THE ECONOMIC SITUATION: INFLATION AND UNEMPLOYMENT

HL Deb 05 July 1972 vol 332 cc1347-499

2.48 p.m.

LORD BESWICK rose to move, That this House views with increasing anxiety the Government's failure to maintain the value of money and recognises the consequent threat to full employment, economic expansion and the achievement of a unified society. The noble Lord said: My Lords, I take it that the number of Peers who have put their names down to speak to this Motion is in itself evidence of their anxiety. There is a failure here, and as the Government are the Government the failure must be theirs.

I suggest at the outset that it would be unrewarding complacency of any Minister to try to demonstrate that for a given selected period we had a higher percentage price rise. The truth is that each increase is on the top of others, and the trend is now dangerously upwards. The retail price index has been rising at an annual rate of 6½ per cent. The National Institute estimates point to a rise to 8 per cent. next year, but de facto devaluation and the onset of E.E.C. food prices must of themselves bring forward and push up this projection. The Financial Times of June 27 stated: It would not be alarmist to project a rate of inflation running into double figures if nothing is done. I am not sure what the paper's definition of "alarmist" is, but the "anxiety" in the Motion will certainly need to be changed to "alarm" if the index figures go up about 10 per cent. Above 10 per cent., and bearing in mind the additional and accumulative effect of value-added tax, the impact of C.A.P. and the repercussions of the Government's rents policy, it will be easier to hold a handful of mercury than to maintain anything approaching economic stability. I hope, therefore, that the two Ministers who are to reply will not weary the House with a careful selection of comparative price rises.

Nor do we want a fall to over 800,000 unemployed—a figure which is one-third higher than when the present Government took office—to be offered as an answer to the second part of the Motion. As for economic expansion, the provisional figures for the first quarter of this year, compared with the same period of 1971, show a drop of 2.71 per cent. for all industries and 2 per cent. for manufacturing. Even allowing for the distortion effect of the power cuts, I cannot imagine anyone seriously controverting that part of the Motion which states that we are anxious about the failure to secure economic expansion. That brings me to the last part of the Motion—the failure to achieve social unity. Here we come to the crux of the matter. This is the basic failure. Here is both a cause and effect of inflation. The heart of the problem is social and psychological as much as economic.

In the debate following the first speech from the Throne after the present Administration took over, I argued for economic efficiency plus social compassion and I said that one without the other just would not work. The following year our Motion was condemning market forces and asking for a policy of full employment, expanding economy and maximum social justice. All that has happened has justified our insistence upon this theme. I agree that within Her Majesty's Government, and especially on the evidence we have in this House, there are Ministers of compassion and fair-mindedness. We know, too, that the Prime Minister, notably on his appointment, has emphasised the need for social unity. Nevertheless, it is true, and I shall try to show aspects of this truth, that there is a greater sense of unfairness in our society to-day than at any time since the 1930s. The importance of this is shown when we come to judge Her Majesty's Government's alibis for their economic failure. Their principal alibi is the greediness of trade unions. But excessive wage claims are not put forward in a vacuum. They are put forward against a highly relevant economic and social background. In a recent feature article in the Financial Times, Mr. Rogaly said: It would be easier for the present Government to converse with creatures on Mars than it would be for it to get any kind of meeting of minds with British workers. It does not, and seemingly cannot, know them; that is why it has failed to manage them". In a society which has never been more highly integrated, when understanding, one of the other, has never been so crucially important, this failure of which Mr. Rogaly speaks has never been more dangerous.

I said that I would seek to show some of the aspects of unfairness. The inflation itself is unfair. It hits hardest those who earn as against those who own. Two families equally deserving, one owning, the other renting, a house: in the first case the house owner finds his modest property increasing in value by £10 a week; and in the second case the Government are actually legislating to put up the rent by the same amount per month. We had high hopes, after the war we won, to move towards an egalitarian society through the National Health Service. How far we are from the ideal we had is indicated by a recent Select Committee Report which gives examples of the difference in status of a private patient as against a National Health Service patient. The waiting period for a private patient needing a gynæcological operation was one week, as against one year for a National Health Service patient; for a tonsillectomy it was two weeks for a private patient and eighteen months for an N.H.S. patient. These are examples which all the ordinary people of the country are able to read.

We all hoped, too, for equal opportunity in education. But how can we claim equality of opportunity when we read in the Report of the National Children's Bureau, after studying 17,000 British children, that by the age of 7 there is an average of four years' difference in ability as between children coming from poorer homes and those from professional families. Half of the under-privileged were poor readers at 7 years, as against one in twelve from professional families. If I am told that professional families make a greater financial sacrifice to educate their children, then I turn to the sort of adver- tisement which states that with an investment of £8,000 you can get an expensive education for your child and, at the end of it, £9,000 returned in capital.

On wage claims, I have previously called attention to the notorious poverty trap. It is now beginning to be understood that, with their means test philosophy, the Government have so organised our social services that a worker with a family, and less than £20 a week can lose almost all his allegedly excessive wage increase because of consequent cuts in family income supplement, rate rebate, rent subsidy and the means-tested free school milk and meals. My Lords, it is impossible for me not to comment on the affront to equity, or any sense of fairness, of the top level salary increases announced by the Government ten days ago. How can we justify a wage increase to the Chairman of British Rail ten times that of the award which he tried to deny a railwayman so very recently? In a democracy, how can we convince ourselves that the worker upon whom the country depends will take for granted a wage award to one man of £50 a week, when another man in the same industry was told that he would ruin the country if he took home in total less than half the other's increase?

I would more readily tolerate a large increase to an already large salary if it could be justified by extra effort or productivity; but to try to justify these figures by cost of living arguments is offensive to both common sense and fairness. I say this, knowing that it was my own Government which made so much of the percentage norm. To relate pay increases to a percentage norm across the board—5 per cent. to the man on £20 a week and 5 per cent. to the man on £5,000 or £10,000 or £20,000 a year—is a crude widening of the gap between the poorer and the richer. Increases in living costs are not more in absolute terms for the better-off than for the worse-off; in fact, they are almost certainly less. We have already seen how, in inflationary times, the house-owner fares so much better than the house-renter. And the better off will almost certainly own more than a house. If it is said that average earnings have risen 50 per cent. in the last six years, I would point out that the average stock market increase is 70 per cent.

Moreover, within the official price index the cost of food has increased more than other items. The Daily Mirror's basket of food has gone up, not by 6½ per cent. per year, but by 23½ per cent. in the last two years. According to Government sources, the poorest tenth of the nation, or the bottom decile, as the jargon goes, spent 50 per cent. of their income on food while the top tenth spent only 15 per cent. Why, then, to counter the increased cost of living should the £20,000-a-year man get ten times the amount given to his poorer colleagues?

This Motion was tabled some weeks ago and before events compelled the Government to float or, in fact, devalue the pound. I have no doubt that we shall hear about the need to control international speculators. I am all in favour of that, but, while speculators come in like carrion to eat the meat, they do not cause it to decay. Similarly I have no doubt that we shall, and indeed should, discuss the relative merits of foreign exchange arrangements. Apart from the fixed exchange rate there is the crawling peg, the wide margins and the uneasy European snake within the dollar tunnel. Each possibility has its proponents, but I shall expect from the noble Lord who is to reply a very clear and unambiguous statement that there will be no return to fixed parity at a time to be decided by our French friends. I ask him again if he is able to state categorically whether there is any undertaking on the part of Her Majesty's Government to return to parity as the European Community would wish.

The point I want to make is that no system of aligning exchange rates can function successfully unless both the currency and the economy of the country are soundly based. It used to be said by one Tory Chancellor that the economy could be steered by a touch on the tiller. The trouble with this Tory Government is not simply that they have lost the touch but that they have two tillers and any correspondence between the two is purely coincidental. At one end of the boat they plan to cut the cost of living and at the other they deliberately put up the price of food.

The Prime Minister specifically promised two years ago that he would not spend the taxpayers' money on national- isation; yet, while hiving off Skyways and Thomas Cook on the one side, the Government nationalised one of the biggest companies in the country on the other. They defied unprejudiced advice and disbanded the I.R.C. and now seek to put up a counterpart with the Industries Bill. They say it is paramount to cut down Government expenditure but set out deliberately to increase it. A Government of Conservatives, to whom all civil servants are an unproductive on-cost, bring in a Bill like the Housing Finance Bill, which can only be implemented by more officials, and by joining the E.E.C. they plan to pay a disproportionate cost of the biggest international bureaucracy which the Western world has ever known.

One could go on with their confusions and contradictions, but I mention one more major mistake which more than offsets any measure taken to maintain the value of money. I refer to the reckless way in which they have increased the volume of money. The Chancellor actually confesses now that it has been increasing at an annual rate of 23 per cent. Even this astonishing increase could be justified if most of this new money had been going into new capital equipment and increasing our national productivity. But the Treasury Report for June said that there was an estimated fall of about 1 per cent. in manufacturing industry investment in the first quarter of 1972. The Report also said, rather pathetically. Private individuals continue to increase their bank borrowing rapidly … although it seems doubtful if much went to manufacturing firms". The fact is that every propaganda device has been used in recent months to persuade individuals to go into debt. The big banks, once identified with prudent and fruitful industry, have spent thousands of pounds in telling people that, if they want a T.V., a car, a better washing machine or a holiday, they only have to borrow; in other words, to go into debt. I noticed the other day that the Daily Mirror released a whole page from its persistent efforts to uplift public taste and its present powerful campaign to safeguard the pound in order to allow a finance corporation to explain that anything one had set one's heart upon could now be afforded on borrowed money. The interest rate, they said, was only 1½ per cent. a month or, as my noble friend Baroness Phillips will explain, a rate of 18 per cent. a year. It should be added that if the borrowerer was rich enough and borrowed enough he could get tax relief on nearly half of the interest he pays.

Probably no single change in this year's Budget Statement was more cynical, and more blatantly intended to please Party supporters as against serving the national interest, than the decision to allow tax relief on private loan interest charges, irrespective of the use to which the loan is put. And incredibly the Chancellor took the precaution of excluding the very small borrower from this concession. I would ask the Ministers two questions: can they quantify the amount of borrowed money used to push up share prices, bearing in mind that the share index can be both a reflection of and a stimulus to inflationary pressures? Can they also tell us whether any attempt has been made to assess the value of foreign cars brought in by buyers using Treasury-subsidised borrowed money?

Nothing illustrates the failure of the Government in economic planning more than this experience of the motor-car industry. The Government have stimulated demand without, says Lord Stokes, any consultation with the industry as to its ability to meet the demand. In the first four months of this year between one in four and one in five of all new cars registered came from abroad. So we now see our visible trade balance damaged, indeed whittled away completely, in part by cars brought in on Treasury-subsidised loans. I recognise that this increase in money supply can be interpreted as an honest effort to stimulate demand and create employment. I recognise, too, that the Labour Party and the T.U.C. have demanded economic growth and increased demand. But is it not true that the Government have put increased purchasing power into the wrong hands?

If I am asked what we ought to do, I would say unhesitatingly that increased purchasing power in the hands of the old age pensioners and the lower-paid workers could help stimulate demand without the same inflationary effect and without damaging so much the balance of payments. Much more money needs to be spent on capital equipment and modernising British industry before so much goes on consumer durables. The I.R.C. ought never to have been disbanded, but the Industries Bill is needed urgently to help, on a more imaginative scale than so far envisaged, the improvement of Britain's industrial productivity. With spare capacity the Government could have done so much more to improve the physical environment. We could have said triumphantly that not a single out-dated school building or hospital would remain in development areas whilst so much resources were left unused. Selective spending and investment of this kind, according to priorities which we should be proud to justify, would build a much better Britain than the activities of the property speculator and the asset stripper, who thrive in the climate which this Government have created.

It may be that Ministers will insist on repeating again their alibi about excessive wage claims, and I readily agree that economic planning and a free-for-all on incomes are incompatible elements. So we want a policy, too, on prices and on incomes. I believe our trade union leaders are far-sighted enough to recognise this. I believe agreement is possible, but only if the concept of repression embodied in the Industrial Relations Act is abandoned. That Act, like internment in Ulster, has become a symbol. That Act, again like internment, has escalated strife.

There is now talk of a package deal. A package deal is possible, not on the basis of threats of "stark alternatives" but on the basis of constructive economic planning which demonstrably serves fair-minded social objectives. Such economic planning must include an agreement on prices and incomes. If I am told that we have tried and failed to get a prices and incomes policy, I say we must try again; and I say there is an ally which no Government have as yet successfully mobilised—namely, public opinion. Public opinion can be much more powerful than we are prepared to admit if the cause is good. The Government were beaten by the miners in that memorable battle in the continuing war of prices and incomes. And it was not the picketing which helped the miners to win: it was public opinion. The miners, when they picketed, knew that they had public opinion behind them. If we could now mobilise public opinion, with proper leadership, for sound social and economic purposes, a sound currency would follow as surely as night follows day, and true social unity would then be ours as well. My Lords, I beg to move.

Moved, That this House views with increasing anxiety the Government's failure to maintain the value of money and recognises the consequent threat to full employment, economic expansion and the achievement of a unified society.—(Lord Beswick.)

3.13 p.m.

BARONESS SEEAR

My Lords, there will be common agreement that the fall in the value of money and the continuous rise in prices are a matter of the gravest concern to all of us, but I suspect that that is where the common agreement will end. The noble Lord, Lord Beswick, devoted a great deal of his speech to the last part of this Motion. I do not deny—of course I do not—the importance of the Government's (in many ways) deplorable social policies, and I was never a great supporter of the Industrial Relations Act, certainly not of many of its sections. But I believe that this is largely irrelevant to the issues which we are facing to-day. What matters to-day is that we should take a cool, analytical look, an un-emotional look, at what these issues are, and then try to define the cures or partial cures—for there is obviously no sovereign cure—for the problems that we face. Let us take, then, a cool look at what we are up against; and do not let us exaggerate. It does not help, my Lords, when people talk of the post-First World War German inflation, as if that is the situation which we are facing to-day. Little could be further from the truth. Of course, if things go on as they are, totally unchecked, then after decades the pound will be worth a penny. This is true: but why should it be supposed that the public will be so foolish as to allow things to go on as they are? That kind of alarmist talk has made it more difficult, not more easy, for us to take the steps that are needed.

Let us look for a moment at some of the facts to get the measure of the problem that we are up against. I have taken the percentage increases between March, 1971, and March, 1972. The percentage increase in the basic weekly rates of pay was 11.9; in average earnings, 10.5; in the retail price index, 7.6; and in industrial production, plus 3.3. It is an exceptionally and unusually good period that I happen to have taken for this last item. This is serious, my Lords, but it is not catastrophic, and there is no reason to assume that we are going to allow it to become catastrophic. Why I said a moment ago that in my view much of the speech of the noble Lord, Lord Beswick, was irrelevant, is because before we had the Conservative Government's socially divisive policies and before we had the Industrial Relations Act we had the policies and practices of the late Labour Government; and if we compare the figures that I have just given your Lordships with the figures for the change between the second quarter of 1969 and the second quarter of 1970—the end of six years of Labour Administration—what do we find? We find that the index for production during that period rose from 123 to only 123.5, without the help of the Conservative Government's social policies; we find that the index of retail prices rose from 131.8 to 139.5; and we find that the index of basic rates rose from 195.6 to 214, and average earnings from 94 to 104.8. These are index figures that I am giving, of course.

Now if it was really the social policies and the Industrial Relations Act which led us into the situation we are now in, why was it so difficult for the Labour Government, which did not suffer from those handicaps—and they are true handicaps, I agree—to make a greater success than those figures reveal? We cannot forget that there was a Declaration of Intent, but that the intent was never achieved; we cannot forget that there was an attempted voluntary incomes policy, but that the policy had no satisfactory outcome; we cannot forget that there was an attempted statutory incomes policy which was defeated by the supporters of the Labour Party themselves, along with others. No, my Lords: it is not good enough to blame the present situation on to changes which have taken place when, before those changes took place, the situation was in many ways just as serious; and we on these Benches are entitled, I think, to say this. It may well be said, of course, that it is easy for the Liberal Party to speak in these terms because we have not been faced with the problem of making responsible decisions. Through no fault of our own, my Lords, we have been denied the temptations of power.

I have one further remark I should like to make—I had not intended to make it, but I have no option—in relation to the speech of the noble Lord, Lord Beswick. He made considerable play of the recent recommendations of the Boyle Committee on what are called top salaries. I am a member of the Boyle Committee, and, Lord Boyle himself not being here, I do not think it would be proper for me to make no reply to what the noble Lord, Lord Beswick, said. I do not wish, and I am sure your Lordships do not wish, to be drawn into a detailed discussion of this matter. I would merely say in respect of the noble Lord, Lord Beswick, and in comment on some of the letters and remarks that have been made, that it should be borne in mind that the increases recommended in that Report were to cover a period of 2½ years. For all the people covered the average was a 6.8 per cent. increase annually-compounded, and for the people at the very top, whose awards attracted so much attention from the noble Lord, Lord Beswick, the increase was in fact an annual compound of 3.9 per cent. Whether the noble Lord regards this as an unnecessary attempt to enable well-paid people to keep up with the cost of living or whether he recognises that it is giving them (although a reduction in their real earnings; and this was done very carefully) some reward for such increased productivity as there has been, 3.9 per cent. cannot be regarded as a very excessive increase if we are to have leading our great nationalised industries, on whom the well-being of this country so greatly depends, men or women of the calibre that we need. However, be that as it may, I am not denying the seriousness of the situation in which we find ourselves to-day; all that I am denying is the relevance of the analysis drawn by the noble Lord, Lord Beswick.

Better figures for drawing our attention to how serious is the position can be found in the valuable key indicators that the Economist journal gives us in this week's issue. Comparing the situation of seven countries, the U.S.A., Germany, Japan, France, Britain, Italy and Benelux, countries with which we must compete for our very livelihood, what do we find? In terms of industrial production, we in this country come sixth in that list of seven; in terms of increase in exports, we come fifth in that list of seven; in terms of retail price increase rates, we are also sixth; in five countries retail prices have risen less fast than in this country. That gives us a realistic measure of what it is we are up against; because it is fatal for this country to look at its problems internally. The problems have to be seen essentially in the context of the industrial world in which we have to compete; the sooner we are outward-looking in the consideration of our problems and the sooner we stop navel-gazing the better for us.

What can we do to get ourselves out of this situation? There is no simple cure. There are three phases to which we could direct our attention with value. There is, first, what can be done immediately; there are the middle-range measures which will take time to bring about; and. last, the long-run economic strategy. The air is thunderous with the voices of economists (of which I am not one) demanding that we should have an incomes policy strictly enforced here and now. It may he that we shall get into a situation in which the Government have to take strong immediate action. But this has been tried before and the difficulties of bringing it about and the injustices that it inevitably causes are as true to-day as they were when the Labour Government attempted it.

If we have to do something of this sort then perhaps the best measure, as a temporary measure, is what is sometimes called the Hungarian formula, a formula which the Economist is pressing once more this week and which has had support in a number of leading journals. The idea is that the Government should fix a figure for prices and for pay increases and that, if this is exceeded, there should be a surcharge on both the employer and the employee operated through the social security contributions system. This is not an impossible thing to do; it has the merit that it could be operated. It would be a most regrettable action to take, but at least it is possible. What is not proved, because of the difficulty of detecting what is really going on and of seeing that action is taken in time to stop it, is that any other method of en- forcement is possible and can be made to work. I do not advocate this; I merely say that if it is decided that the situation gets so urgent that the Government must take drastic action then perhaps that, for a short period of time, is the least harmful. But it is no solution in my view.

I believe that it is far more important to recognise that we need a new procedure in handling industrial relations and the settlement of pay disputes. It is highly desirable that the Government should set the stage but should not take a direct part in the determination of levels of pay. The Government should see that the climate and the institutions are right, but should leave it to the parties concerned to reach the decisions themselves. On the other hand, there is no doubt that the public are deeply concerned with what happens and are closely affected by the results of industrial negotiations. So we have to reconcile these two seemingly opposed points of view. We do not want the Government directly coming into the field of industrial negotiations; on the other hand, we need to see that the public voice is heard and the public interest is taken into account when wage claims are being settled and when prices are being fixed. We must welcome the coming together of the T.U.C. and the C.B.I. to try to find some system of conciliation and arbitration that will work. I will draw your Lordships' attention to the fact that it was the Government's attempt directly to influence the levels of wage payments which did more than anything else to kill conciliation and arbitration in this country. From the moment the trade unions perceived that the Government, which had a declared economic policy, had pronounced on a norm appropriate for pay levels, how could you expect them to believe that arbitration machinery, ultimately answerable to the Government through the Minister of Labour, would not be an instrument of Government policy? It is that which killed conciliation and arbitration—much to our loss! We need it again. It is reasonable that the T.U.C. and the C.B.I. say that it should be independent; but we must work into the procedure some representation of the public interest without bringing in the Government directly.

May I suggest ways in which this might be done? I believe there should be a committee—it could be of the Office of Manpower Economics, it could be an instrument of NEDDY—which could be reporting on, monitoring and educating public opinion. The noble Lord, Lord Beswick, is right about the importance of public opinion in these matters, but it must be opinion educated as to what the position is and what would be the effect of certain wage settlements. This could be given great publicity and have great standing and objectivity. I believe, too, that NEDDY could prepare a list of people acceptable to both sides, who could be injected into the process of negotiation and arbitration with the purpose of suggesting the effects of the negotiations on the public and announcing the way in which the public are going to be affected by the settlements that are made. These representatives of the public could also hold up settlements and force them to arbitration if they were not satisfied that the public interest was properly cared for in any settlement.

I believe also, my Lords, that it would help very greatly if we could get agreement that pay settlements should be for a fixed term, so that employers would have some certainty as to how long a settlement was likely to last. This would give them tremendous help in their pricing policies. I suggest a fixed period of not less than 18 months. I know this is asking a lot in the present climate. Along with this there should be a cost-of living automatic adjustment. The T.U.C. has been asking for clauses of this kind for a long time, but I should like to make the reservation that the cost-of-living adjustment should be a complete compensation for those at the lower end of the scale and reduced as it moved higher up. Otherwise, a built-in cost-of-living adjustment would be built-in inflation. Of course this would do something to upset differentials, but we have to be prepared to upset differentials. If we could get a fixed-term agreement with the certainty that those worse off would not suffer if prices rose, and with the certainty also that compensation for rising prices would not be total, then the longer-term agreement would be possible, and a longer-term agreement would give considerable economic advantages.

I believe it would be the greatest help in protecting the public interest in negotiations if when a wage settlement is reached the employers would say that they believed that this settlement would involve a price increase of not more than x and would commit themselves to seeing that during the lifetime of the fixed-term agreement prices did not exceed the figure which they would have stated publicly. There would, of course, be exceptional circumstances, but the employers could be called on to explain and justify those exceptional circumstances. These are ways in which we could get back to industry running its own affairs without continuous Government intervention, and at the same time bring the public interest more into the whole process of negotiation and final settlement.

But, my Lords, wages and even prices as regulated by the employers are not the whole of the question. There are other things to which the Government could, and should, be paying attention. It is worth while looking to see whether the Restrictive Practices Act might not be made operative with regard to those parts of trade union power which are in fact monopolistic. This suggestion has been put forward before, and in regard to negotiations at industrial level it is a matter which requires serious consideration, because there is indeed an element of trade union monopoly power. If we can get control over the monopoly power of employers in fixing prices I see no reason why we should not get some limitation of the monopoly power of the union in fixing wages, in so far as it is a monopoly power. I believe, too, that we ought again to pick up the Donovan Report, which the Government so foolishly cast on one side, and start moving towards a system of company agreements which, if necessary, as the late Lord Donovan himself suggested, could in the end be legally enforceable. Such agreements would pin responsibility where it ought to be: on the individual employers who pay and on the men who do the work and earn the wages. But in order to do this we need a Works Council Act and we need it quickly.

I believe, my Lords, that more could be done to influence prices in certain particular ways, for our approach to this problem must be many-pronged. One of the worst areas of price rises, as the noble Lord, Lord Beswick, illustrated and as we all know, is in respect of land and houses. From these Benches we have long urged the importance of the taxation of site values so that the community gets back the enhanced value of the site resulting from community activities. If ever there was a time to look again at this hoary, but never tried, remedy for these abnormal price increases, this is it. It affects only one aspect of the matter, but each aspect helps. Again, my Lords, it seems extraordinary that we are giving tax concessions for mortgages for the most expensive properties in this country. There is no doubt that one of the biggest factors affecting the prices of houses is the availability of mortgages. We are positively subsidising the well-to-do to buy property at highly inflated prices, and in so doing we are pulling up the prices of houses all the way along the line. I am not suggesting that this tax concession should be totally abolished, but I find it extremely difficult to understand why we should be subsidising that section of the community. This is a matter which needs urgent attention.

Such, my Lords, are the middle-term measures; but in the long run it is the long-term success of the economy which will determine the value of money. It is in this respect that both this Government and also their predecessors have failed so sadly. We do need economic expansion; of course we do. The Government have an extraordinary capacity for doing the right things in the wrong way, and with lamentable timing. Their "lame ducks" campaign has been a disaster. But, of course, it is right to try to see that it is the successful industries that grow, and to try to move away from those industries which cannot produce a profit or pay high wages, so that we may move towards a high pay industry, with a reduction in the number of people employed in the manufacturing industry but with a high level of wages and, as a result, a rapid growth of service industries. It is in this direction that we urgently need to go. The Government should adopt a policy of backing winners rather than talking about "lame ducks ", and of encouraging and re-enforcing success, because it is the successful companies which will in the end improve the value of money.

3.37 p.m.

THE LORD PRIVY SEAL (EARL JELLICOE)

My Lords, we are beoming accustomed to Lord Beswick's annual Motion of semi-censure on the Government's economic policies and, as in the past, none of us on this side of the House can complain of the way in which the noble Lord moved his Motion. By the same token, I should like to thank the noble Baroness, Lady Seear, for once again giving us not only a noteworthy but also a constructive contribution to the debate.

Nor, my Lords, should I wish to take issue with the noble Lord over the importance which he attaches to the maintenance of the value of money. It is important, and the Government recognise its importance. It is obviously important economically. On it depends our competitiveness as one of the great trading nations of the world. But it is equally important morally and socially, in that the scourge of inflation, as we know only too well, falls not on the broad backs of the economically strong in our society but on the weak and the vulnerable.

Where I would take issue with the noble Lord is in the implicit assumption underlying much of what he said: that this problem of inflation may in some way be peculiar to this country, and peculiar to the last 24 months of Conservative dispensation. My Lords, other countries have similar problems, not least to-day, and all Governments since the war have had their successes and failures in this field. I would not seek to deny for a moment the significance, indeed the stern significance, of the figures in the international league tables to which the noble Baroness alluded.

While I do not wish to beat the old inheritance drum unduly hard this afternoon—and I will not beat it long—I must remind the noble Lord, Lord Beswick, and all noble Lords opposite, of the position which the Government inherited on taking office two years ago. True, thanks to the savage but successful policy of deflation pursued by the last Labour Chancellor, we had a satisfactory balance-of-payments position. But that was the only satisfactory dowry bequeathed to us by the Labour Administration on the economic front. Along with the balance-of-payments surplus, as the noble Baroness, Lady Seear, has re- minded us, they bequeathed galloping inflation, stagnation and rising unemployment.

The control of inflation and the reduction of unemployment have been the Government's first priorities and we believe that our policies have been the right ones: policies which will produce rapid growth, full employment and a rising standard of living for all of us over a number of years. In his Budget statement on March 21 this year my right honourable friend the Chancellor of the Exchequer said—and I quote his words: The prospects of expansion and the growing prosperity of the next five years must surely be better than they have been. My Lords, judging by the criteria which the noble Lord, Lord Beswick, has himself singled out in his Motion, there are already signs of progress. Take economic expansion—the noble Lord passed very briefly over the picture here—the noble Lord's second criterion. Since the Budget all the indications point to a strong growth in output. It is true that industrial production, as the noble Lord, Lord Beswick, pointed out, fell in the first quarter of this year, reflecting a heavy fall in February resulting from the miners' strike and consequent power cuts; but in April industrial production was 5 per cent. higher than the first quarter's average and nearly 21½ per cent. above that of the fourth quarter of last year. For manufacturing production the figures are 3½ per cent. and 1½ per cent. respectively. Retail sales are rising steadily, and in May new car registrations reached a record figure.

Or take the noble Lord's third criterion—unemployment. In the last two months the total of unemployment in the United Kingdom, as noble Lords know, has dropped by 171,000, a drop which we all welcome. But perhaps a more important indicator is the fact that adult vacancies have increased each month this year and in June stood at 138,000, their highest level since February, 1971. My Lords, I am far from being complacent (more important, the Government are very far from being complacent) about the existing level of unemployment. By the same token it would be wrong not to acknowledge the very significant downward trend in the unemployment figures. I can well imagine the play noble Lords opposite would have made, and rightly made, with the unemployment figures to-day had they remained at the intolerably high levels to which we had become only too accustomed in the winter months.

LORD POPPLEWELL

My Lords, they still have been the highest for 20-odd years.

EARL JELLICOE

I am not saying we are complacent about them, but I am saying there is a significant downward tilt and it is one which the fair-minded would recognise. In addition, in the last two years we have paid off the residue of that great weight of short and medium term debt accumulated under the last Administration. Our reserves stand high. And we remain with a surplus balance of-payments position on current account. All in all, my Lords, I see no reason for us to strike a note of doom in looking at the present position. But there is, of course, room for plenty of caution. In this context I would remind your Lordships of the Chancellor's warning in that Budget statement from which I have already quoted that the gap between the rate of increase in money incomes and of productivity had to be further narrowed as, in his words, in the end, that is the only sure way that we can keep prices steady, maintain our international competitiveness and substantially improve the prospects for employment". So far, my Lords, so good. But in what I have so far said I have ignored the problem of inflation, the central problem confronting our economy, indeed perhaps the central problem confronting our society to-day. It is a problem which we must "lick" if we, as a nation, are to achieve the three desiderata in the noble Lord's Motion: a high level of employment, economic expansion and indeed a unified society. Unless we can "lick" this problem our prospects for sustained economic growth will vanish and with them over the long haul the prospect of rising living standards for our people. Unless it can be "licked", our competitive position abroad will be eroded, and unless it can be "licked" the prospects of a more united country will vanish, since inflation is a social evil under which the weak go to the wall.

My Lords, I remember in an economic debate some two years ago expressing the determination of this Government to rein in the wild horses of inflation. I would claim that over the past two years the Government have made considerable progress here. We have principally acted to break the accelerating price/wage spiral which we inherited from our predecessors, and we have acted in the first instance through tackling the rise in prices directly. We chose to tackle inflation initially through prices, since a slower rise in prices reduced the need for unreasonably high wage claims. Far from failing to tackle inflation, as the Motion implies, I would remand noble Lords of the steps we have taken to exert downward pressure on prices.

