HL Deb 24 July 1973 vol 344 cc1683-759

4.18 p.m.

Debate resumed.


My Lords, if there are no more pleasantries to be exchanged, I shall begin. We are met together here to consider the stewardship of the present Government over the last year. May I first express my deeply felt personal regret that it is no longer the noble Earl, Lord Jellicoe, who is to answer for the Government on these matters, if not for the matter at any rate for the manner of his putting forward the best case he possibly could for the Government? This was always impressive and pleasant and I enjoyed his humane wit. I hope I may be allowed to have this thought at this point of time.

This is the first time the noble Lord, Lord Windlesham, has put forward the case, and I must say he displayed a case of staggering complacency. At that, I am not in the least surprised, because his master's voice was heard last week in another place, and he could not but follow the master in the pæons of the victory song, even if it is somewhat premature. I think it was a year or two ago when I said that the hen coops were full with the rotting corpses of chickens which had come back to roost. I must say that now, looking at the Government's policies, the hen coops and the hens have disappeared, have rotted; there is nothing left of the original policies of this Government but an acrid smell, a decay which bedevilled and still bedevils the solution of our problems, as I shall try to explain.

At first the Government tried to live up to their Election Manifesto. They applied general pressures—that is to say, increased unemployment—and at the same time, in order to give incentive to the better off, they cut direct taxes. This resulted in unemployment, unpopularity and rising wages and prices. At that point the Government really thought, to follow President Nixon, that monument of Anglo-Saxon probity, as the election was nearing, and instituted a policy of price and wage control. At the same time, they reversed the policy on general pressures, and the pressures were now applied to increase, rather than to cut, national income and production. As a result of that we had the run on the pound, and the Government's answer was to float it. This was to be the new, marvellous panacea which would enable us, so to speak, to harmonise expansion and at the same time retain the balance of payments.

Looking at the balance of payments—and I do not think Lord Diamond's question can accurately be answered at this moment—it now seems as if the trade balance will be out by about £1.400 million at least, and current balance by something like £700 million to £800 million, or perhaps £900 million. This of course is going to be carried on through enormous borrowing in terms of dollars at anything between 9 and 11 per cent., when the average revenue of our investments abroad is considerably less after tax. So what we are doing now is to borrow long, or medium term, in order to invest in less profitable enterprises. A surer way to bankruptcy has not yet been found by anybody. But, as the noble Lord, Lord Windlesham, said, the Government now think that they have solved the problem of an export-led boom. I must say when I look at these statistics that his statements without statistics look a little odd to me, and I should be grateful if the noble Earl, Lord Gowrie, when he comes to answer for the Government, would explain for what period and in what manner the increase in export volume and import volume has been arrived at, because I must say that to my untutored mind the figures look very different from those the noble Lord has given. I am sorry that the opposite Benches are so empty. We have not, of course, badgers and ponies under consideration, but only the balance of payments. Nevertheless, when I was asking the same question a little while ago when the Benches opposite were much fuller I was shouted down. That is the first problem.

The Government say that they have an export-led expansion. But if exports are leading, we ought to have a surplus and not a deficit; but we have a deficit and not a surplus. So where is the export-led boom that we boast of, according to Mr. Heath in the other place? Nowhere, I should say. Now we come to world prices. These world prices are intriguing things, because the Government spokesmen, be it in this House or in another place, never tell us which prices they are talking about. Are these, for instance, London commodity exchange prices?—which are of course quoted in sterling. Or are they Tokyo commodity exchange prices, or New York or Chicago stock exchange and produce exchange prices? What sort of prices are they? This is of interest, because if they quote American and London prices then they are cheating: in fact, they are bringing forward a prospectus for which in a less privileged position they would go to "jug", because of course prices in terms of pounds and dollars have risen. Who doubts this? We have depreciated, and therefore our prices have risen, because we see that people can sell at unchanged prices in Toyko, Paris and Germany.

My Lords, I am not going to be quite as bashful as the noble Lord and I shall quote some statistics. We have depreciated 33 per cent. against the deutschmark since the Government came into office, against the French franc 22.6 per cent. and against the Japanese yen 21.7 per cent. We need average import prices. We cannot have quoted at us produce prices such as that for wheat. What we are interested in are the import prices. This is what boosts or dampens the internal price. Western German prices since June, 1970, have increased by 1 per cent.—that is the February figure, which is the last that I have. French prices have increased by 11 per cent. from 120 (in 1963 of course 100) to 134. Japanese import prices have fallen by 6 per cent. The United States prices have increased by something like 20 per cent. and ours have increased by something like 40 per cent. The Government come here and tell us that there is no connection between the exchange rates and these mythical prices that they are quoting. I should like to know what sort of prices they are giving; whose prices; in what currency; how they compare the floating pound and so on.

I feel extremely worried, because a decrease in the value of the pound of this magnitude—this is much greater, on the average, than even the devaluation in 1967—has not brought about any adjustment in the balance of payments. When should we have smooth adjustment of the balance of payments if not after devaluation, and at the same time in a period when world trade and production all over the world are at the top record levels? So even if we did not have very much pressure applied on our economy, we ought to be able to export more smoothly and increasingly. But we have not. We have not previously had such controversy in the economic profession as we now have since these new prestidigitations of forecasting have been invented. I do not know whether I should like to endorse either the pessimists or the optimists. The optimists think that the present consumer goods boom in this country will shade over into a ceiling and that the further increases in G.N.P. will boost investment and exports. I am not saying that this is not possible—I do not say that at all. It is quite possible that they might slide over into a sustainable boom or expansion: that is quite possible. But whether or not we can achieve this is not an economic question but a political one. This is where the acrid smell, so to speak, of those hen-coops comes in—because this acrid smell bedevils the relationship between the various great Parties of the realm which have to decide about economic activity. It is not possible to expect trade unions to accept conditions which are seriously unfavourable, unless the burden is fairly distributed.

Can the Prime Minister, after what he has done in the last three or four years, secure the assent that is needed, and can he achieve the consensus which is necessary in order to escape from our present predicament? I must say that I dismiss solutions based on minor fiscal and monetary manipulation. I do not believe, for instance, that £500 million, more or less, from taxes will make all that much difference—£1,500 million, yes; but £1,500 million of increased taxes would be quite a lot. A Government would not wish to try that solution one and a half or two years before an Election; they might just get away with £500 million, but that is neither here nor there. Our weaponry, as it has been left by the 1951–1964 Tory Administration is not such that we can fine-tune the economy. We can rough-tune it, and we can "rough it up", but we cannot fine-tune it. An equal sacrifice would be necessary. It is no use for the noble Lord (who has now departed) to say that the standard of life has increased on the average. One of the things I should like to submit to the noble Lord—and perhaps the noble Earl, Lord Gowrie, will translate this into Scottish for me—




Irish, I beg the noble Earl's pardon—is that unfortunately one of the problems of inflationary pressure is that each of the individual great trade unions, at the point at which it negotiates a wage increase, gains, but then the gain is obviously frittered away with the price increases. But at the point when they negotiate the increase they gain substantially. With the "freeze" and the present second phase, obviously this increase in real income which arises only nominally and temporarily has to be checked. Therefore there is no doubt that trade unionists will feel, and feel justifiably, poorer, even if they are not. I could go along a little more with the statistics of the noble Lord, Lord Windlesham, on wages and prices, but I would tell him that this is not enough. He would have to investigate how, at any moment of the wage negotiation, what the real level of wages achieved actually is and how much has to be sacrificed from it; and then acceptance to this has to be achieved. Full employment, in my opinion, is quite incompatible with stability without consensus, and therefore I feel a little disturbed by the tone of the noble Lord's statements. They are a little bit too "cocky" and they have solved too many problems for my comfort. They are giving the impression to people that they do not have to do very much more. This is not the sort of atmosphere which I think should be encouraged, quite apart from other unacceptable faces or aspects of capitalism.

It seems to me, therefore, that we must increase the share of investment and exports in our national income. This will not be possible unless investment itself is increased. We must do that before we can reap the consequences of investment; and finally we must invest in such a way as to maximise the return from investment. From that point of view, these white elephants, flying in the air or under the sea, are not the very best that could be chosen, for my money. If anyone can show me that Maplin is going to yield 10 per cent.—which is the present cost of borrowing—or that Concorde is going to yield W per cent., or that the Channel Tunnel will yield 10 per cent., then I will accept, but it would be after closer scrutiny than the noble Lord, Lord Windlesham, has applied to his official statistics. For all our sakes, I hope that a solution will be arrived at, but I must say that after the noble Lord's speech to-day I am more depressed than I can say.


My Lords, I cannot follow the noble Lord, Lord Balogh, in his economic assessments, but I shall look forward to the day when he refers to the "acrid smell of the white elephants" which I feel sure will come. I should like to comment on the opening remarks of the noble Lord, Lord Beswick, which were balm to my soul. When I first came to this House I initiated a debate on "The 10s. pound" and I congratulate the noble Lord on the fact that he now admits his Government were wrong. I do not know why they were so resistant about it. I shrewdly suspect that their then Chancellor, having once changed his mind and gone one way, could not change it back again; and it is a pity that he did not. Personally, I suffered in the matter because some of my unkind if noble friends have occasionally called me "The 10s. Peer".

I wish to speak more simply on the Prices and Incomes policy. It may be known to some of your Lordships that I have a vested interest, in that I am a director of two major retail companies and chairman for the time being of the Retail Consortium which represents all but a small part of the retail trade throughout the United Kingdom. However, the views I shall express are my own, though I believe that most retailers would agree with them. I want to speak first of the price element in inflation, of which one can say that the price of consumer goods accounts for about 50 per cent. The other half is accounted for by the price of services; but it is with the problem of goods that I shall deal first.

Naturally enough since the only evidence of the price of consumer goods available to the consumer is the retailer's price, it is that price which attracts critical attention, both from the public and from those who are concerned with price control. As your Lordships will readily understand, if, in an inflationary situation, the retailer's profit margin is limited, as indeed it is, and has been since last November, then the question of the effectiveness of the control must direct itself more pointedly to the manufacturer's price from which the retailer's price automatically derives. In this respect the Price Commission, as my noble friend said, has been doing its best within the somewhat limited machinery available to it. The system of application for price increases by major manufacturers on an argument of allowable costs is by no means perfect, but it has certainly achieved a steadying influence, at least to a limited degree.

The weakness of the system is that its impact on the totality of item purchases by the retail trade is small. It is so small that most trade buyers cannot observe it in the daily round of their buying. To them the rise in manufacturing prices seems at this time just as inexorable and shocking as does the rise in retail prices to the buying public who have no knowledge of manufacturers' prices. Much has been said in all the debates and discussions on this subject about the need for watchdogs of retail prices, and my noble friend referred to that. There is an elaborate machinery for using the Weights and Measures Inspectorate for this purpose. Equally, the consumer is encouraged to report prices in the shops which appear to be excessive. In present circumstances such supervision, whether professional or amateur, is accepted calmly enough by the retail trade, since with the controls of margin that are in force all this "watch-dogging" is superfluous, except in respect of those fools and knaves who exist in every walk of life. Of these there are no more in retailing than in any other activity, although the retailer is more in the public eye. What therefore the retailer would like to see, if control in detail is necessary—and I do not Quarrel with it at this stage—is a more critical supervision of the prices which he has to pay to his suppliers and from which his price, under control, derives.

If I may digress for a moment, in all this discussion on the relationship of prices in the shops and prices from the supplier we should not lose sight of the considerable change which has taken place in the past ten or fifteen years in the improvement in the organisation and exercise of the buying power of large retailers which has certainly had a steadying overall effect on manufacturing prices and is still exerting that influence, although at this time it is perfectly obvious that it is neutralised by the more powerful pressures to which my noble friend referred. In any case, although the big battalions of retailing exert a strong, competitive influence on retail prices generally in the High Street, they cannot influence the prices which their lesser competitors have to pay for their supplies. Indeed, it is worth noting in this respect that it is possible that the smaller retailer—I am not talking about the shop on the corner, but about the solid but small retailers—may well pay more for their merchandise as a result of the pressures of the buying power which the major retailer exerts.

The smaller man is then squeezed between the millstones of higher purchasing price on the one hand, and the competitive retail price established in the High Street. He cannot move far from that retail price. His resource therefore—and this again is a comparatively new innovation—is to join one or other of the buying associations, and thus combine his buying power with others like him. The expansion and growth of such associations over the past few years has also had a beneficial downward effect on prices (both in cost and selling) and has combined with that some preservation of the profitability of the smaller retailer which must be in the public interest if we are to maintain an efficient distributive system.

I am well aware that the control of retailing by gross margin per cent. of turnover, which is the system now in force, is criticised because it means that rising manufacturing prices create a larger cash margin in the hands of the retailer at the same gross margin per cent. In respect of that criticism, it must be remembered that under this system the retailer has no allowable costs, as has the manufacturer, and must therefore absorb all increases of expense within his controlled margin. In to-day's conditions this is proving by no means easy, and by the year-end it may well be that as a result of the stringencies of this policy the net profit control of retailing will prove to be superfluous. The difficulty of the Price Commission in judging the effect of these controls is that the seasonal nature of the retail trade makes it impossible to find short-term proof of its effectiveness. There will be variations in the quarterly returns which will be explainable. It will not be until we get the annual returns, mostly still 9, 10 or 12 months away, that it will be seen that the result required by the Government is being achieved, and by then we shall be well into Phase 3, or so we would hope, and therefore to a certain extent the proved success of this control will be irrelevant. I am simply stating that it is succeeding.

The only proof of the success of price control generally lies in relatively stable prices in the shops, and through no fault of the retail trade we are by no means in that happy position at present. Equally, if we are to have to consider further systems of control in Phase 3 I do not believe anybody would want to impose a system in which the whole burden has to be borne by the retail trade, and which, therefore, in a time of rising costs, if those costs were unchecked, would destroy the viability of the retail operation. Therefore we must look for a revision of the present system sufficient to ensure that manufacturers' prices are sufficiently supervised throughout the whole field of finished consumer goods. It is at this point that I differ from what my noble friend said. I do not think he has a sufficiently comprehensive view of the situation.

One must take into account, for example, that any chain of department stores may have supplying them at any one time as many as 30,000 separate manufacturers. Therefore supervision is an enormous task. It is true, as my noble friend said, that all manufacturers have a duty to abide by the Code, whether they are required to pre-notify increases or not. What is not sufficiently known, and is not sufficiently clear, is that these pre-notifying companies (category 1 in the White Paper), those with annual sales of over £50 million, are only a small minority by number of firms in the whole manufacturing scene —I would guess 100 or 200 at the outside. Equally, category 2, those with annual sales of from £5 million to £50 million, who must report price increases after the event, amount to only one or two thousand. The totality of those at present under inspection by the Price Commission are only a fraction of the whole. The many thousands of the majority who do not report, although they must keep records which will sooner or later be inspected, do their best to comply with the Code. But the application of the Code is extremely complex, as indeed the Price Commission has been finding. It may be many months before the real impact of these controls for this great body of suppliers can be assessed and by that time, although as I say I do not doubt they are doing their duty as best they can, the horse will be out of the stable.

