astronomical interest rates on both sides of the Atlantic. This is the primary cause of the rise in the cost of living and the consequent wage explosion, because the cost of money is the basic factor in cost itself; and the high cost of money is therefore the basic cause of steadily rising prices. These exorbitant interest rates simply aggravate the inflation, and they hit hardest the small business man and, of course, everybody living on fixed incomes.

To a great extent the problem is an international one, and I am rather surprised that this aspect has not been touched on a little more so far in the debate. I suggest that the Chancellor should take the lead in due course in calling an international economic conference to consider ways and means of increasing industrial investment and productivity on both sides of the Atlantic, of making more international liquidity available, of reducing interest rates—again on both sides of the Atlantic—and thus encouraging economic growth throughout the Free World, which is at present on test against the Communist world and not doing very well.

It is also highly desirable that exchange rates should be made more flexible. The theoretical price paid at Bretton Woods for fixed exchange rates and a fixed price for gold was adequate liquid reserves for tire Free World as a whole, and they were not provided. In fact international liquidity has fallen to about one third of what it was at the time of the Bretton Woods Agreement. I do not go so far as the noble Lord, Lord Crowther, and Sir Ralph Hawtrey when they ask that the pound should be allowed to float altogether, although formidable arguments could be adduced in favour of this course. I do say that it is intolerable that no changes can be made in exchange rates to meet existing conditions without a political crisis in the: country concerned. It is only right that exchange rates should take some of the pressures which are bound to arise from time to time in international trade, and therefore I think Her Majesty's Government should welcome the initiative taken this morning by the United States Government to widen the margin to 3 per cent., which would do a great deal to take the strain off the internal economies of all countries suffering from a trade deficit.

I know it is argued that it is hoped one day to have a European monetary union with fixed exchanges. That may come one day, but it will not come in the immediate future. It is a long business which would involve, I agree, fixed exchanges and perhaps ultimately a common currency; but in the meantime I think we should pay great heed and attention to the proposals of the United States of America for a wider margin and more flexible exchange rates, which would do a lot to facilitate international trade and take pressure off various countries, including our own.

On the question of gold, about which I have already bored your Lordships enough, I would say only this: we must have an international measuring rod of value. The Free World will not accept the dollar as such, and rightly; and therefore, in the words of Mr. Schweizer himself, the pre-eminent role of gold in the international monetary system is still assured. The price of gold is clearly a subject for discussion at an international conference, as also is the future of the International Monetary Fund. Surely we should aim at developing the International Monetary Fund into a world hank for central banks, with similar powers of credit creation and contraction. This was the remedy advocated by my noble friend the late Lord Monckton of Brenchley when he was chairman of the Midland Bank several years ago. Nothing has been done about it; no steps have been taken in that direction; but it is obviously desirable that the I.M.F. should be developed into a much more flexible instrument, and it might become, as Lord Monckton said, a central bank for central banks, able to expand and contract credit to them, as they do to their customers.

Meanwhile, my Lords, what can Mr. Macleod do? He can do a lot. In my speech on the Second Reading of the Finance Bill I said that the Chancellor could not cut taxation without comparable reductions in public expenditure and/ or alternative taxes. I was wrong. Mr. Jenkins over-insured to an extent that I had not realised and there is a bigger Budget surplus than I then thought. It is of course highly desirable that public expenditure should be cut and we must all hope that it will be, but it will take time. What Mr. Macleod can do now is to have a look first of all at the machine he has to work. I hope that he will not set up any more mammoth investigations and inquiries. As the Economist said last week, the history of British economic Reports by Royal Commissions and the like is pathetic. Their recommendations are usually turned down, and certainly disregarded. Take, for example, the Royal Commission on the Taxation of Profits and Incomes. It sat for 4½ years. It came down firmly against the capital gains tax and the corporation profits tax. Yet we have them both. That was the result of the Royal Commission on the Taxation of Profits and Incomes.

The Chancellor can also reflate the economy, I think without risk, to the tune of at least £400 million by increasing the money supply. He can do that now, and it would at least help to get the ship off the ground. I do not know whether he is going to have an Autumn Budget—probably not; but if not, he can use the regulator to make some cuts in indirect taxation which would at least have a good psychological effect. What is most important is that the Chancellor should show himself determined to make a start in no great length of time on tax reductions over a wide field, and of these I would give priority to S.E.T., which has been mentioned in this debate; to the corporation tax, a reduction of which I think would do more than any other single thing to stimulate investment in industry in this country; and the capital gains tax. About that I would only say that the distinction drawn at present between short-term profits and long-term profits on capital gains brings little to the Revenue and imposes an untold burden of extra and unnecessary work upon thousands of people. There should be no such distinction. It should be abolished. All the taxes that I have mentioned are inflationary in themselves, as indeed is the petrol tax. All are also a strong disincentive to the investment of risk capital, and that is what we want to avoid.

My Lords, I hope—and I am nearing my conclusion—that the Chancellor will also give consideration to the enormous burden of taxation which as a result of corporation tax is being levied on companies earning money for this country overseas. In effect, it amounts to double taxation, and this is a matter which demands the urgent consideration of the Chancellor. We used to have overseas trade corporations which alleviated this burden. Whether or not they should be revived is a matter for the Treasury and the Chancellor to decide, but something should be done to relieve companies of the burden of taxation on overseas earnings. Some years ago the noble Lord, Lord Robbins, said that we had a system of progressive taxation on earned incomes which amounted to a discrimination against enterprise and ability such as had not existed for any long time in any large-scale civilised community. But, my Lords, it has got far worse since Lord Robbins said that.

At this moment Mr. Macleod has one priceless asset—confidence—but for how long? That is the question that really arises in this debate this afternoon. He is still up against the Treasury mandarins—that perpetual bane on our public life which I have attacked without cessation for 45 years. In my opinion they have never been right, except when Keynes was there, and he was not there very long. Mr. Macleod is still up against them, with what I still regard—and I am going to say it, although the noble Earl, Lord Dudley, would not approve of it—as their first obsession, the balance of payments, and then with debt repayment at all costs, in the largest possible amounts, and as quickly as possible. Mr. Jenkins was essentially their man: he was a Treasury man. Mr. Harold Lever was not. Mr. Lever was therefore ejected from the Treasury, and that was why the Labour Party lost the Election. If the Chancellor lets the mandarins get hold of him again he will lose the confidence of the business community and with it any chance of economic recovery, and we shall remain in square one. What he has to do, as I have said, is to get the economy off the ground as quickly as possible.

A long lime ago I told another place that when I became Parliamentary Private Secretary to the Chancellor of the Exchequer in the year 1926 a high Treasury official came to me and said, "Young man, I want to give you a piece of advice. There is only one man who has ever made the Treasury do what it did not want to do, and that was Lloyd George; and let: me give you another piece of advice: there will never be another." Well, my Lords, let Mr. Macleod be another Lloyd George at the Treasury. Let him go flat out for economic growth. If he does, he will make Mr. Carr's forthcoming negotiations with the T.U.C. and the C.B.I. far easier. Let him bear in mind the wise words of Walter Lippmann, "A society cannot stand still. If it loses the momentum of its own progress it will deteriorate and decline, lacking purpose and confidence in itself." In conclusion, I should like only to echo the words of the noble Lord, Lord O'Neill of the Maine, the Mover of this Motion, "We have had our fill of doctrinaire caution. Let us now move on to a period of pragmatic boldness."

5.22 p.m.

LORD DRUMALBYN

My Lords, it is with the greatest pleasure that I follow; he noble Lord, Lord Boothby. He seems to be right back to his old form—it must be the General Election. It certainly seems to have breathed fresh life into him, and he has been breathing fresh life into us this afternoon. I am sure that we are all very grateful to him.

I should like to say how very much I agree with the terrnas of the gracious Speech in setting the priorities from the very start: strengthening the economy; curbing the inflation rising production and a steadily growing national income. These must be the main objectives. And the means will be reforming and reducing the burden of taxation—not all at once: reformation must take some time. But I agree with the noble Lord, Lord Boothby, that one cannot wait too long before doing something, by providing new incentives to saving and liberating industry from unnecessary intervention by government"— that is from without, and I would add also from within, by establishing a framework of law within which improved industrial relations can develop and a code of practice will be prepared laying down standards for good management and trade union practice". I shall revert to that in a minute or so.

So many speeches have been made wholly endorsing the view that taxation stimulates and speeds inflation that I hardly need add to what has been said. Some taxes, like S.E.T., are bound to be recovered in prices. Others, like income tax, work insidiously because the wage and salary earner expects at least to maintain his net purchasing power after tax, and therefore wages and salaries will always rise more than prices and by doing so will increase prices still further. Inflation makes estate duties and surtax work unfairly unless adjusted annually to take account of inflation. I need mention only one figure. We have to remember that £40,000 to-day purchases about the same as £20,000 in 1946. Yet the estate duty is four times the amount at £40,000 that it is at £20,000. That is what inflation does, and there has been very little corrective action indeed.

The object of the reform of taxation must be to encourage effort and initiative; to prevent taxation from itself stimulating inflation, and to remove discouragement to saving. Does it not seem morally wrong, as well as highly inexpedient, that the Slate should stand to gain by inflation? It is inexpedient because the State has the duty to prevent, or at least to contain, the fall in the value of the currency and the erosion of money in the pockets of the people. It is morally wrong because inflation affects most those unable, or no longer able, to protect themselves by increasing their earnings. As to savings, higher growth, as has been said, depends on investment, leading in turn to increased productivity and better working conditions. Higher investment best comes from higher savings, more money for research, improved education and training at all levels, leading always to increased productivity. It is a hard doctrine, but Government should reward success, not hand out assistance indiscriminately. It is essential that we should rely mainly on a system of allowances in place of generalised grants and premiums to industry, except where there are overriding considerations of national security.

The Government in the gracious Speech welcome competition. I very much welcome the declaration of a belief in competition as the best safeguard for the consumer. Government intervention, if not strictly necessary, weakens and distorts competition. We all realise that Government intervention is in certain circumstances necessary. It is necessary to curb economic power and its abuse. So we have the Monopolies Commission and the Restrictive Practices Commission.

But, of course, Government intervention is not the only kind of intervention, and I referred to intervention also from within. There is nothing more debilitating than the constant anxiety that industry's plans will be disrupted by strikes. It is sterile to dispute who is to blame. What is needed is a determined and united effort to establish a sensible and workable system for improving industrial relations. After all, we are all, or nearly all, on the same side: on the same side in desiring higher growth, with the blessings in terms of social progress that it brings. But competition implies teams of management and employees, working together yet competing with each other. If it is right, as we all believe, that the State should curb the abuse of economic power and undesirable combinations on the part of companies, why is it not right to empower the State to curb such abuse by others, notably trade unions or sectors of trade unions? Surely any abuse of economic power must be against the interests of the nation.

But I believe also very strongly that it is far better to rely on a system of self-discipline, although if self-discipline is not forthcoming or does not work the public must be protected by law. I believe that we should look to the trade unions to maintain discipline in their own ranks. Strong leadership will be respected there as elsewhere. But nobody should be judge in his own cause. Must there not therefore be some body to decide what is fair and right, not only in settling a dispute which cannot be settled between the parties but in relating the settlement to the public interest? It is not right that those who are in a position to exercise economic power should be allowed to do so at the expense of the nation.

I believe that the nation has been feeling its way towards a system of presenting an objective analysis of claims. The Prices and Incomes Board have done good work and they have come in for a good deal of criticism. As the noble Lord, Lord Robbins, said, they have not in all cases been very effective, and certainly not in their latter days. I do not think this is their fault. To some extent they were the wrong body, given the wrong job. At present there is no way of ensuring that an objective analysis will be accepted by the Parties as objective and implemented, except in certain fields. What is needed, surely, is a body whose decisions will be accepted and implemented by prior agreement. Arbitration does not really meet the need, because it relates only to a particular case and does not take into account the wider issues. By the same token I doubt whether any body appointed by the Government under statutory powers would do so.

