Lords Sitting of 13 February 1980

Preamble
The House met at a quarter-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Worcester.

LORD KEITH OF CASTLEACRE
Sir Kenneth Alexander Keith, Knight, having been created Baron Keith of Castleacre, of Swaffham in the County of Norfolk, for life—Was, in his robes, introduced between the Lord Aldington and the Lord Barnetson.

LORD EMSLIE
The Right Honourable George Carlyle Emslie, MBE, Lord Justice-General of Scotland and Lord President of the Court of Session, having been created Baron Emslie, of Potterton in the District of Gordon, for life—Was, in his robes, introduced between the Lord Diplock and the Lord Mackay of Clashfern.
The Viscount Gormanston—Took the Oath.
The Lord O'Neill—Took the Oath.

HELSINKI AGREEMENT ON HUMAN RIGHTS
2.44 p.m.
Lord JANNER: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will make a statement about the Helsinki Agreement on Human Rights.
Lord TREFGARNE: My Lords, I would draw the attention of the noble Lord to the Government's latest report on Soviet and Eastern European implementation of the Helsinki Final Act,
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including its human rights provisions to which I referred in my reply on 19th December to a Question from my noble friend Lady Elliot of Harwood. The Government of course deeply deplore the continuing deterioration in human rights observance by the Soviet Union in the intervening period, particularly the treatment of Dr. Sakharov and members of the Helsinki monitoring groups.
Lord JANNER: My Lords, while appreciating and offering my thanks to the Government, not only for the reply that has been given now but for their activities for quite a considerable time in this particular direction, has the noble Lord's attention been drawn to the very serious matter which has arisen, I think only yesterday, of the arrest of four psychiatrists who have been protesting against the horrific methods by which psychiatric centres are being used in the USSR? With thanks from ourselves and those who are interested—and I am sure everybody in the House of Lords is—for what the Government have done in these respects, may I ask them to have another look and see what they can do in regard to such cases as, for example, those of Sakharov, to which the noble Lord has referred, and Shcheransky and Nudel?
Lord TREFGARNE: My Lords, the noble Lord first referred to the question of the psychiatrists. I do not have information on that case in front of me. As the noble Lord said, it arose only yesterday. Since the last report, to which I referred in my original Answer, the Soviet authorities appear to have stepped up their oppression of human rights activists of all kinds, and that includes the arrest of two further members of the Moscow Helsinki Monitoring Group; the harsh sentencing of three members of the Ukrainian Group; and further arrests of religious activists. We are, of course, keeping up our pressure in individual cases where it looks as though it will be helpful.
Lord AVEBURY: My Lords, as long as the Soviet Union continues to violate the Helsinki Agreement, and in particular to victimise distinguished scientists such as Sakharov who has been mentioned, Shcheransky, Orlov and Lerner, does the noble Lord not think that at least we should take retaliatory action against them by discouraging scientific contacts

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between ourselves and the Soviet Union which were also provided for under the Helsinki Agreement but which have not enabled our scientists and engineers to be successful in the representations that they have made for the release of their Soviet counterparts? Does he know that there is a meeting arranged in Hamburg next month under the auspices of the British Government, between United Kingdom and Soviet scientists and engineers, and in view of these latest developments would it not be appropriate for that meeting to be cancelled?
Lord TREFGARNE: My Lords, the noble Lord, Lord Avebury, talks of us taking retaliatory action as regards these matters. I do not think that two wrongs make a right. As for Western participation in the forum in Hamburg to which the noble Lord referred: the CSE Scientific Forum, as it is called, is, in fact, nongovernmental. However, the action of the Soviet Government against Dr. Sakharov and other scientists is relevant to the subject matter of the forum, and the Government's repugnance at those actions has, of course, been clearly expressed. We are confident that the Government's attitude will be taken into account by the British scientists in Hamburg and I think that that may prove helpful.
Lord WIGG: My Lords, as the Minister's concern and the Government's concern for human rights is on a universal scale, will he be good enough to tell the House whether the Foreign Secretary raised with General Zia the question of the treatment of Mrs. Bhutto and her daughter? They have long been confined to their house and the servants have been removed. If the Foreign Secretary did not raise that matter with General Zia, why did he not do so?
Lord TREFGARNE: My Lords, the Question on the Order Paper refers to the Helsinki Agreement on Human Rights and, of course, Pakistan is not a participant in the Helsinki Agreement. However, I can, of course, say that we deplore action which acts against the human rights of anybody in the world, wherever he may be.
Lord WIGG: My Lords, would the Minister be good enough to answer my question? Did the Foreign Secretary
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raise this matter with General Zia? If he did not, why not?
Lord TREFGARNE: My Lords, I was trying to be helpful to the noble Lord without being rude. The Question on the Order Paper refers to the Helsinki Agreement. Pakistan is not a signatory to the Helsinki Agreement and the noble Lord's supplementary was therefore not appropriate.
Lord JANNER: My Lords, I hope that the noble Lord will forgive me for putting one more question. Can he tell the House how other civilised signatories to the Helsinki Agreement have reacted to approaches which have been made by our Government? Have our Government been in contact with them telling them of the very important actions that they themselves are taking?
Lord TREFGARNE: My Lords, I cannot answer for other Governments. However, apart from informal contacts, we are now preparing ourselves for the Madrid Review Conference of the Helsinki Final Act, which is due to take place in November later this year.
Lord GORONWY-ROBERTS: My Lords, is the Minister aware that there is pretty well unanimous support for the views expressed in this House this afternoon about the enormities perpetrated by the Soviet Government, especially in the last year or so, against human rights in that country and elsewhere? Nevertheless we would support a thoughtful approach to the question of whether to participate in meetings such as that in Hamburg, especially those which stem from the Belgrade Conference, which will be, with others, reporting to the Madrid Conference later this year. So, while condemnation of Soviet practices must continue unabated with the full support of the House, delicacy about various contacts which may prove useful and helpful to people now in duress in the Soviet Union should also be borne in mind.
Lord TREFGARNE: My Lords, the noble Lord is, of course, entirely right. I think I understood from what he said that the Hamburg forum, to which the noble Lord, Lord Avebury, also referred, will be another useful opportunity to bring

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home to the Soviet people the repugnance of all of us at what they are doing.
Lord BROCKWAY: My Lords, is it not the case that this matter goes far beyond the Soviet Union? Did not the United Nations survey say that there were 80 countries which are now denying human rights, and therefore the picture must be much broader?
Lord TREFGARNE: My Lords, I am sure that the noble Lord is right, but I can only repeat that the Question on the Order Paper relates to the Helsinki Agreement.

CHINA: MILITARY EQUIPMENT SUPPLIES
2.52 p.m.
The Earl of KIMBERLEY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will give any further information on the supply by the United Kingdom of defence equipment to China.
Viscount LONG: My Lords, we want to enlarge our trade relations with China, and we are prepared to consider Chinese requests for British military equipment on a case-by-case basis. We are willing in principle to supply some items of equipment, subject to our international obligations. It is not the practice to reveal details of individual sales or potential sales.
The Earl of KIMBERLEY: My Lords, while thanking my noble friend for that Answer, may I ask whether he is not aware that about two years ago there was a debate in your Lordships' Chamber about doing trade with China, and in particular defence equipment? The last Government said that they were prepared to do trade on defence equipment. Even if they require, or would like to have, whether it be aircraft such as the Harrier or other defence equipment, is he also aware that the Chinese do not like losing face by being told, No, they cannot have it? So can he give an assurance that we will go to them and say, "Here
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it is if you want it"? Lastly, will my noble friend not agree that, if we can bolster up China with defence equipment, it will show that the West, including this country, is taking particularly positive action against Soviet world aggression?
Viscount LONG: My Lords, negotiations between British Aerospace and the Chinese for the sale of the Harrier, which my noble friend mentioned, have now been taking place for some months. The next step is to await the outcome of these negotiations. We have no political reservations about the sale of the Harrier to China, and the Chinese know this. The details of any sale are for British Aerospace and the Chinese to sort out between them. I believe that my noble friend referred to the attitude of the Soviet Union to Harrier sales and sales of other defence equipment. We shall not allow other countries to dictate the terms of our relations with China.
Lord SHINWELL: My Lords, do I understand from the noble Viscount's reply to the original Question that, although we supply in some detail to China—and I do not expect him to disclose the details for I understand that is not done—we are not supplying anything like what they have asked for? Can the noble Viscount say whether there are any obstacles in the way of supplying China with the requisite number of weapons for her defence and, perhaps sometime, for coming to the aid of the West in an emergency? Are the obstacles financial or political in character? Can the noble Viscount say whether the Soviet Union has objected to the British Government about the supply of weapons to China?
Viscount LONG: My Lords, perhaps I can take the noble Lord's last question first and say that I cannot answer it. I have no idea whether the Soviet Union has been against the sale of arms or defence equipment to China. It is now some three years since the Chinese came to us for arms and equipment and the situation is now entirely in their court. We have given them the details and demonstrated equipment to them. It is now up to them to come to us and tell us what they want and when they will buy it. At this stage, I do not know whether or not finance is the reason.
Lord DAVIES of LEEK: My Lords, can the noble Viscount tell me how I can clear my mind of the bewildering position in which we now stand? While the acquisitive society denounces Marxism, may I ask whether the noble Viscount has read, as I have, reports of broadcasts from China on the purity of the new Marxist approach in China? Let us be clear what we are playing at. We are dealing with a country which thinks that it has a pure Marxist approach. I know that that is anathema to faces opposite.
Viscount LONG: My Lords, I have a feeling that the noble Lord has gone clean off the Question at the moment. From my brief, I am dealing with the sale of arms for defence purposes to China.
Lord SHINWELL: My Lords, is the noble Viscount aware that the supply of weapons to China would not create any malice in my mind? I should be extremely relieved if I knew that the Chinese Republic was being adequately supplied. Can he answer the question which I venture to put to him and which I think is very important? When he says that the matter is in China's court, does that mean that they are unable to pay for the weapons, that we are charging too much for the weapons, or that we are a little reluctant to supply the weapons? Can we have a clear answer to those questions?
Viscount LONG: My Lords, it is like selling any product to any buyer; if they do not want to buy, no matter what the quality or the price, there is no way that they will buy it. There is an old saying that you can lead a horse to water, but you cannot make it drink.
Lord PARGITER: My Lords, is the noble Viscount aware that China will probably be moving very cautiously, having regard to its previous experience and its dependence on Russia?
Viscount LONG: My Lords, I am most grateful to the noble Lord for that question and I should think that that is their attitude at this stage.

REDUNDANT STEELWORKERS: EEC AID
3.58 p.m.
Baroness VICKERS: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether any action is being taken by the EEC to aid redundant steel workers in the United Kingdom; and whether the EEC has made any suggestions about help with their retraining for other jobs.
The MINISTER of STATE, DEPARTMENT of INDUSTRY (Viscount Trenchard): My Lords, the European Community is already providing aid to redundant steelworkers in three ways. First, the Iron and Steel Employees Readaptation Benefits Scheme which is jointly funded by the ECSC and the Government provides income support benefits, including a training allowance, for up to two and a half years depending on age. Secondly, reconversion loans are available from the ECSC at favourable rates of interest for job creation programmes in steel redundancy areas. Thirdly, retraining costs also attract a contribution from the EEC Social Fund.
Baroness VICKERS: My Lords, I thank my noble friend for that very satisfactory reply. Can he tell me how much money has already been received, and whether any training has taken place?
Viscount TRENCHARD: My Lords, under each of these schemes considerable benefits have been paid. Under the Readaptation Benefits Scheme, for instance, in 1980 so far the Commission has allocated £7·7 million to Shotton workers. Some 100 applications have been successfully submitted since we joined the Community in 1973. In relation to the reconversion loans, we are currently—and have been throughout 1979—receiving some 40 per cent. of the total ECSC budget, and over £100 million worth of loans since the Exchange Risk Cover Scheme was introduced in 1978 have been negotiated. Twenty five million pounds have already been paid. In relation to the training schemes we have

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currently an application from BSC Industries to the EEC Social Fund for £4 million which the Government have supported.
The Lord Bishop of PETERBOROUGH: My Lords, could the Minister tell the House whether the EEC has made any attempt to offer jobs abroad to the steelworkers in places such as Corby? If they have done so, how many and how effectively have they done it?
Viscount TRENCHARD: My Lords, I do not believe that any Community source has actually offered jobs abroad. Within the Community there is of course freedom of movement of labour today, and a lot of British people are working on the Continent. I have no idea how many redundant steelworkers may have taken their own initiative.

OLD AGE PENSIONS: METHODS OF PAYMENT
3.1 p.m.
Viscount St. DAVIDS: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether pensioners who have their pensions paid directly to a bank and not collected weekly at a Post Office can be issued with a card stating that they are old age pensioners and are thus entitled to receive other benefits obtainable on production of pension books.
Lord CULLEN of ASHBOURNE: My Lords, the noble Viscount has in mind, I think, those retirement pensioners who are paid periodically by payable orders instead of weekly by order book. There are at present no provisions for paying pensions direct to banks. I am glad to be able to inform the noble Viscount that arrangements already exist to issue to those pensioners, on request, a card confirming their entitlement to a pension. A pensioner who is not paid by order book and wishes to receive a card should apply to the Department of Health and Social Security's Central Pensions Branch at Newcastle-upon-Tyne.
Viscount St. DAVIDS: My Lords, I thank the noble Lord for that helpful reply, for which I am sure I am entitled to address him as my friend. Will my noble friend further take into account the fact that publicity needs to be given to this, as this method of identification is extremely valuable? It enables these pensioners to collect not only free or cheap bus fares, cheap rail fares, but free entrance to a number of exhibitions and also cheap entrance to a number of private and commercially operated entertainments.
Lord CULLEN of ASHBOURNE: My Lords, that is very true. If it would interest the House I shall give an indication of the other things that are available, but they are in different areas and one has to make inquiries locally as to what is available. You can, for instance, obtain concessionary rates on hairdressing; dry cleaning; rail fares; bus fares; holidays (often for specified weeks); theatre and cinema tickets; entry to exhibitions and ancient monuments; bingo halls; adult education; membership of sports and social clubs, and some local authority services.
Lord WELLS-PESTELL: My Lords, may I ask the noble Lord the Minister whether he will take steps to see that when a person qualifies for a retirement pension that person will be told that a card establishing that he or she is a pensioner will be available? I speak with some feeling on this matter because in the part of the country where I live, if one wants to obtain concessionary fares and one has not a pension book, one has to produce in one part of the city a birth certificate. On the rail, if you have not got such a certificate, you have to produce your passport, and there is a different system in different places. Lots of people entitled to these facilities, simply because they are having their pension paid into a bank, do not get them because they cannot establish that they are pensioners.
Lord CULLEN of ASHBOURNE: My Lords, when people first get their pension payment they get a leaflet which is NI.105, and on that leaflet is quite clearly shown that if you require it the Central Pensions Branch will provide, on request, a card confirming that you are entitled to a retirement pension. That is the sort of card that one in fact gets.

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I know there are differences in different areas, but the social security office will undoubtedly help on those occasions.
Lord SEGAL: My Lords, can the noble Lord say what are the objections to payment of the retirement pensions direct into a bank account? If these objections could be overcome, say by quarterly payments, would it not result in a considerable saving in manpower?
Lord CULLEN of ASHBOURNE: My Lords, that is actually being looked at seriously at this moment. I understand that there are certain administrative difficulties about it, but I believe that they may well be overcome.
Lord UNDERHILL: My Lords, would the noble Lord say when the practice of issuing that leaflet was commenced? I became a pensioner last July but I never received a leaflet, and it was two months before I got a pension book.
Lord CULLEN of ASHBOURNE: My Lords, I am sorry but I cannot answer that question.
Viscount AMORY: My Lords, may I ask my noble friend whether he will appreciate what a joy the senior citizens' rail card is to me, but that when I present it I find it a little embarrassing occasionally to be given a child's ticket? It is an unnecessary reminder of the period of my life on which I have entered. I think my noble friend may well tell me that it is outside his immediate responsibility.
Lord CULLEN of ASHBOURNE: Yes, my Lords, but I can well understand how the noble Viscount, who always looks so young, gets a child's ticket.

RHODESIA: PROGRESS OF ELECTION CAMPAIGN
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, on behalf of my noble friend Lord Goronwy-Roberts, I beg to ask Her Majesty's Government a question of which he has given private notice. The Question is as follows:
To ask Her Majesty's Government whether they will make a statement on the progress of the election campaign in Rhodesia.
Lord DENHAM: My Lords, with the leave of the House my noble friend Lord Trefgarne will be answering this Question in the form of a Statement at a convenient moment after 3.30 p.m.

ECONOMIC POLICY
3.8 p.m.
Lord KALDOR Lord KALDOR rose to call attention to the implications of the industrial, financial and monetary policies of Her Majesty's Government for economic growth, the standard of living, the level of employment and the country's potential for self-defence; and to move for Papers. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. In the last two years we have had a number of debates in this House on Britain's frightening economic situation and prospects. The majority of them have been on the initiative of noble Lords on the opposite side of the House. I found these debates most valuable and illuminating. They have shown that there is a far greater consensus of opinion on the extremely critical situation of the British economy than I expected. There was a fair degree of agreement, also, on the most alarming features of our situation; notably our unsatisfactory performance in relation to our competitors which shows itself in a faster rate of growth of competitive imports—that is, imports which compete with domestic production—than in our exports.
This adverse trend in our export-import balance of manufactures is of very longstanding and was only temporarily reversed by two world wars and by the policies introduced before and after the Second World War. It has much accelerated in the last decade, so that if it had not been for our unexpected good fortune in becoming a major oil producer at the very time of a manifold increase in the price of oil, we should now be in the most catastrophic situation.
The over-valuation of the pound which began in October 1977, and was greatly accelerated after the last election, threatens to telescope into a few years the final collapse of our industries which might otherwise have taken a decade or more. Last year manufacturing imports rose by 16 per cent. in volume while manufactured

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exports rose by only one-tenth of that, or 1.6 per cent. The situation was worse than in the year before, but even in the year before imports rose by 15 per cent. and exports by only 2 1/2 per cent. We still have a surplus of exports over imports, but only just; last year it shrunk to 5 per cent. of our exports, having the year before been 12 per cent., and I expect that 1980 will be the first year in British history when Britain becomes a net importer of manufactured goods. All the figures I have quoted do not reflect the present high value of sterling. As soon as the annual improvement on the oil account ceases to offset the large annual deterioration in the balance of payments, Britain will face bankruptcy, and on present forecasts this can happen fairly soon.
There can be no dispute that the advent of this Government marks a break with the past which is little short of a revolution. This is true, even though the true extent of the change has been masked from public view by the fact that the previous Government in their dying days themselves became victims of the same intellectual miasma which afflicts the present Government, a fact of which the noble Earl, Lord Gowrie, more than once reminded us. What exactly is the nature of this miasma? The money supply, which was virtually an unknown quantity throughout the post-war period, has come to occupy the centre of the stage; it is endowed, in the view of our present Ministers, with an almost mystic importance. For reasons that nobody could explain or even tried to explain, it is assumed to be the main factor responsible for inflation, and this in turn the source of all other evils, and so the Government tell us that until that battle is won it is futile to think about anything else. As the noble Earl put it at the end of a recent debate, when your overriding objective is a negative one, which is to reduce the rate of inflation, it is difficult for your positive, visionary or exciting policies to come to the fore.
The grave danger is that the Government will fail completely in their declared chief objective on account of the naivety of their beliefs and that, in the process of trying, they will greatly aggravate the evils from which we have been suffering
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for many years. You cannot cure inflation without having some idea, based on reason and not on mystical belief, of the causes of inflation, the forces behind it and the mechanism through which it is transmitted. The fact, to which one noble Lord called attention the other day, that you have never had inflation without an increase in the money supply, says nothing about the cause and effect; it is perfectly consistent with the money supply playing a purely passive role by constantly accommodating itself to the rate of inflation determined by other causes. And to anticipate critics, I would add that in a credit money economy, where money largely consists of instant claims on non-existent cash, it is inevitable that the money supply should be accommodating. It cannot be otherwise because the banking system could not survive without it.
Of course, it is true that the Bank of England has a monopoly on the issue of bank-notes; in theory, the Chancellor of the Exchequer could tell the Bank of England that this year so many notes and no more shall be printed, but that is true only in theory. In practice, the supply of bank-notes cannot be fixed in advance any more than the supply of other forms of credit money. This is because the Bank of England, as I am sure noble Lords to occupy the position of governors of that institution who are here today will confirm, also has another function; that of being lender in the last resort. The function of the Rank of England is to keep the banking system afloat, just as the main function of an admiral is to keep the fleet in being. Faced with a conflict, therefore, the Bank must always issue the notes that would prevent our major clearing banks from becoming insolvent.
If that were not so, why did Sir Geoffrey Howe, being such an ardent believer in monetarism, allow M3 to grow from the time he took office at a rate in excess of his own target? And why have a target rate of growth of the money supply at all? Why not have a zero target or even a negative one? Surely, from the Government's point of view, there is everything to be said for getting inflation over as quickly as possible so as to be able to concentrate on all those constructive, visionary and exciting policies about which the noble Earl was talking the other day.
So why all the hesitation? The unfortunate fact is that Ministers talk of British inflation as if it were an isolated phenomenon caused by our national policies, that it is a phenomenon caused by, or due to, excessive spending and not by the rise in costs due to increased world commodity prices, particularly the price of oil, and of the wage increases which are fed by the increase in costs and prices, which in turn boost these increases. In fact, Ministers do not admit that there is such a thing as cost inflation, except in the very special case when it is the result of deliberate action by the Government. Increases in the cost of living caused by a rise in VAT or in the price of public utilities or in the rates of interest, according to the noble Lord, Lord Cockfield, as he told us the other day, have a deflationary not an inflationary effect, despite the fact that they raise prices and hence wages, and thereby induce faster growth in the money supply.
The Government's proclaimed strategy is to cure inflation by reducing the PSBR and to do so primarily by cutting public expenditure and, secondarily, by raising indirect taxes and interest rates. These help to keep the exchange rate of the pound high and thereby contribute to a lessening of cost inflation. But they also cause a demand deflation, in real terms or in terms of wages, owing to lower exports and higher imports as well as the effects of the fiscal measures they have taken to reduce the PSBR, and hence they lead to a fall in output and employment. This in turn necessitates a further round in expenditure cuts, since with lower economic activity and a diminished tax base the PSBR is bound to become larger.
The Government's cure for higher unemployment and falling production is therefore more public expenditure cuts and more taxation to keep the PSBR from rising. One has the strange feeling that one has been through all this nightmarish sequence before. Indeed, speaking personally, this is where I came in as a young man. The situation reminds one of that awful summer of 1931 when the then Chancellor, Philip Snowden, made a desperate attempt to remain on the gold standard, and on receiving the notorious May Report, insisted on a set of savage deflationary measures as a
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cure for the ravages of deflation. Faced with a prospective Budget deficit of £170 million—the term PSBR had not yet been invented—the Chancellor of the Exchequer proposed a 10 per cent. all-round cut in all kinds of pay, from that of judges' and top civil servants', down to that of the naval ratings and the unemployed, coupled with an all-round increase in taxes of all kinds. The attempt wrecked the Labour Government and led to a naval mutiny in Invergordon, which caused a suspension of some of the cuts. The present Government have, very wisely, guarded against such dangers by substantially raising the pay of both the armed forces and the police at the very moment they came into power.
The Labour Government of Ramsay MacDonald broke up because his Ministers were not willing to accept the cuts. But when the party of noble Lords opposite was returned to power in October, with the largest parliamentary majority they had ever had, lo and behold! within a few months the nightmare of cuts was over. The sacred cow—the gold standard—having been sacrificed, the Tories' age-old dream of a general protective tariff (which they first advocated in 1904) extending to all manufactures was introduced, after an emergency Bill, late in 1931 and early 1932, which meant an ad valorem import duty of 33 1/3 per cent. on steel and chemicals, later, in 1935, raised to 50 per cent., and on other manufactures of between 20 and 30 per cent.
Neville Chamberlain became Chancellor and introduced the age of cheap money. He undertook the biggest conversion operation in history, reducing the interest on War Loan from 5 per cent. to 3 1/2 per cent.—which made it possible, for technical reasons that I do not want to explain here, for the long-term interest rates to come down generally; but it could not have been done without it—which is something which the present Government may do well to emulate as a progressive way, a reasonable way, of reducing Government expenditure, and which is so superior to their own miserable method of saving money through prescription charges, school meals, and school bus fares.
The Tory Government of those days were not monetarist; they were not sound money men. They were expansionists. The five years from 1932 to

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1937 ushered in, under the umbrella, first, of the devaluation, and then of the high level of protection, the most rapid economic growth in British history, unequalled ever before or since, wholly based on domestic prosperity. Industrial production rose by nearly 50 per cent. in five years, and in 1937 it exceeded the previous peak of 1929 by one-third. Steel production, which fell from 9 million tons to 5 million tons during the depression years after 1929, had a phenomenal increase to 13½ million tons in 1937—an increase of 160 per cent., or a compound rate of increase of 20 per cent. a year maintained over a five-year period.
Perhaps noble Lords are ignorant of the fact that in 1937 Britain was the only country in the world, with the possible exception of Soviet Russia—one cannot be certain because they did not publish any figures—whose steel production exceeded the pre-depression peak; and it did so by no less than 35 per cent. Germany's steel output, despite Hitler's rearmament, had only just regained its 1929 level, while output of all other steel producers (including that of the United States) was well below the level of 1929.
If we had had the present team of Ministers in 1932, instead of dear old Stanley Baldwin and Neville Chamberlain, the steel industry, with a near 50 per cent. excess capacity in 1931, and large current losses, would have been castrated at the start, and we should never have been able to re-arm and face Hitler in 1939. Indeed, the shipbuilding industry was so emasculated, not on account of Government policy, but on account of the collective action of the shipbuilders, with the result that shipbuilding capacity at the outbreak of World War II was a million tons smaller than it was in 1930. Hence it was grossly inadequate to maintain our carrying capacity during the war, and if it had not been for the American Liberty ships and Lend/Lease, we should have been forced to our knees by the U-boats.
If anyone has any illusions about the competence of the present management of the British Steel Corporation, or indeed about the economic sanity of the present Secretary of State for Industry, he should read the article by Rowthorn and Ward in the latest issue of the Cambridge Journal of Economics, where they make a cost-benefit analysis with devastating implications
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on some of the recent decisions of BSC which followed the principles enunciated by the Secretary of State.
The present Government have a purely schizophrenic attitude to defence. On the one side, they proclaim that our defences are inadequate, that defence spending must increase, and that it must receive priority. On the other hand, they do everything to shrink and to reduce our industries which provide a true basis to our defence potential. It is an awful mistake to think that we can prepare for a war by stockpiling armaments without having the capacity to produce them. The last Israel—Arab war, I understand, used up armaments of all kinds in 14 days —tanks, guns and ammunition—at such a rate that it took the United States four years to replace the stocks which were nearly depleted in that war. So if it ever came to a war, do not believe, my Lords, that our present stock of armaments or our present armament expenditure will save us. We shall be entirely dependent on the capacity to produce while hostilities are going on—just as we were during the First War and the Second War.
The Government, I am quite sure, will not succeed in their principal objective of getting rid of inflation by the methods they now pursue. With a grossly overvalued pound and the net deflationary effects of their fiscal and monetary policies, national output is likely to fall from now on; and in our Cambridge calculations it will fall by as much as 5 per cent. a year. Unemployment may rise to 2 1/2 millions in a year or 18 months from now. The standard of living will fall. But the Government's principal objective—the reduction of the PSBR—will, I think, elude them. They will never be able to cut expenditure fast enough or raise taxes high enough to keep pace with the rise in the budgetary deficit due to the fall in employment and output. But that means that the borrowing requirement will rise, not fall, and according to their theory, money supply and inflation should get worse, not better.
Indeed, I am inclined to agree that inflation will certainly continue apace because" the rise in unemployment and the fall in real wages is bound to increase the militancy of the unions to a degree that is not likely to be offset by the abrasive attitude of the Government. Of course,

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when it comes to an all-out confrontation nobody can be certain of the outcome. It is possible that, unlike Mr. Heath's Government, this Government will succeed in bringing the working classes to their knees.
But everything else (except, perhaps, the strength of the pound) points to the conclusion that inflation is likely to get worse, and not better. The rise in recorded wage settlements is increasing month by month, and if allowance is made for the side provisions, in the form of comparability and cost of living increases, then the true rate of increase in earnings is running around 20 to 25 per cent. a year now. With falling output and falling productivity, this points to a prospective rise in costs and prices of at least that order or more. As the current account deteriorates because of falling exports and rising imports, some day net capital flows will be reversed—they will go out instead of coming in—in spite of high or even higher interest rates, and when that happens inflationary forces will receive a powerful new impetus.
My Lords, I earnestly believe that the present policies of Her Majesty's Government will lead to a progressive deterioration of our situation, as measured by the wellbeing of the average citizen as well as by the capacity of the nation to produce weapons for her own defence. The sooner this is recognised and the sooner the Government are brave enough and manly enough to do the necessary U-turns, the better for our future. My Lords, I beg to move for Papers.
3.32 p.m.
Lord ROCHESTER: My Lords, I am sure that the whole House will be grateful to the noble Lord. Lord Kaldor, for having introduced this Motion. I do not for myself feel that there is need to dwell on the last part of the Motion, for we may all readily agree that if only we could solve our basic economic and industrial problems then the economy would grow, the standard of living and the level of employment would rise, and we should be in a better position to defend ourselves. As to the Government's policies, I suppose that a great many of us, anyway, would agree that inflation remains public enemy number one, and that the Government are
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right, therefore, to make a reduction in the rate of increase in inflation their primary objective. We on these Benches further accept that there is a need to reduce public expenditure, although, as we have made plain more than once already, we wish this could be done in a more discriminating and, in particular, a rather more gradual manner than is at present the case.
Our main criticism of the Government—and here I find myself in some sympathy with the noble Lord, Lord Kaldor—is indeed their seeming reliance, to the exclusion of all else, on controlling the money supply, and the indication that that policy is in practice proving ineffective. Nine months after they took office we seem to be moving rapidly into a deep recession, by no means, admittedly, all of the Government's making. Unemployment continues to rise and job vacancies to fall. Despite the revenue coming from North Sea oil, we look like having a large balance of payments deficit both in 1980 and in 1981. There is a mortgage rate of 15 per cent. and a minimum lending rate of 17 per cent., with no indication of any reduction. Together with an over-valued pound, high interest rates are making our goods increasingly uncompetitive abroad. The other evening I was having dinner with the chairman of a large company which has contributed greatly to our export trade—not, I should perhaps add, the company for which I used to work. He was deeply concerned about the effect that current levels of interest were having on the profitability of manufacturing industry in general and of exporting companies like his own in particular.
To continue the unhappy story, rises in prices and wages continue at levels greatly exceeding the increase, if any, in national productivity. A most damaging steel strike has been going on now for six weeks, and the Government still stand back. We are told that if people insist on increases in pay which a firm or industry cannot afford, market forces will operate, companies will go bankrupt and jobs will disappear. Of course, that is true so far as it goes. The trouble is that in real life the people who suffer are not those who, by then, have carried off the swag, but weak and innocent bystanders, such as pensioners and young people. In the complex, interdependent society in which