I see two possible palliatives which may improve the effectiveness of the present control. One is—and I admit that this is almost laughable because it is so slight—that every supplier's invoice, regardless of his reporting or his record-keeping status, should bear a statement that any price increase contained in it complies with the Code. That is, if you like, a formality. It is no great solution but at least it would be a reminder that price control remains a continuing responsibility for all of us, whether we are manufacturing or retailing, all the time, regardless of the size of the enterprise. The second suggestion which I put forward, possibly with some reluctance because I know it will be by no means popular, is that all manufacturers, regardless of size, should have a duty to report increases in price, so that the Commission can see the complete picture and not only that small section which is now coming to its notice. In discussing all this, one has to bear in mind that the forces of competition or of example in manufacturing are by no means so strong as they are in the retail trade in the High Street, where competition sets the pace in full view of Press and public.

Of course, both my propositions, for what they are worth, suffer the disadvantages of all attempts to obtain control item by item in that comparison of prices invoice by invoice must relate to truly comparable items of merchandise. Nevertheless, they might have some uses and they would avoid a situation which will surely come, and that is (and my noble friend referred to this) that sooner or later when the Price Commission get round to checking the record-keeping companies inevitably it is going to find that some have done their sums wrong and are going to demand the lowering of prices, and there will be considerable odium attached to those orders when they come out. In my opinion, at the present stage the key to price control is at the point of supply to the retailer and not only at the point of sale to the customer. It is to this that detailed consideration of Phase 3 policy should direct itself.

On the control of net profits I have only one thing to say, briefly. I believe that for both manufacturers and retailers it is a dangerously blunt instrument which can both stunt growth and, even more importantly, promote inefficiency in the control of costs. I do not doubt that whether one was in the C.B.I. or in the Retail Consortium or any other trade body, we should all be in agreement on that.

The other half of the price element in inflation is services—rents, mortgage and other interest, rates, fuel, travel to work —although I know that travel to work is only of great importance in London and the great conurbations. I firmly believe that greater control exercised over this sector of the family budget would enable us much more easily to ride this storm of world prices and world shortages which has come upon us; and, equally, if we exercise control as firmly there as we do upon prices in the shops we should avoid the dangers to further growth of efficient production and distribution which excessive control of net profits continued too long will undoubtedly bring.

My Lords, on pay I have only two points to make. One is that there is no question at all, however much the Pay Board may be presently denying it, that the Pay Code has created a pressure on staffs to change employers in order to obtain a higher rate of pay for the same or very similar job. Against this, of course, the Pay Code provides no adequate defence since the requirement of the Code would not appear to be enforceable. As a result, there is now going on, certainly in the trades in which I am interested, a general post of employees between company and company of the same type, which cannot be desirable in itself and leads inevitably to anomalies and frictions if not to positive breaches of the Code when the employer seeks to replace the staff which he has lost. This is going on the whole time. It is a serious situation. I cannot pretend that I personally see any answer which is not wholly restrictive of individual freedom. Nevertheless, I believe that an answer must be found in some form if the Pay Code is to remain valid in Phase 3.

My second point on pay is this—and it applies in particular to my trade. This trade has been too low paid throughout its history. This last year, which, thanks to a Government-inspired consumer boom, has been profitable to a degree unknown for many years, seemed to offer to retailers the opportunity to put their pay scales on to a level competitive with other employments. But for the pay freeze this offer would have been readily seized, and indeed some companies, because of the way their negotiating year went, were lucky in that they were able to make considerable increases before the freeze struck. But for most others the opportunity was destroyed by the freeze. The emphasis on priority for the lower paid, given by the Government, is relevant to the retail trade as a whole, and in planning Phase 3 it must be borne in mind that retail staffs have a strong claim in this respect, and that the profits of retailing must be sufficient to meet it.

In some quarters, which shall be nameless, the profits of retailing have been subject to attack. As I say, through the years they have been low, too low I think for efficiency, too low to enable the industry to compete in the labour market, certainly low in comparison with other industries. During these last two years, particularly in the last year, profits have risen sharply. But that rise reflects two factors. One of course is the sharp upward trend in the level of disposable incomes generated by the Government's policy, and the other is the permanent factor that the retail trade is highly geared in the relation of turnover to fixed expense; and therefore a sharp rise in turnover at any time for any reason inevitably produces a sharp rise in profits. By past experience, that happy situation does not endure very long; but I would stress, and it is fair that I should do so, that even at to-day's figures the profits of retailing are in the main less than those of manufacturing or of other services, as indeed they have always been.

The fact is, of course, that profit is not simply the popular "acceptable face of capitalism"; it is the body and the brain and the breath of it, and if some day it becomes less acceptable, then we shall have to find some other system, and in my opinion a very bad day that will be. Therefore, I suggest it would be better that all sides of industry should get on with the job of trying to assist in moderating inflation by the united effort of every sector, rather than bicker about the profits of one sector or another. Certainly the sooner we are out of this wood, the better. Certainly in Phase 3 we should hope to see a greater freedom in terms of net profit, and if the price of that is a more precise effort to control the prices of our manufactures so that that control may be reflected in the retail price (as indeed it would be), that would be a fair bargain for us all. But it would only be half a bargain if the same pressure were not exerted equally on the service element of the household budget, and I was rather sorry that my noble friend did not refer to that sector of prices. And, if I may say so, it will be no bargain at all if in Phase 3 we cannot see the same laudable effort on all sides to restrain wage demands which have been our experience in this year so far.

5.1 p.m.


My Lords, in spite of the optimism of the noble Lord, Lord Windlesham, about the future, looking back over the battle against inflation and currency fluctuations I think we have a rather sorry tale to tell. As regards currency fluctuations I have lost count of the number of times in the last forty years that we have had acute international monetary crises. Finance Ministers have met in panic-stricken conference and have returned to assure us that they have laid the foundation of a more stable system in the future. If this structure is ever built it will be blessed with remarkably solid foundations. I cannot refrain from reminding noble Lords opposite that at a late stage in the campaign for the 1970 General Election, at a high level of the Conservative Party it was forecast that if the Labour Party were re-elected there would be a second devaluation. The word has been dropped, but the phenomenon has reappeared in its starkest reality.

Then if we look back at what the Labour Government did, they too took very short-term views. The Labour Government passed a Prices and Incomes Act in each of three successive years, and each of those Acts was under sentence of death from the day it reached the Statute Book; that is to say, the date of expiry was written into the Act itself. There was only one feature of that legislation that was intended to be permanent and that was the Prices and Incomes Board. That, of course, was "washed out" by the new Government when they came into power, and since that day the Leader of the Opposition in another place, much to my personal regret, has expressed the view that a statutory incomes policy has really no future. Meanwhile the Conservative Government have staggered from phase to phase—short-term policies again—and have shown a remarkable lack of originality. The first proposal that came from the Prime Minister, which was for £2 a week all round and anything up to 5 per cent. increases, was in fact—although I think it was not noticed at the time—borrowed from the Republic of Ireland. It has since been modified to £1 a week all round and 4 per cent. for the group. Thereafter we followed somewhat slavishly the United States of America in establishing, not a prices and incomes board but a Pay Board and a Price Commission and in introducing some remarkably complex provisions about the regulation of profits on the basis of the average, based on two or three years within a recent period.

I would certainly agree with the noble Lord, Lord Windlesham, that our objectives, like his, are expansion and countering inflation. I regret that he omitted a third objective which weighs, I think, equally heavily with noble Lords on this side of the House, and that is the fair distribution of increasing income. All these objectives are long term and I do not think we can persuade ourselves that a succession of staggering from phase to phase and a succession of short-term legislative Acts will produce the results that we all desire, and particularly the results that we on this side of the House desire. What has been accomplished so far is that it has been demonstrated that wages and salaries can be held down pretty firmly to a prescribed formula for a short period. Heaven knows what will happen when that period is over, as we embark on Phase 3!

It has also been shown—and I think we must be fair to the Price Commission—that something can be done to control prices, but certainly not enough to convince the public that inflation is under control, or anywhere near under control. It is to the credit of the Price Commission that during May and June—their first two months of operation—55 per cent. of the applications submitted to them were either withdrawn or modified. I think the noble Lord, Lord Windlesham, gave a later figure in his speech but I am afraid I did not catch it. I myself am sceptical whether any kind of price control can really be effective if operated on the present lines. I am sceptical for two reasons: the first is the magnitude of the necessary operation. The Inland Revenue authorities recognise that there are about 22 million income receivers in this country and we do not all buy only one thing. If we all bought one thing there would still be 22 million prices to control—unless we all bought the same thing. Even the poorest of us buy scores of things and many of us buy hundreds of things.

Secondly, price control, if it is to be really comprehensive, has to cover such an enormous variety of products that the opportunities for cheating are too easy and too many. I would ask your Lordships to think of all the things that you have bought, or your wives have bought for you, in the past week or two, and for which you have been charged more than you were the week before, and to ask whether these could possibly have come under the eyes of the Price Commission. I would ask you to walk through any supermarket or any main shopping centre and see the variety of commodities which in this so-called affluent society are exposed for sale. When things are precisely measured by weight, capacity or size it is possible perhaps to control their prices; or when there is only a given stock of them, as with land and, to a lesser extent, houses, it may be possible to control their prices. But when things are not thus precisely measured it is extraordinarily easy to cheat, and I think one of the experiences that most of us have is that many of the commodities we buy suffer from a wasting disease—each time they come on the market they are a little thinner and a little smaller than they were before.

Equally I am sceptical about the extraordinarily complicated provisions about the control of profits. Profits are residual: you do not know what your profits are until you have either made them or not made them. Therefore any control of profits in advance of your making them seems to me to be highly impracticable. Because of absence of data—and for no other reason, I think—the Price Commission has not yet got around to grappling with this problem, and it will be interesting to see how they do grapple with it when it comes within their grasp. So I would say that we must have a new approach to some of these problems and not just copy the Americans or the Irish.

I should like here to say something about the language that we use, because language is often revealing and significant. In the heyday of classical economics it used to be thought that both prices and wages were inexorably governed by natural laws which were not susceptible to any human intervention. Therefore we spoke of wages going up and prices going up and wages and prices going down. Some people held this doctrine so strongly that they said there was no point in forming trade unions, because after all the negotiations and all the bargaining and all the strikes no one could hope to get any other wages than the natural laws would have given anyway. No one believes that any more, or they would not address the trade unions in the castigatory terms which are to-day fashionable. But we still say that prices go up and down as though by some power other than human intervention.

I think it is time we realised that no price ever goes up or down of its own volition; it goes up and down because someone changes the price ticket. The same is true of the values of currencies. I know people change price tickets and buy and sell currencies because they think it will be to their advantage to do so; they will make some money or will avoid money losses. They are therefore under pressures, but nevertheless there is a human action. I think it is important that we get this firmly into our heads.

My Lords, this is where it becomes of some interest to see another side of the 55 per cent. of the applications to the Price Commission which were either withdrawn or modified. If there had not been a Price Commission the increases would presumably have been brought into effect; the prices would have been put up because the people who put them up thought that they would make more money. They therefore have a vested interest in inflation. Equally it is true that when people buy and sell currencies they buy up currency when they think it will appreciate and sell when they think it will depreciate, thereby making self-fulfilling prophecies, amiably described as "hot money ". These movements of currencies are simply the result, when they are not related to the economic realities of the comparative price structures of different countries, and short-term movements are not; they are simply the result of people's estimations of how they can make some money. In some countries they shoot speculators or imprison them. These are rather extreme measures and I would not be likely to commend them, but I think we also take an extreme view when we regard these movements of "hot money" and prices as being not the results of human action but, as it were, acts of God.

Therefore, my Lords, I want to make one practical proposal; that is, that we should take steps to see that nobody has a vested interest in continuing the inflation, and that nobody makes money out of it. I think this can be done only by fiscal means, and though my noble friend Lord Balogh was a little scornful or cautious about fiscal means, he had in mind something rather different from what I want to propose. I want to propose that we should proceed like this. First, we should decide—and I am sure the Government will go along with me on this—what is the available product which can raise real income in the next year. How much is there to distribute in real terms? Let us say the Government continue to realise their target of 5 per cent. growth. I would rather they based this on 5 per cent. growth that has been seen in the past rather than on some future estimate, but let us say it is 5 per cent. Then I think they should say in Phase 3 that all of us can have an overall average of 5 per cent. increase in actual income, wherever our income comes from, whether it comes from business, whether it comes from dividends, whether it comes from pensions, a wage or a salary—an overall average. Then I think they should make graded percentage incomes within that average, saying that groups at the bottom of the income scale should have 5 per cent. plus x, and groups higher up should have 5 per cent. minus y, and y may, in some instances, be 5 per cent. when one gets to very high level. That is how they should try and tackle the problem of the distribution of income within the limits that are set by our increase in productivity.

My Lords, may I say in passing that I hear with great alarm that the Government are falling for the attractions of threshold increases in wages. How can anyone think that a system of threshold increase in wages, in which wages go up automatically when cost of living figures go up, can possibly be put forward as a counter-inflationary programme? It is true that wages are not the sole cost in the price of things we buy—certainly domestic wages are not the sole cost—but it is true that wages are the single largest factor in costs. Therefore if we are going perpetually to increase wages, pari passu with prices, we are committed to an inflationary circle. That is why I would rather we regulated this by keeping the level of people's incomes within the overall rise in productivity, and that we distributed any increase more to the lower income groups and less to the higher income groups.

We should also need a Prices and Incomes Board—or the present two married together—to look after a number of exceptions to this rather simple proposal; to look after cases, as the Pay Board has to now, where people get promotion or change their jobs and therefore are entitled to something more than £1 plus 4 per cent.; and to look after those cases in which certain groups of workers claim that their work is under-valued—that is to say, they stand on a lower rung of the wages table than they ought. I believe that precise criteria have to be laid down to determine what are reasonable grounds for saying that a group is under-valued, that its work is under-valued. These are the questions that will need to come before a reconstituted Pay Board, or even the existing Pay Board.

My Lords, having done all that, prescribed and permitted increases, I should hope on a graduated scale, tapering off and allowing for special cases (and there are some special cases), and allowing for people to change their jobs and so on, then I think we should impose a 100 per cent. tax on net income to mop up anything that anybody had got over and above what he was permitted by this policy. It is very simple: you would take a man's excess unearned income, investment income, his excess wage or salary he had managed to wangle; you would take the excess he had got out of his business profits. This is a simple proposal in some respects, and it obviates a number of current difficulties. It obviates the complications of profits control because you do not control profits before they exist, but at the moment when they get into the pocket of some known individual.

Secondly, it would even obviate the necessity for dividend control and would achieve the same object in a more fair way. Dividend control is unfair because dividends are sometimes paid to people who are well off and sometimes to people who are not so well off, to whom dividends are an important element in their incomes. If you tax any excess as an excess of personal income over what the incomes policy allows, that will eliminate unfairness. It will also open the door again to collective bargaining under certain restrictive conditions; that is, under conditions that no bargains get approved which actually result in people enriching themselves at levels beyond those prescribed for that section of the population by our incomes controls, our proposed income grading.

My Lords, this is a proposal which involves a good many complications. There are a good many consequential problems to be dealt with, and I am prepared in due course to try to cope with these. I shall be very interested if noble Lords can indicate some that I have not thought of, or perhaps indicate even some general sympathy with the idea. I do not suggest that the scheme I have described is a panacea, I suggest it because I think that it is very worth while, whatever else we do, that we try to establish a system in which no individual is able to enrich himself beyond the limits allowed under the incomes policy, and in which nobody will have a vested interest in the continuance of inflation. If nobody had a vested interest in the continuance of inflation, I think we may find the problem of dealing with it very greatly simplified.

5.20 p.m.


