PUBLIC SPENDING AND ECONOMIC POLICY

HL Deb 18 November 1970 vol 312 cc1124-213

3.0 p.m.

Debate resumed on the Motion moved yesterday by Lord Beswick, on behalf of Lord Shackleton—namely, to resolve, That this House regrets that the measures outlined by the Chancellor of the Exchequer on October 27 run counter to the Government's declared intention to reduce prices; will widen the gap between rich and poor in our nation; will make more difficult the achievement of an acceptable prices and incomes policy; will tend to aggravate the problem of regional development, and generally will impede Britain's progress towards an economically sound and socially just society.

LORD SHEPHERD

My Lords, we had a long debate yesterday and those who remained to a late hour will I think agree that a high standard was maintained throughout. The tone of the debate was in the traditional key of your Lordships' House and, unlike critical Motions in another place, we debate our affairs with calm and moderation and without the turmoil and sometimes bitterness that one sees at the other end of this building. But as the noble Lord, Lord Thorneycroft, said, this calm and moderation should not disguise the deep divisions that now exist, not between the two Front Benches but certainly between my Party and the Party opposite.

At the end of the debate the noble Lord, Lord Drumalbyn, replied with his customary care. He gave us a great many facts and figures, but because of the lateness of the hour clearly there was no opportunity to intervene and probe further. We shall certainly have to look at what the noble Lord said. For example, he dealt with the problem of the regions; and as I am sure the noble Lord himself is aware, there is very deep concern to-day as to how the new policies will affect the regions.

The debate was graced—I think that is the only word to describe it—by the speech of my noble friend Lady Lee of Asheridge. It was an uncontroversial speech, at least in presentation, and I suspect that it had the sympathy and support of all noble Lords who heard it. In many respects the plea she made for the galleries and museums expressed, perhaps more clearly than any speech on this side of the House, the conflict between the new abrasive society of the Conservative Government and Party and our concept on this side of human and national life. There were two other notable maiden speeches, those of the noble Lords, Lord Hamnett and Lord Avebury. This afternoon we look forward to the maiden speeches of the noble Lord, Lord George-Brown, and the noble Lord, Lord Rhyl.

Arising from our critical Motion there are three distinct issues. The first concerns the long-term aims of the Government, the sort of society that will arise as a result of the pursuance of their present policies; the second concerns the effects of those proposals on certain sections of our community; and the third, whether there is an economic crisis and, if so, the Government's policies to combat it. The noble Earl, Lord Jellicoe, suggested that we should not have been surprised that new policies were to be adopted by a new Government. We expected new policies but I am bound to say that we did not expect such a major and drastic departure from the Conservatism that we have grown to understand, the Conservatism since 1945.

It seems to me that the whole principle behind the philosophy of the Government goes back to the pre-war days. It seems to esteem personal gain and private advantage as virtues. I believe that noble Lords opposite who spoke in support of the Government supported their broad long-term aims; but I think it is true to say that in varying degrees they all expressed concern at the inflationary trends and the steps open to the Government to deal with the situation.

My Lords, I should like to pose this question: Is there to-day an economic crisis? Let us take the balance of payments. To-day it is in surplus, I suppose to the extent of about £500 million in the year. This is a very satisfactory surplus and it is broadly in line with the forecast of Mr. Roy Jenkins, the Chancellor in the previous Administration. I think, too, that there is some slack in the economy. The noble Earl, Lord Jellicoe, in applauding the surplus yesterday had, of course, to criticise the price that the Labour Government and the nation had to pay, particularly in regard to increased taxation and curbs on the growth of the economy, in order to achieve that surplus. But the surplus is there; there is room to manoeuvre. I say to noble Lords opposite that the present Government are perhaps the first for very many years to have been returned to power able to consider seriously whether the economy could be reflated. At least they have room to manoeuvre.

I am not to-day concerned with the Election battles: they have come and gone. I am more concerned with the present situation. We hear talk of roaring inflation, we see reports of the very deep concern expressed by O.E.C.D. and the International Monetary Fund, and certainly there is hardly a responsible newspaper in the land which does not express serious concern about the inflationary trends and what their effects may be upon the balance of payments. The noble Earl, Lord Jellicoe, when he spoke yesterday, made it clear that in his view there should be no panic measures; that the Government are not going to undertake panic measures. He then went on to say: The sort of talk and speculation which I have seen a good deal of in the Press recently, that we are on the brink of some Weimar precipice, is neurotic, unhealthy and nonsensical."—[OFFICIAL REPORT, 17/11/70, col. 956.] That is the real issue; but the real issue only so far as it goes. I am bound to ask the noble Lord, Lord Aberdare (I do not know whether he can reply; but perhaps the noble and learned Lord who sits on the Woolsack may do so), what is the significant change that has occurred in the inflationary spiral since January of this year, that is to say, during the last five months? If we could know this, it might help us to understand how serious or otherwise is the situation.

The Conservatives, poised to take office—of course, they did not know it—on June 16, made a very considerable and powerful case on inflation and prices. Crisis was mentioned; even devalution. And so I should like to know, and I am certain that the country itself would like to know, what improvements there have been. But we should also like to know of the measures that the Conservatives propose to deal with the prices and wages spiral. These measures are referred to in a document issued by the Conservative Central Office in the name of Mr. Heath. In it he talked about inflation. I will read a little from it: There is a very real alternative which ought to be pursued immediately"— I stress the word "immediately". That alternative is to break into the price/ wage spiral by acting directly to reduce prices. This can be done by reducing taxes which bear directly on prices and costs such as the selective employment tax and by taking a firm grip on the public sector prices and on charges such as coal, steel, gas, electricty, transport charges and postal charges. My understanding is that the Government took action to curb some of the increases in the fields of coal and postal charges, but they were willing to see other price increases proceed.

I think that the House would like to know, and particularly the noble Lord, Lord Moyne, who spoke on this subject last night, why the Government have decided at this juncture not to remove the selective employment tax as they promised in their Manifesto. The noble Lord believes, as did his colleagues in the Election, that the removal of S.E.T. would have a major impact on the reduction of prices. But there has been no removal of S.E.T. or any specific action in the proposals for changes to deal with the price spiral about which we have heard so much. I agree with the noble Viscount, Lord Massereene and Ferrard, that we do not expect the Government to fulfil their Election promises in five months, but we are entitled to question how it is that within three months the Government decide upon a completely new change in the policy which was a main plank in their Election programme.

There has been no control of increases in the private sector. Prices have moved up very considerably. Petrol, bread and most of the commodities in which the big combines are involved have moved up pretty well unanimously. Last night my noble friend Lord Raglan indicated that there had been some 3,000 increases since June. I hope my noble friend did not do what I believe the Central Office of the Conservative Party did during our period of office—when three qualities of soap or three different sizes of cartons went up in price, this was regarded as three changes.

I do not know what the Government are trying to do in the field of price stability. They have abolished the Prices and Incomes Board. The Board had been open to attack. There were some who were disappointed with the results. But looking at the careful and penetrating reports produced by the Board, I do not think there is any doubt that they must have had an effect on many firms and large groups of companies in making them realise that in raising their prices they were liable to scrutiny. It seems to me now, reading the newspapers, that the Government have even hinted to companies that they should increase prices to improve the cash flow, profits and investment. Some of these reports seem to give an indication that they have been leaked by the Treasury. I do not know whether the noble Lord, Lord Aberdare, can confirm or deny whether this is the view of the Government.

I should now like to turn to the Chancellor of the Exchequer's proposals. We maintain that they run directly counter to the Election undertakings. They certainly fail to deal with the existing inflation. In my view, they add to it, because in the long run they must have an inflationary effect. If we take the package as a whole, we are not confronted, as the noble Earl, Lord Jellicoe, said, with a tax reduction. In our view, we are confronted with a redistribution of the burdens. We regard this as unfair, and in our opinion it will add to the pressure for wage claims and still higher prices. Consider the fact that single people benefit more than married men with families, both in tax reductions and by the fact that they do not meet the same charges. If we take a married man with a salary of £2,000 a year, we find that he gets a tax reduction of £22 11s. 3d., but a single man gets a tax reduction of £30 15s. 4d. I suggest that that weighting is wrongly slanted. Is it really right, too, that those who have other incomes should enjoy greater relief than those who depend on earned income? I cannot believe that to be right.

We on this side of the House accept that the Government have made some provision for those who earn wages of £1,000 a year or less. They may be covered by the changes in these proposals, provided only that all the assistance that is available to them is taken up. But the full shock—and it is a very heavy one—is going to be borne by those in the £1,000 to £2,000 a year group. A married man with £1,500 a year—and this is not a very high standard—will have a tax reduction of £12 16s. 10d. This person will have no cushion whatsoever from the effects of the new charges and all the new items that are going to be placed upon him by adjustments in the rating review and increases in rent.

We shall listen this afternoon to the noble Lord, Lord Aberdare, with great keenness. I hope that he will reply to the noble Lord, Lord Boothby, on the effect which charges for children's milk will have on the dairy industry. I understand it will be quite severe. I hope that he will also reply to my noble friend Lady Summerskill on the effects of this charge on the nutrition of children. I also hope he will reply to the noble Lord, Lord Platt, upon the effects on the Medical Research Council of the ending of grants. The noble Lord spoke passionately about the effect of the proposals on the middle class and on the skilled and some semiskilled workers.

I come back to the man with two children earning £1,500 a year. If he is in a council house, is he likely, as a consequence of the reduction in housing subsidy, to receive a rebate on any increase in rent? My understanding is that he will not. And let us be under no illusion; there are going to be heavy increases in rents, both in local authority housing and in the private sector. We do not know yet what the full effect will be on food prices, but I think that it will be severe. For those who live in London, the first result of the cuts is that there is going to be a 15 per cent. increase in fares, bringing increased difficulties to the transport authorities and increased congestion on the roads. I would ask the noble Lord, Lord Aberdare;, whether there is any truth in the rumour that appeared in last night's papers, and again this morning, about a cut in the rate subsidy—and a figure of £12 million has been given. If this is true, here is yet another burden to be faced through increased rates. It seems to us on this side of the House that the freedom of which noble Lords opposite speak—the freedom to be able to spend money as one wishes—clearly is not going to apply to this large section of our community who earn between £1,000 and £2,000 a year.

We have been told that these are the first of new measures, and that there is going to be further redistribution of the burden. I do not know whether in the spring we shall hear of a value added tax to match the reduction in income tax or, perhaps, surtax. I do not know whether (he noble Lord, Lord Aberdare, can tell us something about the reasons why the Government abolished the Consumer Council. Why have they decided to destroy it? Did it fail, or was it too powerful? Have the Government really considered these changes and how they will affect wage claims, not only as to their size but, perhaps more seriously, as to their frequency?

How is the worker going to view this new abrasive society? The noble Earl, Lord Jellicoe, spoke in a very urbane way, to which we are all accustomed, but I wonder whether the picture that he gave us was in fact the true picture. I think it needs to be compared with the picture of our society that was given by Mr. Davies, the Secretary of State for Trade and Industry, in another place on November 4. There is a considerable contrast in their views. Mr. Davies, speaking on these measures, said this: They constitute a first step towards a new condition in the development of this country's life, and one in which this Party believes profoundly. We believe that the essential need of the country is to gear its policies to the great majority of people, who are not lame ducks, who do not need a hand, who are quite capable of looking after their own interests and only demand to be allowed to do so."—[OFFICIAL REPORT, Commons, 4/11/70; col. 1211.] "Lame ducks!" He continued (col. 1212): National decadence is the consequence of treating us all, the whole country, as though we were lame ducks. Later on he said: The vast majority lives and thrives in a bracing climate and not in a soft, sodden morass of subsidised incompetence. Who are the "lame ducks"? Clearly, the Secretary of State had in mind those who need State assistance. Is this a reference to the old age pensioner, to the handicapped and to those injured in war? All these receive subsidy from the State. Are they to be branded as "lame ducks"?

Sir Keith Joseph has undertaken—and no doubt the noble Lord, Lord Aberdare, will confirm this—to ensure that all those who are entitled to assistance will be made aware of their rights of entitlement and encouraged to make use of these rights. But what sort of encouragement is there, knowing that if you apply you are going to be branded as a "lame duck"? I presume that the term "lame duck" also refers to those who are en- titled to receive family income supplements, since they are lowly paid. If this is the brand to be placed upon them, then clearly they are going to become militant, seeking ways and means out of that position. We should remember that 10 per cent. of the whole of our working force falls below the £18 a week level. I must say that the attitude of Mr. Davies, which has never been repudiated by any member of the Government, only adds support to our belief that the policies the Government have in mind do not match up to our idea of a just social society. We are reinforced in our view that these measures are unfair and derisory.

The noble Lord, Lord Balfour of Inchrye, posed one of those difficult questions earlier to his colleague on the Bench opposite in regard to our attitude on prices and incomes. I want to say a few words about this. I accept the views of the noble Viscount, Lord Watkinson, that the apparent price is being paid by industry generally since we were unable in the last Administration to pursue an agreed policy on prices and incomes. I will not go over the ground of why the policy could not be pursued, except to say that perhaps my noble friend Lord Shinwell was right when he said that the penal clauses just could not be stomached by the unions, and that rising prices, as a consequence of devaluation, also played some part.

My Lords, what are the alternatives? The noble Viscount, Lord Amory, set out three of them, and I will add one or two. The first is a prices and wage freeze. I think this has to be ruled out. It can only be short term, and at the end we should be back to square one. Then there is deflation. It is hard to estimate the number of unemployed needed for such a policy, but I would guess that it is at least one million. Surely this is an intolerable price to pay, with all its degrading hardship. There will have to be drastic cuts in consumer spending, credit and investment, and in the end I doubt whether it would solve the basic problem. Thirdly, there is the exciting dash for expansion at any cost. Attractive though this may be, I have no doubt that in the end it would lead right back to the balance-of-payments difficulties we were experiencing in 1964.

I will be frank, my Lords, and say that I know of no other course open to us if we reject these three possibilities except some form of prices and incomes policy. Last night the noble Lord, Lord Drumalbyn, said that the Government had an incomes policy. He specified, first, the monetary control; secondly, a rigid attention in the public sector; and thirdly, a trust in the responsibility of the employers' and unions' negotiators. As in the case of the local public servants' dispute, according to the noble Lord, the Government will not permit the conciliation machinery to be used if the unions are seeking an advance beyond which the employers are not prepared to go. In other words, the employers and union leaders are in the ring alone, without any form of guidelines as to what is a fair settlement. I suspect that in such a confrontation there will be a bloody nose, but it will not be only the unions or the employers who will suffer. I believe that in the end, in the main it will be the consumer. There is no doubt at all that it is the consumer who eventually pays the cost of a strike, irrespective of its length or success.

My Lords, surely it is right that the consumer should have some form of representation when a major award is likely to be made. Clearly, it is only the Government, or some form of agency of the Government, that can watch over the interests of the consumer. In the private sector the directors—the employers—have mainly the interests of the shareholders in mind. The union leaders are mainly concerned with the interests of members of their particular union. There seems to be no one, therefore, to speak for the consumer. The Prices and Incomes Board has gone, the I.R.C.—to which we on this side of the House, and the noble Lord, Lord Aldington, who I regret is not speaking this afternoon, attached so much importance—is shortly to disappear. Clearly the I.R.C. has played a very prominent role in productivity.

I do not believe that the policy that the Government have in mind, one of basic confrontation, will succeed. I believe that it will fail, with increased bitterness on all sides. I do not know whether the House is aware of the speech that was made the other day by Mr. Victor Feather of the Trades Union Congress. I should like to read it. In the latter part of his speech he said: The future of this country depends on voluntary co-operation, not compulsion. It depends on the successful pursuit of prosperity by all branches of industry, trade, and commerce. And trade unions are involved in them all. This country must have economic growth, sustained and sustainable growth. And we can only achieve that by all the parties concerned, managements, unions and Government getting together and working out a common strategy. Is it not possible, before the hour is too late, for the T.U.C. and the C.B.I. to get together to see whether there is a chance of a real voluntary co-operation? Could not some start be made in getting those talks going? It might be necessary to go back to the Declaration of Intent, but whether that is so or not is immaterial—a start needs to be made. I know that a satisfactory solution will not be easy to achieve, but when you view the alternatives and the possibility of rigid confrontation stretching over months ahead, should we not seek to encourage the two sides to talk? The issue for the Government is this: if there are to be serious talks, either between the unions and the C.B.I., or the unions and the Government, and there is to be any chance of success for the Government, a major decision has to be taken as to what will be their role in prices. We on this side of the House believe firmly that you cannot have an incomes policy unless you have a prices policy side by side with it. As we say in our Motion, we fear that the present policies adopted by the Government are more of a hindrance than a help. Despite that, I believe that the Government should seek ways and means of bringing the T.U.C. and the C.B.I. together to see whether a voluntary prices and incomes policy could be created by themselves, with the Government participating as a partner.

We have moved this Motion this afternoon, my Lords, not in any sense as a ritual dance through the Division Lobbies but because we sincerely believe that the policies and aims of the Government will lead to disaster. They will permanently divide this nation and throw a social stigma on those who require State assistance or community help as against those who do not. Some will get assistance, while others, only marginally better off, fail to get it and therefore meet the full impact of the redistribution. We believe that this is unfair and that it will lead to increased industrial unrest—something which this nation can ill-afford.

3.36 p.m.

THE MINISTER OF STATE, DEPARTMENT OF HEALTH AND SOCIAL SECURITY (LORD ABERDARE)

My Lords, I agree wholeheartedly with the noble Lord, Lord Shepherd, in the first sentence that he uttered, that we had a long and most interesting debate yesterday. But I cannot agree with everything he said thereafter, and I do not think he would expect me to. I do not intend to follow him in his very wide ranging speech (if he will forgive me), but I have no doubt that my noble and learned friend on the Woolsack will take up some of his points.

My noble friend Lord Drumalbyn, in winding up last night, said that I would try to deal with some of the points that arose concerning the social services. It would, I am afraid, be an impossible task—

LORD SHACKLETON

My Lords, I am sorry to interrupt the noble Lord, but it appears that the noble and learned Lord who is sitting on the Woolsack is in some way taking part in this debate, although we cannot quite hear what he is saying. He is not, of course, inside the House at the moment, and there is a Standing Order about the Lord Chancellor having one power which forbids people to speak behind the Woolsack. But he is sitting on it and seems to talk continuously.

LORD ABERDARE

My Lords, I am sure that my noble and learned friend is perfectly able to look after himself. I should like to refer to some of the main themes that were mentioned yesterday in the field of social services. It would be impossible, without speaking at inordinate length, to deal with all the questions that arose, and perhaps I will be forgiven if I answer some of the specific questions in writing.