Basic to any solution is a recognition of common interest. Given that, then a body composed of equal numbers of employers and trade union representatives, with some representation of the consumer interest—a tripartite body—should be capable of settling disputes with due regard to the public interest. Naturally, those who consider a particular dispute should not include anyone directly interested in that dispute; and of course it would be for both sides in the dispute to accept and implement the ruling. This would be a proper system of self-discipline, a tripartite system of self-discipline. I believe that it could be accommodated within the framework of the Conservative proposals, which I hope will be brought forward quickly. I put this forward in the strong belief that internal discipline and co-operation are always to be preferred to external discipline and antagonism. The aim of "one nation" may be elusive, but it is surely the right aim.

LORD BROWN

My Lords, may I interrupt the noble Lord before he leaves that subject? He has made an interesting suggestion. But are the people who sit on this tripartite body in his view to be representatives, or are they to be appointed?

LORD DRUMALBYN

My Lords, certainly hey would be representatives of the unions and industry. How they are to be elected, I do not know. Obviously, the consumer representatives would have to be appointed.

My Lords, in the lifetime of this Parliament we shall have to make the most momentous decision made in Great Britain since the year 1707. Let us all hope that this decision will not be taken on a Party basis. In the negotiations, given the will to agree, given a common strong desire on the part of all concerned in the negotiations, agreement will be reached. It will then be for Parliament to decide whether the best agreement that can be reached is good enough and is in the long-term interests of our people. But this naturally imposes an interregnum. In the meantime let us not be inhibited in any way from action. Let there be no period of lack of animation. The better trim we are in, the better placed we shall be to face the problems we shall undoubtedly have to face if and when we join the E.E.C.

We have so many ugly problems to face. It is true that as a result, partly of devaluation, partly of the export efforts of industry, aided by Government (I am glad to see the noble Lord, Lord Brown, in his place on the Opposition Front Bench), we have at present a substantial surplus on our balance of trade in goods and services. But the steep rise in costs and the low rate of growth (actually negative—I suppose one could say "shrinkage"—in the early part of the year) could very soon erode this surplus; and unemployment is much too high. I have mentioned these four points because they are the main economic indicators to which the E.E.C. have decided to have regard in their progress towards economic and monetary union by 1978, and in only one of them is this country well placed at the moment. There are many problems, many thorns in this particular bed of roses. And roses are not for ever: they wither and fade, whoever governs the country.

But there is a strong feeling of hope, and indeed of relief, in the country. One felt that in the speech of the noble Lord, Lord Boothby, despite himself, perhaps, even though he is not in his place at the moment. We are making a new start, and if that hope is matched by self-confidence and a common determination always to have regard to the interests of the nation as well as to one's individual or collective interests, that hope can be realised.

5.36 p.m.

LORD HIRSHFIELD

My Lords, my concern as we begin this new Parliament is not simply with the immediate programme of legislation which has been outlined in the gracious Speech. Of course that is important, and it is appropriate that we discuss it fully. But I believe we have an equally important duty to look beyond the next year or so to the kinds of economic and social problems which are likely to face us over the lifetime of this Parliament, and to discuss the sort of priorities which they will demand. For these reasons I want to look at three issues where I believe there is a need for a longer-term view than the Government seem willing to undertake.

The first issue that I shall deal with is inflation. One of the main themes of the new Government's Election campaign was the suggestion that what we now face is essentially "cost-push"—inflation caused through continuous pressures on industrial costs—mainly through the taxation policies of the last Administration. It was emphasised that what is required basically to cure our problems is a reduction in the burden of industrial taxation. It is against that background that selective employment tax and direct taxes are supposed to be the first candidates for abolition and reduction respectively. I believe that I have remarked before in your Lordships' House that I am among those who remain unconvinced of the justification for S.E.T. except as a device for raising more revenue. But until we know precisely what alternatives this Government will adopt to counterbalance the revenue lost through the abolition of S.E.T. it is hardly possible to form considered judgment.

Obviously, it is an over-simplification merely to condemn roundly the overall tax burden without examining alternative measures designed to counter inflation. In the first place, the burden of taxation as a percentage of corporate income has fallen, not risen, over the past two decades. According to figures prepared by the Treasury at the end of last year and reproduced in the 1970 T.U.C. Economic Review, it is apparent that the contribution of taxation on profits to the Exchequer has fallen over a period of many years.

What has undoubtedly increased industry's unit costs more than taxation has been the slow rate of economic growth over the past decade and the large margin of surplus capacity which has been a regular feature of Britain's industrial scene. On this point the new Government show promise, at least at this very early stage. They have said on repeated occasions that they want to achieve a faster rate of economic growth, both as a means towards higher levels of prosperity and as a way of tackling inflation at its roots. I support that view. In my opinion we must have faster economic growth if we are successfully to tackle inflation. And now, armed with the strongest balance-of-payments position for at least three decades, through the courage of the last Government and the fortitude of the British people, we have the chance.

But there must be realism on the subject. The new Government must face up to two particular needs for a successful growth policy. First, they must be prepared to exercise imagination in their attitude towards the balance of payments. Without a willingness to contemplate, in the long term, a move towards a more flexible exchange rate policy we may never hope to solve our balance-of-payments problems. And, equally, without a sustained drive over the next ten years, with Government planning and finance, to back the programme to reduce our imports, we cannot hope for an end to our external economic problems. It is certainly not the time for the Government to withdraw from the industrial scene, especially in the area of the import-substitution industries.

The other aspect which cannot be ignored is how total spending in the economy is to be related to total resources. Despite what was said in the course of the recent Election campaign by Members opposite and their friends in another place, I cannot believe that the Government believe that the answer to inflation and the balance-of-payments problem lies simply in restricting public investment and public expenditure. Presumably they do recognise that an incomes policy in some form is essential. But in what form?

I should like to make some suggestions on the point since I think it is time for us to be as positive and constructive as we can on this subject. First, we must recognise that there can be no chance of a successful incomes policy if the trade unions and the Government become locked in combat over the Government's industrial relations proposals. The Government must accept that fact. If they go ahead with their earlier proclaimed industrial relations policy they will be making the greatest single contribution of any Government since the end of the Second World War to the intensification of industrial unrest—and of inflation.

Secondly, it is very evident that the essential precondition for the acceptance of an incomes policy is a successful price policy. We must have even stronger consumer protection machinery, for example. And we might well look again at the proposal for a National Consumer Board. That could provide some evidence of the Government's intention to have an effective prices policy. What we must not do is to fall back on vague hopes that competition alone can solve our problems and constitute a successful way of stabilising prices. It is no cure, as the 1964 Resale Price Maintenance Act showed. I hope, therefore, that the Government will think again about that sentence in the gracious Speech which indicated that in the Government's view "competition is the best safeguard for the consumer".

Thirdly, we need an incomes policy which applies effectively, and is seen to apply effectively, to all forms of income. No other sort of policy is likely to be acceptable. I hope, therefore, that before the new Government make any changes in the rent control field (to take just one example) it will recognise that unless control of this kind exists there is very little hope for any incomes policy in the wider sense. These, I believe, must be the basic constituent elements of a successful policy of economic growth and of a successful attack on inflation. And until I see any evidence to the contrary I will not believe that the new Government, or, indeed, any other Government, can achieve success without accepting this approach.

The second major issue that I should like to raise is employment policy. Part of the answer to existing unemployment lies in securing a faster rate of economic growth. We cannot hope to bring down the numbers of unemployed until we have a higher level of growth in the development areas as well as over the country as a whole. But I hope that in its enthusiasm for faster expansion the new Government will not be led into believing that this is the only aspect of the unemployment problem which we shall face in the 1970s. What we also have to recognise—and this I want to stress with all the force I can—is that over the next ten years we shall face new threats to our employment levels from hitherto unforeseen developments. In America there are great fears already of the consequences of the American withdrawal from Vietnam. Where will the surplus manpower go? Various authoritative estimates have suggested that during the 1960s one in ten of America's labour force was employed in the space programme and in the Vietnam campaign and that it is only these two programmes which have saved American manpower from the full force of industrial technology and redundancy.

Now, with an Administration committed to major planning reductions in both those spheres, what will happen to the level of unemployment in America? Machinery has undermined more and more jobs in America, not just in manufacturing but in the services and commercial sectors as well. More and more office jobs, not just of a routine nature but involving highly skilled men, which we once thought would never be computerised, now no longer require manpower. The same can be said of manufacturing industry. For instance, here in Britain in 1938 tinplate production was spread over 300 mills with a labour force of 27,000, producing 20 million boxes of tinplate a year. During the last 17 or 18 years tinplate production in Great Britain has been concentrated into three mills only with a labour force of 3,000, and producing 30 million boxes of tinplate a year. There will be fewer jobs for people because there will be more jobs for machines. This is not speculating on future possibilities; it is describing present facts.

As we begin the new decade we must, I believe, be more aware of and more concerned about the spread of automation. And I stress this for two reasons: first, because the whole process is bound to intensify—automation will automate itself—and jobs will become mechanised at a faster rate than ever before; secondly, because in my view there are no signs that either the Government or any other sector of the community are sufficiently aware of these dangerous prospects, or ready with policies which could cope adequately with them. We have industrial training boards, we have a small and inadequate number of Government training centres and we have a Central Training Council. But none, I believe, is able to cope with the scale of the problem we row face, which is to mobilise industrial opinion to face the challenge of change—relocation, retraining, how to use greater leisure—on a vast scale. And I feel strongly that what is required, as a matter of urgency, is for the Government the trade unions and the C.B.I., to come together in a full-scale conference which would have, among other things, the aim of establishing a new Centre for Employment Studies. Both "these initiatives would serve a vital function of focusing industrial opinion on a tremendous issue, and both could serve as initiating bodies for more research and more understanding than exists at present. I hope, therefore, that the Government will take note of these proposals. As it is written in the Book of Isaiah, Come now, let us reason together. The third and final long-term issue which I should like to raise concerns what I believe will be the most serious issue of all in economic policy in the years ahead. This is our ability to combat the challenge of inequality which now confronts us. Along with other advanced nations we face the problem of how workers should have a greater share in the ownership of capital, and this was the theme of a remarkable paper produced a year ago by Professor Rodney Crossley, a Professor of Industrial Relations at Leeds University. In an excellent account of that paper in the recently published book, Challenge of Change, by Sir Trevor Evans, it is recorded that: There has been too much concentration in the past on how to increase wealth and not enough attention on how to share it more equitably. The neglect of the problem of distribution of wealth has gone too far. If the Western democracies believe that ownership should imply effective control, and if we are right in thinking that property ownership will become relatively more important in the next few decades, there is need for a new kind of institution in the capital market which will promote the ownership of assets by employees, and be strong enough, in terms of the control of investable funds and company voting rights, to ensure that they are administered in the interests of employees.

Automation may well turn out to be labour-saving, in the strict sense of the economist as compared with popular usage, which means that it may be so much more profitable to use capital in place of labour that the input of capital into production will actually rise. The share of labour in a rising national income will fall, and unless employees acquire claims on the increased property income there is clearly a grave risk of alienation and aggravated conflict between the propertied and employed classes in advanced capitalist societies.

Had I not already occupied a little too much of your Lordships' time I should have said something upon the passage in the gracious Speech which refers to "new incentives to saving". I hope that there will be another and early opportunity in your Lordships' House to debate that subject. I shall strongly support a scheme which gives more incentive to the individual to invest part of his savings for the long term in the future prosperity of British industry—in equity shares, including unit trusts—as a hedge against future inflation. The Trustee Investments Act 1961 authorised, and seemed to encourage, trustees to invest up to half the funds under their control in equities on certain conditions. It is high time that individuals also were more encouraged to invest in that way.

5.53 p.m.