For example, in the Budget last year, my right honourable friend cut S.E.T. by half. Despite the claims of some of the critics, most large firms and many smaller ones reduced their prices in July, 1971, and in some cases before that. Further price cuts followed the 18 per cent. reduction in purchase tax rates in July last year. Moreover, noble Lords will recall that coincidentally members of the C.B.I. agreed to hold price increases below a 5 per cent. ceiling in the coming 12 months, and they did so when retail prices were rising at a rate of some 10 per cent. Nationalised industries exerted the same restraint. Again, noble Lords will remember that earlier this year the Government moved directly on prices of some staple foods—milk, sugar, and potatoes.

My Lords, I am not claiming for one moment that all in the price garden is rosy. But it is important to get the perspective right, and not to be mesmerized by some subjective impression of steady and accelerating escalation. Indeed, inflation is in large part a psychological bug, and because of that I hold it important to recognise at this moment that the statistical facts which are incontrovertible do not warrant the far too general impression that prices are just running away. The reverse in fact is true.

In the last year the rate of increase in prices has been nearly halved. The retail price index in summer, 1971, was around 10 per cent. higher than a year earlier. To-day the figure is down to 6 per cent.—the same figure as in May, 1970. In the six months from November, 1971, to May, 1972, retail prices have risen by about 3½ per cent. This compares with a rise of a full 1 per cent. more—4½ per cent.—in the six months from November, 1969, to May, 1970. And within that overall index food prices have risen by some 5 per cent. between July, 1971, and May of this year. This compares with 10 per cent. for the same period the previous year and 6¾ per cent. two years earlier under the noble Lords' benign Labour dispensation. Thus, although I would grant that the rate of price increase is still too high—far too high—and must be diminished, the trend is most certainly encouraging.

By the same token, I would ask your Lordships to recognise that the Government have made progress in reducing the rate of growth of incomes. Hourly wage rates in January last year were nearly 15 per cent. higher than a year earlier. In May of this year that figure had been cut to 11¾ per cent. As another indicator of the position on incomes, average earnings in January, 1971, were over 14 per cent. higher than a year earlier. The comparative figure for April of this year was 11½ per cent. In general, therefore, I am prepared to assert quite categorically that pay settlements, both in the public sector and in the private sector, are now standing at a considerably lower level than in the heyday of post-Election inflation in 1970.

It is true that in recent months the outlook has been clouded by the coal miners' settlement and subsequently by the rail settlement. As with prices, the observer may tend to think that wage inflation is once again spiralling upwards. I would not wish to minimise the significance of these two very high settlements, but the fact remains that since the coal miners' settlement details of some 38 settlements in the public sector have become available. These settlements, covering well over a million and a half employees, average under 9 per cent. I am sure that noble Lords will agree that these figures represent an improvement on the incomes front. But there is still a long way to go before incomes are brought down to reasonable rates of increase. And until we make further progress, our achievements in slowing prices are at risk.

LORD BESWICK

My Lords, I apologise to the noble Earl for interrupting, but would he be prepared to say that in November the retail price index will be lower or higher than it is to-day?

EARL JELLICOE

My Lords, I do not think I should wish to speculate on November now, in early July.

LORD BESWICK

My Lords, the noble Earl is endeavouring to persuade us that the trend is encouraging. If that trend continues, if I may put it this way, would he envisage that by November, when we discuss these matters again, retail prices then will be higher or lower?

EARL JELLICOE

My Lords, I prefer to let the November figures speak for themselves. A great many things may happen between now and November.

It is not only the internal position that is at stake. It would be idle to pretend that underlying fears of inflation played no part in the events that led up to the Government's decision temporarily to float sterling. There were of course other more immediate and transient factors at work. In any event, there was, in my right honourable friend the Chancellor of the Exchequer's view—and I notice that the Leader of the Opposition has said that he shares this view—nothing in our immediate objective situation to justify the very large hæmorrhage of our reserves that began to flow in the latter half of last month. Although our balance of surplus payments on current account has been shrinking—in part due to industrial troubles—your Lordships will have noticed that it has remained in surplus. Be that as it may, the hæmorrhage could not have been allowed to continue, and a tourniquet of some kind was required. Whatever some noble Lords may think about the underlying position, I feel there is general recognition that the decision to float was the right one and that, the decision having been taken, it was carried out promptly and with considerable technical efficiency.

As your Lordships know—and I was asked a specific question on this point by the noble Lord, Lord Beswick—my right honourable friend the Chancellor of the Exchequer has explained to our European friends that we intend to return to a fixed parity as soon as possible. He hopes that it will be before January 1 of next year. But the Chancellor has also made it clear—and this is in reply to the specific question put to me by the noble Lord, Lord Beswick—that he has given no other assurance whatsoever.

LORD PARGITER

My Lords, before the noble Earl leaves that point, can we be quite clear about what is meant by the term "fixed parity"? Is it fixed parity as expressed by President Pompidou yesterday, or fixed parity at a much lower level than the 2¼ per cent. differential proposed in the Common Market?

EARL JELLICOE

My Lords, I think I should prefer to leave it—this is dangerous ground—as fixed parity as expressed by the Chancellor of the Exchequer. In the longer term, this sudden and largely irrational capital flow out of this country demonstrates yet again the crying need, if international trade is to continue to expand and with it our own economy, for all of us to construct a stronger international monetary system. None of us can decry the importance of the Smithsonian arrangements, but more fundamental structural reform is required, and I think noble Lords will acknowledge that Her Majesty's Government in general, and my right honourable friend the Chancellor of the Exchequer in particular, have played and are playing a positive and constructive role in this respect. We must all hope that in time—and in not too much time—a world-wide system more responsive to the needs of the 1970s will emerge.

LORD DIAMOND

My Lords, I interrupt the noble Earl only because this is a matter on which I am regularly attacked whenever I am defending the Government's position abroad, as I have been doing over the last three weekends. Was there, or was there not, consultation on floating the pound with those closely concerned?

EARL JELLICOE

My Lords, I am not a Treasury Minister, and I hope that, rather than giving a snap reply to that question, the noble Lord, Lord Diamond, will allow me to turn the question to leg (if that is the correct term) in the direction of my noble and learned friend the Lord Chancellor.

That said, I am sure your Lordships will agree that floating the sterling rate, wherever it ultimately settles, does not in itself offer a solution to our inflationary problems. If we are to maintain our international competitiveness and our internal stability, we must somehow succeed in bringing the level of our wage settlements down to reasonable levels. I should like to make our attitude—the attitude of the Government—clear, albeit in summary form.

Our frank view at present is that a statutory incomes policy, even if it were desirable, will not solve our problems. For one thing, the trade union movement have made it crystal clear that they will not accept it. By the same token we do not, any more than any other Government in this day and age, welcome confrontations over pay. They are arid, and they tend to erode industrial relations. But by the same token we reject, as indeed any other Government would be bound to reject, courses which will allow continued inflation to flourish. This means that we must continue to oppose to the limit of our ability concessions to unreasonable pay demands which can only bring about the acceleration of inflation. But if we dislike confrontation, if we do not wish to see a statutory policy, and if at the same time we wish to rein in inflation, then it is clear that what we must work for, somehow, is a voluntary policy, generally accepted.

In this, the Government can, and in-deed must, play a part. Whatever scheme may ultimately emerge, the Government have a clear duty to ensure the community interest in greater price stability and higher real earnings, both of which can only be placed in jeopardy by high money wage settlements improperly earned. In that I agree with what the noble Baroness, Lady Seear, has said. In all this, every man jack of us is involved in one way or another. All groups, and especially employers or groups of employers and unions, have their part to play. But the three essential legs on which a voluntary system must stand are those of Government, the unions and the employers. That being so, the proposals which the Prime Minister placed before the General Council of the T.U.C. yesterday afternoon at No. 10 are clearly of prime importance.

Your Lordships, having read to-day's newspapers, will know that the Prime Minister proposed the establishment of a Ministerial group to work with the T.U.C. to see whether we could move towards some generally accepted voluntary system.

Initially, four points have been proposed for study: possible conciliation machinery; the position of the more lowly paid worker—and I do not dissent, I think, from the general tenor of much of what the noble Lord, Lord Beswick, said about the lowly paid worker; the possibility of linking wage settlements with the cost of living, and the whole issue of our international competitiveness.

I am sure that the country as a whole, whatever the shriller voices may say, expects the three main parties concerned, Government, unions and employers, to work out some practical basis of agreement. This cannot be done if rigid and inflexible attitudes are taken un from the outset by anyone. There is no room round this board, my Lords, for Fischers and Spasskys. Certainly this has not been the Governments stance here.

LORD SHEPHERD

Oh!

EARL JELLICOE

The noble Lord, Lord Shepherd, from his sedentary position is inclined to query what I have just said. But we have gone a long way over the last two years in meeting many of the requests of the T.U.C. on matters of general economic policy. The Government, for their part, have now put carefully considered and solid proposals to the General Council. These are genuine proposals, and they are genuinely intended to provide the basis for a voluntary system. We need to tackle these problems together before it is too late—and, my Lords, it is already quite late enough.

Again, our prospects of a sounder and stronger economy would be placed at risk if, as a result of temporary or tactical difficulties, we were to allow ourselves—like a previous Administration—to be blown off the course of our longer-term strategies. I should make it clear that, unlike the Administration of the Great Deflectee, the present Government have no intention of being deflected from their major policies. That is why my right honourable friend the Chancellor of the Exchequer will pursue his policies of tax reductions and massive tax reform. That is why we shall continue to do what we can to stimulate new investment and new industry. But, my Lords, we do not need only new plant in this country.—though if one goes abroad and see the comparison by obsolescence one must admit that in many instances we do need new plant; we also need new skills. That is why we shall continue to modernise and expand our employment and training facilities. That is why we are prepared to seize the opportunities which entry into Europe offers us. That is why, above all, we propose to persist in a policy of growth.

The Budget measures were designed to raise the rate of growth to about 5 per cent. at an annual rate over the eighteen months to the first half of 1973. This is a much faster growth rate than we have managed to achieve in this country for a great number of years. It is a rate higher than the growth of production potential and it is thus designed to reduce still further the level of unemployment. But it is a rate of growth which is not inimical to the battle against inflation. There are ample spare resources in the economy so that there is little danger of hitting inflationary bottlenecks in the near future. Moreover, faster growth itself through increasing productivity and profitability is an ally and not an enemy in the war against inflation.

The noble Lord's Motion speaks of the threat to a unified society in this country. I do not dissent from the emphasis placed by the noble Lord on national unity. A hundred and thirty years ago, in a phrase which will be familiar to many of your Lordships, Disraeli told us that if … the privileged and the poor form Two Nations governed by different laws, influenced by different manners, with no thoughts or sympathies in common; with an innate inability of mutual comprehension … the ruin of our common country was at hand". We should be foolish to deny the fact that there are tensions and fissiparous tendencies evident in our society to-day to an extent which I think is new to some of us.

I happen to have just returned from a brief visit, on the wings of a slim, elegant bird called Concorde, to the Far East. During that visit I spent a few days in Japan. I had not been there for six years, and even in that relatively short passage of time I was able to witness yet further evidence of Japan's continuing economic surge. The Japanese economy and Japanese society have problems of their own. We do not need to ape their systems any more than they need to ape ours. But I do not think anyone witnessing the Japanese scene could fail to be impressed by the fact that much of the Japanese economic miracle has been achieved with natural resources and natural skills certainly no greater than our own, but, above all, as a result of an extraordinary feeling of common purpose between management and labour. There may be lessons for us here.

My Lords, the Government do not require to be told of this need for a more united national effort and of the dangers of two nations. We have recognised this in our regional policy. We agree that we cannot properly be one nation if we allow the persistence within our Islands of great disparities between the favoured and the less-favoured regions. Hence the need, which we recognise, for a strong and effective regional policy. That is why we are bringing together a massive programme of regional support under the ægis of an able Minister.

Again, it does not need the noble Lord, Lord Beswick, to tell us that we shall not get the unity of effort in this country which we require—the common will to tackle common problems—if we think of ourselves as two nations, with organised labour as the one and the rest of us, or some of the rest of us, as the other. I must make it clear that this is far from the way in which the Government regard these matters. I have, I hope, already made it clear that we are seriously and sincerely seeking the co-operation of the trade unions in working out with us and with the employers a common plan to strangle inflation. True, we have no intention of walking back from the Industrial Relations Act, an Act in which we believe, in which we believe most of the country believes, and which has been democratically endorsed by a democratically elected House of Commons. On the other hand, it was made clear to the General Council of the T.U.C. by the Prime Minister yesterday afternoon that when we have had time to evaluate the workings of the Act, and if at that time the trade union movement are able to bring to our attention points in it which in their view, are oppressive or unworkable, we shall be very willing to entertain their representations. When the time comes, if they wish to talk, we shall be very willing to listen.

May I in this context just float a thought which may I suspect evoke an echo—if floating thoughts evoke echoes—from the noble Lord the Leader of the Opposition? My simple thought—and it is a personal one—is this. In thinking about these massive problems of industrial relations, I have often felt how beneficial it might be if somehow it were possible to import into the larger arena some of the climate in which we conduct our industrial relations in the more restricted arena—that of the non-industrial Civil Service—for which I have a certain direct responsibility.

My Lords, that climate of negotiation and discussion embodied in the portmanteau word, "Whitleyism", seems to me to have much to recommend it. We of course have our difficulties, our disputes and some very tough negotiation. Sometimes we fail to agree. But we do have the advantage of procedures which, although they may not be perfect, are mutually agreed and understood. We do have the advantage that those procedures include a willingness to go to arbitration and to accept the decision of the arbitrator. Not least, they include a tradition of close contact in what I might term the off-season—when wage negotiations are not in train—over a whole range of other subjects, which helps to create at least some sense of common purpose and of shared identity. All this may sound rather Utopian, given the abrasive climate in which so much of our industrial negotiations appear to be conducted today. But if the three parties of whom I have spoken—Government, the unions and the employers—can make progress in joint discussions, it might be worth their while turning a page or two of the Whitley book.

In outlining the Government's recognition of the need for a unified society, I have instanced our policies towards the regions and the stance which we are adopting towards the trade unions. But it is not only in the treatment of great geographical blocs or large numerical groupings that greater unity can be won. It is perhaps above all in the treatment which we accord to individuals in our society.

There are many speakers to-day, and I will therefore merely single out some examples to substantiate my claim that the Government recognise that greater national unity will not be won unless our society is fair, and seen to be fair, in its treatment of those who are weaker or more vulnerable. I will just cite a few examples of our approach. I have never been one, I hope, who underestimates the importance of physical environment. Bad housing and delinquency, in my view, are only too often umbilically linked. My example is that, under my right honourable friend the Secretary of State for the Environment, it is our conscious policy to bring help in their housing to those who most need help, and to concentrate our public sector drive on the quick and speedy obliteration of the slums which so often disfigure many of our towns and cities.

I refer to what we are doing concerning the proposals which my right honourable friend the Secretary of State for Social Services will be bringing forward next Session for a much overdue reform of our National Health Service. There are few areas where more could be done to bring succour and support to those who most need it. As evidence of our seriousness of purpose in this field, I would only cite the fact that the total Government expenditure on health and social services is due to rise from approximately £2,300 million in 1970–71 to no less than £2,800 million in 1975–76—that is, at constant prices. But if these great, massive sums do not tell their truth, I think those noble Lords who interest themselves in the social field will recognise that my right honourable friend has already made a unique contribution in concentrating help on the physically and mentally handicapped and indeed on breaking ground in new fields; for example, in seeing what we can do as a society to assist in breaking the vicious cycle of deprivation; in breaking new ground in fields which our society has left for too long untackled.

That said, I think most of us would in the last analysis agree that the greatest threat, perhaps, to a unified society lies in the continued existence of real poverty within these islands. Paradoxically, as the flood of more general deprivation has receded these last fifty years or so, the remaining pockets of poverty in our society have been the more exposed. They are a reproach to any civilised society. But the point I should like to make is that the Government fully recognise that fact. In two years, I would claim that this Government have done more to help those on low incomes than the previous Government did in all their six years. In particular, the family income supplement has been introduced and has been substantially increased. I would grant straight away that this was a far from perfect scheme, but it was the best that could be devised in the short term. For the future, the plans already announced by the Chancellor of the Exchequer for a completely new tax credit system will mean that those at the lower end of the incomes scale will receive the help they need, and will receive it with far less requirement for resented and cumbersome means-testing.

I could point out many other instances. I could point to the increases in National Insurance benefits introduced under this Administration. I could point to the new and crucially important provision for annual reviews of pensions. I could point, too, to the benefits which those on low incomes have received from the increase in personal allowances announced in the Chancellor's last Budget. At a stroke, my Lords, if I may use the now hallowed phrase, the increase in these allowances take about 2¾ million of our fellow citizens out of the field of income tax altogether and substantially ease the problems of the so-called poverty trap to which the noble Lord, Lord Beswick, alluded. I could continue this catalogue, but I will not do so. What I wish to do is to reaffirm, and to reaffirm as categorically as I can, that this Government, no less than any alternative Government, are conscious of the needs of a unified society, and have shown by their actions that they will do all within their power to help to create the conditions in which we can achieve a greater sense of fairness and of common purpose than we have at present.

My Lords, may I say just this in conclusion. I wish to reaffirm that this Government are deeply committed to a policy of economic growth. We realise, as Administrations before us may well have realised, that it is only through raising the growth rate that we can improve the standard of living for everyone in this country. Already that standard of living has been rising faster than it did under the last Administration. We have reversed the policies which brought stagnation, and stagnation coupled with inflation, in those six years. Despite the difficulties, which are all too obvious, we shall not permit ourselves to be deflected from our course. On the contrary, we intend to pursue our goals with determination, in the knowledge that they will lead to increasing prosperity, to a happier community, and to that unified society which I believe we all desire to see. But, my Lords, the first priority is to strangle inflation and to ensure that our hard-won achievements over the last two years are not wasted. Whatever the Opposition decide to do about the noble Lord's Motion—and I do not yet know what they are going to do—I would express the hope that those broader goals would command the broad assent of your Lordships' House.

4.14 p.m.

LORD ROBBINS

My Lords, I rise to make a speech about inflation, but I do so with considerable trepidation, having regard to the speeches which have preceded mine. I should conceive myself to be, so to speak, between Scylla and Charybdis. I must be careful not to incur the reproach of my colleague, the noble Baroness, Lady Seear, of being a prophet of doom. Of course, I would agree with her that a prospective rate of increase in the level of retail prices of between 8 and 10 per cent. per annum, as has been predicted in certain quarters, is not the same as the rate of increase during the hyperinflation on Continental Europe immediately after the war, but I submit that it is something to be seriously alarmed about. On the other hand, much as I sympathise with the noble Earl who has just been defending the policy of the Government with much the same determination and ingenuity as his opponent the noble Lord, Lord Beswick, I seem to remember, defended his Government in rather similar circumstances when he was sitting where the noble Earl is sitting today, I refuse so far in the debate to be persuaded by the contention that, although there is certainly something to be a little worried about, there are all sorts of small signs which show that here and there is some statistical improvement and there is nothing more serious than what has been suggested in the last two speeches to worry about here and now.

May I begin with a comment on the events of last Friday week—the floating of the pound and the fall in the rate of sterling which has followed since that decision. I do not think that the present position in that respect affords any ground whatever for complacency. I believe that what has happened places us and our associates in the Free World in a position of greater danger than we were in before last Friday week. If I turn first to the domestic situation, I would say that what has happened so far—perhaps it may be reversed—will certainly, as I think the noble Lord, Lord Beswick, said, have some influence on the cost of living; and if it has some influence on the cost of living it then makes Her Majesty's Government's task in controlling cost inflation greater than would otherwise have been the case. Secondly, I would submit that what happened is likely to introduce—I choose my words carefully at this point—complications in our progress towards our entry into Europe and participation in progressive policies therein.

I agree with the remark which has been made by several commentators that a float at some stage might well have proved to be necessary; and, to the extent that the step has now been taken, there is some local easement so far as our competitive position is concerned. But one must remember that what is our easement is other people's disadvantage. I do not think that it took the remarks attributed to M. Pompidou only yesterday, or the day before, to convince many of us that if the float continues downwards difficulties of all kinds hitherto unsuspected are likely to confront Her Majesty's Government in their onward progress. Certainly I would say that what happened last Friday week was some menace to the financial stability of the Free World in general.

The noble Earl referred to the desirability of international monetary reconstruction, but for obvious reasons of time he did not reveal at all precisely the thoughts that were passing through his head. It is my submission that a change in the rate of sterling, to put it mildly, is not making it easier for the position of the dollar, and if the position of the dollar is still further weakened, then even the much praised—not by me—Smithsonian agreement (I never thought it would last) will be considerably weakened. But, my Lords, having delivered myself of these fears, let me say at once that I believe the decision was a right one. If I had been, as I once was, a public servant, advising Ministers, I should have given the same advice in the circumstances.

But, having said that, I must say—someone must say it—that some, at least, of the explanations and the extenuations which have been given seem to me to be unadulterated nonsense. To me it is almost inconceivable how intelligent and upright and straightforward men can still go on invoking the time-honoured reproaches against speculators. I ask you, my Lords, to reflect upon the impact on humble men and women of the world not involved in the political badminton, so to speak, when they hear once again in a currency crisis this sort of accusation. It only needs a member of the Government to get up and say that "The pound in your pocket will still purchase the same amount" for one to be able to say, "Well, this is where I came in before".

The reason for the pickle that we are in and the figure that we cut in the outside world is not the gnomes of Zurich, not just bad luck, not the wickedness of real estate proprietors, not even (I would say, in slight difference with the noble Baroness) our failure to grow at a faster rate, although of course a faster rate of growth would ease the situation. We deceive ourselves if we think that any conceivable rate of growth achievable within the next two years would eliminate the inflationary danger. No, my Lords, the villain of the piece is clearly in the dock; the villain of the piece is inflation—and our inflation. Since 1962 retail prices in this country have risen over 60 per cent., and certainly the blame for that is not to be attributed uniquely to either of the Parties which have held the reins of power during that period. Surely we should all agree that whenever the inhabitants of one area are subjected to an inflation greater than that which is going on elsewhere—and that, on the whole, is what has been happening here; there are one or two others which surpass us in the table, but not many—then inevitably pressure on the exchanges develops; and if people expect inflation, as they certainly have expected inflation and as they had every right to expect it, as the events have proved, then if they have the facilities they take steps to remove their funds to safer quarters. If the inflation goes on, their prudence is justified by the security of money and possibly by a spot of capital gain.

Let us forget the external situation for a moment. Let us forget all about the outside world and be as insular as we like to be these days. In passing, I must say that I view with the greatest apprehension the disposition in certain quarters (not, I am sure, on this Front Bench) to say, "Now the rate is floating the balance of payments will take care of itself". The rate will continue to float downwards if the inflation goes on, and that is all that can be said about that one.

We cannot discuss everything at once. The Motion before us deals generally with internal matters, and it is to these internal matters that I should like to direct your Lordships' attention. Why should we bother about inflation? Why should we be alarmed at whatever rate has prevailed in the last 12 months and the rate which has been predicted by the National Institute of Statisticians (with which I happen for once to agree) for the next few months ahead? I will not detain your Lordships by dwelling on the misery, the anxiety, caused to people on fixed private incomes, although anyone who has friends and relatives in that position will well know all that it involves. But, after all, they are the weaker members of the community; perhaps they are in a minority; certainly if the trade unions continue to be strong, if profits go up, the votes of those weaker members of the community do not matter all that much. I will not dwell on that. I would rather dwell on something even deeper. I would say to your Lordships that inflation as we have known it through history—inflation even at this rate—corrupts and distorts the whole basis of the society in which we live.

My Lords, let me reassure the noble Baroness: I do not say that the world will come to an end if we degenerate to the position of Latin America. I agree with her that we are not that way yet, although we are some way towards it. After all, Latin America survives, after its fashion. What I do say is that inflation of the order of magnitude that we are contemplating gradually brings about a radical change in outlook, a change in outlook throughout society generally, which I personally regard as quite deplorable.

Let me give your Lordships a few examples. To keep in step with the noble Baroness, let me start with Latin America. Some years ago I paid a visit to a delightful country in that continent. My wife and I had the good fortune to be met at the boat by an ex-pupil, who conducted us with amazing celerity through the Customs. Having been brought up in the atmosphere of our stable society and in a Puritan household I was certainly extremely shocked when friends told me, "Had you not been accompanied by a Government official you would not have got through those Customs for a week unless you had been prepared to pay a bribe". I say, my Lords, that I was shocked at that. When I learned that those officials had their salaries revised only once a year and inflation at that time was proceeding at the brisk pace of about 5 per cent. per month, I began to realise that after all there was no reason to feel quite so superior. What should we do if we were in a similar position?

But now let us come nearer home and consider for a moment the purchase of property. Supposing a Member of your Lordships' House had been approached in the stable days by a young couple setting up house together. Surely a wise course would have been—and ancient instances would have been justifiably adduced—to counsel prudence against running into debt, prudence in over-optimistic anticipation of future income. "Be careful, my boy", you might have said, "never run into debt if you can help it". But, my Lords, supposing you were in that avuncular position to-day and you were considering the interests of the young couple, you would surely say to them, "Borrow as much as you can and repay in depreciated currency". Is that a happy state of affairs? Is that a state of affairs which is ultimately conducive to a stable moral society?

Let me take a further example which is, I suggest, to people of integrity, much more worrying that that, namely, the sale of National Savings Certificates. Let me take a simple figure. Supposing anyone had bought £100 worth of Savings Certificates in the middle of 1967. I choose my dates so as to be equally fair, so to speak, to both sides of the House in this respect. By now, at the rate that was quoted then, that £100 would have appreciated to £125. But in the same period retail prices have risen from 119 to 162 so that the real value of the original investment plus interest would now be just a little below £92; that is to say, this purchaser would have been lending money to the Government at a negative rather than a positive rate of interest.

Surely that is a disturbing thought. I say this with deadly earnestness. It is a disturbing thought that some of the least knowledgeable members of the community have been induced by some of the most patriotic and public-spirited to buy assets supposed to be increasing in value but actually diminishing. Now of course this fact is quite obvious to anyone with any financial training whatever, but it is very seldom mentioned and I think I know why. I have often been asked myself to take a seat on a platform recommending the sale of National Savings Certificates and I have always refused. The reasons why I have refused are two-fold: in the first place I did not want to be an embarrassment to my colleagues on the platform, for whose good intentions I have the highest regard; in the second place I had the feeling, which is certainly justified by analysis, that if the will to save is undermined, and if instead of saving people rush into commodities, then the inflationary pressure is increased. All that is true. But I ask noble Lords in all parts of the House: do we really wish to save our bacon at the expense of the poor and the ignorant? If the Government want to encourage saving—and I submit that they should want to encourage it—then they must provide some assurance that savers will not suffer. In the end they must control the value of money.

What is the cause of all our troubles? To keep our heads in this matter, to establish a proper sense of proportion, let us always remember that the supply of money—the credit base, if you like—and therefore the maintenance of the value of money, is definitely a responsibility of Government. Wherever else a policy of laissez faire may he justified it can never be justified here. It is no good any Government saying that the supply of money is something which adapts itself to the needs of trade. We have heard that one many times before. Indeed, I remember when I was a young man and at the time of the great German inflation, and then Governor of the Reichsbank made a public statement regretting that the many factories that he employed in printing paper money were not able to keep up with the needs of trade. No Government can afford to adopt the attitude that money must be passive to the needs of trade. Galloping inflation eventually lies that way.

I would say, as a corollary of what I have said, that few things can be more certain than that if the increase of the credit base passes a certain figure—which of course has to be related to the rate of growth of the economy—then there will be inflation. Few things are more certain Wan that if the rate of increase of the supply of money is limited to the rate of increase of real production, it is unlikely—although not quite impossible—that prices will rise indefinitely. There is no need to be a dogmatic adherent of the quantity theory of money to believe that. Provided the increase of the credit base is restrained then the value of money is not likely to fall for very long at an alarming rate. But, as the noble Lord, Lord Beswick, has pointed out, the credit base in recent months has been increasing at 20 per cent. per annum.

This is not the end of the matter. If we were in a state of pre-existing stable prices, if we continued the control of the money supply and combined it with prudence in public finance, then it is very improbable that the price level would rise very much. But if inflation is already in operation, if people's expectations are geared up to further rises in the cost of living, and if we are in a condition in which there come forward claims for rates of pay far beyond any conceivable increase in productivity, then if extra finance is not available there must he unemployment. I am speaking in very rough terms here. Of course you can conceive of small excess increases which only give rise to small unemployment or small inflation. In such circumstances there might even be a hope that some small increases in rates of pay of that sort might be made at the expense of profit after taxation. But certainly any claims for increases of the order of magnitude of recent years cannot be met in that way, by conceivable achievable rates of growth. A 10 per cent. rate of increase of earnings per annum cannot be met save by some inflation; and claims such as, rightly or wrongly, have been reported in the Press in the last day or so for increases of a further 30 per cent., if generalised, must lead either to widespread unemployment or to rampant widespread inflation.

What then must we do? I am quite sure that if the Government regard the money supply as infinitely elastic, to be manipulated, simply to be responsive, passive to the needs of trade, and if interest rates are kept at what, having regard to the rate of inflation, is an artificially low level, any arrangements, however intelligent and well-conceived, will break down. I do not believe that the situation will be cured by mere exhortation, invocations of common solidarity and so on. We have had so much of that ever since the war that, so far as the ordinary man not involved in politics is concerned, it falls stale and unprofitable on deaf ears. Arbitration, special inquiries—well, we have seen the results of arbitration and special inquiries in the last few catastrophic months. Nor do I believe that if employers and employed are left to themselves, even in the most conciliatory mood, much restraint will necessarily follow. As in the case of arbitration proceedings, the disposition will be, especially if the credit base goes on enlarging, to split the difference and take out the rest in rising prices. If the discussions are sectional rather than simultaneous to all industries, then the discussions will almost certainly resolve themselves into acrimonious debates about relativities; and once you start debating relativities once more you are involved in the vicious circle.

Nevertheless, my Lords, having said all that, let me add, lest there be any misunderstanding, that I am quite clear that if the Government were suddenly to put the brakes on national expenditure, either by way of measures of public finance or by greatly slowing down the rate of increase of money, the result would be, with expectations geared up as they are now to inflation, a colossal depression.

I know no case in history where inflation of the order of magnitude of that from which we are now suffering has been stopped by measures of this sort without that sort of effect.

Hence, although direct control of incomes as a long-run policy is likely to break down, and does indeed carry with it many dangers to a free society, I am forced to the conclusion that in order to create a breathing space in which expectations can be revised and clear understandings reached, I hope between the two parties, on the desirable future financial policy, the Government will be forced to impose some sort of control. I say this without any great hope that it will be very efficient or very just, or that it will be a final solution. And I abstain from discussing possible variants, save that I would express what I have said before in this House, a certain penchant for the solution thrown out by the noble Baroness, which she called the Hungarian solution; namely, the fixing of norms and penalisation of employers if those norms are exceeded. What I am clear about is that if inflation is allowed to proceed at the present rate—and I am sorry to say that nothing the noble Earl the Leader of the House has said persuades me that there is not a great danger (I would simply put it that way) that it will continue at the present rate—then I fear that the very foundations of our free and liberal society will be severely shaken.