The first and most important point I should like to make on the social services provisions—and I should be very well satisfied if on this point alone I could convince your Lordships—is that the whole package of measures must be considered together and not in isolation. To take individual items, such as specific increases in National Health Service charges, without considering the corresponding benefits over the whole field, is to misconceive the whole object of our policies. It is all too easy to fail to see the wood for the trees, especially when the trees are, for some, a sacred grove. I thought it unfortunate that many of your Lordships who spoke yesterday on the social services matters spoke about reductions in public expenditure without any reference to the corresponding increases. It is impossible to make a fair judgment without considering the proposals as a whole.

During the years that we were in Opposition, many of us were concerned with seeking out new policies for the social services. The one fact that struck us was that in every case there was an urgent need for more money. Health, welfare, housing, education—everywhere there were opportunities for improvement if only the money were available. This was not only obvious to us; it was equally obvious to the previous Government. Only last June Mr. Crossman, then Secretary of State for Social Services, said that the Health Service required a further £350 million over five or six years to enable it to keep its head above water, let alone make any of the necessary improvements. Where was this additional money to be found? It can, of course, come from an increase in taxation; but already since we were last in office taxation has been increased by an additional £3,000 million and was taking some 50 per cent. of our national output. The previous Chancellor of the Exchequer recognised the facts when he said at the Labour Party Conference in 1968: Since we came to power public expenditure has risen nearly four times as fast as the national income, but it is not a process which can go on without limit; at least it cannot go on without limit unless we seriously believe that people, ordinary people, our people, our supporters, are indifferent to how much tax they pay, and I do not believe that that is the fact. Certainly on this side of the House we see a need for a reduction in taxation in order to stimulate the economy—for this is the second way in which increased money can be found for the social services, by greater growth in the national product. From 1965 to 1969 national output per head grew by only 1½ per cent. per annum, but by restoring incentives, reducing taxation and encouraging enterprise we seek to increase output and in the long run to make provision for the increasing demands of the social services.

A third way of providing more money is by critical examination of the way in which the taxpayers' money is spent at present in order to decide on correct priorities. This is what we have done, and it is on this choice of priorities that our measures must be judged. Of course, we are deeply concerned with the existence of poverty in this relatively prosperous land, but ultimately the answer must lie in increased prosperity for all in an expanding economy. In the meantime, we have taken steps to help those most in need and to prevent any increase in charges from falling upon those unable to afford them. Actual figures will vary according to circumstances, but I can assure your Lordships that, broadly speaking, a family with two children or more will not be affected by the increased charges unless their income is more than £1,000 a year. But there are surely many others who can afford to make some additional contribution to their own health and welfare. Even in Sweden, so often held up to us as a Socialist Mecca, patients pay 20 per cent. of the public cost of medical care, compared to our present figure of 10 per cent. And our proposals stem from the conviction that, within the total of £28,500 million of consumer expenditure, more could and should be devoted to personal provision for health, housing and welfare, and that State assistance at taxpayers' expense is better directed at those who are least able to help themselves.

The noble Baroness, Lady Birk, whose work as Chairman of the Health Education Council is extremely valuable, touched on the nub of the point when she said yesterday that beer, bingo, betting and a better TV set all come well above dental treatment. That may be so, but is, it really right that the taxpayer should be expected to subsidise dental treatment in order that a man who could well afford to pay something towards it should be free to spend his money on beer, bingo, betting and a better television set?

Of course, noble Lords opposite may criticise details of the package and the balance between charges and benefits; but as their crocodile tears come rolling down their cheeks let me remind them that they have done it all before. They introduced prescription charges in January, 1968, and Mr. Wilson said: What we decided—and this is our choice of priorities—was that it was still more important to maintain the fabric of the National Health Service and particularly the hospital building programme. They twice increased charges for school meals, and they stopped the supply of school milk in secondary schools. They increased charges for spectacles and dentures in August, 1969, and Mr. Crossman then said: This method of saving £3½ million is far less damaging than would be cutting back one of the increases in the Health Service to which we are committed. I have no doubt that this was a lesser evil. But let us also remember that at the same time as they increased these charges they also increased taxation; they cut back on the school building programme, and they reduced local health and welfare programmes by an average of £5 million a year for three years.

I turn now to some of the individual proposals. First, the increase in National Health Service charges. The introduction or increase of prescription charges has always aroused considerable feeling. In fact, I do not believe that our proposal to raise the charge to 4s., which must be set against the average cost to the National Health Service of some 14s., will cause hardship. Children, old people, war pensioners, expectant and nursing mothers, people suffering from certain chronic illnesses and those who would suffer hardship if they had to pay, are all exempt. Some 40 per cent. of the population, and rather over 50 per cent. of all prescriptions, will not be subject to the charge. For those who are not exempt but need fairly numerous prescriptions there are available pre-payment certificates which provide an excellent hedge against charges and enable anyone to place a fixed limit to his liability, whatever the number of prescriptions he requires. I am glad to be able to announce to-day that from April 1 next this prepayment certificate will be an even better bargain than it is at the moment. The charge for a six-months certificate will then be 40s., and for a 12-months certificate 70s. In other words, on an annual basis everyone can limit the cost of his prescriptions to under 1s. 6d. a week—and surely, my Lords, that is not excessive.

So far as dental charges are concerned, it does not seem to be fully realised that there will be a considerable number of people who will pay less under the new arrangements than they do at present. In fact, all those whose treatment costs up to £3 at present will pay less; and I may remind your Lordships that in 1968 50 per cent. of all treatments cost less than £2. The effect will be a genuine incentive to regular attendance in order to maintain a good standard of dental health. I think the dental profession will find that they have here a very good argument for educating their patients to come and consult them regularly, rather than waiting until something serious has gone wrong. I was pleased to see that at a recent meeting of the Council of the General Dental Practitioners' Association it was agreed that many patients may pay less than at present for dental care, particularly those who look after their teeth, and that the new pattern of the National Health Service dental health was a challenge which the profession must accept.

Next, my Lords, I come to milk. This is a subject which I recognise is full of deep emotional undertones, but I suggest that we should remember, as the noble Lord, Lord Boothby, reminded us yesterday in a forceful speech, that the welfare milk scheme dates back to the days of rationing during the war. It has remained substantially unchanged ever since. When food was limited and the supply of milk was small, it was obviously right that it should be distributed to those most in need—children and expectant and nursing mothers, and the noble Lord, Lord Boothby, and the late Lord Woolton, who was the Minister at the time, are entitled to full credit for what they did then. But to-day, general nutritional standards are high and milk is plentiful: Is it really necessary to spend £35 million a year of the taxpayers' money in providing cheap milk for the whole pre-school population, and for all expectant and nursing mothers regardless of their ability to pay for it? We believe that the great majority of parents can look after their children's feeding properly, regardless of this sort of State assistance; but at the same time we shall continue to provide free milk for large families and for those in need. In fact by redefining the standards of need we shall extend entitlement to free milk to some 150,000 more mothers and children.

So far as school milk is concerned, this will no longer be provided free, for exactly the same reasons, for children between the ages of 7 and 12 unless—and this is a most important proviso—it is recommended on health grounds by the school medical officer. Moreover, to make as sure as possible that no nutritional ill-effects result, the Committee on Medical Aspects of Food Policy has agreed to take urgent steps to monitor the effect of these new decisions.

The noble Lord, Lord Hamnett, in an excellent maiden speech yesterday, and the noble Baroness, Lady Summerskill, both mentioned a survey carried out recently by Dr. Lynch of the Social Nutritional Research Unit at Queen Elizabeth College, London. It is difficult to accept Dr. Lynch's findings at their face value without full details of the method of collecting the information. I am sorry that he has not yet been able to publish the full report. When it is available it will, of course, be carefully studied and will, I hope, be considered by the Committee on the Medical Aspects of Food Policy. But I would remind your Lordships that there are other surveys which have pointed to different conclusions, and I would instance the work of Professor Holland of St. Thomas's Hospital, and a recent Medical Research Council report of a survey on this subject in Jamaica.

Some of your Lordships mentioned school meals. It is true that experience in the past has been that when the charge for meals is raised there is a temporary fall-off in demand, which recovers after a short time. It is perhaps relevant to point out that on other occasions when the charge has been raised only marginal improvements have been made in the arrangements for remitting the charge. The increases proposed by the Government will be accompanied by a substantially more generous scale of remission, and this should help those with modest resources who might otherwise find the initial cost beyond their means. I think most parents are shrewd enough to appreciate that even at 2s. 10d. a school meal represents a very good bargain and surpasses, both in quality and quantity, any meal of a comparable standard available outside.

Finally, my Lords—because I do not want to keep your Lordships for too long —may I list the corresponding advantages which have accrued to the Government as a result of re-assessing the priorities. In the first place, there is the Family Income Supplements Scheme, directed at those most in need, where the breadwinner is at work and therefore not eligible for supplementary benefit although his earnings are below the level of supplementary benefit. We shall have an opportunity to debate the Bill in greater detail when it comes to this House; but it is an important part of the package.

I was glad that the noble Lord, Lord Donaldson of Kingsbridge, yesterday, though somewhat lukewarm, acknowledged that it would help and expressed his pleasure at its introduction. I regret that the noble Lord, Lord Wells-Pestell, was less generous and I deplore—as did my noble friend Lord Lauderdale—his frequent use of the adjective "dishonest" in his speech.

SEVERAL NOBLE LORDS

Hear, hear!

LORD ABERDARE

My Lords, when I asked him what his Government did for the poor families he told me to look it up. Well, I have, and I have found nothing. Even the noble Lord, Lord Beswick, was honest enough to say that he was disappointed that the Labour Government were unable to do more for the low-paid worker.

LORD BESWICK

My Lords, since the noble Lord has mentioned my name, will be also remember that I asked a question that has never been answered? Why is it considered inflationary for a man to get 50s. a week extra as of right in respect of pay for a job that he is doing, but not inflationary and virtuous if it is given as charity under this new Bill?

LORD ABERDARE

My Lords, the final settlement was thought to be inflationary, but the original offer was thought to be fair in the case of the council workers. I think the two things are totally different.

LORD WELLS-PESTELL

My Lords, I apologise for interrupting the noble Lord, because it must be very unsettling for him. I thought the noble Lord would have known that between 1964 and this year the Labour Government increased family allowances no fewer than three times. In 1964 it was 8s. 0d. for the first child and 10s. 0d. for the second, and gradual increases meant that just before the Election the second child was getting 18s. 0d. and the third child 20s. 0d. Furthermore—

SEVERAL NOBLE LORDS

Order!

LORD ABERDARE

My Lords, the noble Lord did speak yesterday, and I suggest that I might be able to carry on with my speech now. The point about the Family Income Supplements Scheme, of course, is that it benefits the first child while family allowances do not. The reason why we chose family income supplements rather than increasing family allowances was purely because it brings help more quickly to those most in need. It is as simple as that. The operation of the tax system is such that an increase in family allowances would not have helped as much or as quickly and, as I have said, a family income supplement has the great advantage of helping the first child in the family. Every penny that is spent on it—and the figure is some £8 million—will go to families with low incomes. It will also help all those who had their wages stopped for purposes of supplementary benefit, and it will help the one parent families.

The noble Lord, Lord Shepherd, asked me about the implementation—making sure that everybody took advantage of the exemptions to which they are entitled. I can only repeat what my right honourable friend said: that we intend to take vigorous steps to make sure that as many as possible of those entitled to this scheme benefit from it. Not only shall we launch an extensive advertising campaign, but we also intend to make full use of the information already at our disposal, as well as that available to local authorities and voluntary organisations.

A further benefit of this re-arrangement is that we can provide, as I announced in this House last week, a further £110 million for the National Health Service over the next four years. This, I can assure your Lordships, is a real tonic to those who could not see where the next penny was coming from, and who now have a chance to make much better provision in those areas of particular need, especially the mentally handicapped, the aged and the mentally ill.

In school building, the first programme that we can decisively influence is that for buildings started in 1972/3, and the figure for that year will be £38½ million—more than three times as much as the figure for improvements and replacements which we found in the programme at the beginning of this Parliament.

BARONESS BACON

My Lords, can the noble Lord say whether or not this amount which it has been said will be an increase in school building is in fact an increase on the total already announced by the Labour Government, or whether it is a transfer within that total?

LORD ABERDARE

My Lords, the noble Baroness is very well informed on this matter and she will know that there is an increase over the four years. The figures are complicated but there is an overall increase of, I think, £38 million over four years, and virtually the whole of this money will be devoted to the improvement and replacement of old primary schools. We expect to be able to finance nearly 500 projects for the improvement and replacement of old primary schools, and our hope is that over a period of five years we shall be in sight of the elimination of primary schools built in the 19th century.

I should like to end as I began. These measures must be viewed as a whole. I suggest that they constitute a realistic reappraisal of Government priorities for the social services in the 'seventies. Taxpayers' money will no longer be spent where it is not required. People will be encouraged to make some small provision for their own health and welfare except where they cannot afford to do so. Help will be directed to those most in need, and the resulting reductions in public expenditure and in taxation will encourage the initiative and enterprise needed to stimulate the economy on which the standard of life of every one of us depends.

4.0 p.m.

LORD GEORGE-BROWN

My Lords, this is quite a moment for me, and judging by the response I got from the Opposition Chief Whip last night when I indicated that I thought I might like to address your Lordships, it is quite a moment for him, too. But I am encouraged by being flanked, as I am, by two, if I may say so, very senior, much respected, colleagues. On my right, is the noble Lord, Lord Henderson, the son of the man who, in my view, saved the Labour Party when it went wrong on the very issues we are discussing in this Motion. When a Prime Minister and a few colleagues were misled by the Treasury and the City into wrong policies, Arthur Henderson pulled the Party round and held it together. And on my left is the noble Lord, Lord Soskice—

SEVERAL NOBLE LORDS

Stow Hill!

LORD GEORGE-BROWN

Well, of course, only some of us win our battle with Garter: Lord Stow Hill-nevertheless one of my greatest and closest friends, who has seen me through very many moments when I have done things he would rather I had not done, or at least not quite to that extent.

My Lords, I wish to address myself to the Motion and have some things I feel I want to say, mostly out of a sense of, if you will forgive me, personal and slightly historical nostalgia. In doing so, I ought to start, I think, with two apologies: one for missing so much of yesterday's debate, when I was in the North, trying to help industrially to restore the situation from the rather difficult position into which the measures of the present Government have put it. I hope that I have made up for that absence by having read most conscientiously every word uttered by those who spoke before I came. And to prove it, may I say to the noble Lord, Lord Boothby, that I agreed with every single word he said? It desperately badly needed saying, and only he could say it in the mood and with the panache with which he said it. And to my noble friend Lord Shinwell, with whom I have not always seen eye to eye— or maybe, put better, he has not always, alas! seen eye to eye with me and wisdom—I would say that I agreed largely with much of what he said. And to the noble Lord, Lord Roberthall, who made me feel very angry with Garter (because the noble Lord did not even have to invent a hyphen; he got it just like that), I would say that in his case also I agreed largely with what he said, after the first two or three minutes.

I also apologise for inflicting myself so soon after coming into your Lordships' House at this stage in the debate, and will try to make up for that by being reasonably brief. My main reason for intervening is that so many speeches yesterday seemed, if your Lordships will forgive my saying so, to get the issues out of perspective. Of course, there were noble Lords and Ladies who concentrated on their personal interests, the subjects that fascinate them most. I got used to that in the other place, and it is a proper thing to do. But many of the speeches yesterday seemed to me to concentrate on the issue of what they called an incomes policy. Indeed, there were noble Lords who asked us, "What incomes policy? How will you get it? What will you do?" I thought I would like to say, with your Lordships' permission, or at any rate your indulgence—and incidentally, may I say that, unlike those who have made maiden speeches before me, your indulgence I do not ask for; but your sympathetic understanding would be of some assistance—an incomes policy is not and can never be an issue on its own. We shall always have an incomes policy. I used to try to say this to my trade union colleagues—who can always hear but sometimes pretend not to understand—in 1964. An incomes policy we shall always have. The issue is whether we have a rational one or an irrational one; whether we have a relevant one or an irrelevant one; whether we have the law of the jungle or the law of civilised man. It is not an issue on its own; it flows from other things, from other decisions.

The first thing we have to do—and I am not going to make a Party speech: mark you! everybody else says that; but I am actually going to do it—

A NOBLE LORD

Not to do it.

LORD GEORGE-BROWN

I do not like double negatives. What I meant was that I am going to do what I said I was doing to do, which is the positive way of putting it; but of course one understands that the Government normally deal in double negatives because they hope that way they will get you the better confused. I used to say to my trade union colleagues: let us get the direction, the economic climate, the level of industrial activity we want. Let us establish that, then we can see what level of productivity, as distinct from production, we can aim for. Then we can see what it is we have to distribute: some must go (I am delighted to see my noble friend Lord Citrine behind me). Then we can see how much must go for re-investment, for replacing the machinery. Much must go for rewarding capital. Then we can see what we have to reward the workpeople. Then we can see what we have to put into social services.

I was fascinated in listening to the noble Lord, Lord Aberdare, discussing what goes for school meals, what goes for this and what goes for that, as though it were a decision made in the abstract. It is not. It is part of a whole complex of decisions which you cannot make until you have made up your mind how you arrive at the total dividend. Then you can start discussing how to divide the dividend, and for what purposes and in what words.

It seems to me that the major areas for policy decision for this Government are the same as they were for mine. I will come back in a moment to whether we got them right, but they are the same areas of decision. They are, I repeat, the economic approach we are making and the economic climate we want to achieve. I myself have no doubt at all that there has to be an approach and a climate of expansion. With respect, you cannot deflate yourselves out of a problem; you can only deflate yourselves deeper into the pit. You must expand your way out of it. This horrible word "growth" (I do not know a better one) must be the touchstone of the economic decision. We are going down. We are declining. I do not lay this at the door of this Government. I repeat, I am not making a Party speech—at least not seeking to. We are declining. I confess an interest. I spend a large part of my time nowadays with one of the greatest and, as I believe, one of the best industrial complexes in this country. I was in the North yesterday. It is very difficult to keep up an atmosphere of expansion, of development, an attitude to growth, under the policies that are currently and have for some time been pursued.

The level of industrial activity is therefore the next area we need to settle. Do we want our industrial enterprises to be operating at the maximum, seeking a new maximum next year, buying new machines, pushing their people to work and working the machines 168 hours a week?

I see the noble Lord, Lord Wright of Ashton under Lyne, in his place. He knows what I mean. One can make it easier for the people. On can give them better terms and better conditions. But keep the machines going through the week. How else can we meet the competition from the Germans and from our other competitors? That is the second area for decision. Make these decisions, and then so much else, I think, becomes easier of solution.