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we live, this Government, like any other, will in my view have to intervene in the end. Indeed, in the public sector they already do, as employer or paymaster. I believe that they will soon have to do more, because even if by some objective test of economic theory it were possible for the Government wholly to justify their present policies—and may I say that I have some sympathy with the ultimate objective that they have in view—in a democracy they will still have to persuade a sufficient number of people so to act that those policies actually prove effective.
In politics, my Lords, as in industry, the prime test of leadership is whether you can get people to follow, and I should like now, if I may, to suggest two or three ways in which the Government could, I think, intervene. The first is in the matter of pay determination. I use that term advisedly, rather than "incomes policy", because if I say "incomes policy" everybody gets very excited, some people cheer and other people jeer. Your Lordships seem to be remaining pretty calm, but, then, we are noted for our nobility and wisdom, and many other exceptionally fine attributes. But I continue to believe that there is an urgent need for the Government, employers and trade unions to establish agreed long-term procedures designed to influence the general level of increases in wages and salaries. I am not now advocating some norm to which everybody is expected rigidly to conform, with or without parliamentary endorsement; but I am suggesting that recent events, and particularly the steel strike, have greatly strengthened the case for what the CBI call an economic forum and what the West Germans call concerted action. I do not much care what it is called so long as, from it, the public at large can somehow gain a clearer understanding of what the country can afford by way of increases in pay; and the need is urgent, otherwise it will be too late, even for the wage round after the present one.
Last July, in a Starred Question, I asked Her Majesty's Government whether they aimed to confer with representatives of employers, trade unions and other interested parties under conditions which might enable a better public understanding to be gained of the effect on the national economy of pay increases which were not
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matched by increases in productivity. In replying for the Government, the noble Lord, Lord Cockfield, said that Ministers were giving careful consideration to all the complex issues involved in setting up such discussions, and that they were anxious to ensure that whatever measures were taken were effective and successful. Now, six months later, and in our present parlous economic and industrial situation, I have given notice to the noble Lord that when he comes to reply I should like to know the outcome of the Government's consideration of this matter.
I do not wish to take it further than that today. I am not even going so far as to assert that the right basis for determining relativities is productivity in a particular plant, especially bearing in mind Mr. Samuel Brittan's view that, in a free market, relativity changes so as to be based rather on supply and demand for the particular worker concerned. It is sufficient for my present purpose that for the country as a whole pay increases should not exceed improvements in productivity.
A second area in which I suggest that the Government should intervene is in the contentious field of legislation affecting trade unions, where, following recent events and judgments, I believe that it is essential that an opportunity should now he given to Parliament to make clear what legal immunities trade unions should enjoy when, in the course of a strike, they induce, through secondary action, breaches of contract. Since, if we are going to solve our problems, it seems to me that we should offer support where we can to the Government of the day, I should like to add that for my part I have greatly admired the level-headed way in which the Secretary of State has acted in introducing the Employment Bill in another place, in first consulting with all interested parties and, most recently, in resolutely refusing to rush through Parliament inadequately considered measures simply to bring the present steel strike within their scope.
My Lords, so that in this matter I do not offer any hostages to fortune, may I add that I am committing neither my party nor myself to subscribe to all the clauses of that Bill when, before long, it comes before this House. Indeed, I have already got my eye on one or two clauses in the Bill. Nor do I suggest that, of

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itself, that Bill will improve industrial relations in this country. That is why I hope very much that once the Bill is passed the Government will think very carefully before bringing in further legislation in this field; for it is difficult to see how, in the climate of controversy that would then persist and at a time when, I fear, economic recession will have deepened still further, management and employees would be able to co-operate in improving our industrial performance as we so desperately need to do.
That brings me to my last point. I believe that, above all, the Government need to improve their lines of communication with the rest of us. With every month that passes, it becomes more evident that our problems are very deep-seated and that they interact with each other. The measures needed to solve them become more painful and give rise to greater dissension; and, increasingly, I doubt whether the present Government, any more than the last, will manage to grapple with them singlehanded. They certainly will not do so if they do not carry more people with them than they appear now to be doing. I do not suggest that the Liberal Party on its own would do any better, but at least we are giving a lead in declaring that there is a need for elements in all political parties to come together to tackle our problems—and to judge from the response to the recent Dimbleby Lecture given by Mr. Roy Jenkins, from the opinion poll recently carried out for The Times newspaper and from what I hear from many industrialists and others who are not identified with any particular party, that is also the message that the British people are trying to get across to us. I hope very much that we shall hear it and that we shall act on it in time.

RHODESIA: PROGRESS OF ELECTION CAMPAIGN
3.45 p.m.
Lord TREFGARNE: My Lords, with your Lordships' permission, I will now repeat a Statement being made in another place in answer to a Private Notice Question on Rhodesia. The Statement is as follows:
"The problem of intimidation of voters in the rural areas, the scope of
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which has now been confirmed to the Governor by the British election supervisors, continues to cause great concern. The Governor has enacted an ordinance enabling him to suspend elections in any area where systematic intimidation makes it impossible for a fair election to be held. He has also listed a number of areas where intimidation is particularly severe. This should warn those of whatever party who seek to deprive others of the right to campaign freely and peacefully of the possible consequences of their actions. The Government will also be taking positive measures to strengthen supervision of the elections by sending a large number of additional personnel from the United Kingdom to be present in polling stations in rural areas, to ensure that the arrangements for voting are scrupulously fair.
As the House will be aware there has been a further deplorable attack upon Mr. Mugabe. Investigations are being pursued. The Governor will continue to take firm measures to deal with intimidation, violence and breaches of the cease-fire from whatever quarter. Despite the serious problems which exist, the Government are determined to carry the election through to a successful conclusion and to ensure that it is conducted as fairly and freely as possible."
My Lords, that concludes the Statement.
Lord GORONWY-ROBERTS: My Lords, the House will be grateful to the noble Lord for repeating that important Statement in the House; but is the noble Lord aware that the Statement he has just made confirms the mounting concern in this country and abroad about the deterioration of the situation in Rhodesia? Is he further aware that the action taken under the ordinance which the Governor has enacted, enabling him to suspend elections in any area, may well nullify the result of the election as a whole and give a talking point to the basic enemies of the democratic process to denounce the election and to resume other means of settling the Rhodesia problem? May I suggest strongly that every effort be made to avoid using this particular ordinance?
Moreover, will the Government here and in Rhodesia resist the temptation to

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ascribe responsibility for incidents to any one particular party? All are guilty of infringements of the decisions taken at Lancaster House, of infringements in spirit and in action, not excepting certain elements which are supporting the present Government. The role of the auxiliaries, for instance, has been raised constantly in this House and should be mentioned again. While we denounce the actions of certain parties, we must also make it as clear as possible that all the agencies of government in Rhodesia are not themselves guilty of certain incidents and also are seen to be impartial in regard to all contending parties in the current elections.
Is the noble Lord aware that we welcome the intention to send:
"… a large number of additional personnel from the United Kingdom to be present in polling stations in the rural areas"
to ensure that fairness is observed? But is he also aware that we believe that, even more necessary than that important decision, is that during the next crucial two to three weeks there should be a strengthening of the forces of law and order in Rhodesia from sources regarded by the Rhodesians as a whole as being impartial?
Finally, my Lords, would the noble Lord give the House some reassuring news about the situation of Mr. Garfield Todd—
Several noble Lords: Hear, hear!
Lord GORONWY-ROBERTS:—a former Prime Minister of Rhodesia who commands wide respect among black Africans and not a little among white Africans as well, and whose arrest by the present Government of Rhodesia was more drastic even than the treatment meted out to him by the Smith regime, who, after all, only confined him to his farm?
Lord GLADWYN: My Lords, we, too, should like to thank the noble Lord for repeating this important statement. I think that the whole House will probably join with me in expressing great sympathy for the unfortunate Governor, the noble Lord, Lord Soames, who is in the most difficult of all possible situations at the present time. I imagine that the Government will also agree that one of the greatest difficulties is his relative inability to control the actions of one of the most important
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actors in the drama now unfolding in that unfortunate country; namely, General Walls.
Apart from that, I have two questions that I should like to ask. Will the additional supervisors—who, I imagine, will be civilians—however multiplied, be in a position to prevent terrorist action from intimidating electors? Will their presence diminish such terrorism? Here I think I touch on a point made by the noble Lord, Lord Goronwy-Roberts. Would it not be preferable to increase the monitoring force, comprised I believe of soldiers? If they were reinforced would they not have rather more influence on the terrorists than mere civilian supervisors? I only ask that. I do not know what the answer would be.
Finally, do the Government not agree that the recent public utterances of Mr. Smith threatening, as I understand it, another rebellion if by any chance Mr. Mugabe should get a majority, are wholly deplorable? Do they not also feel that the constant condemnation of Mr. Mugabe should get a majority, are wholly have been on the whole moderate, as a Marxist—whatever that may be—is in itself something which is designed to inflame prejudice and might eventually lead to a resumption of the civil war?
3.52 p.m.
Lord TREFGARNE: My Lords, I am obliged to both noble Lords for what they have said. Taking first the points put by the noble Lord, Lord Goronwy-Roberts, of course we agree that it would be highly preferable if the Governor were not obliged to use the powers which he has taken under the second electoral ordinance. May I in parenthesis say that in accordance with normal procedure we will, as soon as we can, put a copy of that in the Library.
The problem is not one of seeking to control one particular party or another. We are seeking to control the intimidation, and that is why we have decided to send these additional personnel to Rhodesia, as I described in the Statement. The noble Lord, Lord Goronwy-Roberts, asked us to remember that the breaches of the cease-fire were committed by all the parties—or at least a good many of them—and were not just on one side. I have some figures before me: of the

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129 breaches of the cease-fire on which the cease-fire Commission have so far reached a conclusion, no fewer than 87 have been committed by ZANLA forces or forces operating in the ZANLA area of operations. The cease-fire Commission reaches its conclusions with the agreement of the ZANLA member on the Commission, so I think I can say quite firmly that there is no doubt whatever that the proportions that we have described in terms of ceasefire breaches are accurate and accepted by all sides.
The noble Lord, Lord Gladwyn, suggested that it was unhelpful to go on, for example, calling Mr. Mugabe a Marxist. Be that as it may, the fact is that Mr. Mugabe calls himself a Marxist—and, indeed, why not? He is entitled to his views and we respect them. As for the civilian observers, to which I referred just now, they are going, as I have said, to discourage would-be intimidators from their dreadful task at the polling stations in rural areas. They will be very well placed to do that.
We do not think that any useful purpose would be served at this stage by increasing the size of the monitoring force. The monitoring force is there to monitor, and they are doing that entirely successfully and satisfactorily. We would only need to increase the size of the monitoring force if we were to give them some new and additional role. We have no plans to do that.
I am sorry that I omitted to answer the question put to me about Mr. Todd. He called on the Rhodesian Attorney-General yesterday and made a statement which brought to light some circumstances which he had not previously disclosed. The Attorney-General is considering, in the light of this statement whether or not a prosecution should succeed. I understand that Mr. Todd is seeing the Governor later today.
Lord HOME of the HIRSEL: My Lords, I wonder whether my noble friend could help the House with some facts. Is it a fact that there are some 6,000 of Mr. Mugabe's supporters outside the assembly areas and still with arms? If that or something like that number is a fact, is it not a direct contravention of the agreement signed in London? While the
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Governor will undoubtedly not want to use his powers, is it not extremely dangerous to allow a situation of that kind to continue which might wreck the whole prospect of a settlement?
Lord TREFGARNE: My Lords, it is certainly essential that every party to the elections in Rhodesia should observe the provisions of the Lancaster House agreement. I can confirm what my noble friend said about the numbers who are outside the assembly areas and who are still carrying arms.
Lord WIGG: My Lords, would the Minister be good enough to say whether in a deteriorating situation he is satisfied about the security of the monitoring force? If there occurs what is suggested might occur, the Governor would be put in a very difficult position indeed.
My second question is this. Is not this situation which has arisen entirely foreseeable if the Government send out a Governor with responsibility—ultimately complete responsibility—without adequate powers? If they turn their backs on a concept—if I may use the phrase—of that of a jeep and four men in the jeep, and they had the jeep with only three men in it, is not what has happened only to be expected? What worries me is how far the Government have gone drifting on as a result of political bait, and what is bait here is the lives and security of the monitoring force.
Lord TREFGARNE: My Lords, the members of the security force will not be allowed to get into such a situation where they cannot adequately defend themselves.
Lord PITT of HAMPSTEAD: My Lords, was not the Lancaster House agreement one in which the security forces were to return to barracks while the guerrillas went to assembly areas? Does not a great deal of the trouble result from the fact that the security forces were not made to go to barracks? On the contrary, auxiliaries are allowed to roam. Mr. Garfield Todd said in a radio broadcast (it was the day be was arrested) that one of the reasons why he was arrested was because he was pointing out that the only way one can get guerrillas to come to the assembly areas is also to make the auxiliary forces go to barracks.
Lord TREFGARNE: My Lords, all the forces that were in Rhodesia at the time of the signature of the Lancaster House agreement were required to place themselves under the instructions of the Governor, and that applied equally to the auxiliaries. Likewise, the auxiliaries are part of the Rhodesian forces and equally are to observe the cease-fire. They are fully monitored. Any complaints against their activities are investigated and action is taken where necessary. Disciplinary action or action in the courts will result from proven misconduct, and this has already happened in some cases.
Lord PITT of HAMPSTEAD: My Lords, with respect, the Minister has not answered my question. The question I am asking is this. Is not the basic cause of all the trouble the failure to observe the Lancaster House agreement under which the security forces would return to barracks while the guerrillas went to assembly points?
Lord TREFGARNE: No, my Lords. I do not think the noble Lord is right on that. Of course, the security forces did initially return to barracks and, indeed, many of them are still in their barracks. But some of them are used by the Governor for his purposes.
Lord ORAM: My Lords, recalling what the noble Lord, Lord Gladwyn, said about the utterly deplorable speech by Mr. Smith a few days ago, was that speech not utterly contradictory to the spirit of the Lancaster House agreement and ought it not to have called for utter condemnation by the Governor? Should we not have a declaration, either by the Governor or by the noble Lord today, that whatever Mr. Smith thinks about the outcome of the election and what he would do in those circumstances, the British Government will stand by the results of the election?
Lord TREFGARNE: Yes, indeed, my Lords. We have always said that our whole purpose and our whole policy in this matter is towards creating conditions in which a free and fair election can be held; and we certainly hope that everyone will abide by the results of that election. But I think that one should hesitate before condemning electoral rhetoric too firmly. The sort of things said by
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Mr. Smith are indeed regrettable, but a lot of equally bad things have been said by the other side.
Viscount MASSEREENE and FERRARD: My Lords, can my noble friend inform me whether it is true, as I have heard, that Mr. Mugabe was quoted as saying that if he did not win the election he would continue the war?
Lord TREFGARNE: Yes, my Lords. I, too, have seen reports like that. I think that it just confirms what I said earlier.
Lord GORONWY-ROBERTS: My Lords, with respect, and with the permission of the House, may I emphasise one or two points? Will the Minister and Her Majesty's Government, both here and in Rhodesia—they are both Her Majesty's Governments—bear in mind the important distinction between strengthening the civilian technicians who will supervise the actual polling and the electoral arrangements, as they would, presumably, in a by-election in this country, and the need to strengthen what is sometimes called the monitoring force, but which I have chosen to call the forces applying law and order, from sources seen by everybody in Rhodesia to be impartial? I leave it at that.
The second point that I want to emphasise is this. The whole House sympathises deeply with the Governor, the noble Lord, Lord Soames, in the immensity of the task confronting him and accords him considerable admiration for his courage and determination to surmount them. Anything which is said here calling attention to certain aspects of the situation, which as my noble friend Lord Wigg said is certainly deteriorating, is meant to help him as much as possible. In particular, am I right in believing that Mr. Garfield Todd, a man of considerable stature in Rhodesia and in Africa, was, in fact, arrested and treated like a common criminal by a local magistrate and that the Governor intervened to see that more appropriate action was taken in regard to this matter?
Lord TREFGARNE: My Lords, Mr. Todd was alleged to have committed an offence and was subjected to the proper legal processes. I hope that the noble

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Lord will not press me to go further on Mr. Todd than I have done already. But as I said earlier, the Attorney-General is considering, in the light of what Mr. Todd has recently said, whether or not the prosecution should proceed.

ECONOMIC POLICY
4.5 p.m.
Debate resumed.
The MINISTER of STATE, TREASURY (Lord Cockfield): My Lords, I am grateful to the noble Lord, Lord Kaldor, for tabling this Motion. It provides me with the opportunity not simply of defending the Government's policy, but of demonstrating that, however hard and stony the road may be, the Government's policy does offer real hope for the future; and there is no alternative policy which could offer that hope or indeed any hope at all.
I was greatly interested in the noble Lord's speech and I will reply in detail to a number of points he made later in my own remarks. I was, however, particularly interested in the unstinted praise which he bestowed upon the Conservative administration of the 1930s, whose policy ushered in a period of unparalleled prosperity, and I am sure that in the years to come he will need to say the same of the Conservative Administration of the 1980s. The speech of the noble Lord, Lord Rochester, from the Liberal Benches filled me with a sense of nostalgia for times long since past, but not apparently yet forgotten, and to that speech also I will return in due course. But first things first, so I will start with Government policy.
I referred at the beginning to a hard and stony path. Before we can look ahead, we must ask ourselves how we got onto this hard and stony path. In real life —as opposed to the world of Irish humour—one has to start from the place one finds onself in, and the place we found ourselves in in May 1979 was a singularly unpleasant one. I realise that noble Lords opposite find the constant reminder of the misfortunes that they inflicted on their suffering fellow citizens painful and disagreeable. I assure them that their
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fellow citizens found it equally painful and disagreeable. In the five years of Labour Government, prices rose by 112 per cent. and at the peak were rising at a rate of 26·9 per cent. per annum. Unemployment over this period increased from less than 600,000 to more than 1,300,000 on a seasonally adjusted basis. Manufacturing output in 1979 was no better than it had been in 1973.
It is often claimed—and the noble Lord, Lord Kaldor, referred to this again this afternoon—that we have been in a state of relative economic decline for many years. Like so many conventional ideas, this in fact is somewhat of an oversimplification. There was, as the noble Lord himself has said, a period of real growth between the two world wars. During that period, the growth of productivity in the United Kingdom exceeded that of most other industrialised economies to a pronounced extent. In more recent times, the 1950s and the early 1960s were a period of considerable growth, too.
But what is undeniable is that in more recent years, and particularly after 1974, there has been a marked deterioration in the situation. It is perhaps not without significance that most of this period of poor performance was a period of Labour Government, with high taxation, high public expenditure and a high level of public borrowing. It is true that in 1977, following the rescue of the IMF, the Labour Government tried hard to put the economy back on a sound economic basis, but this did not last. By May 1979, prices were accelerating rapidly; inflation measured on a six-month basis had already reached 13 per cent., and the excessive wage settlements which were the legacy of the Labour Party's incomes policy were bound to drive it up much higher. The money supply was increasing at a rate of 13 per cent. per annum, well above the then Government's target range. Most ominously of all, public expenditure had soared with no increase in output to support it. This in turn was reflected in a big increase in the public sector borrowing requirement.
On the basis of the Labour Party's plans, the position this year would have been much worse still. Not only therefore were things bad in May 1979; they were getting worse. When a malady is as deep-seated as this, when a disease has

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spread so far, it cannot be cured in days, or weeks, or months. What one has to do is to start the cure—and that is what we have done—persist with the cure—and that is what we are doing—and ultimately achieve the cure—and that is what we shall do.
I need hardly repeat to your Lordships the evils that flow from inflation: the unfairness and inequality it creates in society; the damage it does to output, investment and employment; and the strife it creates not only in industry but in society as a whole. If therefore we place the battle against inflation in the very forefront of our policies, that is a priority and a judgment which most people today would not dispute. We believe that the absolute precondition of success in defeating inflation lies in a firm monetary and financial policy. Without it, all else fails. This is where there is the great divide between the two sides of the House—between the noble Lord, Lord Kaldor, and myself—and nowhere is this divide more clearly illustrated than in the speech of the noble Lord, Lord Kaldor, to which we have just listened.
The noble Lord has set out his thesis on monetary policy in three successive debates in your Lordships' House. I am going to start with the debate on 7th November. I was unfortunately unable to be present at that debate, and I apologise to the noble Lord in that respect, but as he has repeated his general thesis this afternoon it is necessary for me to reply to it. In his speech in November he compared the rate of growth in the money supply with the rate of inflation in four countries over the period 1973 to 1978 and concluded that there was no relationship between the growth of the money supply and the rate of inflation.
What he said was this, and I quote from col. 882 in Hansard of 7th November—
"Only a person who is totally ignorant of monetary statistics could believe that it was the excessive rate of growth in the money supply which was responsible for Britain's high rate of inflation".
In saying this—and these are very hard words that he used—the noble Lord overlooked a point of very great importance. It is not only necessary to know the statistics; even more important, it is necessary to know how to use them.
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In three important respects the noble Lord fell into serious error. First, he assumed that money supply changes affect prices immediately. That is not so. There is, on the contrary, general agreement that there is a considerable time lag between changes in the growth of money supply and changes in the rate of inflation. There is some dispute as to how long the time lag is, but the noble Lord's right honourable friend, Mr. Denis Healey, claimed that it was considerable. He suggested a period of the order of two years. So, too, has the noble Lord, Lord Bruce of Donington, who also claimed in your Lordships' House that it was considerable. And if these two authorities will not do, the noble Lord, Lord Wigg, who I regret to say has left his place, testified to the same effect. He, after all, is a great statistical expert in the particular field which is his speciality. While, therefore, I cannot offer noble Lords a Roland for an Oliver, at least I can offer them a Healey, a Bruce of Donington and a Wigg for their Kaldor.
The second major error in the noble Lord's thesis was that he ignored other factors relevant to changes in the money supply and changes in prices—for example, changes in output and productivity and changes in the velocity of circulation. These are matters of great importance when one tries to compare, as did the noble Lord, a high output country such as Germany with a low output country such as the United Kingdom. Thirdly, the noble Lord's selection of countries was narrow and unrepresentative of recent international experience. Therefore, we can safely dismiss the noble Lord's excursion into the field of statistics as having little or no relevance to the problems that we are now discussing.
So much for his November thesis. In the debate in your Lordships' House on 5th December the noble Lord unveiled a new interpretation of what he believed to be monetary theory. In this, he seems to have abandoned the closely reasoned if somewhat inaccurate thesis he had commended to your Lordships in November—whether this was because he had by then realised that his earlier thesis would not stand up to detailed or critical analysis or whether, like Old Bill, he felt that he had found a "better'ole". In the December debate what he said was this:

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"The Government or the Central Bank cannot prevent the money supply from going up, whatever they do, if costs and prices are rising".—[Hansard, 5/12/79, col. 789.]
This simply is not true. Both in this country and in the United States, Governments and Central Banks have prevented the money supply from going up by anything like the extent it would have done had these measures not been taken. Nobody who believes in monetary control has ever pretended that if, for example, costs and prices are rising at 15 or 20 per cent. per annum, the growth in the money supply can be cut to nil overnight. It takes time. But there is a world of difference between accepting that a cure takes time and arguing that the cure cannot be achieved at all.
Nor would we claim that the present measures of control are entirely satisfactory. That is why we propose, as my right honourable friend the Chancellor of the Exchequer has already indicated, to issue a consultative document on possible new methods of controlling the money supply. These might make it possible to shorten the period required in order to bring money supply growth to its desired rate. But whatever the control techniques, the right fiscal and interest rate policies will sooner or later bring down the rate of monetary growth, and hence inflation with it. Nobody believes, and certainly we do not believe, that we have found in monetary theory the philosopher's stone which will turn all to gold. What we do say is that control of the money supply provides the best means, and the most reliable means so far discovered, of combating inflation in a free society.
It is the only means we know which reconciles individual choice and individual freedom with stability in prices. It is the only means that both gives people the freedom to take decisions, the freedom to determine their own course of conduct, the freedom to live and to order their own lives, and at the same time imposes on them the responsibility for the decisions they take and for the course of conduct they follow. It provides, in short, both a discipline and a framework within which people both live and act.
If people insist on acting irresponsibly, they will harm themselves. If employers concede excessive wage settlements, they
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do so at the expense of their own profits and at the risk of insolvency. If workers demand and secure excessive wage settlements, they do so at the expense of their own jobs and other people's jobs. The wages of irresponsibility are low profits, insolvency and unemployment. None of this means that we want people to behave irresponsibly. Still less does it mean that we want companies to become insolvent or workers to become unemployed. The more that can be done to educate people to the facts of economic life, the better. In this I am entirely at one with the noble Lord, Lord Rochester. The more we can encourage people not to damage themselves, not to damage their companies, not to damage their fellow workers, so much the better.
In the end the facts are simple and inescapable. The only source of more money which will actually buy more goods and services is higher output, and higher output will only come from increased productivity. If there is no increase in productivity and no growth in output, there is no increase to share out. No amount of collective bargaining can alter this: the brutal truth cannot be negotiated away. Every group of workers who force up their own pay are robbing other workers: every strike, every industrial disruption reduces national output and makes the strikers themselves, their families and the nation as a whole poorer as a result.
I now turn to the remarks of the noble Lord, Lord Rochester. I was greatly intrigued by the way that he re-christened what is now a somewhat elderly infant incomes policy as "pay determination", but whether it really makes any change in the infant itself is much open to question. We entirely understand, of course, the motives which actuate people who advocate incomes policies. Indeed, such policies have a very long and honourable history. The first attempt, of course, was made by Sir Stafford Cripps and had been foreshadowed earlier than that by the 1944 White Paper on full employment policy, which was largely the handiwork of Lord Keynes. I may say that I worked with both of those gentlemen.
Since those dates there have been innumerable attempts to impose incomes policies. Some of them have been very vague, some of them have been exhortation

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by Government, some have been exhortation by trade unions, some have been exhortation by Governments and trade unions, some have been exhortation by Governments against trade unions and some have been statutory policies; but there is a single factor common to all of them, and that is that they have all failed. We believe that this is a path which one ought no longer to be going down.
The noble Lord also referred to what in discussion last summer was described as a national economic forum. Of course we are anxious to encourage discussion in this important area, but we seriously doubt whether there is room for the creation of an additional body. After all, we already have the National Economic Development Council and perhaps on a personal note I may say that I was a founder member of that body in 1962. That already provides a forum in which matters of this kind can be discussed as between the employers, the unions and the Government and there was such a discussion last November, which was greatly encouraged by the Government and which I think the parties participating found particularly useful. We would of course always welcome further discussions of this nature but I must make the point that the other partners in NEDC, with the experience of years of pay policy behind them, are understandably suspicious of the usefulness of such discussions, and therefore this is clearly a field in which, if progress is to be made, it needs to be made slowly.
If we are asking our people to behave responsibly and to adopt the disciplines of economic reality, then the Government must do the same. It was very interesting, in listening to the noble Lord, Lord Kaldor, to hear him say two things. He referred first to the very considerable reductions in Government expenditure which were made in the early 1930s and he then went on to say that the following years were years of unparalleled prosperity, and therefore on the evidence of the noble Lord's own argument there might be some connection between the two. But we believe that, if we are asking other people to accept the discipline of economic reality, the Government must do the same. That is why we place such emphasis on the level of Government expenditure and the level of the public sector borrowing requirement which flows from it. If we try to spend too much we
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either have to increase taxes, with the effects on incentives and output with which we are so familiar, or the public sector borrowing requirement rises. If that happens then the Government have to borrow more and interest rates in turn rise; a rise in interest rate imposes hardship on businesses and individuals alike.
What happens in those circumstances is quite simple. In order to make way for excessive Government expenditure both individuals and businesses have to be squeezed and the instrument which squeezes them is the rate of interest. There is only one way out of such a situation and that is to keep the borrowing requirement down and to reduce Government expenditure in order to enable this to be done. In brief, the Government, like the individual, have to cut their coat according to their cloth.
The argument has been advanced—indeed it was advanced by the noble Lord, Lord Kaldor, in November of last year; it was advanced again by the noble Lord, Lord Bruce of Donington, in the debate on the 28th January and I have no doubt he will advance it again later today—that public expenditure in this country is lower as a proportion of gross domestic product than it is in many other industrial countries. Of course it is. Nobody expects a poor man to maintain as high a standard of living as a rich man. The whole theory of progressive taxation, which I imagine both noble Lords support, is that the rich pay more in proportion than the poor. So then let it be with public expenditure. When we can match the French, the Germans, the Dutch, the Swedes and the Americans and half a dozen other countries in terms of gross national product per head, then and only then will it be relevant to claim that their level of public expenditure sets a standard by reference to which we should be judged. Until then our task is to put our economy right, and one vital thing this requires is to limit the expenditure to a level that we can afford without damage to our economy.
Lord KALDOR: My Lords, if the noble Lord will allow me to make a small correction, what I said in the first debate on 7th November was that public expenditure in the United Kingdom is lower than