4.47 p.m.

LORD WALSTON

My Lords, it is hard to follow the noble Lord, Lord Robbins, and his fascinating speech, in which he told us so clearly and so realistically the dangers that we were facing and showed us the weaknesses of some of the more orthodox means of dealing with these problems. We have to look at this subject in two ways. We have, first of all, the immediate short-term problem, what can be done to stem the present inflation; and we have, perhaps more important, the long-term problem of how we can ensure that it does not happen again. I am not qualified in any way to suggest how we can deal with the short-term problem. I must confess that I am strongly tempted by the proposals put forward by my noble friend Lord Brown—I am sorry he is not taking part in this debate to-day; he could have made a valuable contribution—which, as your Lordships may remember, consist, very briefly, of the Government fixing a global sum by which wages can be increased for a period and the unions and the employers then working out between themselves how this sum should be allocated. That seems to me to be realistic and a possible way of achieving some confinement of the present inflation. But I will not labour that point.

There is only one aspect of this matter that I want to take up to-day. The noble Earl, Lord Jellicoe, stated that he was very conscious, and Her Majesty's Government were very conscious, of the need for a unified society, and he went on to say that the first priority was to strangle inflation. If I understood him aright, that meant that the need for a unified society had to wait until inflation had been strangled. I do not believe we can strangle inflation unless we have a unified society. This debate is of national importance, and I hesitate to bring in Party politics, but it seems to me that one cannot discuss this subject realistically in a political context without Party politics coming into it, because this shows up the basic differences between the present Government and the policies, the wishes and the theories, though I am afraid not always the practice, of the Labour Party. Put in a nutshell, it is the difference between a just price and the price of the market place—an economy based on the social contract or one which is based on the survival of the fittest.

My Lords, when we were in office we were accused of basing our policies on the fact that the gentlemen in Whitehall knew best, whereas noble Lords opposite maintained that the gentlemen in the market place knew best. We were accused of making "profit" a dirty word, while noble Lords opposite extolled the profit motive. This Tory philosophy was epitomised when the present Government took office and we were told that, under them, lame ducks in industry would be allowed to sink without help from the Government. With this was the implied corollary that the strong ducks would fly high and outstrip their lesser brethren. That is a policy which in the past has worked well provided one did not have too sensitive a social conscience. A great deal of the wealth of this country, from the beginning of the 19th century until well into this century, derived from such a philosophy. The profit motive urged industrialists and bankers to yet greater efforts. They bought cheap and they sold dear; they made great fortunes; they became respected members of society; they even graced your Lordships' Chamber.

One of the main ingredients in their costs was labour. This also they bought cheap, because they were the strong ducks and the workers were the lame ducks. To-day the Government still extol the virtues of the profit motive and of the free play of the markets, but every now and again they are brought face to face with reality and see that the national interest does not always coincide with the interests of individuals or groups of individuals. Just recently we have heard from the Secretary of State that even though it may be in the interests of Mr. Hyams to leave Centre Point empty, it is not in the national interest that this should be done. We do not yet know whether or not the Government are going to take steps to right this, but if they do they will surely be interfering with the profit motive in the belief that here, at any rate, the gentlemen in Whitehall know best.

We are continuously being told—I am sure all noble Lords will agree—that it is not in the national interest that workers should press for higher wages and that they should strike if they do not get them. As we know very well, legislation has been introduced to make it more difficult for them to do so. Once more we see the gentlemen in Whitehall and in Westminster knowing best, in interfering with the free play of market forces. I suppose we on this side of the House should be pleased that noble Lords opposite and their friends are beginning to see the dangers of their policies, but they cannot really expect us, and particularly the trade unions, to accept that after all the gentlemen in Whitehall and in Westminster know best when it comes to wages but the gentlemen of the market place know best in all other respects.

We shall never get out of our present difficulties—the inflationary pressures, the fight for higher wages, the strikes which take place even though people know full well, as the noble Lord, Lord Robbins, has pointed out, that it may lead to unemployment for many of their fellow workers—until there is a deep and manifest change of heart on the part of the Government. It must be a manifest change of heart. They must announce, loudly and cleary, that the market mechanism is a false god and and that they are now prepared to worship at the shrine of the just price. They must follow up those words with acts. What the noble Lord, Lord Robbins, said is absolutely true: we have had too many exhortations and not enough actions. I unhappily grant that the previous Government were almost as bad in this respect as the present one.

LORD ROBBINS

My Lords, is the noble Lord saying that the previous Government have not had a change of heart?

LORD WALSTON

Unfortunately the previous Government did not follow up their beliefs with their actions. They had the exhortations; they had the right heart. I am now asking the present Government to have that change of heart and to do what we tried to do but failed to do.

How can anybody with any understanding of human nature expect workers to restrain their demands for higher wages when they read of the colossal profits being made out of land and housing, unrestricted by Government action, while the Industrial Relations Act has actually curtailed their own traditional rights of bargaining and thereby weakened their powers? How can they believe that the Government are seriously concerned to hold down the cost of living when they read, for instance, that beer is to go up a penny a pint and at the same time Watney's Brewery forecast an increase in dividends of over 86 per cent. between 1971 and 1972? Perhaps this is a small matter, but these are the things which affect the workers who want their higher wages and for whom the trade unions are working.

My Lords, in spite of what the noble Earl has told us, how can people believe that the Government really mean to look after the poorest sections of the community when they see the last Budget giving the greatest benefit to income tax and surtax payers and at the same time cutting the supply of free milk to school children, while the rents of council houses are about to rise? As my noble friend Lord Beswick pointed out, what can they think of a Government which described the railwaymen's claim for a minimum wage of £20 a week as "blackmail" and then, a few weeks later, endorse and put into operation the rises which we all know about? If I may say so, the defence which the noble Baroness, Lady Seear, made of that decision (I say this with all respect to her) shows that it is very dangerous to be more concerned with statistics than it is with human beings.

Many of your Lordships are employers of labour. In a small way, as a farmer, I am also. In common with other farmers, on the whole, I have good relations with the people who work for me. I am quite certain that if I were to go to them and say that the farm had had a bad year and prices were low, and that reluctantly I had to ask them to forgo a rise in wages, in so far as it was legitimate for me to do so, they would agree. But they would do so only if they knew that I was tightening my belt also. If at the same time as I asked them to do that they saw that I had bought a new Rolls-Royce and had installed a heated swimming pool in my house, I know perfectly well what their answer would be. Yet that is exactly what the Government are doing to the workers to-day. The Government are saying that in the national interest people must restrain their claims for higher wages, yet at the same time by their Budget they give the rich more money to spend. They give the chairmen of their own nationalised industries, their Judges on the Bench, and their own civil servants, big rises in wages. They allow, and indeed encourage, industry and finance to make yet higher profits.

My Lords, the pound may be floated or it may be devalued; wages may be arbitrarily restricted; the freedom of the trade unions may be curtailed. At the best these can be only palliatives; at the worst they can be additional irritants. We shall never emerge from this constant threat to our economy until the concept of a just reward and of a social contract between all members of the community replaces the concept of the free play of the markets, the sinking of the "lame duck", and the high-flying of the strong. This must be, I know, a slow, long-term process; it cannot come overnight. The influence of the tradition of generations has to be overcome before we can succeed. But the atmosphere that has grown up over nearly 200 years must be changed. We tried it—the Labour Government tried it—but very half-heartedly, and with many mistakes. I take no pride in their achievements or their failures in this field, though I do give them credit for their intentions. But until the atmosphere is changed we can never be free of the ever-present threats to our economy, and we can never progress towards a just society.

5.2 p.m.

VISCOUNT AMORY

My Lords, I should like first of all to apologise to the noble Lord, Lord Beswick, because unfortunately, owing to another engagement, I missed almost all of his speech. If I say anything which he feels I would not have dared to say if I had heard his speech, I hope that he will forgive me. I am not going to follow the noble Lord, Lord Walston, if he will forgive me, very far, but I should just like to say that I think that the sharp contrast he drew between the social contract and market forces is rather unrealistic to-day. Surely no one will ask us to believe that the present Government's economic policies are solely directed by reliance on uncontrolled market forces. I think he must have muddled the present Government with Mr. Enoch Powell.

The troubles from which our economy is suffering and which are referred to in the Motion are troubles that afford deep concern to us all. Most of them have been with us for some years, and certainly during the last years of the last Administration, as the noble Baroness, Lady Seear, so clearly showed in her most interesting speech. I suppose they can be summed up as being high unemployment, rising prices, reducing international competitiveness, low industrial investment and an intermittently weak exchange rate. It is a formidable collection. I was very glad to hear from my noble friend the Leader of the House that the number of vacancies is increasing again now, because I think that that is generally an encouraging factor—perhaps a more important indicator in the short term than the actual aggregate figures of unemployment themselves, which can, for one reason or another, be distorted over the short term.

What have been the present Government's policies? Would it be fair to suggest that, in a nutshell, they have been: first, to use their influence in every way within their existing powers to discourage inflationary rises in money incomes; second, to encourage expansion of output by increasing consumers' spending power and by a reduction of taxation; third, to encourage an increase in industrial investment by expanding the availability of credit and a reduction in the rate of corporation tax; fourth, at any rate until this unilateral floating of sterling, close co-operation with the international monetary authorities, and by massive repayment of our international debts. Of these, the first aim, the discouragement of inflationary increases in money incomes, is surely the most urgent and important, and I believe that the Government's policies are in themselves correct. I think that argument and criticism are most likely to be directed, when we get down to it, not so much to the policies themselves as to the ways in which they have been implemented, and perhaps sometimes to the psychological impact of the methods adopted. As I do not want to make a long speech I will confine my remarks to one or two of the main factors that have already been referred to.

First, the recent floating of sterling. In the circumstances, I think it is clear that there was no alternative. The drain on the reserves, in the light of the speed and size of the pressures which developed, would, I think, on any historical analogy, have been unbearable. Therefore the reserves alone could not have stood the pressures. But what were the circumstances? I suppose without any doubt the main factor was the loss of confidence in our capacity to halt the wage-and-prices spiral; that is to say, a failure to do something which it ought to be within our own abilities as a nation to do. We must be under no illusion that, although it was the right action in the circumstances—and I think the Government and my right honourable friend the Chancellor of the Exchequer are to be congratulated on the promptness of their decision—in itself floating cures no long-term problem. I entirely agree with what the noble Lord, Lord Robbins, said on that in his extremely lucid and important speech.

In passing, I would venture to forecast that never again in the foreseeable future are we likely to see such a long period of fixed exchange rates as we have experienced during the last 25 years. One can only guess, but I imagine that what we shall be seeing is some kind of compromise between the fully floating and fully fixed rates. I confess here that I have been—surreptitiously—over the last few years what is known as a "crawling pegger", and I could develop that at some length. Whether I am going to continue to "crawl" I do not know, but I believe that something of that kind is what we shall find. Having to float so precipitately is without question a set-back to the Government's policies—I think a setback and not a defeat, because military history is full of cases where campaigns have had many setbacks but final victory has been assured.

Without any question, the main problem is still the rate of internal inflation. It is quite clear that this has been, and is now, causing us to lose competitiveness in international trade. I am not going to quote figures (they have already been quoted, I think, in two speeches) to illustrate this, but they are impressive. Our prices are certainly rising a good deal more than the prices of our main competitors. Another indicator is that the percentage of imported finished manufactured goods is rising. When those two things happen they are danger signals. In January, 1972—and here perhaps I shall quote one or two figures again—the increase in earnings over the previous 12 months had come down to 9 per cent. Then the railway settlement came at about 13 per cent., and by April there was an increase over the past 12 months of something like 11.5 per cent. I shall be corrected if I am wrong. I do not know, but I would guess that perhaps the rates to-day are running at about 10 or 11 per cent. If the noble Lord, Lord Beswick, asks me to forecast, I shall refuse to do so. I am not willing even to forecast whether I am going to be willing to attend the discussions of your Lordships' House during the month of August. I am certainly not going beyond that.

LORD BESWICK

My Lords, may I say to the noble Viscount that I would not even dream of asking him to forecast? It was only because his noble friend was so confident that the trend was right that I put the question to him.

VISCOUNT AMORY

That is quite all right by me, my Lords. As regards the Government's actions over the past few months, there are two which, with hind-sight, one might be inclined to question. The first has already been referred to by, among others, the noble Lord, Lord Robbins; and here it is very easy to understand the acute dilemma which the Government were in. I am referring to the rate of increase in the money supply. Between October, 1971, and March, 1972, the annual rate of increase was running at about 20 per cent., which seems a dangerously steep rate; but anyone who criticises that must not at the same time criticise the Government for doing nothing to stimulate the level of activity in the country. Secondly, I wonder whether my right honourable friend the Chancellor of the Exchequer was wise in his last Budget to restore completely full tax deductability for personal interest. I shall come back to that point later.

I wish to say a word or two about an incomes policy. Your Lordships will not remember, but in our last debate I think I advocated—I certainly meant to do so—a voluntary policy, worked out by the Government in consultation with the C.B.I. and the T.U.C., which might eventually grow into some kind of scheme which would be backed by statutory authority. I still believe that that would be best, but I am now beginning to fear that time may be too short. I still hope that it may not be necessary to fall back on something quite so drastic as the Hungarian technique, to which the noble Baroness, Lady Seear, referred, but if it was necessary I would not completely rule out even that. Anyway, a practical programme of action must be worked out by the Government in consultation with the C.B.I. and the T.U.C. I was delighted to read in my newspaper this morning what my noble friend the Leader of the House reported the Prime Minister as saying to the T.U.C. yesterday, which is extremely good news.

I personally believe that there must now be a short-term, as well as a longer term, scheme. The noble Baroness talked about three phases. I am quite sure that there will have to be two phases at least, and that the Government must be prepared to play a positive and authoritative part in both. I am not much enchanted with a literal freeze, unless to gain a very short time for the development of a longer term plan which has already been worked out. But I consider that some form of short-term statutory control of increases in wages, salaries, dividends and rents may have become necessary; and, if it has, I believe it will be accepted by the nation at large.

I am certain that any long-term incomes policy must develop within it the principle of true arbitration, not merely conciliation. Perhaps I have bored people by always reminding them how different the two things are. There is a place for both, but we must not muddle them up too much. I believe that the principle of arbitration must be an integral part of a long-term policy, of a kind which will be accepted and respected by the parties directly involved and by public opinion. That will not be easy to achieve. The noble Baroness, Lady Seear, made some interesting suggestions in that direction.

I remember that years ago, when I was in the Government, we tried one or two experiments to see whether we could deal with the difficulty that, immediately the Government said what they thought was just, reasonable and right, it lost a great deal of force, because the Government were thought to be saying it in order to give support to their own economic policies. The last Government tried an experiment of that sort. But we must go on with those experiments until we find something rather more independent than Government pronouncements. We must gradually build up a body of individuals who will increasingly command the respect of the public for their independence and judgment.

I think, too, that some statutory action may be needed in the short term to mitigate the fantastic rise which, as a result of inflation, is occurring in the values of land and buildings. It know that this is extremely difficult but, apart from the other disadvantages, the ridiculous rate of increase is, psychologically, a disastrous handicap to the forces of moderation and restraint in industrial negotiations. It must be better to adjust the salaries of the higher levels—the chairmen of nationalised boards and people like that—at the same sort of intervals as incomes lower down are adjusted, so that we do not have these rather embarrassingly big increases presented which, as my noble friend has said, often cover two, three or even more years.

The crucial problem is to get a really constructive degree of co-operation between the C'.B.I., the T.U.C. and the Government. Each must contribute something. The C.B.I. has already contributed something, which has proved very valuable, in their 5 per cent. limitation which has been generally followed over the past year. I hope very much that if there is some comparable response from the unions' side the C.B.I. will be willing to continue that restraint. But I regret having to say that, to date, the unions do not appear to have made much of a constructive contribution. Is this because they do not want to do so, or because they do not have the power? I know that in these matters personalities count for a lot and the big unions have been exerting their full power.

Some of their leaders would have the nation believe that the Industrial Relations Act has destroyed fairness in industrial relations. Can this charge really be substantiated? I can imagine that Act being criticised for excessive complexity. I can imagine doubt being expressed as to whether its provisions will turn out to be effective. But by no stretch of the imagination can that Act be called an unfair piece of legislation. The original concept was nothing if not fair. It does not weaken the power of the unions in any reasonable aspirations. Throughout its nearly 170 clauses, it is riddled with appeals and safeguards to ensure scrupulous fairness. From my own very limited experience at the lower levels in industry, I have noted very little feeling of unfairness about this Act. So I submit that the allegation of unfairness must fail. Since its inception it has produced some new problems, but nothing remotely unfair. If it can be improved in the light of experience—and I was so glad to hear what the Prime Minister said about this —I am quite sure that the Government, and all of us in this House, will be ready to have another go at it.

LORD POPPLEWELL

My Lords, we accept the point of view of the noble Viscount, whom we all respect very much indeed, in saying that in his opinion the Industrial Relations Act is not unfair. In view of the fact that the vast majority of the trade union movement feel that this Act is grossly unfair because of the serious problems of inflation which the country now faces, would the noble Viscount, Lord Amory, agree that as an experiment it might be worth postponing completely the operation of this measure in order to win the good will of all sides in solving this difficulty?

VISCOUNT AMORY

My Lords, I am always ready to make some concession in order to secure goodwill. But the difficulty is that I am not convinced, in spite of everything that has been said by trade union representatives, that there is anything unfair in this Act. I shall always be ready to listen to arguments and to discuss this matter and, if I can be persuaded that there is anything unfair, not simply something that may weaken a trade union power which in itself was unfair—that is a different thing—I should be prepared to go along with the noble Lord, Lord Popplewell. If the Act can be improved let us improve it. In the meantime, it is a carefully threshed-out piece of legislation to meet a need; it is a modern legal framework within which free bargaining can continue. Unless we find something better I submit that the Act should remain on the Statute Book.

I hope the unions will try to match the contribution which has been made by the C.B.I. in an attempt to deal with the problem of rising incomes. Perhaps in the short term threshold agreements may offer some advantage. I have never been keen on them because by their nature they contain some built-in element of inflation. But all schemes have some weaknesses and it seems to me that threshold agreements may in the short term fit the practical necessities of the situation. The Government, in discussions with the C.B.I. and the T.U.C., must be n prepared to make some contribution in mitigation of short-term price rises. The object of the Housing Finance Pill, which concentrates on direct subsidies to those who are most in need, is a very sound one. But if it is found that with the general rise in rents which would ensue a postponement of the Act's operation for a short period would be valuable in order to prevent any further sharp rises in the cost of living, then I should have thought that that was something which might be worth considering.

In conclusion, may I say that I remember an article written by Mr. Samuel Brittan in the Financial Times last February in which he said that every age accepts the doctrines evolved to deal with the previous one and neglects the message most relevant to its own time? There is always some truth in that, but to-day without any question internal inflation remains our crucial national problem. It can be solved only by the efforts of the whole nation pulling resolutely together in the same direction. In the present circumstances the right policy must surely be that which is most likely to mobilise a united national effort. That seems to me to call for the burying of a number of political hatchets; and, if one buries a hatchet, it is a good thing not to mark the spot. I hope that we shall give our enthusiastic and unqualified support to policies that have as their primary aim the achievement of a combined national effort, regardless of Party.

5.25 p.m.

LORD BOWDEN

My Lords, we have heard from several of your Lordships already that inflation and industrial recession are inextricably associated. It is important to begin by emphasising that this is true. For many years there has been a process of inflation which has passed almost unnoticed. I refer to the tremendous investment that has been made in all kinds of things such as paintings and ancient silver. Anything that could have been bought and sold has been used as a medium of speculation during the last twenty years, in much the same way as General Motors stock was used in America until 1928. The speculation to which I have referred has come about in the last few years. It has been dramatic and has drawn our attention to a trend as nothing else could possibly have done, but it is only the culmination of a trend that has been going on since the end of the war. It is extremely important to realise that we have been engaged in much the same kind of speculation as preceded the crash in America in 1929, except that instead of speculation in scrip and General Motors stock we have been speculating in other things the price of which could be manipulated and would surely rise.

I come from a part of England in which the recession has never gone away. In the North-West of England housing is bad. We heard in a debate in your Lordships' House a year ago evidence that the amount of derelict land in Lancashire is higher than it is anywhere else in England. It is only too evident that the trade which made England great at one time is leaving Lancashire and that all the industries upon which for so many years our national survival depended are in a state of growing anxiety and depression. From 1961 to 1968 75,000 jobs disappeared from the North-West. In the single year from February, 1971, to February, 1972, 22,000 more people became unemployed. It is difficult to know which industry to emphasise. The textile trade is still suffering very acutely, particularly because of the increased imports of cheap cloth from overseas countries, but other trades have also suffered acutely.

I can remember a time when the trains of the underdeveloped world—Africa, South America and so on—were hauled by locomotive engines which had been made in Manchester. The factory in which they were made has been closed and the site is now being used for a housing estate. There has been a total collapse of what was one of our greatest industries. Much of the machine tool trade upon which in the end the whole of our industrial productivity depends was once concentrated in Manchester. Twenty years ago there were 25,000 people in the trade. By next September the number will have dropped to 500. This is a spectacular decline in an industry of enormous importance. There is no factory in England to-day in which a really large lathe can be made. We have lost the power to make the machines which make our factories possible.

Last week there was a great exhibition of the machine tool trade in Olympia. I hope that some of your Lordships were there. I went to it myself. It was an extraordinary demonstration of mechanical ingenuity, skill and enterprise. The trade has suffered more acutely than any other in the country from the recession of the last few years, which has been made almost inevitable by the attempts which the Government were making to try to stop the otherwise inevitable inflation. The great complex in Trafford Park, which used to be the proudest and probably most famous factory in Europe, had 25,000 employees in it ten years ago. The number has now declined to 6,000 or 7,000, and it is still going down. The research department there, which had 1,000 people in it, is down to a few hundred to-day. The place has lost its morale; it has lost its purpose; it may soon disappear.

My Lords, these are the contemporary facts of life as I see it in Manchester, and they give us furiously to worry not only about inflation but about the effects of remedies which purport to cure it but in fact cause a far more serious disease—that is to say, the disappearance of the industry upon which our prosperity depends and which, were it successful and prosperous, would undoubtedly prevent inflation from occurring at all. This is a curious phenomenon. We are attempting to restrict inflation, and thereby we seem to be destroying the industry upon which we depend far more than we depend upon the actual value of the money we have in our pockets. It is the goods we need; it is the manufacturers we need. We are losing the industries upon which we depend—and in the North-West, at least, far too many people seem to be becoming prosperous because the price of land in Wilmslow is rising so fast. This is not a stable situation; and it is not one which can long endure or is even in the remotest degree tolerable. It is perfectly natural that working men, seeing the fortunes that are being made by speculators in property, and in other things, should resent so bitterly that they themselves are not as prosperous as they should be and that the means of their livelihood are being destroyed by the remedies we take to prevent inflation from getting worse.

These are very serious things, my Lords, and I stress the fact that, as a country, we must emphasise the importance of our manufacture and the opportunities that young people will have. And, let us face it, my Lords: we are trying to create a world in which the young can grow up with confidence. What are they to do? Where are the young people to go? Where are our graduates to go? Where are the graduate engineers to go, from whom so much is expected and upon whose success so much depends? This is not the time to speak at length upon the problems of graduate unemployment, but I would remind your Lordships that something like 8 or 9 per cent. of all the people who graduated last summer were still unemployed last Christmas. I expect the situation will be worse this year.

Not only is there a considerable amount of unemployment, but the pattern of employment itself is changing dramatically. I think it is a sign of the times that I should be able to tell your Lordships that the three largest firms of chartered accountants in this country—Peat Marwick & Mitchell; Price Waterhouse; and Coopers—recruited more graduates than the two largest and most important of all our scientifically based firms—namely, I.C.I. and I.C.L.—put together. There cannot be a more extraordinary commentary on the way in which our country is growing than that we should be recruiting more accountants than we should be recruiting chemists, electrical engineers and mathematicians into these two great firms, in whose hands so much of the technology of the country rests.

LORD SHACKLETON

My Lords, may I interrupt my noble friend? It is a striking fact that he has just told us. Has he the figures for I.C.I.?—because I always understood I.C.I. to be ahead of almost everybody in this country in the matter of recruitment of graduates.

LORD BOWDEN

I can quote last year's figures from memory, my Lords. For several years I.C.I. recruited between 580 and 700 graduates, and I.C.L. recruited 493 last year. This year, I.C.I. recruited about 130 and I.C.L. about 50. Each of the three firms of accountants recruited about 110. So in fact I.C.I. and I.C.L. together recruited very many fewer graduates than three large firms of chartered accountants. If in fact British industry collapses through lack of modern technology, we shall at least know in detail what is happening to the financial books of the companies as they go down.

Now, my Lords, there are many things in which accountants are involved, and I should like to mention one of them which has not been referred to so far this afternoon. That is the extraordinary effect of inflation on the system of book-keeping which a firm must use if prices are constantly rising. This is a matter of enormous complexity, and I will content myself with saying merely that unless the books are properly cast it is entirely possible for a firm to distribute its capital as dividends because it constantly values its assets more and more highly in a manner which is prescribed by law. This problem will not be solved unless and until the fiscal policy of the Government is specifically designed to cope with the inevitable consequences to the books of a company of a steady rise in the book value of fixed assets and a constant amount of stock and work in progress.

We have seen over a period of twenty years that the relative position of this country, in terms of its national product, has declined with respect to other countries, both those inside and those outside the Common Market. We have seen, for example, that the national productivity of Sweden, outside the Common Market, the national productivity of Germany, inside the Common Market, and the national productivity of Japan have all enormously surpassed our own. For many years I have compared as best I could the way in which we have spent our money. We are spending less money on roads per head of the population than most of the countries of Western Europe. We are spending less on all sorts of things which one would imagine to be crucially important to the success of the community. But there is in the Budget one particular item on which we have consistently spent more than other countries, and this, I believe, may be significant. In 1953, the noble Earl, Lord Avon, who was then Prime Minister, negotiated in Germany to pay a major contribution towards the cost of the Rhine Army. For a period of many years—almost 15 years, I think—as long as we maintained both a Rhine Army and our presence East of Suez, we were spending across the exchanges a sum of money of the order of £400 million or £500 million. It is worth remarking that this was equal at the time to the total value of the export sales of the British motor car industry, which for so many years has been our single largest earner of foreign exchange.

To-day we are no longer East of Suez. Last year, the total cost of all our overseas commitments for the Armed Forces was of the order of £300 million, of which the Rhine Army cost about a half. The total value of the export of motor cars last year was about £500 million, so at last we have reached the stage at which the motor-car trade itself can pay for the cost of the Rhine Army and all the other military commitments abroad. But we have been paying this money across the exchanges for nearly 25 years. and it is very difficult to compute what it has really done for the economy of this country and for the economy of Germany. Germany, for the first time since the reign of Henry VIII, has a higher gross national product per man than we have, and the change has all come about in the last 25 years. One must ask oneself very anxiously whether this is one of the primary sources of their relative prosperity and our relative poverty. To the extent that we have been obliged from time to time to engage in various processes designed deliberately to cut down demand in order to save foreign exchange, it is evident that this enormous contribution we have made across the exchanges may have had an importance far greater than the actual sum itself might suggest. It is a very dramatic and remarkable thing to do, to devote almost the whole of the current production of our largest single industry to one particularly significant item, the Rhine Army and our other military overseas commitments. It is so much greater a contribution than that of any other country in Europe. Europe has benefited, at our expense, throughout the whole of this time.

It is also true to say, when we look at the expenditure on research which this Government undertake, and categorise it according to the purposes for which it is intended, we find that we are spending a larger proportion of our total research Budget on matters connected with defence than any other country in Europe. It is evident that if Germany and France are going to trade with Europe, we are aiming to defend it. It may be that this is right; but we must be aware of the price that we are paying.

Finally, my Lords, I come to the events that we must face in the very near future. We are going, so we are told, to join the Common Market. The cost across the exchanges for supporting the Common Agricultural Policy has never been accurately assessed by anybody, but I believe it to be of the order of £500 million or £600 million a year. I have never heard a definitive statement which is not substantially in agreement with that figure. This suggests that the total output of the motor car trade, including both cars and spare parts, which contribute altogether about £900 million towards our balance of payments will be pre-empted by paying the costs of the Common Market and the costs of our military commitments and expenditure across the exchanges.

Had we been able to join a common customs union, as in 1959 we hoped to do (and as we should have done had it not been for General de Gaulle), we could take every car that we sell abroad and give it to a French farmer and still be in pocket. We are committing ourselves to enormous payments across the exchanges, payments which tax the economy of the country more than anything else. We have to sell some vendible commodity to compete with the rest of the world in a market which is resistant, and growing resistant, to all the attempts to do so. We are going to be in a position in which almost the entire efforts of our biggest industry will hardly suffice to pay for the cost of the entry into the Market. I hope we realise the price we are paying. I hope that someone believes that the political advantage which will accrue will be worth it—because unless it is, we cannot afford it, and inevitably the decline in British trade which has been going on for 20 years and which is largely attributable to costs incurred across the exchanges will become worse rather than better.

5.45 p.m.

THE EARL OF DUDLEY

My Lords, it is not often that I find myself able to agree with a speaker from the Benches opposite. I do not intend to follow the noble Lord, Lord Bowden, down the path of regional development and employment which was a most valuable contribution to this debate, but I agree with him that the very large and substantial payments that we have to make every year, particularly for defence, across the exchanges, is one of the major factors leading to the balance-of-payments difficulties with which this country is faced from time to time. This has been the experience of previous Governments as well as of this one. It is nothing new; but I agree with the noble Lord that it is a constant menace to our balance of payments and to the pound.

I had better crave the indulgence of the noble Lord, Lord Beswick, while I am still able to get it. I must apologise to him, to the noble and learned Lord the Lord Chancellor and to the noble Lord, Lord Shackleton, for I have for some time been committed to an engagement later this afternoon and will be unable to hear the winding-up speeches.

If I have to give offence to one party or another, I feel it right that the offence should be given to those who have the first claim in point of time. I had hoped that the noble Lord, Lord Beswick (who has just left us), would be constructive. Goodness knows! that is the attitude we need from the Opposition. But the noble Lord, like a garden roller, levelled everything in sight; private patients, professional parents, company chairmen, M. Pompidou, foreign motor cars and, of course, the Government! Having swept this clutter on to the scrapheap, it is hard to detect whether he left anything of value in its place. Happily, the wasteland left behind him was amply landscaped by the noble Earl the Lord Privy Seal. Noble Lords were left with a more hopeful view of the future than that outlined by the noble Lord, Lord Beswick.

If I may continue the analogy, I suggest that the noble Baroness, Lady Seear, in an otherwise very thoughtful speech, went wrong when she put her hand to the plough. I am not personally a large landowner, but I would remind the noble Baroness that most large estates are an integral part of the farming industry and as such should be able to borrow on the most favourable terms. I do not know one owner of a large estate who would not gladly lay down his responsibilities as a proprietor and change his staffless castle for a labour saving cottage.