The third area which I say, with respect and humility, seemed to me to be left out yesterday is the importance we attach to what I call the regional spread of activity: the so-called "golden triangle", from, it may be, a little above Birmingham down to the South-East. Nobody is going to stop that one. But what are we to do about the North-East, the Northwest, Scotland and Wales, and Northern Ireland, which is a province of the United Kingdom?—if I had my way it would not be; but that is another matter. Is is. What are we to do about these? How much do we care about the regional spread? It costs us enormous sums of money to keep the industrial effort going in the "golden triangle". Just drive around it and look at the congestion on the roads. Just see what we have to put into the environmental aids so that people can live in those numbers there. Resources and people can be wasted in the other regions of the country, but it costs effort and money to develop those regions, and at the end of the road is a wonderful reward. I think we have to decide how much we devote to this effort.

I like to think that the regional policy which was developed when I was at the Department of Economic Affairs was different from the one pursued by the Government that preceded ours. The noble and learned Lord the Lord Chancellor on the Woolsack, wearing a different kind of headgear, went to the North-East, it is true, in the time of the Government that preceded ours, and began a job totally ignored up till then. But I hope he will not only forgive me for saying, but will agree with me later in saying, that he was doing, in a characteristic way, something that nobody in his Government was doing as a planned operation for the regions as a whole. We did do it, and anybody going round the North-East and the North-West, Scotland or Wales, can see it now. How much importance do this Government attach to that, if we are to be competitive, and, more importantly, if we are to be an effective member of the Common Market when we join it?

The next area for decision which I feel Her Majesty's present advisers are not approaching—indeed, are doing the opposite of approaching—is how to ensure the cash flow. Industries that are persuaded, as the one which I know best is persuaded, to go into these areas to develop, to go for expansion and to spread it through the regions, have to find the cash. Even great businesses (we all saw the I.C.I. speculation yesterday) have to find not just the promises of borrowed money but cash with which to finance their expansion, and the arguments when money costs 10½ per cent. are different from those when it cost 6½ per cent. or 7 per cent., not to talk about 3½ and 4 per cent. But the arguments are different again when you are not just talking about 10½ per cent., if you can get it, but talking about 10½ per cent. when you cannot even find it at that price.

I am a mixed economy man. I think there is a great case for public enterprise, and you must make the case on merit; I also think there is a great case for private enterprise, and you must make the case on merit. And there is a case, as I tried to prove in the instance of the Fairfields Shipyard, for a mixture of both, if you make it on merit. I am not doctrinaire here. In this situation, private enterprise must be able to finance what it is doing.

My Lords, Her Majesty's present advisers are making it, if your Lordships prefer the word, even more difficult than it ever became in our time. The withdrawal of investment grants in favour of tax allowances is one of the most crassly stupid things anybody could have dreamt up, because you are taking away, at the very moment when the cash flow and liquidity is most difficult, a source of actual finance, of actual cash. It is all right when you make profits; you get it back. I cannot believe that the Secretary of State for Industry, Technology, President of the Board of Trade, and heaven knows what else, except the environment, does not understand this. I cannot believe that he made the decision. Keeping election promises is good—not every Government has always done it—but not keeping them when they are stupid is even better. This was silly; it is silly.

The other day I was at Spennymoor. Some of your Lordships will know about Durham, and the problems the Durham coalfield has had to face. I learned about them to my electoral cost, as well as my personal sadness, in the Belper Division. Pits get shut. The most difficult people of all to look after when that happens are colliers of 50 and thereabouts. They cannot travel. Most of them are injured, either slightly or badly. They have become so used to working underground anyway that they do not adapt very easily even to the nicest conditions above ground. When I was in Spennymoor I saw a new textile factory opened, and almost wholly staffed, with ex-colliers in that sort of age range. That factory would not have gone to Spennymoor but for the regional policy and the investment grants, I venture to guess. I have not asked the chairman or the board, but I venture to guess that is how it got there. Withdraw the investment grants, and factories like that will not go there. You will make profits quicker in the golden triangle; and if you have to make profits quickly in order to get your tax allowance, you go where you make the profits more quickly, and not where it takes longer.

The development in Northern Ireland has gone on because enterprises from this country have been encouraged to go there, partly as a regional policy, and partly because they received development investment grants for going there. Withdraw that, and who is going to go to Northern Ireland, with all the internal risks, and the sea passage, if the firms are told they will not get a penny back until they have started making profits? It is self-defeating. This is an area in which Her Majesty's advisers ought to think again very quickly. I repeat: it is all part of the problem which leads up to the issue that so many people want to discuss, which is prices and incomes. It is when you have answered these questions; and, as the noble Viscount, Lord Montgomery of Alamein, would say, "When you have the strategy right in your mind, and you know whether you are going to Berlin or Vienna", that you can start discussing the tactics of how you go.

I see now, and always saw, prices and incomes as part of the tactical way you went, not the strategic way. I say this especially to Her Majesty's Government, but also, if I may, to my own people, because I do not think any of us come wholly clean on this. I think it was the noble Lord, Lord Shinwell, who said yesterday, "Knocking the Government down is as easy as falling off a log". I did not quite like the simile, but it is pretty simple, and there is no great problem: they are not giants over this. We ourselves have to face the very same issue, because if we get them out—or, more likely, they get themselves out; and they are making a fairly good job of that at the moment—we want people to come back to us.

In the early hours of this morning, I was thinking that Sir Oswald Mosley fell out with Jimmy Thomas and George Lansbury over a very similar issue. Sir Oswald Mosley made a fair pass—happily he did not succeed—at becoming a third force. There is a gentleman in the Midlands who has a seat in the other House and who is trying the same objective now, and I do not want to have the people who deserted us, who now realise they have been taken in by them, then to turn somewhere else. Therefore we have to get our lines clear about this and even be tough with our own paymasters—and I speak as a life-long trade unionist. At this point, prices policy and incomes policy fit in, and one can run, as I tried to do, a policy which will relate prices and incomes—and in incomes we include profits—to the productivity which we are achieving. I think the plan of 1964, which was much derided and possibly mistakenly done, was the right approach. There may be a better one and it may be better done, but we need to plan our economic policy and allocate our resources.

As regards the instruments—good gracious, my Lords, fancy getting rid of the I.R.C. which helped to restructure British industry! Coming as I did from Derbyshire only very recently, somewhat ignominiously kicked out, I still feel deeply about Rolls Royce and about their efforts. Of course they should be sustained; but not as a charitable effort. They should be sustained as part of a constructive approach to restructuring industry. The I.R.C. played a part in producing the report which led to this decision, and fancy throwing it away! Her Majesty's advisers will offer a lifeline to Mersey Docks. They will save anybody whom they cannot let go away. Of course they will. Every now and again there will be another Jarrow shipyard. But the Government's way is not the way to do it. The I.R.C. was an instrument which could do the job properly, and it was not politically motivated or controlled. Regional policy and all the rest must come back. Somebody will fetch them back. The Prices and Incomes Board, again, is much derided, but somebody other than Ministers—and I speak feelingly, knowing the political pressures on Ministers—must look at all these problems.

Finally—having spoken much longer than I promised myself I would, but your Lordships looked so enchanted that I did not think I could deny you the pleasure of the rest of my speech—some Government will have to deal with the dominance of the Treasury. I see the noble Lord, Lord Diamond, sitting there and I hope he will allow me to say that, no matter how good Treasury Ministers are, they cannot control the Treasury "knights". The economic departments, the production departments, the spending departments, become wholly subservient to the Treasury with its totally out-of-date approach to monetary policy. My noble friend Lord Boothby has his place as a servant. I read with much happiness what he said yesterday. Economic policy must determine our way ahead. The Treasury must then become the instrument by which we get money to work for us—to use what I think was a Keynesian phrase, though I am not quite sure—instead of being the master of the rest of us. I doubt whether there is any chance that this Government will tackle that. Mind you, my Lords, they should. In all my knowledge of politics there has never been such a lightweight at the Treasury as there now is. It is a wonderful opportunity to do what is wanted. But I do not see any other heavyweight around and the opportunity will be missed.

I think that the Resolution is on the right lines, and I mean by that that I think it puts the priorities right. I shall vote for it very happily, in the hope and belief that my Party, too, will realise that this means new thinking for us, as well as denigration of the Government.

4.36 p.m.

LORD ROBBINS

My Lords, it is a pleasure and an honour to be chosen to succeed the maiden speech of the noble Lord, Lord George-Brown, who has just resumed his seat. He has adorned our public life in another place for many years with courage, integrity and liveliness, and this afternoon he has given us a very characteristic exposition of a point of view which I am sure all of us, wherever we sit, will agree must be taken seriously. He will forgive me, perhaps, if I say as an old civil servant that I slightly regret his reference to the Treasury "knights"—anonymous, dedicated men unable to defend themselves and most frequently misrepresented in public. But with all that, I congratulate the noble Lord on a notable maiden speech, and I am sure that I express the wishes of all your Lordships if I say that I hope we shall often hear from him again.

I seem to remember that in a recent debate a noble Lord—I think it was the noble Lord, Lord Balogh—referred to those of us who sit in this part of your Lordships' House as skulking on the Cross-Benches. If that be the appropriate appellation, I confess that I have never felt more of a skulker than I have done during this debate. There are elements in the Government's policy with which I profoundly agree, but there are also elements—or, at least, the appearance of elements—which fill me with some apprehension.

Let me begin with what I can agree with, although I have the fear that this will make noble Lords on the Opposition Benches less inclined to believe my credentials when I come to the disapprobatory grounds. I welcome in principle, if not always in detail, the introduction of greater selectivity in the administration of benefits. I have never been able to see why large numbers of people should receive benefits which they could perfectly afford for themselves. I agree, too, with the diminution of various subsidies to industry. There may be exceptions for Defence industries, depressed areas and the like, but as a first approximation I am sure it is a good principle that economic activities, State-owned or otherwise, should be made to stand on their own feet. I approve, too, of the general attitude of Ministers that the scope of government has become too large for efficiency and should be diminished where it is sensible and practical to do so—which does not mean, my Lords, that I think that the functions of Government are those of the night watchman. But having said that, I must also say that much of this, although commendable in itself, is almost totally irrelevant to the main problem of the moment—the problem of continuing inflation. The last position I should wish to occupy is that of panicmonger, but I am sincerely alarmed at the present situation, which in my judgment is certainly at once the most serious and the most intractable problem with which we have been confronted since the war.

I think experience shows that you can live with a rate of inflation of, perhaps, 2 per cent. or even 3 per cent., although cumulatively, in the absence of adjustments, this bears hardly on the more sober and prudent members of the community. But the rate at which we are inflating at the moment—a percentage rate of increase of wages of over 12 per cent. per annum and of growth of not much more than 2 per cent.—is different. Such an inflation undermines the whole basis of business calculation, of depreciation allowances; it involves the most blatant and cruel distributive injustice, even if there are biennial reviews of pensions and such like; and it eventually, as we know from history, creates an economic and a political atmosphere inimical to social peace, to mutual understanding and, eventually, to common honesty. I do not know any example in history in which an inflation of this order which has been allowed to go on for very long has been stopped, as eventually it must be, without severe dislocation and hardship one way or the other. It is possible that there may yet be time for us to escape from these consequences. I pray that it may be so, but the sands are running out.

My Lords, the taunts of the Opposition on this matter leave me cold—very cold. The late Government bequeathed to their successors a crisis which in my judgment is worse than the crisis which their predecessors bequeathed to them, and, as they have often emphasised, that was bad enough. It is quite true that, as a result of devaluation and a temporary exercise of prudence in fiscal and monetary policy, there has been an alleviation of our difficulties with the balance of payments. Let there be credit where credit is due. But the abandonment of any attempt to control the causes making for inflation has created a problem far worse than the balance-of-payments problem. That, after all, was soluble—an adjustment of the rate of the exchange and a firm control of the money supply. It was soluble without much hardship to anybody. But an internal inflation of the kind from which we are suffering now, if it goes on, will create hardship for most of us.

Let there be no mistake about what is happening and what has happened. We all know about the bargains in the labour market, and I do not want to discuss that further. But how few realise that, in the quarter before the Election, the money supply was increasing, not at the target rate set by the Chancellor, but at the rate of 16 per cent. per annum. Let me be clear, my Lords: I am accusing nobody. Mr. Jenkins is a very honourable man. I do not believe that he deliberately threw the reins on the horse's neck. The authorities of the Bank, with whom I have the greatest sympathy, are dedicated to the public interest. I have no doubt at all that what happened was the by-product not of intention but, as so many untoward events in this world are, of muddle and confusion of purpose. The fact is that under the last Government the funds were being created which will be sustaining the inflationary pressure for months to come.

If I am not impressed by the indignation of the Opposition at the situation which they have passed on, I am equally not impressed by the spirit in which, in public at least, the present Government are confronting the problems to which it gives rise. I have said already that I approve of the policy of less government in the sphere of industrial operations. But I do not approve of less government where the value of money is concerned. I know no responsible economist of any school of thought who believes that with a paper standard, the standard that we have at present and certainly will have in future, the Government have not the most momentous responsibilities of control. There can be no laissez-faire as regards aggregate demand. Yet it sometimes almost seems as if Ministers believe that there can be; that if they reform the law relating to trade unions, diminish the disincentives to initiative and reform an admittedly ridiculous tax system, they will have done all that it is reasonable to expect of them, that there will be a glorious increase of production and that inflation will die away, if not of its own accord because of a new spirit.

My Lords, this is a tragic delusion. Just as the Labour Government seemed to believe at first that the 1964 exchange crisis could be dealt with by mainly Socialist measures, so the Conservatives seem to think that the present crisis can be dealt with mainly by individualist measures. But in fact neither meet the problem. I can believe that if the disparity between the growth rate and the inflation rate was of the order of 2 per cent., then perhaps some abolition of the more obvious restrictions on enterprise and some greater order in industrial relations might perhaps bring about a rate of increase of production sufficient to bridge the gap. It was for that reason that yesterday I addressed a question on this matter to the noble Earl sitting on the Front Bench. I wondered how much he thought that production would increase as a result of the beneficial measures now being introduced. In my own judgment, my Lords, the gap is not of that order. In my judgment, we are living in a fool's paradise if we suppose that the measures of the mini-Budget and the proposed industrial relations legislation can stop the inflation. I say that it is an abdication of responsibility to stop there, and an abdication for which history will provide no excuse.

What then are we to do? I can well understand the reluctance of the Government to countenance the idea of a general freeze of prices and incomes; although if they go on without firmer policies they may well have to change their minds. I agree with what was said yesterday by the noble Lord, Lord Thorneycroft, that no policy should be ruled out a priori at this stage. But, quite apart from Election promises, which we all know can be broken at least as decently as rash promises to get married, a general freeze, if it goes on for very long, begins to make rogues of us all. Consider the situation. As a manufacturer I am forbidden, whatever is happening to my costs—and I am talking about a general freeze—to advance the price of commodity "A". What do I do? I lower its quality or I turn to the production of commodity "B", which is not yet on the market and which consequently does not come into the schedule. Or—to turn to labour relations—my best expert in a certain field comes to me and tells me that he has been offered £500 a year more by my chief industrial rival. "I'm sorry, old chap", I reply. "I must not give you a rise in your present position. But I have been thinking for some time that we need to fill a job with some different title. If you are willing to take that, then I think we could legitimately pay you £1,000 a year more than you are getting in your present one". My Lords, do you think that this is fanciful? I ask all of you who have knowledge of affairs if that is not a typical temptation under a wage and prices freeze which goes on for very long.

Well, then, what about an orderly incomes policy? I well understand the theory underlying this demand and I whole-heartedly respect the impulse towards it. If he were here I should like to say that, much as I have suffered from his tongue and his pen in the last 25 years, I greatly respect the courage with which the noble Lord, Lord Balogh, has often spoken (in defiance of the inclinations of many sitting on his own Benches) in favour of this policy. But it is one thing to demand such a policy; it is quite another thing to spell out the way in which to execute it. Suppose we tell the Coal Board that it will not be allowed to put up its prices or to borrow to finance an increased wage of so much per cent. Is that an acceptable incomes policy? Well, since the Government, willy nilly, are involved in the Coal Board, I should certainly find it part of an acceptable incomes policy.

But, my Lords, the logic of general regulation, the regulation of incomes throughout the whole system, carries you into very deep waters indeed. Even at the height of the war crisis, that great national leader, Ernie Bevin, refused to undertake the detailed regulation of wage bargains. I believe it would be an exaggeration to say that under the last Government, inspired by the best will in the world, the operations of the Prices and Incomes Board restrained the rise of incomes by more than a negligible percentage. I am bound to say, having searched long and far in this connection, that if there is a workable incomes policy it has not yet been made clear—at any rate, an incomes policy in this sense of detailed regulation all round.

So I am forced to the conclusion, unpalatable to some on the Cross-Benches, I fancy, that the main instruments of control must be overall rather than particular. I am not a bit doctrinaire about this; I am equally prepared in theory to operate both with fiscal and with monetary policy. The essential desideratum in a situation in which the growth of spending is so much outstripping the growth of production is that, somehow or other, the stream of expenditure (the "cash flow", if you like to expand Lord Thorneycroft's term) impinging on the stream of goods and services must not exceed the value of the latter at constant or, at worst, very slowly rising prices. If it is exceeding it, as it unquestionably is to-day, then the excess must cease.

Is this deflation? I can almost feel some noble Lords responding with this comment. Well, perhaps it is all a semantic question; but in my vocabulary, at least, "deflation" means a reduction of spending power below the point at which it will sustain constant prices and incomes rising with productivity. What I am asking for is not that. I am not saying that the volume of spending power should not increase. I am saying that it should not increase faster, or much faster, than productivity. A noble Lord reminded us yesterday of Humpty Dumpty's saying that you can use words to make them mean what you want. But I seriously suggest that it is not helpful to the understanding of what is really involved in this deeply serious situation in which we find ourselves if you call what is in fact a reduction of an excess rate of increase by the same term as you would apply to the creation of a positive deficiency.

The implication of this policy is simple enough, and I should have thought it to be—and I hope that I have said enough already to convince noble Lords that my sympathies are in some respects neither with the giants on one side or the pygmies on the other, to use one noble Lord's interesting terminology—eminently reasonable. Indeed, I would say that it is an incomes policy, but it is an incomes policy without the immense practical difficulties and political frictions inevitably associated with such a policy as usually propounded.

LORD BROWN

My Lords, may I interrupt to put just one question to the noble Lord? Is he implying that by the restriction of money supply you will stop the powerful unions from extracting large wage increases? That is the implication of what the noble Lord is saying.