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the average of other countries after making correction for differences in their real income per head and GNP in different countries. That is to say, in technical language, we are below the regression line which connects public expenditure as a ratio of GNP and GNP per head.
Lord COCKFIELD: My Lords, I am entirely familiar with precisely what the noble Lord said on that occasion. I am grateful to him for repeating it. He made two statements. The first was exactly the one that I repeated: I read it word for word. It remains precisely true, as I have said, that we are well down in the league of gross national product per head, and on this basis it is quite wrong and unreasonable to expect this country to be able to afford anything like the same level of public expenditure that other much wealthier countries can sustain.
Lord KALDOR: My Lords, I was in agreement with that.
Lord COCKFIELD: My Lords, I am grateful to the noble Lord: we have at any rate found some measure of common agreement.
So far I have been talking of the measures which need to be taken to rid the body politic of the malaise from which it is suffering. But this can only be one side of the story. Cure must be followed by convalescence, convalescence by recovery. Our hope for the future lies in freeing the energies and imagination of the British people. There is no lack of imagination in this country. We can still create new industries to replace the old. What we need are the conditions which will enable us to do so, and the rewards which will spur initiative and enterprise. This is the path along which the Government are now proceeding.
We have made substantial reductions in direct taxation, particularly at the higher entrepreneurial end of the scale, which are designed to spur initiative and enterprise in this way and to encourage the creation of new businesses. Quite apart from our tax policy, the abolition of wage control, price control, exchange control and dividend control have all been directed to freeing the economy from the constraints under which it has suffered and the distortions
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that have been imposed upon it. One can give a long list of other measures taken or planned by the Government and directed to the same end. Thus, companies which in the past have been taken over into the public sector we are returning to the private sector where we reasonably can, or we are increasing private participation in them. We have abolished office development permits and relaxed the operation of industrial development certificates. The efficiency of the planning system is being improved. We are cutting back on red tape and unnecessary form filling, especially as it bears on small firms. We are taking steps to improve the working of the labour market and to curb abuses of monopoly power on the shop floor. The noble Lord, Lord Rochester, has referred with approval to the measures we are taking in this field.
No one could possibly underestimate the magnitude of the problems the British economy faces. These problems are particularly intractable because they are so deepseated. From this point of view it makes no great difference whether the malaise of the British economy dates from 1850, as the noble Lord, Lord Kaldor, has recently claimed, or from some other and more recent date. Any policy to deal with a malaise as deepseated as this must have two aspects. There is the immediate rescue first, and then, secondly, the reconstruction for the future.
The first part of the task, the rescue, is the most difficult, particularly as it involves asking people to accept uncomfortable or even disagreeable things—asking people to change long-established and familiar attitudes and practices, asking them to live within their means and to recognise that if they want to have more they must earn more. But unless we make a success of this part of the task we can have no hope of achieving the second part. This is why, despite the immense difficulties of the present, we will persist in our efforts to overcome the evils of the past, inflation, excessive Government expenditure, excessive taxation and excessive Government intervention. It is in this way, and in this way only, that we can lay a firm foundation for the future.
4.37 p.m.
Lord LEATHERLAND: My Lords, the noble Lord, Lord Cockfield, gave us a

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list of various public bodies and said that they had all failed. I am surprised he did not add the last Tory Government to his list. I agree with much of the learned, historical review given by my noble friend Lord Kaldor, but I am not always with him when he starts to look to the future. He did say, for example, that Britain faces bankruptcy. I do not believe it, and if I did I would not say it in public. Then he talks about zero target or negative target. I hope we shall not go too far in that direction. It would lead to massive unemployment and probably bring the workers of this country to the verge of revolt.
There is one important word that does not find a place in my noble friend's Motion. That word is "exports". It is the key to the future of the British economy. I am glad he found time to mention it briefly in his speech. There was another great man who said, "We must export or die". He was right. We are proud today to have the pound sterling standing high in the estimation of the world. But this can be a mixed blessing. It is a boon when we remember that we have to pay for 50 per cent. of our food from abroad, but it puts up the price of our exports to customers and requires them to find extra francs or extra marks for every £1 worth of our exports they buy. Although our exports are fairly healthy they are sometimes hundreds of millions of pounds a month less than our imports.
Last year our visible trade was over £3,000 million in the red. Once upon a time this kind of deficit did not matter very much: our invisible earnings from financial operations bridged the gap. But last year our invisible earnings fell short of doing this. They were only about £815 million. That left our combined visible and invisible earnings with a debit balance of over £2,400 million. That £815 million from invisible earnings was a big drop from the £2,200 million of the previous year. There were three reasons for that. The first was the increased earnings by foreign oil companies. The second was higher travel expenditure overseas—and please do not think that I am criticising people who go abroad for their holidays—but the fact remains that it takes our money. The third was the increased payments that we have to make to the Common Market organisation.
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To offset those burdens which we cannot very well evade we need to make a big effort to increase our visible exports, the products of all our factories. That should be possible because many of those factories are not working full-time and some are closed for weeks at a time. In addition to increasing our exports we must try to reduce our imports. Our shops and garages are filled with products that have obviously come from abroad. Many of those products can be made just as well in our own factories. So, if we were to buy British we should do ourselves and the country a very good turn. Was it really necessary, for example, to pay other countries over £4,000 million a month last year for their products which we imported? I agree that a good deal of that was for food and materials, but much of it consisted of manufactured articles.
As regards increasing our exports, I do not think that all of our manufacturers are as enterprising as they could be. Some are content with the easy market at home and some, undoubtedly, are models to the world: I am thinking of the General Electric Company and ICI. However, many others do not seem to care. One of the heartrending occurrences in recent history is our loss of the motorcycle industry, in which we were one of the world's leaders. Is the car industry to go the same way?
Naturally, I should like to see British workers earning better wages, but that needs to be linked with better productivity, as has already been suggested this afternoon. I should like to see the Government doing more to encourage agreements that link pay and productivity. It is no use Ministers standing back and merely gazing at industry: they must help managers and workers to increase their efficiency.
Is there anything more that can be done through taxation or State investment to stimulate reorganisation of plant in our factories? I know that something is being done, but is it enough? I think that we want more of the spirit of the GEC and ICI spreading through our industry today. I remember going round a textile mill in a northern town a year or two ago. The manager proudly pointed to a machine and said, "My grandfather used to operate this machine". I am afraid that that is too common a situation that one finds in British factories today.

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It is no use saying that we are in the midst of a world slump and contenting ourselves with doing nothing while that slump lasts. That slump will end some day and revival will come. Why are many industrial shares in the Stock Market rising? They say that the Stock Market usually looks six months ahead. Is it looking forward to a revival in the autumn? I think that there are many signs that such a revival will be with us before Christmas this year. In the meantime, industry needs to examine itself and to see what improvements in efficiency it can bring about. That, in itself, would bring some employment. Waiting until the revival comes means that the Germans and the Japanese will be ahead of us.
The Motion before us talks about this country's defence. I do not want to argue about whether we should make guns or butter—a weightier man than I am said that some time ago. However, defence these days needs to depend as much on machines as it does on men. So, if the Army, Navy and Air Force need more new machines let the engineering industry find employment in making them. If I am accused of arguing in favour of rearmament, I say that we cannot allow ourselves to fall behind other countries.
Therefore, I think that four things are needed. First, more Government inducement to industry to modernise its plant. Secondly, imaginative productivity pay agreements to increase both earnings and productivity. Thirdly, a Government-backed crusade among managers to increase exports. Fourthly, a reduction of the 17 per cent. minimum lending rate which is such a heavy burden on industry today.
4.46 p.m.
Lord HANKEY: My Lords, speaking strictly from these Benches, I wish to support entirely what the Government are doing to carry out a long-term reduction of public expenditure and of the public sector borrowing requirement. It is an extremely difficult job to correct an inflation as persistent and long-standing as we have suffered. The Swedes, for instance, have had the utmost difficulty in making any very great change, since the change of government in 1975. I think that it will probably take five years to get this country back on to a proper
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course, and five more years to take advantage of the greatly increased production which will then result, to enable our people to be on equal terms with all their neighbours in the OECD.
At the conference of 1878 the British representatives were Lord Salisbury and Disraeli. Bismarck said of the British delegation:
"The old gentleman is made of lath and plaster, but the Jew means business".
I hope that the Government will mean business and will continue to mean business and press their policy through to an effective conclusion; otherwise we shall indeed be in trouble. Further, I believe that all the main parties really have a common interest in seeing this country and our work people restored to a proper standard of prosperity such as they thoroughly deserve.
I wish to urge very seriously that a correct monetary policy, such as this Government are following and which I entirely support, while essential to rectify the serious inflationary condition that we have, is definitely not enough, by itself, to get our industrial recovery back on to a progressive and profitable path. The present internal obstacles to any real industrial recovery, quite apart from any external or exogenous factors, are far too great to be solved by monetary policy alone or even by market forces.
One of the first, and I believe most essential, factors needing immediate reform is our very harmful legislation on industrial relations. It is, of course, true that we cannot by just passing laws, make good industrial relations. We cannot legislate people into happy marriages either. But, on the marriage analogy, if the law said that married people could do anything with anybody with total impunity, there would really be chaos and very few happy marriages. Yet, that is what we now have in our industrial relations legislation. The 1974 Act and its amending Acts were drafted for a Government under very left-wing influence. In this House we said that it was a "bully boys' charter" and that it would facilitate the intimidation of the vast numbers of sensible workers who did not want their working week, or their pay packets, to be disrupted. Noble Lords will recollect that the 1974 Bill was passed over the dead body of this House by the use of the

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Parliament Act. Of course, inflation has made everything much worse. Our workers are very reasonably worried and there are innumerable excuses for those who want to cause disruption to make trouble, and that with the aid of the law.
The present state of affairs, which the noble and learned Lord, Lord Denning, tried and failed to correct, is an immense and unreasonable burden on our production, and it can be corrected only by further effective and much more sensible and acceptable legislation. I do hope that it will come forward soon. I am on the side of those who want to see very early and effective action. I believe that the mass of our countrymen are deeply shocked at the delay and do not understand it. There is no chance—I repeat, no chance—of our industrial recovery while we promote chaos with laws such as those we have. I know from long experience overseas that the world will not wait indefinitely for our goods, and industrial disruption not only spoils timekeeping but also undermines quality, good workmanship and efficient management. For some reason it seems to be worst in our export industries.
I miss another essential feature also in present Government proposals, so far as they are known. Surely we should not dish out public money when employees go on strike in breach of their agreements. I am all for good and humane social security payments, but surely we should organise the system so that it does not promote industrial indiscipline and disorder, but instead encourages the observance of collectively concluded agreements. We cannot base an orderly society on collective swindles, which is what we now have.
Like everybody in this House, I am very much concerned about steel. I hope that we shall have spare capacity after the present plant reductions have been carried out—many of them looked all too inevitable. We are obviously moving into a period of growing international tension. I am sure that we have to foresee large demands on our steel industry for rearmament, unless a really miraculous change in the international situation occurs. Clearly, we must have more ships for escort purposes and to protect the long sea routes along which our oil and other vital resources and exports
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come and go. The sea routes are now very exposed. We should have lost both world wars if we had lost sight of this. I am suggesting that there would be very good reasons now for laying on more orders for naval ships, military equipment and aircraft and all that goes with them. I am quite aware that this runs contrary to the policy of reducing public expenditure, but I shall explain why I think it would be worthwhile.
It would greatly assist steel, shipbuildings, vehicles, machine tools, electronics, et cetera. It would raise the morale of those very depressed industries and encourage skilled production teams, which are now in danger of leaving, not to go away. It would also help with unemployment. By lowering unit costs of production it might even help those industries to export more once again. There is no need to feel morally bad about exporting arms. The Russians are arming themselves and their satellites on a vast scale. I do not want to see an arms race any more than does my noble friend Lord Brockway, but we must live in the world as we find it, and in this respect I believe that we could help some of our most disadvantaged industries.
My Lords, please bear in mind that with machine tools and other sophisticated equipment, especially defence equipment of all sorts, we cannot get orders abroad unless we are known to buy and use that equipment at home. This is a very important consideration if we are to keep up technologically and maintain our place in world markets. I know from experience that, when we go to sell these things abroad, foreigners ask, "Does your own Ministry buy it?"
That brings me to the foreign exchange rate of the pound. This is a vital constituent of any export or import price. The noble Lord, Lord Kaldor, gave us some most interesting facts about the economic history of the 1930s. I should like to add a quite significant fact from about 1925, when Mr. Churchill, then Chancellor of the Exchequer, appreciated the pound by about 10 per cent. in order to facilitate the payment of our war debt to America. The result, unfortunately, was to make our exports uncompetitive, with most unfavourable effects on our industry, on unemployment and on the national economy generally. I cannot make a

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scientific calculation, but I believe that the proper value of the pound now probaby ought to be about $1.80 or $1.90, if we take competitive prices as the basis of comparison. However, if that is anywhere near correct, the pound's present appreciation is of the order of 20 per cent., double the dangerous 10 per cent. which did us so much damage in 1925 and subsequent years.
This is an immense barrier for our exports to overcome and must greatly worsen our employment figures and our ability to hold our export markets. It also gives undue encouragement to imports. We see the effects in motor-car and vehicle imports and exports every time we open a newspaper, as well as in unemployment and plant reductions at home.
Of course, the present exchange rates are the result of many factors. The situation has changed a good deal since the 1930s, but probably the most important of these factors statistically nowadays are not trade factors, as they used to be, but capital movements aroused, among other things, by our high rates of interest and, of course, by political considerations. The Government are certainly right to use monetary policy and, if necessary, even high interest rates to correct the rampant inflation from which we have been suffering. But I suggest that we need a yet more sophisticated attitude to inflows of capital. I believe that we very much need the inflow of investment capital which will bring with it industrial and technical know-how for the expansion and modernisation of our industries. There have been very interesting developments with the United States, France, Germany and Japan in this connection.
But, at the risk of shocking many people, I suggest that we do not equally need short-term money, money for portfolio investment, or money rolling in to assist local or other authorities to go on spending beyond their means. I realise, of course, that the Government rely on a good deal of foreign money to go on selling gilts and meeting their public sector borrowing requirement, but I hope that that requirement will reduce in time.
These capital movements, unconnected with production, really contribute nothing to industrial production, and their effect
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in Britain is bound to be inflationary. I wonder whether the Government could not find some sophisticated ideas for controlling or influencing such capital flows in the regulations in force in Germany or Switzerland, or even in Sweden. To sum up this section of my speech, I am sure that we should try to avoid our exchange rate being hoisted to a level where our exports are seriously impaired by movements of capital from abroad which do little or nothing to improve or increase our production.
If a more sensible and productive exchange rate could be achieved and also less industrial disorder in our export industries, I think that there would then be real merit in anchoring the foreign exchange value of the pound to the European Monetary System, in which we already play a considerable part, short, however, of the exchange rate. It would be an immense advantage for our industries in estimating the cost of imports and exports and raw materials. Uncertainty about all this is the bane of a great many boardrooms and managements up and down the land.
I greatly hope these constructive suggestions may be carefully considered. I have tried to stick to only a few current problems on this occasion. But, if we do not get our economy and industry on to a much better line soon, I foresee that this country will eventually be short of both food and raw materials.
In all the fascinating and sophisticated literature on inflation, one basic principle must, I feel, be borne in mind. Inflation is fundamentally due to too much money chasing too few goods. If the measures which are taken to reduce the supply of money, cause or augment a recession and reduce the amount of goods produced, we may very well be little if any better off and we may be landed as well with higher unemployment, costly in human terms and also in money. It is therefore essential, I do urge, that the Government should attend very actively to industrial production and to the supply side of the economy, even allowing for their principles of non-intervention, which I fully understand and support.
In any serious attempt to combat inflation, hardship is unavoidable in my experience at OEEC and OECD, but

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especial care is needed to minimise it and to help industry and agriculture and production generally. I hope that these remarks will be regarded as constructive. We really must stop Britain sliding further down the slippery slope on which the whole of Europe is now precariously balanced. A real recession in the West is what the Soviet Government has waited for for the last 35 years.
5.2 p.m.
Lord RHODES: My Lords, if I had not seen an announcement in the paper at the weekend I would not have been taking part in this debate this afternoon. I saw this in my local paper, the Oldham Chronicle:
"Stone Platt to close Oldham plant: 850 will lose their jobs".
I started work in textiles when I was 12. Eventually I created my own firm which, through the years, kept up with the modest inflation after the war. We have this debate this afternoon under the shadow of strikes which seem to polarise attitudes that were common when I was a boy. Things do not seem to have improved much. It would be a great pity if this debate this afternoon finished up with no more a consensus of opinion than that we should start rearming again. Stone Platt used to attract criticisms from manufacturers because they sold their machines abroad for our competitors to use, so the manufacturers here suffered in consequence. Now even the machinery makers are folding up.
We have come a long way since my early days and the experience I had in the textile trade. During the time I was building up my business the whole world was in recession. Now we have a recession and inflation—a killing combination if ever there was one. I reckon that the 1970s were the worst decade for British industry that I have seen in my long life. It could well be that it was the worst for 200 years. I often think of a remark made to me by a leading Japanese trade unionist a few years ago in Tokyo. He said:
"You led us into the industrial revolution. Who knows, perhaps you will be able to lead us out of it".
What he meant was that we were the first in and that our accumulated experience would solve some of the problems of a modern industrial society.
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The 1970s started hopefully enough. We tried to tackle the traditional lame ducks like steel, shipbuilding, and textiles. We tackled them with vigour, and in many ways we have been God's own children; the Lord's annointed. First, the sea based empire was built with preference for trade, and when that went out we had the invisibles, the services, which for many a year put us in the black on our balance of payments. Now we have North Sea oil, to which I shall refer again in a minute. But the lame ducks are still with us: Rolls-Royce; British Leyland; Alfred Herbert; textiles, and shipbuilding with problems still unsolved. This is where I come to the comments made by the noble Lord, Lord Cockfield, this afternoon about the desirability of an education process proceeding because I want educating too, and I hope that my education will be improved by the answers I get to some of my questions. These questions are being asked of me, living among the people I have lived with for 84 years. They are puzzled. They do not understand what is happening. This needs to be said time and time again.
In a thousand pubs and clubs throughout this kingdom every day of the week these questions are being asked: What has happened to the income from North Sea oil? Which industry has been made more efficient and can stand on its own feet because of this? You remember the glib phrases that we were fed with, that our leaders used of old? North Sea oil would give us a breathing space. It would be the means of investing in new machinery. It would revive the whole basis of British industry. Has it done it? Of course it has not. Where did it go? It went, and still does, on financing the biggest buying bonanza in the history of this country.
At the same time we have the phenomenon of a strong pound not because of industrial efficiency but because of the so-called good fortune of North Sea Oil. It makes foreign goods coming in cheaper. It makes our exports dearer, and puts a lot of our people on the dole. It is a salutary fact that more than two-thirds of any increase in income in this country is spent on imported goods. We are not competitive enough even without the burden of North Sea oil.
There are bright spots, as has been said. Larger companies such as GEC,

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ICI, BP, are better off financially than they were in the 1960s, but in the last year the overall picture is that the increase in the volume of our imports of manufactured products has exceeded the increase in our exports by 600 per cent. According to the last Treasury forecast 1980 will see us with a deficit of £2 billion in the current balance of payments. This is an unsolved problem which is going to drag us by the scruff of the neck into the 1980s. What we all want to know is whether we are going to prevent this newfound so-called prosperity due to North Sea oil from causing more decline in British industry? It is about time that we knew, and about time that we all got round to helping to solve it.
We need an answer to a question I am often asked. Why do we not do like the Americans and have a dual oil pricing system and generate growth in those industries which rely on oil for their stock? Why not do that for a start? The carpet manufacturers of Axminister, Yorkshire, Glasgow, Paisley and all over the country have been asking that question, but they have never been given a proper answer. Alternatively, is the answer to our problem a dramatic increase in productivity? Do we believe in productivity any more? We have a split mind on the subject. We give grants for the purpose of installing new machinery and when we have those machines we do not work them to the best advantage. We pump money into a business to become efficient by these grants and at the other end we pump money in to make them less efficient by SET.
In this country we have some of the finest plants in the world, which are grossly overmanned. I remember Harry Douglas, who used to sit on these Benches, saying 15 years ago that there were 25,000 men too many in the steel industry. This does not mean that I am advocating a callous and ruthless policy towards redundancy. Not a bit of it; indeed, if I were a young man today I would be prepared to go to the barricades rather than be taken over by a silicon chip. We are absolutely bound to find the solution to this problem on a national scale, and everybody must be in it.
There are three courses open to us. One course is that now being taken by
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the Government. The present Government see the solution through an attack on inflation and encouragement towards risk taking on the part of industry. They have reduced income tax, which is an obsession with them. What they do not have is an obsession to get people to work better together. Certainly they have reduced income tax, just as they have cut public expenditure, and they have begun to sell off State-owned industry to the private sector. Undiluted free enterprise is all very well if you occupy the unique position of undisputed workshop of the world, but we do not. British industry is like a sick man and you do not toughen up a sick man by sending him off on an assault course. If you do you kill him off, and it is the same with British industry, especially when British industry has to face up to the formidable competition from Japan, Germany, the United States and France. In any event, all those countries give massive support to their industries. Unfortunately, we in this country stagger from one intervention to non-intervention, arguing about ownership when the important thing is performance. Some of the argument this afternoon has been on that plane.
On the other hand, the interventionists say the Government cannot stand by while industry is rapidly declining and imports are flooding into the country. British industrial decline has been with us a long time, as we heard from the noble Lord, Lord Kaldor, earlier. It persisted when there was little or no inflation and when personal taxation was low. The entrepreneurs were not inspired then, apart from a few like myself. Are they likely to be inspired now when competition is going to be more intense from electronics and silicon chips? "All right", say the interventionalists, "channel funds from North Sea oil into new investment", and they point to the success stories of both Labour and Conservative Governments in backing International Computers, the successful rescue of Ferranti, Fairey Aviation, and a dozen more, together with some failures as well of course.
The third point I wish to make is about import controls, and I do not believe we can avoid them. Indeed, we can be sure that we shall be forced to adopt import control within the lifetime of this Government if they last as long as two years—not the sort of control to featherbed

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the inefficient but to take the steam out of buying sprees the like of which we have never seen before. After making an extensive journey during the last few months which included China and America I cannot see how else we shall be able to generate enough momentum to reduce costs, boost profits and achieve investment to get us into a spiral of expansionist success again.
The danger is that the British disease is so ingrained that all that will happen is demands for more wages and rewards, instead of going all out to put industry back on its feet again. It is an unfortunate feature of our time that the politicians have little time to spare from the nitty-gritty to get down to the long-term considerations. But what we cannot get away from is the fact that if manufactured imports continue to increase at last year's speed, when they shot up by 16 per cent., 10 times faster than our exports increased, it will not be a question of "if", we have import controls, but "when".
The fact that the British do not buy British would not be so serious if we had means of paying for the imports other than North Sea oil, which will run out. It is unlikely to be the service industries because those industries furnish us with the revenue for invisibles, although we have noticed that as oil prices have increased so invisible earnings have declined. I ask the Government to explain why that has been the case. Is it because of the excessive profits to foreign companies that are being channelled out of the Revenue? If not, may I please be told the reason? It is unlikely to be the service industries that fill the gap and, in any event, it is reckoned that the United Kingdom's share of the world markets for services—banking, insurance, tourism and so on—would have to increase by 33 per cent. to make up for every 1 per cent. fall in the share of world trade in manufactured goods, and that is a tall order.
Neither would it be so serious if Britain's disappearing industries were confined to those we should not have been in anyway, or those best left to developing countries, but we are opting out of traditional products—typewriters, cash registers, sewing machines, cars, and durables of all kinds—which other countries are now regarding as growth industries. We had better be
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asking ourselves why this has happened, and it is a waste of time at this juncture to apportion blame. We are all involved in a complex situation which can be traced back over many years.
What stands out a mile is the need for individual identification with the success and future of the firms that men and women work in, and that goes for workers and management. We need a new sense of urgency and pride. When we in Saddleworth were carved out of Yorkshire in '74 we were going to be put into SELNEC, South-east Lancashire/Northeast Cheshire. We had a public meeting to protest, and because I was on the scene I was put in the chair. The young people put down a motion that the best interests of Saddleworth would be served by going into SELNEC. They did it on purpose; it was a provocative motion; and of course it was defeated. After the meeting, going down the steps of the mechanics that we now call the Civic Hall, I saw Joe Cartwright, who used to work for me. I asked, "How did you vote, Joe?" He said, "Agin". He said, "I wouldn't have minded if we had been going in with Oldham, or Manchester, or even with Lancashire. But I'll be damned if I want to go in with a set of initials." He put his finger on something that this country is wanting—and that is to be identified with loyalty, with people able to do their best, in circumstances which will increase not only production, but also morale.
We have great potential, but we waste too much time talking in terms of "them" or "us." It is a great pity that we do not seem to have the ability to weld our people together. It is a pity that we do not have a consensus of political opinion; and I feel that until we do we shall never make much progress in this country.
5.22 p.m.
Viscount AMORY: My Lords, it is a great pleasure to find myself following my old friend and that great Greater Mancunian the noble Lord, Lord Rhodes. We each sit on opposite sides of the House and, it seems, about as far from one another as it is possible to get. I imagine that that is because of the obvious danger of allowing two such powerful forces to operate in close proximity. We simply cannot imagine my old friend ever being taken over by a silicon chip, as he envisaged just now.

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Garrulity is the besetting sin of old age, and the one sound rule for an octogenarian is, Keep out of the way; and ever since I became an octogenarian I have imposed strict discipline upon myself to address your Lordships seldom, and when I do, briefly. So I hope that your Lordships will accept this short intervention with a kindly resignation as a step in the process of phasing out a member of the ancientry, of increasing wisdom, but declining powers.
The noble Lord, Lord Kaldor, has introduced a subject of wide scope and great importance. The noble Lord knows that I agree with him when he postulates the premise that some of our industrial weaknesses have been of long historical standing. The noble Lord throughout his distinguished career has displayed great skill in analysis and selective criticism of past events. My noble friend Lord Cockfield, in his excellent speech this afternoon, has also given us most relevant reminders of our national fortunes under recent Labour Governments.
When it comes to remedies for the future, I find the noble Lord, Lord Kaldor, less positive and less lucid. I seem to remember that in the years when the Treasury had the advantage of his advice, that excellent Department and its Ministers were not invariably successful in their efforts. There is, I believe, a nautical saying about gales:
"Quick come, soon past,
Slow come, long last".
That, I fear, is true of many of our national economic problems.
I should like to put on record a few, perhaps trite, comments on our current problems. First, I shall refer to inflation. So long as money incomes continue to increase faster than productivity and nonproductive expenditure to expand, this evil will continue to plague us. So long as our rate of inflation is higher than that of our international competitors, we shall persist in our poor performance. The cures are strict control of non-productive expenditure and a measure of national self-discipline—particularly the latter. I hope that we shall resist the temptation to accept as inevitable an inflation rate anything like as high as the current rate. It is not inevitable. So, as the noble
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Lord, Lord Rochester, reminded us, inflation must remain the first enemy at the present time.
The prospects for higher employment are not at present encouraging in the short term. Big companies are seeking, and are likely to continue to seek further reductions in manpower as technology grows. The best hopes appear to be in improving the prospects of smaller enterprises. There are, I believe, over 800,000 small businesses in the country. If each could feel confident enough to employ one more employee, that might almost halve the present total of unemployment. I believe that some revision of the quite heavy obligations of the Employment Protection Acts which were not envisaged at the time would be likely to help.
Having said that, I fear that our low relative productivity is likely to continue to be the most pressing and the most intractable of our problems. Here the recent reduction in direct taxation of earnings must be a step in the right direction, judging again from the experience of other countries who have been more successful than we have. The present level of imports of manufactured goods is, I agree, a standing criticism of our failure, for one reason or another, in ingenuity, adaptation, and innovation. That is sad, when one remembers that in the early part of the last century Britain was pre-eminent in those qualities.
Of all our great traditional industries, none, I fear, is in a more precarious state than the textile industry. Like the noble Lord, Lord Rhodes, I am an old textile man. The trouble here is imports from the Far East and, curiously, recently imports from the United States, due to the low cost in the United States of oil, which is the main raw material of synthetic fibres. Some branches of the industry, such as garment manufacture—and the big majority of garments are now imported—are still relatively labour intensive. The redundancies and prospective redundancies in garment manuafcture, and to a substantial extent, in fabric manufacture, too, are, tragically, leading to yawning gaps in employment in our traditional industrial structure. It would seem to me that the best hopes of some mitigation of the current dangers of very heavy textile unemployment, which has become a really urgent matter, may

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be in some EEC combined action, as the main problems are fairly common to the nations of Western Europe.
The currently strong level of sterling has obviously a discouraging influence on exports and an encouraging influence on imports. The present strength is presumably due partly to North Sea oil and partly to our higher interest rates for short-term money, which in our present situation is of very dubious benefit to us. What a pity, my Lords, that some form of differential rates cannot be contrived. I agree with much that the noble Lord, Lord Hankey, said under that heading. Public expenditure and public borrowing are both dangerously high as a proportion of our gross national product, as the last Government, rather late in the day, recognised. Cutting either or both is, as always, extremely difficult when people have become accustomed to the expenditure involved, and usually takes much longer than is estimated. The essentials of the problem, easy to state but difficult to effect, are the selection of the right priorities, the aim being to safeguard the most essential services and to concentrate the necessary economies on the more marginal, the more peripheral and, I think, the less essential expenditure—a sector of public expenditure which has grown enormously over recent years.
Lastly, few things make me so sad as the current state of industrial relations in certain of our larger industries. Twenty or thirty years ago I thought we had as good industrial relations as any country in the world. What has gone wrong? I believe, not basically any intrinsic bitterness: in part, apathy, yes; and in part a constitutional inability to understand the suicidal effect of pursuing old, outworn, traditional habits and attitudes. The right to strike, my Lords, is surely an ultimate right, a weapon of last resort, a safety valve. It has become too often, I think, not that but a threat to be used in any negotiation; a step in the normal process, as it were, of wage negotiation when it is felt that it would be feeble not to use that weapon. Our successors, looking back on our performance, will, I believe, be amazed that for so long we continued to use this lethal, self-destructive and obsolete weapon, apparently unconscious of its suicidal effects.
Lord HALE: My Lords, I am most grateful to the noble Viscount for giving
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way: I very rarely interrupt. He has referred to textiles, and the noble Lord, Lord Rhodes, quoted the words that I read in the Oldham Chronicle this week about the reduction in employment and the laying off of a substantial number of workers at Stone Platt, at Oldham. The noble Viscount will be familiar with the recent erection and opening of Carrington Viyella, which is perhaps the showpiece of the modern world in textile manufacture—a really automated factory which, according to particulars I read, was to be built by Stone Platt. So we get now a process of manufacture which enables one to dispense with three-quarters of the employees or more, and at the same time we find the textile machinery manufacturers who are engaged on that job—
Several noble Lords: Order, order!
Lord TREFGARNE: My Lords, I do not think the noble Lord has his name down on the Order Paper. Perhaps he would like to wait for my noble friend to finish his speech.
Viscount AMORY: My Lords, I think I know exactly what the noble Lord means, and it is a tragedy that several highly automated plants, which were installed in this country some years ago, are most unfortunately now running into sad trouble. That is one of the dangers, I think—the sad developments of today. Referring to our traditional habits and attitudes, which I mentioned, it is I think a little like the practice of bleeding, which for centuries the medical profession relied on with a blind faith in its efficacy. As regards the law, there can be no doubt in the mind of any fair-minded observer, I think, that the immunities properly given to trade unions by law 70 years ago, or much longer in some cases, are wholly out of date today. The trade unions unquestionably need reforms if they are to maintain the respect and support of the public. Unfortunately, over recent decades they have refused, or been unable, to reform themselves; so the law must step in and relate their immunities to justice to the community today. The form of legislation will require the most careful consideration. I wholly support the views of the present Secretary of State for Employment on that matter.
My own strong belief is that we are never going to get wage negotiations on to