One thought very much in my mind last winter, and doubtless in the minds of many noble Lords, was the helpless- ness of the Government in the face of concerted industrial action. If a whole section of the community refuses to abide by the law what can the Government do?—Call out the troops? Most of them are in Northern Ireland or abroad. I cannot visualise a situation in which the army would be used as an instrument of industrial relations policy. If a general strike occurred, should the Government look to the white-collar workers or the managers to take on at the workbench or at the coalface or on the footplate? They may not co-operate. There are not enough of them, anyway, and not all of them have the requisite skills. The industrial scene is very different from 1926 and a much higher degree of technology is needed to keep the wheels of industry turning, a degree of technology well beyond the capabilities of amateur volunteers. The consequences of pushing confrontation too far could be calamitous: at best, bankruptcy; at worse, civil strife. Small wonder that successive Governments time and again draw back from the brink. These considerations must influence policy and must loom large in Ministers' minds when considering the Options open to them in their present difficulties.

During the past year, relations between the Government and the T.U.C. have been unusually brittle. Industrial relations in both the public and private sectors were embittered by the miners' strike, the railwaymen's "go-slow" and the dockers' dispute. There were serious consequences. The Government's incomes policy, which seems to me to have been a policy not of confrontation but of persuasion, took a beating. This undermined confidence in sterling at a time when our reserves were still strong and caused the recent flight from the pound. With hindsight, the parity of 2.60 dollars was unrealistic and untenable and should not have been accepted even under pressure. Now it has been abandoned in favour of the floating pound. Here I agree with the noble Lord, Lord Robbins. I am not one of those who view with equanimity the decision to float or the continuing fall in the pound's exchange values. I believe the pound will remain weak until there is a workable agreement on prices and incomes or there is increased output or a freeze. Noble Lords must welcome the Prime Minister's initia- tive to conciliate the T.U.C. and brighten the climate.

My Lords, all parties to the negotiations should strive for their success. The T.U.C. have a duty to their country as well as to their membership. It really is high time that they laid aside their policy of non-co-operation with the Government and of political antagonism. Ideally, politics should be taken out of industrial relations so far as possible, but the interaction between the two is a fact of our national life and we have to learn to live with it, undesirable though it may be. Over the past year, the intransigence of labour and of its industrial and political representatives has known no bounds and has brought us at least once very near to a complete breakdown of our social fabric. I do not believe that the majority of the British people are deceived by these antics. The T.U.C. and their supporters among the Opposition will do immeasurable harm to themselves unless they respond to the new initiative with concessions and with constructive and reasonable proposals.

The T.U.C.'s policy of non-co-operation was at the heart of the failure of the Government to maintain the value of the pound and so an improvement in industrial relations is essential for safeguarding the value of money. Noble Lords opposite must not assume that by saying this I support the Motion of the noble Lord, Lord Beswick. The wording is, of course, plausible. It charges the Government with having failed to maintain the value of money; it refers to the consequences alleged to flow from that failure; to the effects on employment, on growth and on morale. But I hold no brief for the Motion—indeed I utterly reject it, because, as I have said, it follows upon a massive and sustained campaign by the right honourable friends of the noble Lord opposite, and many of their comrades, which has undermined the Government's efforts to keep inflationary pressures under control.

LORD SHACKLETON

My Lords. may I interrupt the noble Earl? If I may say so, I think it is contrary to the custom of this House for a noble Lord to make a speech such as the noble Earl is making and then not be present to hear the later speeches, even though he apologises for not being able to do so.

THE EARL or DUDLEY

My Lords, if it is contrary to the custom of the House, I will, of course, be here at whatever peril to my ease of mind.

LORD SHACKLETON

My Lords, the alternative is for the noble Earl to make less provocative remarks.

THE EARL OF DUDLEY

My Lords, I would prefer to think that they are appropriate rather than provocative. One thing I shall spare noble Lords opposite. I shall not take them to task for their past mismanagement; too much water has passed under the bridge. But in view of the Government's reluctance to legislate on prices and incomes, because of their patience under great provocation, it is illogical for noble Lords opposite to point the finger of scorn at the Government's economic policy. I understand that Ministers are still of a mind to find voluntary solutions for prices and incomes rather than to legislate. After their own experience, noble Lords opposite might also doubt the efficacy of a freeze. I admit that I am in two minds myself about whether the time has come for legislation.

I have made inquiries as to the success of the C.B.I. voluntary agreement on prices and I should like to enlarge on the remarks of the noble Viscount, Lord Amory. The facts seem to me to be of great significance and very little known. First, the agreement has been strictly adhered to by about 60 per cent. of industry and within that wide area increased costs have been largely absorbed by industry at considerable sacrifice and with great restraint and self-discipline, as is revealed by the C.B.I.'s monitoring arrangements. Secondly, the ripple effects have been felt throughout almost all of industry and is reflected in lower prices. The net effect has been to contribute well over 1 per cent., possibly nearer 2 per cent., of the reduction in the rise in the index of retail prices which has gone down over the past year as we have heard from just over 13 per cent. to under 7 per cent. In monetary terms this reduction could be of the order of £500 million.

My Lords, this restraint has been at the direct expense of the shareholding side of industry while the wage earning side has been exploiting its strength to gain as much as it can, aided and abetted by the friends and comrades of noble Lords opposite. It will be remarkable if, having already borne so much of the extra cost and in the absence of concessions from the T.U.C., the representatives of industry in the C.B.I. are able to see their way to renewing this agreement.

LORD SHACKLETON

Hear, hear!

THE EARL OF DUDLEY

In considering these voluntary arrangements, I listened with interest to the wise remarks of the noble Viscount, Lord Amory, and should like to remind him of his words when he spoke on Lord Beswick's Motion last year. His great experience in these matters led the noble Viscount to say: Not, my Lords, a wage freeze; I am not suggesting that. That is something very rigid which may be necessary in an emergency, but which really does not help you by itself along the road."—[OFFICIAL REPORT, 23/6/71; col. 909.] The noble Viscount went himself rather further along the road to-day and, I think, received considerable support from your Lordships.

VISCOUNT AMORY

My Lords, if I may interrupt the noble Earl, what he said is perfectly correct, I have no doubt. But what I said to-day was that I did not myself believe in the value of a literal wage freeze; that is to say, an absolute freeze, unless for a very short period in order to work out the implementation of a policy already agreed on. Then I went on to envisage the necessity, perhaps, of other forms of control.

THE EARL OF DUDLEY

My Lords, I fully accept that the noble Viscount was putting the thought forward purely as a temporary expedient. I find myself somewhat in the position of a traveller in a railway train who, faced with a possible catastrophe or a fine of £25, wonders whether it is an emergency and whether to pull the communication cord. The C.B.I. are dead set against a statutory price freeze; the T.U.C. are bitterly opposed to a statutory wage freeze; the Government do not want to impose a prices and incomes freeze. But what else will convince the rest of the world that we mean business and are determined at all costs to reduce inflationary pressures? The Government will have to make substantial concessions to get a workable and credible agreement with the T.U.C. and may have to scrap parts of the Industrial Relations Act. Because of the need to improve industrial relations, a workable agreement would be worth the price, but the terms should be weighed very carefully against the alternative of a prices and incomes freeze, for a limited period only, to give time for more flexible long-term arrangements to be negotiated. If there is a freeze it must be across the board. Justice must be seen to be done and the sacrifices fairly shared.

Some noble Lords may say, "What about growth?" I have always understood that the aim of growth was to improve the real standard of living of the community. If growth can be achieved only at the expense of falling monetary values, then it seems to me that we must re-examine and re-assess the desirability of growth. I was rather surprised by the warm reception given in the Press and elsewhere to the Chancellor's order of priorities as between growth and stable exchange rates, because it seems to me that if you have an increase in the gross national product of the order of 5 per cent., which then becomes worth 7 per cent. less in terms of the raw materials or foodstuffs which the nation can buy with the addition to the G.N.P., this becomes rather a self-defeating exercise.

The Prime Minister has said that the stability of the pound, as of any currency, is threatened by large scale capital movements. I thought that the swap and other arrangements were designed to take care of this problem. But if its dimensions have outgrown the mechanics of dealing with it nationally, then surely this must provide a strong argument for accelerating the pace of a European monetary union. A European monetary unit and a strong integrated European monetary and economic system would constitute a more acceptable depository for the flow of international funds and a more powerful defence against their ebb. Not all noble Lords will relish this argument, nor the corollory that a more closely united and unified Europe would be helpful for industrial relations. Although trade unionism would be likely to Europeanise itself—because Europe will he multi-lingual and highly developed regionally—industrial relations would tend to be regarded as a practical rather than an emotional or emotive problem.

Take the heat out of industrial relations and you will go a long way towards restoring business confidence. It is this which, in the long run, governs the level of employment, which dictates the percentage utilisation of productive capacity and the additions to it. And it is with the effect on confidence in mind that I must finally—I do not like using the word, but I am going to use it—castigate the Government on one aspect of their most recent measures to float the pound. I refer to the exchange controls imposed upon the sterling area. This is one freeze that is not necessary. Social justice does not demand it, and if short-term expediency required that the floating pound be accompanied by reduced portfolio investments within the scheduled territories, then this could have been achieved, as before, by voluntary agreement, which worked successfully in the past. These sort of measures, imposed hastily and without any reasoned explanation for them, undoubtedly impair business confidence, especially among the banking community and financial institutions, who make such a massive contribution by way of invisible exports to our balance of payments.

I have seen it suggested that capital movements and portfolio investments within the sterling area are not compatible with entry into Europe. But for heaven's sake, why not? The European Economic Community is not a blockaded Napoleonic continental system. There is nothing incompatible with the Treaty of Rome, its regulations and directives, in the free movement of capital or portfolio investment in other countries outside the community. So what logic has led to this potentially damaging decision? I should like to know. I am sure noble Lords would like to know; but, as I shall not be here for the noble and learned Lord the Lord Chancellor's speech, I shall not be so impertinent as to suggest that the noble and learned Lord give the House some information.

Finally, may I say this to my noble friends. The argument whether wages put up prices or whether price rises encourage wage demands is rather like that about the chicken and the egg. But there are two sensitive areas which greatly influence the scale of wage demands—housing and food. These are very difficult problems. Market forces are distorted by Government policy. The availability of land for housing conflicts with environmental priorities, and food prices, now benefiting from reductions and from the 5 per cent. restraint exercised by food processors, are likely to rise again following entry into the European Community. The Government's incomes policy must be helpful about housing and food irrespective of costs. I look to Ministers to devise methods compatible with E.E.C. membership whereby help can be given not only to those in need but to the large body of wage earners generally. Satisfaction in these areas is one of the main criteria for the unified society to which the noble Lord referred in his Motion, and to which we on these Benches consider ourselves pledged.

6.4 p.m.

LORD BOOTHBY

My Lords, to my surprise, I agree with almost everything that the noble Earl, Lord Dudley, has said. I agree with him about the sterling area and in deploring the word, "confrontation". For the last few weeks and even months there has been all the time in the Press the use of the word "confrontation" in regard to the relations between the Government and the trade unions. That is most unfortunate, because it can only end in disaster. The trade unions have already proved that they are too powerful to be confronted. They must be co-operated with, and my plea on the long term is for co-operation and not confrontation.

But there is a deep, long-term problem here. Beneath the glittering apparatus of modern science and industry there remains a human problem as yet unsolved. Far too many of the workers in this country, in other industrial countries in Western Europe and in the United States (but less so, there), feel that they are powerless cogs in a gigantic machine which is growing all the time. The man who first saw this problem was Walther Rathenau, who was Foreign Minister of Germany in 1922, and who was assassinated. He saw the whole problem in two small but remarkable books, one called In Days to Come and the other The New Economy. He was a very remarkable man. Had he lived, there would have been no Second World War, but he was killed. He saw it all. He saw this human problem quite clearly in a way that only a German could do. He was a multi-millionaire tycoon, and yet he really saw the need for a classless society in which the workers had real responsibility.

In one of the most remarkable essays he ever wrote, the late John Strachey who was a great friend of mine, in his last book called The Strangled Cry, wrote a passage about Rathenau which deserves looking up. Indeed, Rathenau himself deserves looking up. He was the original exponent of rationalisation. He rationalised German industry after the First World War. He was a director of about 83 companies. He said: The modern State consists of a multiplicity of semi-autonomous States enjoying a considerable measure of independence, but individually and collectively stunted because they lack a foundation in the. soil of the people. The industrial plant has become a basic economic unit, but is not yet an integrated social institution, based either on property rights or on any established democratic system. He also said: Workers must be given status, function and personal responsibility. That has not yet been done. This is a long-term problem which will take a long time to solve. With all these disputes and arguments that are going on about wages, earnings and incomes, I feel that the workers still do not feel that they have a sense of personal responsibility in the industries in which they are concerned; that their own personal interests are not really involved in the prosperity of the industry in which they are engaged. This is a long-term problem which will have to be worked out before we get it right.

I am going to be very brief, because this is a long debate and there are many speakers, but there is one thing I want to say. When I was Rector of the University of St. Andrews in 1959, I delivered an address to the Conference of Management Relations which held its annual meeting there. I said that we ought then to set up a national economic council (not too large) comprising the Government, the C.B.I. and the Trades Union Congress, to give a purposeful, strategic direction to our economic policy. In other words, a national prices and incomes policy, subject to the ultimate control of Parliament, with statutory powers as necessary. It is an enormous pity that we not only failed to do that but dismantled—this Government dismantled—whatever national councils we had. That was an enormous mistake. It is a mistake that we have no council of industry in existence in this country consisting of the C.B.I., the Government and the Trades Union Congress which could meet constantly and make reports to Parliament, with statutory powers given to them as necessary, and devise a prices and incomes policy, always subject to ultimate Parliamentary control. I beg the Government to reconsider their decision to abolish all these "Neddies" and various committees that have been set up, and to reconstitute on a new basis, with adequate statutory powers, a true National Economic Council containing representatives of the Trades Union Congress, the C.B.I. and the Government.

Psychology enters into this subject to a certain extent. I cannot help feeling that this was an unfortunate moment to introduce the Boyle proposals for the increase of salaries and pensions for Members of Parliament and at the same time the heads of nationalised industries to what appear to the public to be astronomical heights. They are not astronomical, of course, because taxation makes nonsense of them; but the public think they are. The workers read the papers and see that Mr. So and So, Sir Somebody Else or Lord Somebody Else is getting £30,000 a year; and they think he is getting £30,000 a year, when he is probably only getting about £4,000. They do not realise this. Psychologically it is all wrong. It was not the moment to introduce these huge increases in salaries and pensions for Members of Parliament or anybody else. I have good reason to complain about this because I get no pension of any kind and this was not altered by the Boyle proposals.

There is a second point I want to make and it is this. The land and property racket in this country should be smashed.

LORD DAVIES or LEEK

Yes, smashed to smithereens.

LORD BOOTHBY

It is becoming absolutely outrageous. This will require legislation, and I was delighted that the Minister responsible hinted that legislation would be carried through if necessary. It is becoming an absolute outrage. The only thing to do is to pass legislation to stop this racket, and then to build more houses. Sir Oswald Mosley, of all people, described it the other day as an operation of war to build more houses for the people of this country". Not for the first time in his life Sir Oswald Mosley was right. I am not suggesting that he should be recalled to the Government of this country, but I do say that sometimes he is quite sensible.

I come now to my last point. On March 12, 1969, I ventured to address an Unstarred Question to your Lordship's House, I suggested then that the price of gold should be doubled. I was brushed aside contemptuously by the noble Lord, Lord Beswick, who said that we wanted to get gold out of our system altogether; that it had no part to play in the future international currency system, and the less that we heard or saw of gold the better. I can tell the noble Lord that since then I have bought twelve gold sovereigns, and I have not regretted it. He said that the price of gold was going to fall, and I said that it was going to rise: in fact it has doubled. But who has gained from it?

SEVERAL NOBLE LORDS

You have.

LORD BOOTHBY

I have gained about £10. But the United States have gained absolutely nothing. If they had doubled the monetary price of gold then there would have been no world currency crisis and we should not have had a currency crisis in Europe: all our reserves would have been doubled overnight. The people who might have gained, I agree, would have been South Africa and the Soviet Union. Why not? If you bring greater prosperity to these two countries you will probably be bringing greater political alleviation and less political tyranny. I cannot, for the life of me, see why, with the gold reserves that they still hold, the monetary price of gold is not raised to the level of at least 70 and probably 80 dollars an ounce. The free price of gold has practically risen to that amount.

LORD DAVIES OF LEEK

My Lords, it is 60.

LORD BOOTHBY

It is over 60. It is no good pretending that gold is out of the picture. The public all over the world trust gold. It imposes some sort of discipline on the kind of inflation that we face to-day. If currencies are made convertible into gold at the right price, at a realistic level, then there is some kind of discipline. There is no discipline of any kind at the moment. What did we do last week? We devalued the pound effectively by about 7 per cent. by saying that we would float against nothing, and make it convertible against nothing. That, apart from destroying the sterling area, has done no good to us or anybody else; and has made our entry into the Common Market more difficult. I am well accustomed to this, my Lords, because I have been watching the Treasury (I know that the noble Lord, Lord Thorneycroft, is anxious to spring to his feet very soon to defend the Treasury) for nearly 50 years. I have seen them reel from one disaster to another. I have seen them make one crashing mistake after another, beginning with the return to the gold standard at the pre-war parity of exchange—which was the wrong parity of exchange—in 1925. That led to massive unemployment in this country, to a prolonged coal stoppage and, incidentally, the General Strike.

The Treasury can never be counted on to do the right thing. I derive a certain moral strength and courage from that fact, because I feel that if this country could survive the Treasury for the last 45 years, it must have the most tremendous underlying resilience of courage and strength. It has had to fight the Treasury for 45 years, and, my God! it has fought it. It has not completely won through, because nobody can win through against the Treasury; but it has survived. That, as I say, gives me a tremendous inner courage. I do not think I have anything to add to that remark, except that three days ago I had a letter from one of our leading merchant bankers saying: I see that you have attacked the Treasury again, and it reminds me of a speech you made about seven or eight years ago. How right you were then. Can I have a copy of it? I wrote back to say: I am very sorry but it is difficult to answer your letter, because I have been attacking the Treasury for 45 years without cessation. I must have made about 170 speeches on the subject, and I do not know the particular one to which you refer. I feel that the Treasury must now, before the meeting of the International Monetary Fund in September, press upon the American Treasury the desirability of raising the monetary price of gold, which would relieve the pressure on all of us. I feel that they ought to push for that. I felt three years ago that it would be the right thing to do, and I feel more strongly than ever that it would be the right thing to do to-day.

LORD BESWICK

My Lords, since the noble Lord attacked me so bitterly, and said that I referred to his speech with contempt, I think I ought to call his attention to the fact that the most telling part of my speech was a quotation from a speech which the noble Lord made attacking our return to the gold standard.

LORD BOOTHBY

No, my Lords. I attacked our return to the gold standard in 1925 only because it was at the wrong parity of exchange. It was a ludicrous parity and did not make sense. I asked then, and I ask now, for a realistic price for gold. I say to my noble friend that he will never get away from gold, however hard he tries, and he had better go out and buy a few gold sovereigns as quickly as possible, because it is the best investment one can get to-day.

6.20 p.m.

LORD THORNEYCROFT

My Lords, it is always a pleasure to follow the noble Lord, Lord Boothby, and I think that his emphasis on the factor of co-operation is a sentiment which has attracted the good will of both sides of your Lordships' House. If I had to name one other factor that I would just at this moment and in the months ahead place higher in this country, it would be leadership. Leadership is perhaps necessary if we are to get the co-operation that is necessary.

LORD BOOTHBY

Hear, hear!

LORD THORNEYCROFT

It is customary on these occasions—and indeed polite—to thank the mover of the Motion for the opportunity of having a debate. This I certainly do. The noble Lord has chosen a difficult subject: the erosion of money values. We are all against the erosion of money values, just as we are all against sin; but most of us—and I except the Bench of Bishops—tend to practise sin while opposing it; and it is the same with money values.

I cast no reflection on the quality of the earlier speeches, but for me the debate really started with the speech of the noble Lord, Lord Robbins. I thought it was a remarkably telling and pertinent analysis of the problems confronting this country. I thought that he struck the note of gravity with which we ought to be approaching this subject at this time, and if I had to ask one thing above all others of the noble and learned Lord the Lord Chancellor when he replies to this debate, it is that he will reflect the Government's real and deep anxiety of the scene which confronts us at this moment. We have a floating pound: no doubt it was the right decision in the circumstances in which we were placed; but let no one under-estimate the perils which face not only us but our friends in a situation of uncertain currencies, with the pressures that are confronting us, and the obstacles which have been created for the policies which all of us are seeking to pursue.

I am no great lover of contemporary political biography. I always think that the life of one man—any man—is too slender a theme on which to hang the history of his times; and if one looks hack at the events of one's own life I think the most one can do is to choose events as a series of pegs upon which to hang a few random thoughts. I did once resign on the issue of the value of money.

SEVERAL NOBLE LORDS

Hear, hear!

LORD THORNEYCROFT

The reasons for which I did so are now quite irrelevant, and whether I was right or wrong is quite irrelevant. But what is relevant to-day is that the emotions, the passions, the jealousies, the stresses and the strains remain very much the same to-day as they were then, and so do the difficulties of facing these issues. Then, as now, a minority—and, my Lords, I still believe that perhaps it is a minority though I wish it were not—thinks that the erosion of money values matters. A minority—perhaps a powerful and, I hope, a growing minority—views, with something of the distaste which Lord Robbins expressed, the injury to the weakest sections of the community which flows from an inflation of this character. A minority—perhaps an influential ono—sees the real danger to the future of a great country if we allow the value of our money constantly to be eroded. But, my Lords, it is not a very great minority and it will require a tremendous effort before any Government can really convince the people of this country that the value of money is in fact the first priority in the policies which they are pursuing. I have been a Member of Governments and I think this will be the first Government which have ever really convinced the country that that was a first priority.

The noble Lord, Lord Beswick, moved his Motion and produced his arguments with that elegance and in the rational manner to which we are accustomed; but no one really comes to a debate of this kind with clean hands. It is difficult to think of any factor which promotes inflation which he or his Party have not at some time supported, or of any measure to dampen it which they have not generally opposed. That goes for wage settlements, for the rule of law in industrial relations, for most of the social reform policies which have been introduced. There was a moment under the Labour Government when I thought that the Labour Party were going to make a supreme effort to get control of this situation: and that was at the moment when Mr. Wilson with, let me say, immense political courage, and with Mrs. Castle at the Department of Employment, decided to go to the root of the trade union problem. Here at last, bravely and obviously, was a commanding height of the economy, and Mr. Wilson marched the Party up and then he marched them down. That was one of the saddest episodes in British political history in recent times. For my part, I had rather he had not marched them up than to have taken them there and then shown himself in full retreat.

I have many weaknesses, and one of them is a personal affection for people on the extreme Left in politics. I have known Mrs. Castle and Michael Foot, for example, all my life and have a great personal regard for them. But if ever there was a moment when a Minister should have resigned, that was it. She could have resigned then. She could, without attacking either her Leader or her Party or, for Heaven's sake! even supporting the Tory Party, have struck one blow for what was right in political life. It seems to me it was that failure at that moment of the Labour Party to do the one thing which the British public had always looked to the Labour Party to do—to be able to take control of a large section of the society with which they were in the closest possible contact—from which have stemmed, I think, many subsequent disasters.

What is wrong here and what confronts us now is not, I think, simply the level of wages, because wages are very high in many countries. It is a real doubt in the minds of those who are watching us as to where power really lies. It is a real doubt as to whether the Government—any Government—have sufficient control of the situation to be able to grapple it. It is a judgment: that is what this value of the currency really is. It is a judgment from outside of what inflation levels are going to be. There are many factors in it. There is the money supply which the noble Lord, Lord Robbins, spoke about—and I will not repeat what has been said—which has increased by 23 per cent. But, above all, there are two crushing defeats of the Government by two unions: those of the coal miners and the railwaymen. It is not the money that is paid; but it is very difficult for a Government to remain credible in this field if they suffer defeats of that character. It seems to me that the Government are now faced with some kind of moment of truth. They must either demonstrate an ability to negotiate (Heaven knows! I am not being critical here, because I do not think any other Ministry or Minister has succeeded in doing it), which does not seem to be very obviously present in the Ministry of Employment and Productivity, or they must have some kind of a wages policy.

One noble Lord after another in recent months has begged the Government not to go on saying that they will not have a wages and incomes policy. I would ask the noble and learned Lord the Lord Chancellor at least not to say again that they are not going to have a wages and incomes policy, because it is becoming so obvious to almost everyone outside the Government that we are going to have a wages and incomes policy, although for decency's sake we may call it something else. But it is going to happen and it is going to be forced upon us by the pressure of events outside this country, let alone anything that comes inside.

I do not speak for the Confederation of British Industry. I know that the C.B.I. will do its best. I know that industrialists will stagger on somehow with restraint. They will do virtually anything to help in this situation. But we cannot expect industrialists somehow to run a prices policy on their own for ever—it would be a wholly unreasonable and an impracticable course to take—any more than we can ask the T.U.C. to fix wages. It is not for lack of good will. Mr. Feather is one of the most patriotic and sensible and kindly men there are in this country, and he would do anything he could to help, but he has not the power to fix the wages of this country. And if you put the C.B.I. and the T.U.C. together, that is not a solution to our problem. What rather worries me sometimes is the thought that there is a kind of atmosphere that it is all going to be all right so long as you get the T.U.C. and the C.B.I. to talk together. My Lords, it is not all right. This is only a smokescreen—it may be a very respectable smokescreen, but it is only a smokescreen. And it would be a very dangerous one if behind that smokescreen the Government were to use the opportunity of pursuing a policy of inertia. So I would beg the noble and learned Lord the Lord Chancellor, when he replies, to look through the smoke and the haze, and to face the realities, of this situation.

That was done by the noble Lord, Lord Robbins, and, I observe, was done by the noble Lords, Lord Plowden and Lord Roberthall, who are not speaking in this debate. But both speak with great authority. Lord Roberthall was my own economic adviser when I was in the Treasury. Perhaps noble Lords will forgive me if I read just a short extract from a letter they wrote to The Times on June 27: It has become increasingly clear from 1947 onwards that we can only curb inflation and maintain high levels of employment if public opinion is in favour of this: and that public opinion in this area is powerless without a strong lead and resolute action from the Government itself. The essentials of a programme are what they have always been. First, a statement of what the Government wants, in the form of a norm for wage and price increases: second, some machinery for dealing with obvious hard cases, since public opinion will not for long support a policy which is thought to be clearly unfair: and third, a willingness to take resolute action, however inconvenient, against those who refuse to stick to the rules. That sums up the case of those who stand for that kind of policy. Of course, there are dozens of different ways in which this issue can be approached. I am not going to bore the House—I have not the intellectual capacity—by outlining all the Hungarian solutions, and the rest. They are all bad solutions. Let us face it: they are all bad solutions, but they are better than having no solution and sitting there and doing nothing and hoping that somebody else might conceivably do it for us.

The Government have great things to their credit. The basic state of the economy is still sound. The balance of payments is in balance. The Industrial Relations Act is on the Statute Book, and will in the long run prove of great advantage. The average settlements are not as high as these great, sensational ones would lead one to suppose. Productivity is rising. We are moving into Europe. We have very substantial reserves. We have a fine record in taxation policy, and the rest. This is a country of which anyone could be proud, whose currency should be standing high to-day. But it will not stand high so long as men outside this country have no real faith in the capacity, or even, I am afraid, sometimes in the will, of the Government to tackle the principal problem that is within it. I know that in order to do that they may have to do (but they will not be the first Government to do it) some things which, on the whole, they have on previous occasions advised against. A public is very willing to forgive a Government for eating a few words. The public is not concerned with that. It is concerned with success and a willingness to tackle difficulties.

My Lords, I would say only this in conclusion. I realise that here in this country we are living in an age of great difficulty. We are moving from a low wage, low productivity, cheap food kind of world into a high wage, dear food and, I hope, high productivity kind of world, and change of that kind is immensely complicated for management and immensely painful to everybody including workers. I recognise that to win through you must show more than toughness; you must show a real understanding of the anxieties of men. I can understand the anxieties of dockers who see the whole basis of their industry being altered through technological changes, or of coal miners who, seeing the new forms of energy about them, are anxious to wring from their industry, or what is left of it, everything they can. These are not things one condemns; they are understandable. But in that moment of change within this country, outside the strong unions or even the great industries, there is an England that is really weary of double-talk; which is anxious to face the facts, and it has no other Government to turn to.

6.39 p.m.

BARONESS GAITSKELL

My Lords, it is a real pleasure to follow the noble Lord, Lord Thorneycroft, to-day because, although I do not agree with everything he has said, I agree with a surprising amount of it, and I found his speech absolutely stimulating. I intervene in support of the Motion of my noble friend Lord Beswick, who has made the usual outstanding speech we have come to expect from him—a summing-up of the Government's balance sheet on this, their second anniversary. I also listened carefully to the speech of the noble Earl, Lord Jellicoe, the Leader of the House, delivered with his customary grace. But I was saddened by the gulf in understanding between us.

I am not going to stray into the realm of what I always feel is science fiction—namely, international finance and monetary arrangements. It is difficult enough for me to find my way among the percentages and rates of increase; and here I must take issue with the noble Earl the Leader of the House about the rate of the rises in prices. It may be that the rate of the increase in prices was faster under the Labour Government in the last month of its office, but the prices were a good deal lower than they are to-day and therefore I take no comfort at all from the rates of increase which we have had.

The Government took office, dizzy with success after their victory in the Election, and immediately proceeded to divide the nation by wielding the big stick against the trade unions during the power strike, and then followed it up by introducing the Industrial Relations Bill. But the big stick is not a magic wand which waves away bitterness, and the trade unions got the message. The word "inflation" sounds like the beat of the tom-tom of the Tory Government, and all the effects of inflation on our economy have been put down to one cause, and one cause only—high wages. The Ministers have proclaimed this, and the Press have echoed it; it has reverberated round the country. But the really reprehensible statement about inflation was the follow-up statement that inflation hurts all of us and that no one gains from it. This of course is absolutely untrue and plain for all to see. Inflation hurts the lower income groups most, and the people with shares and property thrive on it. The only protection for workers against inflation is to demand higher wages. We watch powerless while speculators in housing are having a bonanza. This has been referred to time and again in this debate.

Mr. Peter Walker, the Secretary of State for the Environment has, rather smartly, drawn some of the fire from many of these speculators by underlining the scandal of empty Centre Point. As a matter of fact it was my noble friend Lady Phillips who started the ball rolling when she referred to Centre Point as "the most expensive dogs' home in Britain", and she deserves the credit. It is outrageous that Centre Point has remained empty for so long in a time of great housing shortage. It is inexplicable that no Government during the last six years has tried to deal with it by legislation. But there is something unsavoury about the way in which Mr. Harry Hyams has been made a scapegoat. He has done nothing illegal; in fact he has been operating according to the capitalist rules to which the Conservative Party are dedicated. There are many more friends of the Conservative Party who are behaving in a way which is socially harmful and undesirable.