LORD ROBBINS

My Lords, I am coming to that; I am not going to dodge the question. This is an incomes policy which, while containing aggregate demand within appropriate limits, leaves initiative as regards particular rates to the parties immediately concerned. On this view the Government should say to business and to the trade unions, "We do not in the least go back on the policy, supported by all Parties since the Coalition White Paper, of avoiding deflation, of endeavouring to secure, through fiscal and monetary policy, a volume of demand which, rising with production, will sustain adequate levels of employment. But beyond that we will not go, because to go beyond that involves debasing the standard; involves continued depreciation of money: and no group in the community, industrialists or workers, has the constitutional or moral right to demand that".

The Government should go on to say, "If any of you want that, it is your choice. You can have higher rates, but you must not expect the finance to be made available to provide a full use of labour and resources at that depreciating level of the value of money. We are not going to bail you out if you make bargains involving an excessive strain on the price level. Our policy is to maintain the purchasing power of money and a volume of demand which will provide high employment and incomes rising with productivity; just that". My Lords, is that unreasonable? I ask, is it really true that the great trade unions, the hitherto soberly led trade unions, which have meant so much to the social life of this country, wish to make demands on the products of industry under which full employment can be maintained only by continuing inflation? I refuse to believe it.

That, my Lords, is a general statement. What should be done to translate it into practice? I am quite clear that we have to accept bygones as bygones. There can be no question of undoing the bargains that have been made in the last few months. Positive deflation, I say again, is no proper counter-measure to an inflation of the order of magnitude which has now occurred. The best we can hope for is to see that it does not go on; to contain what has happened; to prevent its continuing and to hope that, eventually, no further devaluation is implied. We cannot be certain of that. The rises of the last few months will take time—probably six months—to seep through; and although there is some inflation elsewhere, it is not nearly at the same rate in relation to productivity. The balance of payments, thank heaven! is favourable enough now, but it will not continue so for long if the inflation continues. Given this objective, let me make it perfectly clear that I have no doctrinaire objection to the use of the fiscal weapon.

Now, my Lords, I am going to say something that will shock my friends on the Government Benches very much: that I personally should have been much happier if the Government had not promised to give away their savings until the crisis had passed. I certainly should not object, even now, to laying additional increases of purchase tax—on luxuries, for instance—where that is practicable. But in the circumstances I am afraid that much reliance will have to be placed on monetary policy; and, having regard to the effect on interest rates and investments, perhaps more than otherwise might be wished.

I am equally clear that the present mild measures are not yet enough. I have great sympathy for the Bank, and its very distinguished Governor, in this situation. Public opinion, and often the Bank's political masters, expect it to provide at once support for the gilt-edged market and a limitation on the provision for aggregate expenditure. And, of course, my Lords, in present circumstances the two objectives are not necessarily compatible. Unless, therefore, we are extraordinarily lucky—and I hope that we shall be—we must expect liquidity to become tighter and interest rates to become higher if the depreciation of the pound is to be arrested. And if we are disposed to grumble at that—and here I would address a friendly word to the noble Lord, Lord George-Brown—do let us remember that, with the present rate of inflation, real rates of interest are not all that high. Suppose, my Lords, that prices are rising at the rate of 8 per cent. per annum. A man who lends money to the Government at that rate is in fact, poor fool! getting a zero return on his investment; and the Government, or the borrower, is getting off very lightly indeed.

My Lords, I have been too long. I return to my starting point. This, surely, is no time for recrimination on Party lines. Nobody with the record of the last Government is entitled to throw stones. But, equally, I would say in all earnestness that the failure, perhaps the inadvertent failure, of the present Government to make plain to the public the nature of the present peril, and to take steps sufficiently strongly to avert it, puts them in a very vulnerable position, vis-à-vis the general public. On one thing, at any rate, I hope, we shall all agree: that if inflation goes on at its present rate it will impair still further both our internal stability and our international standard. It is surely a time when all men of good will should talk things out, calmly and constructively, with a due sense of the momentous issues at stake.

5.8 p.m.

LORD RHYL

My Lords, I rise to address your Lordships' House for the first time and I ask for your indulgence. I do this with some anxiety. I have endeavoured to study the customs, Rules and Orders of this House, and I have come across that admirably phrased one against making sharp and taxing speeches. But, looking back over quite a long period of speaking in another place, I hardly ever remember making a speech that was not sharp and taxing; and learning graces and good manners in your Lordships' House may be rather difficult. However, I shall be consoled by what Disraeli said, when he entered this House, to a fellow Peer who asked him how he felt. He said, "I am dead, dead—but in the Elysian Fields." So if temptation comes my way I shall have to remember my condition and where I am.

My Lords, I want to make a speech on inflation and monetary policy which will to a large extent follow what the noble Lord, Lord Robbins, has said. But first I should like to make one or two points about the Treasury, as did the noble Lord, Lord George-Brown. It is perfectly true to say that no Department other than the Treasury ever gets so much criticism. What I am rather doubtful about is whether the criticism is really directed in the right direction.

Once again the noble Lord, Lord George-Brown, said that the Treasury was too restrictive, and that that was the reason why the Department of Economic Affairs was set up. I always thought that the setting up of that Department was (I must be careful) odd. After all, if you think the policy of a Department is wrong, the thing to do is to put somebody in to alter the policy. This is like saying, "The Foreign Office is too pro-European, so let us set up a rival Foreign Office which is anti-European". The people there would be no happier than they were in the Department of Economic Affairs. I believe that that blunder led to constant delays and confusion and added to the weight of debt we still have round our necks. I would only say to the noble Lord, who said that we cannot deflate ourselves out of a crisis, that we certainly can inflate ourselves into one.

I think that the reason why the Treasury irritates people is that it necessarily supervises all expenditure. It is the small matters that often irritate people, and the Treasury is far better, I believe, in small matters than in big ones. If you were to ask them to calculate the daily subsistance allowance in Bogota, they would produce a magnificent Paper. It would hardly be definitive because inflation there would have gone on and the report would have been all wrong before it was finished. But still, it would be a very fine piece of work. The trouble is, I think, that the Treasury is not so good in large matters. The old Gladstonian garrison of the Treasury surrendered unconditionally in the war and the fortifications were razed to the ground. Never since then has the Treasury had the will, or even the wish, to erect any defensible barriers. For example, so far as I know there has never been any Treasury doctrine upon what percentage of the national income can be taken in taxation without running the risk of serious inflation. Until very recently there was no doctrine whatever on money supply—on domestic credit expansion, as it is now called. It always seemed to me, when I was in the Treasury, that the general mood was: hope for the best, but fear the worst. It has always been sustained by a few rather vaguely Keynesian ideas.

In the watches of last night, the noble Lord, Lord Roberthall, for long Economic Adviser to the Treasury, made a distinguished speech. I do not think that many noble Lords had a chance of hearing it, but if they read it they will find exactly the sort of advice which was tendered by Economic Advisers to many Chancellors. I think it was a tragedy that Keynes died when he did. If he had lived he would have written a book about inflation instead of writing a book about deflation; and if he had written such a book every single noble Lord who has spoken would have quoted from it. I think that misinterpretation of Keynes has undoubtedly done a great deal of harm.

By far the greatest economic Minister since the war, I do not doubt, was Professor Erhardt, and he owed nothing to Keynes. I remember that when talking to him once I mentioned Keynes, and he said, rather vaguely, "Oh, he was one of the naughty ones, wasn't he?" But Erhardt was immensely successful. He put forward a policy of the purest classical economics. Everyone was delighted with his success—with the possible exception of the noble Lord, Lord Balogh, who no doubt would describe it, in his elegant phrase, as "globaloney".

Of course, the whole of monetary supply depends upon expenditure and fiscal policy as well. I entirely approve of what the Government have done. I only wish they had gone a good deal further. I find the criticisms of what the Government have done odd, to use that word again. What is this monetary policy—or lack of it—we have had? When my noble friend Lord Thorneycroft went to the Treasury, he noticed at once that there was no real policy or doctrine—at any rate, no firm one—about money supply, and for that reason he set up the Radcliffe Commission on Monetary Policy. Considering the immense intellectual eminence of the noble Lord who headed that Commission I thought that their Report was disappointing. I went so far as to say in another place that it darkened counsel. The reason, I think, was that the Commission tried to get agreement. We must all accept it as a fact of life that gang warfare between economists goes on all the time. Nothing excites them so much, nothing makes them sharpen their knives and brandish their bicycle chains more vigorously, than the words, "monetary policy". So they found in this document a sort of monster curate's egg, in which anyone could find something which he will pick up as a confirmation of his own views.

I do not want to discuss the Report, but two paragraphs are relevant. In the first, the Commission said how important it was that the Government should go on funding all the time—that is to say, selling Government stock outside the banking sector. They said this for two good reasons: first, the large sums of debt maturing every year; and secondly, the financing of the capital expenditure of nationalised industries. Among the arguments against nationalisation, for me one of the greatest is the immense difficulty of financing the capital expenditure. When the original nationalisation measures were put forward, this was never considered. It was simply assumed that the Government could sell any amount of Government securities they wanted. In fact they cannot do so. If you cannot do that you must raise taxation or raise the prices charged by nationalised industries, or pay for it by inflation. Normally it has been done by all three methods simultaneously. The classic example was when steel was re-nationalised. A sum of £650 million of Government stock was raised. The authorities did not dare issue a long-term stock, but offered a three years stock, practically the whole of which was put on the market and bought back by the authorities on the first day. In effect, the money to pay for this re-nationalisation of the steel industry might just as well have been printed in pound notes. This, of course, increased the money supply largely and increased the difficulties of the unfortunate Mr. Callaghan. The only thing to do about nationalisation is not to do it; to denationalise where you can and sell off any substantial bits that you can, and then, so far as the economy of the country goes, you are doing the Lord's work.

The other paragraph in the Radcliffe Commission's Report to which I wish to draw attention was a sadly nostalgic one. It said that if prices go up by 2 per cent. each year then you want 5 per cent. on your money instead of 3 per cent.; if you lent £100 to the Government on a loan redeemable in 25 years' time then to get back the same purchasing power as you lent with a 2 per cent. rise every year in prices, it would have to be redeemed at 164 per cent. Of course, we are not in a 2 per cent. period: I suppose that we are now coming up to something like 11 per cent. now. So if you lent £100 to the Government for 25 years and there is an 11 per cent. inflation, in order to get back the original purchasing power at the end of 25 years you would need to have the loan redeemed at £1,358 10s. 0d. per cent. I very much agreed with the noble Lord, Lord Robbins, when he pointed out to the noble Lord, Lord George-Brown, that money is not, in fact, terribly dear. If you can borrow money for any length of time and this sort of thing goes on, you can pay it back in wastepaper. So much for that.

We have now had a monetary policy, and that came about through the Letter of Intent when we borrowed money from the International Monetary Fund after devaluation. I do not think the Treasury or the Chancellor of the Exchequer at the time could really take all the credit: "Non nobis domine"—" Not unto us, O Lord," but unto Pierre Paul Schweitzer be the praise. Still, a conception of controlling domestic credit expansion did come in, and it worked very well and had a good deal to do with the improvement in our balance of payments. But, as the noble Lord, Lord Robbins, said, for some reason it was suddenly let go three months before the Election, and we got this staggering 16 per cent. increase in the money supply.

LORD ROBBINS

Sixteen per cent. per annum?

LORD RHYL

Yes; 16 per cent. per annum. The last publication of the Bank of England did say, rather vaguely, that they thought things were getting a little better now. I jolly well hope they are! The control of money supply is of course helped by fiscal measures and so on, but it does involve selling stock in the market; and the noble Lord, Lord Robbins, rightly said that it may well involve a lowering of prices in the gilt-edged market. But given the destruction of the purchasing power, which is the alternative to this, it certainly seems to me to be a piece of affected whimsy to say that you are really protecting the gilt-edged market when you do not keep control of the money supply. But it is difficult, and will cause trouble.

The one thing that I hope we shall not do is to have Index Bonds; that is to say, bonds whose rate of interest is conditioned by prices. In the years between the end of the war and de Gaulle's coming to power as President there were eight French devaluations. During that period they issued a large number of different series of Index Bonds. As soon as de Gaulle came in, advised, I imagine, by Monsieur Ruess and Pierre Paul Schweitzer, they stopped these. The reason why they stopped them was that if you have an Index Bond you are admitting that you have stopped trying; you are admitting that you have accepted defeat. I do not think we should do that.

The last comment I have in this field is that I believe it would immensely help money control if the clearing banks were decartelised; that is to say, if they were free to bid up the deposits and to charge for advances as they want to.

My Lords, I imagine that it is now almost compulsory for a Member making his maiden speech in this House to quote Horace, and I will do so: Naturarn expelles furca tamen usque recurret. If you substitute the price mechanism for Nature, you can translate it freely: You can try and get rid of the price mechanism, but it always beats you in the end. Of course, that is what is happening here. All the quantitative restrictions on bank advances simply mean that the business passes outside the banking system. Many companies are lending money to other companies, and not going through the banks at all, simply because the rates do not express the true value of money. If you can borrow money from the bank, you can, in most cases, lend it to somebody else for much more. So a black market—or perhaps "black market" is not a nice expression: the French call it the marché parallel—has very naturally grown up. I believe that if you decar- telised the banks you would have far more control of the monetary system. It would be fairer, far more sensible and more efficient.

Well, my Lords, I have done. I entirely agree with the noble Lord, Lord Robbins, that the situation is very dangerous. I believe that inflation at this rate cannot be allowed to continue. I believe that one of the best methods of controlling it will be by a strict and stern monetary policy on the lines advocated by him. But it may not be easy. It is conceivable, I think, that the noble Lord, Lord Robbins, slightly understated the difficulties. But what is to be done? We cannot know that this will work. But the stakes are great, and rising every day, and in great affairs you must wager; it is not optional. So I say to the Government: "Use every method to control this inflation: use your monetary policy. But please do it with courage so that everybody knows you will carry it through: "L'audace! Toujours l'audace!".

5.25 p.m.

LORD SOPER

My Lords, it is my pleasant duty immediately to congratulate the last speaker and to say with what pleasure we have listened to his maiden speech, and with what pleasure we shall listen to forthcoming speeches which he will no doubt make to the House and in the process thus delight the House. It is no surprise to those of us who have known the last speaker in other places that he brings to your Lordships' House the quality of wit, a forking humour and an eloquence of speech which again put us in his debt to-day. I will not follow him either in his French references or the particular reference he made to the pitchfork. But in reference to his theological statements, I would probably agree with the second one—it is good Augustinianism—but I felt that when he, so to speak, regarded the Lord as being on the side of denationalisation he was going a little far, and from the "hot line" which I possess in this matter, and he does not, I assure him that he was wrong.

I notice that I am the only clerical speaker in this debate. That puts a responsibility on my shoulders, and also involves an insidious temptation which I hope to resist. I will not indulge in moral salvoes, even if I were able to discharge them; and I have no stomach for, and I am sure this House has no ear for, moral aspersions on the intentions of those who are carrying through, or intend to carry through, the particular measures which form the subject of this debate. What I prefer to do—and professionally it is with the last two words of the Motion that I am primarily concerned—is to try to examine in a very brief time three of the major concepts lying behind this package. I shall vote against the Government and for this Motion, because I believe that from the standpoint of human relations rather than economic arguments these precepts and concepts are faulty.

I begin with the reflection which the noble Lord, Lord Aberdare, invited us to sustain, that we are dealing with a package and not with a number of disparate individual projects and plans. This I firmly agree, and would therefore deprecate any idea that one can vitiate the whole programme by pointing out deficiencies in any one part of it. But I think the noble Lord, Lord Aberdare, if I may say so, is hoist on his own petard, because it is in the very nature of the overall intention of the Government that I find the most severe of the condemnations which I feel obliged to bring to them.

I should like to try for a moment to interpret what is the Government's plan. It is the increase of productivity; it is substantial growth rate produced by the release of the citizens of this country from inhibitions so that they will be free to make their own plans, and in fact will be so spurred to do. I would find this a satisfactory statement but for the fact that it involves the knowledge that these particular proposals as a package will be incentive. I find them disincentive. I cannot see that there is any incentive worth mentioning in the provision of supplementary benefits for the very poor. On the contrary, it is highly likely that, inasmuch as the Government have preferred supplementary benefits to what seemed to me to be its promises of family allowances, it will be putting into a more permanent form a particular category of the community which we obviously should like to see emerge from that category and mingle more freely and economically with the community as a whole. Is it not highly likely that those in receipt, or who will be in receipt, of supplementary benefits will continue to be in receipt of low wages, because it will be in the interests of their employers not to produce higher wages for them? Is that not disincentive? I believe it is. Furthermore, is it not disincentive that those who will be in receipt of this particular form of charity (for that is what it will appear to them to be) will be dissuaded from the kind of energy and enterprise which might easily be theirs if the family relationship were stressed, rather than the poverty of income they receive week by week?

If there is one supremely important element in this part of the argument, it lies in the fact that there is a large wedge in the community of people within the £1,000 to £3,000 per annum salary bracket who will be profoundly the worse off for the particular package deal with which they are confronted. This large section in the community will be above the level which would entitle them to supplementary benefits, but they will feel the full force of the indirect taxation and the increased prices and fares, and the provision that they will have to make for school meals, as well as for milk, if they so decide to provide it for their children. This is a very large section of the community, one upon which the welfare of the entire community largely depends. It is this section of the community which will remain poor, in which there will be no incentive but only a continuous sense of frustration.

There is another argument; that is, that if incentives are to be effective they must have two obvious characteristics: they must be clear and short term. A number of articles have been written—and no doubt your Lordships have read some of them—indicating how easy it is to disagree on who will benefit in which particular category, and what will be the sum total or the mean total of what these particular resolutions and plans will effectually mean in the family budget. It is possible to argue both ways, and I have read plenty of evidence which would take a great deal of computer wisdom to assess its relevance or truthfulness. What is the kind of incentive which is not clear and not proximate? I believe that that incentive does not exist, such is the condition of humanity at the present time. As I see it, the present incentives within the package deal for the large section of the community (leaving out the £10,000 a year and above bracket) are about as clear as a Scots mist and about as proximate as the Greek Kalends.

In the second place, this particular package deal envisages a unity in the community. I was impressed listening to the Prime Minister on the television the other night when he re-stressed the three words, "All of us"; that we were to regard ourselves as a community. This is exactly what I would desire; I find that this is a divisive package, which instead of cementing a community is rather like trying to plait a head of hair with pair of scissors. It is impossible under the present system of specialised and selective provision of public welfare to avoid that sense which I know as a social worker—and I have no doubt many of your Lordships know—divides the community into categories and destroys the entire sense that we are one body of people, and all of us are expected to make our contributions to the welfare of the society in which we live. All indirect taxation is fundamentally unfair, except in a Socialist community. The indirect taxation which, in various forms, will affect middle-class people, particularly under the impetus of inflation, is one which will divide the community irrevocably rather than uniting it; and this sense of bifurcation, this sense of discontinuity in the whole process of life within the community, is one which has been impressed upon me in the various contacts that I have had in the past three weeks with people up and down the country. That is not a large communication, and I make no special claim to have the ear of the community, but I am well aware of the length and depth of the comments in the Press which seem to me to substantiate the claim that, far from uniting the community, this particular package deal will tend further to divide it.