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a fair and satisfactory basis until the principle of freely-accepted and binding arbitration in the real sense is once more restored to repute and acceptance—the principle that when two parties cannot agree they agree in advance to accept the decision of a third party independent of them both. That is not easy, my Lords, but in the long run it is absolutely essential. The ancient Greeks understood that principle and practised it. Such a principle requires for its implementation, not the occasional services of a high-powered judge withdrawn from other work but the day-to-day use of a body of arbitrators, trained like a kind of stipendiary magistrate, to adjudicate on matters in which two opposing views are held by ordinary people whose respective interests are involved.
The attitude which must be anathema, I am sure your Lordships will all agree, in any civilised society is the view which, today, one occasionally hears uttered by otherwise apparently sane people. I will quote:
"If we do not get our way we will destroy the industry on which our livelihoods depend and create a shambles".
Such an attitude is the outlook of anarchy and of the madhouse. I hope I live long enough to see this time-honoured principle of real arbitration, which has gone by the board today, brought once again into general use. It is, I believe, the only alternative to the pressing of sectional interests to the point of suicidal damage to the community at large. Changes in the law will not be enough, or effective, by themselves. We urgently need the reflection of new attitudes in more effective consultation through the National Economic Development Council or some other means, and greater participation in decision-making throughout industry by management and employees. Everything which affects the interests of employees is a fit subject for some form of consultation and co-operation.
The present Government believe that the less Government intervenes in the thousands of detailed decisions that must be taken, the better the system is likely to work. The present Government also believe that the current proportion of gross national product absorbed in other than wealth creation must be curtailed.
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While Government intervention in macroeconomic affairs is inevitable in modern conditions, I believe that the Government's aims on both these issues are right and to be commended. The immediate outlook is sombre and cloudy, but the rewards in the future for right and courageous, and unselfish action now will be great indeed.
5.40 p.m.
Lord BOWDEN: My Lords, I wonder if I may change the theme of our discourse for a moment and discuss not so much the problem of curing inflation as the problem of surviving it until we can cure it. I should like to begin, if I may, by commenting briefly on the ambition which was enunciated by the noble Lord, Lord Cockfield, of reducing public expenditure. I believe that great confusion is being caused by failing to distinguish between different types of public expenditure; in particular, I believe it has not been fully considered that there is a great difference between the gross cost of certain items of public expenditure and their net cost.
May I take a particular example of the problem that I have in mind About six months ago a hole about the size of a double-decker bus suddenly appeared in Oxford Road, Manchester. It was discovered that the roadway was held up by a remarkable and unique form of reinforced material. When the cobblestones had been covered with tarmac, the tramlines had been left in; and this combination of tarmac, tramlines and cobblestones showed a remarkable ability to resist the pressures of vehicles. The hole was at the very spot where the band had marked time on Armistice Sunday and the possibility that the whole band might have disappeared down the hole has troubled the lord mayor ever since. I tell your Lordships this because this is the result of neglect over a period of a great many years of the sewers and the water supplies of that great city.
It has often been said that there are never any votes in sewers; but there may be a calamity if a certain amount of work is not done. The net cost of the work of employing civil engineers who are now out of work, of employing machinery which is now rusting away, of using gravel in

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pits that are now deserted, would be very much less to the community than the gross cost of financing the work in the conventional manner—and there would be less risk of catastrophe on the main roads when we are driving over them.
I wonder if any noble Lord who had the advantage of a classical education, who was, as Samuel Johnson said, "A well flogged classic" in his youth, can remind me of the name of the famous Roman general who made a desert and called it Peace. This may be, perhaps, the achievement of this Government of ours if it curtails public expenditure too far, allowing essential services like sewers, roads, water supplies, not to mention hospitals and schools, to be neglected; when the net cost to the community is very much less than the gross cost of public expenditure that the Government are trying to reduce. I believe that the calculation of public expenditure has been over-simplified. The only item that we should have to buy which is not to be found in the ground around Manchester would be the oil to lubricate the machines we need. I plead with the Government that when they consider cutting public expenditure, they compute not the gross but the net cost.
The second point is this. The last time I addressed your Lordships' House was as long ago as last June, when I referred to the extraordinary way in which public accounting and the accounts of private companies deceive almost everybody concerned. This is due to the extraordinary way in which we persist in using historic costs instead of other types of costs in computing balance sheets. The Chancellor of the Exchequer in his last Budget speech said that this matter was of great importance and was being considered urgently. It has been considered urgently for the last 30 years. The Sandilands Committee reported years ago and various other reports have been made since; but there is complete silence from the Government.
For example, the profits of ICI (which is one of the most important and perhaps one of the most conservative of the organisations in this country) can be computed in two ways: the accountants can use the system imposed by the Treasury, the historic costs; or they can use a system recommended by Sir Francis
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Sandilands which allows more appropriately for the effects of inflation. This is what I mean by living with inflation until we can cure it. On one basis, ICI made 19½ per cent. profit and on the other basis 51½ per cent. This is not an inconsiderable difference. It seems to me that if a firm can publish two sets of accounts showing wildly discordant answers, it is not possible to have any fiscal policy of any kind at all.
On what basis can the Government impose taxes? The answer is that they impose taxes on the most profitable way from their point of view—on the 19½ per cent. They insist on taking its capital from the firm in the form of profits, and they insist that the firm should dispose of, in the form of dividends, further large sums of money which have had to come out of its capital. There is nowhere else from which the money can come. We have had a capital levy for many years—there is no other word for it—which is due entirely to the way in which the Government have insisted upon the maintenance of a system of accounting which everyone concedes distorts the truth and imposes a heavy burden upon industry.
I have spoken on this many times, and I was delighted to discover that the Governor of the Bank of England made a very important speech in which he drew attention to this same thing. He said that our system of accounting makes all firms declare unreal and artificially-inflated profits upon which they are taxed and upon which they distribute dividends, and upon which wage settlements are based. Any company which is thought to be making 20 per cent. is bound to be subjected to massive demands from its workforce for increased salaries, which it can well afford. But if you discover that the firm actually makes 5 per cent., then it cannot afford to give way to the large demands that the workmen expect. Last year the then Government imposed a 5 per cent. norm on wages and salaries and Fords were forced to pay 15 per cent. because, on the returns that Fords made, they had declared a large profit. The management tried to persuade the workmen that these profits were unreal; but the workmen said, "Why shouldn't we take them seriously? You do, the stockholders do. Your dividends are based on them and your tax is based on them. Why should we not accept them, too? "

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That was why Ford were forced to concede a 15 per cent. pay rise which broke the Government's 5 per cent. norm and led to the troubles of last winter. Once the private sector got 15 per cent., the public sector had to have it too and the dustmen went on strike. It is my belief that the great piles of rubbish in Leicester Square this time last year were got there primarily as a result of bad accounting which made it inevitable that people would have a grotesquely inflated idea of the available resources which industry could dispose of.
I remind the noble Lord, Lord Cockfield, of a very important observation that was made by the late John Maynard Keynes. He said that in times of inflation Governments confiscate secretly, arbitrarily and unobserved a great part of the wealth of their citizens: and they do so, furthermore, in a manner which not one man in 100 can understand or detect. This I believe to be the greatest single danger as a result which is imposed by inflation on the State. We could live with it ad interim by changing the accounting system. There is one extraordinary exception to this rule, and that is the Post Office. For several years the telecommunications division has declared a total profit of some £300 million or more—£380 million last year—to which people say should be added another £320 million which the Post Office, most fortunately for us all, is able to extract from profits, on the ground that it is necessary to maintain its capital.
This particular item got into the Budget by a curious and most remarkable way: in 1947, when the Post Office was still part of the Government organisation, the then Postmaster General was able to slip in an item of about £1 million for the maintenance of capital. As your Lordships know, accountants are extremely conservative men. Once an item appears on the balance sheet they never remove it. So this £1 million has grown and grown. It is now almost as big as the total declared profit of the Post Office. Sir William Barlow said, when I discussed it with him, "I do not know whether we are just uniquely fortunate, or if what we do should be held to be illegal, or whether everybody else ought to be allowed to do as we do. It is only as a result of this most curious historical fact that the Post
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Office is not obliged to do what the Post Office users would like it to do, to cut its charges dramatically until such time as it too becomes dependent on Treasury handouts, as everybody else is.
The remarkable thing is that the Post Office has been preserved by a most curious historical accident and has never been forced to forego the funds it has needed. But this same policy is not open to ordinary industrial firms whose accounts would be rejected were they to have an item corresponding to the Post Office's £300 million.
These are not trivial matters. It is not trivial to say that the Post Office cuts its profits in half by doing something sensible which is forbidden to the rest of industry. It is not sensible to say that ICI have to declare profits which are about four times as big as they earn and take the money out of their capital. I believe—and I have said this many times in this House—that one of the greatest obstacles to the survival of British industry has been bad accounting in the fundamental sense, not that the accounts are wrong but that they are compiled in the wrong way, and this is the way imposed by the Treasury.
Now I should like to turn to a completely different subject: Where have we an example of a country which, in spite of the current problems of the world, is doing very well? The remarkable thing is that we do not have to go halfway round the world to Japan to find it; we do not have to go across the Atlantic to America to find it. It is in Belgium. In the past 15 years the gross domestic product per man of Belgium has increased faster than that of any other country. Twenty years ago it was about the same as ours, now it is twice as big. Expressed in dollars—and I received these figures from the American Bureau of Statistics, so they are impartial —the average Belgian worker earns about twice as much as an Englishman. He works about six hours per week less than an average English workman and he has about eight days a year more in holidays than the average English workman.
Why has this come about? It is an extraordinary achievement and I think that when Mrs. Thatcher was told about it she asked the Prime Minister of Belgium "What went right?" I think it may have something to do with the way in which the

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managers of industry have been educated in Belgium. They seem to have learned more completely and more successfully than the managers of any other country; they make do with the resources they have because the capital invested per employee in Belgium is not high. It is lower than it is in this country. They have indexed their wages, which is something which our people will not do. They have all sorts of things going against them, like the Flemish/Walloon row, a perennial source of difficulty. They have nevertheless succeeded in improving the productivity of Belgian industry more dramatically than anyone else has done. Their national economy, their national wealth per head, is now better than that of the United States by a considerable amount and is almost as big as that of Germany, and it is growing faster than their's. How have they done it?
It is interesting to compare the amount spent in management education, for example, in the United States and England and several other countries with the corresponding growth in domestic product. It is a most extraordinary coincidence, to put it at nothing worse, that ever since the graduates of the Harvard Business School took over American business its growth rate has slowed down almost to zero. I would not for one moment presume to say that it is because of the effects of the Harvard Business School that this has happened, but I do point out that coincidences of this kind need some form of explanation. To look at the other side, the most successful economies in the world for many years have been those of Japan and Germany. Neither of them had any attempt at management education of the kind sponsored and made famous by the Harvard Business School.
At this moment the president of Harvard is trying to fill three important vacancies. He is trying to find a Dean of Law, a Dean of Medicine and a Dean of the Business School. He said in his last report that he understands quite clearly what sort of a man he needs to be a Dean of Medicine; what sort of man he needs to be a Dean of Law; but he said that he has not the slightest idea of what kind of a man he needs to be the Dean of the Business School because he cannot find out what the Business School is actually doing. I must not under any circumstances
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denigrate the work of the Harvard Business School whose graduates all do so well individually. I am concerned with their effect on the nations over which they now exercise such a control.
In Belgium there is, and has been for some years, a remarkably different type of management education. This was established about 20 years ago, and since I am speaking about it I must mention that it was done by a friend of mine who established a foundation which includes the five universities, the major industrial firms and the banks, the insurance companies, the shipping lines and half a dozen other such organisations. These people each nominated a single manager, a man actively engaged in doing things, deciding things, These men came together and it was so arranged that each of them went into another firm (perhaps of a quite different type) and for a year investigated a problem which worried it. Each man worked for four days a week in the other firm and then they came back and discussed together in groups of half a dozen what their joint problems were.
In the 20 years or so that this system has been going more than 1,000 people have gone through this routine. They have now come to dominate Belgian industry and they have had a major effect on its overall productivity; so much so that the Americans, who were startled, as we all have been, by the extraordinary success of the Belgian economy, have now asked that a group of Americans should collaborate with some of the groups from this foundation to try and study what it is that Belgium is doing so much better than America. Is it merely that they are smaller? They have no resources, their steel plants are gone, their coal has gone and Belgium is only a little country. They have every conceivable thing going against them and on classical economic grounds they should not succeed, but they have.
At this moment, there is a project to set up a joint Belgian—American study group, in which the Belgians and the Americans will try together to find out why it is that the Belgians have been so much more successful in increasing their gross domestic product than the Americans or ourselves have been. This is to be sponsored, I believe, by the University of Columbia, whose head of business studies

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is a director of the Federal Reserve Bank. So what I should like to suggest is this. If the Americans and the Belgians can join forces to find out why it is that Belgium is doing so much better than anybody else, why do we not get into the act? Why do we not nominate someone to join the group and find out what it is that they are doing, that we cannot do?
The great and fundamental difference between this form of study, and any form of study which I have encountered in this country, is that the work is done by men who are practising managers, seconded for a year to go out to do another job in another firm. They are not abstract economists, they are not theoretical mathematicians, but they are men upon whom, traditionally, has rested the heat and burden of the day. They find, when they go into each other's firms, that they can often be enormously helpful in the analysis of a problem which defeated a man who was living with it day to day, and who could not stand back and look at it.
A long time ago, I used to know a man named Kenneth Mees, who was the director of research for the Kodak Research Laboratory of Rochester, New York, in the days when that was the most famous and effective of all the research organisations in the world. He once told me the secret of success in running such an organisation. He said, "The only man who knows whether a piece of work is going well is the chap who is doing it. His immediate supervisor knows something about it, but not as much as the man on the bench. His group leader knows very little and the director of research of the organisation will get the decision wrong every time. In other words, the more remote the decision process becomes from the place where the work gets done, the less effective it is, the less understanding there is and the more likelihood that the ordinary people will reject the arguments with contempt".
I think we ought to learn what we can from our next door neighbours. It may turn out that they have nothing to teach us, but we do not know. But it seems to me that the opportunities for learning something are very great. I beg the Government to do something to make it
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possible for our country to participate in an international study to be made by Belgium and the United States, to find out, initially, why the Belgians are better than the United States and, secondly, perhaps, why they are better than we are.
6.3 p.m.
Lord BOOTHBY: My Lords, my only excuse for addressing your Lordships this afternoon is that for the last 20 years, and particularly for the last 10 of them, I have been right about gold, when every Central Bank, every treasury, and every economist, from Friedman to Galbraith—all experts without exception—have been wrong. I have now been proved right, and I just wanted to get up and point that out, so that it should at least be on the record.
I am sure that we are all very grateful to the noble Lord, Lord Kaldor, for initiating this debate, and also for the excellent and interesting speech which he made. I notice that he kept well clear of gold. But I say that the world recession, at the present time, and the uncontrollable inflation are not primarily due to a shortage of oil or to the oil price. They are due to the mishandling and misuse of gold, which began seriously at Bretton Woods a very long time ago. I said so at the time. The price of monetary gold was fixed at Bretton Woods at a ludicrously low level; in fact, the same price at which President Roosevelt fixed it long before the war broke out.
On top of that, as if that was not enough, they fixed exchanges in a world of chaos—war was still going on, and you cannot fix exchanges until you have some kind of stability in the world—with the result that ever since Bretton Woods we have had inadequate liquid reserves for the development of the free world. We were seen through for a bit by Marshall Aid, and after that we were seen through for a bit by deficit spending, with paper money which we had not earned. But it could not last, and neither Marshall Aid nor the paper money could see us through in the end; and now we are reaping the consequences.
This brings me for a moment to the man who has perhaps been the dominating figure in economics in this century—Keynes. Recently, there was a leading article in The Times, which suggested that

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he had no principles of any kind because he had no standards of any kind. I think this was really directed against King's College, Cambridge, rather than at Keynes himself. But, in fact, he did rebel instinctively against the gold standard and the disciplines which it imposed. But, on the credit side, there is no doubt that he showed to the world the way out of the deflation of the 1930s in a series of brilliant pamphlets and he will go down in history as having done that. The last time I saw him, I said to him "You have shown us the way out of the deflation of the 'thirties. Can you show us the way out of the inflation which is coming in the 'fifties?" He replied "Ah, that is more dangerous. I have seen it at close quarters"—he was referring to Germany after the First World War—"When the time comes, I will show you the way out of that". The time came all too soon, but by then he was dead.
His economic reputation will forever be besmirched by the fact that in 1945 he brought back from the United States a revolting mess of pottage, in the shape of the Bretton Woods Agreement, now in ashes, and the American loan which involved convertibility of sterling into gold within a month, and of course it was washed away in a month. I myself shall always, till the end of my life, be proud of the fact that I moved the rejection of both the Bretton Woods Agreement and the American Loan Agreement in another place, and got quite a lot of Members of all parties to support me.
What, my Lords, did the Americans do? They went on to demonetise gold altogether. Gold was not to be the basis of any currency. Why? It was because they thought it would benefit South Africa and the Soviet Union. That was the reason they gave at the time. I think the real reason was that they wanted to replace gold with the dollar. In any case, South Africa might have benefited; but if it had, I am sure that the progress which is now moving in the right direction, so far as race relations are concerned, would have moved quicker. As for the Soviet Union, I should not have minded in the least if it had increased their liquid reserves. It would not have been a direct threat to us in the military sense, and it would have enabled us to avoid giving mountains of grain and butter to the Soviet Union
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at throw-away prices denied to our own people.
As I have said, the Americans replaced gold with the dollar. There is a sharp difference between gold and the dollar. The whole world believes in gold, and has done for 2,000 years. Not a single soul believes in the dollar. Yet that is what we have now made the basis of credit. So, today, we have no measuring rod of value, which Keynes himself said was essential to the survival of any kind of capitalist system, and we have no viable international monetary system. As a result, as I said, there is a world recession and an uncontrolled, and apparently uncontrollable, inflation.
There is a lot of talk these days about what is called monetarism. I think it is all absolute nonsense. Her Majesty's Government are accused of being in the vice-like grip of monetarists, headed by Professor Friedman. Mr. Wedgwood Benn was at it again on television only last Sunday. The truth is that you cannot have monetarism or a monetary policy without money; and that is what we have not got. We have abolished money; and that is the main trouble which we are suffering from today.
What are the workers now demanding? The pound is no longer real money. It is steadily diminishing daily in value, but the workers are asking for more pounds. I must say that if I were running this country—and I often think what a pity it is for this country that I never did—I would be very tempted to say to the workers, "If that's what you want, take it—and take the consequences", because that is the position we are reaching now. It is better than closing down factories, right, left and centre.
What is the solution? The first Earl of Birkenhead once said:
"Economics is a dismal and it is also a purely empirical science, if indeed it can be called a science at all. Its professors grope more faithfully, but with less certainty, towards the light (or towards the dark) than the titular exponents of any other branch of human learning".
With all due deference to my noble friends Lord Kaldor and Lord Balogh, I had to quote that remark because I do so agree with it. It is, I think, largely true. The immediate answer was, somewhat to my surprise, given by the editor of The Times on 1st February. In a brilliant article on

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1st February Mr. Rees-Mogg said that we should now go back to gold—because at the present price we could go back, with no dire consequences—at a price which would give adequate liquid reserves in order to finance increased industrial production and trade, and at the same time bring inflation under some control and interest rates ultimately down. We could do it, and we should do it, at around the present price.
I am going on rather long, but I do not think I shall be speaking much to your Lordships again. When you pass 80 you have to be stopped either by God or by yourself; and I do not intend to go on indefinitely, with all respect to my noble friend Lord Amory. This brings me back to the Genoa Conference of 1922 which passed a number of currency resolutions. They were drafted by the late Sir Basil Blackett and the late Sir Ralph Hawtrey under the direction of Mr. Lloyd George. In the words of Sir Laming Worthington-Evans, who was there, they constituted a financial code worthy to rank with the legal code of Justinian. That is perhaps a little over the odds, but at the same time I think there is no doubt that they do represent a higher level of economic thinking than has been achieved since, even by Keynes. And they deserve re-reading. I bet the Treasury threw them into the wastepaper basket years and years ago, but if they have not got a copy of the Genoa resolutions I can tell them that Sir Ralph Hawtrey gave me the original typescript draft, corrected. I have it in a drawer, and I should be glad to have a copy made and send it to them.
Before I finish speaking about gold I should like to quote Daniel Webster—and he is worth quoting. He wrote:
"Of all the contrivances created for cheating the labouring classes of mankind, none has been more effective than that which deludes them with paper money".
That, my Lords, is precisely what successive British Governments, Labour and Conservative, have been doing for the last 10 years. They have been doing just that—deluding the working classes, by which I mean white coat workers as well as blue coat workers. They have been cheating them.
The other quotation, which is even
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shorter, comes from Voltaire, whom nobody can say was a stupid man. He said:
"Paper money eventually goes down to its intrinsic value—zero".
For the last 50 years I have been watching, from within Parliament, our governors, especially our financial governors. I had an uncle who was Governor of the Bank of England and a cousin who was a Deputy-Governor of the Bank of England. I knew them in the Treasury. I knew the leading economists. I cannot help feeling that the mess we are in today is to a large extent due to them. I think that on the whole a man called Niemeyer was the worst. Noble Lords will not remember him but he was at the Treasury before the war and unwittingly—not intentionally in any way—he certainly rendered Hitler far greater services during those years than Dr. Schacht.
On the question of gold, before I conclude I should like to say that I do not suppose there is anybody in this House who has a higher regard than have I both for the noble Lord, Lord Kaldor, and for the noble Lord, Lord Balogh. Apart from being extrememly nice, they do occasionally talk extremely good sense. But when it comes to the question of gold, if it is a choice between Blackett and Hawtrey on the one hand and Kaldor and Balogh on the other, my money is on the Union Jack! I think they were right. The noble Lord, Lord Balogh, and the noble Lord, Lord Kaldor, were not the only ones who were wrong. The rest of the economists have all been wrong ever since, and before I die perhaps I shall lead them back to the promised land!
I turn for my last few words—I have detained your Lordships for too long—to defence, which the noble Lord, Lord Kaldor, rightly put into his Motion. We have got to spend a lot of money in the near future on conventional forces. They will cost a lot of money. I will not bring in the question of National Service. I said yesterday that probably we ought to have it. But defence will cost us a lot of money.
When one thinks of defence nowadays, one thinks in terms of Russia. Very few noble Lords have penetrated the holy of holies, the Kremlin itself, in Moscow. I have, more than once—beginning in the 1920s with Radek, who was Lenin's right-hand man when he died, and who was at

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that time head of propaganda and head of intelligence. Although I could say a lot of things about the leaders of Russia in the Kremlin which would not be very favourable and which would not serve any useful purpose at this juncture, I can give this assurance to your Lordships: they are not stupid; they are extremely intelligent, and for the last 30 years we have grossly underrated their intelligence. In many ways their policy—assuming what their aims are, although I do not approve of all their aims—has been amazingly successful. Before the war I advocated an alliance with Russia against Germany. I used to lunch regularly with Maisky. I spoke often about it in another place. I was in close touch with Litvinov. If we had brought it off, it would undoubtedly have prevented the Second World War. As it was, Chamberlain's Government at least gave the impression that far from aligning themselves in any way with Russia they would very much like to see Russia destroyed by Germany. At least, that is the impression that Stalin got, and he altered course accordingly.
Hence, the Ribbontrop-Molotov pact and the Second World War. But look what happened after that. I remember talking in the dining room here with one of the most distinguished Members of this House in our time, the late Field Marshal Viscount Montgomery of Alamein, He was telling me how good Stalin was as a war leader, and how he himelf had directed the battle of Kursk. I said to him, "Was Kursk his greatest victory?" He said, "Oh no, Yalta was his greatest victory". At Yalta he ran rings round Churchill and Roosevelt and collected, quite quietly and without any fuss, half Europe; and we have never been able to dislodge him since.
Since then I am quite sure that I know what they are up to. We think that we can defeat what they are up to by the CIA, and MI5 and MI6—two of the most fatuous organisations which have ever been invented; little men in bowler hats, popping about in trains with forged passports and looking like Alec Guinness. That is not the answer to the Russians, my Lords, I can promise. They have had two objectives and they have achieved them both. Their first objective was to match, and therefore neutralise, the nuclear weapon with the United States.
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They have done it. They do not want to use it and I do not think they ever will use it, unless we use it on them. But the object was to match and therefore neutralise, and then to build up such an overwhelming superiority in conventional forces that they could collar as much of the world as seemed reasonably possible—and they have done pretty well in recent years. In Europe, in Asia, in Africa—they have practically the whole of that, except Kenya, Egypt and South Africa. They even have a bit of the West Indies, in Cuba. That is not bad going. Now they are pretty far into Asia, in Afghanistan. We must not underestimate their intelligence.
The only way to stop this is to increase our conventional forces. I am sure that if they think it is a pushover—and tonight they could easily reach the Rhine in 48 hours and the Channel in two days with their tanks, and with nothing to speak of up against them—they may be very tempted to do it. In fact, they have done it whenever they thought there was no serious risk attached. But if we had conventional forces which were credible, I do not think they would do it. On the other hand, if we rely solely on the nuclear deterrent for our own defence credibility, I think it is frightfully dangerous. So I think we should concentrate on conventional weapons and in order to get enough in time I think we ought to bring compulsory national service back, which would do no harm to our young people, or at least a register, as President Carter has. We are not even doing that. If we had now suddenly to expand our conventional forces to meet an emergency we simply could not do it; we have not got the means.
In conclusion, I should like to say that I think those free Western democracies which are left, if they want to survive, must get on with each other, which at present they do not. We have only to look at Strasbourg and Brussels and the arguments that go on between Washington and Paris. They do not get on with each other at all. I think they must go back to gold or face economic ruin. If they do go back to gold, get on with each other, and increase their conventional forces, we may still save the world from a third disaster.
6.25 p.m.
Lord BALOGH: My Lords, I think we ought to thank the noble Lord, Lord Kaldor, for initiating this debate. I do not think that the topic can be discussed enough because I believe there are a number of important questions to be resolved (if one can resolve them at all). This debate is timely. The chief guru of the faith which in my opinion has caused most of our difficulties is about to descend on England, with the help of the BBC, to mislead as great a part of the population as possible. Yet on second thoughts I find that some of the diagnosis and also of the therapy developed on this side of the Chamber has penetrated even the Cabinet. This is always noticeable outside by the number of leaks and the leaks have multiplied lately. They are professional; they are obviously not coming from No. 10, as sometimes was the case before, and they suggest that the earlier monolithic cause which has been presented with some jokes and some quotations out of context by the noble Lord, Lord Cockfield, is not having all the way.
Let us see what has happened in this country since the end of the war. The first four years were of unparalleled effort to get back to normal, and while most of the European countries and Japan may have been very much more successful afterwards, the immediate wartime powers of the Government enabled this country to steal a march until 1949. It was an unparalleled achievement, especially if one takes into account that because of the Lend-Lease agreement we had lost the whole of our export markets; and it is not true that there was a void abroad into which we could expand because the Americans, both South and North, had built up a very great productive potential during the war and afterwards and (until Marshall Aid) used it ruthlessly.
There was, of course, a snag, and that was inflation. It turned out to be a fatal snag. When the noble Lord, Lord Cockfield, referred to inflation he said that this is much the most terrible scourge. I wish he had also mentioned that there is a very dangerous choice here between unemployment and inflation. I do not think that one can be as quick and as positive in one's statistical statement as the noble Lord, Lord Cockfield; but there is no doubt that inflation is only
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really dangerous if it becomes super-inflation, that is to say when people anticipate further inflation; and it seems to me that unemployment beyond a certain point does as much or more to undermine the fabric of society. I am not saying that one should not pay much attention to inflation, but it would be desperately urgent to find a means by which we can escape both, because now we suffer and the increasing unemployment is altogether too freely disregarded.
The noble Lord, Lord Cockfield, after referring to the terrible problems which are created by inflation, said that incomes policy cannot heal and must break down. Incomes policy introduced as a measure of desperation in a crisis situation, when everybody expects that sooner or later it will be revoked, of course cannot succeed, or rather it succeeds while it is on but it is fatally wounded at the time when the freeze or mitigation of wage demands is over.
The initial political success of the Keynesians was due to the fact that they seemed to be able to achieve spectacular results, stability and growth, implying full employment, with relatively simple reforms. Its practical proposals amounted to an intelligent management of the Budget and of monetary policy. Fine tuning of overall demand was said to be sufficient to create a revolutionary situation. What the new Keynesians refused to do—and in this they were in line with the neoclassicals—was to consider the probable emergence of new problems from the conjunction of full employment with increasing concentration of economic power on both sides of industry. Oligopoly, the market power of a steadily decreasing number of giants, was substituted for the impersonal signals of the market forces emanating from myriad units in the market in the old model of the economic system. Together with bilateral monopoly relationships established in the labour market this was the strongest, if not the sole, impulse to cost inflation. This fed on itself. But the uneven incidence and timing hit the professions and the workforce. The combination of oligopoly in the goods market and the bilateral monopoly situation in the labour market destroyed the conventional economic analysis and rendered the results indeterminate.