LORD WOOLLEY

My Lords, I trust that your Lordships will bear with me if for a few minutes I depart from the theme of the general economy, on which we have heard so many excellent speeches, including the very eloquent and fluent speech from the noble Earl, Lord Dudley, and turn to the part of the gracious Speech which refers to agriculture and the Government's intention to start discussions with a view to encouraging agricultural expansion by changes in the present system of financial support. I am sure that everyone in your Lordships' House, and indeed throughout the agricultural industry, will welcome at least one part of that statement; that is, the intention to encourage agricultural expansion. I am equally sure that everyone will wish the new Minister, Mr. Prior, every success in his arduous task. He has all the qualities of vigour, enthusiasm and ability that one would expect in a man who has reached so high a position at so early an age, and I know he will be well served by competent officials whose wise counsel, grounded in hard experience, will be available to him.

May I for a moment, in the same vein, wish every success to the new Front Bench agricultural spokesman in this House, the noble Earl, Lord St. Aldwyn, who has a lot of experience in the problems of agriculture, both practical and political, and whom many of us remember as a former Parliamentary Secretary in the Ministry of Agriculture. At the same time, I should like to express appreciation for the thorough, painstaking and competent work done by the noble Lord, Lord Nugent of Guildford, as Front Bench spokesman on agriculture for the Opposition in the last Parliament.

The intention to encourage expansion follows the general line of successive Governments going back to 1939, and if one considers the past 25 years since the war, it reveals a remarkable performance of increasing production and productivity by an industry that not so very many years ago was widely, though mistakenly, regarded as being way behind in its outlook and attitude. Not only has British agriculture doubled the physical quantity of its production in the past 25 years; it has done it with a steadily decreasing manpower which now stands, I believe, at 433,000, a reduction of 56 per cent. compared with 1946. That is double the output with a reduction of 56 per cent. in the labour force, and from an acreage which, as we know, is being, and has been, remorselessly and continually eaten into for other purposes.

Time does not allow for a thorough examination in the course of a speech in your Lordships' House of all the factors involved, but I should like to mention two or three without seeking to develop them. The first fundamental factor, I suggest, was that the 1947 Agriculture Act explicitly recognised for the first time and made statutory provision for the development of agriculture as a matter of national interest and importance, as well as recognising the social needs and entitlements of the rural community. The second is that the Annual Review imposed a statutory obligation upon Governments to study with representatives of the industry the whole situation as it unfolded through the years.

It is often rather mistakenly assumed that every February there is simply a price review. But the Annual Review is much more than merely a price review. It is a review of all the conditions and circumstances and prospects affecting the agricultural industry at that point of time, and the actual price determinations come only at the end of a very thorough-going, prolonged and comprehensive review which I think is a model for industry. The third and, perhaps, most important factor is that the basic economic stability provided by guaranteed prices, and the stimulus to good farming through production grants, have provided confidence and inspiration to farmers and the security which has engendered the financial credit without which this great second agricultural revolution of modern limes could not have been carried through.

So we stand now at a point where the standard of farming in general is so superior to that of the depressed inter-war years as to be scarcely recognisable, and I am sure that many noble Lords must feel, as I do, a great deal of satisfaction and pleasure in seeing the vast change for the better that has taken place in the fanning landscape as one travels through the countryside. I do not for a moment suggest that everything is good in a perfect agricultural world; it is not, and of course it never will be. Undoubtedly there is a great need to strive continually to improve, and there is merit in taking action to secure a steadier market price through more effective machinery than now exists for preventing the harmful effects of dumping, particularly dumping subsidised by the Governments of exporting countries. Incidentally, that is one of the methods of the Common Market countries in relation to off-loading their surpluses to outside countries.

Clearly, there needs to be a reasonable balance between the amount of the producer's return which he receives from the market, and what he receives by way of Government payments to make up the deficiency between the realised market price and the predetermined price guarantees fixed at such a level as are estimated to produce in the various commodities what is considered to be in the national interest, and to give a fair return to the producer.

For years, work towards that end has been going on and a great deal has been achieved, and of course the proposals set out in the Conservative Party's Manifesto are not new. I will quote just one or two figures to illustrate the effectiveness of the steps that have been taken to try to reduce the percentage of the total return which comes from the Treasury, as against that part which comes from the market. In the year 1961–62, the total value of output was just over £1,600 million, and the total cost of Exchequer support in that year was £343 million. That is, I believe, about 21 per cent. Seven years later, in the year 1968–69, the total value of output was approximately £2,000 million, while the total cost of Exchequer support had gone down from £343 million to £265 million, and the percentage from 21 to 13.

I mention these figures to dispel what may be a wrong assumption in many people's minds: that the cost of Exchequer support is mounting and is insupportable, and is something which is quite intolerable which has to be radically altered. Perhaps there is a tendency to exaggerate the significance of what agriculture receives from the Treasury, and what this means in ratio terms to the whole food picture. In terms of the total food expenditure by consumers in the United Kingdom, the subsidy is about 4 per cent. of the total expenditure on food; that is, some £280 million out of a total of £6,500 million. I submit, my Lords, that the all-round benefits which have flowed as a result of this system should not lightly be thrown away. I have referred earlier to the technical progress made by the industry. It is no exaggeration to say that British farming to-day is certainly as technically efficient as any in the world. In terms of productivity growth, it is one of the highest of our home industries. The growth in productivity per man in recent years has been about 7 per cent. per annum in agriculture, compared with under 3 per cent. per annum in the economy as a whole. All this reflects back directly in terms of value for money to the British public.

A good deal is heard about comparative food prices in this country and abroad. I can only say that in 1965 I arranged for a very simple survey to be done by asking a lady member of the National Farmers' Union economics staff who was attending an international conference in Rome to purchase three baskets with an identical food content, such as a British housewife would buy, and to purchase them in shops of similar quality, in similar areas, so far as she could, in Rome, Paris and London. The result of that little experiment was that the French basket cost half as much again and the Italian basket twice as much as the London basket. I do not believe that these ratios have altered all that much in the intervening years.

There is no question that the consumers get good value for money; and there is at the same time a case for seeking to lift the level of market prices, but I submit that temperance is all important in this matter, and that it would be unrealistic and undesirable for a country which in any foreseeable future cannot be other than a big food importer, however much we may expand home production, to manipulate consumer prices artificially to levels which may be economically acceptable in countries which are virtually self-sufficient in food. The social and economic implications of unduly high, artificially-created food prices could not in my view be other than bad for the country, and could indeed well turn out to be a mirage so far as producers are concerned.

I submit, my Lords, that what the farming industry needs, and needs quickly, is not more verbal mirages in the financial desert which has been created by a failure in certain areas of the Governmental complex for a good many years past to recognise that no industry can with impunity be squeezed too hard too long. The noble Lord, Lord Boothby, was perhaps a little more explicit when he referred to "Treasury mandarins", but at any rate I will simply content myself with "certain areas of the Governmental complex". This is not something which is related to the lifetime of one Government alone: this has been going on during certainly the whole of this past decade, and indeed started back in the 1950s. This pressure has been too hard; it has been too great, and too long sustained.

My Lords, I trust that your Lordships will not consider it culpably immodest for me as a farmer to say that I believe the farming community—and here I am including landowners and workers as well as farmers—to have done and to be doing a great job of work for the country. May I ask, with respect, that our new Government will take immediate steps, associated with the consultations with the industry referred to in the gracious Speech, to increase the cash flow to producers? Costs continue to escalate, and despite the most strenuous and in some quarters unpopular efforts by the National Farmers' Union to get prices of the major requisites pegged, there has been a big increase in costs even since the last Review four months ago. Without going into detail, it is already clear that increases in prices of feedstuffs, fertilisers, machinery and transport, to name but four out of a long list, have raised the costs of the industry by many millions of pounds—costs which have been aggravated by drought conditions. With dubious harvest prospects as a result of the prolonged drought in many areas, the cash liquidity position of producers demands immediate and urgent attention.

The Government recognise and the industry recognises the import-saving potential in home agriculture—the import-saving potential to which the noble Lord, Lord Hirsfield, referred in his speech. Unfortunately, the industry has considerable doubts as to whether anything more than specious words can be expected. Now is the opportunity for this new Administration, with a young and vigorous Minister of Agriculture, to show that it means to carry out without delay what it said in the Conservative Party Election Manifesto: We will provide new opportunities for the farming community to increase production, improve their incomes and make a further massive contribution through import saving to the balance of payments". There is urgent need for a financial transfusion to energise and invigorate the depressed morale of the farming community. I am sorry to have to say that, but it is true and I think many of your Lordships know it to be true. Your Lordships know that these demonstrations which we have seen in recent months are not just spurious, foolish manifestations: they are a manifestation of the frustrations, the pent up frustrations and desperate frustrations, of men who have been over-hard pressed. I know many of those men—many hundreds of them—and I know that they would not be so foolish or so undignified as to take part in such demonstrations unless they had real, solid cause to do so. Therefore, my Lords, there is urgent need for a financial transfusion, and an early one, to energise and invigorate this depressed morale; and the Government have a great opportunity to change the whole climate and attitude for the better. I beg of them to cut through the usual tangle of political prevarication and to take immediate and tangible financial action.

6.9 p.m.

LORD ROBERTHALL

My Lords, I am sure that my noble friend Lord Woolley will not take it amiss if I do not follow him in his remarks. He would be a bold man who would take up something of which my noble friend has had a lifetime of experience. I should like to come back to the general economic situation; and a good start, I think, is with the question of what the present Government have inherited, which has already been mentioned. There are the two extreme positions. There is the view of Mr. Wilson, who said they had inherited the strongest economic position of any Prime Minister for a very long time; and there is the alternative view that we are approaching another disaster. I thought that the noble Earl the Leader of the House put the matter very well when he was referring to this aspect. There is a certain amount of truth in both views, according to the time period which we are thinking about. In the short term, as both opening speakers said, we ha\e the fact that the balance-of-payments position is very strong and is likely to remain favourable at least for some time. There is therefore no urgency on that front.

There is also a point to which a number of noble Lords referred with some gloom but which I think is, at least from the point of view of the Chancellor of the Exchequer, a favourable aspect; that is, that there is some slack in the economy. After most recent Elections, the economy has been overheated and the balance of payments has been in difficulties. I think that is true of almost all the Elections that I can remember since, perhaps, 1951 where there was some slack. I think that the last Chancellor of the Exchequer, Mr. Jenkins, deserves a great deal of credit for this. No doubt he hoped that he would himself be the inheritor of his good works. But they are, from this point of view, good works.

By previous standards of demand management, unemployment is high and economic growth has been rather slow. It does not look as if we are going this year to meet the target of 4 per cent. expansion which was laid down by the last Chancellor of the Exchequer. I think that prices have risen faster than was expected in the Treasury forecast and that investment has been rather more sluggish. So there is a case for some easing up. But I hope that the Chancellor of the Exchequer will not be in too much of a hurry to take advantage of this. A certain amount of slack in the economy is a very precious thing to have, because it gives some freedom of manæuvre. From this point of view I think that the incoming Government are extremely wise to do what one understands from their speeches they intend to do; that is, not to be in any great hurry to go in for "instant government" or "one hundred days" but to get the feel of the economy. When you have some room for manæuvre you ought to take a little time to think of what manæuvres you should go in for. But, if anything, I think there is some room for easing monetary policy. Industry now is very short of liquidity. It has been very good for industry to have this shortage for some time; it has put the finance directors of firms into the position of strength in which they should have been for a long time. If you were to ask a director what the finance director did he would say, "We go to him for money". Now he goes to them. But I think it has been overdone, and I believe that some of the sluggishness on the investment field arises from that.

My Lords, coming now to the weaknesses of the position, I think there are two very obvious ones, both continuing medium to long term. First, there is the short-term debt referred to in his speech by the noble Earl, Lord Jellicoe. In the years 1964 to 1968 we incurred a very substantial amount of short-term debt. In very round figures, I think it was something like £3,000 million. That has come down to something like £1,500 million. But of that figure only about half is a real repayment due to our own surplus; the rest is a reflux of short-term money which could easily go out again if there were any doubts about the basic strength of sterling—which, as I am going to say shortly, I think will arise mainly on the cost side.