There is a further element and, I suppose, the most difficult of all in this package deal to put into precise language. If your Lordships will allow me to say so, it appears that there is a lack of elementary psychological insight on the part of many who imagine that if provisions are made for social welfare, those provisions will automatically or necessarily be taken up by those who are entitled to receive them. This is a fallacy, and it rests upon a truth which I have not seen very carefully noted, and I shall venture to put to you. It is the truth that one of the disabilities from which the poor suffer is an inbuilt fear of taking their own case, however logical and right it is, and pressing it to the limit. It is the fear that they will not be competent to do it; it is the frightening sense that forms and interrogations present to them, and the story of those who, entitled to welfare, have made no effort to collect that welfare is a very sorry one. In 1965, a particularly well-informed Commission on this matter came to the conclusion that about 27 per cent. of poor people entitled to welfare then did not proceed to the process of getting it. It is possible to say, "If they do not take the trouble, that is their look out". I do not believe that. I believe that we have to tend and recognise that in a community where some people are very poor, part of their poverty is poverty of outlook, poverty of conscience, poverty which, if you like, produces inferiority, poverty which needs to be cared for and cherished rather than to be regarded in terms of a computerised declaration of what their rights are, and how they can proceed to declare and establish them.

I suppose this is all the more evident in the contact with old people. I know that pride is one of the deadly sins, but I often think that pride among some pensioners is about their only last remaining virtue—or rather it is that which they would rather preserve even if they freeze in winter and have little food with which to comfort themselves. I make no sentimental claim on their part, but I am quite sure that there are innumerable pensioners, as well as other poor people, who, whatever the provisions of a complicated welfare system, will not be able to face the problems of declaring and ensuring their own rights, however clearly declared those rights may be, in formal fashion. That is why comprehension is a social virtue, where selectivity is a most dangerous virtue and, I think, aberration.

I agree that there will be some under the comprehensive system of welfare who will be scrimshankers, but I would rather see a few people in the community—and it will be a few—taking advantage of welfare, than a great many people in the community denying it, for reasons which do no credit in particular to their wisdom or even to their probity, but recognise the fact that they are human beings and part of their poverty is their inability to match themselves to the problems confronting as complicated a system as this system of welfare is. For these reasons, I do not find those who have embarked upon this particular set of programmes mean or vicious; I believe that they have it all round the wrong way, and they have it round the wrong way because they have probably listened too carefully to people like Mallarmé, who said, as probably some of you will know, that it is not the thing itself, it is the effect that matters, and do not paint the thing, paint the effect. In other words, do not worry too much about what the thing is that you are talking about, but get on with the way in which you may think it may work itself out.

What happened in Mallarmé's case is that the more he pursued this particular doctrine, the more incomprehensible his poetry became, until at last nobody could understand a word he was trying to say. That may seem an extreme case, but I think that the noble Lord, Lord George-Brown, was venturing in this same direction. It is the concept of the community as a whole that is lacking from this particular set of programmes; and precisely because there is a lack of community there is a disability that infects each of the three various propositions to which I have adverted.

If, for instance, there were a community in which the sense of the whole was sufficiently stimulated, then there would be an incentive which I suppose a great many people to-day regard as inferior to that of enlightened self-interest. I wonder. Whatever one may say about Cuba, or China, or Russia—and there are a great many things one would want to say against the régimes in those countries—they have demonstrated, surely, the power of community to overcome personal and private selfishness. It would seem to me in this regard that if the community were the first objective, the particular disabilities that now infect the disincentive programme of this package deal would be overcome.

Secondly, with regard to the division into various groups within the community, the class-conscious community, if the community itself were able to be established on the foundations of a sense of commonalty and of common responsibility, once again I believe there would be a response to the kind of programme which is now envisaged. Thirdly, without any attempt to deny that the Government have a genuine desire to help those who are impoverished, I would say that a great deal of the difference between a community and a number of atomistically defined and distinguishable individuals is that within a true community people have no pride that they must lose; they have a sense of right and obligation, and a sense of participation. It was Winston Churchill—was it not?—who said that the only place for recrimination is as a spur to action.

I want to declare my own conviction, which is that we have come to the end of the particular sort of work which perhaps could be run in past days by the various and differentiated programmes of capitalism or what-you-will. We have now come to a stage at which I myself am quite convinced that only some kind of Socialism will meet the increasingly complicated and difficult demands of the society in which we live. Therefore, even in what may seem an intrusion, with all the various programmes which have been adverted to and all the various methods that have been advanced by which we can meet this present emergency, I remain completely convinced that there is no alternative to the kind of programme which I had hoped the previous Government would be able to put into effect, and which when they come back to power I believe they will.

When Hitler started the war a Methodist local preacher in the North of England prayed as follows: Oh, Lord, convert Hitler; but if that seemeth too hard for Thee, take him home to Thyself. I have no Party bias in saying that I venture to hope that the Government will be converted to a much more comprehensive sense of social welfare and may indeed change their mind. If they do not, then I hope, for their own sake and for the sake of the community, that they will give place to one which can. A community of that kind is no longer an ideal or a piece of airy nonsense. It to me, and to an increasing number of my ecclesiastical brethren, is the only alternative to a programme of inflation and more inflation, more and more bewilderment, and finally a collapse into the kind of trouble and the kind of issues which to-day we deplore as we see them elsewhere and which we earnestly desire will not happen here. My Lords, the answer to this debate, as I see it, is to say that we will not have this particular kind of package deal because we believe that a total refashioning of the community is required if we are to emerge from our present disorder.

5.44 p.m.

LORD DIAMOND

My Lords, I cannot say with what pleasure I follow the noble Lord, Lord Soper, not only because I thought he put such balance back into the debate and drew attention to the important human and community issues, but also because of what he said about the lack of incentive effect of the proposals which are now before us. I am very happy indeed to follow him because he dealt with the "incentive", or as he regarded it (and I agree with him) disincentive, effect of the package so far as the benefits and the social side are concerned. I want to deal with the alleged incentive effect of the tax reduction, because that has not so far been dealt with. It is of the essence of the case of the Government that anything they are doing is justified because of two reasons. The first is that the reduction in taxation will lead to an increased effort by the individual, being a great incentive to the individual, and the second is that, as a result of that process, there will be a more rapid growth of the wealth and income of our country. If your Lordships will bear with me, I want to direct your attention to those two propositions.

First, however, may I make one prefatory comment, in case your Lordships may have heard a reference to it during the course of this debate, to the Treasury. I do not recollect whence the comments came, but I think it is right to say that I have been privileged to be a Treasury Minister during the whole of the six years of Labour Government, and no Government, no Department and no Minister or group of Ministers could have been better served by individuals who devoted the whole of their thinking, the whole of their loyalty and the whole of their living hours to their Minister. I have seen two such individuals driven into hospital by overwork, and one killed by overwork—in the interests of the Department and of the Ministers they served. The pressures on the Ministers were endless and, as a result of our constitutional system, Ministers are required to be both departmental Ministers and Parliamentary Ministers, as well as constituency Members—ridiculously excessive tasks. They require their assistants of the top grade, of the medium grade and of lower grades to work similar hours under similar pressures. I know of no body of men of such excellence of mind and such devotion of spirit as we were fortunate enough to have throughout our six years of office—and I speak from first-hand knowledge.

The reason why I wanted to direct your Lordships' attention to the tax situation is that the Government are justifying what they are doing. I take a very practical view of politics and concern myself with the Motion before your Lordships' House and with the proposals of the Government. I am sure there will be other opportunities to discuss proposals which will be coming before us affecting industrial relations, inflation and a number of other issues. For the moment one has to concentrate on what the Government are doing and the reasons why they are doing it. The Government are proposing to reduce taxation because of the incentive effect of that reduction, and they recognise that room must be found for that reduction in terms of reduced public: expenditure so as to keep the pressure of demand stable—which I agree with. They recognise that they are making a number of reductions in public expenditure to enable the tax incentive to take place.

I want to examine all three propositions. First, that the tax incentive is a real incentive to the individual; second, that it is going to result in extra growth of the wealth of the community, and third, that the demand effect, as is essential under the Government's own proposals, will be kept constant by the piece of paper which has been put before us headed Savings in Public Expenditure.

First, may I say, very shortly, that I am sure it will be within your Lordships' recollection that the general structure of the tax is broadly this: that our direct taxes are highly progressive; that our indirect taxes are highly regressive; that the combination of the two in their impact on the average family is neutral, and that it is the social service benefits and subsidies that are progressive. Therefore if we could imagine a case under which we had a Government which wanted to put the clock back (difficult to imagine, but I am asking your Lordships to consider it purely as a conjecture, so as better to understand the situation I am going to put before you), and which said, "We have moved too far away from inequality towards equality; we want to put the clock back and move back towards inequality", what such a Government would do would be to reduce direct taxes, to increase indirect taxes, and to reduce the benefits and subsidies which arise from social services. That is what they would do.

Now I want to examine first the individual incentive argument that a reduction in taxation leads to harder work and greater effort. My Lords, as an ex-Treasury Minister I do not need to be satisfied that people prefer to have more money in their pockets rather than less money, and accordingly prefer to pay less taxes rather than more taxes. I need not waste your Lordships' time on that. What I am seeking to examine, if your Lordships will be patient with me, is the evidence in support of the proposition that the way to get people to work harder is to reduce their taxes. I am going to preface what I wish to say by my own experience. My own experience when I had considerable industrial responsibility was that when you wanted to get men to work overtime and asked for volunteers you always got those whose financial need was greatest. That is what made them work harder; and obviously it is the case that where a man has a given amount of financial commitment which he has to meet, where his taxes are increased and his net remuneration reduced, it follows that he must work the harder in order to achieve the amount of his commitment. So in that case an increase in tax would result in harder individual effort.

Your Lordships are not interested in my experience, but what you will be interested in is all the studies that have been made. If I may, I am going to refresh your Lordships' memories (because for aught I know it has been gone over many times before) on the various findings of the authorities and bodies that I have had drawn to my attention, in my previous capacity, in relation to this so-called "harder work" argument through reducing taxes. The first was the Royal Commission, the Radcliffe Commission; and what they said was: The present structure"— that is to say, of income tax— and what people know about it do not have any significant effect on the productivity of industrial workers. And, again, there is no significant association between informants' productivity effort as assessed by their working hours and the way they are affected by income tax. That is a finding with regard to industrial workers. Now may I draw your Lordships' attention to professional workers? In 1950, Professor Sanders, of Harvard University, carried out a survey of business executives and professional men. The great majority of those interviewed thought that effort was not being abated because of taxation. One small group thought that taxes drove executives to work harder, and another small group thought that the reaction was more often a relaxation of effort.

THE LORD CHANCELLOR (LORD HAILSHAM OF ST. MARYLEBONE)

My Lords, I wonder if I may ask the noble Lord a question. Is not the logical conclusion of what he is now saying that you ought to put the direct taxes up to 19s. 11d. in the pound to make people work harder still?

LORD DIAMOND

My Lords, I am most grateful to the noble and learned Lord who sits on the Woolsack, that he gave me the privilege of listening carefully to what I was saying. It is quite clear that he is following the argument, and if I can have his attention while I pursue it I hope that in the end we may see him in the Division Lobby with us.

May I turn from the effective rate of tax to the marginal rate of tax?—because, of course, the argument is supposed to be that it is the marginal rate of tax which is the real deterrent. I would draw your Lordships' attention to the study of two economists of London University, Mr. Buck and Miss Shimmin, in 1969. They found that their data indicated little or no relationship between the marginal tax rate and the amount of overtime worked.

They added that "overtime was worked in response to financial needs, irrespective of whether the rate of taxation was high or low."

Then there was a more general inquiry by Professor George Break, of the University of California, in 1956, and this is of interest to us because it deals with the question not of what people do about their taxes but of whether they complain about their taxes. He asked a sample of solicitors and accountants in the United Kingdom for their assessment of the effects of taxation, and checked their replies against action taken. The studies show—and I quote: That the showers of complaints, vehement and eloquent, against penal taxation echoed by the great majority of respondents interviewed for the present study, was infrequently transplanted into action. And he concluded that "contrary to the frequently repeated injunction of so many financial commentators, solicitude for the state of work incentives does not, under current conditions, justify significant reductions in the role of progressive taxation."

There are three more quotations I could give, but I fear that I should weary your Lordships if I gave them. But, finally, may I draw your attention to the findings of the Jones Working Group into the "brain-drain", when it was alleged that so many qualified men were leaving this country because of the weight of taxation. The Working Group's finding was that "for qualified men the effect of taxation, if properly understood, is unlikely to sway a decision to emigrate." My Lords, I wish that I knew—and I am sure there is not a Treasury Minister, past or present, who does not wish he knew—for certain the motivation of every worker and what the effect of every tax provision would be. All I am saying is that the evidence makes it abundantly clear that one cannot say that if taxation is reduced it will produce harder effort. There is no evidence to support that at all. AH the evidence leads to one conclusion: that one cannot be positive about it. Therefore I am saying that the argument that the reduction of taxation is essential in order to produce greater incentive is not true.

But even on the argument that it is a good incentive, I want to examine the kind of incentive that the Government are putting before us. As we all know, they are putting before us an incentive which favours the bachelor as against the married man—though why this sudden cult of the bachelor I know not: the married man without responsibilities against the married man with responsibilities and the non-producer against the producer. They favour the man with unearned income against the man with earned income. This is the Tory argument for what I think the noble Lord, Lord Watkinson, called the "pacemakers"—the leaders of industry, I think he called them. The incentive for them is that if they were to stop working and were to rely entirely on their unearned income, their benefit per pound of income would be the greater. It is absolute nonsense for the Government to come forward and say that their proposals, on their philosophy, the way they have put them to us, represent an incentive to the leaders of industry or to anybody else.

May I revert for one moment to a speech which interested me enormously yesterday, the one by my noble friend Lord Raglan. He pointed out that it is surely nonsense in the case of people at the higher levels of remuneration which accompany jobs of higher responsibility and greater interest to say that the tax effect on remuneration is the major element, the all-important element and the one, therefore, that is going to make the decision clear to the man whether he should accept greater responsibility or not. All the other elements, of job satisfaction, of engaging in something worth while, of accepting responsibility, of being a man—all these things must weigh much more with him than either a small increase in remuneration or the tax element within that remuneration. Therefore, I am saying that, so far as individual incentive is concerned, according to my philosophy there was no need for this reduction. According to current Tory philosophy, it is the wrong instrument they are using, because they are giving the greatest incentive to the non-producer, and so far as encouraging incentive or harder work is concerned, it is irrelevant.

But they go on to say that this will result in greater national economic growth. It is a statement made by the Chancellor of the Exchequer, and by the Prime Minister. I do not know what support there is for that statement. It does not tie up with any of the comparisons one can make. There is no correlation between levels of taxation and rate of growth. If you look at the O.E.C.D. tables, we all know that this country comes broadly in the middle of the tax tables and at the bottom of the growth tables. There is no correlation between tax reductions and increased growth. Nobody knows that better than Tory Chancellors. They frequently told us that in the thirteen years when they had the reins of government tax was reduced on four occasions and in terms of growth we moved from near (the bottom to the bottom of the league tables. So there is no evidence that it worked in their case.

And there is no correlation between the rate of public expenditure and growth of national income. I take one example, and there could be many more. France has a greater percentage of public expenditure than Germany and it has a higher growth rate than Germany. So I am saying that neither claim is established, neither by their philosophy nor by our philosophy. As my noble friend, Lord Soper, said, the social cuts will be a disincentive; and I am adding, the income tax cuts themselves will not be an incentive.

Before we leave this matter, I must turn for a moment, by virtue of some little experience I have had in these matters, to the so-called cuts in public expenditure. These cuts are of four categories, if your Lordships will be good enough to examine them. First of all, cuts in capital expenditure. There has been £30 million saved on the I.R.C. That, of course, is merely money that was loaned to the I.R.C. and would be returned; the I.R.C. has been making a profit, so the money is merely on revolving loan. There is £30 million on acquisition of ports, and this is merely transfer of assets; £20 million on land purchase, again transfer of assets; £42 million on the capital expenditure of the nationalised industries. That is one element. Another element is charges. There is some £97 million of additional charges for education and health. A third element is cuts in the public sector activities, such as very definite cuts in aid to industry and on roads. And the fourth element I can only describe as unreal, because it includes all those alterations to the figures which have no effect on demand at all; it includes very large figures for shortfall, for recalculation of the estimates, for unallocated items and for the contingency reserve. All these things have no effect at all on demand.

The Government's case is, and I accept it, that demand pressures must be kept constant, and that the cuts, therefore, must be provided in order to make room for the tax reductions. On paper these figures add up arithmetically—my word, they have scraped the barrel!—to a figure which is just comparable to the cut in income tax for the first year we are considering, 1971–72. But in terms of demand, I find it impossible to believe that the Government have achieved what they set out to do. The Chancellor of the Exchequer has said that these cuts provide a figure in demand equivalent to the income tax cut. He paid no attention to corporation tax, where there is a reduction of £60 million in the current year and £90 million in the year we are discussing, 1971–72; he paid no attention whatsoever to the reduction in betterment levy. I am saying to the Government, therefore—and I shall be pursuing them with Written Questions on this matter to get it thoroughly sorted out—that I find it impossible to believe that they have achieved the target they set themselves of finding room for these tax cuts.

Why do I draw your Lordships' attention to this subject at some length? Because it helps us to understand the motivation of the Government The Government action has clearly been, "We must provide the tax cuts. Therefore we must provide, or attempt to provide, or allege that we are providing, the room for them by way of cutting public expenditure". And I am saying that there was no economic need, and so are the Government. The Government are saying that you must keep demand stable as it is at the moment, and indeed for 1971–72. They are saying, "We accept the Budget judgment of the last Chancellor of the Exchequer, Roy Jenkins, and the demand is to be kept as it is". They are saying there was no need for it in those terms, but there was need in terms of incentive.

I am saying that that is not a reason; that is a rationalisation. I am saying that this is not an economic decision; it is a purely political decision to give assistance to the richer at the cost of the poorer—nothing more nor less than that. It is a plain political decision from which I want to dissociate myself and as many as think with me. Let me be absolutely clear: there must be any number of us on this side of the House who will benefit financially from the proposals put by the Government. We want none of it, and I appeal to all your Lordships, on the grounds of our common humanity, to have none of it to-night.