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When the noble Lord, Lord Cockfield, in an awestruck voice spoke about the efficiency of the allocative function of the market he talked about an arcadian age in "never never" land where myriads of units competed freely. This has no relevance to our present problems. Moreover, if the Cabinet is really behind Lord Cockfield's strategy against inflation, then we shall be prevented forever (or rather until the next election) from making full use of our potential productive forces, because a disgruntled labour oppressed in the restrictive period will, as soon as expansion begins, make unreasonable demands, as it did last year. The so-called structural unemployment will turn into a long-term catastrophe as shrinkage of production increases fixed costs and cuts productivity. Year in, year out, we shall witness confrontation, such as we saw last year and as we are experiencing now.
Unfortunately, the liberal Keynesian policies did not lead to consideration of further development of Keynes. What happened was a vivification of the long-exploded monetarist school based on the particularly primitive version of the old quantity theory of money. They went back to the economics of the 1920s, trying to balance the Budget, maintain over-valued exchanges and a reluctance to create sufficient liquidity. They wanted to bury Keynes to save their own reputations.
The monetarist interlude stands out as an incomprehensible abberation of intelligent men and women which can be likened only to the Lysenko episode in the USSR; only Lysenko had some potent persuasive arguments in the Gulag Peninsular. Western economists, like Humbert Woolfe's journalists, commited their trahison des clercs unbribed and unfrightened. It is not difficult to see why economists as well as trade unionists and politicians embraced this credo with such enthusiasm.
The inescapable lesson of the pre-Second World War cycles (and post-1972 boom and bust) is that all indirect policy measures whether monetary or fiscal are required to be more savage than is indicated by the objective needs of full employment once the boom has broken. The mechanism "chases", and even random shocks could cause self-perpetuating fluctuations. Who would have predicted that a 17 per cent. interest
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rate would be accompanied by an increased money supply and bulging bank credit, as it was.
Why was the monetarist thesis so popular? Why did it conquer so easily and almost completely? It was because it depersonalised economics. Apart from cutting public expenditure and taxation their motto was, keep the money supply growing at a low steady rate and all will be well. It washed its hands of short-run developments, which are decisive, and their more permanent impact, and concentrated on the "never never" land of long-term adjustment while fiercely issuing quantified advice for the short run. What more comfort could be derived from any doctrine? It absolved everybody of all direct responsibility.
So much double talk has gone on on the part of the monetarist school that it is essential to define exactly what is not meant by monetarism. Monetarism does not mean an acknowledgment that inflation sometimes manifests itself by an increase in the volume of money causing prices to rise. Of course, there is some connection between money and prices, in an economy where transactions are conducted in terms of money and prices are therefore expressed in terms of money. It is, therefore, self-evident that prices and incomes should affect the volume or the velocity of money in circulation and be affected by them. The problem is whether there is a stable reversible relationship overriding all which can be used for strategic purposes, and not merely a necessary but insufficient means to help in regulating prices and incomes.
The choice of the supply of money as the main criterion, and at the same time the chief, if not the only, weapon for economic policy is needed in this system, because it fits in with the claim that the market is perfectly competitive and a self-adjusting one. That is to say, if disturbed, it is impelled to restore its original position. It is a worldwide neoclassical dream economy, unmarred by the existence of giants and dwarfs, or by domination and dominated both nationally and internationally. That may be true, but it is the type of model which is totally unfit to analyse the economy of the modern world and its constituent States and its problems.

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Not the least responsible for the instability of the world economy are the accumulated or desired stocks on both sides; monetary and real. On the former there are money savings, some of which can be instantly or with small time-lag mobilised, others have access to markets where the actual turnover is but a fraction of the potential supply. There are astronomical international balances—lately estimated at 800 billion dollars, lent and re-lent in the so-called Euro-currency market, which is totally unregulated, has no compulsory reserve ratios nor any known rule about the relationship of the liquidity distribution between borrowing and lending. At the slightest disturbance of "confidence" they flee from one centre to another, thus swamping the more stable flows and often becoming destablising and explosive. There is a highly developed producers and consumers credit system which might, through anticipating borrowing and certain fearful sudden repayment, violently change the even flow of saving. If certain kinds of "money" are controlled, substitutes are and have been easily created.
One would have thought from the speech of the noble Lord, Lord Cockfield, that the concept of the money supply looks straightforward and well-documented. It is not. Money has a number of functions. Among them, that of means of exchange and standard of deferred payment move on the same orbit as the total volume of transactions—accent, it should be said ought to be on "total". However, that does not exhaust the uses of money; and it rules out one of the most important of its functions—a store of value. In consequence of that difference in the functions and therefore in the velocity or efficiency of money, the assumption that the velocity of transactions is stable and determined by long-term institutional or traditional factors is untrue. Cross-borrowing by way of sterling deposit certificates, the holding of Treasury bills by the discount market will influence the main definition of M3. Far worse, the main investors, the pension and life insurance funds, can, by holding off the gilt-edged market, blackmail the Treasury, forcing higher rates of interest. It has now happened three times. To choose such an uncertain and manipulable factor as the main, if not sole,
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criterion of monetary policy is total folly. Yet that is exactly what has happened. The difficulties do not end there.
The main "indicator", M3, does not differentiate between the deposits of individuals and business deposits, both of which themselves include convenience and precautionary deposits, and deposits held as liquid—speculative—assets; that is, a shift towards financial institutions other than banks and assets other than deposits. For example, building societies or the issue by banks of bonds would diminish the fetish and allow expansion or vice versa. We have seen that the choice between a multiplicity of the definitions alters, ipso facto, the magnitude of the so-called velocity. Velocity, in fact, as published does not apply to all transactions; that is to say, both the income-expenditure stream or flow and the changes in assets—changes in the ownership of stocks. The further anomaly is that the transaction excludes all non-income transactions—house purchases, other transfers of assets, realisation of paper profits et cetera—although all definitions of money include all relevant assets belonging to the non-personal private sector. It was not shown—and it is very questionable—that the motivations of giant firms can be equated with the life of the national income which accrues mainly to wage and salary earnings. The true velocity of money circulation or transaction is not merely much higher, but also much more unstable than the income velocity and can be an original cause of fluctuations. Changes in stocks, for example, of inert deposits, are not caught. Why a single number indicator should reflect all complicated transactions, including, for example, the speculative excesses of financiers dislocating the system, has not been disclosed.
This means, however, that the ratio of bank balances and currency to the gross national product is a hybrid concept. The denominator covers the whole economic system while the numerator deals exclusively with final—income and outlay—payments. Thus, the resultant ratio is not a measure of the true transaction velocity at all, although it is so recorded even in the British official statistics. The gross national product serves as a proxy for total transactions. It is, therefore, restricted to the income/expenditure streams and disregards all transactions in assets

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no matter how much profit is earned and how investment decisions are affected by the latter. The velocity of circulation might increase or fall violently without the sphere of income-outlay being anywhere nearly as much affected. Therefore, the statistics of the so-called "money supply or stock" must not be used for policy-making, because of the possibility that non-income transactions, which are excluded from the conventional concept, might have a destabilising effect.
The victory of the monetarist school has recreated the circumstances including heavy permanent unemployment and cuts in vital social services which gave rise to the Keynesian revolution. It will do so again unless repressive régimes break the union power and solve by violence the imbalance between economic power and the distribution of national income which now exists. The alternative, stagnation, is also unacceptable. But, if we are to come out of the present threatening impasse, more is required and less opposition would be experienced by a return to a modified Keynes. Rearmament is a tested Keynesian remedy, but it is a dangerous remedy. In the present structure of the economic system the only peaceful way of dealing with the mixture of oligopoly and monopoly is by consensus which I called, some 30 years ago, a new contrat social. It will not be easy. The present power of the labour monopoly is in conflict with the distribution of income. It will take more to achieve it than a temporary wage freeze or exhortations by Ministers. I say to the noble Lords opposite, "Repent, repent, for doom is nigh!"
6.49 p.m.
Viscount HANWORTH: My Lords, I propose tonight to deal with one subject only and that is industrial relations, and it certainly will not take me more than five minutes to do so. It is sometimes said that a week is a long time in politics, and if what one says is topical, even a day may sometimes be so. However, I think that when it comes to considering fundamentals seven years has brought little change in dealing with most of the problems, particularly in the industrial field. I said at about that time that, if certain things happened, the country would become ungovernable and so it has in terms of what people then said. I appealed to the unions to bring themselves from the 19th into the 20th century.
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This problem is with us today, and with Britain's continuing decline it is of even greater importance than it was then.
We all hoped that with persuasion and encouragement the unions would make the necessary changes themselves. It is now apparent that they cannot do so, and I use the phrase "cannot" advisedly rather than the phrase "will not", because I believe that that is more in line with the facts. I do not think that now is the moment to list the defects of our union structure, outlook and, I would say, shibboleths. Unless you are blind or prejudiced, they are only too apparent.
However, I think that Communist infiltration at shop-floor level must be recognised. By Communists I mean those whose first priority is to destroy, not simply to change, our existing capitalist society. Such reds are not under the bed; they are, in fact, at the negotiating table. Why are such men elected by the so-called democratic process? The answer is obvious. Without a national objective that really motivates people—and neither party has provided it—the first consideration must be self-interest. A Communist shop steward can be relied upon not to sit on his backside but to promote what is usually, shortsightedly, thought to be the interests of the union members. The unions, although having enormous power on the national scale, which they exercise without the need for responsibility, cannot begin to control their junior officials. At this level and sometimes higher up, might is right with bully boy tactics.
We should remember that the unions often do not represent the basic thoughts of their members, let alone those of our workforce as a whole, of which about 50 per cent. are either non-unionised or have only been pressurised into joining. I make two suggestions. I know that this is an imperfect world and no organisation is above criticism, but we should look at the situation, for example, in Germany—where we set up the unions—and draw some conclusions as to what we might and ought to do here.
Secondly—and this is the nub of my speech—in my view, the Government must now act resolutely and bring into effect strong and effective legislation. If the opposition to this legislation is such

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that a General Strike seems a real possibility, I suggest that the Government should seek the country's support by means of a referendum.
6.53 p.m.
Lord UNDERHILL: My Lords, I should also like to thank my noble friend Lord Kaldor for his stimulating address and for initiating this debate. He gave what to me, as an ordinary individual, was an intelligent person's guide to economics. I must also congratulate the two noble Lords opposite who have stuck through this debate, because for most of the debate they seem to have been deserted by their flock. Whether that means that they have given up the ghost of trying to work out any solutions, or that they are so cocksure about their policies, I do not know. I must also apologise to the noble Lord, Lord Cockfield, because I may not be here when he replies since I have a very important engagement which I must attend later on.
In a debate of this sort it is interesting to note how economists seem to disagree. There are obviously no immutable laws of economics. Therefore, I shall look at the matter purely from the point of view of the ordinary individual, because at the end of the day it is what the ordinary individual thinks about matters which will be so important to us. It is not my intention to vie with the noble Lord, Lord Cockfield, in apportioning blame between one Government and another, although, frankly, if one wanted to one could give a very interesting account of the state of affairs that the Labour Governments found when they came to power in 1964 and again in 1974. However, that sort of thing will get us nowhere, and therefore I shall leave the matter there.
The Motion moved by my noble friend Lord Kaldor deals with the implications of the Government's policies, both on the economic position and the general social conditions. Therefore, I should like to take a look at the achievements of the Government's policies over the last nine months. The noble Lord, Lord Cockfield, said that there are clearly differences in the House. Those people apparently have ears to the keyholes, because it appears that there are also differences in the Conservative Cabinet, who are
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not quite certain whether the policies which they have been following for nine months are the right ones. Maybe we shall hear more of that as the months go by.
What are the consequences of the Government's policies? I think that they are worthwhile repeating. Some of the points I shall make are not only consequences of but the reasons for Government policies. I must remind your Lordships of the doubling of VAT. It is no good simply ignoring it; VAT has doubled to 17 per cent. That was deliberate Government policy. As has been pointed out in previous debates, it is an extension of indirect taxation which hits ordinary people worse than it does any others.
Of course, we cannot have the doubling of VAT without an increase in prices. Therefore, we have the situation where all the financial pundits are estimating that we shall, in a few months' time, be approaching an inflation rate of 20 per cent. It is no good the Government saying that workers should not put in for increased wage claims. When faced with a 20 per cent. rate of inflation, the ordinary man in the street will ask some questions and will want to know where he is going. We have a record interest rate of 17 per cent. Surely that will affect the borrowing by all producing firms—indeed, by all firms. It is bound to have a considerable effect upon small businesses. That, of course, is a consequence of Government policy.
In previous debates we have referred to the high interest rates leading to the record mortgage interest rate which is now at 15 per cent. It is no good trying to divorce this from the view of the ordinary man in the street when he puts in for his wage claim. If he has to meet anything from £25, £30, £50 and in some cases £80 extra a month on mortgage interest, obviously he will ask some questions as to how he can possibly manage unless he has a substantial wage increase.
There are the massive public sector cuts which we have debated in the House on a number of occasions. I think I was correct when I heard the noble Lord, Lord Cockfield, say that we must get a level without affecting our economic position. Surely we must take into

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consideration whether or not we hit essential services. Services which are not provided by public expenditure are sometimes so essential that they may have to be provided by the people themselves, and that is more costly and a drain on their incomes. Despite denials made by various Ministers opposite from time to time that there has been no cuts in public expenditure to local councils, I repeat what I said in a previous debate: why is it that local authorities up and down the country are at their wits' end to know how to provide essential services within the parameters laid down by the Government? Every day we read in our local and national newspapers about the problems facing local councillors in trying to work this out.
I shall not weary the House by talking about gas charges, rail fares and all the rest. We know about them, and they all affect how the ordinary man will regard the Government's economic and financial policies. One must refer to the freedom which the Government will give local councils to increase charges for school meals, school transport and milk for youngsters. I hope that the noble Lord saw the item which appeared in the Guardian on 7th February. I should like to repeat one or two of the points made in it. According to the report, an Essex farmworker, earning £77 a week for a 54 hour week, led a protest to Downing Street, because he will need an extra £25 a week to meet costs of transport and school meals for his five sons. The report of a lady in Kent says that she and her husband, both at work, bring in jointly £98 a week. If the county council ratifies proposals, it will need an additional £14 a week to meet transport costs to school, and £10 a week for school meals which were previously given free. That is in that particular county. That is going to affect many individuals in their demands and wage claims, or decide them to leave the rural areas and come into the towns, which will not be a good thing for either our social life or our economy.
It has been said by Ministers that we have to make a decision. We either have meals and transport or the content and quality of education. Why does one have to make that choice, particularly if it is going to lead to the sort of cost to which I have referred in these particular reports? It might be useful if the noble Lord, when
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replying, would let us know whether or not there is any truth in the reports that the BBC, because of the cuts, will be cutting the schools educational programmes. If so, that will be the biggest tragedy we have heard regarding the cuts. This will affect the whole standing of our children's education, and yet I gather that the expenditure does not reach £3 million. If that is true, we ought to do something about it.
It has also been said by Ministers in previous debates that there are no real dangers in the £160 million cuts in the Manpower Services Commission. Again I can only go by reports that I have read. It is stated in the MSC draft plan for the next four years that the staff reductions which have been brought about by the cuts will amount to about 3,500, and that this will reduce the effectiveness of the Commission in dealing with retraining and resettlement should unemployment go beyond the 1·65 million mark. I should like to know whether that is what is in the plan, because if so, what we have been told in previous debates, that there will be no effect on retraining and no effect on training for new skills, is countered completely by this report.
I should like to know the answers to a number of questions which I shall put very quickly. I read again that it is forecast that bank profits for last year will go up by 40 per cent. Is this true? If so, have the Government any view about it, because I can assure them that that sort of report sadly affects the ordinary man's view of what is happening. What has happened to the promised incentives that will be provided by the tax cuts which, I think everyone agrees, are mainly for the better off? Have we seen any change in investment in industry because of these tax cuts and what the Government claim to be incentives?
A number of noble Lords have referred to trade unions. What a tragic situation we have come to when not only the steel unions but other unions who want to work out moderate, sane, sensible policies are driven to militancy. We have a situation where we are rapidly approaching confrontation. I think that all noble Lords will agree that we are in danger of being in a complete mess. An understanding between employers, the Government, and the unions is absolutely essential if we are

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to get out of this problem. Frankly, it will be no good just saying, "Use the law". If 10,000 men want to go on strike, they will go on strike. You can imprison their leaders but what are you going to do with the 10,000 men? There will not be enough jails to put them in. There has to be an understanding. It cannot be done by confrontation. When the ordinary worker sees that the Government have allowed the steel position to drift on and on, just leaving it to other people to try to settle it, they will wonder where we are getting to.
There is general agreement that unemployment is the key problem that worries ordinary people. Despite what some noble Lords have said, all the forecasts I have read are dismal for the next two years. I should like to know the plans of the Government to cope with industrial expansion. It appears to me—and I am certain to many other noble Lords—that the Government are spending far too much of their time on dismantling public ownership instead of getting on with the problems of resuscitating our industry, and on their dictatorial attitudes which have no economic arguments whatever in support of them.
The sale of public assets? How will that help the economy? Not at all. There is no justification for it at all. I should like to know what the Government are doing on that, and whether we can do something more with management in connection with exports. It is a tragedy when we understand that what was a great exporter of British cars is in danger of utter collapse. I should like to give a bit of publicity here. I have driven Austin, Morris, BMC, British Leyland, for the last 30 years, and British car-workers can make good cars. I am into my fourth Marina, and anybody who wants to buy a new car can buy a Marina and he thoroughly satisfied with it.
I have endeavoured, and I hope other noble Lords will follow, always to try to buy British made goods when I need them. Only last Saturday I went into a big store which boasts in its name "British", and I could not find a single shirt that was not made in Hong Kong or Taiwan. I have always opposed import controls, fearful of retaliation, but I believe that we are getting to the
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situation in some of our industries where the Government have really got to look at certain selected import controls if we are to keep some of our industries going which are so essential to us.
In conclusion, may I refer to the question of defence expenditure. I do not want to join in the arguments as to whether we should have extra expenditure on defence or not. There is talk of even going beyond the 3 per cent. increase in defence expenditure. May I ask the simple question: Is not that an increase in public expenditure? Where will the Government finance public expenditure for a defence programme? If it can be found for defence, why cannot it be found for other constructive efforts? Mention was made of 1931. I can remember 1931. What we were talking about then was creating demand by having public schemes that would create demand. If the Government believe that they can go ahead with great public expenditure on defence, then from the same source that that is being financed surely we can go ahead with constructive schemes of development which are so vital to our country.
7.8 p.m.
Baroness GAITSKELL: My Lords, I am always grateful to my noble friend Lord Kaldor when he opens a debate on economics because I know very little about economics and I get a glimpse of the difficulties we are enduring at the moment in our country. I shall be brief: just long enough for my intervention not—and I repeat not—to be interpreted as a Valentine for the Government. The noble Lord, Lord Cockfield, opened his speech by referring to the hard and stony path that his Government had to tread. These two words are most appropriate and suit a hard and stony Government.
I believe that this Government will go down in history as one of the hardest and most short-sighted Governments of our age. It is tarnished with a hard, punitive attitude to the previous Labour Government, and that is unbecoming of any Government who come in with a large majority. I have been through many elections. Incoming Governments, I know, usually blame the previous Government for all the ills that they inherit. This is quite usual. They also always exaggerate the economic state of

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the country when they win, and, as I said, blame the outgoing Government. I have experienced the heady feeling of success when one's own party wins, so I can excuse this Government feeling dizzy with success because of their handsome majority.
However, what did we get? There was immediate talk of a short, sharp shock which the Government were going to inflict (the punitive attitude again) and it was going to happen to all of us; we were all to be in the same boat. Vandals, criminals, young offenders, everybody was going to be subject to a short, sharp shock. I have not spoken of the trade unions; they were going to have a bigger shock than anybody. Tax cuts were mentioned, but they were for the rich only. With prices rising sharply, daily, the economic scenario unfolded. Rates were forced to take the full brunt of the Government measures.
I heard the Prime Minister, Mrs. Thatcher, indulging in what I can only call economic baby talk, comparing the running of a country, of a Government, with running a family. Mrs. Thatcher is a clever woman and though she punctuated her remarks with little puffs of moral fervour, nevertheless they were sickening to hear. There was a certain amount of drooling also about small businesses, and that ended by pushing them right out of business. The only haberdashers in the large borough of Hampstead, a shop which had been there since 1899, was forced to close down because their rent was doubled to £7,000 or £8,000 from about £3,000.
Words no longer seem to have any meaning when unemployment soars by thousands and thousands and redundancies multiply; the way in which the numbers of people out of work trip off the tongues of Tory Ministers is staggering. It seems that the present Government intend to rescue our country—short of just shooting the breadwinners, men and women, of the hallowed family—by putting everyone on the dole. This fact alone has finally killed the myth of trade union power. If the trade unions really had the power that most people in this country believe they have, there would be very little unemployment; and that is the acid test of power in the trade unions.
Thus, what the noble Lord, Lord Cock-field, was telling us this afternoon was
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that more and more unemployment was on our road to success. That seems to be the only way by which the Tory Government can think of achieving success. That is the road to ruin, not success. We have reached a terrible impasse and I really feel for the poor and less well-off people of Britain. So far from the Tory Government it has been promises, promises; nothing hopeful has yet emerged, just promises and an ugly, punishing approach.
7.14 p.m.
Lord HARRIS of HIGH CROSS: My Lords, I rise from the Cross-Benches rather late in the evening to challenge or confront the noble Lord, Lord Kaldor, on his repeated and central criticism of the Government's monetary policy. I am not altogether unhopeful of making some progress, although I think it may be in stages and modestly over a period, because there is much room for misunderstanding in these matters as well as much blindness and wilful misrepresentation of them.
I should also like to bring some cheer to the noble Lord, Lord Boothby, because he was regretting the passing of the gold standard, as I must say do I. The great merit of the gold standard was that the politician could not tamper with the supply of gold, and while we are stuck with paper currencies we must do our level best to see that the politician does not play fast and loose with the supply of paper currency.
When the noble Lord, Lord Cockfield, alighted on Hansard for 7th November I rather feared he had shot my fox because it so happened that on that day I made my maiden speech and I attended most closely to the remarks that the noble Lord, Lord Kaldor, presented, following the usual courtesies of which I make no complaint. He threw down a challenge with some impressive-seeming mathematical adornments. He drew on what he called the admirable storehouse of information, the IMF's international monetary statistics. I think the noble Lord has monetarism on the brain because there is no such document; the document is called International Financial Statistics, and I went through it very closely to see what he had told us.
On that occasion he selected changes in M3 for a five-year period, 1973 to 1978,

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and he looked at the behaviour of money and inflation in each of four countries, the United Kingdom, Germany, Belgium and Switzerland. All four he claimed, correctly, by surprise, had increases in the money supply clustered around 10 per cent. Yet, he said, over this period of five years, correctly, their average rates of inflation varied, astonishingly, between 15 per cent. and 4½ per cent. The noble Lord, Lord Kaldor, then went into some more obscure statistics which I cannot follow him in tonight and then, in the endearingly emphatic way he has, apparently for the hard of hearing, he said that of course this is nonsense but it is nonsense because monetarism is nonsense. Equal rates of change in money supply, totally disparate changes of course; it seemed very persuasive and I must admit that for the moment I was scratching my head and wondering what was the explanation.
As the noble Lord, Lord Cockfield, told us, the noble Lord, Lord Kaldor, in his somewhat casual approach to these matters, misled himself into totally omitting any reference to changes in real output, which even the most elementary first-year monetarist brings into the reckoning. Obviously, if the money supply is increased by 10 per cent., the effect on inflation depends a great deal on whether real output increases a lot, a little or not at all. But that is a minor factor, a 2 or 3 per cent. variance one might allow for varying changes in real output.
When I had time to study Hansard and go back to the International Financial Statistics, I spotted that, rather more importantly, the noble Lord in his comparison had, possibly carelessly, overlooked the time-lag which all monetarists insist applies between the monetary increase and the price change. He had, in the words of the noble Lord, Lord Cock-field, assumed an instantaneous effect. Without being dogmatic, I go along with Lord Cockfield; I agree that the interval is generally put by authorities on Labour Benches and elsewhere at around two years—a two-year delaying effect between a change in the money supply and changes of the same order of magnitude in the price level. So I delved back into this tainted source of statistics and what did I find? This is interesting and I think
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it will help us in our future debates on these matters.
I found that the apparent discrepancies in the average national rates of inflation in those countries are very closely predicted indeed by differences in the monetary expansion for the period two years earlier; namely, compare monetary change in 1971 to 1976 in these countries and then look at their price record over the period 1973 to 1978. Thus, for example—no surprise—the United Kingdom raised its money supply most rapidly over this five-year period, indeed by an average of 17 per cent. per year. After a two-year lag, it duly achieved the highest annual rate of inflation, averaging 16 per cent. It was not the bull's-eye, but it was very close indeed to the level that one would predict for the monetary expansion. Over the same periods one will find that Switzerland held the record for the lowest monetary increase, of between 6 and 7 per cent., and wonders of wonders! Switzerland achieved the lowest inflation—around 4 per cent.
The truth is that Britain's experience in the 1970s offers much more evidence for monetary policy than it may suit even the noble Lord, Lord Cockfield, fully to reveal to us. Thus, it was Mr. Heath's Administration which, in 1972–1973, inflated the supply of money in a single year by as much as 25 per cent. a year—and bequeathed to an incoming Labour Government a record rate of inflation around 25 per cent. roughly two years later. It was to Mr. Healey's enduring credit that, with the help of the IMF, he got the money expansion down to around 10 per cent., thereby bringing inflation towards single figures in 1978–79. Alas! even for Mr. Healey virtue proved to be rather tiring, or the NEC perhaps proved rather taxing, because in the latter part of 1977, and in 1978 and 1979 Mr. Healey allowed the money supply M3 to rise by nearer 15 per cent. a year. That explains why the underlying rate of inflation from now into 1981 is most likely to be of the order of magnitude of 15 per cent.
The noble Lord, Lord Balogh, finds monetarism theoretically most unsatisfactory, and I must tell him that if one observes the figures, one will find it empirically most impressive. I do not deny that there are many difficulties in

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operating a consistent monetary policy, not least in persevering, as I hope the Government will do, with real cuts in Government spending. But if the present Government are resolved to phase out inflation towards zero over a period of five years, I fear that they are unlikely to succeed unless they incorporate at least two further supporting measures. The first is what economists call pre-announcing annual targets for the decline in the monetary expansion for some years ahead. The aim, in the economists' jargon, is to get the expectations of people working in the same direction as monetary policy.
If practical men and women in the unions, industry, and commerce increasingly believe that the Government are sticking to their monetary guns, their judgments and decisions which affect wages and other prices throughout the economy are increasingly likely to accommodate themselves to declining inflation. In the absence of such confidence in the Government's intentions, unemployment and the other withdrawal symptoms from cutting down the drug of inflation are likely to be more prolonged.
I come to the second aid to the effectiveness of the monetary policy, which must be to remove barriers, obstacles, and resistances that now prevent markets from responding more flexibly to the new opportunities that receding inflation will inevitably and assuredly open up for entrepreneurs. We need more mobility, both occupational and geographical. I believe that the reform of the trade unions will help a little, as will the sale of council houses, though that measure would be more effective if the tenant-owners of council houses were allowed to sell and move without waiting for five years for their freehold under the present proposals. Likewise, the ingenious innovation of the shortholds will contribute towards mobility, though not as much as phasing out the great destroyer of accommodation; namely rent control, starting perhaps with furnished flats and going on to all new buildings.
Let me conclude by offering a couple of further extensions of Government policies aimed at reducing the inevitable, transitional cost in unemployment of squeezing inflation out of the economy. First, briefly and dogmatically, let the Government
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bring union-imposed working arrangements within the scope of the Monopoly and Restrictive Practices Court, alongside business practices. Secondly, let the Government remove the incubus of so-called "employment protection" measures from all new jobs created by private enterprise in places such as South Wales which are most likely to be affected by the growing redundancies and unemployment in steel, cars, shipbuilding and the rest.
The noble Baroness, Lady Gaitskell, has left the Chamber, but I should like to say to her, following her moving and sincere speech about unemployment, that I am certain that there is no difference between any of us in this House and among larger numbers that involuntary unemployment is an appalling affliction for our fellow countrymen; less painful than at one time, but still for many a desperate possibility and prospect. On this matter I am clear that our hearts should all be in the right place, which is left of centre, but we should also keep our heads in the right place, which is above our emotions. My case, resting on rational analysis and demonstrable empirical evidence, is that much of the present unemployment is a hangover from past monetary excess. It is that excess that the Government must stop. I call to my aid an unusual witness, Mr. James Callaghan, who in 1976, as Prime Minister, told the Trades Union Congress:
"We used to think that you could just spend your way out of a recession, and increased employment by cutting taxes and boosting Government spending. I tell you, in all candour, that that option no longer exists, and that in so far as it ever did exist, it only worked by injecting bigger doses of inflation into the economy, followed by higher levels of unemployment as the next step. That is the history of the past 20 years".
It seems to me that in order to keep unemployment down so far as one can while the battle against inflation continues, the emphasis should not be crudely on holding down wages, but all the time on holding down labour costs per unit of marketable output. If the noble Lord, Lord Kaldor, had trumpeted that economic truth to the workers of British Steel and British Leyland, he would have done a better turn, it seems to me, than by offering a rehash of the old collectivist policies that have got us into our present pickle.
7.27 p.m.
Lord PITT of HAMPSTEAD: My Lords, I must begin with two apologies. The first is to the noble Lord, Lord Kaldor, because I was not in time to hear his speech. I know that he was aware that I would not be present, and I have no doubt as to the kind of speech he made. I shall certainly read it in Hansard with great interest. I heard all the other speakers, including the Minister. My second apology is to the noble Lord, Lord Harris of High Cross. I earlier looked around and did not see anyone rising to speak, so I thought that I had better get to my feet. This is the explanation of why I rose to speak before the noble Lord. I cannot follow him in his very interesting speech because I want to deal with something quite specific. The noble Lord, Lord Cockfield, said that the proportion we spend on public services must bear a certain relationship to our wealth; that if in fact we are not as wealthy as some other countries, then we cannot spend as high a proportion of our wealth on public services as those other countries do. I want to start to challenge the noble Lord there, because it is characteristic of the poor that they have to spend a higher percentage of their income on the basic necessities. I am sorry that the noble Lord's logic was not sound on this occasion.
I want to talk about a couple of basic necessities which have suffered, are suffering, and will continue to suffer from the policy which this Government are following. First, I want to deal with housing. I have previously spoken in this Chamber about housing, and I make no apologies for repeating what I have said because this is a matter of the utmost importance. Figures just published indicate that housing starts— that is the buildings started—in 1979 were the lowest since 1951.
That is a serious matter, and it is made more serious by the fact that a couple of years ago the then Labour Government published a consultative document in which they pointed out that we needed 300,000 houses a year in order to keep pace with our requirements. Last year we started 219,600 houses, which is a very far cry from the 300,000 target. What is worse, of that 219,000 only 46,658 were council dwellings. At the same time, a recent survey by Shelter has indicated
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that there are a million people on council housing waiting lists. So there we are, my Lords; this is the situation we have got ourselves into.
The consequences are quite clear. The homeless families will suffer because, of course, it is much more difficult for the local authorities to meet their needs. But there are other people who will suffer, too. There are the families living in the high tower blocks which we proceeded to build. We are now quite anxious to move them, but we cannot move them unless we have additional buildings into which to put them. Therefore, they will continue to be confined to these high buildings. Then there are the young families who are coming along. There will not be places for them to buy or to rent, or to move into.
Therefore, this is a very important point in terms of the policies of this Government, because recent local government guidelines to local authorities advised them that they should put up their rents by £1·50 a week. That would possibly be all right if they had the places to put them in, but what we are having is a suggested increase in rent at the same time as we are not getting the buildings. What is more, recent circulars from the Department of the Environment have restricted municipalisation, and, therefore, again, there will be less properties in the hands of local authorities which they can use.
Moreover—and this is much more important—the recent circulars have restricted land acquisition, which means that local authorities will not have the land on which to build. Then, I have read recently that there is a threat to reduce the housing subsidies further, and that that is part of the next cuts we are going to have. I hope that when the Government are proceeding to cut the housing subsidies they will start by cutting the subsidies to the house-owners, the people who have in fact bought large properties and have large mortgages; because, if we are going to cut, that is where we should start the cutting.
The other basic service I want to talk about is the one in which I am daily engaged, and that is the Health Service. The last time we had a debate on the Health Service I spent most of my speech