The second weakness is that of inflation and of industrial relations generally. Both of these are really by-products of the policy of full employment which has been pursued so successfully in the postwar period. Full employment was a sort of wonder drug which has transformed the country and transformed the position of the working people in the country. Anyone who remembers the pre-war situation will realise this. I think that nobody wants—or very few people do—to go back to anything like that situation. But, like wonder drugs, full employment has had side-effects and, as with wonder drugs, we are now struggling with the problem of how to cope with these side-effects. The fact is that we have not learned how to deal with them.

I will not go into the question of industrial relations generally. No doubt we shall be coming back to that. The gracious Speech announced that the Government intend to go on with legislation of that kind; they certainly have a mandate for doing so. It is a very difficult subject; one on which we had the very sincere and moving speech of Lord Hirshfield.

My Lords, I should like to close with a few words about inflation. It was said in the gracious Speech: … My Government's first concern will be to strengthen the economy and curb the inflation. I must confess that I have some sympathy with what the noble Lord, Lord Shackleton, said on that point, when he remarked that there was not very much content in the policies so far announced by the incoming Government for dealing with inflation. A number of noble Lords have also referred to it, and there was the eloquent speech by Lord Robbins on the evils of it. One could go on at some length into the evils of inflation: it is a most wicked and inequitable way of re-distributing wealth. Just to give one point, it upsets all calculations about the future.

We must all agree that the present rate of inflation is a very serious problem indeed. After the devaluation of 1949 we went on with the new exchange rates for 18 years. I think that that was rather too long and that 16 years would have been better. I think that he would be a very bold man who would suppose that on present form we have even as long as 16 years before the next devaluation.

What can we do about it? First, I would say that I think it is quite mistaken to suppose, as the noble Lord, Lord Boothby, supposed, that we can just grow our way out of inflation by stimulating demand and production. The rate of growth, although we should all like to increase it very much, is something that alters rather slowly by a great deal of hard work and structural changes, whereas cost inflation can take place at a very great speed and overnight. When you say that you can expand production and that will check inflation, you are, in terms of speed, matching the rate of the hare and the tortoise without much chance of having the happy ending to that old story.

My Lords, it seems to me that there are three possible solutions. First, we can put up with it and move over to what is often called a South American economy, though not all South American Governments practise it. I feel that in those circumstances there is no doubt that the rate would accelerate, simply because each year we should get used to it. I feel sure that the country does not want that type of solution and that it would be a very damaging one. The other solutions come down, in very simple terms, to unemployment or some form of incomes policy—at least, with our present state of knowledge no one has got any further than suggesting these.

I took the noble Lord, Lord Robbins, to be saying in his speech that we should have to do it by the unemployment route. What he said was that we should not make more money available than would support the desired level of employment at the desired level of prices. In the last twelve months we have seen that what, by postwar standards, is a very high level of unemployment has been accompanied by a very rapid increase in costs. No one would deny that there must be some level of unemployment that will give price stability, but we do not know how near to zero that is. After a good deal of experience in this field I have come to the conclusion that no Government are going to adopt this route, because they would be convinced that as soon as there was an Election that would be the end of them.

Bad though the side effects are, the advantages of a full-employment policy are so great that I simply do not think it would be practicable to go back to the pursuit of price stability using the level of activity as a regulator. I do not think there is any close connection between the level of unemployment and the rate of price rises. So we come back to some form of incomes policy. Although on a great many questions I do not agree with the noble Lord, Lord Balogh (I did not agree with what I thought were his very immoderate remarks about another Member of your Lordships' House), I think that on this point we are rather close together, in that my own view is that some form of incomes policy offers the best hope. The last Government believed in it; the previous Conservative Administration really introduced it, under Mr. Selwyn Lloyd who was the father of many of the policies subsequently adopted.

Why is everyone against it? Because, they say, it will not work; and there is no doubt that, except for rather short periods, it has not worked in the past. But I think that this may be because we have not been determined to give it a chance. We have let inflation get stronger and stronger, and everyone has become more and more used to it; and we seem on the whole to be afraid of having any struggle for price stability. Yet we all say that price stability is something worth having; and if it is worth having, what does it matter if we have a certain amount of inconvenience or disturbance? If things are easy, we should have them already, in the same way as if the solutions to any economic problems were easy you would not need an expert to provide them: you would adopt them straight away. I agreed with what was said by the noble Lord, Lord Robbins, that in the public sector the Government will have to stick to their guns.

There are, of course, great difficulties, and what went wrong in the case of Mr. Selwyn Lloyd was that he started off with the nurses, where there was an obvious case of injustice and there was a good deal of public sympathy for them. I am not sure that the last Government did not make a mistake in starting off with the seamen, so causing a great deal of difficulty with the balance; of payments. But it seems to me that, at any rate, there are solutions to these problems of differentials, these problems of the people who have fallen behind. There will be substantial difficulties and some injustices in the early stage; but, as I say, if we really think that inflation is an evil—as I do, and as so many of the noble Lords who have spoken this afternoon obviously do—and if we really think that unemployment is not the way to deal with it, what have we left? I hope, therfore, that the incoming Government will have another look at their policy in this particular respect.

6.28 p.m.

LORD HANKEY

My Lords I should like, if I may, to make a totally non-political contribution to this debate. I listened with very great interest to what the noble Lord, Lord Roberthall said about incomes policies, because all that aspect of our policy really came from a Report, produced for O.E.E.C. in about 1960, on The Problem of Rising Prices. Even to-day it must be one of the most authoritative works on the subject, and the noble Lord, Lord Roberthall, played a leading part in producing that remarkable document. It is interesting to hear his comments in the light of subsequent experience, and I hope to say something about it shortly.

My Lords, I warmly agree with what was said in the Queen's Speech about the need to control inflation. I agree with all the consequences, outlined by the noble Lord, Lord Robbins, which we must, unfortunately, expect if we do not succeed in controlling it. But I want to raise a still small voice of doubt about the methods which are currently being used. I look at the situation as we have seen it over these years, and I see that year after year the Chancellor of the Exchequer—whoever he may be: I am not aiming at either one Front Bench or the other Front Bench—budgets for a healthy surplus. He says that this will reduce demand by so much, and so what we have is more and more taxes. Unfortunately, these are very discouraging to industry and to the economy generally, especially to those who otherwise would be building factories to provide employment.

I think myself that this is one of the explanations of the very low rate of real investment which we have in this country. If we take the O.E.C.D. statistics, the United Kingdom comes very near the bottom of the list, both in the amount per head and in the percentage of the gross national product which is used for real investment. If this situation continues, we simply cannot expect our industry to keep up to date; and unless we keep industry up to date, we cannot expect to keep up our rate of exports. I believe that for years this has been discouraging to our balance of payments and has impinged on our whole economy. Therefore I warmly agree with everything that has been said on the subject of investment. We all, on both sides of the House, agree about this: everybody has said it over and over again. But this is a cumulative factor, and now that we have a new set of brains to deal with this problem (and I am not making comparisons) I really think that we ought to have another look at it.

The management of demand by the imposition of extra taxes, like S.E.T., which has been attacked a good deal in this debate, tends I believe to push up prices and is a starting point for more rounds of wage demands essentially unrelated to productivity. Those wage demands are related to rises of price and not to rises of productivity. This is exactly where we get off on the wrong foot, and I believe that it is a major factor in cost inflation. Of course this is not the whole story. There are many other factors which affect demand. In this connection, I should like to say a word about the credit machine. By credit machine I do not just mean the banking system: I mean the credit machine in the widest sense, including the hire-purchase houses and all other forms in which credit is created. I do not want to go on record as underestimating the immense contribution which our banks make to our economy. They are most efficient, highly effective, and play an immense part in our economy. But I think that the operation of the credit machine as a whole can easily undo what the Government are trying to do.

I should like to tell an actual story from my own experience in 1964 and 1965, when I was head of the British delegation to O.E.C.D. In the late autumn of 1964 I was constantly receiving instructions to explain to the Council that the Government had taken measures, which would certainly be effective, to reduce demand in the economy by about £250 million; and later more measures were taken, and the figure was revised to £600 million. When the middle of 1965 came it transpired that during that period credit had been expanded by about £1,120 million. Thus the credit machine not only had undone what the Government had done but had gone about a similar distance in the other direction. After that, all sorts of measures were taken to try to control the situation, and I am sure that many of them were effective. I mention this because, if the Government are going to consider relaxing controls, I am sure that this is an item where they have to be pretty careful what they do. This shows that some sort of watch has to be kept on the extent to which effective demand is expanded by the creation of credit.

I want to raise another question. I am sure that a considerable part of the improvement in our balance of payments has been caused by an inflow of capital, both long and short term. I should like to ask the Government to consider once more whether they can be quite sure that when this capital comes into the country it does not increase purchasing power in such a way as to assist or start off inflationary pressures. I do not want to imply that this is an easy question: it is not; because the effect which an inflow of funds of this sort has on the internal economy depends partly on the operation of the Exchange Equalisation Fund, and it depends also on the management of the public debt, on the gilt-edged market, on the issue of Treasury Bills and on other factors. It is an extremely complicated question.

Nor do I want to imply that this question has not been studied before. It has been exhaustively studied. But what I want to say is that the amount of capital which is swinging about the world at the present time is getting so large and increasing so rapidly that perhaps the time has come for another look at this subject, to see whether all the factors operate as they used to do ten years ago. I do not know whether this is really so, but I believe it would be worth while to have another careful inquiry, to see what are now the possible effects of an inflow of capital, long and short term, on the inflationary trends in our economy.

I believe that it is vital to check the rise of prices because, sooner or later, we are liable to price ourselves out of international markets, and this obviously can only lead to another crisis in our balance of payments. Even if some other countries are experiencing similar trends, I believe that it is particularly important to keep our slate clean at the present time, when we are hoping to join the Common Market. It may be asked: does this mean that I believe in the Prices and Incomes Board? I am rather doubtful whether the exact system which we have had hitherto can usefully continue. It has become increasingly unpopular and I wonder whether we should not have another very close look at it.

The fact is that since the Report on Rising Prices which I have mentioned was written it has become clear that price and wage controls can be effective only when there is no inflation, or not very much inflation. If there is too much inflation, I just do not believe that these controls can be made effective. They may be effective in a sort of grey area, where we are neither in the black nor in the red, but the sector within which this effectiveness operates may be really a very narrow one. I believe that if the inflationary trends can be brought under control, it may be worth having another look at this and that it might be possible by this means to have a growth rate in the British economy which would be marginally above what it would otherwise be safe to contemplate.

I greatly welcome the intention expressed in the gracious Speech to establish a framework of law within which improved industrial relations can develop". I believe that this is an essential factor. If the law does not demand good faith in the execution of works contracts, then I contend that no trade union leader, however good he is—and we have some exceptionally good cries—and no industrialist, however broad his mind—and we have many broad-minded industrialists—can really hope to control the situation and demand good faith. I believe that the time has come when we must recognise that expressions of good will, and the hope that all men will behave like brothers, are just a waste of time. I believe that the time has come to put the law right and that this ought now to be done.

I believe that under our present law the British have, unfortunately, shown themselves somewhat incompetent to operate the great integrated industries like shipbuilding and the motor vehicles industry, on which a large part of our industrial progress and our prosperity must still depend. More especially they are essential for the maintenance of our exports and the standard of living of our workpeople. So long as the law does not demand good faith, then we are at the mercy of any bunch of demagogues and trouble-makers, and many of our industries seem to be full of them. You cannot run an efficient motor industry when the brakes are on strike one week and the electrics are on strike another week; then it is the radiators; after that the men who deliver the trucks, and then the men who bore the cylinders. You cannot expect any industrialist to run an efficient industry in those conditions.

Not only does this ruin our exports to a disproportionate degree, especially when it affects railways, docks and shipping (and a significant reference has been made to the shipping strike with which I warmly agree), but it is an important factor in causing cost-inflation. When the troublemakers and the demagogues in some particular workshop get busy and insist on a rise of rates which puts all the other rates out of gear, how can you expect even the best trade union leaders to persuade the men to carry out an agreement for the period for which it was made, and to go on working contentedly? It simply is not "on": no trade union leader could do it; nor could any industrialist expect his workpeople to do it.