My Lords, I have never actually been a pupil of my noble friend Lady Wootton of Abinger but I always feel as if I had, and I wish I had been. I shall not discuss her proposals in detail; we shall all want to read them in Hansard. In the course of my speech I am going to make proposals for more positive action, and I wish I had made hers. Mine will be a great deal vaguer, but I am prepared to change them for hers at any time. In any case, as nobody living, with perhaps the honourable exception of my noble friend Lord Balogh, seems to know how to deal with the inflation which is threatening the comfort and security of the developed world, it may not be out of place for someone like myself who is neither an economist nor a businessman, nor indeed much of a politician, to express some views.

I would begin by expressing appreciation of my noble friend Lord Beswick's wide and overspreading attack on the present situation; and here we come to the difficulty in the meaning of words to which my noble friend Lady Wootton referred. The noble Lord, Lord Windlesham, thought it was a harsh attack; I thought it was a particularly mild one. The noble Lord, Lord Windlesham, said he was not going to be defensive; I thought that, very ably, he was exactly that. However, this is a question of words. I am glad that my noble friend put on sackcloth over the pound and 10s. It was a terrible decision, I think. One can only assume that it was decided by the toss of a coin, because no intellectual process could ever arrive at the conclusion that it was better to have the minimum coin one-hundredth of a pound than one-hundredth of 10s. It was one of the worst things done in many years, and I was very happy when my own side admitted that they were wrong, particularly as I got into trouble over the sixpence, if I remember rightly.

This leads me straight to the problem as I see it to-day. I believe it has moved over from the purely economic to the psychological field. The economic remedies fail to work not because they are in themselves inadequate but because people no longer believe that they are going to work. This is the point my noble friend was making at the end of her speech. The Government have not the conviction of the people behind them. As my noble friend Lord Beswick pointed out in some detail—and I support him—the Government have not done what is necessary to get the people behind them. I cannot resist here quoting the famous epigram of Monseigneur Ronnie Knox: They have turned their backs upon the people and now they claim that the people are behind them.". I do not think that enough attention has been paid to the extraordinary change brought about in our social fabric by the runaway rise in property values. Here I am thinking not of the speculators, whom my noble friend has sufficiently castigated and whom most of us thoroughly despise; I am thinking of you and me, and particularly, in this case, me. Anyone who has bought a house, whether on mortgage or not, before this current year—and some millions of the population have done just that—has seen his property increase in value from twice to 40 times, according to when he made his purchase. I bought my house, North of Regent's Park, four years ago, with the help of a building society—and I shall not disclose how much help. When I got in, it stood me at a gross figure of £21,000. Its bock value to-day is £50,000. My neighbour bought his house 20 years ago for £1,500, and his book value now is the same as mine. Neither of us has speculated or shown avarice, or even especial shrewdness; we have just lived in the ordinary way; we have bought the best house we could buy within the means of ourselves and the banks. We both paid in the normal way, yet our financial positions are transformed, mine by 150 per cent., and his by several thousand per cent. It is the most extraordinary situation.

What is interesting about this is that it is not only the rich who have gained, though, of course, as promised in the Bible, they have gained more than anybody else. The transformation is taking place across all classes and through all levels of income—except as always, the very poor, who never get a break however the economy twists and turns. The significance of this change is that there is a very large number of people, many of whom until now have never been well off, still less thought of themselves as rich, who in fact are now quite rich and getting richer as inflation goes on, simply as a result of having a share, through a mortgage corporation, in a house. They already have a perfectly satisfactory hedge against inflation, and this means—such, I fear, is human nature—that, whatever their intellecutal approach to the problem may be, they are not sufficiently frightened of the upward march of paper values because they are "all right, Jack".

We must not think that the values are no more than paper. Of course it is true that if a man sells his house for £50,000 he has to find somewhere else to live and has to buy in the same market. But he can reduce his commitment by taking a short lease of a flat for £10,000 and give £40,000 to his children. Even after capital gains and death duties, this is a real difference to his children; they are actually richer as a result of this curious development in the modern world. Or he can borrow money from the bank on the increased valuation and buy things like pictures, or even wine, or furniture. To live in inflationary times, as we all know, you have to owe money and own things. I have always found the former easier to do than the latter part of that proposition. But it is a pretty sound principle. Relative values have changed, probably for all time. There is at the moment hesitation in the property market, but it is only a pause for breath, though prices may not go on rocketing for ever. But in my opinion the property market will never go back to 1960 prices. There is a permanent shift in values and those who have benefited have made a lasting gain. Many have done so in all innocence, which I claim for myself and my neighbour. Many others have taken undue advantage, which we deplore, and my noble friend has already referred to that.

We find ourselves in this curious position, with an enormously increased capitalist class, drawn from all income levels and across the old class lines of society, and these people can afford to be sceptical about Government attempts to deal with inflation. On the other hand, we have a powerful trade union movement which sees the property owners, large and small, many of them in their own ranks, insulated against inflation; consequently the movement is inflexibly determined not to be the one group which bears the burden; determined, and with the power to assert this determination, as we have seen in the last few years. So we have a very large part of the nation either, like the property owners, insulated, or, like the trade unions, able to protect themselves against the evil the Government is trying to fight. This must make the Government's task in mobilising public opinion much more difficult; and, quite frankly, they have not done what they should have done to make it easier.

I should like, with all modesty—and here I would perhaps substitute Lady Wootton's proposals, if we agree with them when we see them—to suggest that there is only one way of regaining the cooperation of these two sceptical groups who constitute, in my opinion, the majority of the nation. My suggestion has been made a hundred times at least, but it remains, in my opinion, the only way. That is to do whatever is necessary--and I mean whatever is necessary —to hold prices down. This, of course, means the inclusion of food prices and rents, however difficult, actually or politically, this may be. Here I think there is something we can learn from the United States. As noble Lords will know, rigid application of their Phase 2 controls are pretty well confined to some 1,500 firms who are responsible for 45 per cent. of all sales, the rest of the 10 million firms being monitored much more gently. I am not competent to go into the details, but as I understand it, the price control was applied to firms rather than to commodities. In other words, it was the total rise in profit-making of the firms rather than price by price. This seems to be more flexible and effective. We have to worry less—as I think the noble Lord, Lord Redmayne, suggested —about monitoring thousands of small retailers, and more of effectively controlling the behaviour of the thousand or two firms that are responsible for most of the business.

The real headache, of course, as we on this side freely admit, is the external rise in prices. In so far as price rises are caused externally, it is necessary either to let them rip or to keep them down by subsidy. There is no other way. My suggestion, while I admit that subsidising imports cannot go on for very long, and can be only a highly temporary measure, is that at this particular moment a year, or at the most two years, of stable prices would change the atmosphere so drastically that much less fierce and damaging measures would thereafter be effective. This would mean putting back some of the tax cuts from which we have benefited in the last couple of years; but as we on this side did not approve of them in the first place I shall not waste time discussing that idea. We should regard this as a small price to pay.

There has been some criticism of the Common Agricultural Policy in the Common Market. I should like to say, on behalf of those of us who have steadily supported our entry into Europe, that none of us has any illusions as to the inflationary effect of the C.A.P. as it now stands. We have said, echoing Dr. Mansholt—who has said it much more strongly than any of us, and for many years—that food prices are too high and are leading to over-production. This year's butter mountain is not quite so large, I believe, as the 1969 one, but it is absurd and tragic that there should be one at all. The C.A.P. has a direct effect on world economy, and is forcing inflation on us by keeping up prices artificially. It is vitally important that the policy should change. I do not believe for a moment that we can change it from over here, but I believe that we have some chance of changing it with our two powerful representatives in Europe. I think that this fact in itself, added to the logic which is already being exercised by Dr. Mansholt and his colleagues, is a sufficient reason for supporting our entry into the E.E.C.

The last Government, when my Party was in power, sacrificed many of their most cherished aspirations on the altar of the balance of payments. But by great determination on the part of my right honourable friend Mr. Roy Jenkins the situation was eventually transformed. The Party had to disappoint many of its supporters, and actually lost many of their votes at the General Election, because it did what it believed to be the best for the country. I make no comment on the heavy price paid for this, and the lighthearted way in which it has been dissipated; but it seems to me that the reason the present Government are so reluctant fully to control prices is that such action would be so unpopular with their main body of supporters, and that is the business community. People do not like being controlled, and still less do they like their prices being controlled—and I do not blame them. But I believe that if this Government are going to do what they ought to do they must be a little fiercer, a little braver; they must be prepared to give offence, as we did, in the nation's interest. I see no other way of producing a psychological atmosphere in which less drastic measures might be effected. I hope that the Government will fix their mind on this one objective, the control of prices; for without it we shall never get out of our difficulties. I have no hesitation in supporting my noble friend's Motion.

5.35 p.m.


My Lords, I must make an apology, in that they are discussing metrication in another place and, as I am Chairman of the Metrica- tion Board, I feel that it is my duty to go and listen to some of the speeches made there during pant of this debate. I hope your Lordships will excuse me for any discourtesy if I am not in my place for all the speeches.

I think that we do well to focus our minds on a problem which surely is the most devastating problem which this country and which democracies have ever had to face. I think that it was Marx, and Engels endorsed it, who said that "Religion is the opium of the working people".




Opiate; I thank the noble Lord. He has a better knowledge than I. I think that it is true to say that to-day inflation is the opiate of democracy. Therefore, we do well, at the end of this Session before we rise for the Recess, to focus our minds on what is happening. I do not know that I differ with my noble friend when he said that the noble Lord, Lord Beswick, made a powerful speech, with its constructive points, too. I would say to his noble friends behind him that he always looks as though he is about to bite his opposition, although his words are very often more kindly, so those who face him may feel he is being more hostile than those behind him. That is my interpretation of the different views expressed on his speech. He said in the course of his speech that he did not wish to argue about the standard of living. I think that this is important because we are moving to a very important juncture, Phase 3, where we have to consider whether the Government have acted in reasonable fairness—and this arose out of the last speech from that side.

It is fair to say that the real standard of living in the six years of the Labour Government rose by 8½ per cent. in real terms, and in the three years of this Government it has risen already over 13 per cent. So it rose 8½ per cent. in six years and it has risen 13 per cent. in three years. Of course this comes largely from the fact that we have switched over to a growth economy. Industrial growth, as your Lordships know, has gone up between 5 and 6 per cent. I do not think that anyone in this House would think that that is a bad thing. I suggest that the greater productivity partly comes from the reduction in unemployment, partly I think it arises out of incentives, partly out of better management and better organisation, and to some extent out of higher investment, although my own view is that we have not been investing enough of our rather small profits in this country in modern machinery.


My Lords, when does one expect a result from the investment which the noble Lord is applauding? Was not that investment made during the period of the Labour Government?


My Lords, if the noble Lord had listened more carefully he would have heard me say that we have not been investing sufficient of our rather narrow profits. If we look at our profit margins in this country, we find that they are rather less than those of our competitors and as a result we invest less than I should like to see. There has been investment, and that investment has to some extent contributed to the productivity. Of course, I concede that a greater effort by those on the shop floor is an important point too.


My Lords, I apologise for interrupting so early in the noble Lord's speech, but may I ask him a question before he gets too far from this point of the standard of living? Would he not agree that standard of living is really rather a relative thing, and for those who live on comparatively modest fixed incomes it has become increasingly difficult? Admittedly for those whose wages have been constantly rising it has become easier.


My Lords, I would absolutely concede that, and that is why I think that it is so important that we should, as a body corporate—all Parties—be dedicated to trying to avoid the increasing inflation which has undermined those people who have been most responsible during their working lives and who have tucked away savings, which is in the interests of our country as a whole and which should be in their interests as well. It is a very important point that the noble Lord makes.

Coming back to rising prices, we have to acknowledge that the biggest contribution to them, the biggest contribution in the price of any of our goods, comes from wages. On average over 50 per cent. of the cost of any industrial product in this country is wages. As the noble Baroness, Lady Wootton of Abinger, said, it is easily the biggest factor. The second biggest factor is the raw materials, and in this country we are generally talking about raw materials which are imported. That is why we have been knocked sideways—by the enormous rise in commodity prices—in our fight to contain inflation.

The Economist published an article on this issue a fortnight ago which noble Lords will have seen, where it showed a graph which really rose almost exponentially to hit a 70 per cent. rise overall in commodities in the last year. As the noble Lord, Lord Beswick, said in his opening speech, a 64 per cent. increase in copper has a devastating effect, particularly in our electrical industry.


My Lords, would the noble Lord face the point which I tried to make and which noble Lords opposite have ignored, that this increase is more to us because we have let the pound go to hang?


Yes, in any equation there are many factors, and that, I concede, is one of the factors. But the pound has not drifted down by 64 per cent., which is what copper has drifted up; the pound has not drifted down by 89 per cent. which is the amount by which wheat has drifted up, nor has it drifted down by 155 per cent., which is the increase in the price of raw wool. It is a factor, I concede, but it is not the main factor by any means.


My Lords, probably the noble Lord was listening to my noble friend Lord Balogh when he pointed out that we had depreciated by a factor of 40 per cent. as compared with the Japanese yen. That is why, with their copper costing them only a 15 per cent. increase, they are such formidable competitors.


Yes, my Lords, but as far as I know very little of the copper we buy comes from Japan; it comes from other parts of the world. But I think I had better continue with my speech, because there are others who want to speak and I am not yet being very controversial; I am terrified of what is going to happen when I get on to controversial issues. The cost of food imports has gone up by 25 per cent., and everyone knows how dependent we are in this nation on food imports. So there is the position where the cost of living in the last year has gone up by 9.5 per cent. But—and I think it should be stressed by all responsible people, and I re-quote figures from the Front Bench—earnings have gone up in the same period, not by 9.5 per cent. but by 14.2 per cent. That is a later figure than the April figure recently given by the Prime Minister. Should we not take some pride that this has been achieved without deflation? I concede that the noble Lord, Lord Donaldson of Kingsbridge, said that the Labour Government dedicated their whole effort to the balance of payments, but resulting out of that dedication came the squeeze, the deflation of our whole industrial life and a rising unemployment, amounting, I think, to 640,000 when they left office and which continued steeply upwards for a year or more thereafter. It is with some pride that we have used the balance of payments to increase our output, to reduce the unemployment and to thus make more use of all the people who wish to take up work.

I thought what was a little alarming from the noble Lord's speech—I got the message very clearly, and it was endorsed by the noble Lord, Lord Donaldson—was the indication that cutting taxation is unfair in the Labour Party's view. I would ask how you are going to increase incentive at all levels if you continue to take away from an executive or a working person far more of his earnings than any other of our competitor countries do? We are now taking 75 per cent. The noble Lord, Lord Diamond, shakes his head. Does he wish to take more than 75 per cent. away? If he does, I would say that he is unique. No other democracy takes away more than 75 per cent. of a man's earnings. They may find that lower taxation helps him to drive forward with ambition, and to make savings for his family which also help the economy of his country.


My Lords, the noble Lord knows that I must answer that, and I am grateful to him for giving way. I merely shook my head to contradict this myth, which every Conservative Front Bench speaker in the other House accepted was a myth, that we charge a higher rate of tax overall in relation to our gross national product than they do in other countries. If the noble Lord will be good enough to look at the figures of cur closest competitors all over Europe he will find that we are exactly in the middle of the league.


My Lords, I cannot agree with the noble Lord—we had better meet in some private room with our two lots of tax tables and sort it out for ourselves because your Lordships would not have the patience. My view is that other nations may tax as highly as 75 per cent. but they do not tax from such a low level at 75 per cent. You hit the top rate in this country much earlier than you do in other countries, as I think the noble Lord would agree.