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pointing out the way in which the Health Service in Hackney has been completely destroyed. The people of Hackney have been placed in such a terrible position that in fact the Hackney Borough Council decided to withdraw its members from the Area Health Authority in protest. I have been reading recently (and I am sure other Members of your Lordships' House have read) of a cardiologist at King's College Hospital complaining that, as a result of the restrictions, he is no longer able to deal with the cardiac cases as he should, and that there is a real danger of people dying. I am sure many Members of your Lordships' House will have read that.
I know also from my friends who are kidney specialists that they have the same sort of worry, that the restriction of their budget means that they can deal with fewer kidney cases; and while, of course, it will take a little longer for the person to die, there is also the danger of people dying because of this sort of restriction. Moreover, there is, of course—I mentioned this the last time, and I do not want to go into it again—the usual question of closing wards and employing fewer nurses.
The other thing I want to talk about is the steady increase in prescription charges. One of the first things this Government did was to raise the prescription charges from 20p to 45p. They are to go up to 70p at the beginning of April. I have read (and I hope what I have read is wrong) that it is the intention of the Government to increase those charges further. All these charges, at a time when we have doubled VAT and at a time when school meals, school transport and rents are going up, must play havoc with the poorer sections of this community. I want to make an appeal to the Government. I am not entering into this monetarist debate at all tonight, but accepting, as Lord Cockfield does, that his monetarist policy is essential for the wellbeing of the country, I appeal to the Government that they recognise the consequences of those policies on the people in this community who are least able to take care of themselves, and that they in fact readjust their policies sufficiently to take that into account.
One of the other things I wanted to mention is the fact that, at this moment,
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hospitals give their patients prescriptions for a short period and tell them to go to their general practitioner for the medicines that they need in the future. From the hospital point of view this is sensible because of the way in which the Health Service is now budgeted—and everybody has to live within their budget. Of course, they can save by letting the GP do the prescribing. But drugs which are prescribed by the general practitioner cost the Health Service more than the drugs which are prescribed in hospitals. There is quite a simple explanation, of course. The hospitals employ pharmacists; they pay them their salaries, and therefore those salaries do not have to be added to the cost of the drug; whereas whenever I prescribe for a patient the pharmacist's fee, the chemist's fee, has to be added to the cost of it. Therefore, from the Government's point of view, if they are trying to save money it is much more sensible that the hospitals should be giving the medicines than that the GPs should be; but because of the way in which everybody has a limited budget to which they must conform—and to which they conform in lots of, I think, dangerous ways, like shutting wards, having fewer nurses and that sort of thing—this particular method is adopted.
I have also read that there should be additional cuts in local authority expenditure. That, too, has serious effects for the ordinary man. I hope that nobody is going to suggest that that is not so. They have been asked to cut their expenditure, in effect, to 2½ per cent. below their last year's spending. That is a fact. I know that the Government have this policy idea: that money saved by reduced taxation will go into manufacturing industry. I hope that the noble Lord, Lord Cockfield, remembers that Mr. Heath had the same idea. But it did not happen. All that we had was a boom in offices—Centre Point. That was the consequence of the reduced taxation that they got in that period. In this period, it may well be that the noble Lord, Lord Boothby, will have his wish because it seems to me what is happening is that they are using the reduction given them in buying gold. What they are not doing is putting it into manufacturing industry. This is where all the suffering that the people being invited to endure is, in fact, to no avail.
Lord ROBBINS: My Lords, I apologise for interrupting, but would the noble Lord not agree that the property boom which arose at the time of the Heath Government was a direct by-product of inflation?
Lord PITT of HAMPSTEAD: Yes, my Lords. All that I am saying is that when you reduce the taxation, as Mr. Heath did, they do not spend it on manufacturing industry. They do not invest in manufacturing industry but in other things from which they think they can get profit. That is why I mentioned gold en passant; that is the current craze. I want to conclude where I started by making this appeal to the noble Lord, Lord Cockfield. The consequences of Government policy bear very hard on the lower sections—I am speaking income-wise—of the community. Please bear that in mind in formulating policy and take steps to ensure that the social wage is not eroded too much.
7.43 p.m.
Lord MACKIE of BENSHIE: My Lords, I shall try not to detain your Lordships for too long, but I should like to start—as everyone does; but in this case I really mean it—by saying how grateful I am to the noble Lord, Lord Kaldor, for introducing this debate. The reason I am grateful is because I greatly enjoy his speeches. I do not necessarily agree with them or understand them, but I enjoy them for their mischievous quality. The last time I heard the noble Lord initiating a debate, he started with an ingenious comparison of the Conservative programme with the Communist Manifesto, which he carried to extraordinary lengths and in a most enjoyable manner. Whether it was right or not, I do not know. On this occasion he proceeded to go backwards and to praise, with his tongue firmly in both cheeks, the enormous achievement of Conservative Governments of past times. Even to an ignoramus in these matters like me, it appears that at that time the trouble was lack of spending; but this time, I rather agree with the Government that our troubles come from spending which is, to put it mildly, perhaps a little overdone. However, after this school-masterly discourse, I did not know how I would take to the noble Lord, Lord Cockfield, but immediately I was reminded of my youth; and the terrifying certainty
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with which he expounded the message was like that of the Free Kirk ministers who used to belabour me for my sins long ago.
I think this has been a remarkable debate. I listened with enjoyment to several of the speeches. I listened to the noble Viscount, Lord Amory, and to my old friend Lord Rhodes. I am sorry that Lord Amory pinched my crack about "no silicon chip, he". After him, the noble Lord, Lord Bowden, made a remarkable speech full of absolute truths which we should all ponder, certainly in our own businesses. The practical turn was followed by the noble Lord, Lord Boothby. I think that he is practically the only politician whose speeches you can look back upon and find that he has nearly always been right; but, perhaps, the noble Lord, Lord Kaldor, can look back and pick up some occasions when he was not right.
I should like to put one or two salient points to the noble Lords, Lord Cockfield and Lord Kaldor, and point out the position of agriculture, which has not been mentioned. Agriculture is of immense importance to our recovery in the production of food and in the saving of imports. Agriculture is really up against it at the present time because the room for putting up prices has now been eroded wholly by the rise—official, perhaps—in the strength of the pound. The result is that there is no room for this Government to put up prices and there is a necessity on the part of Europe to hold down agricultural prices. With 17 per cent. to 20 per cent. inflation, agriculture is in a position of very had squeeze. It is an enormously important industry. I do not suggest that it should have special treatment but I suggest that the noble Lord. Lord Cockfield, should turn his mind and his attention to these matters agricultural which matter enormously.
Agriculture suffers, like all other industries, from the interest rate as well as from general inflation. I should like the noble Lords, Lord Cockfield and Lord Kaldor, to explain to me (simple peasant that I am) how it can pay this country, having paid enormous prices for our oil, then to take the money in and to pay enormous sums in interest to these chaps to leave the money here, upsetting our whole industry. At the end of the day what is to prevent us from reducing the

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interest rate? We have £10 billion reserves, I understand. It is only a few years ago that they were a great deal less. I should like a simple, elementary lesson on why we should not do that; for it is without doubt one of the main causes of a quite proper lack of enterprise in the smaller businesses on which we depend for new enterprises and new employment. But looking at something like 20 per cent. overdraft rate frightens the life out of people.
Then we come back to the question of inflation. I should like the noble Lord, Lord Cockfield, to say what we are going to do about oil. I have the prices of light Arabian oil per barrel over the years since 1973. In the year before the great hoick in prices by the OPEC countries it was 2.4 dollars per barrel. It remained steady at 10.5, 10.72, 12.70 and 12.78 dollars. I am talking about Saudi Arabia, one of the more responsible Arab States. The 12.78 dollars was the 1978 price; and the official current price is quoted at something like 26 dollars. My figures may or may not be 100 per cent. accurate but it is about that sum. I have seen newspaper headlines that the price of light oil has gone up to 33 dollars a barrel. This is a fantastic increase in this last year. I hate to think what will happen regarding inflation and fuel costs in this country when that gets into the pipeline. Surely the time must come when we, the Western industrial countries, can go to the OPEC countries and say, "Let us stop chasing our inflationary tails".
I know that the oil producing countries — even the responsible ones—think that inflation which is the result of their putting up the price, is a deliberate policy on the part of the Western industrial countries to reduce the price of oil again, with the result that we have this extraordinary elevation of price year after year now apparently going to run away. The time must come when an international conference of some sort must be called in order to produce some order which would guarantee the price of oil to the producing countries and give the Western industrial countries some form of stability.
I think that the Government's diagnosis is correct. I must say it has appeared to a lot of practical men who earn their own living— and I earn mine as a farmer, and
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also as an industrialist in a small way who has built a business in the Highlands— that we have been living in Cloud Cuckoo-land; that our industrial relations and industrial thinking have gone totally haywire. Any sensible chap knows that there is a time when you must cut. I think that that diagnosis is correct, and I think that the recommendation for surgery, to cut, and to have an operation is also correct.
I think that occasionally the Government, instead of using a scalpel, are swinging an axe on the patient. More care and more choice must be given. We on these Benches have spoken often enough about putting up fees to an enormous height for overseas students, and we have said time and again—and I think this is obvious—that this is a case of eating the seed corn. There is no question that the business contacts of the future in any country are the people who have studied and enjoyed themselves in this country.
It was right of the noble Lord, Lord Pitt of Hampstead, to point out the difficulties that are occurring, and the real distress and hardship that is being caused. Maybe all of us will have to suffer real hardship. I think it is right that the Government should know where the practical cases are occurring because they must consider a greater degree of selectivity in the cuts we are applying. I do not think that it is any use throwing the baby out with the bath water.
Everyone has spoken— and rightly so— about labour relations. One has only to look at certain strikes and certain attitudes to know that we have all gone "bonkers"—and I think, on the whole, rather more "bonkers" on the trade union side than on the employers' side. I must say that frankly. However, I think that the Government should recognise and must be gratified by the signs of common sense which we see appearing in industries which have had appallingly bad labour relations. When you see men voting as sensibly as they have done on several occasions, it means that the signs are having an effect, that commonsense is breaking through.
When you come to giving advice, it is all very well for Keith Joseph— and he does it beautifully, and has done it very

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well on television— to say simply that you cannot go on supporting an industry which has had £3½ billion or some such figure—of public money and is in the state that it is in. That is absolutely right. It is all very well to tell people what is wrong; and it is right and proper for the Government to hammer it home, but the Government must give more of a lead. I do not suggest that they should put more money on the table; but I think that they must give more leadership, explanation and understanding and use more influence to get a settlement, within their guidelines if necessary. I do not think that they can stand aside.
I also think that the Government must be prepared occasionally to lose a trick. I should not like Lord Cockfield's Presbyterian thorough-going conscience to overcome him to the virtues of common sense. We must not get into a position where we drive ourselves to a confrontation of a completely useless kind. I think that the Government are getting common sense into the population. They should show a little themselves and perhaps on occasions proceed as softly as the excellent Minister of Labour appears to want to do.
7.55 p.m.
Lord BRUCE of DONINGTON: My Lords, I should like to echo the sentiments that have been expressed in the House to my noble friend Lord Kaldor for having initiated the debate in the way he has done. When the text of his speech sppears in Hansard, and the text of what purported to be a reply to it, I have no doubt that on mature reflection a fairly accurate idea can be obtained of the true merits of the arguments.
The noble Lord, Lord Cockfield, spent quite a fair time out of the 33 minutes during which he was kind enough to address us in informing us in some detail of the nature of the terrible legacy that his Government took over in May. As my noble friend Lady Gaitskell said, of course most Governments do this and, to some extent, it is all part of the political cut and thrust. Nevertheless, the noble Lord, Lord Cockfield, has repeated this on so many occasions now— and I feared that he was going to do it again today— that we have to do a little gentle arithmetic to begin with, particularly on the question of
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inflation. After all, inflation is one of the principal planks of the programme of the party opposite. They continue to speak of it at very great length, sometimes even lucidly. So perhaps it should be borne in mind that the inflation rate when they took over was running at 8·3 per cent. The figure at which it is now running is 17·2 per cent., although of course there are already hints of it rising up to 20 per cent. on account of the increased telephone charges, postal charges, a further increase in the mortgage interest rate, increases in gas, electricity and railway fares. But, my Lords, leave it at 17·2 per cent. for the moment.
The difference between the rate of inflation which they inherited, 8·3 per cent., and the latest figure, 17·2 per cent., is if my arithmetic is right, 8·9 per cent. Let us look at the measures that the Government themselves have taken. I am not arguing about their merits— that has been done before. I am merely saying that they are Government actions following their election. Their increase in VAT put another 3¾ per cent. on the rate of inflation; they reduced local authority grants by another 1 per cent.; reduced support for nationalised industries an other ¾ per cent.; increased National Insurance contributions another ½ per cent.; the green pound devaluation, ¾ per cent.; increased mortgage interest rates, 1¾ per cent. There were all those actions by the Government. That is 8·5 per cent. out of the 8·9 per cent. that inflation has increased by. So the underlying pressure on that basis—aside from any arguments that the noble Lord, Lord Harris of High Cross, may wish to make on his two year delay factor, the residual increase which was in the pipeline-amounts to 0·4 per cent. I have no doubt that we shall have the benefit of the observations of the noble Lord on that; but it is quite clear, and indeed, a little odd, that a party dedicated, so sincerely to bringing down the rate of inflation should in fact take such deliberate action to increase it.
But, of course, the debate has been more about the matters that have given rise to the situation of which we complain. No one can doubt that any Government, Conservative or Labour, at this time or in this decade are faced with very considerable problems. It is perhaps fortunate that, in the unique forum of Westminster, these things can be argued out

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between us and we can listen to each other's point of view and, perhaps, if we hear things that appear logical to us, we can be changed by them. This is a very honourable and long parliamentary process.
Much has been made today of the whole problem of increasing productivity and, indeed, of increasing the gross domestic product itself. The necessity to abandon the restrictive attitudes that have been taken up over these many months must now be obvious to most of us. Certainly, within the Conservative Party itself, if Press reports are to be relied upon, there is already some considerable degree of unease about the way things are going.
I was surprised when the noble Lord was addressing us in terms of productivity and, indeed, in terms of who was generally to blame for the situation. He kept on referring to the necessity for people to behave responsibly, and he mentioned strikes. But it is quite clear that his mind was concentrated all the time on the necessity for labour to behave responsibly. Labour needed to be taught a sharp lesson. Indeed, in the whole nature of Government speeches over the past few months— and it is implicit in the proposed trade union legislation as well as in the penal nature of the expenditure cuts— is an endeavour, explicitly or impliedly, to lay the blame for the current state of affairs upon those at work, upon labour generally.
I was a little surprised, too, at a Minister representing the Government going all the way through the debate without having once mentioned the possible role of the capitalist. I use the term purely in its technical sense and not as an abusive term. We are told that all production is the result of the application of labour power to raw materials, with the aid of machinery and the necessary finances and working capital involved. There are two parts to the machinery necessary to ensure production— the provision of capital, in whatever form it may be necessary, and the application of human endeavour in the form of labour to the various raw materials and other things that are necessarily used in the course of production. In the production of steel, labour is only 29 per cent. of the total cost. It is an important element, but it is only 29 per cent. Listening
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to the noble Lord opposite, one would think that the only people who had any control at all over the whole production of the country were the workers, the trade unionists, and that all that was needed was the exercise of more muscle power, of more endeavour, of greater application, of greater enthusiasm and longer hours.
Lord MACKIE of BENSHIE: My Lords, will the noble Lord allow me to intervene?
Lord BRUCE of DONINGTON: My Lords, I must proceed for the moment. I will give way to the noble Lord later So that the role of capital was not mentioned. I must, therefore, with the permission of the House, remind your Lordships that one of the biggest problems in the whole of British industry over the past quarter of a century has been the chronic lack of investment in manufacturing industries in the United Kingdom. In the 20 years up to 1972, we were investing as a proportion of the gross domestic product 34 per cent. less than France and 40 per cent. less than Germany, and, of course, as one would expect this attracted some attention.
Sir Frederick Catherwood, who, as the House is probably aware, was a director of the British Institute of Management and is, I believe, a reputable Conservative in the European Parliament, addressed himself to this subject on 8th April 1975. He said then:
"I would have thought that by now all responsible opinion in Britain had accepted that lack of adequate investment in manufacturing industry was one of the single major causes of our economic weakness".
He continued:
"Our biggest single restrictive practice at present is our failure to put new risk money behind British industry. On any international comparison, British investment is behind those of its major international competitors. As our share of industrial capacity declines, so does our share of world trade. That is why we have a non-oil deficit of more than £1½ billion. If we wish to remain a trading nation, we have to make up that investment".
Then he concluded:
"To recover in time, before our whole market is irretrievably lost to imports, requires massive new investment up to the extra £3,000 million suggested".
And, indeed, if we go further and compare the production, and even the deliveries, the quality and everything else, of what is produced in the United Kingdom with what

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is produced in competitive countries, we might do as well to realise that the machine power behind the arm of a German worker is roughly three times the average amount available to a worker here, and that in Japan the figure is four times as much.
What is going to happen in 1980–81? As we on this side understood the noble Lord, and indeed understood the Chancellor of the Exchequer when he reduced direct taxation by giving very significant reliefs to those in the upper income brackets, the whole purpose was to free initiative, enterprise and drive. There was going to be a new surge forward of enthusiasm by those gentlemen who were directing our affairs. But what is envisaged for 1980–81? According to the EEC's figures, published about a fortnight ago, investment would decline by 8·7 per cent. That figure has now been modified again to approximately 10 per cent. lower than it was last year. These do not seem to be very formidable fruits of the new enterprise, initiative and drive which we were expecting. With your Lordships' permission, I shall return to that point when I deal, as I intend to deal, in view of what the noble Lord said, with the public sector borrowing requirement.
The fact of the matter is that capital in the United Kingdom is free to move at will. If there is a lack of investment—and the evidence is overwhelming that there is—what can be done to restore investment and make up for the lack of investment in the past in order that we can rgeain our competitiveness and produce the things for which there is a market, either at home or abroad? If the capitalist does not choose to invest for a variety of reasons which are quite relevant, what is to be done? The answer to that question, so far, has been that successive Governments have sought to induce or bribe the capitalist to invest. Under Mr. Heath's Administration, which the noble Lord opposite played some part in advising, massive capital allowance reliefs were given or accorded to industry. In the case of plant and machinery, these could be taken in such a way that the entire capital cost of a new plant could be written off in the first year against profits. Then there was the freeing of the banking system— with which I shall not be unkind enough again to reproach the noble Lord, unless he
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wants his nose rubbed in it once more—and the colossal increase at that time in the amount of money put into the banking system.
What happened as a result of these inducements, given in good faith by the Heath Government? By August 1973 he was complaining to the Institute of Directors in the most explicit terms. He said, "The Government have given you everything you wanted. We have given you every inducement and still you won't invest". Under Sir Harold Wilson's Labour Administration, investment in 1975 was still low. It had improved slightly, but there had been no impact in terms of the investment requirements so clearly set out by Sir Frederick Catherwood.
So what did the Wilson Government, with Mr. Healey as Chancellor, do? They gave what was euphemistically termed stock appreciation relief, whereby corn-panics and firms were allowed to reduce their profits for tax purposes in order to take account of a notionally calculated stock appreciation relief. Industry professed itself to be very pleased with this. Indeed, they had every reason to be, because in the fiscal year 1976 the yield of corporation tax sank to a derisory level. Industry paid very little corporation tax in that year. There was almost a complete year's remission of tax, as the noble Lord, with his taxation experience, well knows. And still there was no investment, though corporation tax had been reduced from its nominal 50 per cent. to something like 26 per cent.
So we come to the régime of the right honourable lady, Mrs. Thatcher. Once again there is no investment, or there is nothing like the investment that is required from the capitalist. So what does she, or rather her Chancellor, do? They give tax remissions to the higher income groups, to which we have already referred. They abolish exchange control. They reduce Government expenditure. The reasons for that are very clear and they were quite clearly put by Mr. Biffen at the time, as reported at a meeting which took place at North Petherton, Somerset, on Saturday, 27th January. He said this:
"When the Government was known to have a massive borrowing requirement it was no wonder that interest rates increased. Government, with its insatiable demand, crowded out those who wanted to borrow for productive purposes".

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This indeed has been the whole burden. It has been in the party political broadcasts. It has been said many times in this House by Members of the Front Bench and, indeed, by Conservative supporters in your Lordships' House.
The whole purpose of bringing down the public sector borrowing requirement, it was said, was to free money for the private sector. This is complete and utter nonsense. There is no shortage of funds in the private sector. Indeed, if one reads the Financial Times any day one finds that most of the leading companies are still gorged with funds. There is a takeover battle going on at the moment—or there was when I last read about it—between Racal and GEC to take over Decca for the sum of £100 million or thereabouts, payable in one case in cash. So it does not sound as though they are short of money.
In point of fact, what is happening, put quite simply, is this: instead of using liquid funds for the purpose of investment—and I repeat that there are plenty of liquid funds available—either they are putting them on deposit at a very high rate of interest and leaving them there, or they are investing abroad at a very considerable rate indeed, or they are involving themselves in the very attractive financial exercise of taking over other companies, which does not add to the productive capacity of the country.
But we are still left with the problem— it will not go away— of what we are to do when the voluntary actions of your capitalist (I do not use the term in an abusive sense) result in his failure to perform what is assumed to be his honourable and justifiable function of investing risk capital in industry. What is any Government to do? The answer of the noble Lord is: complete non-intervention just let it rip. If that happens, because of the amount of investment that is already taking place overseas by British capital, freed from all exchange control, there is going to be great investment in countries where labour rates are one-eighth and one-sixth what they are here and they will earn their money all right; but the United Kingdom will become an industrial desert.
What is to stop it? None of the monetary laws which have been enunciated by the noble Lord will stop it. He believes
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in non-intervention. So far as he is concerned, they are quite free to go where they like. That is why we on this side of the House advocated the setting up of the National Enterprise Board. We knew of the deficiency of capital investment and risk capital in new enterprise in this country. We did it specifically to promote investment in those industries in which private enterprise should have invested. We did it to promote investment that private enterprise or your capitalist was not prepared to risk in the new technological sections of industry. They would not put their money into the micro-chip, for example. We also did it in order, in due course— and many noble Lords have mentioned this, notably the noble Lord, Lord Leatherland— to start industries in import substitution, because quite clearly something has gone wrong. We are importing machinery of all kinds, we are importing consumer durables of all kinds from the countries of Europe, from the United States and everywhere else. Not only on the question of price, but on questions of design, on purely technical aspects of it, on questions of marketing and everything else, and unless through the National Enterprise Board the United Kingdom retains its ability to promote import substitution industries, then our import problem will become progressively more impossible.
That, of course, is mainly why the Conservative Party wants to hamper, cripple and ultimately do away with the National Enterprise Board, because it does not give a hang what happens to manufacturing industry, where and when it is neglected by those whose historic function it is to provide risk capital for its continuance and its expansion. The noble Lord dealt at some length with an aspect of monetary policy which is indeed fascinating; he dealt with the public sector borrowing requirement. As my noble friend Lord Balogh pointed out, this is a somewhat illusory concept and the daily journal of the party opposite, the Daily Telegraph, records that Sir Donald MacDougall, who was the economic adviser to the Confederation of British Industry, is fond of telling people how we cut £1,000 million off the public sector borrowing requirement before lunchtime when he was chief economic adviser to the Treasury, so there is no reason to believe that the fundamental difficulties have been

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resolved. Nor have they, my Lords, because I do not know what kind of statisticians they now have at the Treasury under the distinguished leadership of the noble Lord opposite, but they were only £3·3 million out in the year 1977, they were £4,200 million out in 1978— in other words they overestimated by £4,200 million, and there is not much evidence that they can do very much better today.
But, in any case, let us assume that it is possible to estimate the public sector borrowing requirement with a sufficient degree of approximation which might be considered useful for practical purposes. Let us say we could limit it. What effect will that have on the money supply, to which the noble Lord has referred and which was referred to—I will not say too modestly, but at any rate referred to by the noble Lord, Lord Harris of High Cross. What is the effect of it? If you control the public sector borrowing requirement to whatever approximate figure, you are still only controlling one-fifth. Your impact is to be able to have control over one-fifth and nothing more. Do not let there be any fiction that you are controlling the total money supply, because you are not. The noble Lord, Lord Harris, thought that you could probably fix it. Not a bit of it, because it is not possible to do so.
Lord BOOTHBY: My Lords, will the noble Lord allow me to ask a brief question? Why does he go on talking about money supply? There is no money — he should talk about paper supply.
Lord BRUCE of DONINGTON: My Lords, I am afraid I cannot accept the noble Lord's well-known contention concerning the validity or otherwise of Bretton Woods and the gold standard. I would be grateful if he would allow me to pursue my argument in my own way. The astronomic rates of interest that are now already in force in this country have attracted considerable deposits from all over the world. They have attracted hundreds of millions of pounds from all over the world into the country and these form the deposit base on which the banks advance money. The noble Lord opposite does not propose to nationalise the joint stock banks— that would be heresy. Indeed, the banks are in business to make money and when they get these deposits,
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from wherever they come, abroad or otherwise or from their subsidiaries or associates, this forms the deposit base on which they can then advance further sums of money and indeed make profits.
The noble Lord is, of course, aware of this—or if he is not he should be, because the Prime Minister was quite specific on the point when the same question was put to her by Mr. Tapsell in another place He asked:
"Is it not time to bring domestic credit expansion under more effective control by issuing directives to the banks and other main lending institutions to reduce their lending to within the declared Government monetary limits?"
This is what the right honourable lady replied.
"If that of itself would work, we would be prepared to consider it. But there has been an enormous so-called explosion in financial technology, which means there are various ways of getting around lending by banks. Of course, that means that any such directive to the banks would largely be inoperative because the lending would be transferred to other financial institutions"—.[Official Report, Commons, 7/2/80; col. 734.]
If the noble Lord has any improvements to offer on what was said by his right honourable friend concerning monetary supply, he should perhaps do so.
In short, so far as the monetary aspects of the Government's policy are concerned, it is a complete failure, and they know that it is a complete failure. It has only succeeded so far in "clobbering" small firms that have been unable to obtain the money that they need not only to maintain their business but for expansion. I have been no more controversial than the noble Lord opposite was in his opening remarks. We are still left with the problem and what is required is a coordinated effort by both capital and labour, which means that both sides— and I repeat, both sides—need to accept some disciplines. I have always held that view. Above all, what is required is a sense of community. That is vital, as indeed the Lord Privy Seal has been good enough to indicate in a recent speech in Cambridge, with which I entirely agree. He said:
"Economic liberalism A la Professor Hayek, because of its starkness and its failure to create a sense of community is not a safeguard of political freedom but a threat to it. Lectures on the ultimate beneficence of competition and on the dangers of interfering in market forces will not satisfy people who are in trouble. If the State is not interested in them, why should they be interested in the State?"