6.10 p.m.

LORD WADE

My Lords, I should like at the outset to congratulate the noble Lord, Lord George-Brown, on his maiden speech. The House will certainly be enlivened by his presence. I would also congratulate the noble Lord, Lord Rhyl. I am sure the House will benefit from his acute brain and the witty manner in which he expresses his penetrating thoughts.

I do not think that during this two-day debate any noble Lord has pointed out that ever since the General Election of 1955 Parliament has found itself, within a few months of the Election, faced with an economic crisis. Certainly that was so in 1955, in 1959, 1964 and 1970. The nature of the crisis has not always been the same. Sometimes it has been a serious adverse balance of payments, sometimes an increasing inflationary pressure. But the cause has been the same; namely, that the Government of the day have either encouraged a boom or allowed things to slide, having their eyes on the electors. I cannot expect the noble Lord, Lord Shackleton, or the noble and learned Lord the Lord Chancellor, to admit this in winding up, because it might be embarrasing for their respective Parties; but I think that in their heart of hearts they know that what I say is true.

However, the question this afternoon is not about the failure of past Governments, or to what extent the last Labour Government are to blame for this galloping inflation—although it is certainly a pertinent point in political debate. The question is whether the promises made by the Conservatives at the last Election are being kept; whether the expectations about the cost of living are being fulfilled, and, in particular, whether this House has complete confidence in what the Government are doing. My answer to that is: No, I have no such confidence. Yesterday the noble Lord, Lord Thorneycroft, speaking in support of the Government—at least, I think he was speaking in support of the Government—said. "I feel far from certain about the prospects of the present measures of the Government succeeding." I hope that is a fair analysis of what he said. Well, my Lords, I feel very far from certain. Before offering my main reasons for this view and summing up from the Liberal Benches I should like to take up two points, both of which I think are relevant to this debate.

Yesterday, my noble friend Lord Henley said that in criticising the Government we must not be unwilling to contemplate any change; that it would be a great mistake to get into the position of opposing any reform, say in the social services. I agree with him. But I am sure he will agree with me in saying that this does not mean that, with the rising standard of living which we all hope for, the overall cost of the social services will necessarily fall. It does not mean that as people can fend for themselves we can dispense, even in part, with our welfare society, It does not mean that there is any magic formula in the word "selectivity."

Of course it is right to help those in greatest need. But the welfare society—I say "welfare society", not "Welfare State"—is something more than just the creation of some kind of benevolent fund for the poor and needy. Of course we must be willing to accept change. But it must be remembered that there are, broadly, three stages in the development of most forms of social service. Welfare is at first provided by voluntary workers—the pioneers. Then it is taken over by the community and provided as a service for all. At a later stage, as the standard of living rises, many people can provide for some of their own needs. But as this process goes on, new services are developed by pioneers, services which can be adequately provided only by the community. Therefore the question is not whether there should be welfare service, but how much the community can at any one time afford to spend, and on what. It seems to me that the Government have missed a golden opportunity of presenting in a hopeful way the future prospects for the welfare society. They could have said: "The country is faced with this galloping inflation. It has a poor growth rate. This inhibits the improvement of our welfare services. Let us overcome these difficulties. When we do, there are almost unlimited prospects for improving and reforming the social services. That is what we wish to do. In that way we can create a more generous and more humane society." Notwithstanding what the noble Lord, Lord Aberdare, said this afternoon, rightly or wrongly the impression has been created that there are some members of this Government who regard the cutting down of parts of the welfare services as desirable, as an end in itself. Certainly I regret some of the cuts announced by the Chancellor. Unfortunately, this seems to fit in with a call for greater reliance on the motive of self-interest. If that is so, if that is to be the new climate, we must accept the consequences, for self-interest more than ever will affect the attitude of people to wages and salaries.

I come to my second point. On Monday there were a number of inspired statements in the Press about the Government's attitude to prices and incomes. Peter Jay, in The Times, wrote: The Government still reject an incomes policy. I do not ask the Government to accept everything that is said in the Press. Obviously, no Government can stand entirely on one side. Every Government must have an incomes policy of a sort, even if it is the consequence of inaction or of several inconsistent actions. In the dark days of the 'twenties and 'thirties the Government had a policy on incomes which was a cutting-down incomes policy associated with mass unemployment. In recent months we have had a "Let things slide" incomes policy. The problem is, how much further is it going to slide. What is going to happen this winter?

I do not think we can wait several years for the position to improve. Our views may differ on the seriousness of the inflation and on the measures to deal with it, but it cannot be denied that infla- tion is greater to-day than it has been for many years, that the rate of economic growth is extremely disappointing, and that, although the balance of trade figures are better certainly than they were two years ago, there is truth in what The Times said yesterday, and repeated again to-day, that virtually all growth in export values reflects rising prices, while almost all the growth in imports represents rising volume. So the outlook is not too good.

The crucial question is, if inflation continues at the present rate during the coming months what are the Government going to do? Will the Government permit large-scale unemployment? If not, what? It is generally agreed that, owing to the inflationary climate in which we live, deflation, if it is to be effective at all, must be much harsher than it has ever been in the past—and heaven forbid that that policy should be adopted! Yet something drastic may have to be done. I believe that the only alternative is what Lord Henley yesterday called action on a broad front, a variety of measures, including some form of prices and incomes policy.

Yesterday, the noble Lord, Lord Balogh, criticised my noble friend Lord Henley for what he said about controlling wages and the unions, and he asked for my noble friend to be repudiated. I am sorry that the noble Lord, Lord Balogh, is not here to hear the answer to the attack which he made. If I may say so, I think he is more inclined to listen to his own speeches than to the speeches of others. Perhaps the fairest answer is found in a quotation from the Economist of June 6 of this year: Actually, the best suggestion on curbing wage inflation has come from the Liberals: that nationwide trade union bargains should have to be approved by the Restrictive Trade Practices Court, just as other much less dangerous restrictive practices are. It need not necessarily be the Restrictive Trade Practices Court; some other body could perform that function, but it would, of course, have to observe certain guiding principles. This is one positive suggestion that I put forward. It is precise; it could be implemented, and it is not an attack on the trade unions. If representatives of employees and employers flouted the requirements of such a body, they would be in breach of the law. It is a radical suggestion, but I think it is sound in principle. After all, freedom has to function under an umbrella of the law. We have already accepted in principle that monopoly power must be controlled, and we acknowledge—I certainly acknowledge—that there must be some control if we are to enjoy full employment. In fact, some control is the price we have to pay for full employment. The question is, what restraint can we accept in order to achieve full employment? I do not believe that it will happen automatically as a result of exhortations or vague talk about a free society.

I come now to the question of voting. One of the merits of this House is that there is such great freedom that we are able to enjoy freedom of expression of different opinions. But, at the end of the day, there are only two Lobbies; there is no Lobby for those who say, "A plague on both your sides". As the issue is one of confidence, and we have not that confidence, my friends will go into the Lobby against the Government.

My Lords, may I be permitted this postscript? I am indeed worried about the lack of a sense of urgency, as I see it, in dealing with this serious problem of rising prices and continuing inflation. However, I must say that I am also disturbed at the number of political commentators who have stated in recent weeks that the remedies for dealing with inflation are available, but they are all so unpopular that they would be politically impossible. If that is really true, then it is not just the Government who are on trial, political democracy is on trial.

6.24 p.m.

LORD SHACKLETON

My Lords, I believe that this has been a very notable debate and that the standard has been universally high. In addition, we have had some particularly notable maiden speeches. There was a speech from my noble friend Lord George-Brown, who seems to have disappeared as quickly as he arrived. He apologised for being absent yesterday, so we must take it that that apology covers to-day as well. Certainly it was a notable speech. We also had a characteristically witty speech from the noble Lord, Lord Rhyl. It was characteristic except, as he pointed out, in one respect, in that it was neither sharp nor taxing. He is perfectly right. He was a very sharp and taxing speaker in another place. Most of the time he was also extremely funny and very much to the point, and there is no doubt that he will add to the humour of your Lordships' House. I suspect that we, on this side of the House, will not always enjoy some of the remarks which the noble Lord will make to us, but certainly he is an ornament to your Lordships' House.

We also had a number of notable speeches yesterday. There was the speech of the noble Lord, Lord Avebury, who plucked up courage after many years to tackle a maiden speech from that most difficult of all places, the Cross Benches. It is always only with luck that you get heard from there, and I congratulate him, and also my noble friend Lord Hamnett. In particular—and I think it will be no reflection on other maiden speakers when I say this—we were all deeply impressed by the speech of the noble Baroness, Lady Lee. She made a deeply moving speech. I always think we make a slight mistake (because nobody pays any attention to it) in expecting maiden speeches to be non-controversial. What is required—and this is consistent, at any rate, with your Lordships' approach—is to observe good manners; and my noble friend Lady Lee, and the other colleagues I mentioned on both sides of the House, have fulfilled that requirement.

Owing to the somewhat dynamic way in which the order of speakers has moved, I find myself, contrary to expectations, speaking before the noble and learned Lord who sits on the Woolsack. Although we have had the benefit of some running commentary from him during the day, it has not always been audible to us this far in the middle of the Chamber. I was going to say, and with some certainty, that we had" had a characteristic speech from him. I will say that we shall have a characteristic speech; but the only speech I have heard from him so far in this debate was when my noble friend Lady Birk was speaking about false teeth, and he advised the House that the only thing to do was, "To take one's snappers out". I do not know whether this has a deep significance from the standpoint of the Government's economic policy, but those of us who are required to do so will do so. I may say that the noble and learned Lord seems to have been in good form at the Mansion House the other night, if the Guardian newspaper is correct. He asked that dangerous question—I think it was the noble and learned Lord—"Do we look like dinosaurs?" He must speak for himself in this matter. I only hope that his speech to-day does not show that somewhat dinosaur-like quality, the sort of thundering, trampling approach which overwhelms a large quantity of undergrowth without always revealing the truth. I think it was in the mesozoic age that dinosaurs existed, and I hope that Conservative policy philosophy has not gone back so far as that.

Our debate has ranged very widely because noble Lords have come here sometimes from a great distance, and I should like to welcome those noble Lords, not only on that side of the House but a few on this side of the House, who have made the special effort. I suspect that there are a few more on that side, and I think that some of them—including those who held office in previous Governments—are somewhat surprised at the turn Conservative policy has taken. Without going so far as to echo all that the noble Lord, Lord Boothby, said about the virtues of Mr. Baldwin's policy, I must say that I see a departure, a distinct difference, from the policy pursued by previous Governments, whether it be the Government of Mr. Macmillan, the noble Earl, Lord Avon, or even perhaps Mr. Baldwin.

What we have to do this evening is to judge the measures that are before us and make a decision, and clearly there are important differences of Party attitude in this matter. It would be absurd for us to pretend that we are not sharply divided on this subject. That is no reason why, while philosophies clash, we should not look at the particular proposals on their merits. The Government's own objectives are to reduce the role of Government, to reduce direct taxation and to create more incentives in industry. There are a number of other objectives, and we have been told that these measures represent only the first step towards their achievement. I do not consider, and I believe that very few in your Lordships' House, including noble Lords on the other side, consider that the declared objective of a 6d. cut in the stan- dard rate of tax is going to be much in the way of an incentive; and my noble friend Lord Diamond has proved that quite conclusively. On the other hand, it is a redistributive measure associated with the other proposals which will hardly benefit the majority of Britain's wage earners. It is very difficult to see any less government resulting from it.

When we look at the proposals we are very surprised and depressed. Let us take one example which has been a matter of uniform criticism—the abolition of the Consumer Council. This seems to me an act of sheer cannibalism. The Government are eating their own child, and the special foster mother, the noble Baroness, Lady Elliot of Harwood, has already expressed her views in no uncertain terms on the Order Paper. No reason whatsoever has been given for this step, other than the general statement from the Government that there will be desirable things which we can do without. They are determined, they say, to pursue the essentials, but some of the desirable things we must dispose of. My noble friend Lord Donaldson of Kingsbridge, whose speech I have read, made a strong case against the Government on this point.

That is not the only example. Noble Lords have referred to the Industrial Reorganisation Corporation and the case has been very strongly put. I know of no industrialist—perhaps there are some on the other side: I am looking at the noble Lord, Lord Nelson, and others—who does other than regret the abolition of this body. One of the consequences of this action is that it has brought Government much more directly into industry than would have been the case if it had been preserved. They have had to work direct to Rolls Royce in a deliberate and direct action. It is worrying when one sees an institution of this value, which other countries are beginning to copy, removed without any examination other than within the Government.

When I heard of it, I began to wonder whether it was wise to talk about other bodies. I think my noble friend Lady Birk was rather rash to talk about her Health Education Council: the noble Lord, Lord Aberdare, will probably be abolishing that in a few days' time.

LORD ABERDARE

No.

LORD SHACKLETON

I am glad. We have the assurance that it will not be abolished. If I go through a list, can I get assurances from the Government? Will they preserve the Countryside Commission, the Arts Council and various other bodies? One wonders why they have picked on two particularly valuable institutions; namely, the I.R.C. and the Consumer Council.

Then we come to their policy in the regions, and their policy with regard to investment grants. The previous Government were well aware that we were spending a great deal of money in the regions, something around £300 million a year, and we recognised that there was probably scope for using that money more effectively, with more selectivity. So the previous Government set up a thorough study into the effectiveness of investment grants, but instead of waiting for the completion of that study this Government went ahead and abolished them. Again, this has been the subject of criticism, not only in the Labour Party but very widely throughout industry and among the public at large.

It is interesting, since the Government attach some importance to their investment allowances, to see that the Institute of Directors, who also carried out a careful study, hiring a well-known firm to do it, came to the conclusion that in taking their investment decisions directors paid very little attention to tax allowances. Here again I think the Government would have been well advised to wait for the study. They abolished regional employment premiums which, again, following the remarks of my noble friend Lord Diamond, are entirely negative from a demand management point of view. It is rather curious that, in a debate which is predominantly economic, we have heard very little from the Government about demand management.

As regards social policy, the noble Lord, Lord Platt, my noble friend Lady Summerskill, the noble Lords, Lord Boothby and Lord Soper, and many others, have pointed to the ill-effects of the policy which the Government are following. I shall not describe them again, beyond pointing out that there is real anxiety about the decisions that have been taken with regard to milk and meals. The noble Lord, Lord Aberdare, has not answered questions on these decisions, and the concern will continue. He said that the Government are going to make a special study to see whether there are any ill-effects. That rather suggests that perhaps the Government are a little less confident about the policy which they are following in this matter.

But the most worrying point in all their proposals is this. The noble Lord said that the family income supplements will really meet the needs of those who are below the official poverty line. The fact is—and the noble Lord, Lord Soper, made this point—that a recent survey showed that something like 50 per cent. of the people do not take up these benefits. It is no use noble Lords saying that they "jolly well ought to". These people have their pride, or perhaps they do not know how to go about obtaining benefits. And the Government will not solve this problem with the £8 million.

The hour is late and I shall not go further into the other arguments which have been advanced. But our major condemnation of the Government's package, and the other policies associated with it, is its irrelevance to our real problem. There is a logic, I admit, behind the Government's policy. They have diagnosed the ills of our country as being too much government, and they believe that 6d. off the income tax—the carrot—will compensate people for the stick contained in the extraordinary collection of measures. The Government have gone in for such old-fashioned remedies that I was surprised they had not brought out the leeches; but then I suddenly remembered that they were making extensive use of special bank deposits.

But what they are now going to carry through does not meet the subtle malaise that afflicts not only our own country, but many other advanced communities. Furthermore—and I put this very seriously to noble Lords in this House, particularly some of the younger noble Lords who are well aware of this—the Government ignore the fact that there is real social unrest, especially among the young who are interested in something more than the pursuit of selfish or economic ends. Noble Lords may say that the Chancellor cannot take this sort of factor into account when he is framing his economic policy, but I say that there are forces at work of a kind which show a sense of fairness and a sense of justice, and the feeling is that this package is basically unjust. There will be a feeling, too, in relation to industrial matters that a package of law is no answer to the underlying social uncertainties within the trade unions.

There is almost a sign that the Government are going back to 19th century economics, and once again the iron law of the 19th century economist will be shown to be the disaster that it has been hitherto. The Government have followed policies and have done particular acts which will now make it impossible for their main policies to succeed. They have lost the confidence of many people (because there is still a strong sense of fair play among the British people, and nobody can say that this package is fair), and they have lost also the confidence of many in industry, particularly in relation to the inconsistencies of their policies with regard to investment and the I.R.C.

My Lords, we shall soon see—and the noble Lord, Lord Balfour of Inchrye, revealed this at Question Time—a confrontation with the leaders of some of the nationalised industries, and the Government will not be forgiven if they damage some of these great national assets. I do not believe that any Government or any Prime Minister in the last 70 years has pursued such a deliberately doctrinaire policy. I say this not as a term of contempt: I say it because I believe that the present Prime Minister and the leaders of the Party opposite are deliberately following a policy based on a doctrine. But this will not meet present-day needs. One of the painful facts is that any Government coming into office will come in with ideas as to the long-term strategy that they should follow. We came into office with a long-term strategy, and it was at the cost of great unpopularity that we had to pursue other policies which were not part of our original pre-Election thinking. We had to seek, especially, a strong balance of payments situation, and many of our aims and, indeed (let me admit this), some of our policies were negatived; we were unable to fulfil them because of the overwhelming need to deal with the immediate situation, the temporary balance of payments situation—a problem which has bedevilled this country ever since the war.

My Lords, the Government justify their actions by saying that they are doing what they were elected for. That is a pretty dangerous argument, especially when you look at what was said on the subject of prices—and I will not embarrass noble Lords by reminding them of it again. The painful fact is that, however much the Government may dislike it, their choices of long-term strategy will always be bedevilled by the short-term needs of the situation. This has been the message which has been coming out from speaker after speaker—the weighty words of the noble Lord, Lord Robbins, the noble Viscount, Lord Amory, and others—and this is the painful lesson that the Government have to learn. We are all agreed, I think, that inflation is the present-day threat, as opposed to the balance of payments situation, which, as we know, is still very strong. The trend continued to be favourable, despite what Mr. Heath said at Election time, although perhaps that was not his fault because the figures we were all given were not right. But the balance of payments situation is strong, and there is time now for the Government to carry out certain essential deeds and policies. However, the pressing problem is the problem of inflation. What are the Government doing about it? We know that the cut in income tax has been received with hostility in some quarters and boredom in others. It achieves nothing towards dealing with the problem of inflation. As to demand management, the Chancellor said in relation to his package that it was neutral from a demand management point of view. Actually, it is not; and although I would support my noble friend in his praises of the Treasury I had hoped that the Treasury would in fact have corrected their views as to the demand effect of the package.