So we have got ourselves into the situation where something has to be done about this. I have been on the Continent while the Election has been going on, and I must say that I was struck by the amount of advertising by the Japanese motor car industry all over Germany, Belgium and France. It really is striking. I can assure your Lordships that it is the same in Sweden. I hear that it is the same in Australia, though I have not been there. I believe that it is complete folly to ignore these signs and portents, and that we ought to be thinking very seriously about keeping our share of the market.

There is another point. I have some very old German friends, and one of them is a good industrialist. I was rather astonished when he said to me that he was now rather afraid of the British entering the Common Market, because, he said, our dreadful trade union practices might spread to Germany and upset their prosperity. Our disease (it is known as "the English disease") is thought to be quite catching. They have had trouble over there, in spite of the system which they have adopted.

LORD SEGAL

If the noble Lord will forgive me for interrupting, is he aware that the term "English disease" is usually applied to German measles?

LORD HANKEY

That is certainly a good point.

I should like to mention something else in this connection. German trade union law provides that every board of directors shall have a representative of the workpeople on the board. I asked my friend how he thought this law worked, and he gave the same answer as a number of other friends of mine in Germany had given. He said: "At first we did not like it. It is often embarrassing both to the workpeople who take on the job and to management. But, by and large, it has been immensely successful. It has led to a much better understanding by management of the problems of labour, and it has led to one influential person, at least, on the side of organised labour having a really good knowledge of the problems of management." He said: "In my factory, whenever we get into serious labour trouble the first thing I always do is to get hold of the trade union representative and sit down and have a long, quiet talk with him." I said: "Is he always a very good person, or do you get demagogues elected? Or what sort of person?" "Oh," he said, "in my experience, the workpeople have always elected a most intelligent and responsible person." And he added, "It really is an excellent system." I wish to record that, my Lords, because when we are thinking of improving industrial relations I believe that there is a kernel there of something which could be useful in this country.

So I wish the Government well in tackling this problem energetically and soon. I do not think that we should be hypnotised by the question of penalties. I know how difficult it is, but I do not believe that it is the centre of the problem. I hope that we can get away from the basic traditional idea of British law, that trade unions are a sort of conspiracy who ought in effect to be excused while they do their job. That really is a complete travesty of the truth. I hope that when the new trade union law is drafted the Government will see that we get away from the dreadful' habit that we in London have of drafting legislation purely by reference. I hope that the new law will make it clear in a preamble, or in some early clause, that trade unions are really the essential constituents of organised labour, with an important role to play in ensuring a fair deal for labour and in helping to ensure that industrial progress continues at a regular rate, without humps and bumps damaging to the individual; and that, to attain these objectives, their duty is to negotiate with, and, for that matter, co-operate with, management and with those who control the economy, and especially with the Government. We are all in this together. I think it should be the duty, and made within the power of organised labour, to ensure the execution of the agreements which it concludes. Anything less seems to me to be a travesty of what is really required.

I should like to conclude my contribution to this somewhat gloomy debate by saying that I believe in the genius of the British people. We have really quite a high coefficient of genius here, and it is our one great asset. I think that we have to find means of allowing that genius to operate; to train our people to use their genius; to give them every encouragement and to prevent the execution of that genius from being trammelled, obstructed and prevented at every turn by idiots and objectors. I am against the abominable "No"-man, whether he is in the Civil Service, in management or on the shop floor. I believe that we suffer too much from abominable "No"-men, and we should not put up with them any longer. It should be the duty of the Government and both sides of industry to ensure a rising standard of living for our people and to see that the future of our country is not endangered by irresponsible and selfish elements on either side of industry; and to that end our legislation should be radically amended.

6.48 p.m.

THE EARL OF CROMER

My Lords, my intervention will be brief. The noble Lord, Lord Beswick, with his customary courtesy, advised me that he would have some critical remarks to make to-day which would probably be of interest to me. It is true that this courtesy lost some of its lustre when I discovered that the noble Lord was himself going to wind up and therefore I was deprived of the right to reply. But Lord Beswick did make this move in my direction. Lord Balogh's personal and vindictive attack was accompanied by no such courtesy, and I have no intention of attempting to reply on the same level at which the attack was made. I believe that this kind of personal attack is not worthy of, nor in the traditions of, your Lordships' House. It seemed to me additionally undesirable and disagreeable that, however greatly the noble Lord may dislike my doings, be should pass such personal contempt on the many distinguished public servants and others who sit on these Cross-Benches.

LORD SHACKLETON

My Lords, may I interrupt the noble Earl? I am informed that my noble friend, Lord Balogh, did seek to inform the noble Earl, and wrote to him. The noble Earl did not receive it. I am not sure whether he has also told my noble friend, Lord Balogh, that he was about to reply to him.

THE EARL OF CROMER

My Lords, I have received no communication from the noble Lord, Lord Balogh, and I have just explained to the House that I am not going to reply.

LORD SHACKLETON

My Lords, if I may say so to the noble Earl, I would never accuse him of skulking, but I think that as a. "non-reply" it did amount to something.

THE ERAL OF CROMER

My Lords, you must forgive me for my lack of familiarity with the practices of this House, if that is the case.

The substance of Lord Balogh's remarks, and those of other noble Lords—and this is not a reply directed to the noble Lord, Lord Balogh—is that we have been deceiving ourselves on the financial position of the nation. I do not say that we have deliberately been doing so, but the effect has been that the public have been led to believe that the financial position was better at the end of March, 1970, than it was in October, 1964. It is the tenor of my remarks throughout that this is not so. I have no wish or desire to recapitulate the figures again, and I do not think your Lordships would welcome my attempting to do so. We have been maintaining a standard of living by borrowing abroad and spending capital, and this has to change. Also we have to try to catch up on the growth in the standard of living which has been enjoyed by the bulk of the Western European countries. We are not—and I wholly agree with everything that has been said on the subject—on the way to a crisis. I do not think that this is the case at all. Indeed, the gracious Speech gives every reason for believing that the new Government have the right priorities to achieve prosperity so that we can start to retrieve again our national financial sovereignty. Our efforts to achieve this will not be enhanced by our continuing to deceive ourselves.

6.53 p.m.

LORD BESWICK

My Lords, I begin by offering my congratulations to the noble Earl, Lord Dudley, on a maiden speech of exceptional clarity and vigour. Had he been here, I should have said to him how much I look forward to hearing the next occasion when he will speak uninhibited by his concept of non-controversy. I want also to add my congratulations to those so readily and warmly offered to the noble Lord, Lord O'Neill of the Maine, and the noble Baroness, Lady Brooke of Ystradfellte, who initiated this debate which we are now continuing. I thought that they were speeches of complete integrity, and they added to our knowledge of their respective characters in a wholly delightful way.

For myself, I noted with especial approbation Lord O'Neill's dismissal of the Goldwater philosophy, and I thought that the way he dismissed this was Wholly admirable. I want to call attention particularly to his rejection of the premise: … that the only successful appeal to the voter is one based on simple self-interest."—[OFFICIAL REPORT, 2/7/70, col. 14.] I have been sufficiently long in public life, and have spent time enough in the company of those canvassing votes on the doorsteps to know that some appeal to self-interest is, and must be, inevitable. Yet of this I am utterly convinced, that if the vaunted freedom of Western civilisation is to survive, then we must reject an undiluted appeal to individual self-interest.

Yet the most depressing feature of this Election is that it was won by a persistent appeal to selfishness, or selfishness coupled with crude fear. That there are generous spirits among the Conservative ranks I have the evidence before me to prove, but it was the Leader of the Conservative Party who boasted that his insistent appeal to the housewives' purse was paying off in terms of votes. The noble Earl, Lord Jellicoe, made a wholly admirable speech. He said that he approached this matter of the national economy in terms of impartiality. I am not surprised that he did this. He succeeded, but I am bound to say to him that if the fair-minded approach that he displayed to-day had been followed by the Leader of his Party he would not to-day be sitting on that side of the House. Of course the purchasing power of the pound note is of enormous importance, but it was the primitive appeal to self-interest, projected with such relish by the people of Lime Grove, with no reference at all to related facts and background, that makes me wonder about the quality of the Government now in power.

The only States in the world apparently without problems of price and income control are, as the noble Lord, Lord Boothby, said, Communist States. No doubt if we had a closed economy, totalitarian rule and a complete absence of individual liberty, then we too could solve to-morrow the undoubted difficulties which beset us in common with every other country of the Western World. The noble Earl, Lord Jellicoe, spoke of the unparalleled rise in prices. It is paralleled in every country in the Western World, and most of the figures suggest that in the citadel of capitalism, the United States, in the past year or two both unit costs and prices have risen more there than they have in this country.

I agree with the noble Lord, Lord Byers, and share with him the disappointment, not that these things were not argued out before the electorate—because they were, in my experience, in the little village halls around the country—but that they were not argued on the television, where the trivia, the minute and the sensational were seized upon. It was there that the problems to which the noble Lord referred, and which ought to have been discussed, were ignored. But not a word was said by the Leader of the Conservative Party in the appearances he made on television about an alternative prices and incomes policy and how within a democratic society we were to tackle this problem. Nothing so far to-day, nothing in the gracious Speech, nothing, that is, save that the Government, believe that vigorous competition is the best safeguard of the consumer. Vigorous competition? Back to the free-for-all? I put it to the noble Earl, Lord Bessborough, who is to reply—a noble Earl who is as well versed as any of us in the technologies of the modern world—whether he really believes that a free-for-all in a contemporary economy could be effective or even feasible in guaranteeing a fair deal for the consumer?

One would have reasonably expected, with the emphasis that the Conservatives put upon the question of prices, that absolute top priority would be given to solutions of this problem. But nothing of the sort. I put this specific question to the noble Earl, Lord Bessborough. Does he really believe that his Government can stabilise prices at their present level? If so, what measures are to be used to this end? It is fascinating to contemplate the issues to which the incoming Administration have given priority. When they took over from us in 1951 their first priority was a concession to the brewers. This time one, if not the first, announcement to the Press was about arms to South Africa. Their second announced priority was to allow the more bigoted local authorities to determine the future of a child at the age of 11. But that is not going to increase the potential of our people. They have also announced that they will bring down the cost of living by reducing taxation, and much interest has been shown to-day in this possibility.

This is a wholly admirable proposition until one examines it further. In much the same way one might be tempted to welcome an announcement from "on high" that we were henceforth to have continual sunshine, till on reflection we realise that rainfall also has its uses. If it proved possible to reduce the administrative costs of Government without in any way reducing its efficiency, then of course we all should be genuinely pleased. I, for one, believe that there are certain areas in which genuine economies could be effected. But the total monetary result of such economies would be minimal. We all know that significant cuts can be made only if policy is changed. But such policy changes must mean, as my noble friend Lord Shackleton said, either that a service is reduced, or that the cost is shifted from one person to another.

In one sector of the economy, policy changes have been announced, and the noble Lord, Lord Woolley, has referred to them. Very considerable reductions in taxation could follow if the principles of the 1947 Agriculture Act are dropped and, instead of subsidies designed to keep food prices down, we move over to import levies, deliberately designed to put prices up. Much thought was given to the levy system by the previous Administration. In the case of one commodity, eggs, where demand was just about matched by home supply, we decided to phase out subsidies. But that approach is very different from the approach of noble Lords opposite, as I understand it; and their approach is different from the temperate approach which the noble Lord, Lord Woolley, asked for. As I have said, by this new agricultural policy large sums of taxpayers' money could be "saved"—though I put the word in inverted Commas for it is not a genuine saving at all. The money will still be paid—and by those same housewives who were "conned" by Mr. Heath on television. And, let us remember, some of the families who will be paying for this new policy will be those whom Mr. Jenkins took out of the tax-paying bracket altogether.

