Sitting of 2 May 1967

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  PORT OF LONDON BILL
  As amended, considered; to be read the Third time.
  EDINBURGH CORPORATION ORDER CONFIRMATION BILL
  Lords Amendments considered and agreed to.
ORAL ANSWERS TO QUESTIONS
  COMMONWEALTH AFFAIRS

    Admiralty Jurisdiction
    Sir Knox Cunninghamasked the Secretary of State for Commonwealth Affairs what progress he has made in arranging for the enlarged Admiralty jurisdiction contained in the Administration of Justice Act, 1956, to be incorporated into the respective legal systems of Barbados, British Antarctic Territory and Tonga.
    Mr. Hector Hughesasked the Secretary of State of Commonwealth Affairs how far his plans to enlarge Admiralty jurisdiction under the Administration of Justice Act, 1956, have progressed; and what are the present limits of that juridiction.
    The Minister of State for Commonwealth Affairs (Mrs. Judith Hart): The provision of comparable jurisdiction in territories for which my right hon. Friend is responsible is almost complete and I am arranging to let my hon. and learned Friend have details.
    We have no responsibility for the position in Barbados since independence.
    In regard to British Antarctic Territory, I have nothing to add to the reply given
    280
    to the hon. and learned Member for Antrim, South (Sir Knox Cunningham) on 3rd August last year. [Vol. 68, c. 142.]
    The Government of Tonga have not decided whether they wish the legislation to be extended to their territory.
    Sir Knox Cunningham: Will the hon. Lady draw the attention of those territories, which do not want this change, to the "Torrey Canyon" disaster and point out to them that, in a like case, there can be no recovery from a sister ship in their courts unless they adopt this enlarged Admiralty jurisdiction which, as she has said, the other Commonwealth countries have gladly given to their courts?
    Mrs. Hart: The hon. and learned Gentleman will be interested to know that later this afternoon my right hon. Friend the President of the Board of Trade is answering a Question which touches on this. Clearly, the implications of the "Torrey Canyon" will be considered in respect of the various maritime functions of different States.

    Merchant Shipping Act, 1958
    Sir Knox Cunninghamasked the Secretary of State for Commonwealth Affairs what progress he has made in arranging for the incorporation of the terms of the Merchant Shipping (Liability of Shipowners and Others) Act, 1958, into the respective legal systems of Aden, Antigua, Saint Christopher-Nevis-An-guilla, Saint Helena and Tonga.
    Mrs. Hart: In regard to Antigua, St. Christopher-Nevis-Anguilla and Tonga, I have nothing to add to the replies given to the hon. and learned Member last summer. The provisions of the 1958 Act have been incorporated into the legal system of St. Helena through the Ship-owners' Liability (St. Helena) Order 1966.
    As far as Aden is concerned, questions should be addressed to my right hon. Friend the Foreign Secretary.
    Sir Knox Cunningham: Will the hon. Lady point out to those territories which do not want this Act that there is an infinitesimal limit of liability of £7 per ton for their citizens under the present law and that, unless they adopt this Act in their courts, their people will suffer very real hardship in a similar case to the "Torrey Canyon"?
    Mrs. Hart: I am sure that those territories which have responsibility for making their own decisions will have in mind the implications of the "Torrey Canyon" disaster.

    African Commonwealth Countries (E.E.C. Associate Status)
    Sir G. de Freitasasked the Secretary of State for Commonwealth Affairs how many African Commonwealth countries have negotiated or declared their intentions of negotiating with the European Economic Community for associate status.
    The Secretary of State for Commonwealth Affairs (Mr. Herbert Bowden): In July, 1966, Nigeria concluded limited association agreement with the Community which has still to be ratified. Kenya, Uganda and Tanzania, acting together, have initiated negotiations for limited association. I am not aware of any declarations by other Commonwealth Governments in Africa of their intention to seek association with the Community.
    Sir G. de Freitas: Is not this practice spreading because the independent countries believe it to be in their interests to seek association with the Community?
    Mr. Bowden: The arrangement whereby Commonwealth countries may, if they so wish, seek association with the Community was agreed in the consideration of entry some years ago. It would appear to be desirable in the case of some Commonwealth countries, and we should certainly welcome it.
    Sir G. Nabarro: Can the right hon. Gentleman tell the House what will be the position in regard to Rhodesia? Has Rhodesia made any overtures to the European Economic Community? What would be the attitude of Her Majesty's Government if Rhodesia made such overtures?
    Mr. Bowden: Of course, there is no Government in Rhodesia. Her Majesty's Government are the Government of Rhodesia, and we have not made applicacation for associate status.