I think the noble Lord, Lord Beswick, was trying to be constructive in his speech—he put seven points where he thought that something might be done. He said that there must be a way of reducing demand and thus reducing inflation; secondly, he asked would it not be better to raise taxes. To him it is not only a question of not cutting taxes but he is advocating raising taxes in order to reduce inflation. I thought we had been round this particular buoy several times in the twenty years that I was in the House of Commons. We came to the conclusion that increases of tax, because of wage demands, because of the trade unions' very strong bargaining position, led to further demands and further inflation. I think that was the finding. He also mentioned food subsidies—and I am not going through all these figures again. The noble Lord, Lord Donaldson, also mentioned this subject. Of course the Government have not closed their minds to it. There is at the moment a holding subsidy on milk and there has been on butter. But it means very big money if you are to subsidise effectively. Even £500 million, which is a fairly substantial sum, means that you have to take 45p out of the wages of every married working man if you are not to do it cut of borrowing–45p every single week. That is a big increase, and I wonder whether if we take that away we are going to get agreement in the Phase 3 talks. Is it the sort of climate that you want to create?

Sometimes, because we see inflation happening in this country and only travel overseas perhaps in our package tour holidays once or twice a year, we do not see the day-to-day events as to what is happening to inflation in Western Europe. I have the figures here expressed in annual rates: Italy, which is much the worst, 12.5 per cent. inflationary rate; Ireland, with an estimated 10 per cent., is the second worst; Belgium, 9.2 per cent.; Denmark, 9 per cent.; Netherlands with 8.8 per cent.; United Kingdom, 8.6 per cent.; West Germany, 7 per cent.; Luxembourg, 5 per cent.; France, 5.4 per cent. Compared with our competitor countries on the Continent we are better than the majority, and I think this should be known. Those figures, by the way, are taken from the O.E.C.D. main economic indicators.


What year?


This year. I will give the noble Lord the estimates—this is the mistake of being interrupted, my Lords. I will give the whole brief to the noble Lord and he will learn a great deal from it in the end which gives the figures and the source of the figures.

I think also that this Government should take some pride in the fact that they have been able to recompense those who have been most hardest hit. The noble Lord, Lord Beswick, in his Motion did refer to this. He said it is "to mitigate the consequences of inflation on those least able to bear it." I think it is a proud fact that we now have the annual review of pensions, that pensioners will be getting in October 55 per cent. more than they were in June, 1970, against a rise in the cost of living of about two-thirds of that. So in real terms they will be getting substantially more to offset the rise in the cost of living. I think it is a matter for some pride that all National Insurance benefits now are going to be reviewed regularly once a year. I am sure that in an inflationary world this is essential, and it is just. The same applies to industrial injuries benefits, war disability benefits, supplementary benefits, and family income supplements. I think this is a correct effort to try to make things fair, and out of the increased industrial output to try to shelter those who are not able to help themselves.

I come now to Phase 3. This House will probably not meet again until the latter part of October, unless there is a real crisis, and we shall then be on the brink of the introduction of Phase 3. Some powerful voices are making themselves heard in the T.U.C., calling for the early re-institution of free collective bargaining. I take the view, as I believe the noble Baroness, Lady Wootton, does, that those days are gone for a very long while. However powerful and important they are, no group of men can feel that free collective bargaining within our democracy is a possibility for a long while to come. I hope that during these negotiations we shall hear the responsible voices of the T.U.C. playing their part—and there are many responsible people who see just the dangers that your Lordships see, if we continue with these inflationary difficulties—and I hope that the same will be true of the C.B.I.

If Mr. Scanlon, who predicted widespread industrial unrest, is right, then I would ask my noble friend on the Front Bench whether the Government are making contingency plans. We are deeply dependent in this country upon imported food, which has to be conveyed to our shops. We are deeply dependent upon deep freeze storage, and if the electricity supply was disrupted much of our food supplies could be at risk. We are deeply dependent upon electricity for running our sewage pumps, and for running the whole of our industry. I should like to ask whether some plans are being made, because, if they are not, any Government will be desperately vulnerable to the disruption which has been forecast. I hope that the Government will stand firm in Phase 3. It can only be in the interests of the whole country, and of every person who lives in it and who wishes it well, that they stand firm, and I hope that they will make some contingency plans.


My Lords, before the noble Lord sits down, may I ask him whether he is basing his argument upon Marx's theory of the labour value in all production? It seemed to me that, essentially, he was contending that it is the labour content which is the important point, in which case I would acclaim him as a pure Marxist. If he does not mean that, will he explain how he can suggest that the labour content is not the important factor?


My Lords, I thought I was at pains to say that the biggest factor in any product is the labour content. On average, it normally exceeds over 50 per cent., and therefore it is of supreme importance that we find some negotiating machinery which recognises that fact, which gives fair rewards, but which does not destroy our economy in so doing.


My Lords, will the noble Lord just correct that last statement? He said that the labour content is the "biggest factor in any product". I think he will agree that it is correct to say "on average, in all products", because in some cases, such as electricity, it is a very small factor, while in other cases, such as coalmining, it is a very large one.


I am sorry, my Lords. I meant to say "on average", because, as the noble Baroness rightly said, there are some products which have a very small labour content indeed.

5.54 p.m.


My Lords, I think the only connection that the noble Lord who has just spoken has with Marx, is with the Marx Brothers; and I say that in the friendliest way. His speech was a parody of what a young Conservative would have said in about the year 1925, just about the time when the Conservative Party decided to take on the trade unions after the First World War. The last part of his speech was extremely revealing. To the Front Bench he said, "Be prepared for Mr. Scanlon and his cohorts, when he and the trade union leaders are unable to accept the prescription." It is an old habit of mine, which I have brought from the House of Commons, not to read my speeches—I hope that the noble Lord the Leader of the House will note that fact—and also to reply because, essentially, this is a place of debate. The noble Lord made a great point of saying how earnings have risen and how the cost of living has risen. His argument was designed to stir the hearts of Conservatives up and down the country. The Government are great and friendly, and this is what they have done for the people of this country.

My noble friend Lord Brown will recollect what we inherited when we found ourselves in power in 1964. Did we inherit a favourable balance of payments of £600 million a year, which is what the present Government received from us? What we inherited was a deficit of £800 million in 1964 and, the most frightening thing of all, the deficit was running at the rate of £1,000 million a year. So if action had not been taken immediately, the situation in 1965 would have been worse than it was in 1964. If the noble Lord, Lord Orr-Ewing, does not recognise this fact, I am sure that the noble Lord the Leader of the House will recognise it. From 1964 until they went out of power in 1970 the Labour Government were living under the shadow of this enormous deficit which they inherited for political reasons. I say that because Mr. Maud-ling, as Chancellor of the Exchequer was setting the stage, as it is being set now. There was one dummy after another in the shop window, and we were left to pay the bills. During the last three years the present Administration have done people proud. But how? During this current year they are borrowing £4,400 million. Of course you can be generous with other people's money; every defaulting clerk knows that. So that the argument that things are better than they were has no substance at all.

Of course things are better in 1973 than they were in 1970. They were better in 1959. Do we remember the words of Mr. Macmillan then: "You've never had it so good"? When somebody reminded Mr. Macmillan that the terms of trade had turned in the Conservative Party's favour from 1951 onwards, what was his retort? He said, "What's wrong with a little bit of luck?" It was a little bit of luck when it was running his way. Only now, when the terms of trade have run against us, do we hear this Party of English gentlemen start to whine. Did we hear anything about the cost of living at the time of Korea? I fought an election in 1950 and in 1951. Every placard in Dudley had on it a stocking with a hole in it. It was no good getting up and saying, "We were doing fine until the outbreak of the Korean war". No one would listen. The Conservative propaganda was directed at exploiting rising prices. The same thing has happened again. In 1970, we were just beginning to get matters right and it is a tribute to the honesty of the Labour Administration that they did not arrange the dummies in the shop windows in order to win the Election.


My Lords, will the noble Lord allow me to interrupt? Will he explain why the Labour Government went to the country one year before they needed to do so, if everything was so rosy? Should they not have stayed an extra year and reaped the wonderful reward which was coming?


My Lords, I am not in the confidence of Mr. Wilson on this point. I used what influence I had to urge him not to go, but he decided to go. If the noble Lord wants me to tell him, I think Mr. Wilson went—and I hope that the noble Lord will take note of this—because he was faced by the dilemma of entering into the Common Market.

I was always persuaded, and I still am persuaded, that basically my noble friend Lord Brown is right in the idea behind the national plan of using the resources of this country to the maximum at the expense of the City of London. It was the early dream of those who inspired our movement, and I believe it is the only way of getting out of our troubles, to have a partnership up to the point of production between the trade unions, on the one hand, and productive industry on the other. Of course, if in fact the noble Lord had read Marx, if he understood something of what Engels was saying about Marx's teaching, he would know that this is what he was preaching. The point of conflict in our society is not in the productive act; it is in the act of distribution. That is where the situation has gone wrong. This is why many of the speeches to-day are utterly and completely irrelevant: because the situation has now deteriorated to the point where we are all but powerless to put it right.

I have spent a few minutes—I hope I have not wasted them entirely—in saying to the noble Lord, Lord Orr-Ewing (I said it many times in the House of Commons and it is still true), that before he comes to this House he should, for Heaven's sake!, do some homework. What frightens me is that when he talks the affable nonsense he has talked to-day, not here (because not even on his own side does anyone take any notice) but when he gets outside he will be in a position to mislead his fellow countrymen, as I regret to say he has been misleading them for years. The only thing that this country wants above all, from both Front Benches, is to be told the truth. I read the speeches in the House of Commons last week with a certain amount of dismay, because it is my view that down the centuries the British people have never failed provided they have been told the truth—and they are not being told the truth to-day.

The conflict of which we get the reverberations is a world conflict: a conflict, if you like, between East and West. This conflict can be expressed in two words: the West stands for "consumption", the East stands for "conservation". In those terms, in the long run there can be no doubt who is going to win. Look at our own society. Inflation is not an abstraction; it is a matter of reality. To-day, money does not matter. Look at the profits of the banks last week. If you have a credit card or a Barclaycard, or if you go to any of the big stores in London, you do not need money. Indeed, to cash a cheque now you have to produce a credit card. This is the situation we have reached. It is true that the supporters of the Conservative Party—Hambros, Kleinworts, the shark moneylenders Rothschild—are all behind them to a man. They have made millions, untold millions. For example, I read that Lord Samuel made £1,000 million out of property. Did it come from Heaven? Did it descend on him like manna? Did it grow like mushrooms? Or did he filch it, and is he continuing to filch it, on every article that is purchased in every High Street in this country?

Property values, I suppose, could be expressed in these terms: that the property developers have in fact taken nine inches off the topsoil of Great Britain. They have done that to their very great advantage. Then there are the mergers that take place. What has Mr. Charles Clore, that prince of asset strippers, added to the wealth of this country? He has taken a hell of a lot of it! You have only to look in the field in which I was recently interested to see what happens. We have had the arrival of Mr. Maxwell Joseph alongside Mr. Stien, Mr. Clore and Mr. Corran. Of course, this is the biggest business in the country, with a turnover of £3,500 million a year. As long as this goes on it finds expression, and must continue to find expression, in the purchasing power, or the lack of it—it is a pre-emption of the purchasing power—of every household in the country.

In my view, this will not be put right by Governments, because although at one time it was regarded as the prerogative of Governments (this is at the heart of Mr. Powell's argument) to create credit, now the power to create credit has passed from Governments to private individuals—to banks; to the merchant bankers, particularly; to the discount houses and to everyone who issues a credit instrument which enables people to get goods. This is what it adds up to. If one has a look at what has happened in the United States—and what happens in the United States, of course, is what is going to happen in this country within a decade—one sees that the young man and the young woman marry and buy a house. They work hard to get the down payment; and when they have got the house they have both got to work, so they need a couple of cars. They have a deep freeze, they have a refrigerator, they have a power machine, and their holidays and their clothes—everything—is paid for on credit. So he gets a second job and she gets a second job. But, of course, there is a limit because there are only 168 hours in a week.

The fact is that in the West we have societies which exist for one purpose, and one purpose only—to consume. I laugh my head off when I talk about the power of investment. Where will investment go? It will go where it will make the quickest buck; that is where it will go. If you look at the advertisements in the Press or on television do you find them advertising the need for reinvestment in the shipbuilding industry or in steel? No!, it is in something to eat, something to drink, something to make you clean, something to make you smell nice, something for the cat, something for the dog. The emphasis all the time is on consume, consume and con- sume—and you pay for it as best you can. This is the stuff of which inflation is made. What does the trade unionist say? Every day when he turns on the television he is being exhorted to consume; if he is not being exhorted, his wife is; and if neither he nor his wife respond, then there are the children. All the emphasis is laid upon consume, consume and consume.

Of course, the Government, when they came to power, in their analysis—and I have no doubt they listened to the noble Lord, Lord Orr-Ewing—were guided by the statisticians. Mr. Heath did what Lord Orr-Ewing is advocating now: he took the trade unions on, and he created a pool of unemployment running up to a million. Then he found that he had to reverse his policy on every single issue. So now the tune has to change; you have to change the record. The record up till a few months ago was that the cause of inflation here was the grasping, greedy trade unions. So pass the Industrial Relations Act and get in a Tory stooge like Lord Donaldson—I beg his pardon; not Lord Donaldson: it ought to be, but, still, never mind—put somebody in there to do your bidding, and everything will be all right. Then they suddenly wake up and find that the trade unions are not the cause of the trouble. You can come to grips with the trade unions. After all, if Mr. Heath had been a wise man and had looked across the Atlantic, he would there have found a trade union movement which was an integral part of the capitalist system. So he changed his tune, and now the chorus is—and we have heard it to-day—world crisis. That is the new tune.

Now Heaven forbid that I should be the only person to draw attention to the Government's shortcomings! Let me go to an ultra-respectable source, the City Editor of the Daily Telegraph. That is Conservative enough; he is no crypto-Socialist. In the early part of this month he wrote: The Government is being less than honest in putting the price explosion down to appalling bad luck. Of course world prices have got something to do with the Government's problem. It is hoped that world prices are going to level themselves out for our convenience. I do not believe it.

In September there is a meeting in Algiers of the non-aligned countries. That fact has not hit the headlines yet, but it will, because the non-aligned countries, the under-developed countries, are beginning to add two and two together, and in the future they are not going to go on producing cheap food and cheap commodities because it suits the commodity market in London, Paris or anywhere else. We have entered a period when the economy of the world is being turned upside down. And it is being turned upside down, I suggest, because of the rising prosperity of the Eastern bloc. I am prepared also to believe that they frame their economic policies in order not to convenience us but to convenience themselves. In those circumstances, what we have to look at and face up to is a completely changed situation. I am one of those who are sufficiently Marxist, if you like, to believe that it is impossible to separate economics from politics; they are the heads and tails of the same penny. What one can do is to hope to have, at some time in the future, a rapprochement with the trade union movement. It is one of the tragedies of our time that we have a Prime Minister who is cordially distrusted by the trade union movement. They have had some; they are not going to trust him again. They can read, as I can. They see that the steps that Mr. Heath has taken, that his Government have taken, do not cheapen food but make it dearer.