There is another area in which the Government may be tempted to make economies, but if they fall to that temptation it will be tantamount to eating our seed-corn. I refer to the area within which the previous Government had given carefully judged financial support to particular projects calculated to benefit our economic position. I want to ask the noble Earl who is to reply about only two projects, and two for which he has special responsibility. And may I pause to say, sincerely, that I am delighted to see him allotted to his particular post at the Ministry of Technology. No one appointment gives me greater pleasure than that of the noble Earl, Lord Bess-borough. If at any time he wearies of welldoing in the world of aircraft, I hope he will re-read a speech which he made on April 15.

I ask him first about the new Government's intentions regarding the BAC 311. A decision about this aircraft will be, in a real, wide, deep sense, a decision about the aircraft industry in this country as a whole. Britain, with its crucial balance-of-payments problem, needs a British aircraft industry. Anyone who is at all minded to doubt this should reflect on the significance of the import a month ago of two foreign aircraft for British Overseas Airways Corporation. If British European Airways have to buy abroad for their next generation of aircraft, the consequences could be even more significant and more far-reaching for our economy. The noble Earl and others pressed me for an answer about the BAC 311 in the April debate. At that time, as he will know, the question of which engine to put into the aircraft had not been settled. It has now been settled. The new development of the RB 211, the—50A, is now a definite proposal. It may be unreasonable to expect a definite decision this evening, but B.E.A. requirement is now even more urgent, and B.A.C. cannot be expected to continue their expensive research unless prospects are clarified. What is the present position therefore, I ask the noble Earl? Can he say today definitely when a decision will be announced?

The second project about which I have given the noble Earl notice concerns the Concorde. Newspaper speculation suggests that this admittedly expensive project is being considered as a sacrifice in order to make good the electioneering pledge of economies. There was a case which I myself made at some length, years ago, for not starting on the Concorde. There was undoubtedly a case for reviewing the credibility of the whole undertaking six years ago. But now, with the flight testing programme at its present stage, it would be a criminal waste of money and manpower to abandon the Concorde on the excuse of an alleged new financial crisis. If the operational economics are shown to be unacceptable, then of course that must be taken into account. But I ask the noble Earl to give us an assurance that the decision, if any is taken, will be on the economic merits of the aircraft, and not because of any question of the national financial position.

This possibility about the parlous state of the economy which the Government inherited of course brings me to the noble Earl, Lord Cromer. I am sorry if he thinks I was discourteous in speaking at the end of the debate and therefore not giving him the right of reply. What he really wishes, apparently, is two innings to my one. He has had his innings. I am now replying to him, and he should be prepared to take what I am going to say to him. I pay the noble Earl the tribute that, until the final few days of the Election campaign, he was, in my view, the most effective propagandist on the Tory side. But what I cannot understand is why, with this eminence in the Tory hierarchy, he sits on the Cross Benches. Why does he purport to be above the Party struggle? Sitting on those Benches implies a degree of objectivity which I fail to discern in what the noble Earl says and writes.

Look, for example, at the terms and the tone of his article in The Times of June 8. In his attempt to prove that the new Government's burden is greater than in 1964, he starts off by saying that at the beginning of October, 1964, the United Kingdom short-term borrowings were rather less than 200 million dollars. Of course they were. But will he deny that, given the situation in October, 1964, with a balance-of-payments deficit of nearly £800 million, with British industry seriously under-capitalised, with public expenditure exceeding public revenue by no less than £1,000 million and with the exchange rate of sterling further handicapping British exporters, short-term borrowings on a big scale would have been necessary under any Chancellor, Labour or Tory, by the end of the year?

THE EARL OF CROMER

My Lords, that is a very sweeping statement. We are talking about the period immediately before the Election in 1964. Some financing was required, as I have mentioned, of the deficit which was seen to be arising at that time. Of course, the deficit was not what some political leaders tried to make it out to be. But there was some short-term financing, which I have mentioned.

LORD BESWICK

My Lords, there was some short-term financing and it amounted to the figure which the noble Earl gave. I am saying to the noble Earl that, with those trends in our economy which were developing in October, 1964, it would have been necessary for any Chancellor of the Exchequer, Tory or Labour, to have borrowed further sums of money on the short-term in the following year.

The noble Earl may say, as indeed he does in his article, that the borrowing went on, even after devaluation. One of the most charming and illuminating sentences in his article reads: Fortunately wind and tide in the world changed at that point and the substantial repayments of our debt made possible …". But what were these winds and tides which changed? They were largely the speculation of international financiers on the possibility of a change in the exchange rate of the French franc and the German mark. He knows that. Of course they were; and when the French franc was devalued and when the German mark was revalued, the winds dropped, as he said. But to say that it was the Labour Government that was responsible for these winds and tides is surely going quite contrary to the facts of the situation.

THE EARL OF CROMER

My Lords, if I may intervene, I would say that I have not so far bestowed on any political Party the powers of the Almighty in regard to wind and tide. I have not suggested that the Labour Party were responsible for the change of wind and tide, as the noble Lord has just said. But there was a change of sentiment which came about which was largely a reaction from the very serious lack of confidence in sterling which occurred, strangely enough, after devaluation, and there was a large outflow of funds at that time.

LORD BALOGH

I think that—

SEVERAL NOBLE LORDS

Order!

LORD BESWICK

My Lords, in this article the noble Earl implies that the fact that we were able to repay some of that debt is due to the fortunate circumstance of a change in the winds and tides of the world. That is what he said, and I am saying that those same winds and tides were responsible for much of the short-term borrowing which we had to undertake at that time.

I want to ask the noble Earl one other question, and I will give way if he will answer it. He says in another paragraph: As is now common knowledge, the so-called invisible earnings have for many years enabled the private sector as a whole to show every year (except 1964) a massive overall surplus on the balance of payments. He then goes on: Continually and rapidly rising Government expenditure abroad has in many years turned this into a deficit. That is quite true; I accept that. But the way he says it is absolutely misleading. I am not quite sure why he puts emphasis on the private sector in this way. We are living in a mixed economy. The private exporter of, say, motor cars is dependent upon publicly produced gas, electricity or coal. His products go to the ports along public roads; his labour force is largely educated at State schools, and kept physically fit by the public health service.

But, leaving aside the provocative terms in which the noble Earl couches his proposition, what he says is true, but it is not the whole truth. I put forward exactly the same proposition myself on behalf of the Government, in an interesting debate which we had on invisible exports on the report of the Committee on Britain's Invisible Earnings. But why did he not give the actual figures and the dates, and the full facts? Expenditure overseas actually rose from £61 million in 1952 to £433 million in 1964 when his Tory friends left office. That was the increase in overseas expenditure that he was really criticising, and more than half of that was on military account. Why does he not put that in the article if he wants to give a char picture of the situation?

The question I now want to put to the noble Earl, if I may, is this: does he or does he not agree with the action taken by the Labour Government to curb that rising expenditure, action which had already arrested the growth and would have led to a decline as the military base commitments were ended? In other words, does he accept the financial consequences of the Conservative policy East of Suez, or does he accept the wisdom of the Labour Government in reducing those commitments overseas?

THE EARL OF CROMER

My Lords, the noble Lord asked me why I did not spell out the table. It is a very long and fairly straightforward table, and his argument about Government expenditure using up more than the private sector is earning in foreign exchange is one which I have propounded for a very long time—since long: before the Labour Party came into power, I still maintain that it is a fact of life that the private sector actually earns foreign exchange. Of course it is dependent on roads, docks and national industries, but it is the private sector and the accounts are set out in that particular way. So one has to differentiate somewhere. The fundamental question which the noble Lord asked me is whether I agree that the Labour Government did right in trying to reduce the level of Government expenditure. Certainly I believe that that is right, because I have been consistent on this line for a very long time. In 1967 and 1968 the results were rather good, but the results in 1969 were very unhappy, according to my figures. The total Government expenditure overseas from 1957 I have as £182 million, which has risen to over £800 million in 1969. And this was a trend despite the efforts which the Government made—it was still running the wrong way.

LORD BESWICK

My Lords, I quite accept from the noble Earl, in this House, after the Election, that he has been making this point since before the days of the last Labour Government. What I want to know is why he did not say that in the article at a time when he was inviting the people to come to a conclusion as to the responsibility of the Labour Government.

The noble Earl made great play, as indeed did the noble Earl, Lord Jellicoe, about the amount of debt still outstanding and that it represented wholly a liability. But a large part of this was due to a withdrawal of overseas Government and private deposits, which in that sense means not an increase but a transference of debt, speaking in national terms. Moreover, in further part, estimated variously but usually put at £900 million, this was an outflow of long-term capital, the investment of which the Conservative Party had long been pressing. They were encouraging investment overseas. There may be a difference of view as to whether capital outflows of that kind should have been greater or less in the circumstances, but to say that Britain is worse off by that amount is again contrary to plain fact.

My Lords, practically every statistic in the noble Earl's article, or at any rate the use to which they have been put, could be challenged. But there is one sense in which the headline to the article can be said to be true.

THE SECRETARY OF STATE FOR DEFENCE (LORD CARRINGTON)

My Lords, I do not want to interrupt the noble Lord but would it not have been better if he had written an article in response to the noble Earl rather than to reply to it now?

LORD BESWICK

My Lords, I tell the noble Lord what I think would have been better. I think it would have been better had we had that debate on the financial situation before the Election, so that the noble Earl could have put his point of view and it could have been tested in debate instead of preserving it until that crucial time in The Times newspaper.

I was about to say that practically every statistic in the noble Earl's article could be challenged, but I said there was one sense in which it could be said to be true. In one sense our burden is greater than in 1964. It is a sense in which I am reminded of a moving story told by the late King George VI. He spoke of how a worker in the fields had been commiserated with for the heavy burden which he had been seen carrying over the hill. "Not so", replied the worker, "that was not a burden, it was my brother."

Since 1964 we have assumed, deliberately and voluntarily, and against the advice of the noble Earl, I gather, when he occupied another position, a heavier burden on behalf of the old and the young, the sick, and those who are made redundant in industry. We accepted that burden—

THE EARL OF CROMER

My Lords, may I suggest to the noble Lord that it is wholly improper to make any reference to what the noble Lord may have heard that I proffered as official advice at a time when I was serving the Government. Any official advice which I tendered at any time was given on a basis of confidentiality. I would suggest to the noble Lord that he should keep off this particular line. I am very surprised that the Leader of the noble Lord's Party has also seen occasion to forget that a degree of confidentiality normally goes with public service.

LORD BESWICK

My Lords, I think that the noble Lord has a point, and I would not myself have made that remark had the information I acquired been acquired in any confidential manner. I am quoting, or paraphrasing from Hansard in another place, as he will know. I was saying that we accepted that burden because we believed that it was compassion allied with competence that would give us a truly civilised society. Competence and compassion: and I do not believe that we can get maximum competence in a society unless we have compassion. It is because the present Administration won this Election by an appeal to self-interest rather than compassion that I think the electorate will greatly regret what they have so recently done.

7.21 p.m.

THE MINISTER OF STATE, MINISTRY OF TECHNOLOGY (THE EARL OF BESSBOROUGH)

My Lords, we have had an interesting debate on the general economic situation. It has been particularly interesting towards the end; a curious ending to the debate, almost a private debate between the noble Lord, Lord Beswick, and the noble Earl, Lord Cromer. I think most of my noble friends hesitated to join in and wondered whether perhaps they should leave the Chamber. However, I should like to thank the noble Lord, Lord Beswick, for the kind remarks he made about my new responsibilities. I know that in the noble Lord, Lord Beswick, we have someone in this House who is very familiar with the aviation questions with which I shall be mainly concerned at the Ministry of Technology. I shall be answering his questions on the subject of the BAC 311 and the Concorde to the best of my ability later in my remarks.