My Lords, the simple fact is that, within the economic situation—and this is what is making it so difficult for the Government to carry through their policies—whereas the very poor may get some protection and the majority of us in your Lordships' House will be better off, a very large number of people (indeed, the majority of them) earning between £1,000 and £3,000 a year, whether they be workers or management, will be worse off; and no one has disputed this. If I may put it another way, a Lord-in-Waiting—and let me again say how much we appreciate their hard work—benefits very little from the Government's measures, but senior Ministers benefit quite a lot. I hope that Lords-in-Waiting have some private means as well; otherwise, what the Government have done will be very discriminatory. But it is in this respect that the public as a whole are aware of what the Government are doing.

The Government have been justifying the measures they have put forward by saying that the previous Government's policy has failed and that they must try something new. This, of course, is one of the most dangerous arguments that one can use. I would be the first to admit—and we may as well agree on at least some of the facts—that the statutory incomes policy, to put it mildly, was not the success that we had hoped. It has certainly led to unfortunate repercussions, and I agree that the Government are having to face some of those repercussions. But it is another thing to say that the Government's monetary and fiscal policies, and their approach to the question of wage settlements, constitute, in the words of the noble Earl, Lord Jellicoe, "in the broadest sense a policy for England". As the noble Lord, Lord Drumalbyn, showed last night—and he did not seem quite as happy with his brief as I expected—the Government seem to have ignored the way wages have moved and how this whole inflationary and cost inflationary development has come about. My Lords, at some stage we have to achieve a total policy—and I agree with what my noble friend Lord George-Brown has said—in which, among other things, there is in fact an effective voluntary prices and incomes policy; and yet it is at this moment that the Government have chosen to pursue courses that will destroy the basis of voluntary co-operation by, in particular, their proposals for industrial relations.

One of the more startling things is the kind of figures the Government quote with regard to the number of days lost through strikes. They find what seems to be the most damaging comparison—a sort of guilt by association—and say that it is worse than at any time since the General Strike of 1926. But what they do not say is that the number of days per worker lost through strikes in this country is still only half what it is in the United States, whose unsatisfactory policies in the matter of labour relations they propose to emulate in their own industrial relations policy. My Lords, if the Government believe it is right—and it may well be that it is a policy that in time could work; I would say that it cannot—it does nothing to meet the needs of the present situation. The noble and learned Lord who sits on the Woolsack had quite a lot of fun in the debate on industrial relations the other night, the purpose of which, if I may say so, he misconceived. We did not approach that debate in any partisan spirit, and there was a lot of free discussion. He repeated then the Government's willingness to talk to the T.U.C. But the snag is that the Government will talk only on the basis that there is no discussion on, and there will be no variation from, the main principles of their package.

My Lords, that it not negotiation. I should like again to appeal to the Government, and I would ask the noble and learned Lord who sits on the Woolsack, even if he cannot say anything to-night, to take it very seriously indeed—and this is honestly meant as a serious suggestion. We are faced with a dangerous and difficult position. I agree that one can exaggerate it, but we know, as the noble Lord, Lord Robbins, made clear, that we have to try to meet the present-day problems. I would appeal to the Government: will they now, without any strings attached, sit down with the C.B.I. and the T.U.C. to try to hammer out a policy to deal with inflation? My noble friend Lord Beswick mentioned this and pressed it at the outset of the debate, and my noble friend Lord Shepherd has repeated it again. We have still had no reply.

Mr. Vic. Feather has given a great deal of constructive thought to this subject—and again there is no reply from the Government. It is quite astonishing. I suggest to the Government that they should postpone the introduction of the Industrial Relations Bill. I do not ask them to drop it entirely; I would ask them to postpone it. It is vital to get some sort of talk going, to arrive at some sort of consensus in order to achieve some kind of voluntary prices and incomes policy. Mr. Vic. Feather, the General Secretary of the T.U.C, to whom I spoke this morning, has again authorised me to repeat his undertaking to sit down with the C.B.I. and with the help of the Government to discuss the whole of the country's economic problems, the problem of the growth of investments, of employment and in particular of an incomes policy. The Government have little to lose by doing this; but we, as a country, have a great deal to lose unless they do it.

My Lords, we have been criticised. The noble Earl, Lord Jellicoe, asked what we should have done. That is a perfectly fair question. First, we should not have introduced this regressive and socially divisive package, but we should have persevered believing that the Government in this country depends on consensus. It is not enough for the Government to say that the electorate were behind them at the Election; for they will very soon find that the electorate is not behind them. There is no alternative other than to face and to talk about the problems within the country. The long-term strategy, whether it be right or wrong—and we think it wrong—fails entirely to deal with this most pressing problem. It is not just we on this side of the House who are saying this; many others, in particular our friends in Europe, are saying so. I should be the first to admit that there were many things in the previous Government which were not successful; but that Government would not have abdicated their responsibility in the way that I believe the present Government are doing. I beg noble Lords to face the particular issue. Either we continue on this present path and in the end be driven into deflation and mass unemployment, or we attempt to hammer out a policy which, even if it does not work totally, is at least acceptable, is regarded as socially more just and is one that will work on that pressing problem of inflation.

It is for the Government to take the lead—not to make speeches about "Use your Freedom Aright!" which helps no one. It sounds fine—although it did not get much enthusiasm at the Guildhall the other night. Nor does it help to make references of the kind that Mr. Davies (but perhaps I will pass from Mr. Davies; it is an embarrassing subject) made in the other place. I would urge your Lordships—for we cannot defeat the Government easily in this House and if we were lucky enough to do so we cannot bring the Government down—to show by your votes to-night that we want to urge the Government to try a different tack, to get the right sort of seaway, which I am sure the noble Earl, Lord Jellicoe, would like to have. At the present time they are running out of the ability to manæuvre and they will leave behind a country which is a good deal less happy, a good deal more worried and a great deal less socially just than it has been in the past.

6.54 p.m.

THE LORD CHANCELLOR

My Lords, the noble Lord, with his characteristic courtesy and urbanity, has just given the second instalment of what we were assured at the beginning of this Parliament would be the most formidable and determined Opposition that this House has ever seen. I suppose that I hold in my hand, or on the small trolley on which I am permitted to place my papers, about one and a half hours of constructive oratory which I might address to the long debate which we have been having. Happily I know the wishes of the House in this matter; and if your Lordships will promise not to accuse me of skimping my work or failing to answer each one of the forty speeches which have preceded mine, I will endeavour to compress into a relatively small compass what I have to say.

The noble Lord, Lord Balogh, in one of the more charitable of his recent utterances, delicately referred to me as "Pooh Bah". It is true that Pooh Bah held the Lord Chancellorship, among various other offices; but I confess that, having been cast by my Leader for a role on, I think, nine occasions during the current eleven days of Parliamentary Sittings, I feel much more like that broken-down old cab horse "Black Beauty", in Anna Sewell's famous novel; and I hope that your Lordships will forgive me if I put a few thoughts before you in a slightly ingenuous way.

But I must begin by thanking noble Lords on our side of the House and on the Cross-Benches, and indeed on the Opposition side, for taking part in this debate. We are not very good in this House at public relations, but if anyone were tempted to criticise the House of Lords as a place where people do not come, it would be, I think, useful for him to look at the state of the Chamber this evening. And if we may just for a moment compare ourselves with another place, to which I also hold an almost unqualified allegiance, I must point out that in two days we have staged a debate on one of the most controversial and difficult subjects to be handled in any Parliamentary Assembly. We have put on forty-one speeches, so far as I can count them; we have had among the speakers two ex-Chancellors of the Exchequer and a number of Privy Counsellors; there has hardly been a word in bad taste, and certainly a number of very notable speeches have been made. Therefore if anyone ventures to criticise this House I hope he will remember this debate and see how we have done things here—something which I think can give universal satisfaction to us all.

I must also congratulate five maiden speakers. The noble Lord, Lord George-Brown, I think, only comes into the category of demi-vierge, and of the remaining four, with great respect to the noble Baroness, Lady Lee of Asheridge, I would say that the only true Parliamentary virgin was the noble Lord, Lord Hamnett. With the others I have found myself debating for the greater part of my adult life. I hope, therefore, that they will forgive me if I treat their admirable remarks in the ordinary way in which such remarks would be treated in the course of a consecutive debate. Certainly the noble Lord, Lord Avebury, whom I have not had the advantage of hearing before in either place, was hardly a Parliamentary newcomer, since he succeeded to the title in 1929 and has remained a Member of this House since he was 21–36 years ago. I am delighted that he has found his way here at last, and I hope that we may have the opportunity of meeting him on a number of subsequent occasions.

My Lords, coming to the speech of the noble Lord, Lord Shackleton, I could not help thinking that I was justified the other day, since he has referred to the subject, in describing the extraordinary attitude of the Labour Party on the Motion on industrial relations, like its attitude on to-day's debate, as something almost schizophrenic. I think I know the reason. The reason is that all this talk about a jungle does not sound so nice in relation to strikes. This talk about a free-for-all, and about the Tory philosophy of greed, is not quite so convincing in the light of the galloping inflationary wage settlements of which the noble Lords on the Liberal Benches spoke. The result was that in the industrial relations debate noble Lords in the Labour Party contracted out; they withdrew their labour, as they were entitled to do, and as they will continue to be entitled to do, and left the noble Lords, Lord Brown and Delacourt-Smith, like two melancholy Casabiancas defending the burning deck from which all but they had fled.

LORD SHACKLETON

My Lords, I realise that the noble and learned Lord was very upset that there was no audience for his remarks on that occasion. But some of us have read them, and there is no need for him to repeat them again to-night.

THE LORD CHANCELLOR

My Lords, I was only saying how right I was—which always gives a Parliamentary orator some modest satisfaction. I would not have referred to the subject at all had not the noble Lord, Lord Shackleton, deliberately provoked me into doing so.

Now my Lords, if I may, I will deal with what seem to be the salient issues in this debate. I shall say very little about what is genuinely troubling a large number of noble Lords on both sides of the House—the immediate situation with regard to wage settlements. I can assure noble Lords that any reticence on my part in this respect is not due in the slightest degree to complacency: Her Majesty's Government view that situation as gravely as any noble Lord who is here.

But I would venture to point out to the Opposition Front Bench that their Motion does not relate to the immediate situation. That is the context in which this Motion is being debate, but the Motion relates to the measures of October 27, proposed by the Chancellor of the Exchequer; and, if I may point them out, for the most part, they do not take effect until April, and are not intended to do so. They are intended to deal with the middle-term situation. The immediate questions relating to the wage settlements must, I think, be viewed in a different debate; and I can only wish that the natural sense of occasion of noble Lords opposite had led them to withdraw the present Motion and to put down another Motion relating to it, if they had wanted a considered answer.

I must say two things to the House about remarks which have been made about that situation. The first was the astonishing interruption by the noble Lord, Lord Shepherd, of my noble friend Lord Thorneycroft during his speech. "What does an extra 1 per cent. matter?" was the burden of his criticism of my noble friend on the occasion of his interjection—little remembering that the noble Lord, Lord Beswick, as reported at col. 938 of the OFFICIAL REPORT for that day, had said, albeit in a different context—

LORD BESWICK

In a totally different context.

THE LORD CHANCELLOR

He had said: In such a case even 1 per cent. can have enormously cumulative effect. Of course, what we have been facing in the recent situation (again I should not have mentioned this unless I had been provoked into doing so) is the after-effects of the Labour Government's policy in the run-up to the General Election. We were faced with a situation in which the Labour Government, through the mouth of Mrs. Barbara Castle, had said—she said it at the turn of the year—that increases above 3½ to 4½ per cent. were inflation. We had an offer by the employers of 14 per cent. We had an inquiry between that and the demand of the workers for 55s. (I forget what percentage that would be) which resulted in a settlement that was 1 per cent. above the 14 per cent.; and it is directly relevant to some of the most vital arguments which have been deployed in this debate.

It is vitally relevant to point out that that offer of 14 per cent. ensured (I think from the start, but certainly from the very early days when I first became aware of it) a built-in clause that the take-home pay would be nothing less than £16 10s.: not perhaps a high wage but, none the less, the propaganda was to bring out the purely imaginary—or at least irrelevant—figure for this purpose of the £11 10s. man. What we saw in that settlement; what we have seen in the future demands, is the £25-a-week man, and the £50-a-week man demanding much higher increases, and producing the largely irrelevant figure of the lower-paid man in order to excite public sympathy. That is something which cannot be allowed to pass without adverse criticism.

LORD BROWN

My Lords, may I interrupt the noble and learned Lord?

THE LORD CHANCELLOR

In a moment, my Lords. I think that is something which cannot be allowed to pass without public criticism, and it will have, if I am given the time to show it, a direct relationship to some of the most important arguments which have been deployed in this debate.

LORD BROWN

My Lords, the noble and learned Lord is now talking about differentials. He spent five minutes sneering at my speech on differentials on November 4. He sneered again to-night. Is he really going at last to take notice of the fact that differential wages are the problem of the economy to-day?

THE LORD CHANCELLOR

My Lords, I think the noble Lord and I had an exchange which apparently he remembers with some bitterness. But I should be disregarding the injunction of his noble Leader not to talk about the debate the other day—which is so painful to him—if I were to pursue that particular line of argument at the present time. I would only say this in addition about the present situation. The noble Lord, Lord Beswick, in opening the debate, and again the noble Lord, Lord Shackleton, in winding it up on behalf of the Opposition, showed that they wholly misunderstood the nature of what was meant by the disengagement of the Government. They would have clearly understood it better if they had listened more carefully to the speech which my noble friend Lord Thorneycroft delivered yesterday.

My Lords, where you have a reasonable offer—indeed, an offer which, by Mrs. Castle's standards, would have been grossly inflationary—for the Government to lend their own services to increase it in order to avoid industrial action would be the straight way to national bankruptcy; about which the Liberal Peers who have spoken in the debate were quite right to warn the House.

There is only one other thing that I should like to say directly to the noble Lord, Lord Beswick. It is all very well to talk about self-interest, greed, and selfishness as being erected into a social principle. But the only thing which he quoted against the Leader of the Conservative Party was his speech at the Guildhall, when he said that a sense of responsibility was the social principle in which the Conservative Party believed. And as I shall try to develop in due course, as the argument proceeds, in my judgment at least, and I think in the belief of the enormous majority of the Members of this House, a sense of responsibility is not only not the same thing as selfishness; it is also directly the opposite of selfishness.

LORD BESWICK

My Lords, the noble and learned Lord might as well get his facts right. I did not quote his friend the Prime Minister in anything that the Prime Minister said at the Guildhall Banquet in this connection. I was quoting what he said in the television interview, and I was quoting him in connection with his advice that each man should look after his own interest.

THE LORD CHANCELLOR

My Lords, what the noble Lord said, according to Hansard, was: But to-day the Government have elevated selfishness into a social principle. Then, after a few words of comment, he said that Mr. Heath was reported as saying: What it means is that people must face up to their own responsibilities …"—[OFFICIAL REPORT, 17/11/70, col. 938.] It is for the House to judge whether I have been fair or unfair to the noble Lord, but it seems to me that I have nothing to retract and nothing to modify. The fact is that responsibility is one thing and selfishness is another.

I now turn from the immediate situation and from the noble Lord, Lord Beswick, to what seems to me the underlying problems in this debate. At the risk of incurring the displeasure of my noble friend the Leader of the House, I must say that I see the underlying seriousness not as a matter of crisis—and I felt my noble friend was relating the position to this when he used words like "unhappy" and "neurotic"—but as a matter of chronic sickness. I do not think it is possible to overstate the seriousness of the situation which this country is facing.

The other day we paid tribute to General de Gaulle and I myself have been reading his own brilliant account of the part he played in what he described as the renewal of France. Every word about the Fourth Republic which he uttered could be uttered about Britain in the sixties. This is the disease from which the Weimar Republic died and gave place to Hitler. This is the disease from which the Third Republic died and gave place to Pétain, after a humiliating defeat. It is the disease from which the Fourth Republic died and gave place to de Gaulle. The disease is sometimes called inflation—and inflation is unpleasant in a stagnant economy. I hope that I am not guilty of any want of patriotism but I do not believe I am the only Member of this House who is filled with a deep sense of shame when I compare the progress of this country over the last 25 years since 1945 with that of our defeated enemies and our rescued allies. They had all the problems we had, and a great deal more—half the manhood of France transported into slave labour camps and foreign factories; Germany destroyed; the whole system of communications disrupted—graphically described in de Gaulle's Memoirs.

What do we find now? We are borrowing money from them. Our rate of growth is slower. Their rate of income per head is higher. Their development has been spectacular from lower levels. I really must ask members of the Labour Party whether they can altogether blame us if we ask ourselves: has there not been some common factor, not only in their Government, which showed it to a marked and exaggerated degree, but even in previous Governments of our own Party since 1945, which has led to this comparatively weak performance? I think that there has been such a common factor.

Although I have only a few minutes until the end of my speech, and I should have much liked to develop this at greater length, I feel under an obligation to say in a few words what I think the common factor has been. We have been trying to operate a fully employed society with the moral and social assumptions which we worked up in the 'thirties under a system of unemployment and under-employment. As the noble Lord, Lord Henley, who spoke first for the Liberal Party said, in relation to our social security, we have tried to run a system which was built on the 1909 model, improved in 1942 by Lord Beveridge and which avowedly contained the basic assumption that it was working on a basis of 10 per cent. unemployed.

I wish to develop this in relation to the issue of subsidy, because this goes to the root of the Government's proposals of October 27. We have been assuming that subsidy is something which can be used indiscriminately on every possible occasion. If we want a merger in the City, we subsidise it, to the tune of a revolving loan of £10 million. We want to subsidise the Arts, so we make the galleries free. We want to subsidise food in order to improve agricultural production, and do so at the cost of £300 million a year. When we are told by the noble Lords, Lord Beswick and Lord Shackleton, that the effect of the proposals of October 27 and their associated proposals is to put up the price of food, I must ask them what they mean. The price across the counter is 1 per cent. of the national income—that we know. But what is the true price of food?—the price across the counter or the price which the taxpayer has to pay in addition to the price across the counter? How long do we go on kidding ourselves that the true price of food is only the subsidised price and not what is actually paid? I will give way in due course to the noble Lord, if he will be patient. The truth is that it is part of our proposals to levy the price of articles and services at the point of consumption rather than by way of subsidy. That will not alter the true price of the article.

LORD GEORGE-BROWN

My Lords, I understand that the noble and learned Lord who sits on the Woolsack has got to the end of his peroration, at which point he is willing to give way. When talking about our defeated enemies and assisted allies, had he thought about the E.R.I. in Italy? They did it for themselves. Had he thought about the Marshall Aid they were given? Had he thought about the days when we—

SEVERAL NOBLE LORDS

Order, Order! Question!