As if rocketing food prices were not bad enough, the Government have followed the Industrial Relations Act with the Housing Finance Bill to increase the rents of council houses. The Bill is so biased that throughout it no mention is made of tax concessions for home owners. The more expensive the house, the greater the tax relief. The inequity of this is beginning to dawn on people. and the Press have taken it up. Patrick Hutber, in the Sunday Telegraph—a paper not notorious for its Socialist views—wrote last Sunday that the tax advantages of buying are so overwhelming that there is no choice at present. Patrick Hutber made a most constructive suggestion; that some part of rent payment should be allowed against tax and that fiscal incentives should be given to building for rent. In a time of acute housing shortage the Government's pressure on local authorities to sell council houses is a rather shabby discrimination against those who cannot afford to buy.

My Lords, there has been much talk and speculation in the Press about how we can cope with inflation. In the last few weeks this has crystallised, as many noble Lords have pointed out, in a kind of consensus that the Government must adopt a prices and incomes policy in the private sector—for the Government have of course, without baptising it, been operating an imperfect and unfair one in the public sector. The Government's fear of, and resistance to, public enterprise or intervention is rather old-fashioned. Where the Government have had a change of mind if not of heart, as in the case of Upper Clyde Shipbuilders and Rolls-Royce, they have earned our respect. Perhaps they will graduate so as to evaluate the social service aspect of the railways or the mines, and so not to regard subsidies as just charity. In his rather childish desire not to look like a Socialist the Prime Minister has scrapped any organisation established by or under the Labour Government. The Prices and Incomes Board under Mr. Aubrey Jones was thrown overboard. Of course it was not entirely successful, but it made a worthy beginning and would have been good to build upon. It had made a start at judging differentials. regarded as being at the root of our industrial problems.

Personally, my Lords, I believe that we need a shake-up, if not a revolution, in our judgment about differentials in employment, and some of our ideas about what doctors or dockers, sewerage men or surgeons, are worth may have to be changed in regard to the equity of these employments. But the Government go on exhorting and nagging workers to restrain their demands for large percentage wage increases. Yet, as has been pointed out several times this afternoon, the Boyle Committee have just come out with recommendations for enormous salary increases for judges, lawyers, chairmen of nationalised industries and top civil servants—increases of £2,500 and £2,000 a year for men already earning £20,000 and £25,000 a year. What sort of crazy world do we live in when we justify such increases because the percentage increase is lower for them than for railway men and miners? It is time for us to bring back Mr. Aubrey Jones, whose experience and knowledge of a prices and incomes policy we badly need.

In a short article in last Sunday's Observer Mr. Aubrey Jones suggested a troika, with management, unions and an independent conciliation body. Those who really understand industrial relations know that industrial peace can be achieved only by a continual dialogue between management and trade unions, and the responsibility is as heavy upon the trade unions as upon management. In their first two years in office the Government must have learned a great deal—in fact the first two years are usually a gruelling time for any Government. But it is high time the Government gave up electioneering. They have continued to electioneer for almost the whole of those two years, and it is now time they got down to the real problems of governing in the public interest.

LORD SHACKLETON

My Lords, before the noble Lord, Lord O'Neill starts, there has been only one Minister sitting on the Government Front Bench during my noble friend's speech, and he has not taken any notes. I had considered whether it might not be useful, as neither of the Ministers who are taking part in this debate are present—I realise the Lord Chancellor has to go and eat, but it is usual that one of the two Ministers who are winding up or speaking should be here—to move to report progress; but I know that Lord O'Neill of the Maine, like many others, has a plane to catch, so I will not delay except to say to the noble Lord, the Captain of the Yeoman of the Guard, that this is not really good enough from the point of view of either side of the House.

LORD DENHAM

My Lords, I know that everybody will appreciate what the noble Lord the Leader of the Opposition has said, and particularly that he understands that my noble and learned friend does need to retire. He was here until just a moment ago. I am afraid there has been a bit of an overlap, but it will not be a very long one.

LORD SHEPHERD

My Lords, there are a Minister of State and a Minister without Portfolio.

LORD DENHAM

Yes, my Lords, there will not be a very long gap.

LORD SHACKLETON

My Lords, let me make quite clear that there is absolutely no criticism of the noble and learned Lord the Lord Chancellor, quite apart from the fact that he has hay fever. He has been here very extensively, but there is the general matter of courtesy to the rest of the House. I am sure that the noble Lord, who has had enough trouble lately—and I will not add to it—has taken note of this point. It is usual, however, to have present a senior Minister during a major debate, and this is no reflection on the charm and intelligence of the present Front Bench occupant.

6.53 p.m.

LORD O'NEILL OF THE MAINE

My Lords, I am most grateful to my noble friend Lord Rhyl for informing me that he was not going to speak after all, and I am also most grateful to my noble friend, Lord Platt, for agreeing to allow me to replace him. To make up for this unexpected intrusion I will be very brief.

The words at the end of the Motion are the words which interest me: "the achievement of a unified society". Like many others I was greatly encouraged by the Prime Minister when, just after he had returned from the Palace and before he had gone through the front door at No. 10, he spoke about "one nation". And it is on this theme that I wish to say a few words tonight. May I add, in an aside, that I am encouraged to say what I had sketched out this morning after the excellent speeches of the noble Lords, Lord Robbins and Lord Thorneycroft.

At the risk of wearying the House, may I say that I wrote a letter to The Times on February 22. I led with my sorrow that prices and incomes policy had been apparently abandoned, and I should like to read out the last two paragraphs of that letter, which admittedly were addressed not only to the Government but also to the Conservative Party. This is what I said on that occasion: It has been very fashionable in recent months to disparage the kind of consensus politics which Lord Butler adopted and which Mr. Gaitskell would have pursued had he survived to form a Government. But it has yet to be proved that the present system will succeed. Families watching television, from which source they must absorb most of their political knowledge, want to receive a message which they can understand. In the language of Madison Avenue, people want to be told that Conservatives care'. With few exceptions, however, Ministers have not been able to get this across to the public. Many people have been alienated by petty actions which have only saved comparatively small sums of money—for instance the abolition of some free school milk. I do not believe that the Government can afford to lose the support of any further sections of the community. In my view it is time for the Government to reassess their attitude to the general public. Somehow or other people must be convinced that inflation really is a terrible danger for everyone, otherwise they will joyfully vote for it at the next Election. The politicians who appear to be concerned about ordinary people will get their votes. What we need to-day is Conservatism with a human face. My Lords, it seems to me that two things follow from this train of thought. First, we must promote a policy which will unite rather than divide the British people. Secondly, having decided to pursue such a policy, we must be able to communicate with the public. No one can deny that to-day the country is in a serious position. Yet it is so easy, if we are playing Party politics, for some members of the Labour Party to rejoice at the Government's failures and for some members of the Conservative Party to rejoice at the obvious cracks which have appeared in the Labour Party. In my view, however, we must consider the nation first. A bright young City director said to me last week, "I fear that we may be approaching the same position as existed in Germany toward the end of the Weimar Republic." While I naturally hope that he is wrong—and I think he probably is—it is nevertheless true that if foreign nations were to lose confidence in our country and in our currency our situation might become desperate.

A few months ago one would have been an object of derision and scorn if, against a background of apparent economic strength, one had forecast that the pound would soon be forced to float. I trust that I may be allowed to say what is now no more than an idea passing through my mind. If the Government, for whatever reason, are unable to achieve the acceptance of policies which could put and keep our country on sound economic lines then the interests of the nation as a whole must come first. And if the country refuses to support such policies, which over the next few months may be forced on the Government, then serious consideration must be given to the formation of a National Government; for in the long run the well-being of the country and its people must come before any Party consideration.

I trust, of course, that things will never come to this pass. I should naturally like to see the Government triumph over all their difficulties, not only from a Party point of view but also because faith in the British political system would then be fully restored, and this is what I think that the director whom I quoted earlier had in mind when he said that we may be approaching the same end as the Weimar Republic: not talking about the post-First World War German inflation but about what happened when the Germans lost faith in democracy in 1931, 1932 and 1933. But it is always wise to look ahead, and I think I can see sufficient of possible trouble to adopt a somewhat sober tone to-day. As I said earlier, I was in two minds whether I should say what I have said, but after listening to Lord Robbins and Lord Thorneycroft I came to the conclusion that I would make a small contribution to the debate today, because I believe, like them, that we in a very serious situation, and I hope that we shall all put the nation before the Party.

7.0 p.m.

LORD PLATT

My Lords, I hope in the space of not more than ten minutes to develop a thesis which will apparently be new to you, and it develops from facts which have already been under discussion and which I shall only allude to as shortly as I possibly can. In 1970, as I think—and apparently here I am in agreement with the noble Baroness, Lady Seear—the Socialist Government were defeated by their own supporters. The rank and file of the Party and the country would not voluntarily accept the necessary discipline of long-term Socialist economic policy, because the irresponsible ones had found it all too easy to strike without notice if anything threatened their immediate security or their pay packet. Inflation continued unabated, and the tired and frightened electorate, calling for something tougher, elected a Tory Government. The present Government were of the opinion that all would be well if there were a return to something approaching the ancient rules of capitalism and the survival of the fittest. Competition would put Britain on its feet again.

The first move was to be a reduction in income tax to increase incentives to industry. The next was to abolish any sign of what is sometimes called "featherbedding". And, as in Victorian times, the poor would be looked after at the subsistence level by increased grants to those who in such a stark society might otherwise starve. I am bound to confess that the policy as a whole does not appeal to me, and that is why your Lordships may have noticed that more often than not I vote against the Government in these kind of matters. But I would point out that this does not deny my status as a Cross-Bencher, for a vote against the Government is not necessarily a vote of confidence in the Opposition.

The Government set up an Industrial Relations Court with power to inflict punitive fines and even imprisonment on those who opposed its findings. To those who, like me, are only onlookers, it seems that so far it has made only two major pronouncements, both of which have been promptly reversed. The income tax remission failed to have its stimulating influence. The Industrial Court failed to prevent strikes. Arbitration failed to reduce or prevent new wage claims, and the lame duck policy had to be abandoned. Inflation has continued.

Ethically, the final justification of the capitalist philosophy is that it works. By stimulating industry, eventually everyone benefits. Real values rise, unemploy- ment vanishes, inflation is conquered, the people have houses, everyone is better off. This Government may be seen at some future time to have performed a service to humanity in proving conclusively and finally that the pure doctrine of Tory economic policy has failed in almost everything it set out to do.

But in my view there are worse evidences of the failure of the system. I refer, of course, to the takeover of the speculators in housing and land values, and finally in the currency crisis, which is surely the final humiliation of Tory economics. We can no longer tolerate a system which leads to such injustices and absurdities. Certainly we can no longer look the miners and the dockers in the face if people who own land or build office blocks can make thousands, and in some cases millions, by the mere anti-social act of doing nothing at all.

What is the end product of capitalist economic policy? If the United States is taken to be the example, I hone that your Lordships will agree with me that we do not wish to emulate it. So I come to my question, a question I have asked myself many times in recent months: Are we in fact living in the final era of the capitalist system? And I am very surprised that nobody in this debate has yet asked the same question. If so, what is going to take its place? The people will not stand for injustice forever. Already there are protests everywhere against the Establishment. Either we shall realise it in time or there will be revolution, not now but at some future date, and the Communists will be only too ready to take over.

My Lords, wise men and women should get together now and face the facts. They must do this by questioning all the old premises. Why should railways make a profit? Why should buses make a profit? What are the services that the people need? What are the values which make for a better life? How can we prevent the speculators from making vast fortunes for which they have performed no useful service whatever? And, last but not least, how can we prevent the so-called workers of this country from demanding more and more, and, what is worse, from giving less and less, so that the standards of British manufacture are constantly debased?

Could we as a start patch up our present system without regard to any doctrinaire premises from either side? Could we have a new look, first of all, at proportional representation and get away from the present divisive Party system, in which so many people have already lost faith? And if this leads to a little more security, should we not then examine not only Japan but also China, Yugoslavia and East Germany, with a cool receptive mind to try to see if there is anything to learn and whether there is some possible alternative to capitalism which could exist without the cruelty of concentration camps, secret police, dictatorships which have become associated with the Communist doctrine today? If so, would it benefit mankind, or would it lead only to a stifling of initiative? My Lords, I think these are the really big issues which must soon be considered before it is too late. I do not pretend to know any of the answers, but I have tried to formulate some of the questions.

7.8 p.m.

LORD HALE

My Lords, I put my name down for this debate with very considerable hesitation, partly because I was told there was a shortage of speakers, and, secondly, because I was a little disturbed at the remark of a right reverend Prelate that we were all responsible for inflation. My own personal conviction was that I had been a victim of inflation throughout the whole of my life, and perhaps a rather special victim. When I came to-day and saw the distinguished list of speakers, with ex-Chancellors of the Exchequer and so on, and realised my own inadequacy for piloting a boat on the economic seas, not even knowing the language, unable to speak of leads and lags, not very clear whether a dirty float is dirtier than a clean float but being assured that the dirty float is the cleaner method of the two, I was filled with apprehension, until suddenly the good fairy appeared on the scene in the person of the noble Lord, Lord Robbins.

I had wondered how far I dare develop my thesis, which is a fairly old and bitter thesis with me, that successive Governments have financed many of their operations by swindling the worker and the petty rentier out of his savings. Perhaps I put it more melodramatically than Lord Robbins, but this is precisely the thesis the noble Lord proceeded to develop, with all his ability and with all his profound knowledge of economics, and I may say that in doing so he restored to me a little of the confidence I had lost, and he really was a very powerful physician. In view of the time I will speak briefly, but it may be that he will encourage me to further oratory on a later occasion.

For the sake of speed may I therefore put the arguments in purely personal terms? I know that your Lordships do not want to have personal analogies and that most of us have had the same experience, but it was on April 6, 1926, that I took the one decision of my life that I have never regretted—or one of two—and built a house for £625. I borrowed most of the money from a building society at 5 per cent., and proceeded to plan to live very comfortably on £6 a week, with an allowance for holidays and so on. Under the combined influence of my father and the Church I had been imbued with the virtues of thrift, and I proceeded to take out life assurance for the benefit of my wife and the children who arrived. During our honeymoon the French franc was devalued for the first time—from 25 to 100—so we had a preliminary and, for us only, a rather fortunate experience of the effect of inflation. I returned at the end of that month to find the General Strike about to break out, to be followed by the long miners' lock-out, which I still recall as the most brutal thing in this century's industrial history. The miners fought for six months. I will return to the miners in a moment.

I should like to finish my preliminary thesis. I continued to pay the life assurance premiums—the policies were often in hock to the bank—in diminishing currency for 40-odd years until I drew the provision which I had made for my aged years in money which had now been devalued by 75 per cent. The actual interest on the sum that I had contemplated to live on would no longer, after the deduction of tax and surtax, pay my rates. That is one of the results of inflation. But of course the more wicked result is that, having drawn 5s. in the £ on all my savings, I then invested—because I am too poor to take any risks with equity shares—in Government securities, on the advice of the banks. I was told that as I was only trying to provide an income I might as well take long-dated securities, so this time I am on a double inflation. The words "3 per cent. Gas" will be found written on what is left of my heart. I bought that, after bank advice, at a price considerably above the price at which it now stands. I cannot dispose of that stock to re-invest because I should dispose of it at a 20 per cent. loss at least. I have had a very fortunate life and I have no complaints about anybody.

Let us consider what happens to the rentier. It was a Tory Chancellor of the Exchequer, who now occupies a very distinguished position in your Lordships' House and for whom I have a great personal regard, who said he would give an incentive to the managerial community, and made an immense rise in the rate of surtax. But I find that when I retire, and while I have carefully tried to compute the effects of retirement, I shall have to go on paying for another couple of years my surtax on income that has ceased. I find that I have to pay a much higher rate because the income derived from savings which have already borne tax is treated as unearned income and taxed at a substantially higher rate than the ordinary income, because of the surtax concessions. I can remember, throughout the war and throughout the years of the first Labour Government, when the bank rate stood at 2 per cent. and Consols, if I recall, were nearly back to 100. What are they now? Twenty-six or 27, in depreciated money. The depreciation has been doubled. Seventy-five per cent. of the value on the Stock Exchange has gone and another 50 per cent. at least has gone in the devaluation of the currency itself.

My Lords, these are very heavy burdens, but they are not comparable with the burdens of the old age pensioner. I would much rather put forward their problems. I discussed this particular issue with the late Nye Bevan, for whom I had an affection just this side of idolatry and whom I looked on as someone who could always produce a suggestion. He said that the Chancellor would have to put himself under a restraint, and the method to do this was by guaranteeing to repay savings, perhaps not a large proportion of the savings because we have now got £3,000 million of undated stocks to repay. Let us take Post Office savings as an example. This is an admirable example because it has never borne high interest on the value that is invested. In point of fact, the present Government have to their credit done something like this to old age pensions. Of course, old age pensions do not have the same effect because they are financed by a special levy, and there is not much doubt that levies will be increased from time to time as pensions are increased. At any rate, that has been our experience in the past. If the Chancellor was bound to preserve the value of money, even on a limited portion of the Budget, he would be bound to regard any tendency to excessive budgetary expenditure or to the normal concomitants of inflation as matters which would make his job increasingly difficult.

I listened to the noble Lord, Lord Thorneycroft, who resigned the post of Chancellor of the Exchequer on an issue of principle. Whether he was right or wrong in so doing, both Houses of Parliament will always regard him with great respect. I thought he made a speech which ranked with his best. All that I wanted to say on one heading was said by the noble Lord, Lord Robbins. The noble Lord, Lord Bowden, spoke of the regional issue and therefore I will mention that only briefly. I agree with the noble Lord. I will tie it up to another issue. I have never been a particularly virtuous man. I have never claimed to be a man of very high character. But I am really concerned about the progressive decline—I am not talking now in political terms—in general standards of integrity. The conduct of private limited companies now permitted is astounding. It is commonplace now to talk of a man who has made £50 million. These people toil not, neither do they spin. They produce nothing. They usually have tax havens abroad. Some may never breach the law or never even breach the normal codes of financial integrity; others have a succession of fraudulent companies, or unreliable companies, before they manage to hit something and take up into the financial stratosphere. What do they contribute? I am told that these are, after all, in the light of an enormous Budget, relatively unimportant matters. However, they are important from the point of view of the example they set of the corruption of financial morals. I have had experience of this. I remember what was called the "Marconi scandal". My father, whom I regarded as the most honest—almost masochistically honest—man I ever knew, and, taking an impartial view, one of the best men I knew, never had any question of doubt that there was no corruption in the Marconi scandal. He was quite content to say that these chaps should not be buying shares at all. In 1910 it was an article of faith that one should not take part in speculative ventures if one was a Minister of the Crown—and I doubt whether Gladstone ever did.

We have had some scandals. I defended the late John Belcher, a man who was persecuted over the acceptance of a few gifts. I do not use the word "persecute" in any criticism of the Tribunal. I object to that form of Tribunal, and I have said so. But that man was not dishonest. He was driven from public life and his wife into the asylum by the high conception of public integrity which Clem Attlee had. No one can deny him that. I was a member of the Select Committee on the Budget leakage, and I know that there was nothing more than a typical indiscretion of a man rather given to indiscretions, and that it did no harm. However, it brought to an end a distinguished career. Now the standards are slowly seeping away. Anyone who studies the history of the Third Republic, with its constant series of increasing financial scandals, may rather wonder to-day when the Place Pigalle has become transferred to Soho, and when M. Chaban Delmas has resigned to-day on an issue of financial probity. I think that there is a very real danger that the public image of Britain, which used to be an image of an Englishman's word being his bond, has been undermined by some of the developments of the last year or two.

I want to conclude by saying that personally I have very little criticism of Mr. Barber. I think that the Government suffered a terrible loss in the premature death of Iain Macleod. Mr. Barber, who had taken charge of the negotiations at Brussels—and I thought with considerable ability—was brought over to become Chancellor in circumstances that few would welcome. With the gift of hindsight, I think that the Smithsonian revaluation was wrong; but he was under very heavy financial pressure, particularly from America. I believe that that revaluation would have reacted to our detriment; in terms of the figures, the floating pound was the right and only solution. I agree that the decision was taken with promptitude and with discretion. I do not even think it fair to ask what consultations were had, because we know that in the circumstances the matter of consultation was impossible, and that every hour mattered.

However, it is now conceded by all sides that one of the main causes was the question of industrial disputes. Here I think that the Government's handling of matters like the miners' strike was so disastrous as to be almost incredible. The miners had a great record. They were in a contracting industry. They had had to face the economic consequences of post-war conditions, to their own detriment. They have always been clannish people. They were internationally minded in my day, when the cause of the Polish miners always attracted their sympathy, but no more patriotic body of men is to be found. They had not gone on strike for many years. Indeed, I think I am right in saying (though I speak subject to correction) that from the lockout of 1926 until the strike of this year there had never been any major disruption by industrial action in the coal industry. They were years during which the miners had seen themselves lose their preeminence in the wages field. They voted with some reluctance, by a narrow majority, to go on strike. They put forward, in the ordinary way, a demand which they never expected to get; yet the hostility of the Government—we must raise this; and it is not a matter of Party criticism—to the public sector, the determination of the Government to resist at all costs, resulted in a stimulation of unity among the miners. I used to say that I have always been on the side of the coal miners. I lived among them for years. I used to say, as a Left-Wing Socialist, that I hoped the day would come when the workers realised their power. I am not sure now that I am quite so pleased that they have been forced to realise their power so quickly and in so brief a period, and by such a clumsy exercise in public relations and an obstinacy which stirred them on to further contest.

My Lords, I regret to have to finish on a note of controversy, because I tried to speak uncontroversially; but this is a vital matter of public relations. I do not believe that Lord Boothby's scheme would be a particularly productive one, but I am certain that it can do no harm. I am perfectly certain, knowing Mr. Feather, that he had tried very hard to assist in the task of conciliation, and that his efforts were rejected by the Government without a word. It will not be easy to recover that confidence, but I am quite sure that the average coal miner is as great a patriot, and as used to sacrifice, as any Member of this House, and is as anxious to co-operate in the restoration of the prosperity of this country, once he is convinced that he is not being made the stool-pigeon for financiers and for crooks, and for people who make no contribution to the economy.

I am grateful for the attention I have had. I think that the House to-day—at any rate until my speech—has done itself great honour by demonstrating, in a debate in which Back-Benchers are allowed to take part, that there is a standard of dignity, a lack of controversy, and a wealth of constructive thought of which this House can give a conspicuous example.

7.30 p.m.

LORD FRASER OF LONSDALE

My Lords, I offer a sincere and warm-hearted apology to my noble and learned friend the Lord Chancellor, because I cannot stay to hear his winding-up speech. I explained this to the Whips, but I did not bother the Lord Chancellor because he will not worry, anyway. However, I do apologise. I shall not say anything which can be considered politically controversial—except for this one sentence—so perhaps I may be excused. I am one of those who does not think, when the ship of State or any ship is in stormy waters, that it is a very good thing to shoot the man at the wheel. I suspect that Mr. Heath will be at the wheel for another two years and I therefore wish him the best of good luck. I want to observe that there is a thing called the cost of living, which is measured by formulae; but there is also something called the standard of living which is constantly rising, and the people for whom I shall say a word are concerned with both the cost of living and the standard of living.

I have no democratic qualification to speak for old age pensioners. I do not represent them in any way, nor do I now represent the ex-Service community, though I used to do so for a very long time. But I still have a great interest in the disabled ex-Service men, along with all pensioners and all disabled persons. To this category of persons I would add those who live on a fixed income which they themselves can do nothing to augment. In order to try to simplify my brief argument, I should like to divide the people of Britain into two categories: those who can augment their income by their own activities—the strong ones who work; and those who are not so strong and who cannot work for one reason or another. The latter category includes children. the old and the disabled, whether disabled for health reasons or from war. The strong—that is to say, the trade unions, the employers and the professional people—have their own ways of representing their case to Government, and indeed they are called in to consult with Government from time to time. The other category, except for the Royal British Legion, have no organisation to speak for them and I am therefore venturing to say a word on their behalf.

This Government have, as a matter of definite policy, aimed their help towards those in greatest need. I think that is wise and sensible, because help itself is not so abundant that you can give it to all. Therefore it is better to give it to those who are in need, and one can thus give more to those who are in need. This Government have told us that they will review pensions, war pensions and payments made to the needy once each year, and that is a considerable improvement on what has happened in the last 50 years. They will take into account the cost of living. Of course they will do that at the end of the year and not at the beginning; but, even so, it is a very valuable concession for which I thank the Government. They have not said that they will take into account rises in standards of living, but I hope, nevertheless, that they still may. I should like to spend one sentence on thanking the Government and the Minislers concerned, and particularly Mr. Paul Dean, the Junior Minister concerned, for what they do for the disabled people.

Let us bear in mind, however, that even though it is the intention of Government to review annually the payments made to the dependent categories of people whom I have mentioned, the payments which they will receive will never really make up for inflation; certainly not for galloping inflation, and probably not for the rise in the standard of living which will be enjoyed by most of the strong who can earn a living and can press their claim upon employers or upon Government. My brief speech is in the nature not of an attack upon anybody, not of criticism of anybody, but of the strongest possible appeal to the strong—and by the "strong" I mean the trade unions—to consider in the next few weeks and months how best they can help the less strong in the categories I have mentioned, by trying to help the Government, whether they like the Government or not, to cure the inflation. I will ask your Lordships to bear with me for two minutes while I tell one small true story which is a warning.

In 1922—that is, 50 years ago—I became the Chairman of St. Dunstan's, which I still have the honour to be, and I went to Berlin and consulted with the authorities about the care of blinded soldiers, sailors and airmen, and exchanged views. In particular, I met a German blinded soldier of modest rank who gave me much information and much help about his situation, his work and so on. I was grateful to him and, at the end, I said, "I should like to do something so that we may remember this occasion. Is there something I can give you?" He was a man with his pride, and he did not want money, but he said that he would like a present for his family for Christmas. On inquiry, I discovered that the appropriate present was a goose, so I bought him a goose and paid hundreds of thousands of marks for it. It meant nothing to me, only a few pounds out of my pocket, such was the rate of exchange. I took the trouble to value that goose in his terms, and discovered that its cost was a little more than one month's war pension for that unfortunate man.

I tell this true story, which I have checked though it was in my memory, because it is the gravest possible warning that Britain could be on the way towards galloping inflation. Although there are trade unionists, employers and men in the City who might keep up with it, there are some millions who could not possibly keep up with it, and it seems to me that their voice ought also to be heard in this House. When motoring with my wife from Dublin to Cork long ago, I remember sticking my head out of the window and asking a wayfarer, "Is this the way to Cork?", to which the wayfarer replied, "Yes, 40 miles straight on". So we drove on for 30 miles, and I again put my head out of the window and asked another wayfarer. "Is this the way to Cork?" He replied, "Yes, 40 miles". So I turned to my wife and said, "Thank God, at least we are keeping up with it".

I have only two other extremely brief themes to mention at this late hour. We have floated the pound. For ten years my poor and undistinguished voice has been calling for the floating of the pound. How much better would it have been had it been floated in the time of Sir Stafford Cripps or in Mr. Callaghan's Budget or in Mr. Barber's last Budget! If this had been done, we should not have had the rise to 2.60 dollars and we should not therefore have had the fall. I still believe that floating is the wisest and best way of handling international currencies and I advocate, not that we give it up after a short interval, but, on the contrary, that we maintain it for ever as a better system than the one that has let us down three times in my lifetime.

I want to give the briefest possible reasons for this view. My merchant banker friends have told me that it creates unreliability and difficulties in the banking system and for merchants; my merchant friends say the same thing. I have been a merchant myself and I know very well that one can buy forward and sell forward. I know also that, even if we float, the Government still have a considerable control over the currency. They can control it by the operation of bank rate, the printing of money and the withholding of export or import licences. There are all sorts of ways in which a Government can control the value of their currency, even if it is floating. I do not believe that a floating currency, once we get used to it, and particularly if we can persuade all the nations of the world to float their currencies, as they did until that chap came down from Cambridge and taught us to fix them—what was his name?

A NOBLE LORD

Keynes.

LORD FRASER OE LONSDALE

Until Maynard Keynes was invented we did not have fixed currencies and we did very well for 100 years or more. The bankers are wrong, although I will admit that it looks as if the floating of the pound ten days ago has produced awkward situations. It has produced representations from M. Pompidou and from the Chancellor of Germany. It has produced difficulties in the United States. It has brought forth criticisms from bankers. But let us remember that it has not been the floating that has caused the upset in the world; it is the fact that our currency was over-valued. That was the underlying cause. The reason why it became over-valued was that under American pressure we had a fixed pound instead of it being subject to a float. If it floats it can go up a point or down a point; that is a warning and undesirable speculating can be stopped.

I must therefore seriously advocate that Mr. Heath, Mr. Barber and the noble and learned Lord the Lord Chancellor do not continue to talk about a temporary float as if they believed that was the right thing. I doubt very much that it is. Let me repeat one thing that I have said. If only the floating had taken place five or ten years ago, or even at the time of the last Budget, much of the trouble we are in now would have been avoided. For ten years I have been advocating a rise in the price of gold.

LORD BOOTHBY

Hear, hear!

LORD FRASER OF LONSDALE

The rich and powerful voice of the noble Lord, Lord Boothby, and my own were the only ones that were heard in the land ten years ago. I remember the noble Lord, Lord Beswick, talking us down at Question Time—in the most polite manner of course. If the price of gold had been recognised as being unrealistic, again if Maynard Keynes had not been invented, we should not have had all this trouble. I beg the Government not to repeat that gold is finished as a world talisman. It is a talisman in which people believe. They do not believe in man-made devices.

Politicians cannot be trusted not to lie at a time when their currencies come under pressure. What else can they do? What could Sir Stafford Cripps, a man of the highest integrity, have done? What could Mr. Callaghan, a man of equal integrity, have done? What could Mr. Barber do? When asked by someone in another place, "Are you going to devalue?" do they say, "No comment"? If they do, they are obviously going to devalue. If they say nothing, they are suspected. So they must lie. It is a bad thing to rely upon politicians who often lie and in this case must lie. It is better to rely on the market. The market will set the right price for currencies and, once we begin to get used to it, we shall be able to rely on it.

7.47 p.m.

LORD DOUGLAS OF BARLOCH

My Lords, first let me apologise if I am not here at the end of the debate. I was suffering from a fever last night and perhaps I should not be here at all. But the importance of this discussion is so great that I felt under an obligation to attend. It is a melancholy fact that the purchasing power of the pound sterling to-day is about one-sixth of what is was in 1914. I mention that date because from the beginning of the reign of Queen Victoria until then the purchasing power of money had remained more or less stable. It had certainly not fallen in the way it has fallen since. By 1949, obviously as the result of the war and the way in which it was financed, the purchasing power of our currency had fallen drastically and in recognition of that fact it was officially devalued.