    Tanzania (United Kingdom Subjects)
    Mr. Longdenasked the Secretary of State for Commonwealth Affairs what representations he has made to the Gov-
    282
    ernment of Tanzania, regarding discrimination against British subjects of Arab and Asian descent.
    The Minister of State for Commonwealth Affairs (Mr. George Thomas): None, Sir. So far as we are aware there has been no discrimination in Tanzania on grounds of race against United Kingdom citizens of Arab and Asian descent.
    Mr. Longden: Are the hon. Gentleman and the Government aware that many Arab and Indian citizens who were born in Tanzania and who, until recently, were British subjects are being expelled by the Government of that country and victimised in many worse ways? Can Her Majesty's Government not make some protest, or are they leaving it, as usual, to such freedom-loving democratic fellow members of the United Nations as Haiti and Mali to do so?
    Mr. Thomas: It is true that, in January of this year, there was a check among non-Tanzanian citizens who were not in possession of valid residence permits. This led to a number of people being classified as prohibited immigrants. Whenever we seek to make representations to the Tanzanian Government, we do it through our Canadian friends.

    Gibraltar
    Sir F. Bennettasked the Secretary of State for Commonwealth Affairs what further steps his Department is taking to ensure the economic viability of Gibraltar, in view of the continuing difficulties with Spain.
    Mrs. Hart: As announced by my right hon. Friend the Colonial Secretary at the end of last year—[Vol. 738, c. 1158]—Her Majesty's Government are providing an extra £600,000 from Colonial Development and Welfare funds for prejects under the Gibraltar Government's Development Plan and a special grant-in-aid of £100,000 to the Gibraltar budget for 1967. In the first months of this year revenue and imports have been satisfactory and the number of tourists has increased. Further talks will be held between the two Governments later this year to decide on the next stages of the plan.
    Sir F. Bennett: Would not the hon. Lady agree that the chief threat to Gibraltar comes in the economic sphere from