I applauded the diligence of my noble friend Lord Beswick in commenting on the Intervention Board which the Government set up by Statutory Instrument through Clause 6 of the Economic Communities Act. On July 2, the Government published their revised Estimates. They are spending no less than £25 million—not in making food cheaper but in making it dearer. They are de-naturing food to make it unfit for human consumption, and they are also making an allocation of money in order to store food so that, for these commodities, the pressures of the market shall be relieved. This has not received much publicity. The Minister of Agriculture has found a new expression: commodities are now sold "into intervention", which means that the British taxpayer pays money to put these commodities into store or to destroy their nature so that they must be fed to animals and not to human beings.

There is something else about the Common Market which astonishes me. We were told that once we went into the Common Market there would be a tremendous flow of capital from the Common Market into this country. Again it does not make the headlines, but the deficit between the E.E.C. countries and ourselves is running at the rate of £80 million a month, £1,000 million a year—almost equal to the anticipated deficit. For the first time in the history of this country we have become net importers of motor cars. How the motor car industry was going to prosper! How many Conservative Members of Parliament came round my old constituency in Dudley to tell us what a wonderful time everyone was going to have because of the great Market! What has happened? The motor cars are not flowing from the West Midlands into Europe, but from Europe into this country. We have become the servants of economic forces, forces that we cannot control.

Let me be fairer than some. I readily admit that world prices are a major factor; and the Government have no control over them. I also believe that Mr. Heath has turned his back on his past and I am prepared to believe that his policy of compassion is genuine— genuine because it is also striking a note of political realism. I concede all that. But the fact is that Mr. Heath made a major error of judgment when, because of political pressures inside the Conservative Party, partly generated by the subscriptions collected by the Conservative Party, they went into the Common Market at breakneck speed, regardless of the consequences. So at the time when we went in we had to accept within a period of five years a year-by-year increase in prices. We have to do that—and the Intervention Board is composed of civil servants (which is very appropriate; Con O'Neil is the Chairman)—because the Board serve under a directive which comes from Brussels. There is no need to tell us, there is no need to tell the House of Lords or the House of Commons or the British people; they merely pay the bill. The policy is directed from Brussels.

My Lords, there is one other point I want to make; and this accounts for my pessimism about the future. I do not think it matters much what I say to-day or, with respect, what your Lordships say; because at the end of the day this is going to be decided not by what men say but by what men do. Before many weeks are past, I forecast—and as a minor prophet I carefully keep the cuttings of what I say—that we are going to come back to a major economic problem which grows in size, in geometrical proportions, every day that passes. Here we are throwing away a chance of great magnitude. In September we start the GATT negotiations. Here was a chance for this country, with the support of the U.S.A., and with the support of many other countries who are facing the same dilemma that we face, to find a way of liberalising tariffs—even of going as far as the Labour Government tried to go in 1947, perhaps as far as the Havana Charter. But we are precluded from doing so as a result of the decision of the French that the decisions of the Common Agricultural Policy are not negotiable when we start the GATT negotiations.

My Lords, I say that no country that has not been defeated in war would accept such conditions as have been imposed on us by the French. We are for every purpose a defeated country. Britain is no longer independent; Britain is today a vassal of France. We are paying reparations to France as surely as the Germans had to pay reparations—and with the same economic consequences. The only way back, for me, is the recovery of this country's independence, plus the fact that the British people, sooner or later—either it will be the hard way or it will be because of their political genius—will face up to the consequences of the position in which they find themselves. I believe that then it will not be too late; but until then, nothing matters.

6.20 p.m.


My Lords, it is always a pleasure to follow the noble Lord, Lord Wigg. His speeches always provide novel ideas and, not infrequently, some vigorously controversial ones. I shall not attempt to deal with them to-day, feeling that they will be so much more effectively dealt with by my noble friend Lord Gowrie when he comes to reply.

My Lords, in former times we used to have a long debate on the Finance Bill itself. That enabled many to challenge items of the Bill and to voice their views, even though there is no privilege of revision. To-day, we have had this Motion by the noble Lord, Lord Beswick, who moved it in his habitual persuasive and challenging manner. This, in turn, has been dealt with by my noble Leader, with his usual clarity and great vigour. To use his own words, my noble friend Lord Windlesham set out the Government's policy with vigour and effectiveness. I propose to take the opportunity which Lord Beswick's Motion has afforded us to make a few comments, because I share with others the perplexity about the Government policy of trying to pursue a policy of controls while at the same time a policy of undoubted monetary inflation. That, of course, means that the money supply has been largely increased and prices must obviously rise; and so I am perplexed by all this profusion of perplexity—nothing else about why this inflation should raise prices as it has done.

It appears that inflation is with us and has come to stay. Governments habitually have increased the money supply as a means of stimulating productive investment and as a means of containing politically inconvenient unemployment. But the increase of the National Debt is put by all authorities for 1972–73 and 1973–74 as something of the order of more than £6,000 million. That has been dealt with largely by the issue of Treasury hills. It is significant to notice that the Treasury bills in circulation to-day are £1,400 million less than they were some four years ago at the time of the previous Government. The Government have also encouraged borrowing abroad by large concerns. That must increase the total debt, but it helps to fill the gaps in the balance of payments. We must pay tribute to the success of the Chancellor in reducing taxation and also, in this position, in finding the means of persuading the public to buy long-dated securities, that is, bonds which increase the National Debt. But this is achieved only by high interest, which is loading our present difficulties on to posterity. If inflation is coming to be regarded as a matter that will live with us, perhaps a ten-year at 10 per cent. coupon at the end of 20 years will, in effect, come down to 4 per cent. or 5 per cent. But surely this whole idea of spending ourselves into prosperity is a big gamble. It may come off. It aims to produce higher investment and stimulate exports, and certainly must reduce unemployment; but it is going to increase the adverse balance of payments.

This is a time when, as the noble Lord, Lord Beswick, emphasised, the terms of trade are turning against us. Indeed I am surprised, looking it up, to see that it is up to a 12 per cent. increase in the adverse terms of trade. That is stimulated by the world commodity price rise, but also that must increase the buying power of the countries who get that advantage. I am among those who remember the time of similar need in this situation, which was followed by the Geddes Axe. Government spending was much reduced under all heads and greater efficiency undoubtedly resulted. At the present moment international exchange arrangements are in confusion.

We had a debate recently about the price of gold. There are many who feel that it is unlikely that we can restore any sanity into the exchanges until the American dollar is made convertible and the price of gold is increased, so that the absurdity of this two-tier system can be removed and again it will be one price. In the debate on the price of gold my then noble Leader expressed doubt as to whether there remained a place for gold in monetary policy. I am unrepentedly convinced that gold must have, and retain, its position in the monetary world because I doubt whether these special drawing rights will command the confidence of the world as a replacement for the power of gold, the one thing which must always remain scarce and for which there is an unrelenting demand. I repeat my conviction that at this time, when the energy requirements of the world are throwing so much wealth into the hands of the oil-producing countries, those countries are not going to put their faith in special drawing rights. They will demand something which is definitely linked to gold.

I think that savers must have some measure of protection. The idea is put forward that saving should in some way be linked to the wholesale price index or the price index figure. That involves a recognition that, as I suggested, inflation is here to stay. There are those who recommend that there should be a conversion of the outstanding National Debt and that all future debt other than Treasury certificates should be related to some common denomination, such as either of those two indices which I have mentioned. But again I am going to urge that consideration be given to national industries, in the interest of their efficiency, being obliged to go to the market for their required funds and not, regardless of their achievements, turn always to the Consolidated Fund.

Controls of any kind do not dispose of inflationary conditions in any economy; they only produce a temporary appearance of stability. There are these challenging alternatives that lie before the Government to supplement the vigorous policy which they have initiated and are following, as my noble Leader emphasised, which commit all of us to have thoughts as to whether this great gamble will come off. We on this side say it will come off, but the plans of men sometimes go astray. It is in those circumstances that we welcome the opportunity that this Motion put down by the noble Lord, Lord Beswick, gives us to express our views.

6.31 p.m.


My Lords, I am sure that we have all listened with great interest to the noble Lord, Lord Barnby, and if I may, without sounding condescending, pay him a tribute, if I live as long as he does and have the ability to make such a cogent speech at that age I shall be delighted with myself. Time is an important factor and I will try not to repeat things that have been said, because much of it is already known, about the cost of living and the various increases. Let me try to take some things that have not been said. I agree with practically every word spoken by my noble friend Lord Wigg, because together more than 30 or 40-odd years ago one way or another we were studying these social problems. My study at home is strewn with pamphlets on this terrific problem of inflation going back to 1910 and 1913. I was reading only this morning a number of letters written to the Press by Montagu Norman, by Bradbury and others, all of whom occupied positions of status and power in that 30 or 40 years period. They spoke utterances as if they were making the laws of the Medes and Persians. But so too did President Nixon. When he was speaking of the Smithsonian Institute decision about what we were going to do, and he changed the parity of the dollar from 35 to 38 an ounce for gold, he uttered these words: This is one of the greatest acts in the history of the world. How foolish some of these pompous people are. The real truth is that none of us is completely holding the open sesame to the problems of inflation. But there is one thing we demand, and that is that the weakest shall be protected from the inflationary processes that are taking place while mankind tries to unify and discover the answer to the problem. This has not been done.

As a bitter-sweet definition of inflammation—inflammation! Well, it is inflammation, as well; it is over-heated. The Gods were kind to me. That is exactly what it is: overheating of the body corporate. As a bitter-sweet definition of inflation, with an undertone of truth in it, inflation means being broke with a pocket full of money. In other words, despite the amount of money you have, you will not be able to get the basic necessities that you need. That is illustrated by the old woman, about whom such a fuss was made, that Harold Wilson's charming wife Mary saw go into a shop the other day. I have seen the same thing happen: a poor old woman going with an old-fashioned sixpence and asking for sixpennyworth of tomatoes when she did not understand the cost was lop or 2s. a tomato. She did not understand the difference between 10p and a sixpence. So part of our inflation problem is undoubtedly due to the fact that we rushed to change our monetary system. It cost us a great deal. Now we are going into the metric system. Who the hell wants to go into a pub for a litre of brown ale?

Mr. Heath, in his second year of office, almost a year ago this month—there he was with a Stock Exchange that had suffered one of the biggest falls ever, and there was a run on the pound. That would have been a crisis, but the support of a few five hundred pounds was found fairly easily. Trade and industry were offered, from the point of view of the Government, one of the most generous budgets in history. To try to encourage what?—and nobody has mentioned this to-day. Investment at home. But so weak is the patriotism of the pounds, shillings and pence that investment at home has been absolutely childish and poor. We have neither the tools nor the machinery to meet the rigour of competition that we are getting from the Common Market. I heard the noble Lord who is a tycoon of the motor car industry, when I was speaking against the industry going into the Common Market, saying that we were ready to move in and sell our cars, and that we had a bonanza market of 300 million people. What is the result? More foreign cars are being sold here this month than we are selling abroad. This is not due to strikes in industry, but due to the fact that there has not been the investment in modern machinery and in tooling for our industry at home.


May I interrupt the noble Lord?


With pleasure, but do not make it too long.


Just one point on motor cars. One of the reasons why we are having foreign cars over here is due to the time for delivery of British motor cars, which unfortunately is in many cases up to three years.


Yes. There has been a delivery problem with Italian cars, and with American cars, too. But whatever the excuses are, the fact is that for the first time in history we are taking more cars in than we are selling out. I am a bit upset myself. I bought an expensive car and within the first four weeks it had to go back for pretty well a new gear box. I will not name the car; it would be grossly unfair to take the opportunity of privilege in a case like that.


What was it?


Why was not this money invested? Was it because industry and those who are at the head of it have no faith in the future of Britain? The Times of January 25 said: The Prime Minister predicted an end to stop-go economics and a prosperous Britain for all if only British companies would seize the opportunities to invest heavily in plant and machinery at home. This was the hope of the Prime Minister; I do not blame him for it. But at the Press Conference on his return from signing away Britain's independence into the Common Market, that is what he said. What thanks did the industry give him? We all know that the giant monopolies, the multi-national companies that finance capital, are concerned with far more profitable areas than the British home market for investment than to build at home the productive economy of Britain. If somebody comes back at me and gives me the figures of the multi-national firms that have invested in Britain, my answer is (and I will explain this later on from the Midland Bank Review, and from Lord O'Brien's speech and Report the other day on multi-national companies) that these companies are moving that capital to spheres hitherto unknown and playing the markets all over the world—the dollar, the yen, the lira, the lot. It can do it, and can put Governments in their place, as this Government have been put in their place by the multinational Roche.

The Guardian on January 22 said: On the day that it was announced that unemployment in Britain had reached one million the stock market rose above 500 points for the first time in nearly three years. This is absolutely the economics of bedlam. The old trick used to be to ask rhetorically a Labour speaker: "Can Labour govern?" What I say now is that capitalism had better pull up its socks, because it has not been able to govern since we have had sophisticated capitalism after the First World War. The old system before was roughly the Adam Smith laissez-faire; it was nearly true competition, but not quite.

There is no such thing any longer as true competition. If noble Lords do not believe me, I may say that there is a lot of thinking going on in City and financial quarters. I do not judge this House (as some do) as representing a crowd of fuddy-duddies. I have learned a lot since I came here. This is one of the most powerful places in Europe—it is loaded with tycoons—and I can prove it, because here is a list of all the donations to the Tory Party from industry for the last two years. For instance, Guest, Keen & Nettlefold gave the Conservative Party £33,000. I could mention a whole lot but I will just give a general total. The 1967 Companies Act requires every company to disclose in its annual report any donation over £50, and the amount given by these firms to the Conservative Party last year totalled £268,678. Nearly £750,000 was given by vested interests supporting the Conservative Party.


My Lords, if I may interrupt the noble Lord—


Wait a minute: I have not given way yet—


What about the donations of the trade union movement? They give £500,000, £600,000, £700,000 a year.


I knew that would come: that is a piece of cake, anybody would expect that. These people are different from the trade union movement—




These people, my Lords, are non-political—all these great industrialists are nonpolitical, they tell me. The trade unions agree that they are political: that is the big difference. The noble Lord and his colleagues on the other side say they are non-political—does my noble friend want me to give way again?


My Lords, if I may interrupt for a moment, the noble Lord will recollect that he and I once had a collecting book that was sent round to all the firms in Birmingham and they were required not only to pay an amount but to sign their names, and it was made very plain to them that unless their subscription to the Conservative Party was up to scratch and their names were in the book, it might affect the placing of orders.


My Lords. I agree. But let me get on because I do not want to take too long. I am tired of listening to arguments about this—for forty years I have read them inside out and upside down and I admire the wonderful phraseology. But the real fact is that we are still confronted with this, and inflation is an expected phenomenon of sophisticated progressive civilisation. In the reign of Edward II, for example, a sheep cost about sixpence. If anyone has studied the Industrial Revolution and what has been written about it they will see that inflation is something that we are told we must expect; it is a way of cushioning people against this by putting the creation of money into the right hands. The noble Lord opposite, my noble friend Lord Wigg and others have suggested that we must look at this. The old Encyclopaedia Brittanica tells the truth about banking: it contains this phrase: Banks create credit out of nothing. Well, they do. The "nothing" of course is confidence. Multi-national firms can get credit out of banks from nothing on the basis of no investigation, whereas building societies, for example, want to investigate everything, and their top limit is £10,000. That does not happen with a multi-national firm: its name is almost good enough.