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Then, at the conclusion of his article, he quotes from Mr. Harold Macmillan who, in his book The Middle Way, wrote:
"If capitalism had been conducted all along as if the theory of private enterprise were a matter of principle, we should have had a civil war long ago".
It is not possible for us on this side of the House to dissent from those general observations both of Sir Ian and of Mr. Macmillan. But there cannot be a sense of community where there are deliberately inflicted injustices by the Government, aimed at one section of the community only.
The noble Lord should know, as indeed the general public outside know, that most of the Government's measures so far have been directed against that section of the community that is least able to defend itself. What they have to do now, if they are going to command even a residue of respect, is to stop cosseting the rich and stop clobbering the poor. We have all got to work hard. This we appreciate. But if the Government are going to stimulate the economy, if the Government are going to restore industrial relations to a point where organised and planned and enthusiatic production is possible, they have got to cease to be divisive and they have got to see that justice is done to all our people.
8.32 p.m.
Lord COCKFIELD: My Lords, despite the lateness of the hour, I hope I may have your Lordships' permission to speak for a second time. There have been a large number of speeches made of very high quality and very great interest. I am only sorry that I will not be able to reply to them all in detail, but I do assure all noble Lords who have spoken that what they say will be studied with very great care. I do not on this occasion have the pleasure of congratulating a maiden speaker, but I do instead have the pleasure of congratulating the noble Lord, Lord Boothby, on his 80th birthday, which I understand took place yesterday. The passage of time has dimmed neither his wit nor his wisdom, nor his enthusiasm for gold as the sole medium of exchange.
I want to take up two points made by the noble Lord, Lord Bruce of Donington, in his oration. The first one relates to the rate of inflation. The figures that he quoted were those derived from a news-
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paper article published in January. This was the subject of a Question asked in your Lordships' House by the noble Lord, Lord Jacques. I disposed of the matter effectively on that occasion and I hardly think it is necessary to spend much more time on it. Many of the individual figures are wrong; the method used for drawing the conclusions was inaccurate. The noble Lord is quite mistaken in taking 8.3 per cent. as in any way representing the true rate of inflation at the time when the Labour Party were removed from office by the electorate. The rate of inflation at that time was rising very rapidly, and if inflation is rising rapidly it is necessary to take a much shorter period than 12 months. As I said in my opening remarks, a better measure at that date would have been about 13 per cent. per annum, with a very great deal still to come from the wages explosion which was the legacy of the collapse of the Labour Party's incomes policy.
The noble Lord also spent a great deal of time talking about investment, and I would like to make two points on that. One of them is that it is not just sheer quantity of plant and machinery which is the only factor. Just as important is the efficiency with which the capital stock is used. Some figures were published last year by the OECD which showed that net output, as a percentage of capital stock, on average in the years 1971–5 was 46 per cent. in the United Kingdom, 68.6 per cent. in Germany and 130 per cent. in the United States. In other words, we are using our existing stock of plant and machinery inefficiently. We could use it a very great deal better, and we could get a big increase in productivity and in output if we could reduce overmanning, restrictive practices and bad working methods generally.
The second point I should like to make to the noble Lord is that his explanation of the reason why people do not invest is an extremely incomplete one. With profits as disastrously low as they are at present, it is not at all surprising that a lot of industries are reluctant to invest, and it is only as the level of profitability can be improved that we will see a rise in the level of investment.
A number of noble Lords—Lord Leatherland in a most interesting and thoughtful speech; Lord Rhodes, and

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my noble friend Lord Amory, in an outstanding contribution— all raised the question of the impact of imports on the national economy and in particular on trades such as textiles. In the field of international trade the Government's commitment to free trade in general is a firm one, but so, too, is our determination to assist British industries which are threatened by unfair trading practices by foreign competitors. Quite apart from the protection afforded under the Multi-fibre Arrangement, the Government recognise the special threat posed recently by cheap imports of certain products from the United States of America which have the advantage of cheap oil. Application has been made to the EEC Commission for quotas under Article 19 of the GATT, and the Commission's reply is expected within the next few days.
Concern was also expressed by a number of speakers about the effect of the present high sterling exchange rate. We believe that the exchange rate should be determined primarily by market forces, with the authorities only intervening to smooth excessive fluctuations in the rate. It is true that the present rate may create problems for some exporters, but it also has counter-inflationary benefits in that it keeps down the cost of imported raw materials used by industry and thus lowers the general rate of inflation. To improve our competitive position in export markets the answer is not to engineer an artificial depreciation of the exchange rate, but to raise productivity in the United Kingdom.
The noble Lord, Lord Rhodes, asked, if I may paraphrase his speech, "Where has North Sea oil gone" It is important not to overestimate the importance of North Sea oil. So far it has amounted to around 2 per cent. of the gross national product, and at its peak will account for probably less than 5 per cent. Revenue to the Government was £500 million last year, and this year, fortified by the bringing forward of £700 million of petroleum revenue tax payments— which were opposed, apparently, by the noble Lord, Lord Bruce of Donington— the Government's take will amount to £2,000 million. It is true that this is helping the Government's objective of reducing public borrowing. In the longer run it should help with our objective of lowering the
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burden of taxation, which is essential to restore incentives. North Sea oil, however, will not provide the answer to all of our problems, and it is important to keep it in proper perspective.
Coming to quite a different subject, it was, of course, very encouraging to see the virtual unanimity in the House that something really needed to be done about the powers of trade unions This point was made by Lord Amory, Lord Hankey and Lord Hanworth. The Employment Protection Bill provisions for limiting secondary picketing and encouraging the use of secret ballots will help to restore a better balance in industrial relations, and will also help to protect the rights of individuals. But this, as we recognise, is a field in which one needs to make progress, and progress must he made, with caution.
The noble Lord, Lord Bowden, in a most interesting speech, raised the question of inflation accounting, and he said that the present system of historic cost accounting deceived everybody concerned, although apparently not the noble Lord himself, and the effect of the adoption of historic cost accounting for taxation purposes amounts, he claims, to a concealed capital levy on industry.
This is a matter, of course, where the initiative must rest with the accounting profession. An exposure document No. 24, dealing with accounting in an era of inflation, was issued by the Accountancy Standards Committee of the accountancy bodies on 30 April 1979. There has been a great deal of discussion as a result of that document and one hopes that a definitive standard will be prescribed by the accountancy profession in the not too distant future The consideration which is currently being given to the implications for the taxation of companies is making good progress, but obviously we cannot come to any final decisions on this and, indeed, the extent of our progress must be limited until such time as the accountancy bodies themselves decide what the correct accountancy standards should be.
The noble Lord, Lord Bowden, also quoted a phrase, the origin of which he said that he was unable to trace. I hope that I may assist him in that respect. The phrase comes from Tacitus' The Agricola. The point is relevant to the debate as the noble Lord will realise in a minute. The

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phrase refers to the Roman conquest of Britain, the second conquest of Britain, and while, therefore, the noble Lord, Lord Kaldor, seems to have pushed the frontier of our troubles back to 1850, the noble Lord, Lord Bowden, now seems to have trumped his ace and got us back to AD 45!
Lord BOWDEN: My Lords, I should like to thank the noble Lord very much for that information— I have been looking everywhere for it.
Lord COCKFIELD: My Lords, the noble Lord, Lord Balogh, in a most interesting speech, and one which will clearly repay a great deal of study afterwards, asked why monetary theory had so quickly been adopted and, in a space of a few years, had become universally accepted. He attributed that to the fact that it absolved everyone from all and every responsibility. I do not think that that, in fact, is a really adequate explanation.
Over a long period of time we have, not only in this country but elsewhere learned the lesson slowly, but I hope surely, that the State is not an all-powerful and is not an all-benign entity. The simple truth is that the power and the wisdom of the State, of Government and of Whitehall, are limited Great damage has been done by people thinking and acting as if they had powers they simply did not possess The development of monetary policies, and indeed the other policies of the Government, reflect a much more modest and realistic view of what Government can do. That is a thought that I would commend also to the noble Lord, Lord Underhill, and to the noble Baroness, Lady Gaitskell.
The noble Lord, Lord Harris of High Cross, and indeed the noble Lord, Lord Hankey, before him, stressed the need for the Government to stick firmly to their monetary and financial policies as that was the only way in which inflation could be cured. I entirely agree with them. It is absolutely essential that people should be convinced that the policies will be maintained. Everything depends on changing inflationary expectations That we are determined to do.
We in this country face innumerable problems, both in the social field and in the field of unemployment. The noble Baroness, Lady Gaitskell, and the noble
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Lord, Lord Pitt of Hampstead, spoke eloquently about the problems in that respect. We realise, of course, that they are important and urgent problems, but it is only if we succeed in defeating inflation that we shall open up the way to make progress: and that, and that alone, is the way in which all of these other problems, to which a number of your Lordships have drawn attention, will ultimately be solved.
8.46 p.m.
Lord KALDOR: My Lords, I understand that it is a tradition of this House that the mover of a Motion has the right to the last word, on condition that he limits himself to two minutes. I think that that is an extremely wise restriction which saves one from innumerable temptations, such as trying to convert the noble Lord, Lord Harris of High Cross, or even the noble Lord, Lord Cockfield, to the Scottish dissenting theory of inflation which is so much better empirically or econometrically based than the monetarist theory.
I have found the debate extremely valuable and interesting. I was particularly impressed by the speech of the noble Viscount, Lord Amory. If I am able to speak with so much eloquence and wit if, and when, I reach his age I should feel very proud. He did not disclose the one fact that I recently learnt. He is the only Chancellor of the Exchequer since the war who left the Treasury with the same retail price index as existed when he entered it two-and-a-half years earlier. He did not claim all the credit for that. He thought that the credit for that was largely due to the fall in world prices, which, I think, ought to give the noble Lord, Lord Cockfield, and all those who believe in the monetary theories of inflation some food for thought. My Lords, I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn

CRIMINAL JUSTICE (AMENDMENT) BILL [H.L.]
8.48 p.m.
Lord WIGODER: My Lords, I beg to move, That this Bill now he read a third time. In so doing I should like, if your Lordships would permit me, to express my appreciation to those Members of your

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Lordships' House who have enabled this Bill to reach this stage I have in mind particularly the Lord Chief Justice, the noble and learned Lord, Lord Widgery, who, in the midst of a crowded schedule, found it possible to come to your Lordships' House to support this Bill. I should also like to thank two former Lords Chancellor, the noble and learned Lord, Lord Elwyn-Jones, and the noble and learned Lord, Lord Gardiner, who each expressed their very real concern at the state of affairs which this Bill is designed to remedy; the noble Viscount, Lord Bridgeman, who was one of the original Members of the Tucker Committee, who expressed his support for the Bill; and the noble Lord, Lord Mischcon, who at all times devoted himself to the detail of this Bill with a constructive attitude that was most helpful. I must finally mention the noble Lord, Lord Belstead, and his colleagues in his Department who have displayed the utmost co-operation and patience in dealing with the problems raised by this Bill and who have so materially assisted with the drafting of the Bill as it now is in its present state.
The Bill is put forward as a modest measure which is designed to deal with a very real grievance that some defendants feel in certain circumstances. I venture to hope that, if the Bill is given a Third Reading in your Lordships' House, and passes from here to another place, the Government might find it possible, in view of the wide support that it has received in your Lordship's House, to find time for it in due course in another place among the rather more major and controversial matters in which they are at present engaged. I beg to move.
Moved, That the Bill be now read 3a.— (Lord Wigoder.)
The PARLIAMENTARY UNDERSECRETARY OF STATE, HOME OFFICE (Lord Belstead): My Lords, I should like to express gratitude to the noble Lord for the thanks which he has given to my noble Lords and also to the Home Office for the work which we have been glad to do with the noble Lord on this Bill. This Bill, of course, is sponsored by the noble Lord and is in every sense his Bill. If I may say so, I shall watch with great interest its further progress in another place.
On Question, Bill read 3a, and passed, and sent to the Commons.

INTERPRETATION OF LEGISLATION BILL [H.L.]
8.51 p.m.
Lord SCARMAN: My Lords, I beg to move that this Bill be now read a Second time. After the economists have kept your Lordships' House entranced for some four to four and a half hours, finding it necessary, so far as I can understand them, to quote Tacitus's Agricola in order to understand economic problems of 1980, I feel that we lawyers must be happy to have waited until those discussions have concluded before, even at this late hour, we come and ask this House to sit even later into the night. My one ambition tonight is to make sure that the Second Reading of this modest little Bill concerned with law reform will be able to demonstrate one thing at least: that lawyers need not be as long-winded as economists.
The Bill is, indeed, modest both in its purpose and in its scope. It offers no more than a limited degree of statutory intervention in the practice of statutory interpretation by the judges. It has two purposes: first, to improve communications between Parliament and the Judiciary; and, secondly, to assist the judges towards a clearer understanding of Parliament's legislative intention when construing Parliament's enactments. Modest though the Bill is, it is clear from that statement of its purpose that it challenges, to a certain extent, established judicial thinking. It has been axiomatic among lawyers and, indeed, in our legal professional thinking for a very long time that the interpretation of statutes is a matter for the judges; it is not a matter for legislation.
To this extent the Bill is, within its limits, an attempt at a fundamental new approach in law reform. However, I would ask your Lordships to think of this Bill not so much as an attempt— and, of course, it is an attempt— to help judges in their task of interpreting statutes, as an attempt to save and relieve Parliament from the frustration of judicial interpretation by judges not sufficiently guided or informed as to Parliament's intentions.

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There really are dangers to Parliament if judges are not given sufficient information to enable them to construe statutes according to the intention of Parliament.
The Law Commission, in a report to which I shall be referring, quoted a passage from a book by my noble and learned friend Lord Devlin, talking on the subject of the interpretation of statutes. My noble and learned friend said:
"The law is what judges say it is. If the House of Lords were to give to an Act of Parliament a meaning which no one else thought it would reasonably bear, it is their construction of the words used in preference to the words themselves that would become the law".
It is in an attempt to help judges avoid putting that sort of construction upon the enactments of Parliament that this Bill produces a few measures, which I shall explain in a few minutes. Nevertheless, it is an immense power that the judges have interpreting statutes, and I think that it was the immensity of this power and the ancient tradition that it is a power belonging to the judges that led my noble and learned friend Lord Wilberforce to say in a debate in this House in November 1966:
"Statutory interpretation is what is nowadays popularly called a non-subject".
The noble and learned Lord said:
"I do not think that law reform can really grapple with it. It is a matter for educating the judges and practitioners and hoping that the work is better done".— [Official Report, 16/11/66; col. 1294.]
This Bill is a little more than an educational exercise for the judges. It is a little more than an expression of hope that they will improve their practices and their rules for the interpreting of statutes. Nevertheless, that purpose is inherent in the Bill. When my noble and learned friend Lord Wilberforce said in 1966 that he thought it was a "non-subject" for law reform, because of the history of the subject as well as of the difficulties in legislating, we did not then have the benefit of the Joint Report on the Interpretation of Statutes produced by the two Law Commissions in 1968. This Bill is no more than the embodiment of the draft clauses which the two Law Commissions, in their joint report, put forward in 1968.
Since 1966 we have also had the report of the Renton Committee on the Preparation of Legislation. That committee reported
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in 1975. Its report includes an extremely interesting and penetrating assessment of the draft clauses put forward by the two Law Commissions in 1968, the clauses which are embodied in this Bill. The committee came to the conclusion in 1975 that an early enactment of a suitably modified version of the Law Commission's draft clauses was desirable.
I have spent a little time on the background and the history because it may be said, when one looks at this Bill in detail and when one looks at current judicial developments since 1969, that there really is now no need for this Bill at all; that the judges have developed the law since 1969 and events therefore have passed by the Law Commission's report of 1968. That was not the view of the Renton Committee in 1975. I suggest that it would be unwise to think that, because there have been certain favourable developments in the judicial attitude to statutory interpretation since 1968, there is now no longer a need for this Bill.
I turn to the Bill. It is an extremely short Bill. It does not, of course, pretend to be a code of rules and principles governing the whole business of the judicial interpretation of statutes. It does not purport to alter, or amend, or restrict the common law on this subject. It supplements the existing law. It produces new aids to interpretation. The Bill consists of only five clauses. Those five clauses incorporate the four clauses which were the joint recommendation of the two Law Commissions.
The fifth clause is an important clause. It is the clause which would extend the operation of this Bill to Northern Ireland and Scotland. That is wholly proper, bearing in mind that the Bill is based upon the recommendations of the two law reform bodies who, between them, are responsible for law reform throughout the whole of the United Kingdom. The one clause of principle in the Bill is the second clause. That declares two principles for the interpretation of Acts of Parliament. Of course, these are not exclusive of already existing principles. They are to be included among the principles already applied by the judges in interpreting statutes.
I think that nobody could criticise either of these principles, save some might say they were unnecessary because the

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judges have gone that far already. The two principles are, first, that a construction which would promote the general legislative purpose underlying the provision which is the subject of interpretation is to be preferred to a construction which would not. As the Renton Committee commented, it would be valuable to have that guidance laid down by Parliament; that indication as to the priorities in interpreting statute laid down by Parliament however far the judges have already taken the case law in that direction.
It is valuable because judicial fashions, like other fashions, change from generation to generation. It is possible that in the last 10 or 15 years one has seen a more liberal approach towards the interpretation of statutes among the judges than was to be noticed in the preceding period. One knows of course in the United States of America how you get a Warren court or a Burger court. In this country nothing quite so sensational; certainly no name dropping of that sort. Nevertheless, judges from generation to generation vary. The old habit of sticking to the literal meaning of the words used, and refusing to depart from them even when they produce a result which is clearly inconsistent with the intention of Parliament but no departure because the words are clear, is still lurking in the back corridors of the legal system, and must be exterminated and can be exterminated and laid to rest forever only by a statutory provision such as is to be found in Clause 2(a).
The second principle in the clause—and these are the only two principles in the Bill, and again the same observations I made on the first principle apply equally to this—is that:
"… a construction which is consistent with the international obligations of Her Majesty's Government in the United Kingdom is to be preferred to a construction which is not ".
I suggest that those two principles—both of them recommended by the two Law Commissions; both of them winning the approval and support of the Renton Committee— are appropriate guides for Parliament to lay down; guides for the judges indicating the approach which Parliament wants and requires to its enactments. One must bear in mind that the judges' job is to obey the will of Parliament as expressed in its enactments.
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If Parliament can give guidance to the judges in the approach that it expects of them towards its legislation, then constitutionally that is appropriate and practically it will help to ensure that Parliament's enacted intentions are indeed fulfilled in the application and enforcement of the law by the judges.
So much for Clause 2. The clause which may create most controversy in the Bill is Clause 1, and of course there are Committee points to be made on that clause and on the very separate provision with which I will deal shortly, Clause 4. Clause 1 sets out a number of aids to the interpretation of statutes. The great difference between judicial interpretation of statutes in this country and judicial interpretation of statutes in America and most countries of Europe is that our judges are confined to the context, the words, of the statute. As a general rule they may not go outside the words of the statute to determine the intention or purpose of the legislation or to decide what is the meaning of the specific provision which is under review at the time.
That is very different from other countries. In America, the legislative history is of course always available to help the judges, or perhaps some would say sometimes to confuse the judges, as to the intentions of the legislature. Both in America and indeed in Europe explanatory material is provided, committee reports are looked at and very often specific memoranda are produced and referred to in a preamble, and the judges and indeed the public are told they may have resort to those memoranda in the interpretation of the particular measure.
We have the very strict rule which I have described. This Bill, if enacted, would not take us anything like as far as our European neighbours and American brothers have gone in developing aids to interpretation outside the words of the statute. But even in this country the strict rule that you may look only at the provision in its context is subject to an exception, and the exception is that one may look to previous reports and to the previous state of the law before the enactment under consideration to determine what the mischief was which Parliament was seeking to remedy. That is still the law today but it is a rule which is very

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often not observed in practice; and judicial practice in regard to referring to material outside the words of the statute in order to discover its meaning is very divergent in this country, and we have not as a body of judges as yet established what are legitimate aids to interpretation outside the statute and for what purpose they may be used.
Even in the small gathering of this House tonight we have a number of distinguished judges who were recently concerned in a case in the House of Lords in its judicial capacity. Some of them said, "The mischief rule is the only rule by which we can look at committee reports or other material preceding the Act to explain the Act. We may not use it", said some of these judges, "as an aid to the construction of the statute". But others, also in this House tonight, in the same case said, "On the contrary; we are going to and we can use these preliminary reports as an aid to construction". One noble and learned Lord, who is in this House tonight, said:
"What else can you do as a matter of commonsense? Are you going to allow a judge to read a report in order to discover the mischief which Parliament was seeking to reduce or diminish, and then tell him that when the report reached the recommendation stage he must close his eyes? Must he selectively read it, and then go blind when he comes to a recommendation?"
Judges are widely divergent in their practice in the use of explanatory material. One could say that they fall into three classes. There are those in the strict class, who will go outside the context only to discover a mischief. There are the liberals who go far enough to use relevant reports as an aid to construction. Then, it will not surprise your Lordships to hear, there is a third class: the do-as-you-please judges, who will look either openly or secretly at whatever material they think appropriate in order to get at the purpose of Parliament.
It is with those considerations in mind that I ask your Lordships to look briefly at Clause 1. I am not going to weary the House with Committee points. I think that some of these provisions in Clause 1 could be tightened up: but see the sense of them, my Lords:
"In ascertaining the meaning of any provision of an Act …"
the following matters may be considered. First,
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"all indications provided by the Act … including cross-headings, punctuation and side-notes …".
The old law is, just the words. Judges cannot help looking at side-notes. They cannot help looking at cross-headings, or noticing the punctuation. They are there to help them, and they are helped. How absurd it is that they must disregard those matters, even though they may be of very light weight indeed in guiding them. But how can they be asked to disregard them?
The clause also refers to:
"any relevant report of a Royal Commission Committee or other body which had been presented or made to or laid before Parliament …".
I have dealt with that. The clause goes on to mention
"any relevant treaty or other international agreement … of which copies had been presented to Parliament …
"Any other document bearing upon the subject-matter of the legislation which had been presented to Parliament by command of Her Majesty before",
the passing of the Act. These aids are already used by the liberal and the do-as-you-please judges. They are used to a very limited extent by the strict school. Is it not better to legitimise the practice, to put it above board so that we know where we are, and in doing that provide the judges with valuable and helpful material?
There are two safeguards. The first is that the judge shall remain the arbiter of the weight to be attached to these matters when construing the Bill. This of course is of the utmost importance. An old report, a comma, are matters which may have very little weight. A Law Commission Report, with clauses attached, those clauses being part of the Bill or the Act which has been passed, obviously are of very considerable weight.
The other safeguard is that the Bill continues the prohibition of any reference to Hansard. Nothing in the Bill
"shall be construed as authorising the consideration of reports of proceedings in Parliament …".
We will therefore avoid any practice of reading into the work of Parliament for the record speeches which can later be used by judges or counsel in interpreting or twisting the meaning of statutes.
There is only one final provision, which is quite separate from those that I have discussed, and which I have not yet

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mentioned. It is Clause 4 of the Bill, which deals with a presumption in regard to the enforceability of a breach of statutory duty. It provides that:
"Where any Act passed after this Act imposes or authorises the imposition of a duty … it shall be presumed, unless express provision to the contrary is made, that a breach of the duty is intended to be actionable … at the suit of"
a party who has been damaged by its breach.
My Lords, that sounds a mouthful, but what it is all about, in fact, is this. At the end of the 19th century the courts had to consider whether breaches of the Factory Acts gave rise, or should give rise, to an action for damages. It was decided in 1898 that they should. The reason given was that there should be a remedy available for a breach of statutory duty if, on a view of the statute as a whole, such a remedy could be said to be intended. That was the reason given by Lord Justice A. L. Smith in the case of Groves v. Wimborne. Twenty-five years later the problem was considered by the Court of Appeal, including Lord Justice Atkin, in the Britannia Hygienic Laundry case. This time, Lord Justice Atkin propounded a somewhat different test. Then, later, in a case concerning the Wandsworth Greyhound Stadium, the matter was considered again and a different test was propounded. The law is now so confused that Lord du Parcq once said that surely it is not asking Parliament much to say, when it imposes a statutory duty, whether it intends that statutory duty to attract civil liability at the suit of someone who is damaged by the breach of it. All that that clause is intended to do is to meet that very reasonable requirement voiced by Lord du Parcq after the Wandsworth Stadium case.
My Lords, I have been longer than I should have been at this time of night, but this Bill is a piece of law reform which, though in a strange area for law reform, could do an immense amount to improve communications between Parliament and the judges, and to enable the judges to know what material they can look at and what principles Parliament is asking them to apply when interpreting their statutes. My Lords, I beg to move.
Moved, That the Bill be now read 2a.—(Lord Scarman.)
9.23 p.m.
Lord ELWYN-JONES: My Lords, I am sure that the House will be grateful to the noble and learned Lord, Lord Scarman, for introducing this Bill. As chairman of the Law Commission he fathered it about 11 years ago, and it is obvious that he still has tender feelings for his offspring. It is right that Parliament should review and consider the difficult problem of the interpretation of statutes, and if extraneous aid in that difficult task could be obtained from Parliament by legislation it would indeed be very welcome. In these days of dramatic disagreements with regard to the interpretation of statutes, not only between judges but regularly between the Court of Appeal unanimously, on the one side, and the Appellate Committee of your Lordships' House, on the other, if I thought that the introduction of these legislative proposals would tend to reduce rather than multiply those differences, I am sure all the learned Members of your Lordships' House who are here would welcome it. But the real question is whether it would help.
The report upon which it is based I read again after an interval of 11 years, and I found it enormously stimulating and full of constructive criticism and analysis of the existing law and practice of the courts, and indeed also of the legislative process. It points out that statutory interpretation is not a topic where there are any clear-cut defects for which, once diagnosed, legislative intervention can promise a dramatic cure. I suspect that that will be a generally accepted view; and your Lordships will have heard with interest the observation of the noble and learned Lord, Lord Wilberforce, when he described statutory interpretation as a "non-subject". But the Law Commission concluded after long discussion, consideration and consultation that a limited degree of statutory intervention was required in this field for the purposes set out in the report-and this Bill is the consequence.
As I see it, the task is to strike a balance between the advantages to be expected for a limited number of cases from enabling the courts to refer to material which might be relevant on a question of interpretation and the price to be paid for a change which might impose additional uncertainties on those who are concerned with the effect of legislation and with litigation and would lead to extra work in the machinery

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of Government. We considered this matter carefully when I was in office, but I confess that at that time the disadvantages seemed to us then to outweigh the advantages. But it is a matter that, certainly, I am very anxious should be considered by the House again and by the expertise which is available here to analyse it.
The heart of the Bill, as the noble and learned Lord has indicated, is in Clause 1. If it became law, I think that the scope for argument on the meaning of a statutory provision would tend to be increased rather than diminished. Not only will that argument turn on the wording of the statutory provision itself but it will be necessary also in the course of that interpretation, or, at the very least, desirable, to consider the relevance and content of Royal Commissions and other reports which may be relevant, international agreements and other documents. It will also have to consider how much weight it would be appropriate to give to this material in the circumstances and what is revealed by this material in identifying the underlying purpose of the statutory provision; and, in regard to the provision regarding the treaties, what, on its true interpretation, are the Government's obligations under a treaty or other international agreement.
I notice that Clause 1 does not include, as was sometimes rumoured to be the intention — and it was examined carefully by the Law Commission—the use of Hansard. I was charmed on reading the report to see the comment about this matter which reads:
"… the process of enacting legislation is not 'an intellectual exercise in the pursuit of truth but an essay in persuasion or perhaps almost seduction', and that, in these circumstances, 'to appeal from the carefully pondered terms of the statute to the hury-burly of Parliamentary debate is to appeal from Philip Sober to Philip Drunk'."—
attractive but perhaps harsh words upon the proceedings indeed. At any rate, "Philip Sober" has apparently prevailed and we are not to take the advantages of opening the doors of Hansard in the problem of interpreting statutes.
Other doors, as Clause 1 indicates, are indeed to be widely opened. One wonders with regard to the reports whether there is a time limit as to the date on which the referrable reports would be thought
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to be helpful. There is no indication to that effect in the Bill. I understand for instance, that a Bill on industrial relations is about to be laid before Parliament if the "hawks" and "doves" in the Cabinet can agree upon its terms. It will be interesting to reflect whether if this clause operated it would be appropriate to refer to the Donovan Report and even to In Place of Strife in the consideration of the new Bill when it comes before the courts, because they would be relevant matters in the consideration and interpretation of such legislation. However, perhaps there will be some restraint upon the time element when it comes to the test.
I confess that I fear that if the clause did beome law it would lengthen Parliamentary proceedings in the consideration of Bills in the Committee stages and I think the burden on Government could be considerable. I wonder, too, about this. If the clause became law a good deal of the legislative task would have been done before Parliament was ever seized of the matter, for Parliament could clearly make no change in the contents of the report whose relevance and use would be introduced by the introduction of the Bill.
These are the kinds of factors which filled us with anxiety in the prospect of giving effect to the Bill. Points of detail in the Bill, like Clause 1(1)(a), allowing the courts openly to take account of punctuation and side notes, seem to me to be very helpful. I wonder what is meant by the phrase "all indications", but perhaps that is a point of detail for the Committee stage when we come to it. Clause 1(1)(d) raises a matter of importance to which I might refer at this stage. It says:
"any other document bearing upon the subject-matter of the legislation which has been prseented to Parliament by command of Her Majesty before that time".
Does that include White Papers, Green Papers or Green Papers with white edges? Presumably it is intended to do so. I cannot help thinking that as far as the parliamentary draftsman would be concerned, if the Bill was preceded by a White Paper they would be having to look over their shoulders in the drafting of the Bill at the White Paper in their work of construction. It would probably be prudent to ask parliamentary draftsmen also to draft the White Papers and the

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Green Papers; but perhaps not. I have certainly known of occasions when proposals in a White paper, not finalised, not fined down to a legislative point, proved very embarrassing indeed when the Bill came to be drafted. That possibly never happens in the Administration of the noble and learned Lord the Lord Chancellor, but it can come to pass. I wonder what the result would be. Those difficulties will be far more serious if the White Paper is to be part of the record after the Bill is published, and to be examinable by the courts in interpreting Acts of Parliament.
I wondered what Clause 1(1)(e),
"any document … which is declared by the Act to be a relevant document for the purposes of this section",
was intended to cover. But again perhaps that is a matter for later enlightenment. Is it intended to provide for an explanatory memorandum or for some supportive document of that kind?
I find Clause 2 acceptable, but I think that judges already apply the principles set out in it. Whether advantage is gained by giving them express statutory authority, I know not. I should have thought it might not be very advantageous, but they are such admirable principles that I would certainly not quarrel with them for that limited purpose. I now want briefly to come to Clause 4. I wholly agree with the noble and learned Lord, Lord Scarman, that the present position with regard to statutes imposing a statutory duty is very unsatisfactory, because of the wide area of doubt which has arisen about whether or not the imposition of a statutory duty carries with it a civil remedy. But I think that the clause as it stands is extremely wide and, on the face of it, covers the breach of any statutory duty; for example, the breach by a Minister of a duty to make a scheme or hold an inquiry. I do not think it could really be contemplated that civil action should lie in all such cases.
What I fear might be the result if it became part of the law would be that the provision has to be excluded in nearly every case in which a new duty was imposed costing parliamentary time and causing difficulty. There would, indeed, be a host of cases and it could be merely automatic to exclude it, including most of the statutory
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duties that are imposed upon Ministers. Indeed, I fear that its more or less usual exclusion might become so automatic that it would defeat its own object. It may well be that the better course would be to inverse the provision of Clause 4.
Your Lordships will see that I certainly lack enthusiasm for this Bill, but I do not lack enthusiasm for the need for us to consider whether there are possibilities by legislative means of limiting the differences that arise in the interpretation of statutes. Unfortunately, I cannot see any myself and we shall have to rely on the kind of approach that the noble and learned Lord, Lord Wilberforce, whose early recovery to health we all greatly wish, identified in his intervention 14 years ago.
9.39 p.m.
Lord DIPLOCK: My Lords, before I came into the Chamber, I took the opportunity of looking at the standard text book on this subject, of which the first edition was published in 1875. The twelfth edition is now in force. It has 375 pages and cites about 1,500 cases. I suppose that two-thirds of the work of the Appellate Committee of this House involves disputed questions on the interpretation of statutes. It is a subject with which I am familiar and which, I am bound to say, I dislike. I am looking at what is proposed as a new statute, now before this House. In view of what my noble and learned friend Lord Elwyn-Jones has said, I think I can express my views upon it very briefly, because he has made most of the points which have made him view the Bill with what he calls a lack of enthusiasm but which in my case I can express as strong dislike.
The Bill falls into three parts. Each one of them, so far as they do anything at all, would in my view do more harm than good. Part of the defect is that the date of drafting, which was in 1968, is now 12 years ago and, perhaps very significantly, before this country entered the European Economic Community, a matter which would be required to be taken into consideration when one is looking in the future at the interpretation of statutes.
Clause 1 lists a number of documents which one is to look at, for whatever weight they are worth. What is not clear

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to me is whether this Bill intends one, when the words of the provisions you are construing are quite clear and unambiguous, to go and look at a large list of documents to see if you can find there some excuse for finding an ambiguity in the plain words of the statute. I still think that the public is entitled to look at the legislation to see what it says. It will be a temptation to the courts and to counsel before the courts to go into a large number of documents. I am perfectly confident that if this were done we should be spending our time construing the documents which we were asked to look at as well as construing the Act itself.
With regard to Clause 2, it lays down principles. They are already applied by the courts, but again they will not overrule the clear words of the statute. Finally, Clause 4 lays down a presumption. Of course, it would be helpful if Parliament, when it imposes a statutory duty, were to say whether or not it intends a right of action for damages to take place. But Parliament, despite long and frequent pleas from the judiciary, has failed to do that. I doubt whether putting in a presumption will make it any more conscious of the desirability of doing it, with the result that one will get quite unreasonable results because Parliament has failed to make the exception; whereas looking at the statute, as a matter of common sense and as one construes it now, one would say that of course Parliament did not intend that there should be a right of action for a breach of this kind of duty. My Lords, it is a modest Bill. I have not wanted to take any Committee points about it, but I would urge this House to say: Do not let us have a Second Reading of it; this is a matter which is not a subject for legislative interference.
9.44 p.m.
Lord MISHCON: My Lords, I yield to no one in my admiration for the scholarship and the clarity of mind of the noble and learned Lord, Lord Scarman. It was with that usual clarity that he moved tonight the Second Reading of this Bill. I also yield to no one in my admiration for the work of the Law Commission, of which he was such a distinguished chairman, and whose report, as we have been told, some years old, is the background to the Bill now before us. Having said that, my Lords, I
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find myself quite literally in the midst of my lords and masters, since I am the only practitioner who is in fact speaking in this debate tonight, and I am surrounded by those so much more learned and experienced than I am, namely the noble and learned Lords who have spoken and who are about to speak in this debate. But I think it is right that a practitioner should speak.
If I may try in very simple terms to put what is normally in the minds of the practitioners as principles which ought to govern the matter of interpretation of a statute, I would say that there are three propositions. The first one is that Parliament must be the supreme lawmaker and the judges supreme interpreters and enforcers of that law as made by Parliament. There must be no confusion of functions. Over the last few days we have seen a possible example, to which my noble and learned friend Lord Elwyn-Jones referred with some subtlety, of where confusion can lead. The cloud was no bigger than a distinguished judge's hand; but we must not allow it to be turned into an overcast sky.
The second proposition that I would put before your Lordships is that the interpretation of an Act of Parliament is not just the job of the courts; it is the almost daily job of my profession in advising ordinary citizens, and that power to interpret must not be beset by measures which make that interpretation uncertain or cumbersome or expensive.
My third proposition is—and I can, and do, put it most respectfully in this House—that Parliament must do its job properly and legislation must be clear and careful. In that context I bemoan the day, if ever it should occur, when there is not a second Chamber such as this in order to assist in the examination of legislation which comes from another place in order to make that legislation clearer, as so often your Lordships' House has managed to do.
Having said that, I would be the last person in the world to advocate that this Bill should not have a Second Reading. But I want, if I may, to turn to Clause 1 of the Bill, which has been discussed, especially in relation to reports of Commissions, and so on, which the judges will have to take into account if the Bill is passed in its present form.