    283
    Spain, and that the best possible way of bringing some relief to the people of Gibraltar is by announcing economic measures to ensure the viability of that colony to make Spain realise for ever more that she has no chance of bringing it to its knees?
    Mrs. Hart: The Gibraltar Government are pushing ahead as fast as they can with plans for economic development and, as my right hon. Friend the Foreign Secretary has said in the House, we are very ready to help in any way that we can.
    Mr. Raphael Tuck: Has not the time come to make our position unequivocally clear to the Spanish Government, and will my hon. Friend now consider withdrawing financial and travel facilities to that country?
    Mrs. Hart: I think my hon. Friend will know that my right hon. Friend made the Government's position quite clear in his statement on 13th April, and we shall continue to make our position totally clear.
    Sir F. Bennettasked the Secretary of State for Commonwealth Affairs what instructions he has sent to the Governor to forestall any resultant danger to aircraft landings arising from the unlawful works now being undertaken by the Spanish authorities in the neutral zone.
    Mr. Fisherasked the Secretary of State for Commonwealth Affairs whether it is proposed to continue to use Gibraltar in the normal way despite the restrictions announced by the Spanish Government.
    Mrs. Hart: No danger is foreseen to aircraft landings in consequence of the Spanish activities in the northern area of the isthmus, which Britain does not claim to be British territory. Accordingly, no special instructions have been sent to the Governor on this. But the manner in which recent demolitions have been carried out has caused extensive minor damage to roofs and windows of adjacent buildings, to parked cars, and to the frontier fence itself. The Spanish Ambassador was informed yesterday that we are seriously concerned about this and that we reserve the right to claim compensation.
    As to the restrictions announced by the Spanish Government on 12th April, my
    284
    right hon. Friend stated on the following day that we intend to uphold to the full our right to use the airfield at Gibraltar. We have sought clarification from Spain about the extent and possible effect of the prohibited area. We have arranged that if the position is not clarified to our satisfaction the matter will be raised in the Council of the International Civil Aviation Organisation on 10th May. Meanwhile the Board of Trade is in close touch with the civil airlines.
    Sir F. Bennett: Is the hon. Lady aware that in previous Questions and Answers I, at least, had been given to understand that we do not accept the right of the Spaniards to erect buildings and to carry out demolition in a neutral zone, and that whereas we might not claim it as British, we did regard it as neutral? Is the hon. Lady announcing a shift in attitude, namely, that we accede to the Spaniards the right to carry out these works in what is called the neutral zone?
    Mrs. Hart: No, Sir. The hon. Gentleman would be wrong in drawing that conclusion. The position is that we do not claim that this territory is part of Gibraltar. To that extent Spanish works cannot be considered unlawful, but the territory has never been defined in terms of international law.
    Mr. Fisher: Does the hon. Lady know how Spain intends to try to enforce this new restriction? Will the hon. Lady confirm the very strong resentment felt by both sides of the House, and I believe by British people as a whole, about this latest example of Spain's bullying tactics towards Gibraltar, which has done nothing to provoke them?
    Mrs. Hart: I confirm that that is our view, and it is for this reason that the Spanish Ambassador was given our clear thinking on this matter yesterday. It was made clear that we reserve the right to claim compensation, and that we deplore this kind of thing.
    As I have said, the question of flying rights over Gibraltar is a matter which is now in the process of being clarified with Spain. If we do not get satisfactory clarification, we shall raise the matter at I.C.A.O. next week.
    Sir W. Teelingasked the Secretary of State for Commonwealth Affairs what

    285
    criteria require to be satisfied before he recognises a party as an official opposition in a Colony; and whether, in view of the fact that the only opposition in Gibraltar now is the Integration Party, putting up candidates at the coming by-election and the next general election, in future he will ensure that the Integration Party is invited to all-party discussions with Gibraltar on its future.
    Mrs. Hart: The question of official recognition does not arise.
    If and when all-party discussions on Gibraltar are held we will certainly bear in mind the claims of the Integration Party to participate.
    Sir W. Teeling: Is it not true that, when negotiations were held about Malta and other countries which are now independent, all parties were invited and that we have now been asking the Gibraltar Government and everyone there to be united in their discussions with the United Nations? Therefore, why can we not ask the Integration Party to come too?
    Mrs. Hart: A great deal depends on the constitutional position in the territory concerned. The point in Gibraltar is that there is no provision for the appointment by the Governor of a Leader of the Opposition. The relevant fact is that the Integration Party are not at present represented on the Gibraltar Legislative Council, but I hope to discuss things with them when I am there and we shall certainly consider any matters they raise.
    Sir G. Nabarro: Would the hon. Lady bear in mind that the idea of integration of Gibraltar with Great Britain has many friends in this country? In view of the entirely new position which is now developing, with both sides of the House showing almost complete unanimity in condemning Spanish behaviour, can she not take the initiative and invite integrationists from Gibraltar to London to discuss the future?
    Mrs. Hart: The hon. Gentleman may not be aware that I am going to Gibraltar on Friday.
    Sir W. Teelingasked the Secretary of State for Commonwealth Affairs whether, in view of the coming by-election in Gibraltar, he will consider not sending any Minister to visit Gibraltar
    286
    until after the election so that no one will consider that he, or she, is influencing the election by such a visit.
    Mrs. Hart: My visit cannot reasonably be construed as intended to influence the forthcoming by-election in Gibraltar in any way.
    Sir W. Teeling: Would the hon. Lady tell us why? Surely a most attractive lady like herself can influence quite a lot, and the election is only a few weeks ahead. She has told us that she will next week use some influence for something. Will it be against the Integration Party?
    Mrs. Hart: The hon. Gentleman must surely be clear—I thought that the whole House would welcome the fact—that I am proposing to go to Gibraltar to have discussions with every section of opinion to acquaint myself fully with the situation on the spot. I think that my visit has been generally welcomed in Gibraltar.
    Mr. Maudling: While Ministers' visits to by-elections are not uniformly successful, would the hon. Lady be careful, in any public statements which she may make in Gibraltar, to say nothing which may be construed as affecting the by-election?
    Mrs. Hart: The right hon. Gentleman can be assured that Ministers, in these situations, can be guaranteed to behave with due perspicacity.
    Mr. Hector Hughes: Whatever may be the view of Her Majesty's Government towards the suggestion made in this Question, will we continue to give complete moral support to the people of Gibraltar, who are loyal to the Crown?
    Mrs. Hart: I assure my hon. and learned Friend that one of my basic intentions in visiting Gibraltar is to convey to the people of Gibraltar exactly the views he has just expressed.