We are creating credit ad lib, and it is delightful to read a review in connection with the Midland Bank. There was an initial article in May, 1973, a paper by the General Manager of the Midland Bank. I will not quote it because the House can take the point, but it comments that in many respects the banking business of multi-national corporations may be little different from that of other large companies, but banks need some familiarity with the affairs of the group. But we can do better than that, because the Governor of the Bank of England, Lord O'Brien, came out with this—if the noble Lords below will stop muttering they will see I am throwing away masses of paper and shortening my speech. In the Guardian on May 12, in a very interesting speech, he lent his authority to the view that multi-national companies have played a big part in the recent currency upheavals. In other words, he is putting more blame on them for currency upheavals and inflation than ever you could put on the trade union movement. I know that the noble Lord, Lord Orr-Ewing, has gone out but I think, with the noble Lord, Lord Balogh, that the important fact here (which he did not say) was that the lower income group have 1¼ per cent. less real income now than they had two years ago because the cost of the basic foods which they must have has gone up more steeply than other costs. That is all there is to it.

Much as I would be delighted to give a little lecture on multi-national companies, in view of the fact that the Front Bench below me are straining at the leash, I will finish with this little point. It is an old English tradition—bless the English!—which is very deeply and widely held that it is not Party politics, or politics at all, to seek to retain things as they are. It is when you seek to change them that you are said to be political. So the Institute of Directors, the noble Lords opposite and all Independents and Conservatives on councils are not political. We are the only political animals. How much longer are we going to put up with this rubbish, when we see that £250,000 was pushed in by industry?

I will finish with what I think is a telling point, and refer to an erudite report, prepared for the Cabinet Office. Noble Lords will be able to get this from the Printed Paper Office. It is a report by the Inter-Bank Research Organisation entitled The Future of London as an International Financial Centre. This group of people—and whether you agree or not, they know what they are talking about—have come to conclusions very near to much that has been said on this side of the House. They say they searched for information and that: It was significant of the general readiness that now exists to discuss the City's problems openly that, of all Whitehall and City institutions with whom we requested consultations, only the Bank of England was reluctant to allow its officials to talk to us. Eventually we were in fact able to have useful conversations with one or two Bank officials. And that is the Bank of England, which is nationalised! That is the Old Lady of Threadneedle Street—she has hardly got any thread but she is as pompous as my old aunt whose husband ran away from her because she was such a pompous old bitch! The Bank of England must be put in its place, like some other institutions. The object—and it is a pity that I cannot take 20 minutes instead of 17—of the terms of reference of this report was London's future as a financial centre. The report discusses the change in structure of the financial system; the impact of communications and computers on the technology of finance; the growth of multi-national banking; changes in the environment of banking and the harmonisation of Government policies with the E.E.C. Then comes the role of the company—and this I think is beautiful, and I will finish with this— The role of the company in modern society is going through a period of major reassessment. Both the C.B.I. and the Bank of England have study groups on the subject, and these are symptoms of the thinking that is going on. In due course, some argue, this reassessment could lead to the recognition in law that managements of companies should be accountable for the efficient running of their enterprises to groups other than shareholders, consumers, suppliers, local residents, etc., as well as employees. Company legislation and industrial relations legislation would be two means of implementing such changes. Developments of this kind would be of major consequence for City institutions, altering the whole concept of 'ownership' of companies. It is, however, most unlikely that within the next 10 to 15 years any such far-reaching changes will take place. Nevertheless, it is a good piece of British thinking and along those lines I think we should do something to save our own country.

In 1906 Churchill said about the nonpolitical Conservatives that they were, and I quote: A Party of great vested interests, banded together in a formidable federation: corruption at home, aggression to cover it up abroad."?— the dear old boy had an oratorical arpeggio here— The trickery of tariff juggles, the tyranny of a party machine; sentiment by the bucketful, patriotism by the Imperial pint; the open hand at the public exchequer, the open door at the public house; dear food for the million, cheap labour for the millionaire. I do not believe that any longer; neither does anybody. But unless this country can get together along some of the lines of this Report our destiny could well be that of a fifth-rate nation, not a second-rate one.

6.50 p.m.


My Lords, I am a little confused, I thought I had missed my place in the "batting", and that we may have been debating the Badgers Bill. I feel confused by what I have heard to-day. There have been many debates in your Lordships' House over the past two years that have been classed as economic debates. Many things have been repeated in different manner and guises, and I will try in a simple way to say the same things as I have said before. The question of our economy is not an insular one, it is an international one. There is one element which the noble Lord, Lord Windlesham, raised, the question of confidence. I ask the question: does anyone outside this country have confidence in the economic future of the United Kingdom? Does anyone inside this country have any confidence, either?

We seem to be suffering from what one might call an infestation of atropus pulsatorius—the common deathwatch beetle. There are various types of atropus pulsatorius. One might say first the tyrannicus, or the Government that nibble away at everyone else, destroying their confidence in the country; meeting a rough, tough bit of old wood and turning round and going back. There is then the operandus, or the unions, nibbling away at the Government, nibbling away at industry, bent on self destruction. There is the mercatorix, or trade and industry, which nibbles away at the Government and the unions. And now suddenly the Government are nibbling away at them and the circle is complete, and the house will fall down. Then we have another type, the senex, the elder statesman, who is bent on saying that what was in the past was good, and what is in the future will be bad, and again bent on destroying our society. I have to live in this country for another 35 years, or more. Some people would feel sorry for me if I listened to what I have heard in your Lordships' House to-day and on previous occasions. I happen to be optimistic; I happen to be fairly confident that this country has a fairly substantial future.

What is the state of the nation? Have we declined so far that we cannot recover? Is there no "J" on the bottom of the "J" curve? People seem to be confused. They produce a mass of statistics; it seems as though there is only one pot and it is not big enough. One remembers that it was Robbie Burns who was invited to a poor supper, and, not having a big enough meal, said the Grace: Lord, though the taties be but small, Lord make them plenty for us all. The question of robbing Peter to pay Paul: noble Lords opposite feel they are better at robbing Peter and that they pay Paul in a more generous way; noble Lords on this side of the House think they can rob without people noticing it and therefore everything is improving. But is our economy so great? There has been a 25 per cent. growth rate over the past ten years. France, that country we looked down on for so long, has a 65 per cent. growth rate. Look at the poor pound floating away in the international world. May I quote Aldous Huxley: Your maiden modesty would float face down And men would weep upon your hinder parts". Poor, poor pound! What has happened to it? We used to talk of currencies as relating everything to the almighty dollar. As Washington Irving said: … that great object of universal devotion throughout our land seems to have no genuine devotees in these peculiar villages". What a sad, sad situation! Yet, to-day is July 24. Two years ago it was a Saturday, a nice sunny day; we were beating India at Lords; Mill Reef had won the King George VI and Queen Elizabeth Stakes; the pound against the dollar—a bit weak. Now, two years later, the pound against the dollar is 5 per cent. stronger.

If I were supporting the Government wholeheartedly I would now sit down and say that the pound is stronger. But suddenly in these intervening two years we have had the rise of the countries of continental Europe, the sudden significance of their currencies, many of which we did not know. Since that sunny Saturday there has been the fall of the pound against the Deutschmark, 30 per cent.; the Swiss franc, 27 per cent.; the French franc, 24 per cent.; the Dutch guilder, 24 per cent.; the yen, 22 per cent.; so it goes on getting steadily worse and worse—the peseta; 15 per cent. With that great currency, the one that has more noughts on the end than any of the others, the lira, the figure is 2 per cent. Looking at programmes on television, there was one with George Thompson speaking on regional development. A telling map of Europe appeared with parts hatched in strong lines representing the economic strength of Europe. Parts were plain white, which was most of the United Kingdom and Calabria in Southern Italy.

Are we really so weak, and are we really finished? I wonder! We have the pound and we wonder what will happen. We have it floating, but perhaps it has begun to float for too long. You take the initiative—and it was certainly creative initiative—to float the pound. Then you say, "Do we peg it now?" The mood is going round Europe that maybe it should be pegged; if not, it will only accelerate inflation, and things will get worse and worse.

But what about the United States? has the pound caught the leprosy of the dollar, or is it vice versa? Both seem to be based on confidence. In one case it is confidence in the Administration in the United States; in the other one might say it is confidence in Government and in the country as a whole. But is confidence there? It is about to be there, but one must doubt and continue to doubt when, as I do, travelling about three days a week round the Continent one talks in the financial centres and political centres and with Continental industry. They like the British; our stock as a nation is very high, but our economic stock is very low.

The Government say, "Invest in England. It is a great place; it has a great future." They ask, "How do we know? Why should we do it now? Can we get labour? Should we be directed to the regions, or is it the kiss of death?" Those who were wise enough to invest on that Saturday two years ago are regretting it very much; they could have done it cheaper to-day. They wonder: will the pound stabilise or continue to sink?

One has to take a view, and in your Lordships' House on July 5 last year, when the pound was down to 2.30 or so, I said I thought it would settle at around 2.50. I think it fair to say that the pound against the dollar is over-valued, and against the dollar it must come down. The dollar against the currencies of continental Europe is undervalued and must go up. The pound will probably improve its performance against the currencies of the Continent. But we have one overriding factor: Will industry, national and international, invest in this country? Will it have confidence in the future of England? I suggest that it will. I suggest that we have seen a phase of international expansion by British industry, criticised by those who attack the multi-nationals, and that we will see a corresponding inflow into this country. It is to my mind the most critical factor of all. Otherwise, little by little, the anti-Common Marketeers will be able to say: "We were right. The United Kingdom is now an offshore island, an island for the élite who live in the centre of London in houses inflating every year, like some offshore island in the Pacific."

My Lords, I worry a little about this deathwatch beetle that seems to have got into our society and every element of it. There is little co-operation between the different elements. We are faced with a problem now that the Government turned round and went for Phase 1; they went for Phase 2; they will go all out for Phase 3 and we will put our shoulders to the wheel and we will support them; and maybe, like the United States, they will move to Phase 4, Phase 5, Phase 6, and so on. Or perhaps this gamble for growth, as one might call it, will work. We cannot achieve a continuing 5 per cent. growth rate. It must inevitably come down, and if we can stabilise it at around 3 per cent., without the sudden stop that one is worried about, then we will go forward into considerable prosperity.

British industry is not doing badly at home or abroad. Order books are full; jobs are available; people are looking to expand. And yet they are still held up by that one element: Do we invest in new plant and machinery and bring our industry up to date, or do we fall behind? Your Lordships may well criticise countries such as Italy, but those of you who have seen the modern Italian industry of the South know that one would be surprised, because it can knock spots off even Western Germany. But the underprivileged countries of Europe, as one may have called them, the sick men of Europe, are now doing well because international industry decided to invest there and they encouraged investment themselves. We need not fear for our position in the world with the growing influence of this country; it has never gone ahead at a greater rate than it does now, thanks to our current foreign policy. We are respected; we are trusted, and people have confidence in us as individuals and as a country. That confidence in us as a nation can be transferred into confidence in our future economy, with a little bit of a push. It needs a bit of showmanship in these times in the international world.

There are problems. It is difficult. Once when a Cabinet Minister got up and said something optimistic, everyone used to feel enthusiastic; now, the stock market crashes and the world starts to say, "What's under the mat?" But we have a chance with Phase 3, which is the most critical phase in the Government's economic policy in this generation. The Government must seek support for Phase 3 privately beforehand. I believe that it is possible that all the elements that the Government need for support will support them, because, quite honestly, many of us are tired of what is going on at the moment and this niggling here and there —the little deathwatch beetle boring away. I hope that during the summer the Government will take time and think hard and realise that they have the confidence. It is certainly the best Government that this country has at the moment to do what it is seeking to do. That I have no doubt about, and I believe the world has no doubt about. But a little measure of support all round can pay considerable dividends.

I come, before I sit down, to the question of inflation—I have been dealing mainly with the pound and confidence. We have to accept, regrettably, that inflation in the Western capitalistic world is really here to stay, and we have to take this into account with all the underprivileged and those who suffer on fixed incomes and otherwise. I think it would be right to consider accepting that there will be a basic rate of inflation, as one may have a basic interest rate, and that that may be around 5 per cent. and that certain things should automatically increase by 5 per cent. every year, without the need for new charity hand-outs to make them up, so that people may not fear this erosion of their incomes and fear for their future poverty.

My Lords, I sit down with just one thought. This has been a little bit of a criss-cross, "ding-dong" debate in a way, one side of your Lordships' House tending to try to find someone to attack and to blame; the other side trying to defend with a barrage of figures and statistics, but not quite sure why they should have anything to defend. We are trying together to solve an economic problem which can be understood and which figures can show has actually taken place. The only way out of it is to generate internal and international confidence, and to get investment going, and (if I may be a little agricultural) to stop mucking about.

7.6 p.m.


My Lords, I hope I do not embarrass the noble Lord, Lord Selsdon, by saying to him that on this occasion, as on every other. I have listened to him with the greatest of pleasure and I can assure the noble Lord that I am not alone in that feeling. He combines what I might call a demureness of demeanour with an incisiveness of intellect which I find most attractive; and although, of course, I did not agree with everything he said, I certainly thought that he touched on some of the most important issues on which I will say a few words a little later on. But before coming to the main part of my speech I hope I may say to the Government that I trust that they will answer the question put by the noble Lord, Lord Orr-Ewing, clearly and to-night. I hope they will say to the noble Lord, Lord Orr-Ewing, that they are not again seeking confrontation with the unions but that they are seeking co-operation. Once the kind of question that was asked—and of course Lord Orr-Ewing is perfectly justified in making whatever statement he thinks fit—has been put, and in the context in which he put it, nothing but good will come of an immediate and clear reply explaining the Government's policy.

It would be invidious to pick on a variety of speeches. I merely say that I have had the pleasure of listening to practically every one and have enjoyed the experience. In particular, I want to say to the noble Lord, Lord Windlesham, how moderate I found the clearly argued, closely argued, and imaginative speech of my noble friend Lord Beswick. I am sorry that he did not share this view. It is just worth mentioning so that the noble Lord will realise how moderate are our expressions in relation to our feelings.

It is always well to start with agreement and there is of course a wide area of agreement between all Members of your Lordships' House. I do not suppose there is a single Member here who does not share the view that what we should all attempt to do, whichever Government are in power, is to put into effect a policy of sustained growth. That is what we attempted in our time; that is what the Government are attempting now. And it would be stupid of anybody to deny that every Government find this a very baffling question. I imagine that all Governments share the same disappointment that I feel that somehow or other we as a country, throughout the last decade and into this one, have failed, notwithstanding the best attempts of Governments, to achieve as much as we are capable of achieving—as I am conceited enough to believe that the British man and woman is capable of achieving in relation to what has been achieved across the water and by other similarly developed nations. It is that disappointment which we must bear in mind.

I do not think that the answer lies in any black or white issues: it is a matter of emphasis. But where it is a matter of emphasis, one is entitled to look at those statistics which indicate, not that there has been a slight variation, but that there has been a record of some kind or another. That is why on a previous occasion (I think it was in February when we debated the counter-inflation measures) I started off with a list of records achieved by this record-breaking Government. Needless to say, they were records of the kind of "highest unemployment ever", and of that genre. I want to add two other records which are relevant to to-day's discussion. One is the achievement of a record devaluation in sterling, and the second is of the achievement of a record low price in Consols and War Loan. The first is the indicator of confidence abroad; the second is the indicator of confidence at home. Those two well accepted indicators are at an all-time low, and this is the question of confidence which the noble Lord, Lord Selsdon, referred to in the early part of his speech.