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I have an idea that there is a reason—not the usual reason of delay—why this report that we have been discussing tonight, which was issued in 1969, only now emerges into a Bill, some 10 or 11 years later. The Renton Committee has been referred to, and indeed the Renton Committee advocated that when the Interpretation Act 1889 was brought up to date then, as a comprehensive measure, any matters dealing with the interpretation of legislation should be brought into it. That Interpretation Act was brought up to date in 1978, but Parliament, in its wisdom or otherwise, did not take that opportunity of incorporating any new rules in regard to the interpretation of statutes.
When we come to Clause 1, and especially to subsection (1)(b) and (d), I must bring to your Lordships' attention a fact that I believe has not so far been referred to; namely, that the Renton Committee, whose report was published in May 1975, in fact disagreed, for reasons which were set out in paragraphs 19.15 and 19.23 of their report, with the recommendations in Clause 1. I do not intend to bore your Lordships at this time of night by repeating the reasons why the Renton Committee did not approve of those important recommendations, which one might say are almost the meat of this Bill in the sense that other provisions here, as the noble and learned Lord, Lord Elwyn-Jones, said, were already existing law.
My Lords, the additions that I want to make to those points are the following: that I believe it is impracticable and most unwise that the interpretation of statutes should be made for the ordinary practitioner that much more difficult, and more expensive for his client, by the practitioner himself having to take the precautionary step, before advising on a statute, to see that he had available to him the relevant reports and White Papers, in order that he might read them and see whether they could have an effect on interpretation.
I can envisage most definitely the prolongation of trials which deal with the question of interpretation of statutes. I can at this very moment—closing my eyes in order to do it, and not, I assure your Lordships, because I am asleep from
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boredom at my own speech—hear one astute counsel after another trying to drag from a report of a Royal Commission phrases which would help their interpretation, as against their opponent's, of a statute, and then hearing the other counsel replying and quoting some other phrases.
Lord ELWYN-JONES: Both, my Lords, no doubt instructed by a highly assiduous solicitor.
Lord MISHCON: Sitting behind counsel and finding that day after day it is an even more expensive exercise for his client.
I am going to close my remarks, if I may, by trying to give your Lordships—I hope you will bear with me—a practical example as I, a practitioner, see it, of how it would develop if this clause were in fact enacted, and if indeed a judge were to be called upon to interpret a statute in accordance with a reference to Royal Commission reports or White Papers. With your Lordships' permission, I shall quote to your Lordships a case where in fact a very distinguished judge of the Court of Appeal, as he then was, did something of this kind, and he did it at great length; he did it in order to prove that the Royal Commission's report or the Commission's report with which he was dealing had nothing to do with the point he had then to interpret, and he then came to the conclusion that the terms of reference of that Commission would not have covered the point anyway. If your Lordships can imagine what would have happened in that case if indeed everyone could have referred to a relevant Commission report, your Lordships will realise that there is some substance in the point I have been trying to make.
The case is one which will be very well known to the lawyers in this House, and I venture to think it may be of interest not only to them, if I bring back their recollection to it, but also to those in the House tonight who are not lawyers. It was the case of Lucy v. Henley's Telegraph Works, reported in All England Law Reports 1969, volume 3, page 460. Perhaps I may recite the facts very briefly. It was a tragic case where the widow of a workman who contracted cancer as a result of coming into contact with a damaging chemical, brought an action

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within the proper time against her late husband's employers, who were Henley's. She did it, as I have said, within time. Then, just before the action was due to be heard, Henley's submitted that, if there were any liability at all, it was the liability of ICI. She then found that she was in difficulty in bringing proceedings against ICI because she would have been out of time. She sought to have ICI added as a defendant and argued that that was not, in fact, an initiation of a fresh action.
As the noble and learned Lord, Lord Denning, has been referred to in the course of the proceedings tonight, but always with the utmost affection and respect, I only wish to quote, if I may, one portion of his judgment in which he says:
"I cannot believe that Parliament intended that the widows should be in a worse position than the living claimants. Seeing that the living claimants have been permitted to join ICI as defendants, I think that Mrs. Lucy and Mrs. Wild should likewise be permitted. It comes back once again to the ever-recurring question: How should we construe an Act of Parliament?"
Then he comes in very clear terms to the method of interpreting an Act of Parliament:
"I have said before, and I repeat it now, that we should so construe an Act of Parliament as to effectuate the intention of the makers of it, and not to defeat it. If they have by mistake overlooked something, we should do our best to smooth it out. We should construe it so as to avoid absurdities and incongruities, and to produce a consistent and just result. This can be done quite simply by construing the words the action ' in s. 3(4) as meaning simply the action which Mrs. Lucy brings in respect of the death of Mr. Lucy'."
Not for the first time, not for the only time by any manner of means did that noble and learned Lord—whatever else one may ever have to say by way of criticism of some of his judgments, and one says it respectfully—try to come to the rescue, within a proper interpretation of the law, of somebody who was in distress.
Now I wish to give this example of where we would be getting to under Clause 1 of the Bill. The noble and learned Lord, Lord Justice Edmund-Davies, as he then was, happened to be chairman of a Commisssion and this is what he said—and I am reading from the report:
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"Claims which fail simply on the ground of effluxion of time since the cause of action arose frequently give rise to a feeling that the claimant has been denied justice … It was to make fairer provision for certain of these cases that the Limitation Act 1963, was enacted".
He then goes on:
"The contents of the 'Report of the Committee on Limitation of Actions in Cases of Personal Injury' cannot, under our present law, be adverted to in construing the Act which followed it within less than a year".
I say this with the utmost respect.
The noble and learned Lord then went on to deal with the report:
"Nevertheless, it is not without interest to note that what the report recommended was that—"
and he then sets out at length what is recommended. He continued:
"The report discloses that this recommendation (which was later reflected in s. 1(3) of the Act of 1963) was formulated after consideration of many other proposals. The simplest of these, viz., that the courts should have unfettered discretion to extend the three-year period in any case which appeared appropriate, was rejected"—
and he quotes—
"'by the practically unanimous opposition of the legal witnesses to the conferring on the Courts of a wide discretion'."
He then goes on to consider various aspects of a report of a commission of which he was a distinguished chairman, and then says:
"This 12-month fixed period of limitation was supported by both the Trades Union Congress and the British Employers' Confederation".
For two more pages of his judgment he goes on to consider the report and comes to the conclusion that the report was irrelevant to the matter before the court, and in any event was not one that could properly be dealt with in interpreting the statutes.
I have referred to this matter only in order to give your Lordships an indication, very humbly, of where this would lead in regard to prolongation of trials and arguments, uncertainty and expense if, indeed, the judges were enjoined to look at Royal Commission reports, White Papers and matters of that sort in interpreting statutes—the example that I have tried to give your Lordships being of a case where the learned judge realised, first, that he was not entitled to do it and, secondly, that it was irrelevant.
10.2 p.m.
Viscount DILHORNE: My Lords, my noble and learned friend, Lord Scarman, moved the Second Reading of this Bill with a most persuasive speech. He said that it was a modest little Bill with two objectives, with neither of which one could possibly quarrel: to assist in the communications between the courts and the legislature and to assist in the interpretation of statutes. Despite his advocacy, I must say that I think this modest little Bill could, in fact, be productive of a very great deal of harm. When listening to his speech, I thought I detected a gap in his argument, in his failure to demonstrate that the provisions of the Bill would really assist in the task of interpretation.
We all know how difficult that sometimes is. We are all frequently faced with that problem. Indeed, sometimes one wonders whether Parliament has really appreciated what it has done when it has passed a particular provision. We may have had an instance of that recently when Parliament, by enlarging the meaning of the words "trades dispute", considerably extended the application of what I see has been referred to, I think somewhat inappropriately, as
"the golden rule of immunity for acts done in furtherance of a trade dispute".
Reference was made just now to the observations of the noble and learned Lord, Lord Denning, with regard to the interpretation of statutes. They are not very new. It was three centuries ago when Coke said that:
"a statute was to be expounded according to the intent of them that made it ".
The opening sentence of the book to which I think my noble and learned friend Lord Diplock referred, in the most recent edition, is that:
"that is the fundamental rule of interpretation to which all others are subordinate".
Nowadays it is fashionable in some quarters to call that a purposive construction, but that is just another way of saying precisely the same thing. From reading the newspapers one thing I doubt is sufficiently appreciated at the present moment: that our duty sitting judicially
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is to seek to give effect to the intention of Parliament, whether or not we like what Parliament has done.
I noted the The Times said in its leader last Saturday:
"… recent decisions [of this House] have tended to extend the area of total legal immunity which the trade unions enjoy."
The Times, of course, is not alone in saying that. I did not sit on the cases to which they referred but I should like to say—I hope it will not be improper for me to do so—that that is quite untrue. The Times has got it very wrong and not for the first time when dealing with legal matters. Those decisions did not extend the legal immunity of the unions; they gave effect to the clear intention of Parliament expressed in Acts passed by Parliament. Perhaps The Times—and it may be others, even Members of Parliament—did not fully appreciate what had been done. The decision of my noble and learned friends, as I see it, did not extend the law; it merely stated what it had been for many years.
Now we have this Bill, the purpose of which is to help us in the task of interpreting Acts of Parliament. I do not think that it will. And to help us understand what Parliament has said we have all these paragraphs in subsection (1). I do not think that (1)(a) is really worth enacting.
"… cross-headings, punctuation and side-notes, and the short title"
are things that one cannot fail to see when one reads any Bill or Act of Parliament. I know of no authority for saying that a judge must shut his eyes to what is in the Bill or Act that he is reading.
All this Bill does is to say that one must give such weight to them as is appropriate. That, I suspect, is very little because these side-notes, the cross-headings—and Parliament has no control over them—are written in presumably by the draftsman, and while it may be comforting to think that the interpretation one gives to the language of the section is supported by the side-note, the side-note cannot govern the construction nor can the cross-heading. I do not think it is really worth legislating about that.

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It is when we come to (b) that we really see the dangers of this Bill, and there I am in substantial agreement with the noble Lord, Lord Mishcon:
"…any relevant report of a Royal Commission, Committee or other body"
et cetera. Anything which has been presented to Parliament. And at the same time and rightly this Bill excludes reference to Hansard. If one wants to see what was the intention of Parliament and go beyond the language of the Act surely the best guide would be Hansard. But it is quite rightly rejected because no one knows which is the right Hansard to look at. If you have to look at all of them in the Commons, in this House, the proceedings in Committee, the proceedings before a court to determine the meaning of a particular sentence would last a long time at great cost to the litigants.
This Bill rightly says that if you want to find out the intention of Parliament you must not look at Hansard, but you must and can look at
"any relevant report of a Royal Commission, committee or other body which had been presented"
to Parliament. Is it to be assumed that Parliament has accepted all that the Royal Commission or a committee said? Only if that can be assumed can the report of a Royal Commission or committee be a reliable guide, aid, to the construction of an Act.
It has been said, and rightly said, that it will be very time-consuming if we have to look at these documents. We really would have to look at any document counsel or solicitors like to put before us, because unless we had seen them we could not say whether or not they were relevant, and, if relevant, what weight they should bear.
It must not be forgotten that these statutes have to be construed not only in this House, in the Court of Appeal, in the High Court and in Crown Courts and circuit courts, but in magistrates' courts throughout the country, and copies of all these things are not readily available. My chief reason for opposing this particular provision is that it will divert attention from what Parliament has said to what a Royal Commission or committee has
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said, and may lead to a court construing an Act giving effect, as it does so, not to the intentions of Parliament but to those of a Royal Commission or committee.
Paragraph (c) is less objectionable; I do not think it is really necessary when an Act is passed to implement a treaty. The courts can look at the treaty. But to say that copies of all treaties or international agreements relating to the subject-matter of the Act can be considered by the courts, whether or not this country is bound by them, seems to me to be going far too wide. Paragraph (d) is, I think, thoroughly objectionable, for there can be no limit to what the courts will be asked to look at. Again, I think it will divert attention from the real task of the court. Paragraph (e) is of little importance.
My noble and learned friend Lord Scarman referred to the different approaches of judges and divided them into three categories. I think it is the ease —I am sure it is —that some judges, seeing what appears to them a grave injustice resulting from the language Parliament has used, are tempted in order to prevent injustice to cross the line between judicial and legislative functions. That sometimes may happen but, however desirable that object, that in my opinion should never be done. The words of that great judge, Lord Reid, in a case I argued 20 years' ago should not be forgotten. In that case, he found it difficult to believe Parliament ever really intended the consequences which flowed from the contentions I had advanced, and he said:
"But we can only take the intentions of Parliament from the words which they have used in the Act, and therefore the question is whether those words are of a more limited construction. If not, then we must apply them as they stand, however unreasonable and unjust the consequences and however strongly we may suspect that this was not the real intention of Parliament".
If the words used are capable of two constructions, then Clause 2 with its statement of principle applies now; there is no need for legislation, as I see it, on that subject at all.
The main reason why I am opposed to the Bill, and I hope it will not get a Second Reading, is that Clause 1 of it appears to secure that for the purpose of construing an Act the courts can consider

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all the material which was available to Members of Parliament and to this House in its legislative capacity when considering the Bill which has become an Act, but not of course Hansard. That will, to my mind, increase to a very great degree the danger that judges may be tempted to trespass into the legislative field and to decide not what it was that Parliament intended by the words it used but what, in the light of those documents, Parliament should have done; and that is going beyond the judicial function. This measure, though small, is important, and that is my excuse for inflicting this speech on your Lordships at this hour. I hope that my noble and learned friend, often having ventilated this topic, will think that perhaps, in all the circumstances, he need not press it to a Second Reading.
10.15 p.m.
The LORD CHANCELLOR (Lord Hailsham of Saint Marylebone): My Lords, I rather apologise for being here and for playing a part in the debate, but I think that I am expected to do so. This is the second night running that one of my noble and learned friends on the Cross-Benches has proposed the Second Reading of a Bill based entirely, or almost entirely —and I think in each case entirely —upon one of the reports of the Law Commission. Yesterday we had the Matrimonial Homes (Co-ownership) Bill, proposed by my noble and learned friend Lord Simon of Glaisdale. This evening we have the Interpretation of Legislation Bill, proposed by my noble and learned friend Lord Scarman.
During the hours of pleasure and indeed of entrancement in which I have listened to these successive debates I have wondered what function the Lord Chancellor could at the end usefully perform which would keep those noble Lords who remained in the Chamber away from their beds. In each case I have felt absolutely convinced that my true task was that of advocatus diaboli. Last night we had a chorus of praise for the Bill. Everybody said how enlightened it was, how beautifully drafted it was, how it was in accordance with modern thought and socio-economic development in the 20th century. So I began to point out, I am sorry to say —rather to the chagrin, I thought, of my noble and learned friend
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Lord Simon of Glaisdale —some of the rather bizarre consequences which I thought the Bill might have, and some of the reasons why, if it ever got to another place, it would not get very much farther this Session.
This is almost the mirror image of last night. You see, my Lords, my noble and learned friend Lord Scarman has proposed a Bill equally sponsored by the Law Commission, and there has been a chorus of disapproval from the lawyers. But again I feel bound to cast myself in the role of advocatus diaboli. I think that there is a great deal more to be said for this Bill than has been said by other noble and learned Lords who have spoken on it, and I should like to put the case as I see it I do not stress the point, though I repeat what my noble and learned friend Lord Scarman said: that the Bill was, after all, proposed by a Royal Commission some years ago and was virtually —except for paragraph (d) of Clause 1(1), which I agree would be better out of it, on any view of the case —broadly speaking endorsed by the Renton Committee. As I say, I do not do more than repeat the point, and will not elaborate it.
But I think that the Bill has therefore to be taken seriously, and one also has to ask oneself why it has lingered in the pigeonholes for so long. The noble and learned Lord, Lord Elwyn-Jones, gave some indications without lifting the veil of secrecy from the otherwise almost entirely publicised proceedings of the Labour Cabinet. But I shall be equally discreet and say boldly, and as a member of the present Administration and of some Administrations before that of which the noble and learned Lord was an ornament, that it got across the departments and aroused the antagonism of the parliamentary draftsmen. They are a very talented and dedicated body of men, and although I should have thought they have more firsts in "Greats" and in "Mods" than have any other body of men associated together in the Kingdom, none of them has probably ever conducted a case at law, and certainly none of them has ever tried one.
Then, of course, it got across the conservatives in the profession. I need not reiterate any arguments about that because it is a case of res ipsa loquitur tonight, the "res" being the speeches of my

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noble and learned friends on the Cross-Benches. But I should like to present, if I might, one or two facts which might give a second thought to some of them; I do not say more than that.
The first is that English Acts of Parliament are approximately three times as long as continental Acts of Parliament. I first came across this fact when I was Lord Chancellor before and I met the nearest thing the French at present have to one, named Garde des Sceaux, M. Pleven. He entertained me royally and showed me a draft of his legal aid Bill, which approximately did the same thing as the legal aid legislation of this country, of which my noble and learned friend Lord Dilhorne was one of the Godparents, so far as I remember, as long ago as 1949. It was about one-third of the length.
Then there was a gentleman called Sir William Dale, who wrote an unreadable but extremely stimulating book about three years ago in which he pointed out that the same was true of the French Copyright Act, which had to say the same thing as the English Copyright Act because both countries were parties to the same convention and had to enact the same law. It was smaller by a factor of three; it was a third of the length. He went on to point out that the same was true of Sweden and, to a lesser but still significant extent, not surprisingly, of Western Germany. Their legislation, saying the same thing, says it in about a third of the number of words as our legislation does. This, I think, should give us food (as it is called) for thought.
The second thing is that the history of the English law on the interpretation of statutes, which was, I thought, lucidly gone into by both my noble and learned friend Lord Scarman and my noble and learned friend Lord Dilhorne, really consists in a battle between two rival schools of thought. My noble and learned friend Lord Dilhorne, who quoted from his ancestor, Lord Coke, I think perhaps showed himself false to his lineage because Lord Coke really belonged to what is called the mischief school. The mischief school looks at what is perhaps humorously called the mischief of the Act, which means what the Act was intended to do; whereas my noble and learned friend of course belongs to the literalist school, which is the other school,
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which says that you must look at what the Act says.
Viscount DILHORNE: My Lords, the noble and learned Lord does me a grave injustice. I do not think he could have listened to my speech. I supported what my ancestor said fully, and I always have.
The LORD CHANCELLOR: My Lords, my noble and learned friend quoted his ancestor and quoted him accurately, but exactly misrepresented what he was really about. But the fact of the matter is that there has always been this battle between the literalist school, which says, of course, that the function of judges must really be to construe the grammar of the section and not look outside to see what it was intended to do, and what might be called the purposive or mischief school, which says that you must try to find out what Parliament meant to do and give effect to it. Neither of them upset the relationship between Parliament and the judges —let us get that absolutely clear. Both sides in this battle agree that Parliament's business is to legislate and the judges' business is to interpret what Parliament meant to do. I think the noble and learned Lord, Lord Diplock, was perhaps modestly understating the case when he said that two-thirds of the cases he had to try involved the distasteful task of trying to find out.
I would guess —but I am guessing, and not using research for this purpose —that nine cases out of ten which come before the House of Lords depend in the end upon the interpretation of a statute. It is a pretty rum system we have got if, at the end, we have got to go to the House of Lords to find out what Parliament was really trying to do; and I would venture to think that we might find some greater assistance if we looked to the purposes behind this Bill. Of course, if Parliament makes it absolutely plain what it intends to do, it is the business of the courts to give effect to it; and may I reinforce and underline what was said by my noble and learned friend Lord Dilhorne on that subject.
The Times —and some of the correspondence in The Times even more than the leading articles —have given a totally false idea of the recent series of cases to which allusion, more or less delicate —sometimes more, sometimes less —has been made in

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the course of this discussion. The decision of the House of Lords was not a question of whether it wanted to do justice or not; and the decision of the Court of Appeal was not according to whether it wanted to do justice or not. The function of the courts as contained in the judicial oath is to do justice according to the law, in accordance with the law and custom of the realm. It is not the business of judges to make law; it is their business to interpret law.
But the question in this Bill is on what principles the judges should interpret the law? And on that, I think, both schools of thought are absolutely agreed. I would venture to suggest that the noble and learned Lord, Lord Scarman, was saying no more than the truth when he said that judges do not now follow exactly the same pattern of practice in different cases. Different judges do behave in slightly different fashions. I say "slightly"; perhaps I am understating the case. There is still this undercurrent of doubt as to the extent to which you can look outside the words of a statute to try to give effect to what Parliament really meant.
It happened that today I was talking to a noble and learned Lord who has not made a speech. There are very few of them: but I spoke to one of them; We talked about the debate we were going to hold this evening; we talked about Lord Scarman's Bill. He could point at once to three cases which he had tried as a judge in the course of his not inconsiderable career, in which, without a reference (which he had made in the course of his hearing) to a report, it would have been extremely difficult to find out what the Act meant. But in each case he looked at the report and it completely dissolved his doubt. I heard one very noble and learned Lord, again, unfortunately deceased, who said to me that he could never understand why judges were not allowed to look at Hansard. I have often heard this. I have heard other professional judges who have never been in Parliament, in either House, make the same observation to me. But I have never heard a judge who has ever attended a midnight debate in the House of Commons make the same observation.
I wholly agree that Hansard should be absolutely excluded from all reference in the courts; and I think it is a matter of
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comity between the courts and the House of Commons (and the House of Lords in this capacity) that no reference at all should be made to Hansard. He was able to show three or four cases where doing the thing which is allowed in Clause 1 of the Bill helped him and that, if he had not done what was allowed in Clause 1, he would not have had it right. I was able in reply to point to two cases, in one of which the House of Lords manifestly went wrong by not looking at the Blue Book which preceded the statute and on which the noble and learned Lord, Lord Elwyn-Jones, afterwards had to legislate on behalf of the Labour Government in order to put the error right; and in which, by a curious quirk, the House of Lords (again applying its Scottish jurisdiction, in which the noble and learned Lord, Lord Elwyn-Jones, had not thought fit to interfere) reversed the previous decision of the House of Lords and said it was entirely wrong —simply by looking at the Blue Book. I think that the noble and learned Lord, Lord Scarman, has a very much better case on Clause 1 than other noble and learned Lords have thought. What can happen to this Bill must be for him.
I think that Parliament ought to give attention to the way in which it prepares its legislation. I began this rather rambling set of observations by saying that the thing ran into difficulty with the departments, it ran up against parliamentary draftsmen and met with the conservatism of the profession. One at least of the reasons why other countries manage to legislate in shorter and more intelligible language than England is that they take greater care about the preparation of their statutes. They have what are called in France the travaux preparatoire, which are very much more than blue books and reports like those referred to by the noble Lord, Lord Mishcon. I believe that we ought to consider our legislative process very carefully before we get enmeshed in this web of words which every year we churn out in the form of public and general Acts.
I only want to remind the House of one rather terrible fact: the Liberal Government of 1911 was supposed to be a great radical reforming Government. It passed 450 pages of public general legislation. I shudder to think of what will be said of us in 12 months' time, so do not think

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I am making a party point here because I know what the come-back will be in 12 months' time. But the last time looked at the products of the Labour Government they had passed 3,000 pages of public and general legislation at a time when they had a majority of one at the most. In addition, there were 10,000 pages of subordinate legislation.
Lord ELWYN-JONES: If the noble and learned Lord will allow me, I hope that he is preparing for August sittings of the House!
The LORD CHANCELLOR: There is no telling to what terrible lengths the tactics of the Opposition may drive us. The point is that we are suffering from a form of legislation which leads to a degree of verbosity which is not basically tolerable because the total addition to our statute book is cumulative, and the number of repeals, except for spent and obsolete Acts, is negligible compared with the net addition to our statute book. The noble Lord, Lord Mishcon, talked about the woes of the practitioner. How I sympathise with him! Even the specialist cannot keep up with the flow of legislation which emerges from this cloaca maxima that we call the Mother of Parliaments. I feel that we ought to consider whether the way we are setting about things is a good way.
I am not here as an advocate of my noble and learned friend's Bill. I am bound to tell him, as I told my noble and learned friend last night, that unfortunately the state of the legislative programme along the corridor is such that he has not the hope of an icicle in June of getting this Bill through this Session; I do not know about the next one. I hope that he will not be too discouraged by that. I think that he has done a very real public service tonight by introducing a very interesting and important topic. I only wish that there had been more noble Lords on both sides of the House who had heard him and had heard the debate. I am not going to waste the time of the House any more.
10.35 p.m.
Lord SCARMAN: My Lords, this modest little Bill has certainly spurred the heavyweights of the House into the gayest and most frolicsome dance that I
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have watched for a very long time. That such a slight thing could provoke such heady fun at this late hour speaks a lot for the Bill, for the democratic process and for the endurance of your Lordships. I think that the Bill has come through the dance without suffering too many bruises on her toes. They have kept off it.
But one thing is quite clear. While the two principles of interpretation to be found in Clause 2 are regarded as quite acceptable, and indeed the only criticism that was made of them, as I suspected, was that they really are necessary, Clause 1, which provides the suggested aids for interpretation, has come into a storm of criticism of one sort or another —criticism, perhaps, more to be expected at the Committee stage than at this stage.
The interesting development in the debate, which came with the encouraging speech from my noble and learned friend on the Woolsack, has been that it is very difficult to look at the problem of improving aids to the interpretation of statutes, and developing principles for the interpretation of statutes, without at the same time looking at the other side of the fence; that is to say, the business of preparing and drafting legislation. I was very struck, when I read the Renton Committee's report, with their proposition that what was needed was a comprehensive measure which would contain proposals relating to the preparation and drafting of legislation, as well as proposals dealing with the interpretation of legislation.
The longer my noble and learned friend the Lord Chancellor continued, the more I came to think that the correct course is for us to be giving thought, and perhaps for the Law Commissions and others to be giving thought, to a more comprehensive measure than the one which I have had the honour of introducing and moving tonight. In view of what the Lord Chancellor said about the opportunities for this Bill to be considered, and in view of the interesting points made in the course of the evening's debate, I think that the course which I shall take, with the leave of the House, is to beg leave to withdraw the Motion for Second Reading.
Motion, by leave, withdrawn.
Bill, by leave, withdrawn.