One might have hoped that after that an era of some stability would have followed. But the purchasing power of the pound is now about one-third of what it was in 1949. Over that short period there has been this terrific depreciation, and what is most alarming is that it appears to be continuing at an accelerated rate. From 1955 to 1960 prices rose at the rate of 21½ per cent. per year. In the next five years they rose at the rate of 3.2 per cent. per year. From 1965 to 1970 they rose at the rate of 4.6 per cent. Per year, which was almost double the rate of 10 years previously. During the last two years it seems that the acceleration in the rise of prices, which is, after all, merely a measure of the depreciation of the value of money, is continuing. This is ruinous for our economy; it produces the greatest troubles and disasters. My noble friend Lord Hale illustrated how the ordinary man, encouraged by bankers, Governments and other people to invest his money in gilt-edged securities, suffers a double depreciation because the market price falls and the value of that price falls still more. Consequently, all rational economic calculation is interfered with; the distribution of resources for investment is made more uncertain and arbitrary; and it probably leads to a wasteful use of required resources. Those who have fixed incomes of course suffer most severely. Those who happen to be in a position in which they can counter inflation by speculative investment possibly come out richer.

My Lords, these considerations make it absolutely imperative that we should stem this evil. I know that there are some people who say that it is advantageous to the economy, that it leads to economic progress, to have a slow, steady rate of inflation. But there never is such a thing to start with; it always varies, it always leads to uncertainties. May I quote the very wise words of the Deputy Governor of the Bank of England to the International Savings Bank Congress last April. He said: … in the real world, inflation can never he correctly anticipated by everybody; and the prices of goods, labour and capital are not correctly adjusted for the changing value of money. Thus, inflation is not in practice a stable state. Differences in expectations set up tensions, and adjustments, which may further affect expectations in a spiralling fashion—a fundamentally destabilising process, and an all-pervasive one. Inflation once begun is not likely to die down of its own accord, its repercussions may readily become wider and wider. This is what we are experiencing now, and we must be perfectly clear that it is an economic problem which can be solved only by economic means; and it is absolutely certain that the major influence in causing inflation is the action of the Government in increasing the note circulation. I know very well, my Lords, that exchanges are conducted by means of bank credits and credit instruments of all kinds, but the size of the note circulation is undoubtedly a decisive factor. Now what are the facts'? In September, 1949, the currency circulation was £1,260 million. In March, 1972, it was £3,517 million—about two-and-three-quarter times as much. In fact, in that period, corresponding very closely, the purchasing power of the pound diminished to about one-third of its 1949 value.

I took the trouble the other day to look at the last Treasury Minute dated June 2; at least, I believe it is the last, but these things follow in such rapid succession that one can never be sure, because I see that they recited that they had read their Minute of May 26, only one week previously, at which time they had increased the note issue to £3,975 million. Only seven days after that, this is what happens, according to the Treasury Minute: The Chancellor of the Exchequer informs the Board that the Governor and Company of the Bank of England have represented to him that it is expedient that the fiduciary note issue should be increased from £3,975 million to £4,000 million. My Lords agree with the representations of the Bank of England, and in the exercise of the power conferred upon them by the Currency and Bank Notes Act 1954 hereby direct that on and after the 2nd June until the expiration of a period of six months beginning at that date the fiduciary note issue shall be £4,000 million". What I ask myself on reading this is: what discussion took place at this momentous meeting of the Treasury Board? What consideration did they give to the effect of the constant increase in the note issue? How did they think that this was going to affect the economy of this country? All this is hidden in complete darkness. Or did they not consider it at all? A few years ago I wrote to the then Secretary to the Treasury and asked him if he would explain to me the principles upon which the monetary policy of this country was conducted. I received no answer to that letter, and I do not think that I am altogether surprised, because I have an uncomfortable feeling that it is not conducted upon any principle whatever.

It is now fashionable to say that inflation is all the consequence of extravagant wage demands. I am not going to deny for a moment that there can be extravagant wage settlements which are not justified at all by the economic cir- cumstances, and I dare say one could point to some. But, in the natural course of events, what happens when workmen price their labour too high, just as when other people price their commodities too high, is that the demand diminishes and a number of workmen become unemployed. Here is where we get to the political crux of this matter. No Government, of whatever Party, are willing to see the number of unemployed increase if they can possibly avoid it. So, what happens? The Governor and Company of the Bank of England represent to the Treasury that the note issue should be increased, the Chancellor of the Exchequer so directs, and consequently the effect of an excessive wage settlement is mopped up in an increase in prices—and so we proceed year after year.

Government must have the courage to deal with the matter. I am not suggesting for a moment that it is at all easy, because it involves very difficult political decisions and it also demands an understanding of the fundamental economic situation. I cannot detect in any statements made by Chancellors of the Exchequer or Prime Ministers (and I am not confining this to members of one Party or another) any attempt to explain to the general public the real cause of the trouble and the necessity of diminishing the amount of notes put into circulation in order to keep prices at least more or less on a level. Indeed, if we had a currency which did not increase constantly, the natural result of economic progress in enabling manufacturers to produce goods at cheaper prices would mean that prices, instead of rising, would fall and economic progress would spill over to the poorest sections of the community living upon fixed incomes who, under the present conditions of constantly-rising prices, are being exploited for the benefit of those who happen to have economic power and are able to impose their wishes upon the general public. This is the situation with which we are confronted, and unless it is dealt with we are going to go on and on in this "Rake's Progress", with very disastrous consequences.

8.2 p.m.

LORD HANKEY

My Lords, there seems to be one general firm conclusion from our debate; that is, it is essential to control inflation. From my experience of O.E.E.C. and O.E.C.D., I have not the smallest hesitation in confirming that judgment. Once inflation really gets under way, as is now beginning to be the case in this country, only the most drastic measures can stop it. Among the member countries of O.E.E.C. and O.E.C.D. there have been many cases where action a good deal more drastic than ours has had to be taken. I sincerely hope that we shall take action before we get to that stage in this country.

There have been various systems for ensuring that the rise of wages—and they tend to rise every year—shall be linked to the rise of productivity. I should like to say a word about the Swedish system which has been remarkably successful. The per capita income of Sweden is now nearly twice that of our own country; it is far more than that of Canada and seven-eighths that of the United States. How on earth have the Swedes done it? I should like to describe this very briefly. The Confederation of Employers and the Trades Union Confederation negotiate every year to fix a general norm of increase of wages which is based on the expectation of the rise of productivity in the following year. The Swedish Government economists are not, I believe, actually concerned in these negotiations; but they follow them extremely closely and advise both parties on the situation, as they are able to see it. The two confederations reach an agreement every December. This is usually after a great deal of hard negotiation; but the point is that they do reach agreement and the norm which they set is then adopted as the basis for negotiations between employers and trade unions for applying that norm in each industry. The agreements when made are registered at the Ministry of Labour, and I think it is right to say that they then receive the force of law.

There is a third point which I believe is of great importance. The trade unions co-operate in moving manpower out of declining industries into more productive ones. For this purpose there is a tremendous system of re-training in Sweden. Expenditure there on re-training is at about same level as our own, although we have over seven times their population. The Swedes also have their inflationary trends, and on account of those (because you cannot have good industrial relations while you have even some inflation) they have even had a few strikes. But, on the whole, the system is remarkably successful. If they have had strikes, these have not in any year represented more than a minute fraction of our own in terms of days lost per thousand workers.

I believe that some system like that could be a long-term objective for the United Kingdom; but it could not be done now because neither the Confederation of British Industry nor the T.U.C. have authority over their members, nor can many unions effectively control their members. One has only to look at the conditions on Merseyside and the affair at Chobham Farm to see that that is so. Personally, I still think that the effect of the Industrial Relations Act will be to strengthen the unions and to give them more power over their members—with probably the same effect on the Confederation of British Industry. I think it is essential that we should not scrap the Industrial Relations Act even though, obviously, we should in due course review its effects. The chaos, and that is the only term for it, in our industrial relations has been a major weakness of the British economy and has produced effects which have gone right through our industrial structure. But I should like warmly to welcome the contacts which the Prime Minister recently has made with the T.U.C., and I very much hope that something will come of them.

My Lords, if we cannot hold out much hope for adopting something like the Swedish system in the short run, what other hope is there? I think that the time is coming when perhaps a good look ought to be had at the so-called "Hungarian solution" which has been mentioned a good many times in this debate. This "solution", in effect the taxing of wage increases, is a terribly drastic one; but I do not know that there is really any other effective means of doing the job. I believe that the restraint of wages by injunction or exhortation, like the increase of exports or the increase of industrial investment by exhortation, has shown itself to be totally ineffective. Much more effective methods are needed, and probably some fiscal measure of the kind I have referred to is the only means likely to be effective. I do not like it; but perhaps it is better than charging down the slope of inflation and then having to take far more drastic measures to clamber back again. Of course if the Hungarian solution were to be applied, it could not be applied only to wages: it is clear that it would have to be applied both to incomes and to prices.

It seems to me, my Lords, that the inflation problem involves a great many complex factors. To say that it is entirely cost inflation that we are suffering from seems to me to be very superficial. For instance, there is the question of industrial investment, which is much too low. According to the latest O.E.C.D. statistics the United Kingdom comes 18th out of 21 nations, with a figure of 17.6 per cent. of the gross national product applied to gross fixed asset formation. Japan is first, with 35 per cent.; Sweden has 22 per cent. and Germany 26 per cent.—compared to our own 17.6 per cent. One can only welcome the Government measures taken to encourage national investment; but I think that probably much more will be needed to support the wage rises which our people expect. Because if we do not have industrial investment, and if we do not increase the productivity of the industries with new machines and processes, and if the people are given the sort of wage increases they will insist on taking, we are bound to be landed with inflation and there will be no way out. We have to regard this as a prime necessity.

On the other hand, I do not believe it is possible to get higher industrial investment while industrial relations remain so bad. People are not going to invest in new machines, new factories, and processes while the workers are so reluctant to adopt new methods and while they resist all change. Nor can we get away with it while the trade unions insist on overstaffing, as they did in the case of Chobham Farm. Every time we have started a period of growth. balance-ofpayments trouble has set in. The Government have placed a stop on our economy, and more unemployment has, naturally, discouraged the trade unions from cooperating in measures which involve reductions of labour. Somehow we have to find a way to break out of this vicious spiral—because that is what it is: a spiral which goes down and down, and we have to bust it.

Then there are financial factors which come into the account so much and about which a great deal has been said to-day. I also was struck by the enormous expansion of the credit base in the first quarter of this year, and indeed in the last eight months. Admittedly the Chancellor told us in his Budget speech to expect an increase, but I wonder whether it has not gone too far. It must be remembered that when the expansion set in in a major way we were also at the end of a tremendous inflow of funds from abroad; many hundreds of millions of pounds came in. The internal effect of such inflow is a very complex and technical subject, on which Continental economic policy makers and central bankers have not always agreed, either with each other or with our own, and I hesitate to express a view about it. But I suggest that the increase of money supply needs a new and hard look, especially now that foreign funds are going out again. Even if we believe, as I hesitate to do, that we have succeeded largely in isolating our economy from the internal effects of large flows of funds in and out, it seems to me that the situation must become more delicate as we enter the Common Market and relax our controls so far as Europe is concerned. So I am sure that we ought to have another good hard look at this aspect of current inflationary trends.

Of course, we have met the present strain by floating the pound, and I agree with what one noble Lord said: that if anyone had said, even three months ago, in view of the incredibly healthy state of the balance of payments, that at the end of June we should have to float the pound, he would have been thought stark, staring crazy—which just shows how delicate the situation is becoming. I do not believe that floating the pound is a permanent solution. I think that it will bring problems. As regards the movement of foreign funds, it seems to me that floating might bring with it a naturally destabilising factor; and as import prices tend to rise, there will be a tendency for them to start another round of wage demands. So I do not think it is a permanent solution.

My Lords, I think it time we recognised the real difficulty. If all the footloose funds in the world, plus the leads and lags of ordinary international trade, move at once, the experience of Great Britain and America has shown that there is really no country in the world, and probably no existing system, which could be sure to remain stable. Such huge flows of funds as this are just as embarrassing to the surplus countries as to the deficit countries. They cause great problems in places like Germany and Switzerland who have to ban foreign accounts and even to place negative rates of interest on the foreign accounts which are there.

The world economy is rather like an old truck going along the road and carrying on it a huge tank of liquid. The road is full of potholes and the driver is only partially sober, or shall I say that he does not know quite what he is doing. The truck swings to and fro; the liquid slops and swings about and there is considerable danger of the liquid upsetting the truck. We do not want to go without the liquid. The object of the truck is to carry the liquid. So what do we do? Obviously, the solution is to put a baffle plate down the middle of the truck, and then the liquid can move around but it cannot all move around at once. Now, how do you apply this to movement of funds between countries? It is extremely difficult to do this. Many different methods may be used. One is to recycle the funds, as the central bankers have been doing. There are many other things that you might do—you might even float the currency. But I think that we need to take another look at this problem, to seek a method by which to prevent all these funds moving about at once. I am among those who think that the relatively free movement of funds is essential for the development of the world; and the ability of central bankers and the I.M.F. and the O.E.C.D. to enable these enormous funds to move as freely as they do has reflected enormous credit on those concerned and has been of great benefit to everybody. We need to find a way to avoid getting quite so much of the rough along with the smooth. I really think another look should be taken at this matter.

So, my Lords, I come to my conclusions; namely, that all sections of the community are equally concerned in inflation. It is of no benefit to the trade unions to have wage increases eroded by rises in prices. It is of no benefit, either to the unions or the employers, to have the constant friction in industrial relations which is bound to go along with an inflationary rise in prices. You cannot have one without the other. It is of no benefit to the bankers, to the old age pensioners or people on fixed incomes, or to the Chancellor of the Exchequer to see the value of money eroded. I refuse to believe that it would not be possible to explain the real significance of these issues on TV if we could find somebody with real genius to do it. I think that a great deal of the economics of this problem could be explained on television if somebody could be found with the necessary genius and humour; and I do not believe the public would always turn off the machine.

The common interest of every section of the community in controlling inflation is so great that we ought to try to avoid this becoming a hot Party matter. I am very glad that this has not occurred in our debate to-day, and I would hope that we could avoid it in the future. All Parties ought to combine in this matter even if they do not combine in others, in order to secure co-operation in our economy. That involves the C.B.I., the T.U.C., the bankers and the City, and especially the Government. It is no good the City saying that they do not like Government interference, or the T.U.C. saying that they do not like something which Parliament has done. We are all in this together and I believe the situation is too serious for us to neglect the necessity for bringing all sections of our community together. And in conclusion, I agree with what the noble Lord, Lord Thorneycroft, said. I believe that if this problem is explained to our people they will willingly answer to a firm lead given by the Government.

8.22 p.m.

LORD DAVIES OF LEEK

My Lords, it has been a pleasure to be in this Chamber since the beginning of this debate. I left only for about ten minutes. Unfortunately, I invited a guest to dinner. I do not know what will happen to the dinner, but I think it is more important to listen to the speeches. To Leaders on both sides of the House I would say that I was brought up in the other House for about 26 years and I believe that if one makes a speech it is a courtesy to stay in the House afterwards to listen to the Leader's reply. I hope that in future, when both sides are getting together to look at debates, they will take that matter into consideration when they are arranging the system of debates. It is a deterioration in the courtesy of this noble House for noble Lords continually to say, "I am sorry, but I shall not be here for the reply". If a Member cannot be here for the reply he should not make a speech.

EARL JELLICOE

My Lords, I apologise for interrupting the noble Lord, Lord Davies of Leek, but I do so only to say that I find myself in very considerable measure of agreement with what he has just said.

LORD DAVIES OF LEEK

To be fair to noble Lords who have important engagements, may I say that it might have been worth while to make this a two-day debate. Having sat up till about three o'clock in the morning and made beautiful diagrams in all kinds of colours on my notes, I am going to cut out 90 per cent. of my speech and try to finish by half-past eight. I should like some of the people who have been making speeches to-night to read Samuel Brittan's book The Treasury Under the Tories, because we had the Treasury under the Tories from 1951 to 1964; that is 13 years. Chapter 10 points out the power of the Treasury over weak Ministers. For years, this House has been dominated, not by ignorant or wicked civil servants but by very capable personalities who have been in the Treasury, because Ministers have offered them no alterative. We have to realise that when the Treasury take power—to be fair to Treasuries—they take it because there are few ideas in the hands of the Ministers who should have the responsibility of telling the Treasury what to do. For a short time I had the privilege of being a Minister, and on one or two occasions I told people what I believed. I may not be a genius but at least I stuck to my point and stopped them from taking pensions off men who had been in prison and who had been wounded. This had never been done before. I was told that the Treasury would be upset by it. I replied, "I have got only one boss and that is the Prime Minister."

I believe that some of the weakness in the past has been that Ministers have been dominated by powerful personalities in the Ministry. I was grateful for the beautiful lecture by the noble Baroness, Lady Seear—a lecture it was. Moving pieces of paper and messing about with a differential calculus is not dealing with the realities of the life we are living. I listened in absolute amazement to the speech of the noble Lord, Lord Hankey, who pointed out how well Sweden has done. But Sweden has had a Socialist Government for 35 years.

I was delighted with the speech of the noble Lord, Lord Robbins. I have read his books and enjoyed his wonderful knowledge, but I want to tease him a little because he praised poor fellows like myself who pour money into Premium Bonds and National Savings Certificates. I am delighted to say that I won £50 the other day, so one does get a bit now and then. Because I am so patriotic (but it is never recognised) I pour my money into Premium Bonds and National Savings Certificates. I shall have to buy a second-hand squalid house and shove somebody in at a rack rent to get my money back.

Earlier in his speech the noble Lord spoke about speculation and of the derogatory terms that are spoken about speculators. I have here a copy of the Radcliffe Report as reprinted from the Banker. Who could have more authority than that? It was Mr. Keswick, Governor of the Bank of England, who said, "Switch more into American bonds and equities." Again, it is anti-British and derogatory to sterling; but, on balance, if one is free to do so it makes sense to me. That was W. J. Keswick advising his own Hong Kong affiliates. In other words, while all speculators are not speculating to undermine the country there are the majority of Johnny-cum- Latelies whose money is young. It does not take much brains to play the exchanges. Anybody who can bet on a horse and work out the odds can do it better than half of them. Those people are acting unpatriotically and are partly responsible for the position in which we find ourselves to-day.

I want also to deal with the phraseology of economics and the vogue words of every generation. I should like to say to the noble Lord, Lord Boothby, that I was in Germany when the banks collapsed in 1931. As a member of the old German youth hostel movement I saw the sadness of all this. I saw the sadness of my people in South Wales when I got a scholarship to university and there were no jobs in the house because they were miners. It is no good telling people like us the meaning of inflation or economic crises. These are good people they do not ask much. I am tired of hearing speech after speech denigrating and saying, "You must do something about the strong trade unions." What about doing something immediately about strong speculators? What about having the courage to tackle the land problem?

I would not mind if somebody were to start reading dear old Henry George on Land Taxation and Land Values. I can see one economist rubbing his head and smiling, but it is worth reading. I could make an argument but the night is short and my guest has been waiting for a long time. It was the Liberals who used to sing, "The land is full of people." It would seem that, after listening to the Leader of the Liberals to-day, they have forgotten that. Nixon himself, after the Smithsonian agreement last December, said, I should like to tell the noble Lord, Lord Boothby: It should be chiselled on gold. This is the most significant monetary agreement in the history of the world. How pathetic! Here is a nation blowing to hell Cambodia, Vietnam, which I know well, and Laos. Goodness knows why! About six times as much firing power has been dropped on that peninsula as was dropped on Europe in the whole of the war. America has had to devalue the dollar—a mighty nation that has got itself into a mess. Eighty billion Eurodollars, swinging around Europe, which the speculators use at exhorbitant rates of interest. I wish I had the time to go into this subject in depth, but every Member of this House understands it.

Some of the speeches have made terrific assumptions to-night. For instance, the speech that tells us to copy Sweden assumes that we do not know Sweden's Socialists. I would point out that one of the most wild tigers in finance loose in the world to-day is the Eurodollar, and also the Special Drawing Rights. The Special Drawing Rights are affecting the pound. Then we get that daft expression, "the snake in the tunnel"—I wish I had a cardboard tube with a little bit of elastic so that I could drag the snake through the tunnel and explain it, allowing the circulation of 4.5. We have economists writing articles on this, thinking that it explains the monetary problem. It is like the doctors using a Latin word for "belly-ache" and thinking that they have explained how to cure it. It is time we got down to the basic facts, and one of the basic facts is that no single country in this shrinking world to-day can solve its monetary problems alone. The dollar is the rogue elephant in world affairs to-day. This is not a Party speech; it is a factual speech. I cannot help it if the facts are on the. Socialist side.

Having "swanned around" the Far East a bit in my day (and I hope to do so again, if I can keep my strength after sitting here as long as I have sat to-day), I am convinced that we must accept what has been said in all parts of the House; that is to say, more honesty in dealing with the public and creating public opinion. As the Radcliffe Report said in its official comment: In addition to compiling and publishing regular statistics the authorities ought to comment and interpret. This is the point that the noble Lord, Lord Hankey, made when he talked about explaining the problems on television. The Radcliffe Report said: This function might well be served by transforming the annual reports of the Bank of England, the meagreness of which has become a byword. In fact, it is not a byword: rather is it an insult to Governments, to Members of Parliament, to lecturers and economists and those trying to understand the monetary system.

LORD ROBBINS

My Lords, may I interrupt the noble Lord to draw his attention to the fact that the Bank of England quarterly reports are one of the statistical glories of this country?

LORD DAVIES OF LEEK

I was just coming to that. This is the point. They are now, because the decision of last Sunday gave the Treasury and the Bank of England a shake-up. That is why I would still argue that there should be amateur directors of the Bank of England as well—people who deal with industry; and I would have a few people who cut coal occasionally, or a farmer who can plough a field or milk a cow, helping sometimes by being part-time directors of the so-called nationalised Bank of England. I am only making the case, as the noble Lord knows quite well, that we had to plead for years, and as a result of this Report that was one first-class constructive suggestion. I hope it will be made more public. I should like to follow Lord Hankey's point that more of that should be explained instead of some of the cracking speeches that I have heard on the television explaining the monetary system and our economic difficulties.

It is a pity that I have to cut this speech short, because it is doing the House a power of good. I have dealt with Eurodollars, and I have dealt with the speculators. Let me now have a go at the technocrats. Anthony Harris, in his financial column in the Guardian, said: The really disturbing fact is that the balance of payments, our old bugbear, now seems the least of our problems. For when we come to low, unimaginative investment, high inflation and the unresponsiveness of the economy to known methods of management, we are facing problems to which no technical solution is known. Therefore I approach this problem with humility. I am not going to stand here believing that I know all the answers to this question, but what I think is now necessary is that the Western world and the Communist world, especially in view of President Nixon's visit to China and the Soviet Union, should now, like old Ramsey MacDonald did when we had the Balfour Committee's Report in 1924—then we had the world conference in Geneva on the world monetary system in 1927—

LORD BOOTHBY

My Lords, that was no bloody good.

LORD DAVIES OF LEEK

Of course it was no good. We will not worry about the noble Lord's ruddy adjective. From his point of view it did not do to gold what he would have liked it to do. But I sincerely believe now that it is essential that we cut out this foolishness of continuing the cold war, and cut out the foolishness of deficit spending, on which the noble Lord, Lord Douglas of Barloch, made a first-class constructive analysis when he was analysing the fiduciary issue. Because what is deficit spending but Government spending over and above normal Government income through taxation, of money lent from savings and capital owners, also money created by issuing bank notes over and above the established wants of circulation? The Encyclopœdia Britannica will tell you that banks create money out of nothing. Of course they do. That is the meaning of the word "fiduciary". We are reaching a point when faith has reached such a pitch that it is not commensurate with the men governing the country. So I sincerely hope that this Government will take a lead and put out feelers, because I believe that the time has now come for the world in its tininess—a world in which you can move from side to side in hours, and you can throw your voice to the edge of the universe in seconds—to break down certain conceptions of monetary sovereignty.

My last point is a slap at the Common Market. I do not understand this belly dive that Ted Heath wants to take into the puddle you call the Common Market, because at this juncture it is the wrong time. For God's sake take us in when we are strong, if we are going to be taken in at all, not when the rags of our behinds are almost beating our brains out! What is wrong with this country? Why Socialists support it at the present juncture is beyond my wildest dreams. President Pompidou has told us, and EMU—they have wonderful names, acronyms; it is not a bird on two legs at all; it is the European Monetary Union. They make the decision when the pound shall be devalued. Why "kid" this House from the Front Bench opposite or elsewhere that we can make decisions on the value of the pound? The "snake in the tunnel" concept which evolved from the Smithsonian concept, and which evolved in Europe, is that the value of the currencies of the Six and the other currencies shall be decided by the Common Market people. We ought to know what we are doing if we are going to jump into this Common Market. We have reached the marvellous point where we have destroyed the sterling area which stood by us. There was no need to do it. We could still have gone into Europe. I am a European but not a Common Marketeer. The Common Marketeers are Little Englanders from a shopkeeper's paradise. It is a Punjabi's concept for buying cheap and selling dear—and then the Liberals talk about "free- ing". There is nothing free about the Common Market. They have built the biggest tariffs that can be imagined. We have "Portugalised" Britain as the result of a couple of years of Tory rule. This is the result.

My Lords, I said I should not be long and I have kept my word—well, it did not seem long anyway. Now, if I may deal with what the noble Viscount, Lord Eccles, said—shall we listen to the faint hearts, shall we abandon greatness and spend our time in confiscating and distributing everything that our fathers accumulated, or shall we go forward with the Conservative Party, make new fortunes and add new splendours to British industry? Because, by God! we have done it for the brewers. We have had all these mergers. All my collier pals know about this: do not think that they do not know what these things are. They know more about economics and mergers than you would think, because they analyse the position.

I am sorry that I have had to make that little crack, but I think that the Government at the moment deserve it. The paradox is that, despite what I have said, the mass of the people in the West and in the Communist world—I have just come back from Czechoslovakia—are better clothed, are eating better and have better housing than ever. That is true even of England. There are those of us who remember the "Hungry 'thirties". All that is true all over the world to-day. And yet the strain of living increases daily as the world grows smaller. Marx is still right: relatively, the richer nations are growing richer and the poorer nations are growing poorer. There is a need for all of us in the world to get together, and that is what I should like to see happen. I should like to see the Government organise a world conference to discuss the problems to which I should not have the audacity to think that I know all the answers.

8.47 p.m.

LORD BALFOUR OF INCHRYE

My Lords, in a democracy, to fight a war needs more than material weapons. Psychological reactions march alongside weapons; and leadership and public relations in the broadest sense must be part of the armoury. To-day we have had some remarkable speeches. I would par- ticularly pick out the speech made by my noble friend, Lord Robbins and that of Lord Thorneycroft. It has been shown that the Government now face the hour of truth. Lord Thorneycroft postulated the question: can the Government control the position without adopting measures which, even if temporary, they have hitherto rejected? I believe that the noble Lord, Lord Thorneycroft, started off by saying that the Government have much to their credit. They have shown strength and determination in their efforts to limit wage settlements in accordance with the needs of the economic position. It would be just too easy to avoid industrial conflict by conceding in the public sector instant settlements by instant surrender—and that way lies disaster. The Government also had the courage to amend economic policies which have not worked out as they expected, for who in your Lordships' House would have expected to see the "lame ducks" of 1970 transformed into a collection of carefully-nurtured pets, well fed upon the taxpayers' money? That is all to the Government's credit; but it is, I think, in the field of psychology and the display of leadership to ordinary folk that the Government seem to me to have been short in merit and expectations.

The noble Lord, Lord Beswick, in opening the debate, touched upon the unfortunate display of large increases in the top salary brackets, when we are trying to hold down increases at modest income levels. In our efforts to hold down levels we have seen strikes and go-slows concerning electricity supply, the post, dustmen, miners and railwaymen. It is a formidable list, and probably not a complete one. The arguments in the disputes that I have mentioned have mainly been concerned with whether £20 a week should be immediately introduced or whether it should come later on. The general argument has been concerned with something between £2 and £3 a week and, quite rightly, this has been argued about—because when you have millions, or at least hundreds of thousands, of men in industry, it is vital for the national economy that the wage level for those masses of workers is kept down. Yet at the same time as those proposals are made large increases are suggested for what I would call those with top salaries—increases far bigger than the total of a railwayman's annual pay. Those increases are proposed for various top job holders, according to the recommendations of the Boyle Committee. I will not go through them, but we find a £2,500 increase for the head of British Rail and a salary of £27,500 for the Chairman of the Iron and Steel Board. We find rises for senior Ministers, as we discussed on Friday, when I was severely taken to task by the noble Earl, the Leader of the House, who I regret to say is not here, for widening the debate. I have no repentance for having done that, because these matters are all interwoven. Indeed, I replied to the noble Earl that I accepted his rebuke: I only trusted that he would convey an equal rebuke to his own Ministers when they themselves often widen a discussion in answer to questions. I have not yet had a reply.

The usual arguments were deployed on Friday, and no doubt they will be repeated to-night if the noble and learned Lord the Lord Chancellor is good enough to take notes of my comparatively humble points, because the Government have sheltered and entrenched themselves safely behind the Boyle Committee. The first argument is, of course, that there have been no recent reviews. Higher civil servants' salaries have not been reviewed since 1969; senior appointments in the Armed Forces have not been reviewed since 1970, and of course the argument is that top pay must be prevented from falling behind comparable pay at outside levels. Indeed, the Prime Minister himself said this: What is required in this country, as much as anything, is an improvement in management, and if management is going to be encouraged, instead of going abroad to take up posts, then it has got to be encouraged in this way. That is all very well, my Lords, but I think the main point is that these increases are within the Government's norm: that will be the Government's argument. But I do not think they should deal in percentage increase talk right through the range of income, expressed in cash terms, because when expressed in cash terms it shows up social anomalies; and I believe that these social anomalies are out of keeping with the I Government's efforts to hold down to a reasonable level the increases of miners, railwaymen, nurses, and other settlements. The weekly wage-earner cannot be expected to stomach these increases yet, in his own far lesser income bracket, be expected to agree to a limit of, say, 10 per cent, on £25. He says, "The bosses are getting away with it. Why not me?" One cannot blame him for saying that. I say that it is politically inept of the Government, whom I support fully in major ways, to let these increases go forward in this form at the present time. The noble Lord, Lord Shackleton, the Leader of the Opposition, in supporting the proposals last Friday, spoke of the view that "it is never the right time." That is quite a good argument for giving increases now, but I believe that an even better statement is, "It may never be the right time, but certainly it is the wrong time now."