There are some who seem to regard devaluation as having some sort of curious benefit or advantage to the country which devalues. You can get under the other man's export prices and undercut him, and somehow or other this is the way to achieve prosperity. In my view, nothing could be further from the truth. I regard devaluation simply as this: that one is being forced to sell one's labour abroad at a cheaper rate. One cannot any longer get employment at the rate to which one is accustomed and therefore one has to cut the hourly rate in order to get employment, put in terms of exports of goods abroad. That is what happens in terms of exports. And, of course, in terms of imports there is a rise in the cost of food and of raw materials.

May I dwell once more for a short moment on the rise in the cost of raw materials, because I do not think the noble Lord, Lord Windlesham, fully took the point made by my noble friend Lord Beswick. With reference to copper, it is an undisputed fact that our price, compared with the price which is paid in Japan for those copper imports, the same copper coming from the same source, or the Swiss import price of that copper, is immeasurably higher. Our price, between 60 and 70 per cent, increase on what it was; the Japanese, 15 per cent., I think; the Swiss a little more than that. We are paying so much more for the import of raw materials. Why? Largely because of the devaluation of the pound. That is what this debate is about and one must not look for alibis solely in import prices: one must go behind that and see why we have to pay so much more than our competitors.


My Lords, I hesitate to interrupt the noble Lord, and of course I will study again the point made by the noble Lord, Lord Beswick, but it is still a fact (is it not?) that inflation in Germany and in Japan has been rising at a faster rate than here.


My Lords, it is because the noble Lord said that last time, which with the greatest possible respect I cannot see is really relevant to the argument, that I thought it necessary to repeat the argument. It may be that inflation is greater in those countries, but this is not what we are discussing. We are discussing inflation in this country in particular in relation to de- valuation of the pound in this country, and the point I am making is that it is no good the Government continuing to say, "What can we do about inflation? We cannot control import prices". Of course we cannot control import prices entirely but what we can do, and what the Government are doing, is to make import prices very much greater than our competitors have to pay for the same imports from the same sources because of the devaluation of the pound.

We were supposed to be having a floating pound; that is, a pound which could conceivably float upwards or downwards. If it had floated upwards as the yen has appreciated or as the Swiss franc has appreciated, for example, then our imports of copper would not cost 70 per cent. more, they would cost 15 per cent. more. That is the point I am trying to bring out. It is a simple point and it is something to bear in mind and it relates to the problem of the value of the pound abroad, which in turn is a question of confidence, as the noble Lord, Lord Selsdon, wisely said.

I therefore deal immediately with those elements which relate to confidence. The first is the balance of payments. It would have been helpful for this debate if the Government could have started off by telling us what their estimate is of how we are going. We know the figures for the first quarter and for the second quarter; what the Government are doing depends for its justification or criticism entirely on their estimate of the way the balance of payments is going. Can you buy your way—I am sorry; I should have said can you borrow your way—into prosperity, or is it the kind of gamble which the noble Lord, Lord Barnby, referred to and which he gave the impression he was not going to put his money on, anyway? The answer to that depends on what you think is happening to the balance of payments, and we have not been told. I must say to the Government that there are estimates, and one estimate is that this year our balance of payments deficit will be in the order of £1,000 million—an all-time record. The other estimate is that it will be of the order of £2,000 million—twice as much. These are estimates by independent economic sources, not invented by politicians. I have no means of putting the figures together; I can only read what others say.

I know, as the noble Lord, Lord Selsdon, knows, what people abroad think of us. I share his view completely on the way they assess our character, our political institutions and our pound: the first two, very highly; the last one—you can have it ! The noble Lord or any one of your Lordships who has recently travelled abroad will know how many Swiss francs you get to your pound, or French francs, or German marks: astonishingly few, irritatingly few, making it almost prohibitively expensive to go abroad and do the things you want to do. I am glad to see one noble Lord opposite nodding in agreement. This is the difficulty; and if the fact is that the Government feel justified in their attempt to borrow their way to prosperity and to avoid the failure that met Mr. Maudling when he was Chancellor of the Exchequer in 1964 and was attempting the same policy—if the Government feel that they can justifiably calculate on borrowing their way into prosperity, then they must say what they think will happen to the balance of payments.

It is no use the noble Lord, Lord Windlesham, giving such a selective indicator as the fact that exports are leading imports in volume—I think he said twofold; anyway leading—and at the same time leaving us with a figure of between £1,000 million and £2,000 million deficit. The two just do not tie up, and we must put an enormous red neon question mark against the statement made by the noble Lord, Lord Windlesham, on behalf of the Government—and that is the last thing we want to do—simply because the figures do not add up.

So I want to make quite clear what our criticisms are of the Government. The first is that they have allowed the balance of payments to slide much too far into deficit. One does not say that one should necessarily keep a surplus of £1,000 million every year. If you do that you will get a reaction from other countries which are obviously suffering the deficit which is our surplus but to turn a surplus of £1,000 million a year into a deficit of whatever amount it is—. £1,000 million or £2,000 million a year— in that short period of time is a matter which I think justifies heavy criticism. I do not see how one can do that and still expect to have confidence abroad. It is consistent only with the reckless disregard for making ends meet at home which the Government have shown in their policy of deficit budgeting and heavy borrowing. That must be the first criticism.

The second criticism, and here again I turn to something which the noble Lord, Lord Selsdon, touched on, is for placing far too much weight on the floating pound. There is some justification for that as a temporary measure, to a limited extent and within the limits acceptable as a deviation from the expressed policy of the Government of joining with the Community in mutual support and joint action. There is some justification, I say, for that policy on a temporary basis. But I am bound to say to the Government that I feel they have carried it on far too long, and I am not one who favours wild attempts to "go it alone". It has already been suggested by many that in this way we have suffered a greater devaluation than is justified, that is to say, something of the order of 5 per cent. The actual devaluation, by allowing the pound to float downwards to the extent it has done, is held to be a figure 5 per cent. below that which could have been the pegging price of a fixed parity on a careful, well-thought-out planned policy. I believe, therefore, that the Government have turned what might have been a policy decision into one of ignoring their responsibilities and ignoring what they should have been doing, namely, to attempt to stabilise sterling, to attempt to prevent the pound falling in the way it has done.

My Lords, the third criticism we have of the Government is for the things they have done and for the things they have omitted to do, which have in the first place encouraged and added to inflationary pressures at home, and in the second place—and they could have avoided them: the things which have added to inflationary pressures, which I need only refer to shortly—rents, rates, prescription charges, dental charges, school meals, school milk, and the rest. The omissions are, and here I echo something that the noble Lord, Lord Redmayne, touched on, nothing to control the price of land, in particular nothing to control the price of agricultural land (an increase in the price of agricultural land is a built-in guarantee that the cost of producing food at home is going up and up); capital purchase prices have to be satisfied in turn by rents—everybody knows that—and a complete turning of their backs on any attempt to prevent either business premises, which I think was what the noble Lord, Lord Redmayne, was referring to, or agricultural properties or agricultural land being controlled in their upward rush. These omissions justify heavy criticism. So far as further omissions are concerned, while I will not say that nothing has been done, there has been insufficient done in the way of food subsidies to cushion the impact of rising food prices on the poorer section of the community. Nothing could be so inaccurate as the answer one sometimes hears, that it is not possible for a Government to do anything about food subsidies. Governments have been subsidising food in this country in one way or another for years and years and years. At present, as the noble Lord, Lord 'Orr-Ewing, pointed out, there is a subsidy on milk in particular; there is a subsidy on butter and on other things. There are many ways of doing this. The argument is not an argument of kind but of degree only.

What we are saying is that the Government have devoted resources to other purposes, in particular to tax cuts—£300 million starting this April. The Government have devoted resources to purposes which are not directed to helping the poorer section of the community on their food costs, and are not directed to inducing the kind of atmosphere which is essential for the negotiations which the Government are now undertaking in the hope of achieving some measure of agreement which would lead to greater price stability and greater prosperity all round. So it is that for which we criticise the Government.

Finally, I share with the Government the criticism of their having wasted their first two years, because there is no greater critic than the man who admits his own mistake by doing the opposite thing, as the Government have wisely, though belatedly, decided to do over so many fields of policy. Only to-day, the noble Lord, Lord Windlesham, was congratulating the Price Commission on having saved consumers money at the rate of £44 mil- lion a year. I think that is what he said, and he was congratulating the Price Commission on doing that. As he said that, I was wondering how much more could have been saved in the previous two years or more if the Government had been of the same frame of mind then as they are now. To summarise, we are criticising the Government for having wasted those two years, for having frittered away a very substantial balance of payments surplus, for having turned it into a substantial deficit, for having invented the policy of the sinking pound as a result of having destroyed credibility at home and damaged confidence abroad.

7.29 p.m.


My Lords, in the very beautiful language of the Writ of Summons, which we heard again this afternoon when Lord Allan of Kilmahew was introduced, Peers are enjoined to attend your Lordships' House and to their public duties, and I quote, considering the difficulty the said affairs and dangers impending". The phrase recognises that difficulty and danger form the context of human affairs and our conduct of them. It reminds as that no Government formed from Parliament at any stage of our history, and, by implication, in future time, may be allowed, without qualification, to pat itself on the back. The difficulties and dangers are ongoing; they provide shifting patterns of exchange, as it were. This debate is very much welcomed by the Government, in spite of the fact that the broad shoulders of my noble friend the Leader of the House and my own rather narrower ones have had to sustain critical blows as well as pats on the back. We must therefore thank the noble Lord, Lord Beswick, for it, in principle, because by drawing the attention of the House to some of the undeniable problems facing the British economy at this time he has given the Government a chance to show not only what it proposes to do about them but what it has done and is doing.

My Lords, in free discussion of these problems we must remember two things. In a time of worldwide inflation and considerable international monetary difficulties, dangerous as these are to an importing economy such as ours, the living standard of our people is higher than it has ever been. That is the first thing to remember. The second is this: a higher standard of living breeds higher expectation, and great may be the disillusion if these are not fulfilled. So a higher standard of living must be soundly based—that is to say, on a steadily expanding economy. I do not believe it is a matter of dispute to-day that the British economy is expanding. I do not believe it is a matter of dispute that this expansion is based on increased manufacturing output—making more things—and an increase in exports—selling more things abroad. The very considerable rise in real personal disposable income, the very considerable fall in the rate of unemployment, are not the flickering of a match. They will provide a beacon to the Government so long as it is in office. My noble friend the Leader told your Lordships of his commitment and of the Government's general determination to see that this very considerable achievement is not eroded, on the one hand, by an uncontainable inflation, and, on the other hand, by a failure to restructure the British economy on the firm foundations of greater investment and greater participation by its working force, whether individually or collectively.

I am very glad to have this opportunity to play second fiddle to my noble friend and to echo the theme in a minor key. I do not believe there is enormous division between the two sides of the House, of this House at any rate, as to what sort of Britain we want. Indeed the noble Lord, Lord Diamond, went a considerable way to acknowledge this. I do believe there is division as to how to go about it. Faced with international difficulties when they were in office, noble Lords opposite deflated the economy. They argued then, and they argue now, from weakness. Our belief is that the greatest contribution which this country can make towards achieving a lower rate of inflation in the world, towards achieving greater monetary stability in the world, towards achieving more equitable standards of living for the poorer countries of the world, is by putting our own household in order and letting it be seen that that is just what we are doing.

Against this background of achievements as well as of intention, let me now turn to the debate. There were, as I heard it, two principal themes, and perhaps noble Lords would like me to summarise them briefly before coming to the questions which individual noble Lords have put to me. They could be called the "abroad" theme and the "home front" theme. The Motion of the noble Lord, Lord Beswick outlined them perfectly, but in order to encompass other speakers perhaps I could broaden his terms of reference a little. A small and controlled level of inflation is in the modern world perhaps inevitable, perhaps even, as I think the noble Lord, Lord Davies of Leek believes, desirable. My noble friend Lord Barnby, I recognise, does not think it desirable. People today know more, want more, and they will put up with less—why indeed should they. Will they listen to Lord Wigg, or in the light of this speech perhaps I should say, to Chairman Wigg, and become conservers rather than consumers?

But inflation must be contained within moderate limits. In the last five years or so the beast has been let out of its cage. The keepers, or the ringleaders if you like, have become jumpy and short-tempered and prone to disagree with each other, the crowd restless and hungry for stronger doses of sensation. The noble Lord, Lord Beswick, calls for more positive and effective policies. I suspect he would like to put the beast back in its cage, whereas we would wish perhaps to tame and employ it. Both he and the noble Lord, Lord Diamond, have made much of the difficulties which the Governments of the developed nations have had in establishing monetary stability. But surely the important point is that our exchange rate depends, in the end, on the strength of our economy. And surely our ability to argue the case for reform of the international monetary system must proceed from a like position of strength. It is, of course, very annoying that on occasion changes in our exchange rate do not represent the true strength of our economy. They do not represent the way that business investment is rising, the way that exports are rising by volume almost twice as much as the volume of imports.

My Lords, lest this be considered a partial view, I should like to quote the latest report by the O.E.C.D. published last Friday. The report forecasts that by the middle of next year our economy will be working at close to capacity, unemployment will still be falling and the deficit more manageable. It goes on to say that the past year's more flexible approach to exchange rate determination, and the present formal price and income controls, have helped to provide a better opportunity than the U.K. has had for many years to achieve full and sustained employment of productive potential. Perhaps that will give some comfort to my noble friend Lord Selsdon, whose appeal to confidence I much enjoyed.

Indeed, as many of your Lordships have recognised, one of the principal reasons for the decision to float the pound was to enable us to adhere to the strategy of economic expansion, which is the only means of improving both our national prosperity and our bargaining position abroad. Through this expansion, the pound is fundamentally strong—even if, as my right honourable friend the Chancellor said in another place recent movements in rates in the foreign exchange markets, whether of sterling or of other major currencies, do not correspond with movements in relative costs and prices in the countries concerned". And, my Lords, we all know that where the movement of currencies is concerned, particularly currencies held as reserves, other than economic considerations, may, in the short run, prevail.

Let me put the "abroad" theme in a slightly different way. Do not noble Lords believe that a continued and controlled economic expansion at home is a better contribution towards international stability than a deflated and largely nationalised economy, propped up by massive increases in taxation, and where political hostility towards profits would send investment reeling—reeling with a punishing Left hook, as it were?


My Lords, surely the noble Lord—


My Lords, I am going to deal with the noble Lord, Lord Balogh, in a moment. I hope he will let me get on to the specific points. Do noble Lords believe that these are steps on the way back towards the confidence that we need, and which the noble Lord, Lord Diamond, mentioned, whether this confidence is held abroad or at home?


My Lords, if the noble Earl is going to address a number of questions to this House, surely when somebody like my noble friend Lord Balogh gets up to answer one he must listen to him.


My Lords, the noble Lord, Lord Balogh, has made his speech, on which I shall shortly be commenting. I am simply now trying to make mine.


My Lords, will the noble Earl desist from putting questions to the House if he is not prepared to give way when somebody rises to answer?


My Lords, as an ex-English teacher, may I respectfully draw the noble Lord's attention to the art of the rhetorical question?

Turning now to the home front, the Government have already recognised, and they have said it time and again, that industrial and commercial power in this country depends on Government, employers and unions agreeing on the major objectives of the economy. The noble Lord, Lord Diamond, asked for that assurance, but now that I am giving it to him I am not sure that he is attending to it. The industrial expansion which I have talked about has been in very large measure achieved because there has been agreement about objectives, about ends, even if the means have to be decided by Statute. We hear so much about confrontation that we forget the consensus that has been achieved, and whose proof is the roughly 5 per cent. annual increase in real personal disposable income since June, 1970, double the rate, in three years, of Labour's achievement in six. Of course, the Government are pleased to take credit where it is due, and they are proud of their record. But Government cannot decree such progress. They create the context in which people get on with the job of improving their own and their country's standard of living. I was very glad to hear that that point was recognised by my noble friend Lord Redmayne.