I should like to join with other noble Lords in congratulating the noble Earl, Lord Dudley. I am sorry that he is not present to receive these congratulations, because he made an interesting and very impressive speech without notes. We knew his father well in this House, and it is good that the noble Earl should be sitting in his father's place. We all hope that he will often address us in such sturdy and, downright terms. I am sure that all of us will study his suggestion regarding the reduction of corporation tax and its relation to investment grants, to which I shall be referring later. I shall read that part of his remarks very carefully, as also those of the noble Lord, Lord Robbins, on corporation profits tax. These, too, were most illuminating.

The general situation has been well described by my noble friend Lord Jellicoe. We must all agree that this country is to-day facing one of the most serious inflationary problems since the war. The noble Lord, Lord Robbins, and the noble Lord, Lord Hankey, both made important contributions on this subject. It is clear that this problem is the more serious for Britain because of our poor growth in productivity, our inadequate reserves and substantial overseas debts, the chaotic state of our industrial relations and the fact that we are suffering from the backlash of the collapse of the incomes policy.

My right honourable friend in another place and my noble friends in your Lordships' House have also stressed the downward trend in the surplus on the balance of payments. We all agree that there may be good months and poor months but that it is the trend that matters. I should also stress the burden of the interest payments on our overseas debts, amounting last March to a figure of £1,650 million. I will not recapitulate all that my right honourable friends have said, but will only re-emphasise that the increase in the value of our investments overseas was entirely due to the more rapid growth of the economies of countries overseas where those investments were placed; and I should also add that with half a million men, women and young people out of work no one can say that the situation here is healthy.

Nor is it healthy that the number of strikes in the first lour months of the year is 60 per cent. up on the same period last year. No one can deny that industrial output is stagnating; that the industrial production index for April actually fell, and that manufacturing investment is static. It is regrettable, too, that great firms have been unable to finance their expansion out of their own resources and have had to go to the Government in order to borrow, at the same time seeing their profits seized by taxation. Also, we are suffering from the worst bout of inflation that we have known for twenty years, with a consequent reduction in the standard of living. I can only repeat that we shall reduce the burden of taxation and that the Government will announce the action to be taker in this respect as soon as the necessary examination of Government expenditure has been completed; that is to say, in the autumn.

There has been much discussion as to whether there is a national emergency and crisis. Like other noble Lords, I can only say that it was Mr. Crossman himself who told the doctors at the be ginning of the election campaign that this was a time—

LORD SHEPHERD

My Lords, I think the noble Earl should be fair. This was alleged, and Mr. Crossman denied it. I think the noble Earl should recognise that fact.

THE EARL OF BESSBOROUGH

My Lords, all I can say is that Mr. Crossman said it at the outset, which was a great pity.

LORD BESWICK

My Lords, would the noble Earl be prepared to give us the occasion on which my right honourable friend made this statement?

THE EARL OF BESSBOROUGH

Yes, I am sure I can, afterwards.

LORD BESWICK

Now.

THE EARL OF BESSBOROUGH

My Lords, it was clearly reported that Mr. Crossman said this to the doctors. If I am wrong, I stand corrected. This was reported. The present Government's general view has already been made plain by my right honourable friends, and by my noble friend Lord Jellicoe this afternoon. There is, we believe, no immediate crisis, but there are risks. I was leading up to this point. I thought I had better contrast it with the original statement by another person.

LORD BESWICK

Would the noble Earl be good enough to say whether he is still standing by his original statement that Mr. Crossman said that we were faced with an economic crisis or an economic emergency?

LORD BYERS

My Lords, does the noble Earl not recognise that what happened was that it was reported by those who saw Mr. Crossman, and Mr. Cross-man contradicted it, which made it more circumstantial.

THE EARL OF BESSBOROUGH

My Lords, I am very glad to be put right by noble Lords, especially by the noble Lord on the Liberal Benches. I should like to emphasise that we do not think that there is an immediate crisis but that there are risks inherent in current trends which could, in the absence of appropriate corrective policies, cause us to slide back once more into the all too familiar balance-of-payments crisis. There is undoubtedly the risk that present inflationary trends may continue at the current rate, and that as a result our costs position will deteriorate vis-à-vis our main competitors. This, I repeat, is only a potential threat, and we are urgently considering what action is necessary. Whether it is realised depends, of course, not only on our success in controlling our internal costs, but also on the success of our competitors in moderating the advance of their prices.

Secondly, there is the risk that if the present inflationary trend continues for long it may become very much more difficult to alter expectations about the future course of prices and hence to introduce effective policies to slow down the rate of price increases. These dangers on the prices front are, to my mind, the most serious. There are, of course, other elements which give cause for concern in the situation which we have inherited. Output actually fell in the first quarter, unemployment is high, and manufacturing investment has been static. There are more expansionary elements in the situation, to which many have alluded in the course of this debate, and a balanced view most certainly should take them into account. But indications such as I have listed point to an economy which requires to be strengthened, and that is what I believe our policies will do. I should now like to say a word about the nationalised industries which are the special responsibility of the Ministry of Technology.

LORD SHEPHERD

My Lords, may I intervene, merely to ask for a little information which has not been available during the debate? As the Minister is from the Ministry of Technology and is particularly aware of this, and as it is particularly important in relation to the balance of payments, can he give an indication as to the size of the order book of our export industries, particularly of the machine tool industry?

THE EARL OF BESSBOROUGH

My Lords, I have not got those figures before me this evening, but I will certainly send them to the noble Lord.

LORD SHEPHERD

My Lords, would the noble Earl not agree that they are infinitely higher than they were last year?

THE EARL OF BESSBOROUGH

They are certainly, my Lords.

LORD SHEPHERD

I thank the noble Earl.

THE EARL OF BESSBOROUGH

My Lords, in regard to the nationalised industries I would say this. Manufacturing industry, and indeed the community as a whole, must rely heavily upon the successful and efficient conduct of these sectors of the economy. They are the necessary foundation of future economic progress. In saying this, I do not simply have in mind their size, vast though it is, with net assets now valued at something of the order of £14,000 million. This represents an annual investment comparable to that for the whole of manufacturing industry, and employing 8 per cent. of our labour force. Rather I have in mind their strategic importance in providing basic supplies and services like energy, transport and communications. These lie at the heart of any modern economy. Gains in efficiency here benefit everyone; they are passed on to become gains in the efficiency of the whole of British industry, to increase the prosperity of consumers and reduce the cost of exports. I am glad that noble Lords opposite accept those remarks.

All the more important, therefore, to be sure that these crucial industries are both encouraged and helped to operate at maximum efficiency. I am sure all noble Lords will agree with this, even though we do not necessarily agree on the means of securing these objectives. Indeed, as noble Lords know, we on this side of the House are totally opposed to the further nationalisation of British industry. We are determined progressively to reduce he involvement of the State in the nationalised industries, for example in the steel industry, so as to improve their competitiveness. An increasing use of private capital would help to reduce the burden on the taxpayer, get better investment decisions and, I believe, ensure more effective use of total resources. And of course we will prevent the waste of £76 million on the nationalisation of the ports.

With so much at stake we propose to approach these matters with great care. I am well aware that there is no easy formula that will give massive increases in efficiency. We shall be considering issues like the degree of Government involvement in the industries, and the introduction of some private capital both to reduce calls on the taxpayer and as an added stimulus to efficiency. We shall consider the possibility of introducing a more effective accountability system in the business sense and what should be done about unprofitable or borderline activities. When we have completed studies into these issues, and not until then, we shall make our proposals to Parliament.

In regard to nationalised industries' prices, on which the noble Lord, Lord Beswick, spoke particularly, my right honourable friend the Chancellor of the Exchequer has, I believe, told honourable Members in another place that we in this country find ourselves faced with a situation in which early price increases are either already in prospect or known to be coming forward over a large part of the nationalised industries field. We said before the Election that we would scrutinise closely all proposed price increases in the public sector, and that those increases would be allowed only where there was a proved case for them. We intend to carry out that promise.

It is most important for the economy generally that we should take a firm grip on prices in the public sector because of the contribution which a break in the wage-price spiral can make towards the stability of the economy as a whole. That does not mean that we intend to have a price freeze in the public sector. We do not believe in freezes of this sort. Nobody could be more conscious than a Chancellor of the Exchequer of the effect which a deliberate holding down of public sector prices can have on the allocation of resources on nationalised industries and their need to borrow from the National Loans Fund. On the other hand, we find it hard to accept that there is not considerable scope for absorbing higher costs by increased efficiency rather than by the easier course of simply passing on higher costs through higher charges. We on this side of the House regard a searching investigation into proposed prices increases in the public sector as an essential complement to the thorough examination of Government expenditure on which we are engaged.

I was asked by the noble Lord, Lord Shackleton, about the Coal Bill. This Bill was introduced by the Labour Government shortly before the Dissolution of the last Parliament. I should point out that it had an unopposed Second Reading. The main point of the Bill was to extend the existing powers to support the coal industry when present powers expire in March, 1971. All I feel that I can say this afternoon is that the Government recognise the importance of this matter, which is under active consideration, and that decisions will be taken in good time before the expiry of the present powers. I might add that if our consideration of the need for the Bill is completed in time we shall try to make a statement before the House rises.

In regard to investment in industry, I was extremely interested in the remarks of the noble Lord, Lord Boothby, who made certainly the most lively and enjoyable speech in the debate, and it greatly cheered us all. He talked about investment in industry. A high level of economic growth and prosperity requires a rising productive potential, or, as he would say, expansionism, and capital investment by manufacturing industry is a key factor in achieving this. I welcome the rise in the absolute level of investment in recent years as a basis for further, wider expansion. Historically, investment has moved in cycles and in the recent past there has been a period of upswing which may now be reaching a peak. Here there are certainly signs of a slackening of growth.

Manufacturing investment at constant prices rose by 10 per cent. between 1968 and 1969 to reach its highest level ever recorded for a calendar year—although I should add that as a ratio of the gross domestic product it was lower than at the peak level in 1961. Investment in 1970 is, I believe, likely to be higher than in 1969. Manufacturers' latest forecasts of their intended expenditure in 1970, provided to the Ministry of Technology in May, indicated an underlying increase of about 7 to 8 per cent. over 1969. However, the recent run of figures of actual expenditure show that investment in the three quarters up to the first quarter of 1970 had been on a plateau. This suggests that the rate of increase between 1969 and 1970 will be rather below that indicated by the May inquiry. The Confederation of British Industry believe that the rate of growth of investment between 1969 and 1970, based on the results of the latest Industrial Trends Survey taken in June, will be about 4 per cent. I do not think it is possible at this stage to estimate the rate of growth precisely, since, in particular, it is not clear what effect financial pressures may have had on investment during the March quarter when tax payments were greatest. Ambitious investment plans are based on confidence in the future prospects, both for sales and for the rate of return to investors. The Government believe that their policies will provide a climate of confidence necessary for high and well-placed investment by industry.

My Lords, if you will bear with me for a moment, I should like to say just a word about Government intervention in industry. In regard to this, the gracious Speech has made clear our intention to free industry from unnecessary intervention. We are not opposed to all forms of Government intervention or assistance to industry. We recognise that there are certain industries with which, for one reason or another, the Government cannot fail to be closely concerned. But we believe that under the last Government intervention went too far; and Government moved too often into the field where decisions are best left to industry and the market.

LORD SHEPHERD

My Lords, could the noble Earl give us an explanation of that, or an illustration?

THE EARL OF BESSBOROUGH

My Lords, I do not think noble Lords would like me, at this stage in the proceedings, to go into detail, but there are many examples from the I.R.C. The noble Lord, Lord Delacourt-Smith, could give the noble Lord, as he is sitting next to him, a great many examples.

LORD DELACOURT-SMITH

My Lords, the noble Earl was kind enough to refer to me, but it was not I who talked about these measures being unnecessary, it was the noble Earl. What my noble friend is seeking is some examples of unnecessary interventions; one, two, or three will suffice.

LORD SHEPHERD

Just one will do.

LORD DELACOURT-SMITH

That will not detain the House too long.