    Australia and New Zealand (Vietnam)
    Mr. Martenasked the Secretary of State for Commonwealth Affairs what is Her Majesty's Government's present policy on offering aid to Australia and New Zealand in connection with the Vietnam war; and if he will make a statement.
    Mr. Bowden: We have made no offer of aid to Australia or New Zealand in

    287
    connection with the Vietnam war, nor have they requested any.
    Mr. Marten: Does not the Minister recall that both New Zealand and Australia came to our aid in the defence of our country twice in this century? In view of the fact that the Russians are helping the North Vietnamese, could not the Government possibly change their policy, and, even if they are not asked, offer the Australians and New Zealanders such help as we can give?
    Mr. Bowden: The Government's position in relation to this problem of participation by Australia and New Zealand in Vietnam is very well and clearly known by both those Governments. With regard to the Russians, we view the position rather differently from our co-Chairman, the Russians.
    Mr. Rankin: Can my right hon. Friend tell us in what way the people of Vietnam, or its armies of defence, are hurting in any way, or imperilling, the freedom of Australia and New Zealand?
    Mr. Bowden: I hardly think that that arises for me on this question of aid to Australia and New Zealand.
    Mr. Maudling: As the Government believe that the Americans, Australians, and New Zealanders are doing the right thing in protecting South Vietnam against Communist aggression, how does the right hon. Gentleman explain to our Australian and New Zealand friends that we are not prepared to help them in any way?
    Mr. Bowden: On one or two occasions when I was in Australia and New Zealand I explained that we are co-Chairmen with the Russians under the Agreement, and it is our job to try to find a solution to the problem.
    Mr. Winnick: In view of the concern among hon. Gentlemen opposite, would it be possible for the right hon. Member for Barnet (Mr. Maudling) to ask for volunteers from the Conservative Party to go to Vietnam?

    Zambia (Mr. Cunningham and Miss Challis)
    Mr. Wallasked the Secretary of State for Commonwealth Affairs what protest has been made to the Zambian
    288
    Government about the treatment of Mr. Cunningham and Miss Challis; and what explanation has been received.
    Mr. George Thomas: None, Sir. Both of these persons left Zambia of their own accord.
    Mr. Wall: I understand that both these British subjects have been subjected to a travesty of justice? They escaped from the country just before warrants were issued for their arrest. Is the hon. Gentleman aware that Mr. Cunningham's property has been sold without his permission? Will the hon. Gentleman look into this case in some detail?
    Mr. Thomas: I am always willing to look into any case which the hon. Gentleman brings to my attention, but I must tell the House that neither of these persons asked our High Commissioner to make any protest.
    Mr. Whitaker: Is my hon. Friend aware that Mr. Cunningham stated in Salisbury two days ago that last week he met 20 Conservative Members in Britain, but not any member of the British public who was not supporting Ian Smith? Does my hon. Friend have any idea of the names of this Fifth Column?
    Mr. Thomas: The gentleman referred to met me, and I must say that I could not have made much impression. He must have forgotten it, because I gave him no impression of support for Mr. Smith.