I do not argue that these rises are not justified: I think they are. But in a time of crisis—and, goodness' knows! we have heard enough about the crisis to-day; and rightly so—example, and some personal sacrifice, can be expected from those at the top. Why not let the Government accept the Boyle Commission recommendations now, but agree to suspend their implementation until the immediate economic dangers are past? That would not be an unreasonable thing to ask of Her Majesty's Government, because by doing this they would have a better chance of convincing workers on the railway, on the bench or in the mines, of the need for those men themselves to play their part in this economic crisis. That is my argument as to why I say this Government, successful in so many ways, have been weak in their psychological approach to these problems.

Finally, in the direction of public relations in their widest sense, I would say to the Government: "Please do something to bring home to the nation in a much more forcible way than you have been doing hitherto the dangers we face." The noble Lord, Lord Thorneycroft, rightly said that a great number of people—perhaps half the people—do not appreciate the dangers which face the country, and they are part of the country. I regret that our Prime Minister has not felt able to go on to television himself as the Leader of Her Majesty's Government, the leader of the country, and in a ministerial broadcast tell the people, in simple, direct terms, man to man, the realities of what we face, and give a personal lead and exhortation which may carry us towards the safety which we all seek and which we have been debating with some effect this afternoon.

8.54 p.m.

LORD ARDWICK

My Lords, I am very tempted to follow the argument of the noble Lord, Lord Balfour of Inchrye. I myself have always been rather worried about the principle of comparability for the highest posts in the State. I have been worried about it because in my own profession of journalism, which makes no particular claim to nobility, a number of newspapers have been able to carry on in the past—I am thinking of papers such as the Guardian, The Times and the Daily Herald—only because a number of men felt that the psychic rewards, the joys of serving newspapers of that kind, were so great that they were willing to accept a salary far below the commercial rates. I could be tempted to go on about that. But of course we are now dealing with a very complicated situation. We are dealing with men at the heads of nationalised industries and so forth in an age of terrible inflation, in an age of penal taxation, and in an age when pensions are still not "dynamised" completely to cope with the inflation that these people have to face in their later years. So it is very difficult to make judgments; but certainly from the point of view of presentation of the Government at the present time what has happened in the past week or two is regrettable.

When I first read the terms of my noble friend's Motion, I thought that for once in a lifetime we on this side of the House were perhaps not being wholly fair to the Government because the message of the Motion is not only true for to-day; it is true for all time—stable money, expansion, work for all, and an undivided society. Of course, no Government in history has ever got near this Utopian mixture, and no Government is likely to, at least not on this side of the Pearly Gates. Yet the Motion is useful and necessary, just as the General Confession at church on Sunday mornings is: as a measure of the distance between our wayward path and the road to sanctity. The distance between the Government to-day and the requirements of the nation is terrifyingly wide. We are not indicting the Government for failing to reach perfection, but for being so very far away from it.

The devaluation we have suffered may have been foreseen by a few Jeremiahs and Cassandras; indeed, their prophecy may have contributed to its fulfilment. But for the rest of us it came as a terrible shock. The state of the pound seemed to me to be rather like the state of man described by Shakespeare's Wolsey: … to-day … the tender leaves of hopes; to-morrow blossoms, and just when we are all full of hope, a killing frost. And then it falls. Only a week or two ago we were still rejoicing, the words were still on our lips, about that record balance-of-payments surplus that we achieved in 1971. We were rejoicing that the debts had been paid off. Although the trade account was not good, it seemed possible that the coal strike was still affecting the figures. Even so, we were still apparently in balance. Even if we finished the year with a modest deficit, there were ample reserves to see us through. And then, suddenly, the frost.

Whether the pound really was overvalued was anybody's guess. The Chancellor of the Exchequer says it was not. The Leader of the Opposition in the other place is inclined to agree. But not Mr. Jenkins. The evidence for either point of view seems to me to be rather thin. But one thing is certain. The Government did not believe that the time had come voluntarily to change the parity. They were knocked off it. They did not believe that the day had come when its true value was unrealistic and when, as Mr. Barber had promised, there was no point in striving to maintain it. The people who thought that it was at an unrealistic level were (I am going to use a neutral term) the holders of money and the holders of sterling. They saw that our expansion, which the Chancellor had quite rightly promised not to check, was putting an increasing strain on the balance of payments. They saw industrial troubles, including a dock strike, looming ahead. They saw the possibilities of industrial disruption ending perhaps in inflationary settlements. And so they moved out of sterling. Yet the evidence on which they acted, the evidence that devaluation was an imminent necessity, must have been inadequate and may well have been wrong.

The lesson is a sharp one. A Government determined on expansion, as this Government appear to be, must not only be able to finance the expansion; they must also seek and get assurances that reasonable courses are going to be followed in the industrial field. People have to recognise that though full employment in itself is not inflationary, the road to full employment does generate some inflation, and so additional inflation must be kept at bay. But even this is not enough. Holders of sterling may be convinced that the parity cannot be held, long before the Government feel that a change is necessary for sound trading reasons. So some way must be found of discouraging or containing or controlling short term capital movements. It is a difficult undertaking, especially for a country such as Britain. But surely it is not an impossible one.

I will not go on to castigate the Government for their past errors, for their slowness to reflate, for their abrasive policy towards the unions, for their foolish use of the Industrial Relations Act—even in the past few weeks—or for their belief that in the late 20th century we could recreate some of the practices of the golden age of capitalism. It was all a romantic folly. The age of Disraeli, of untrammelled private greed masquerading as social virtue and yet trying to save its soul by acts of Christian charity, is a dead age. Democracy must mean consensus. Nobady on the Left or on the Right can govern by conflict and still maintain democracy. If one refrains from dwelling on the Government's past errors it is because the strategy they are now pursuing is broadly right. Unfortunately, it is difficult to convince people throughout the country who are not so quick to react to change as we may be. There is a terrible backlog which the Government have to overcome at a result of their actions in the first 18 months of government.

It is right for the Government to go out for expansion. It is right to pour money into the regions. It is right to prop up—at least in the short term—the labour-intensive industries which are in danger of falling by the wayside. It is also right to appeal to the trade unions for their co-operation. As the Prime Minister has implied, we cannot go on trying to expand unless we can cope with avoidable inflation. Of course the unions can legitimately score points against the Industrial Relations Act. Of course the Government might be wise to think again about the necessity to put up rents for millions of people, and of putting millions more on a means test in order to avoid those increases. Those things have considerable importance, but they are only a part of the main scene. I think the trade unions have got to recognise in the end that a prices and incomes policy is as much in their interest as it is in the interests of everybody, and it would be tragic if the drive that is now being undertaken for full employment were to be wrecked by a mixture, on the side of the Government and of the unions, of pride and prejudice around an Industrial Relations Act that is largely irrelevant to the central issue, and largely unworkable. The unions of course are asking the impossible when they demand the repeal of the Act; but a Government with its eye on reality would let that Act lapse—if I may use a Churchillian phrase—into "innocuous desuetude".

Now the difficulty is, as the noble Lord, Lord Robbins, has said, that inflation makes all of us mad, cunning and selfish in the hope of surviving the wreck and preserving our personal position. The question before us is, can we return to sanity and together seek a social solution? Can we, as a nation, see that even enlightened self-interest—our own long term interest—demands that we should do so? If we do not do that, if we cannot deal with our current madness, then I am afraid we may have to go back to the old legal strait-jacket, to the old legal freeze of prices and incomes—not a nice thing; an evil, perhaps, but an evil less than the developing inflation in which we are now caught.

9.6 p.m.

VISCOUNT MASSEREENE AND FERRARD

My Lords, the only part of the Motion with which I find some sympathy is the last part; indeed, I think several other Members of this side of the House have also found sympathy with it. I refer to "a unified society". But one cannot really blame the present Government for not having a unified society. It is a difficult thing to achieve. Certainly after the last War we appeared to have a more unified society than we have to-day, perhaps because it is a more mixed society to-day. I think a unified society would be the key to our salvation.

I cannot agree with the noble Lord, Lord Beswick, in the blame that he puts upon the Government for not maintaining the value of money. In fact no Government since the First World War have maintained the value of money. The only period in our history when the value of money was maintained was for about 100 years covering the Victorian period, when the value of the pound changed hardly at all. The pound was then supreme. In my view the present Government have done more than almost any other Government since the last war to try to preserve the value of the pound. After all they have given tremendous incentives to investors. They have cut taxation by £3,000 million; we have a low bank rate; and the Government, through the Industrial Relations Act—which has had a lot of mud thrown at it to-day—have tried to induce the unions to honour their agreements, voluntarily arrived at, and to cure unofficial strikes. One cannot really blame the Government.

But, my Lords, without a doubt what has gone wrong is the apparent refusal of organised labour to co-operate with a democratically elected Government. I know of no other country where this situation would be tolerated; it is a definite defiance of the law. As I say, a lot of mud has been thrown at the Industrial Relations Act by some noble Lords to-day. But I would remind noble Lords that since the Industrial Relations Act became law last February 1,600 disputes, I understand, have come before the Industrial Relations Court, 600 of which have been settled satisfactorily. They are not disputes that get into the newspapers, but the Court has certainly done some good work. Moreover, I understand from the newspapers that the Prime Minister is prepared to discuss with the unions any sections in the Industrial Relations Act which they do not like and which may hurt their interests. Presumably they are prepared to come to some compromise. But I often wonder whether the unions really understand what is damaging to their own interests. As we have heard, this Act is only an Act to bring the unions within the law, as they are in every other country. It is only asking the unions to adhere to the law of contract that every other citizen of this country has to adhere to. That cannot be called a dastardly plot to destroy the unions. The propaganda that one hears against the Industrial Relations Act is completely absurd.

But, my Lords—and I come back to this point—to blame the Government for failing to maintain the value of money is very unfair, because if wage claims are made and persisted in, completely unrelated to productivity and prices—and, after all, this is done by industrial blackmail, which I know is a strong word—the Government are in a very difficult position. I understand from the papers to-day that Mr. Feather said that if the unions do not want to do something they are not going to do it. My Lords, that is just like the attitude of a spoilt child; it is complete and utter defiance of the wishes of a democracy. I sincerely hope that the unions will change their views on this, because if this madness persists we know what will happen: presumably it is bound to end in confrontation; and nobody wants that. It might mean the breakdown of society, anarchy, privation and great distress. I have had something to do with shop stewards with whom I always got on very well. I know the British working man and get on well with him, but I am quite sure that there are throughout industry a great many people—professional agitators—who would be only too pleased if the whole of society broke down. That is just what they want.

When the last Government tried a wages and incomes policy I was all for it. I did say at the time, however, that I much doubted whether, in a full democracy such as ours, one can really get voluntary restraint and that where there is a mass of industrial workers they do appear, probably through no fault of their own, to be abysmally unaware of the basic elements of economics. It is very difficult, therefore, for such a policy to work. It is sad to think that we are so immature, or that we are not mature enough, to have a policy of voluntary wage restraint, but we do not appear to be able to. I beg the Government to do everything in their power—and I have often harped on this over the years—to explain to the people what the Government are trying to do, because there is a great fund of good will in this country among ordinary people, but they do not really understand. I often talk to work-men about this, and I know of work-men who cannot understand why they cannot be paid £100 a week or even £200 a week. They say, "Why can't the Government print more money?" Then I explain that if you did that a box of matches would cost £3 or £4. They still do not appear to grasp the situation. If only we could get this point over!

I have always thought that in public utility companies like the nationalised industries, which after all are monopoly industries, where a worker has all the advantages at the taxpayers' expense, it is socially unacceptable that he should strike. If only it could be explained and be brought home that in a monopoly industry, a nationalised industry, it is socially unacceptable to strike, and that by striking you will inconvenience the public who pay for those industries, and, while you are on strike, also pay for the National Assistance to keep you in idleness—if we could get over to people that to strike is socially unacceptable, that it is rather like running off with your host's wife—I feel we might get somewhere. Of course, people have a right to strike; but I am talking of the nationalised industries, which are different from private industry. If we can make it socially unacceptable, I think we shall get somewhere, because the average person does not like being socially unacceptable.

In these debates to speak near the end is awfully difficult, and I am trying to say something constructive. There is something I should like to propose, but probably I should be thought mad. I have always thought it would be far healthier if, as far as possible, we could keep finance and money out of Party politics. I think perhaps we should then have more hope of a unified society. I cannot understand why all Party funds cannot come from the Exchequer, by direct grant from the Exchequer, based on how many votes each Party received in the last General Election, and each Party would receive the appropriate funds. That would be a very small charge on the Exchequer; it would amount to only a few cigarettes per elector. It would take finance away from the field of Party politics, and take away the feeling that politicians have to bow down to big business or to the trade unions. I would not think of criticising Members of another place, but then perhaps we might get even better Members of another place, people who would perhaps be completely uncommitted and would think first and foremost and only of their country.

We have to think of our country. I am afraid there are quite a lot of "smart Alecs" around to-day; we have them in my Party and they are also in the Party of the noble Lords opposite. I am all against "smart Alecs". There was a rather unsavoury article in the newspapers to-day, from which it appeared that M.P.s of both Parties were paid large sums of money for doing God-knows-what. It is far healthier to keep money out of politics. I agree with what my noble friend Lord Balfour of Inchrye said. No doubt the chairmen of nationalised industries and senior civil servants and judges deserve these extra salaries. Admittedly most of the extra salary will go in tax, but I do think this is rather a bad time to implement the increases. Perhaps events have rather overtaken Her Majesty's Government. I understand the difficulty; things have happened rather quickly.

The only good thing I can say about the floating pound is that it may make the average person who goes abroad understand what happens if he gets wage increases above productivity and running ahead of prices. I must confess that apart from that I do not like the floating pound. Perhaps this action had to be taken, but I hope we are not required to endure it for long. It is a rather sad situation for the sterling area.

It is all very well if a voluntary agreement can be reached where wage increases are tied to price increases, but this will not solve the problem of unofficial strikes. I do not know where we are going if the unions are not made responsible for unofficial strikes. I thought that under the Industrial Relations Act the unions were responsible for the action of their shop stewards, but apparently that is not so. The matter I understand, has to go to appeal. I know one way to cut down on strikes, but it would be very unpopular. It should certainly apply in the nationalised industries. National Assistance ought not to be given to the families of strikers unless there is real hardship. Without doubt such action would stop a lot of strikes. We must make the majority of people feel that they are united and are actually getting to the target, in that they are engaged, with the Government, in building a prosperous country which will give a higher standard of living for all. If we do not get that feeling I do not think we have much hope, because eventually we are bound to have a confrontation and then we might end up with a dictatorship, either of the Right or the Left. Nobody wants that; certainly I do not.

I should like to end by saying that if this economic disarray continues—other noble Lords have mentioned this aspect—it will be very difficult for us to go into the Common Market. We shall find our opportunities in the Common Market fading like the snow in spring. I do not know what would happen then. We have very few natural resources in this country. I know that noble Lords opposite are always harping about labour. We now require less and less unskilled labour; it is the brains of this country which are our real wealth. We do not want them to emigrate. If that happens we shall then have a controlled economy under a sterile and unimaginative bureaucracy, and presumably we shall end up as the poor man of Europe. I cannot believe that will happen, because we have the resilience and intelligence to avoid it.

9.24 p.m.

THE EARL OF LYTTON

My Lords, I have enjoyed listening to the noble Viscount, Lord Masereene and Ferrard. He makes us laugh. I appreciated his point that it is difficult to make people understand the elements of economics. For four years in the 1930s I was an instructor on this dismal science to the senior division in Sandhurst. I corrected all my own papers, and I suppose I must have taught 2,000. They were intelligent lads, from public and grammar schools, well-educated boys, but I can confirm that it was difficult to interest some of them and to make them understand. I could quite understand after quite a long, hot summer, cadets being confused between, shall we say, the balance of payments and balancing the Budget, which is something quite different. I think a great many people in this country are in precisely the same situation. They do not know the elements of the value of money and its purchasing power, and it takes a great deal to inform them.

Having said that in response to the noble Viscount, I want to say that it is a pleasure, coming at the end of this long debate, to scrap my own notes and to gather in some of the gems which have been let fall in some great speeches. Before calling attention to three of these, I should like to try to assess an element of agreement. Is it agreed that inflation has been going on a very long time? For myself, I traced the rise of prices from the 13th century, but I do not think that anybody wants me, at this time of night, to give illustration from the Peasants' Revolt of 1381, or anything else. I hope it is agreed that inflation of some sort has been going on for centuries, and that maintaining impeccably the value of money is something that will for ever be beyond our likely competence. Secondly, I think that the noble Lord, Lord Robbins, in a speech which many have described as most striking, and which I felt was like a bucket of common sense, mentioned that the inflation we are undergoing now is of a dangerous kind; and that view was echoed by the noble Lord, Lord Thorneycroft. I think there is also agreement that there is a greater degree of inflation in this country than in many of our neighbours, and that that is the principal danger to our balance of payments.

At least three noble Lords mentioned (and I think there were others whom I may not have heard) that the Motion before us to-day should have been levelled equally at the previous Government; in other words, that it is a kind of "pot and kettle" assault on the Government. The noble Lord, Lord Walston, from the Labour Benches, made that particular point. I hope that, at the end of the evening, the noble Lord, Lord Beswick, having stimulated a most exciting debate, will withdraw his Motion, if only on the ground that his indictment applies equally to his own Party. We are anxious about the failures of the Labour Party, and at the lack of success so far of the Conserva- tive Party. That both should come to failure is an utterly unthinkable disaster, and that is something we must hope to avoid.

The priority in the course of the debate was mainly inflation, but the noble Lord, Lord Beswick, followed by certain other speakers, put the achievement of a just society and an egalitarian society (or something of that kind) as being necessary first. With respect, I think that is crying for the moon. It is possibly wrong that anybody should have a Rolls-Royce here, but if you carry that argument to other parts of the world—and I have been living with nomadic tribes in Africa—it may be wrong to have a bicycle there. It is the disparity of wealth which excites envy, and it does so in certain places over a bicycle with just as much certainty as it does elsewhere over a Rolls-Royce. I think that that is a separate subject of debate, and I am sorry it was introduced into this debate because we are really talking about inflation and not about an egalitarian society.

I listened with interest to, and was suitably impressed by, the noble Lord, Lord Boothby, who I think is the only one of us who speaks in Churchillian tones. He referred to an episode which concerned me very much when I was instructing in this subject—the return to the gold standard in 1925. He may have been airing a prejudice when he attacked the Treasury alone, because my recollection is that Winston Churchill was at the Treasury at the time when we returned to the gold standard and, for whatever reasons, the decision was proved to be wrong. Sterling was over-valued in relation to the dollar, with all the strain that placed upon our balance of payments, and it is unfortunate to blame the Treasury, which the noble Lord did in no uncertain way, for something which Churchill did. You might just as well blame the Admiralty for Gallipolli, instead of Churchill. Churchill was not a man to do things for which he did not take the fullest responsibility.

That has a bearing on our entry into the Common Market, because in 1925 we returned to the gold standard with our pound over-valued, but in 1928 the French, with customary subtlety, returned to the gold standard with their currency under-valued. Those two factors placed an enormous pressure upon us. They were not the only ones, but they placed an enormous pressure upon us. The point of relevance at the present time is that when we go into the Common Market, when we fix our parity—as I suppose we are certain to do—it would be a most lamentable mistake if we either over-valued or under-valued again. That is the difficult point at which we all must aim. The noble Lord, Lord Boothby, rightly pointed to what Keynes called "the economic consequences of Mr. Churchill". The over-valuation of sterling and the return to the gold standard in 1925 was the beginning of an era which ended in such lamentable unemployment that a pacifist trade union lady, with whom I sat on the Central Advisory Council for Education, said to me one day, "Mass unemployment is a more evil thing than war"; and I think that is true.

In his admirable speech, the noble Lord, Lord Robbins, intimated that we must not check inflation instantly or we shall precipate unemployment. That is what puzzled me about the terms of this Motion; that inflation is the cause of unemployment. In the classical theories it has always seemed to me that it is the process of checking and arresting inflation that presents the difficulties of preserving employment. The noble Lord, Lord Robbins, spoke about the need to go slowly and suggested that we need a period of breathing space, during which we might have a prices and incomes policy, legally enacted, in conjunction with other things. I was wondering what other things. I suppose that if the Industrial Relations Act, to which I take no exception, is to be held in suspense for a time, that will be done in order to secure good relations with the trade unions, which of course are essential. That is because the trade unions have absolute power in these matters—a negative power to destroy themselves and the whole of society. We cannot regulate them by force.

Very well, what other things can be done? Is it possible to associate the prices and incomes proposition with the Industrial Relations Act? What about industrial action? What about a moratorium on "Go-slow" and on strikes? Surely that would be advantageous to us all and would give us the breathing space for which we all hope. I share the view of all economists that the prices and incomes policy is only a breathing space and that, in so far as it keeps things below the natural market level, they go up more rapidly when we take the lid off than they would if we had no lid at all. It is something that must come home to roost. I merely suggest that these things should be considered.

The noble Lord, Lord Thorneycroft, made another thumping great speech. It was persuasive to a degree. He asked for co-operation. If the noble Lord asked me for co-operation I do not think that I should be capable of refusing because I find his persuasiveness, his arguments and his eloquence so great. He raised a point which brought to light the reversal of the approach of the Labour Party to the control of the trade unions. I shared its hopes ardently. I wrote to a newspaper defending Mr. Harold Wilson against some critic in the Sunday Telegraph. I do not mean that Mr. Harold Wilson needs letters from me in his defence. I merely mention that as an expression of my feelings.

I noted with great regret the packing up of the Industrial Relations Act by Mrs. Castle. I did not share Lord Thorneycroft's view, but I admired him when he resigned and I wrote an article about it. I do not think it was necessary for Mrs. Castle to resign, but I regret that she went so much into reverse and criticised with such passion the attempts of the other Party to do very much the same thing as she had tried to do. That was very regrettable. I hope that the Labour Party will respond to the noble Lord, Lord Thorneycroft. Co-operation is surely the key. The noble Lord, Lord Walston, used a phrase which might also be considered to be the key to this debate. He acknowledged that his Party had achieved no more than the other Party. He said he hoped that the other Party will do the things that his Party tried to do and failed and that it will succeed. The impression we get, not in this House but in another place, is that in no circumstances would the Party in Opposition welcome on any terms any success by the other Party on the fronts where it had failed. I hope that this trend will be reversed and that the noble Lord, Lord Beswick, will not press his Motion to a Division. It is on a matter which reflects no success of any substantial nature by either of our two leading Parties. If we have failure from both, the calamities will be beyond belief.

9.40 p.m.

LORD SELSDON

My Lords, I would feel myself a total hypocrite if I did not admit to sharing to a very large extent the views expressed by the noble Lord, Lord Beswick, in the very careful phrasing of his Motion to-day. As an optimist I should like to believe that we are near to the threshold of the greatest period of economic growth, and sustained economic growth and international expansion, that this country has enjoyed for many a decade. Western Europe, whether we like it or not, is now the focal point of the world's attention; and we, whether we like it or not, are the focal point of Western Europe. We live, without any shadow of doubt, in the freest country in the world, and our quality of life is admired and respected above all others. Why are we so utterly incompetent that we cannot put our own economic house in order? Why must we endure continually the spasmodic buckets of cold water that are poured over us by our rivals, our allies and even our own kinsmen?

As a nation, we have seen the world torn apart and rebuilt. And yet, apart from an enlightened few, we ourselves have sat back secure in the feeling that if we are British everything will be all right in the end. In a funny way, I believe that because we are British everything will be all right in the end; but during the past ten years, whether it has been through selfishness, laziness, utter incompetence, lack of forethought or narrow-mindedness, we have created a situation of such economic and industrial disunity that only strong leadership and a firm hand can push us along the path to economic growth. My Lords, this is, and always has been, the responsibility of Government, and Governments must be judged by what they have achieved and not by what they set out to achieve. But the final judgment can only be made at the end of their period of office, and not at the end of the first two years.

Personally, I believe that as far as our economy is concerned the Government set out on the right track and are still on the right track. But, somehow, during the last months—and I think it has been only in the last three months—in the eyes of the country they have moved from being positive and active to being somewhat negative and passive. We have had something of a hiccup in confidence, a hiccup in sterling and a hiccup in the economy. This hiccup has been caused not so much by the general economic policies of the Government, which I believe are sound and good, but rather (the subject which we are debating to-day) by inflation, which in my own view has been due almost entirely to inflationary wage settlements. Although the ultimate responsibility for this must rest upon the shoulders of the Government, it would be dangerous and misleading not to apportion some of the blame to the management of nationalised and private industries, to the unions and to the employees themselves. Wage inflation will continue, and will create further economic and monetary problems unless a firm stand is taken. There must be, as has been pointed out again and again to-day, a closer relationship and understanding between Government, management, the unions and labour.

It seems to me that, somehow in this country of ours, we have lost our way. I have no great respect for French industry, and yet the French have a certain form of paternalism in that, as a Frenchman put it to me the other day, "A good French company is one which balances income with expenditure and provides a good way of life for the people which it employs". Not so many years ago it seemed to me from what I had heard that people were proud to work in nationalised industries, proud to work on the railways, proud to work for a man in private industry whom they liked and respected. An employer used to claim with pride, "I employ 5.000 people". Now he says, "My key ratio is this", or, "My net assets are these", or, "My profit before tax is this". Somehow along the line the human element has gone out of our life. In my humble way, I like to feel that I have always worked for people and not for organisations. But, my Lords, at the moment we have people who remember the war years; we have people who talk quietly about the yen inflation, about the deutsch- mark inflation, about the day when you were in a German hotel and one morning you thought you could pay your bill with your deutschmark and the next day it was only enough to tip the porter.

Now what can the Government do? We can, of course, opt for a wages or prices and incomes policy. I do not like that. I never have; and others have pointed out that it just will not work. It is totally alien to the British character. It is psychologically unacceptable, in my view. But the alternative (and I believe the Government are right) is going for increased productivity and growth. I believe that in a way we had begun to "lick" the unemployment problem. I believe that industry was re-investing. I believe that the great industrial shakeout, as it has been called, is over. This has been demonstrated by group company results in certain sectors, increased turnover, increased productivity, people looking for more employees.

But let us not forget the past totally. This long overdue shake-out of industry was the dramatic and major contribution to unemployment. It left its mark in no uncertain manner, a mark that will remain for many years. Its impact was made greater through the selective employment tax; not the tax itself, but because it caused management to realise that in many cases it had an excessive labour force. It was made greater through industrial relations problems which made management and investors wary of labour-intensive industries; and it was made greater through a lack of confidence from abroad, as Lord Thorneycroft mentioned. This confidence went away; there was no further confidence in the reliability of British labour, and international investment went to the countries of the Continent which offered more reliable labour conditions. And let us not forget the point made by the noble Lord, Lord Beswick, about asset stripping, of mergers and acquisitions. Whether we like it or not, in a move to make industry more productive, more profitable, people become pawns in the game. This is a sad situation, but I believe that that is over, and I believe that we have reached the point when the effects of the shake-out are totally over, when we have the ingredients of a stable and expanding economy.

Things looked good and then came this mad bout of inflationary wage settlements, and an intolerable rate of inflation which hurts the most under-privileged and which favours the rich, favours those who have their houses and favours those who have invested their money in things. I believe that it was this concern over inflationary wage settlements and not the dock strike, as Mr. Victor Feather would have us believe, which created the fears of devaluation. It was these fears which I believe were set on fire by totally irresponsible remarks by those who should realise how much the strength of sterling depends on international confidence. Shake that confidence, even slightly, and a serious problem becomes a crisis overnight, harming ourselves, our friends and our allies in the sterling area and those who hold sterling.

The Government were right to float the pound, but wrong in that they failed to recognise the impact that wage settlements would have on national and international confidence. Their early warning system was at fault. Now they must repair the damage; and even though the damage was caused largely by others, the responsibility is theirs: they must restore confidence. This they must do firmly and quickly. I believe that they have the greatest possible opportunity to do so in this week. To-day we have seen such chaos in the Foreign Exchange market. Lord Boothby was not wrong when he said, "Let us go back to gold". Nobody knows which currency to go into. The pound is now on the way up. Is that because the economy is stable or because people are afraid of the dollar? I think people are afraid of dollars. The Americans would like Europe to float; the deutschmark may float to-morrow—or the franc. To-day, at sixteen minutes past one o'clock, the French Government resigned. Europe is in total disarray. Now is a fantastic opportunity for the Government to take the bull by the horns and give confidence and leadership to Europe. I believe we could seize it now, and deserve it. We need some magic thing to demonstrate that we are back in control. Although I dislike saying this, because it sounds like a strong Right-wing attitude, we must control inflationary wage settlements, even if it means some form of confrontation. Then confidence will he restored and sterling will settle at a higher rate—and at a much higher rate than people feel to-day. I should hate to take a punt on it, but I believe that it will be 2.50-plus—particularly in view of the current situation. Of course, the Government have injected money into the economy. They must now reduce the money supply. But there is one area, an emotional area, a minor area to some, but one which I should like to take up. This is the area of supplementary benefit. I think it is right to pay tribute to the progress that this Government and the last Government have made in the field of sickness and unemployment benefit. Things were done which were good.

To illustrate this I take one example—I would call it the average family, though I dislike the word "average": a married couple with two children under 11 years of age. Between 1960 and 1971 their average net weekly income in work rose from £13.94 to £25.85, an increase of around 85 per cent. The average net weekly income of those off sick or unemployed over the same period rose from £5.50 to £20.5., an increase of some 265 per cent. This narrowing of the gap between net incomes in work and out of work is commendable, provided that it does not lead to abuse, and provided that it is not used for the wrong means. In 1960, this typical family's net income when out of work was 39 per cent. of what it earned in work. In 1971 the proportion was 77.6 per cent. The question I ask the Government—without wishing to put any cat among the pigeons in any way—is this. Is it fair on the taxpayer, and, equally important, on those actively seeking employment, that a man, if he refuses to work in some way, using average earnings as a base, can take home 77.6 per cent. of what he would receive if at work? I ask this because I think that this has some bearing on industrial disputes in some way which I should hate to suggest. This last bout of industrial disputes can do irreparable damage to the employment situation if the Government, unions, managements and labour itself, cannot ensure confidence in United Kingdom and in British labour.

My Lords, I am worried—and I think that the noble Baroness, Lady Seear, also made this point. As a country we may move further and further away from labour-intensive industries towards capital-intensive and service industries. Service industries will grow in Western Europe, there is no doubt; and the British are well positioned to take their opportunities and make the best of this. I am worried that the spirit and the skill of the British worker may fade away and die. I believe that a good many people have forgotten that this country, which has not a particularly great amount of natural resources, has one major asset. It is the skill, the initiative and the drive of the British people, which, if harnessed, can achieve very great things. Let us not forget that if the unions refuse to cooperate with the Government and the members refuse to co-operate with the unions, a future for full employment in this country is non-existent.