THE EARL OF BESSBOROUGH

My Lords, I am grateful to the noble Lord for asking that question, but I am afraid that I must disappoint him this evening. I will certainly write to the noble Lord if he would like specific examples. I am not going to commit myself this evening on this point as to particular industries where intervention would do damage to a particular firm, or it might do general harm, and I am not going to discuss the position of individual firms in this House to-day. We are now reviewing the various policies of Government intervention.

LORD SHACKLETON

My Lords, I asked the noble Earl these very points in my opening speech about six hours ago. Surely the noble Earl could have produced one example. If not, we shall have to press the Government very hard on this point.

THE EARL OF BESSBOROUGH

My Lords, I was going to say that we were reviewing the future of the Industrial Reorganisation Corporation and of financial assistance to industry generally. I cannot anticipate the results of these reviews; each policy will be considered on its merits. But I am confident that the outcome in total will be a significant reduction in the extent of Government intervention, and a greater freedom for industry to make its own decisions.

I shall not burden your Lordships with the remarks which I was proposing to make on industrial policy for the regions, because I do not think any noble Lord has raised it, but I should perhaps reply to the noble Lord, Lord Shackleton, on the question of investment grants, which was also referred to by the noble Earl, Lord Dudley. The present position is that grants are available to manufacturing, extractive and construction industries for investment in plant and machinery, and to purchasers of ships, computers, and hovercraft. The basic rate of grant is 20 per cent. of the capital expenditure incurred. A higher rate of 40 per cent. is payable on plant and machinery in development areas. The cost of the scheme is running at about £600 million a year, of which about £110 million represents the extra 20 per cent. grant paid in development areas. Grants are not available for plant and machinery in the service industries, which receive instead a 30 per cent. initial allowance against taxation.

We—the Government—do not oppose the principle of financial incentives to investment, or of special incentives in favour of the development areas. Both principles were embodied in the system of investment allowances and selective cash grants for development areas administered by the previous Conservative Government. None the less, there has been growing concern that the present system of investment grants may not be the most effective way of dealing with the problem.

In Opposition we were critical of the cost of the scheme. We question whether, at £600 million a year, it gives the taxpayer value for money. We doubt also the advantages seen by the previous Government in the automatic nature of the investment grants. Of course, grants can help the new firm which has not started to make profits in a way investment allowances could not. I agree about that; but, on the other hand, investment allowances did not put money into less profitable firms who otherwise might have gone out of business. Of course, the higher rate of grant will attract to development areas some firms who can make a real contribution to the employment problems of the regions, but at the same time millions of pounds are being given at the higher rate to firms who either would have invested in the development areas anyway or who, by investing in capital intensive schemes, nuke little contribution to employment in the areas, and may even reduce it.

Nor have criticisms of the scheme been confined to the Conservative Party, as noble Lords opposite: know. Opinion in industry is, to say the least, divided on what system of incentives is most acceptable. There was sufficient doubt in the previous Government's mind to prompt a major review of the effectiveness of investment grants, and against this background it is natural that we should wish to study the matter further and fully. Our Election Manifesto stated a preference for a return to a system of incentives based on the tax system, which would mean that benefit would go only to firms making a profit and who are, therefore, prima facie, viable. This remains our view, but until the study is complete we shall not reach a decision. I cannot at this early stage say when the study will be complete. I should make the point that the changes will not, of course, be retrospective.

My Lords, a brief word on industrial relations. In the last two years there has been a serious increase in the number of strikes and of days lost through strikes. The Government have therefore made the reform of industrial relations an essential part of their programme. The Government have committed themselves to introduce during this Session legislation which will provide a new framework for the conduct of industrial relations. Within this framework these relations can be developed and improved over the next decade. At this late hour I will not go further into that subject.

LORD BYERS

My Lords, may I ask the noble Earl, before he leaves that point, whether it would be possible to produce a White Paper, or a Green Paper, in advance of legislation so that the House can study it properly before we come to the Bill?

THE EARL OF BESSBOROUGH

My Lords, I will certainly consult my right honourable friends about that suggestion.

I come now to industrial training, which was mentioned by the noble Lord, Lord Byers, Lord Shackleton and Lord Hirshfield. This is a matter to which we propose to give a high priority. I recognise that a good deal of progress has been made, in both the quality and the quantity of industrial training, through the operation of the training boards and the expansion of Government training centres. But the scale of the effort is still inadequate. We continue to be plagued by shortages of skilled labour in many parts of the country. At the same time, more needs to be done in devising forms of re-training which will help to re-absorb the unemployed into productive employment. There is a good deal more that I could say on this subject, but I think that noble Lords are all conscious of the essential points in regard to training and re-training.

I should like to say a word to the noble Lord, Lord Woolley, who made a most distinguished speech, to which I listened with very great interest because I knew that he was a former President of the N.F.U. I should like to associate myself with what he said about my noble and right honourable friends who are going to speak on these matters in your Lordships' House and in another place. Our agricultural industry can clearly make a further major contribution, through import saving, to the balance of payments. This will be of great importance to the nation's economy, whether we are in the European Economic Community or out. But additional resources will be needed if the confidence of the industry is to be restored, as I myself, as a farmer, know. We are pledged to provide for a marked expansion in farm output. We have placed much emphasis on the need to make changes in the present support arrangements, and the need is to proceed to a replacement of the deficiency payments system by one of levies on imports, as the noble Lord knows.

Of course this will all take time, and there will be full discussions with all concerned, both at home with the industry and abroad with our suppliers. These discussions will commence at the earliest possible moment, but in the meanwhile the present arrangements will continue. I greatly appreciated the remarks made by the noble Lord, Lord Woolley, which I am certain will be carefully studied by my right honourable friends, as I am certain also will be the views of the noble Lord, Lord Beswick.

I should now like to answer—I am afraid that it must be fairly briefly—the questions of the noble Lord, Lord Beswick, regarding the BAC 311 and the Concorde. There is not really very much more that I can say about the Concorde which the noble Lord does not know already. The Concorde is of course the greatest civil project ever tackled by the aircraft industry. Results so far have been encouraging, and the development is proceeding as planned. In regard to the BAC 311, both the B.A.C. and Rolls Royce have asked for Government financial aid for this aircraft. B.E.A. are very interested in it and we shall, of course, take full account of their views. I appreciate the great importance of this project, and it has a very high priority. I agree about its urgency, but very large sums of money are involved—over £125 million of Government aid towards a total launching cost for the aircraft and the engine of around £200 million. The Government will have to assess the proposals very care fully in relation to other pressing claims on the Exchequer. A decision will be announced as soon as possible. Your Lordships will be aware that Hawker Siddeley Aviation are already participating with French and German contractors in the A300B airbus aircraft, which is also aimed at the large—

LORD BESWICK

My Lords, I am sorry to interrupt, but I wonder whether the noble Earl has made a mistake about the support needed for the engine. His figure of £200 million seems to me very high. I thought the figure was something in the order of £50 million to £70 million. I wonder whether the noble Earl could have another look at that. Further, can he not give us some indication as to when a decision can be expected?

THE EARL OF BESSBOROUGH

My Lords, it will be one of the earlier decisions. As to the figure, that is the figure that I have been given. But, as I said, your Lordships are aware that there is this other project, the airbus, in which the British aircraft industry is also in terested, which is also aimed at the large market which it is thought will exist in the later 1970s for this type of aircraft.

I have not been able to cover all the points and I hope that noble Lords will be indulgent towards me, speaking from this Box for the first time on economic questions in general. I also hope that noble Lords will forgive me if I have omitted to say what I might have said or should nave said, but it is impossible in so wide-ranging a debate of this kind to cover all the points. I particularly apologise to the noble Lord, Lord Drumalbyn, for not being able to hear the whole of his speech; but I probably know the sort of line which he took, and I hope that it was that line.

Briefly, I would sum up the subject in this way. While it is true that we have a present surplus on the balance of payments and sterling is relatively strong, we have also inherited a record rate of price increases, record inflation, a record level of taxation, a record level of unemployment, a record number of strikes—I regret to say all this—a record level of interest and mortgage rates, and of course devaluation which the noble Lord, Lord Robbins, considers; might have been avoided. All in all, this is not a happy inheritance and it will undoubtedly take us some time to reverse these trends and resolve the problems which arise out of them. It will take time, but we are determined to resolve them. We are determined to restore economic growth, cut taxation and put a check on rising prices. We shall stimulate savings and control Government spending. We intend to reform industrial relations and make a new drive to tackle the problems of housing and care for the needy, on which a start has already been made with the over-eighties. It is a formidable programme but we are determined to succeed.

LORD SHACKLETON

My Lords, I wonder whether, before my noble friend, Lord Shepherd, moves the adjournment of the debate, I may ask the Leader of the House to give consideration to one or two problems which have arisen during the last hour, particularly during the private debate between my noble friend Lord Beswick and the noble Earl, Lord Cromer, which drew attention to the fact that once again—and this is the first active day of this Parliament—your Lordships are never quite clear on the rules for attendance.

For instance, the noble Earl who made his maiden speech has not been present, so far as I know, during the winding-up. This causes embarrassment. One hesitates to criticise him, because he may not know the custom or your Lordships' House. But this again is a matter to which I would ask the Leader of the House to direct his attention and perhaps consider. The same applies to the Mover and Seconder of Motions. The noble Lord, Lord O'Neill of the Maine, who moved the humble Address, has faithfully been here all day, but the noble Baroness has not. There may be a good reason for this, but it puts the House in some slight difficulty.

This leads me to a further difficulty which arose when the noble Earl, Lord Cromer, rose—quite in accordance with the custom of your Lordships' House—though his name was not on the list. Very often a noble Lord joins in, especially if he has been referred to and wishes to deal with a certain point. Again, it is not possible for your Lordships to be present all the time, and neither I nor the Lord Privy Seal have been able to be here all the time. But there were some acrid comments made at some stage to-day (I make no reflection on the noble Earl, Lord Cromer; and I am trying to arrive at peaceful solutions), and although my noble friend Lord Balogh had written to the noble Earl, Lord Cromer, to inform him that he was going to make those remarks, the noble Earl, Lord Cromer, categorically denied that he received that letter. The custom of your Lordships' House is that we believe one another. I entirely believe that my noble friend wrote, and it may be that when the letter was delivered it went into the wrong pocket. However, whatever happened, it was unfortunate, again, that because this was, so to speak, an unscheduled speech my noble friend Lord Balogh was not here to defend himself on this particular point.

I would only say to the noble Earl who leads the House (and I say this not to add to his difficulties; he will find that these issues do arise from time to time) that he might like to give consideration to these matters, and it may be that some further guidance should be given to the House, including guidance on the question of, for instance, warning noble Lords. If people are taking part in a debate and it is a passing remark, it is reasonable to expect them to be present, but this is not always possible, and the noble Earl might like to give a little thought to that.

EARL JELLICOE

My Lords, I am grateful to the noble Lord, my predecessor, for the remarks he has just made, and indeed for the habitual benevolence of the tone in which he has couched them. I personally greatly enjoyed that tricorn of a discussion between my noble friend Lord Cromer, the noble Lord, Lord Beswick, and the noble Lord, Lord Balogh, although at times, like other noble Lords, I thought perhaps we needed a third House of Parliament in which this could have been conducted. By the same token I must in candour confess that I personally regretted the rather high content of personal acerbity which the noble Lord, Lord Balogh, imparted into some of his remarks. I equally regret that, somehow, the communication between him and my noble friend went astray.

I am sure the House as a whole would wish to regard that particular passage of arms, or that fault of communication, as over; and I shall, of course, be very happy to consider the suggestions which the noble Lord, Lord Shackleton, has put to me. I am sure that we can work out something to the advantage of the House; and if further guidance on these matters is required, I shall be very glad, in consultation with him, to choose a suitable moment for making the position clear.

LORD SHEPHERD

My Lords, I beg to move that this debate be now adjourned until to-morrow.

Moved, That the debate be adjourned until to-morrow.—(Lord Shepherd.)

On Question, Motion agreed to, and debate adjourned accordingly.