    Sierra Leone
    Mr. Tilneyasked the Secretary of State for Commonwealth Affairs when Her Majesty's Government officially recognised the new Government of Sierra Leone.
    Mr. Bowden: I have nothing to add to the written reply given to the hon. and learned Member for Buckinghamshire, South (Mr. Ronald Bell), the hon. Member for Chigwell (Mr. Biggs-Davison), the hon. Member for Haltemprice (Mr. Wall) and the hon. Member for Liverpool, Wavertree (Mr. Tilney) on 25th April, 1967.—[Vol. 745, c. 246–7.]
    Mr. Tilney: Can the right hon. Gentleman say what is the situation of the Governor-General, and who represents the Queen in Sierra Leone at the present time?
    Mr. Bowden: The constitutional position is that Her Majesty the Queen is still Head of State in Sierra Leone, and the replacement of the Governor-General who, we understand, has now retired, is a matter between Her Majesty and the Government of Sierra Leone.
    Mr. Pavitt: Will my right hon. Friend give serious consideration to using the Commonwealth Secretariat to effect the release of political prisoners, especially Siaka Stevens and other trade union leaders, before further recognition of the regime?
    Mr. Bowden: This is a matter for the Commonwealth Secretariat, over which we have no jurisdiction.

    Rhodesia
    Mr. Goodhewasked the Secretary of State for Commonwealth Affairs what information he has about the latest effects of sanctions on the economy of Rhodesia; and if he will make a statement.
    Mr. Bowden: I have nothing to add to the reply which I gave on 18th April to a Question by my hon. Friend the Member for Kingston upon Hull, West (Mr. James Johnson).—[Vol. 745, c. 59–60.]
    Mr. Goodhew: Is the right hon. Gentleman aware that he is pursuing a completely sterile and futile policy? News coming from Rhodesia indicates that there is no possibility of any alternatve Government arising. When will the right hon. Gentleman take some constructive measures towards resolving this dispute?
    Mr. Bowden: If the hon. Gentleman's view is correct, he should be happy and gratified about it, but it is not correct. In fact, sanctions are biting pretty deeply.
    Mr. Rose: Is my right hon. Friend aware that economic sanctions will be politically ineffective unless some action can be taken to stop the South African Government from helping the Rhodesian economy by supplying oil and taking tobacco? Will he undertake to take diplomatic or any other necessary action to secure politically effective action?
    Mr. Bowden: One of the main activities of Her Majesty's Government and many other governments is to stop breaches in the sanctions wall, which we are trying to do with some success.
    Mr. Ronald Bell: Would the right hon. Gentleman consider extending these sanctions to Sierra Leone, where the position appears to be indistinguishable?
    Mr. Bowden: The position is, in fact, easily distinguishable, in that Sierra Leone is an independent Commonwealth country, whereas Rhodesia is not.
    Mr. Wallasked the Secretary of State for Commonwealth Affairs whether he is aware that Mr. Smith has set up a constitutional commission to advise on a new constitution for Rhodesia; and what efforts the Government are now making to reopen negotiations.
    Mr. Bowden: This so-called commission has of course no legal standing at all. As we have repeatedly made clear, the British Government remain ready to reach a settlement through discussion and subsequent negotiation with a legal government in Rhodesia.
    Mr. Wall: As it is now clear that we face either a long economic war of attrition or the escalation of sanctions by extension to other countries in Southern Africa, will the right hon. Gentleman not say that he will make some approach to Rhodesia for continued conversations? Has he had any approach from the Governor?
    Mr. Bowden: The initiative so far taken, for instance, on the "Tiger", was taken by Her Majesty's Government, and the House and the world know what happened as a result. It is not for us to continue to make these advances and initiate new discussions until there is a clear indication that the Rhodesians will return to the rule of law.
    Mr. Longden: As it is clear that nobody will attempt to force South Africa to play as some of the Secretary of State's hon. Friends wish, is it not time that the Government made an agonising reappraisal of their policy towards Rhodesia?
    Mr. Bowden: No, Sir. I think that the existing policy—the policy of the Commonwealth as a whole—is attaining, albeit slowly, the results which we require.
    Mr. Molloy: Would my right hon. Friend not agree that the activities of Smith and these rebels in Rhodesia are a direct affront and insult to the Crown and