Many noble Lords have dealt with prices, whether of food, or in terms of other vital needs such as rents. Most Western Governments are very concerned about rising food costs. I met a distinguished Canadian Minister the other day. He had never been to the House of Commons, and on his last day here he attended a debate. "What was it on?", I asked him. "Food prices", he replied. He was flying home to vote on an important debate. "What is it on?", I asked. "Guess?", he said. "Food prices", I said. I was right, and so we parted. No Governments are complacent about food prices. At the crudest political level, Governments are concerned to save their own as well as other people's bacon. But I do feel that we are apt to get food prices, not out of perspective absolutely but out of proper perspective; that is to say, in relation to other forms of expenditure. Consider the latest results of the Family Expenditure Survey. While spending on food increased by 18.6 per cent. between 1970 and 1972, this was less than the increased expenditure on goods and services as a whole: that is to say, 22.7 per cent. For instance spending on alcoholic drink—I will not say because of the rise in food prices—increased by 29.9 per cent.


By whom?


Expenditure on household durables such as furniture and television sets in fact rose by 40.5 per cent.


My Lords, the noble Earl is giving us the figures in prices and not in volume; is it not the case that consumption in volume of food fell?


My Lords, I am not suggesting that people consume television sets. I will answer the question. I feel that these figures show quite clearly the point I was making, that despite rising food prices there has been a significant improvement in the general standard of living of the average family in this country since this Government were returned to office.


My Lords, is the noble Earl going to answer one of my questions; that is, if we cannot afford to subsidise across the board, is there any reason why we should not have free school milk?


My Lords, I am standing on a sheaf of questions which the noble Lord has put to me, and I will be answering them in a few minutes.

On the question of rents, the rent increases in May under the Housing Finance Act—not popular with noble Lords opposite—raised the retail price index by 0.1 of 1 per cent. Of course I recognise that I am dealing at this point in my speech with the quantitative picture of the majority of people in the country. Noble Lords dwelt, quite rightly, and on both sides of the House, on the not so pleasant picture of poverty within the overall and growing affluence of our society. May I just catalogue in shorthand form, since the clock is against me, some of the things that the Government have done, are doing and are proposing to do. There is the Stage 2 pay formula, the family income supplement, rent rebates and allowances, lump sum payments to pensioners last December, continuing up-rating of pension levels in real terms, increased family allowances (that is to say, proposed first child allowances) as part also of the new tax credit scheme.




My Lords, I said what the Government are proposing to do. This is part of the continuing policy.




So far as I know, in two or three years time.


My Lords, I put a specific question here. The proposal is to have an allowance for the first child within five years. I ask whether it is not possible to bring this date forward. Would the noble Earl answer that specific question?


My Lords, I will certainly find out whether it is possible to bring this forward, but at that point of my speech I made it clear that I was talking about what the Government have done, are doing, and are proposing to do, and the last must take the future into account.

I turn now to some specific points which noble Lords have put to me. Perhaps the cucial one was the question of the balance of payments forecast. I must tell the noble Lord this: we listen very carefully to noble Lords on all sides of the House, and to all noble Lords who have been senior Treasury Ministers with especial care. I believe that the noble Lord must know that the question of forecasting balance of payment deficits over the coming years is hardly a conventional thing to do. The trouble is that the margin of error here is so great. The noble Lord, Lord Balogh, who I am delighted to call to my aid at this point, himself pointed that out. The National Institute admit a margin of error of £1,500 million in their forecast of a £750 million deficit. The London and Cambridge Economic Bulletin gave us a pessimistic forecast of a £2,000 million deficit, and the noble Lord, Lord Balogh, gave us yet another estimate, though I am glad to say that it was rather less pessimistic. I hope that that deals with that principal question.

I am going on to say more about the balance of payments surplus. There was a small surplus, as the noble Lord, Lord Beswick, acknowledged, do 1970, and there was a very large one, as we acknowledge in 1971. This partly resulted, after the usual delays, from the 1967 devaluation, but was mainly at the expense of very high unemployment and very slow growth. Since then we have boosted the economy, and the immediate result is a sharp increase in the volume of imports. This, combined with the depreciation of sterling and the rise in world commodity prices, has turned this surplus into a deficit. We acknowledge this, we care about it and we are worried about it. But already exports are rising faster in volume than import, and this volume increase will eventually overtake the import price increases and turn the deficit back into surplus.

The noble Lord, Lord Beswick, said that the rise in world commodity prices was only partly a cause of the worsening in the terms of trade, yet it accounts for more than half of the rise in the prices of our imports. I believe that these figures cannot be wished away. We are not denying that the depreciation of the pound has contributed, but it must be remembered that the obverse of the depreciation is a considerable improvement in our competitiveness. We now have an expanding economy and competitive export prices. Our exports are growing in volume almost twice as fast as imports. That is to say, we are well into the "J" curve. I apologise to the noble Lord, Lord Beswick, for using a piece of the jargon that he castigated.


My Lords, the Government have been asked on a number of occasions by myself and my noble friend Lord Balogh where we can get the figures of these doubled exports against imports. Where are they to be found?


My Lords, this is the third time that I have been interrupted on a point towards which I am trying to make my way. I have it in my speech here, and I hope that it will satisfy the noble Lord. If it does not satisfy him, I will try again to satisfy him on paper. He mentioned that the imports of consumer goods were going up, and we riposte that imports of raw materials and machinery rose 24 per cent. in the first half of 1973 compared with the second half of 1972, whereas consumer goods rose by only 22 per cent. He made a point, very crucial to his argument about fairness, that we lopped £3,000 million off taxes, principally towards the better-off. This is entirely untrue. Over £2,000 million of the tax cuts result from concessions on personal income tax, and the great bulk of this consists of increased personal allowances, which benefit the lower paid and the better-off equally. The cuts in the 1972 Budget in fact took nearly 3 million people out of income tax altogether. There is nothing in the record of noble Lords opposite which can match that.

The noble Lord, Lord Beswick, with the noble Lords, Lord Wigg and Lord Donaldson, criticised the Government's attitude to the review of the Common Agricultural Policy, the cost of the Intervention Board on agricultural produce, the cost of the denaturing subsidy for wheat, and they quoted the figure of £163 a ton for the import level of butter. The Commission is at present conducting a thorough review of the operation of the support system, and we shall continue to play our part in that. The Intervention Board was set up by Parliament to administer the Common Agricultural Policy in the United Kingdom. This has been, as we recognised, a difficult and complex task, but the system is settling down. To scrap the Board would be to destroy the administration that we have agreed to operate, and would be irresponsible and damaging to the interests of traders, consumers and producers. As to the denaturing premium, I think the necessity of increasing the output of animal foodstuffs at a time of inflation in food prices should be acknowledged by everybody.

The current net rate of levy on butter imported into the United Kingdom from third countries, other than New Zealand, is £165.50. But we are not importing butter from those countries; we are importing it from New Zealand under Protocol 18 of the Accession Treaty. The levy on this butter is nil. The market is also well supplied from home production and other Community countries. Thanks to the subsidy, butter is now cheaper in the shops than it was before we joined the Community.

I come now to the questions put to me about the relationship of sterling depreciation to world commodity prices. Certainly there has been an adverse effect on our prices from the sterling float, but we believe that this must be kept in proportion. Sterling's effective exchange rate dropped by about 10 per cent. in terms of other countries as a whole between June, 1972, and June, 1973, which is small compared with the overall rise in commodity prices. The noble Lord, Lord Beswick, raised the question of a national minimum wage. This is an interesting notion and we will look at it carefully. I have a speaking brief about it, but as time is short perhaps he will allow me to write to him on that point. He also mentioned the land hoarding tax. The tax is only one part of the Government's package to release more land—noble Lords on all sides of the House will know what the others are.

My Lords, I must come—as he has interrupted me twice—to the noble Lord, Lord Balogh, and I hope this will answer some of the points of the noble Lord, Lord Diamond, as well. The noble Lord said that my noble friend Lord Windlesham's speech was one of staggering complacency. I must say that the last time I made a speech on economics from this Box he used exactly the same phrase about my own speech. I do not know what that proved one way or another. He talked about the acrid smell of decay of the Government's policies. I was very glad to see that the noble Lord, who has been rather mild recently, has discovered his old vigour. It seemed to me that there was something of an "abrasion gap" developing between the noble Lord and his noble friend Lord Wigg.

Regarding the volume of exports, he questioned me on the export led boom. The volume of exports in the first five months of this year was 12 per cent. higher than the level in the second half of last year; the volume of imports rose over the same period by only 7 per cent. In case he thought that these figures might not be fair to take, I believe it is fair to take these periods of time, because the first one is the latest available. Exports always need time to get under way, and the first half of last year was in any case affected by the dock strike. However, I agree with the noble Lord, Lord Balogh, that a smooth transition to a sustainable rate and pattern of growth is possible and that this requires a higher urge towards exports and investment. This is what is happening, as I have maintained, without the need for the tax changes which the noble Lord referred to.

My Lords, I come now, not without relief, to a noble friend, Lord Redmayne, a formidable figure in the debate as deputy chairman of Harrods and a former Chief Whip. It was a broadly encouraging speech, and I will relay his particular criticisms to my right honourable friend and see what we can do. He has raised the question of the Price Commission in operation. During its first two months, the Price Commission was primarily concerned with applications for approval of price increases from category 1 firms—the noble Lord, Lord Donaldson of Kingsbridge, was also interested in this point.

In the field of manufacturing, firms in this category, where the control of the price code is tightest and is likely to be most effective, were estimated to account for about 50 per cent. of total output. In future the work of checking profit margins of category 2, as well as of category 1 firms, and the monitoring of category 3 firms, will, of course, become of increasing importance. The noble Baroness, Lady Wootton, made a characteristically interesting and original speech. I would say to her that the price code can actually reinforce competition, because large firms have been known to follow market leaders without reference to their own financial position. Now they must stop and think, and the price code allows varying increases, if any, according to data.

My Lords, I can see that I have been waved down. It has been a somewhat long debate and I am trying to deal with individual points. My noble friend Lord Orr-Ewing raised the question of contingency plans. Governments, my Lords, always have contingency plans, but it would destroy their point to outline what they are. My noble friend Lord Selsdon said that we needed a bit of showmanship in English Government. I am quite convinced that, on that principle, the noble Lord, Lord Davies of Leek, will perform an important office in my noble friend's administration.

My Lords, I must make an end. I have tried to balance the specific detail against the general picture of the debate. As for the general picture, or flight plan, as it were, of the Government's policy, your Lordships have heard this, appropriately from a Cabinet Minister, from

my noble friend. I hope that the noble Lord, Lord Beswick, will not decide to press this Motion to a Division. If he does so, I know that noble Lords will reject it. Let us make no mistake about what pressing such a Motion to a Division would in fact imply. It would imply that the noble Lord would like to see the Government defeated, not on some point of detail to which the Opposition object and which it seeks to oppose, but on the Government's whole economic platform, a platform of continued economic expansion, of continued economic consultation, of continued ground rules for the common fight against inflation. My Lords, I hope the House will reject it.


My Lords, what is implied if we press this Motion to a Division is that the charge of complacency still sticks. We are concerned about the fall in the purchasing power of the pound even if the Government are not, and I therefore ask my friends to go into the Lobby to-night.

7.56 p.m.

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

Their Lordships divided: Contents, 70; Not-Contents, 95.

Arran, E. Gardiner, L. Rathcreedan, L.
Arwyn, L. Garnsworthy, L. [Teller.] Rhodes, L.
Bacon, B. Greenwood of Rossendale, L. Royle, L.
Balogh, L. Hacking, L. Rusholme, L.
Bernstein, L. Hale, L. Sainsbury, L.
Beswick, L. Hall, V. St. Davids, V.
Birk, B. Henderson, L. Shackleton, L.
Blackett, L. Heycock, L. Shepherd, L.
Blyton, L. Hirshfield, L. Shinwell, L.
Brayley, L. Hoy, L. Slater, L.
Brockway, L. Hughes, L. Snow, L.
Brown, L. Jacques, L. Somers, L.
Buckinghamshire, E. Janner, L. Stow Hill, L.
Burton of Coventry, B. Kennet, L. Strabolgi, L. [Teller.]
Campbell of Eskan, L. Leatherland, L. Summerskill, B.
Champion, L. Llewelyn-Davies, L. Taylor of Mansfield, L.
Crook, L. Lloyd of Hampstead, L. White, B.
Davies of Leek, L. Longford, E. Wigg, L.
Diamond, L. McLeavy, L. Wise, L.
Donaldson of Kingsbridge, L. Maelor, L. Wootton of Abinger, B.
Douglass of Cleveland, L. Milner of Leeds, L. Wright of Ashton under Lyne, L.
Evans of Hungershall, L. Pargiter, L.
Fiske, L. Phillips, B. Wynne-Jones, L.
Gaitskell, B. Raglan, L.
Aberdare, L. Amherst of Hackney, L. Barnby, L.
Abinger, L. Balerno, L. Belhaven and Stenton, L.
Aldenham, L. Balfour, E. Berkeley, B.
Bessborough, E. Greenway, L. Pender, L.
Brabazon of Tara, L. Hailes, L. Rankeillour, L.
Brooke of Cumnor, L. Hailsham of Saint Marylebone, L. (L. Chancellor.) Redmayne, L.
Brooke of Ystradfellte, B. Rhyl, L.
Brougham and Vaux, L. Harvey of Tasburg, L. Rowallan, L.
Clifford of Chudleigh, L. Hayter, L. Ruthven of Freeland, Ly.
Coleridge, L. Hood, V. St. Aldwyn, E. [Teller.]
Colville of Culross, V. Kahn, L. St. Just, L.
Colwyn, L. Killearn, L. Saint Oswald, L.
Colyton, L. Kinloss, Ly. Sandford, L.
Conesford, L. Lauderdale, E. Sandys, L.
Craigavon, V. Limerick, E. Savile, L.
Crathorne, L. Lindsey and Abingdon, E. Selkirk, E.
Cullen of Ashbourne, L. Long, V. Selsdon, L.
Daventry, V. Lothian, M. Strange of Knokin, B.
Davidson, V. Loudoun, C. Strathclyde, L.
Denham, L. [Teller.] Lucas of Chilworth, L. Strathcona and Mount Royal, L.
Digby, L. Lyell, L.
Drumalbyn, L. Macleod of Borve, B. Tenby, V.
Eccles, V. Mansfield, E. Teviot, L.
Elles, B. Massereene and Ferrard, V. Tweedsmuir, L.
Emmet of Amberley, B. Milverton, L. Tweedsmuir of Belhelvie, B.
Exeter, M. Monck, V. Vernon, L.
Falmouth, V. Mountevans, L. Vivian, L.
Ferrers, E. Mowbray and Stourton, L. Wakefield of Kendal, L.
Ferrier, L. Napier and Ettrick, L. Wakehurst, L.
Fraser of Lonsdale, L. Northchurch, B. Windlesham, L. (Lord Privy Seal.)
Gage, V. Nugent of Guildford, L.
Gainford, L. O'Neill of the Maine, L. Young, B.
Gowrie, E. Orr-Ewing, L.

On Question, Motion agreed to.