LORD GEORGE-BROWN

My Lords, I could never be shouted down in another place, and I am not going to be shouted down here.

SEVERAL NOBLE LORDS

Order, Order!

LORD GEORGE-BROWN

Had he forgotten the days when we forwent wheat which we needed in order to help our allies and our defeated enemies to get on their feet again? Why does not the noble and learned Lord make clear the things we did in this country to put our defeated enemies and our allies on their feet again?

THE LORD CHANCELLOR

My Lords, the noble Lord has asked me a question and perhaps he will allow me to preface the answer with this humble remark. The reason why noble Lords are not shouted down in this House is precisely because we all respect the Rules of Order without any direction from the Chair. The answer to the noble Lord's question is this. Whatever may be the importance of those things in the early days of reconstruction of a disfigured and dismembered Europe, they can have remarkably little relevance to the discussion to-night, 25 years afterwards. One would have thought that, whatever credit one could take for the past, it did little credit to us that chronically over 25 years we have had this slow rate of growth. When I was interrupted—because I have not yet by any means reached the peroration—I was counting the effect of subsidy on the thinking of the public about matters of this kind.

I want at this stage of my argument, even though I am, I fear, taking a little longer, perhaps partly due to welcome interruption, to come straight to the argument on schools and food. The noble Lord, Lord Boothby, made a notable speech on this subject, but he did himself say that it was the same speech that he had been making for fifty years; and I can testify to the last 35 of them myself. But the effect of the subsidy upon our national life has been this—and let us face it. In the first place, the Welfare State is not, in my judgment, an issue. Other European countries—France, Germany, Scandinavia, the Netherlands—all have their Welfare States, all have benefits by and large as generous as, and some of them more generous than, our own. The difference is that because we based our finance on the Beveridge Plan, which assumed 10 per cent. unemployment, in this Welfare State alone, so far as I know, the weight is borne by the taxpayer instead of by industry at the point at which it employs men and women.

Let me give an example. Take the commuters into London—a small example, but rather a good one. We are paying to get workers into London with one hand—we are paying because the railways make a loss and we pay the amount out of the taxpayer. We subsidise their rents if they stay in London. But all the time noble Lords are arguing that for the purposes of development policy it is necessary to pay other huge cash grants by way of development grants for people to stay away from London and to erect their factories elsewhere. Whom do they really think that these subsidies are benefiting? I can tell them what I think. In fully-employed London, in over-employed London, these subsidies are subsidies to wages. This is Speenhamland, and you are in fact doing the direct opposite of the regional development policy that we should all like to see, by subsidising the employer to bring his workers into London or to find them accommodation when they are there. Of course the tenant thinks that the subsidy for rent is helping him; but in the medium or the long term—and I hope that this is a view which noble Lords will take, whatever may be thought of it in another place—these subsidies operate as subsidies for the employer.

That brings me to the situation with regard to milk and school meals—and of the two perhaps school meals is the easiest example to take. No one would have thought, listening to the noble Baroness, Lady Summerskill, and I doubt whether anybody would have known listening to the noble Lord, Lord Platt, or the noble Lord, Lord Boothby, that this is what is at issue here. We are in fact proposing to give free school meals to 250,000 more children than those who got free school meals under the last Government. What we are not proposing to do is to subsidise parents to the extent that they pay, as I think they do now, 1s. 9d. In April they will pay 2s. 5d.; and it will be 2s. 10d. in April, 1973, when the exemption limit will be raised not only by the 30s. but by a further 10s. That is the issue which gave rise to all this symposium.

But if we are really talking in terms of a just society or a sound economy (because, unlike the noble Lord, Lord Shackleton, I remember the words of the Motion) let us look at this set of social values that the noble Lord, Lord Platt, I or the noble Baroness have invited us to take. The noble Lord, Lord Platt, was perfectly explicit. He said: "The mother goes out to work to earn some more money". Well, good luck to her! We are not suggesting that she should not do so. Her child needs a dinner. Well, we think so, too. The child needs a dinner cooked at school. We think so, too. But what he is saying is that instead of the parents—who are so prosperous that they go above the exemption limit on the father's income already, and the mother goes out to earn still more money, for what the noble Lord quite candidly admitted was beer, bingo and, I think, tobacco—paying the cost of that meal, somebody else should pay the cost. And remember, that somebody else is net only the surtax payer, but is also the old age pensioner.

LORD BOOTHBY

My Lords, perhaps I might interrupt the noble and learned Lord to ask him this question. He can hardly deny that these proposals do in fact enormously reduce the supply of free or cheap meals to schoolchildren over the whole range, up to and during school age.

THE LORD CHANCELLOR

Not only does it not reduce the supply of free meals, but the new exemption limit will add 250,000 extra children to the entitlement.

LORD PLAIT

My Lords, I would—

THE LORD CHANCELLOR

I will give way when I have answered one question. I am not going to answer two questions at once; nobody can make me do that. So far as Lord Boothby's second question is concerned, of course it will reduce the number of subsidised meals. But I am asking the House to consider at what point of time it is either socially just or economically sound to ask other people to pay for your children's meals. Now I will give way to the noble Lord, Lord Platt.

LORD PLATT

I was only going to ask the noble and learned Lord if he would kindly read, when he has time, the end of my speech, as well as quoting a sentence from it.

THE LORD CHANCELLOR

I listened to every word of it, so far as I can remember, with great pleasure, but I did not agree with it; and I doubt whether I shall agree with it if I accept, as I certainly shall, the noble Lord's invitation to read it again.

That brings me to the noble Baroness, Lady Birk, who spoke about dental charges. This is not my subject, and it is hers. But she was so keen about dental charges that she reiterated the words of the noble Lord, Lord Platt, about the disastrous effect on the parents of beer, bingo and tobacco—

BARONESS BIRK

I did not mention tobacco.

THE LORD CHANCELLOR

I will settle for beer and bingo. Her argument was that the father is so keen on his beer and bingo that he will not send his child to the dentist. Well, he is not a very well-informed father, because, although he may have to pay the dental charges for himself, the children are exempt until the age of 21. The only change proposed by the Government in dental treatment is that the age of exemption should be reduced to 18, which is a necessary corollary of the improved age of majority.

But even if there were some truth in it, I ask the noble Baroness to consider whether her social priorities are right. Does she really think that she is going to improve the health of the children of this country—and do noble Lords who have spoken so eloquently really suggest that they are going to improve the health of the children of this country—by asking other people to pay, when the only reason the parent does not pay is that he puts beer and bingo in front of his children's welfare? Is that the kind of social justice to which the Motion refers? Is it going to lead to the economically sound society that the Motion requires? My Lords, I do not think so, and I think that this country has been kidding itself for 25 years on a false set of social values. They have been talking the language of the 'thirties and they are still talking that language in the 1970s. With great respect, I say it was not altogether without significance that the noble Baroness began her speech by saying what a good thing it is that this House contains a number of elderly persons. They are still thinking—

BARONESS SUMMERSKILL

My Lords, in view of the fact that the noble and learned Lord has referred to me, may I point out the complete fallacy in his argument that he is being so dogmatic about? He has not distinguished between the child who hitherto has received a free meal and the one whom he is now going to subject to a means test. That is the great difference.

THE LORD CHANCELLOR

My Lords, the noble Baroness is not quite as good at logic as she fancies herself, because if that argument proved anything it would be an argument against the present system of subsidy and charge and the present system of free meals. That was instituted by the Government which she supported for so long. While I am on the subject of the noble Baroness's logic I should like to say that her speech included a tremendously moving and obviously sincere passage about the unwillingness of people to take up their entitlement. That reflects a number of, as I thought, unworthy things about "charity" said by several noble Lords from the Party in Opposition.

If that is true, what kind of service does the noble Baroness think she is doing to the people who are entitled now? The only effect of the Government's policy is to add to them another 250,000 people. If that does not decrease their sense of isolation, if that does not improve their sense of pride (and I am now addressing the noble Lord, Lord Soper) I do not know what, in logic—even the "logic" of the noble Baroness—one can expect the effect to be. Because the truth is that not only are we increasing their number, and thereby decreasing their isolation, but part of the proposals which the noble Lord, Lord Soper, is proposing to vote against is to initiate a new propaganda campaign to make people realise that they are not receiving charity when they receive supplementary benefit. When they receive these various social services they are only getting their rights. Wet get small help from the noble Lord, Lord Soper, and from the noble Baroness and, I think, from the noble Lord who wound up for the Opposition, when they keep on using the word "charity" about gratuitous social services.

In conclusion, I only want to say this to your Lordships. The result of the subsidies over 25 years has been that in the higher income brackets we are, from the point of view of direct taxation, the highest taxed people in the world. I have some figures here which are 1967 figures because I am told that it is not possible to get a later set. The changes which have taken place do not alter the value of the comparisons. I take Lord Soper's reference to the income bracket, which I think was anything up to £3,000 a year—£60 a week. A man with two children, earning £2,500 a year in 1967, was paying 22.1 per cent. of his income in direct taxation. In France the figure was 5 per cent.; in the U.S.A. it was 8 per cent. and in West Germany it was 12 per cent. At £5,000 per annum the comparison is even stronger. Is that social justice? Is that a good, sound economy? We think it is not, and that is why we are proposing this measure. If the noble Lord, Lord Shackleton, or the noble Lord, Lord Diamond, think that it is only because of incentives that we are doing this, I say that that is not so; we are doing it because we think it is socially just and that after eleven years the income tax payer is entitled to a reduction on the standard rate.

The tragedy of it is that after 25 years of muddled thinking and subsidy we have

not abolished poverty, we have not abolished unemployment; there are still the vulnerable classes for whom it still can be said that all the evils of underemployment still exist; there are the chronic sick, the mentally and physically handicapped, the children whose need is uncovered by the Child Poverty Action Group. These are vulnerable classes, all of whom our Welfare State has done nothing adequate to help because what is spread universally is spread uncommonly thin. We are doing what we are doing because we want help to be spread thicker for them. That is why we increased the pensions for the over 80s and for the widows. That is why we put £110 million more into hospitals for the mentally sick and £28 million into the primary schools. That is why the Family Income Supplement will spend £8 million on trying to bring 500,000 children out of poverty. That is why we have increased the exemption limits for the children's meals and welfare milk. The fact is that noble Lords opposite are like the Bourbons; they forget nothing and, most unfortunately, they learn nothing. My Lords, I beg the House to vote against this silly Motion of Censure this evening.

7.35 p.m.

On Question, Whether the said Motion shall be agreed to?

Their Lordships divided: Contents, 98; Not-Contents, 235.

CONTENTS
Addison, V.	Davies of Leek, L.	Jacques, L.
Amherst, E.	Delacourt-Smith, L.	Janner, L.
Ardwick, L.	Diamond, L.	Kennet, L.
Arwyn, L.	Donaldson of Kingsbridge, L.	Kilbracken, L.
Bacon, Bs.	Douglass of Cleveland, L.	Leatherland, L.
Beaumont of Whitley, L.	Evans of Hungershall, L.	Lee of Asheridge, Bs.
Beswick, L. [Teller.]	Fiske, L.	Lindgren, L.
Birk, Bs.	Fletcher, L.	Llewelyn-Davies, L.
Blackett, L.	Foot, L.	Llewelyn-Davies of Hastoe, Bs.
Blyton, L.	Gaitskell, Bs.	Lloyd of Hampstead, L.
Boothby, L.	Gardiner, L.	Longford, E.
Bowden, L.	Garnsworthy, L.	McLeavy, L.
Bowles, L.	Geddes of Epsom, L.	Maelor, L.
Brockway, L.	George-Brown, L.	Mais, L.
Brown, L.	Gifford, L.	Milner of Leeds, L.
Burton of Coventry, Bs.	Granville of Eye, L.	Morris of Grasmere, L.
Byers, L.	Greenwood of Rossendale, L.	Moyle, L.
Campbell of Eskan, L.	Hamnett, L.	Nunburnholme, L.
Chalfont, L.	Henderson, L.	Phillips, Bs. [Teller.]
Champion, L.	Hsnley, L.	Platt, L.
Chorley, L.	Hilton of Upton, L.	Plummer, Bs.
Citrine, L.	Hirshfield, L.	Raglan, L.
Cooper of Stockton Heath, L.	Hoy, L.	Ritchic-Calder, L.
Crook, L.	Hughes, L.	Rushhholme, L.
Sainsbury, L.	Snow, L.	Taylor of Mansfield, L.
St. Davids, V	Soper, L.	Wade, L.
Segal, L.	Sorensen, L.	Wells-Pestell, L.
Serota, Bs.	Southwark, L. Bp.	White, Bs.
Shackleton, L.	Stocks, Bs.	Williamson, L.
Shepherd, L.	Stow Hill, L.	Wilson of Langside, L.
Shinwell, L.	Strabolgi, L.	Wright of Ashton under Lyne, L.
Silkin, L.	Summerskill, Bs.	Wynne-Jones, L.
Slater, L.	Taylor of Gryfe, L.
NOT-CONTENTS
Aberdare, L.	Cowley, E.	Ilford, L.
Aberdeen and Temair, M.	Craigavon, V.	Inchcape, E.
Abinger, L.	Craigmyle, L.	Inchyra, L.
Ailsa, M.	Cranbrook, E.	Inglewood, L.
Ailwyn, L.	Crawshaw, L.	Jellicoe, E. (L. Privy Seal.)
Airlie, E.	Cromartie, E.	Kemsley, V.
Albemarle, E.	Cross, V.	Killearn, L.
Aldenham, L.	Daventry, V.	Kilmarnock, L.
Aldington, L.	De Clifford, L.	Kindersley, L.
Alexander of Tunis, E.	De La Warr, E.	Lansdowne, M.
Allerton, L.	De L'Isle, V.	Lauderdale, E.
Alport, L.	Denham, L.	Lindsey and Abingdon, E.
Amherst of Hackney, L.	Derwent, L.	Liverpool, E.
Amory, V.	Devonshire, D.	Lloyd, L.
Ampthill, L.	Digby, L.	Loudoun, C.
Ashbourne, L.	Downe, V.	Lucan, E.
Auckland, L.	Drogheda, E.	Lucas of Chilworth, L.
Audley, Bs.	Drumalbyn, L.	Luke, L.
Avebury, L.	Dudley, E.	Lyell, L.
Balerno, L.	Dulverton, L.	Lyle of Westbourne, L.
Balfour, E.	Dundee, E.	MacAndrew, L.
Balfour of Inchrye, L.	Dundonald, E.	McCorquodale of Newton, L.
Barnby, L.	Ebbisham, L.	Macpherson of Drumochter, L.
Bearsted, V.	Eccles, V.	Margadale, L.
Beauchamp, E.	Effingham, E.	Massereene and Ferrard, V.
Beaumont, Bs.	Egremont, L.	Merrivale, L.
Belhaven and Stenton, L.	Elgin and Kincardine, E.	Mersey, V.
Belstead, L.	Ellenborough, L.	Milverton, L.
Berkeley, Bs.	Emmet of Amberley, Bs.	Molson, L.
Bessborough, E.	Essex, E.	Monk Bretton, L.
Bethell, L.	Exeter, M.	Monsell, V.
Birdwood, L.	Falkland, V.	Montgomery of Alamein, V.
Blackford, L.	Falmouth, V.	Mountevans, L.
Blakenham, V.	Ferrers, E.	Mowbray and Stourton, L.
Bledisloe, V.	Ferrier, L.	Nairne, Bs.
Boston, L.	Fortescue, E.	Napier and Ettrick, L.
Bourne, L.	Fraser of Lonsdale, L.	Nelson of Stafford, L.
Boyd of Merton, V.	Gage, V.	Netherthorpe, L.
Brabazon of Tara, L.	Glasgow, E.	Newton, L.
Bradford, E.	Glendevon, L.	Northchurch, Bs.
Brecon, L.	Glendyne, L.	Nugent of Guildford, L.
Brooke and Warwick, L.	Goschen, V. [Teller.]	Pender, L.
Brooke of Cumnor, L.	Gowrie, E.	Penrhyn, L.
Brooke of Ystradfellte, Bs.	Grantchester, L.	Perth, E.
Brougham and Vaux, L.	Gray, L.	Poole, L.
Broughshane, L.	Greenway, L.	Radnor, E.
Buccleuch and Queensberry, D.	Grenfell, L.	Ranfurly, E.
Buchan, E.	Grimston of Westbury, L.	Rankeilour, L.
Buckton, L.	Hacking, L.	Rathcavan, L.
Burton, L.	Hailes, L.	Ravensworth, L.
Caccia, L.	Hailsham of St. Marylebone, L. (L. Chancellor.)	Redesdale, L.
Caldecote, V.		Redmayne, L.
Carrington, L.	Hampden, V.	Reigate, L.
Cawley, L.	Harlech, L.	Rennell, L.
Chandos, V.	Hastings, L.	Rhyl, L.
Chelmer, T.	Hatherton, L.	Ridley, V.
Chesham, L.	Hawke, L.	Ritchie of Dundee, L.
Clinton, L.	Hayter, L.	Rochdale, V.
Clwyd, L.	Headfort, M.	Rockley, L.
Colgrain, L	Hindlip, L.	Rosslyn, E.
Conesford, L.	Hives, L.	Rothermere, V.
Cork and Orrery, E.	Hood, V.	Rotherwick, L.
Cornwallis, L.	Howard of Glossop, L.	Rothes, E.
Cottesloe, L.	Howe, E	Runciman of Doxford, V.

Ruthven of Freeland, Ly.	Somers, L.	Trefgarne, L.
St. Aldwyn, E. [Teller.]	Spencer, E.	Tweedsmuir, L.
St. Just, L.	Stamp, L.	Tweedsmuir of Belhelvie, Bs.
Salisbury, M.	Stradbroke, E.	Ullswater, V.
Salter, L.	Strange of Knokin, Bs.	Vestey, L.
Sandford, L.	Strathcylde, L.	Vivian, L.
Sandys, L.	Suffield, L.	Wakefield of Kendal, L.
Savile, L.	Swinton, E.	Ward of Witley, V.
Selkirk, E.	Tenby, V.	Watkinson, V.
Selsdon, L.	Terrington, L.	Wigram, L.
Sempill, Ly.	Teviot, L.	Windlesham, L.
Shannon, E.	Teynham, L.	Wolverton, L.
Shawcross, L.	Thorneycroft, L.	Wynford, L.
Skelmersdale, L.	Thurlow, L.	Yarborough, E.
Somerleyton, L.	Townshend, M.

Resolved in the negative, and Motion disagreed to accordingly.