That leads me to a second area of concern; and I should like to make this as an early warning point; it is one that in my job concerns me specifically at the moment. I refer to international investment within the enlarged E.E.C. As the weeks roll by towards the date of our entry, British companies, of all shapes and sizes, are roaming the Continent looking for acquisitions; looking for investment opportunities; looking at the advantages of setting up abroad. Many of them are fed up to the back teeth with the labour situation in this country. They are not bad employers; often they have a good, honest and reliable labour force, and they have a good relationship with their labour force. But they are fed up about other situations in other sectors of industry. This international expansionist attitude is healthy and must be encouraged. But we must have corresponding inward investment, and I do not believe that will come unless we can restore confidence in the reliability of British labour. "La maladie des Anglais" as it is called, is so serious, in my view, that only a firm line by Government, in co-operation with the unions, can restore confidence; and it would be wrong to be totally insular at this point in our history.

My Lords, I end on a simple note. I am not, and never have been, a pessimist. In the heart of every man and woman in this country there is at least one ounce of common sense. Let the Government recognise that. Let them recognise, too, that they were put in power to lead and to govern. If they actively demonstrate that what they are doing at this point of time is good, then, no matter how controversial their policies may be, they will have the support of the British people. They will have the support of national and international industry and, ultimately, the support even of those whose inflationary wage claims they reject, as indeed they must.

9.55 p.m.

LORD SHACKLETON

My Lords, in winding up this debate for the Opposition I should first like to say very sincerely that it is a great pleasure to follow the noble Lord, Lord Selsdon. I have little doubt that if he is unwise enough to take his politics seriously he will be an ornament of one Front Bench or another. Quite where he will end, I am not sure. But his speech was of a quality which was very acceptable to your Lordships, and I must say that I had expected it from him.

SEVERAL NOBLE LORDS

Hear, hear!

LORD SHACKLETON

My noble friend Lord Davies of Leek referred in the course of the debate (and the Leader of the House agreed) to the absence of noble Lords who had spoken earlier. It is worth reminding them—though unfortunately they are not here to hear this—that the Companion is very clear that it is an act of discourtesy for a Peer not to be here throughout the debate, even if he apologises.

SEVERAL NOBLE LORDS

Hear, hear!

LORD SHACKLETON

We know that sometimes it is unavoidable. My noble friend Lord Douglas of Barloch, who I know is not well, complained that he had to go because he had a fever. I have a fever at the moment—I hope that other people have not caught my cold. I know that the noble and learned Lord the Lord Chancellor, who sits on the Woolsack, is suffering from hay fever and has been assiduous in his attendance.

SEVERAL NOBLE LORDS

Hear, hear!

LORD SHACKLETON

It was perhaps a little unfortunate (let me put this mildly) that attempts to arrange for this debate to continue for a shorter period on Thursday came to naught, through reasons which I can only describe as failures of communication. I do not wish to attach blame to anyone on this. It is always exceedingly difficult when one does not know how many speakers are going to take part, but since a number of noble Lords have suggested that it was madness to cram so much into one day, I must exonerate the Leader of the House, who I know attempted, not quite successfully, to see if we could run over to another day.

Despite that, I agree with my noble friend Lord Hale—who made a notable speech, and one that was itself extremely acceptable to your Lordships—that the House has done itself honour by the quality of the speeches we have had to-day. It is perhaps a little difficult to pick on particular speeches but I will mention my noble friends Lord Walston, Lady Gaitskell, Lord Davies of Leek (who gave us a splended seven-minute speech which in fact last 21 minutes; he delighted the House by his great range of language and depth of spirit and feeling) and Lord Ardwick.

There have been outstanding speeches. Everyone has paid great tribute to the noble Lord, Lord Robbins, who has sat faithfully in the House. We had a good knockabout speech (he is not here now, so I will not answer him) from the noble Earl, Lord Dudley; and there was the speech of the noble Lord, Lord Thorneycroft. I will not attempt to deal with all of these beyond saying that no one can dispute that the Government have failed in the matters to which we are referring. Nor could I dispute that the previous Government themselves were not very successful in dealing with them. In this House we can afford a measure of frankness about this matter.

My noble friend Lord Beswick very much sought to take a constructive line, a line that we have consistently pursued in your Lordships' House: that whatever solutions there are going to be to the problems of this country, there can be no hope of solving them without a much clearer demonstration to the country, and an acceptance by the country, that we really are out to achieve social justice to the community.

Noble Lords opposite talked about the Conservatives showing a human face. We know that noble Lords have great humanity, but none the less the impression that has been felt in the country—and I shall go further into this; this is not just Labour Party propaganda; I ask noble Lords to accept that—is that the philosophies of the Government and the policies they have followed, far from leading to a consensus in favour of an orderly and co-operative approach—for instance, inflation has in fact been calculated to have the reverse effect—the conflict in our society has been sharpened by certain particular actions. I shall seek to describe some of these, because I should hope at least to attempt to end on a constructive note, conscious as I am, and as the noble Earl, Lord Lytton, made clear, that all Governments in the Western world have not been very successful and particularly in this country we have been less successful than most.

We are not helped by the inevitable—and, goodness knows! we had it sometimes when we were on that side—apparent complacency of the Government in these matters. I did not feel that the noble Earl, Lord Jellicoe, was particularly happy with his speech. He did the best he could, but I am bound to say without personal offence—and the same could be said about the speech a year ago of the noble Lord, Lord Aberdare—that there was a certain complacency about it. I could give a whole host of quotations from the Government before and since the Election, but I will not waste your Lordships' time. It is a dismal story. We had not expected our cases to be demonstrated quite so dramatically when we put this Motion down as has been shown by the decision to devalue the pound. And let there be no misunderstanding that it is a devaluation of the pound. While we accept that the Government acted promptly and correctly in the matter, none the less it has been a very disturbing consequence.

The noble Earl, Lord Jellicoe, even trotted out that they had reduced S.E.T. by 50 per cent.; I think we had that in last year's debate. We heard something about the hard-won achievements of the last two years. I should be jolly interested to find where those hard won achievements are, and whether devaluation is one of them. What they would have said to us if we had had a devaluation I do not know. We probably should have devalued sooner than we did. I suppose this was a matter of pride although the noble Lord, Lord Robbins, said that explanations and extenuations of the devaluation seem to be absolute nonsense—and I hope I have quoted the noble Lord correctly on that.

When we look at the figures the noble Earl gave us, these pathetically little trends, if I may say so, which suggest that prices are not going up as fast as they were last year, I can only say that the price of houses in the first quarter of this year has increased by 32 per cent. in comparison with the figure for the first quarter of last year. I find this a pretty record figure. As for the figures of short-term trends, I know that the Government have to give such figures but I regret to say that they are not encouraging. There is little doubt that the decline in the increase in food prices from 10 per cent. over one period to 6 per cent. more recently will quite soon be followed by a more rapid increase. The noble Earl is quite right not to attempt a forecast of what food prices will be in November. Devaluation alone will put them up; and the figures which have appeared in the papers—and I am sure that the noble Earl reads the Financial Times and other papers—show that we are in for some pretty severe increases in food prices.

There has been one very good thing about the Government: although they have never eaten their words, they have in fact proceeded to reverse their actions and their previous doctrinal approaches in a number of respects. We know that they have "nationalised" a couple of industries but without paying compensation to the shareholders—they let them go bankrupt, and I suppose that was good Conservative philosophy. We heard yesterday (or was it the day before?) that they were going to pour £14 million in one year into I.C.L. I am all for it, but I should like to know how it is going to be controlled.

So we see quite an interesting reversal in Government policy. The only thing is that they are running out of new names for Labour policies which they are adopting. None the less, even if the Government do not publicly confess their sins, we are glad to see the fruits of repentance. Although they have reversed the favourable balance of payments which they inherited from us—I know that this is old stuff—more quickly than we had expected them to be able to do it, they are pursuing a measure of expansion.

right at the beginning, Mr. Feather's proposal for some form of basic wage However, certain aspects still remain very divisive indeed. We warned the Government that the Industrial Relations Act could be no substitute for co-operation and conciliation. We do not claim—I grant this again to noble Lords—that we were particularly successful in dealing with the problem, though I am bound to repeat what was said by my noble friend Lord Diamond on occasions (some noble Lords may have thought them so numerous that they would rather not remember them); namely, that this Act is infinitely different from that which the Labour Government tried to pass. It does not matter whether it is an ideal Act or not: the fact is that it is not going to work. It is no use the Government thinking that it is enough to produce an Act—to introduce, as they say, the rule of law—and then, to find that the rule of law is not generally acceptable in this sort of area. The British trade unions have paid their fines; they have not ignored the orders of the Court, as has happened in some other countries. I am making no criticism of the judge, but we have seen some of the decisions of the Court reversed and some of the fines remitted by the Appeal Court; we have seen a threatened dock strike averted and the Government and the country saved by the Official Solicitor, of whom very few people had heard—a wonderful rescuing angel who appeared on the scene. If he had appeared a bit sooner we might even have avoided devaluation. But these were the direct consequences of this Act. It is a heavy price we are paying. How much better it would have been if the Chancellor of the Exchequer had not rejected, as he did increase linked to movements in the cost of living; how much better that he should not have poured scorn on that proposal as he did at that time, but seized the opportunity, as indeed he was urged to do by many responsible commentators! And now they are trying to do this. My Lords, I could give many figures—but I will not at this late hour—to show how unsuccessfully the Government have intervened in regard to the cost of living.

This brings me to one other example that I want to give of the divisive nature of Government policy. That is the Housing Finance Bill. Here, again, I always go to my noble friend Lord Diamond, who is a former Chief Secretary to the Treasury and an accountant; and we know that accountants, according to my noble friend Lord Bowden in a very interesting speech, now hire more graduates than anybody else in the country. Lord Diamond has pointed out that this Bill proposes to double the rent of council house tenants—some 5½ million of them. It proposes to subject some 3 million (it may not be as many as 3 million) of those families to a means test in order to save the taxpayer some £300 million in the years ahead. For all the things the Government have done—and I acknowledge things they have done—they have destroyed any possibility of a co-operative approach to preventing inflation by legislation of this kind, based on theories worked out but not relevant to the realities of the situation as they face us to-day.

My Lords, even worse—and here I take up a point made by my noble friend Lord Davies of Leek—the actions of the Government have made our entry into Europe more painful and more costly. Those of us who, like myself, believed in the Grand Design of Europe, and still do, must say that the failures of this country or this Government, whichever way we like to put it, will add in the short run to our difficulties, rather than the reverse. I have never believed that entry into Europe was going to solve any of our economic problems in the short run. I was much more concerned with the general political arguments. I shall not go into them, but there is little doubt that it is going to be a more costly experience as a result of this devaluation and with our loss of standing in the world as a result of it. We know that the Conservative Party has always believed a lot in the standing of this country, as we do, too, on this side; and we have suffered a real blow.

The fact is that in the present situation, where the share going to wages and salaries still remains approximately the same as it has been over the last ten or twenty years, the trade unions and the workers are having inevitably to fight hard, competitively indeed against their fellow workers. Anyone who wishes to see a co-operative or Socialist type society such as exists in Sweden, to which the noble Lord, Lord Hankey, referred, will know that the present situation is a very unhappy one. This is linked with the level of unemployment—and again I accept that the Government wish to deal with this problem, but the level is still appalling. We who live in the South of England have, I think, little appreciation of the real measure of unemployment in Scotland and the North, where, particularly for the unskilled, there are numbers of up to 50 or 80 men going for a single vacancy.

I do not expect that we shall get an answer to-day, but I suggest to the Government that there are certain steps they should now take. I agree with noble Lords that at some point we shall achieve a system, if not wholly like that of the Swedes—and certainly I am not at all sure that I am in favour of the Hungarian solution, to which so many references have been made to-day—at any rate an orderly system for fixing wages and prices. I think we are all agreed (and nobody has pressed this point more often than my noble friend Lord Beswick) that ultimately we shall have to achieve something along these lines. The Government have been slow to accept this. I suspect—and too many sad prophecies have come true—that unless there are successful talks and the Government are prepared to make concessions on the Industrial Relations Act they will be driven to a wage freeze in the same way that they have been driven to devaluation, even though they have stated their opposition to it.

I want to end by quoting from one rather prophetic statement which appeared in the Guardian:

Government policy is calculated to make inflation worse in three main ways. First, many of its domestic policies compel ordinary workers to claim large wage increases in self defence; second, the insane expansion of credit now being encouraged is leading to the inflation of land and stock market values, with results that are both inflationary. and, even when the cost of living is not directly influenced, provocative to the militants. In its direct dealings with the trade unions, the Government seem unable to see the difference between confrontation and provocation, and there is a severe risk of damage to the balance of payments, a situation that will be met, it seems, by a devaluation which could both inflame and perpetuate the present inflation. My Lords, that was written three months ago, and now we are in this situation.

The noble Lord, Lord Platt, asked whether we were seeing the end of the capitalist system. It will not break the hearts of those of us who sit on this side of the House if this is the beginning of the end of the capitalist system. We have believed that because we need to live in a world in which we hope living standards will rise, it would not be "jam to-morrow", as has been the experience of those who have undergone revolution. None the less, we had thought it would be possible so to modify our system by using our brains, by being willing to intervene—as the Government now show they are willing to intervene—that we should be able to solve the problems of this country, in which there is still gross social injustice. I am not just blaming the Government for this—we share the blame, too, for this matter—but the recent reports to which my noble friend referred, and the gross inequality of opportunity to the children of the less well-off families, show that we are still a divided and unequal nation.

Therefore I hope that, at least in regard to these matters, the Government will think carefully again about the arguments that have been advanced. I fear we cannot expect any Government to admit their failure and we shall certainly have to divide the House, but the quality of this debate has been such that I hope that the Government will have learned something. Like every Government they have a lot to learn, and I hope they will put it to good use.

10.20 p.m.

THE LORD CHANCELLOR (LORD) HAILSHAM OF SAINT MARYLEBONE)

My Lords, I thought I knew when I entered this Chamber at half past two this afternoon exactly what I was going to say at the end of this debate, and here it is, beautifully typed out and vetted, and sound stuff from beginning to end. It is now 10.20 p.m. and I feel quite certain that if I were to reply along these lines it would be an infliction on the House which I think wishes now to come to a conclusion on the Motion of the noble Lord, Lord Beswick. Therefore I will adopt a slightly different line of approach and try, keeping my eye upon the clock, to say what it has occurred to me to say as the debate went on, during most of which I have been an interested audience.

My Lords, I suppose it was inevitable that the Opposition (any Opposition, and this Opposition, too) would try to latch on to the events which have taken place in the last fortnight in order to give substance to the criticisms of Government policy which they have been making over the last two years. But it seemed to me, and it seems to me now, that this attempt must necessarily fail. I feel that the noble Baroness, Lady Seear, whose speech I thought was a constructive contribution, really demonstrated that beyond question.

LORD SHACKLETON

My Lords, if I may interrupt the noble and learned Lord, I found the same handicap, that the noble Baroness, Lady Seear, who opened for the Liberals apparently also wound up for the Liberals and has not been seen since.

THE LORD CHANCELLOR

Well, my Lords, I can adopt her argument—as we say at the Bar—without ceasing to regret her absence. It seemed to me that she demonstrated once and for all that they were two quite different subjects, and I shall return, if I may, to that thesis as I go along.

First, may I come to what seemed to me to be one of the central speeches of the debate. My noble friend Lord Thorneycroft appealed to me to give some indication of the seriousness with which the Government viewed the situation. All through this Government in this House I have been accused of being unduly gloomy. I have been accused on both sides of the House of being unduly gloomy, so I do not think I am likely to incur the displeasure of my noble friend by regarding the situation with either complacency or frivolity. But I do think that I am perhaps entitled to say that we must take hold of ourselves and remind ourselves of one or two basic facts about the present situation and about the last two years and the future.

We started with a very large surplus of reserves. We still have 5½ billion—American billion—dollars of reserves, much more than we started with. We started with a favourable balance of payments, and although for reasons which I shall seek to develop we have a smaller favourable balance of payments currently, our total balance remains favourable. Thirdly, we aimed at a 5 per cent. growth target by the early months of 1973, and although I am not playing in the league which enables me to predict with confidence, I have no reason to doubt what my right honourable friend the Chancellor of the Exchequer said when he said "We are on course for that," another favourable factor. During that period of time, although prices have risen, wages in real terms have risen more, and therefore the average standard of life is higher than when we started.

We began by inheriting—and I make no Party point about this—a budgetary system dependant upon enormous budgetary surpluses: I think in the last three years of the last Administration something like £1,000 million a year. They have been diminished. We have reduced taxation, both direct and indirect, by something of the order of £3,000 million a year. We inherited a system of savage credit restrictions, and we have reversed that tendency. Until about two weeks ago, in spite of these steps to reverse the policies of our predecessors, the pound had hardly showed a flicker. We had reversed them deliberately, rightly or wrongly (and the House must consider which), in order to achieve the very objects which the noble Lord, Lord Beswick, has specified in the second part of his Motion. We reversed them in order to reduce unemployment we reversed them in order to create expansion to the tune of 5 per cent., as I have indicated; we reversed them in order to achieve a more unified society. And the pound had hardly showed a flicker during that period of time.

A very few days ago it seems, certainly a matter of weeks, there suddenly occurred a series of events which led to an enormous and dramatic outflow of currency across the exchanges. and this led to the floating of the pound. The noble Lord, Lord Robbins, in an extremely profound analysis of the problem, to which again I hope to refer a little later, said frankly that that decision to float the pound was right. The question which the House has to face at the outset of its consideration of these matters must surely be what led to the outflow of currency which caused that result. If it was that we had reflated in order to reduce unemployment, well, I suppose we must plead guilty. The only thing is that we were not encouraged not to reflate by the noble Lord, Lord Beswick, or the Party he represents; nor has he called upon us to reverse that tendency today. And I must say I thought by the time the noble Baroness, Lady Seear, and my noble friend Lord Thorneycroft had done with him there was precious little left of Lord Beswick's indictment, because he had not encouraged us at the time to reverse these policies.

But I do not believe, nor do I believe the world thinks for a moment, that the movement across the exchanges in the past two or three weeks was caused by the reflationary measures which we had taken over the last two years. On the contrary, we are led to believe—here again I am seeking not to make a Party point but to reflect what I understand to be the consensus of opinion—that what led the world to doubt their confidence in the pound was a series of inflationary wage settlements, beginning with the miners' dispute, going on with the railway dispute and possibly slightly, but I think not decisively, influenced by what was going on (and now, I hope, happily settled) in the docks.

Was that due to Government policy? Was that due to the Industrial Relations Act? The miners' dispute took place before the relevant provisions of the Industrial Relations Act came into effect on February 28, so that had nothing to do with it. As to the railway dispute, the worst that can be said is that the Industrial Relations Act failed to reduce the amount of the settlement. What it marginally did was to relieve the hardship to the commuter during the dispute. But it did not affect the movement of currency across the exchanges. What, in my judgment at any rate, affected the movement of currency across the exchanges was the doubt which was aroused in the minds of foreigners and perhaps of our own people as to whether the Government could control inflationary wage settlements.

It is all very well for the noble Lord, Lord Beswick, to put down a Motion of Censure on the Government and expect a vote on it, but what was the attitude of the Labour Party during those disputes? Is not my noble friend Lord Thorneycroft correct when he says there was scarcely a measure, when in power or in Opposition, which would have increased the inflationary tendency which they did not support? Is there a single factor which would have reduced it that they did not oppose? They are the people who are asking us to vote against the Government at the end of this debate to-night. Is that reasonable?

My Lords, I remember, speaking from the Front Bench in the last Government but one, having this very dispute with the then Labour Opposition, with the late Lord Pethick-Lawrence playing the part which was played this afternoon by the noble Lord, Lord Beswick. I said to him then, and I say to the House now, that if in fact one finds a situation in which wages push up prices one will find inflation and one will find a pressure on our currency. One will find that that is happening by a simple index. If wages are going up faster than prices—and they have been going up faster than prices since 1969—one will find that that is the fundamental cause of one's inflation.

It is not a bit of good complaining about the Government of the day. After all, my Lords, during the Election of 1970 we said that that was the way the situation was going. Like the noble Lord, Lord Hale, I had a good deal of sympathy with the miners during the miners' strike, but we said that this might be the consequence of what they were then doing. We said during the railway dispute that this was the way in which things might be going. What did the Opposition do? For many years it used to be the tradition of this House and of another place that during industrial disputes we did not actively seek to intervene. "But what did they do during the Great War, Daddy?" We at least tried to warn the public; they hurried the thing on. I can remember the reaction of the noble Lord, Lord Shepherd, to the announcement of the railway dispute. The only comment he made of relevance to the present debate was that we could have had that settlement six weeks before—the inference being that we ought to have had it. Is that discouraging inflationary settlements? I do not want to say too much upon this particular theme except this—

SEVERAL NOBLE LORDS

Hear, hear!

THE LORD CHANCELLOR

My Lords, I think it is good for some noble Lords to hear what I have said. I do not want to say too much upon this particular theme except this one thing. If noble Lords think, on either side of the House, that the inflation about which I, at any rate, have been speaking in this House for over ten years, can be contained by simply repeating the old Party war cries, they have another think coming. My right honourable friend has issued an invitation to the unions to co-operate in discussions with the C.B.I. and the Government.

A NOBLE LORD

After bashing them all the time.

BARONESS GAITSKELL

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

THE LORD CHANCELLOR

When I have finished my sentence the noble Baroness may. I was saying that we have issued an invitation to those two important parties to industrial policy to enter into talks—I do not want to say anything that would vitiate those talks—but if noble Lords think that any Government are going to succeed if the two great partners of industry will not take the country along with them, then I think they are making a great mistake.

BARONESS GAITSKELL

My Lords, I interrupt the noble and learned Lord the Lord Chancellor with the greatest diffidence and respect, but he has put the whole of the blame for inflation upon the miners' strike and the railway strike. He has suggested that the international community have taken this as a sign of weakness and therefore we have had to float the pound. But would not the noble and learned Lord agree that perhaps the international community has seen that our employers have been very slow, very sluggish to invest; in fact that there has been an investors' strike, they have taken note of that, and that is why the pound has been floated?

THE LORD CHANCELLOR

My Lords, I was not seeking to attribute blame; I was trying to seek out causes. I only say to the noble Baroness that I have sought to establish—and I believe I had established—that for two years of reflation, or reversing the Jenkins' policy of surplus budgeting, savage taxation and credit restriction, there was not a flicker; following those two settlements, there was. I was seeking to establish causes, and nothing that the noble Baroness has said has shaken me in the conviction that I have succeeded in doing so.

That brings me to the Motion, and to three things that I want to say about the Motion, and Lord Beswick's speech. I do not want to detain the House a moment longer than is necessary. The Motion is almost breathtaking in its lack of modesty. It talks of anxiety about the failure of this Government to maintain the value of money. Well, look who is talking! There have been three Labour Governments in my time and three Prime Ministers: Ramsay MacDonald, Attlee, and Harold Wilson. All no doubt great and good men. Two years after the assumption of power by each there has been a crisis leading to a devaluation of the pound far greater than the present float would lead us to expect that the pound will float at the moment, taken after desperate efforts resulting in the destruction of our entire reserves. And they are now seeking to censure us. Look who is talking! But they have done it. After having succeeded in devaluing the pound, they reached a situation where they left us with—

LORD DAVIES OF LEEK

A marvellous balance of payments.

THE LORD CHANCELLOR

Yes, with a marvellous balance of payments, won at the expense of successive surplus budgeting to the extent of £1,000 million, savagely penal taxation and extreme stagnation in growth. And it is they who are now seeking to censure us, because we have reversed those policies!

At the end of their time, as one noble Lord reminded us, after these policies of stagnation and deflation, they started a period of inflation by reneging on their own policy of industrial relations which we, at least, have sought to repair. I did not agree with the noble Lord, Lord Shackleton, when he said that there were more differences than resemblances between In Place of Strife and the Industrial Relations Act. They had the cooling-off period, they had the ballot. They ran away from both. The only differences of which I am aware, which in the light of history are likely to prove significant, are: first, that they introduced the criminal law as the primary sanction, in distinction from the civil law; and, secondly, that they gave the authority to the Minister and not to any court of law. These are no doubt arguable points, but they hardly justify the kind of censure which is contained in the Motion we are now discussing.

Now, my Lords, I want, if I may, to conclude—because I have very little time at my disposal—with the form of the policy which noble Lords have sought fit to condemn and I hope, at least, to convince them that their indictment is unfair. Ever since 1964, we have been pointing out that the system of universal benefits of equal level, which both Parties had been developing since 1945, had led to our leaving behind certain identifiable vulnerable classes at the bottom of the social scale, for whom special provision must be devised if we are to try to create the unified society which the Opposition claim to be their objective. We also pointed out that the development of full employment, as an ideal to which we all must work, had created pockets of abuse within our social service system, in which the vulnerable classes to which I have referred have ever since been made, directly or indirectly, to subsidise the better-off.

Ever since 1970, we have been endeavouring to correct these injustices in a variety of different ways, not by reducing social benefits, because, as my noble friend the Leader of the House reminded us earlier this afternoon, we have increased them to an all-time high—I think, by 32½ per cent, by October, which will increase still further—but by identifying the weaker groups, and by bringing in special measures to assist the weaker groups. I refer to the aid to the special areas, now possibly on a bigger scale than ever before. I refer to the family incomes supplement now benefiting 80,000 homes, but not, as my noble friend reminded us earlier this afternoon, the last word in that direction. I refer again to the removal from direct taxation of 2¾ million people at the bottom end of the scale of taxation in the recent Budget. I refer to the extension of rent rebates to the private sector, never attempted before. I refer to the neglected 40 per cent, of local authority tenants covered in the Housing Finance Bill which has been attacked by the two Front Bench spokesmen opposite and which the Opposition would now have us abandon, although every penny of the £350 million, if that is the right figure, which we would save would be spent upon these rebates, upon deficiencies and upon slum clearance schemes. I refer to the expansion of the long neglected provision for the elderly and the mentally handicapped, a part of the increase of £2,000 million in our five-year programme. I refer to the hospital building programme and the priority given to the old primary schools which, I may say in parenthesis, is the answer to one of the criticisms in the speech of the noble Lord, Lord Beswick. I refer to the concentration of housing subsidies on people and areas in need.

I do not for a moment dissent from the analysis of the evils of inflation to which the noble Lord, Lord Robbins, referred in his impressive speech. I can only endorse what he said, although I do not pretend to play in the same league as he does. I thought that he was entirely right to emphasise the corrupting effects of inflation upon the nature of our social fabric; he gave moving and particular examples. But I do not believe that it is beyond the capacity of the people of this country, led by their Government, to realise those corrupting effects.

The strength or weakness of a currency—and I think that this is consistent with what the noble Lord, Lord Robbins, was saying—can be measured by the will of the nation to survive as a responsible and free community and to support their Government in the measures necessary for survival. Our standard of living is now higher than ever before and our policy is to make it higher still. If the public will not support this Government in the measures necessary to restrain excessive wage demands at a time when all the world knows that these are the cause of an international lowering of confidence, we shall at least have tried. I believe that we shall succeed, but at least, if we fail, we shall carry with us the epitaph, I hope and believe, of a courageous and honest Administration. But what

what will be written upon the tombstone of the Labour Party?—because, should we not succeed, they will not survive any more than we shall. Will it be that in power they were a national disaster and in opposition they did not achieve anything better than being a public nuisance?

10.49 p.m.

LORD BESWICK

My Lords, the noble and learned Lord, the Lord Chancellor, said that he expected an Opposition to "latch on", as he so delicately put it, to the events of the past fortnight. I fear that the noble and learned Lord was as inadequately informed about this as he was about most of his other facts. The Motion was on the Order Paper on June 21, before the Government found that they were compelled to break agreements and devalue the pound. This is not, and was not intended to be a Vote of Censure. It was intended to be an opportunity for this House to express its anxieties. Those anxieties have been expressed from all quarters. They have not been allayed by the speech to which we have just listened. If the Government are unable to accept this Motion, then I would invite all those who have expressed anxieties to join together, not so much as a criticism but as an earnest of their intention to stimulate the Government to do rather more than they have done so far.

10.50 p.m.

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

Their Lordships divided: Contents, 51; Not-Contents, 69.

CONTENTS
Addison, V.	Champion, L.	Kennet, L.
Archibald, L.	Crook, L.	Llewelyn-Davies of Hastoe, Bs. [Teller]
Ardwick, L.	Davies of Leek, L.
Arwyn, L.	Diamond, L.	Longford, E.
Bacon, Bs.	Donaldson of Kingsbridge, L.	Milner of Leeds, L.
Beswick, L.	Evans of Hungershall, L.	Morris of Kenwood, L.
Blackett, L.	Gaitskell, Bs.	Nunburnholme, L.
Blyton, L.	Garnsworthy, L.	Pargiter, L.
Bowden, L.	Greenwood of Rossendale, L.	Phillips, Bs.
Burntwood, L.	Hacking, L.	Platt, L.
Burton of Coventry, Bs.	Hale, L.	Popplewell, L.
Campbell of Eskan, L.	Hall, V.	Rathcreedan, L.
Caradon, L.	Henderson, L.	Samuel, V.
Chalfont, L.	Hoy, L.	Shackleton, L.
Shepherd, L.	Strabolgi, L. [Teller]	Walston, L.
Simon, V.	Summerskill, Bs.	White, B.
Slater, L.	Taylor of Mansfield, L.	Wynne-Jones, L.
Stocks, Bs.
NON-CONTENTS
Aberdare, L.	Denham, L. [Teller]	Macleod of Borve, Bs.
Allerton, L.	Derwent, L.	Mansfield, E.
Amherst of Hackney, L.	Drumalbyn, L.	Margadale, L.
Amory, V.	Dundonald, E.	Massereene and Ferrard, V.
Auckland, L.	Eccles, V.	Mountevans, L.
Balerno, L.	Elles, Bs.	Mowbray and Stourton, L. [Teller]
Balfour, E.	Elliot of Harwood, Bs.
Balfour of Inchrye, L.	Ferrers, E.	Northchurch, Bs.
Belhaven and Stenton, L.	Fisher, L.	Ruthven of Freeland, Ly.
Belstead, L.	Fortescue, E.	Saint Oswald, L.
Berkeley, Bs.	Gainford, L.	Sandford, L.
Bourne, L.	Gisborough, L.	Sandys, L.
Brabazon of Tara, L.	Goschen, V.	Savile, L.
Brooke of Cumnor, L.	Gowrie, E.	Selkirk, E.
Brooke of Ystradfellte, Bs.	Hailsham of Saint Marylebone, L. (L. Chancellor)	Selsdon, L.
Brougham and VEIUX, L.		Strathclyde, L.
Carrington, L.	Harvey of Prestbury, L.	Teviot, L.
Colville of Culross, V.	Inglewood, L.	Thorneycroft, L.
Courtown, E.	Jellicoe, E. (L. Privy Seal)	Tweedsmuir, L.
Cowley, E.	Killearn, L.	Tweedsmuir of Belhelvie, Bs.
Craigavon, V.	Kinnoull, E.	Vivian, L.
Craigmyle, L.	Latymer, L.	Wakefield of Kendal, L.
Crathorne, L.	Lauderdale, E.	Young, Bs.
Croft, L.	Lytton, E.

Resolved in the negative, and Motion disagreed to accordingly.