    291
    constitution of this country, which hon. Members opposite so often like to quote when it suits their purposes—particularly the Crown? Is it not time that we took the attitude which they suggest and protected the vital constitution of this country in a more forceful manner?
    Mr. Bowden: If by "a more forceful manner" my hon. Friend means the use of force, the British Government's position has been stated on many occasions. Anyone who sets a match to that part of Africa could not possibly forecast what would happen.
    Mr. Wall: Has any approach been made by the Governor or any advice received from him since the breakdown of the "Tiger" talks?
    Mr. Bowden: The hon. Gentleman will be aware that we are in continued communication with Her Majesty's representative, the legal Governor of Rhodesia. Once there is any move towards a return to legality, we should not hesitate to act.
    Mr. Paul B. Roseasked the Secretary of State for Commonwealth Affairs how much oil is at present entering Rhodesia from Portuguese East Africa and South Africa.
    Mr. Bowden: I have nothing to add to the reply which I gave to the hon. Member for Cardigan (Mr. Elystan Morgan) on 27th January, 1967.—[Vol. 740, c. 389.]
    Mr. Rose: Would my right hon. Friend undertake to ensure that the pipeline carrying oil from Mozambique to Rhodesia will not fall into the hands of those who are willing to breach the sanctions laid down by the United Nations Organisation? What diplomatic or other activity is now going on to stop the current supply of oil from South Africa and Portugal?
    Mr. Bowden: I have answered this question before. The House is aware, of course, that Rhodesia is getting petrol from Mozambique and South Africa—limited quantities, at a very high cost. On the question of methods by which we can stop it or some of it, consideration is always being given to this by my right hon. Friend the Foreign Secretary and myself and we do not fail to take any action which would result in a lessening of the supply of this product.
    Mr. Huntasked the Secretary of State for Commonwealth Affairs what steps he is taking to establish contact with the Rhodesian Constitutional Association and other bodies representing moderate opinion in Rhodesia.
    Mr. Bowden: I naturally make every effort to keep informed of all shades of opinion in Rhodesia, including the views of the Rhodesia Constitutional Association.
    Mr. Hunt: Does the right hon. Gentleman agree that the formation of the Rhodesian Constitutional Association is one of the most hopeful signs to have come out of that unhappy country for some time? As sanctions appear to be increasingly affecting the Rhodesian economy, will he do everything he can to encourage those of moderate views there who are seeking to persuade their fellow countrymen of the folly and futility of the policies being pursued by the Smith régime?
    Mr. Bowden: Yes, Sir. I am aware of the activities of the Rhodesian Constitutional Association. In fact, on the two or three occasions when I have been in Salisbury it has been my privilege and pleasure to meet many of the gentlemen who are members of this Association. I would be very happy on any occasion, if they are in London, to see them again or to assist them in any way I can to bring about the result which I think they desire.
    Mr. David Steelasked the Secretary of State for Commonwealth Affairs what support those in Rhodesia seeking a return to legality are receiving from Her Majesty's Government.
    Mr. Bowden: The restoration of legality in Rhodesia is the objective of all the measures which Her Majesty's Government, with international cooperation, have taken.
    Mr. Steel: Is the right hon. Gentleman satisfied that the intentions of Her Majesty's Government are getting through to such people in Rhodesia in the face of censorship? Will he consider the publication of fresh literature for dissemination among people of this opinion?
    Mr. Bowden: I am prepared to consider anything that would get the views of Her Majesty's Government and of the

    293
    people of Britain through to Rhodesia, but one ought not to assume that nothing is being done in this respect.

    High Commissioners (Protection of United Kingdom Citizens)
    Mr. Maudlingasked the Secretary of State for Commonwealth Affairs on what principles High Commissioners are instructed to act in protection of United Kingdom citizens in Commonwealth countries.
    Mr. Bowden: The principles on which the practice of High Commissioners is based in relation to protection of United Kingdom citizens do not differ from those applicable in foreign countries. It is the duty of High Commissioners to watch over and, where appropriate in accordance with such principles and with Commonwealth practice, to intercede in the interests of their protection.
    Mr. Maudling: In view of the considerable concern about some recent incidents, is the right hon. Gentleman aware that there will be considerable satisfaction at his assurance that our High Commissioners have the same duty as Ambassadors in foreign countries?
    Mr. Bowden: Yes, Sir, it is precisely the same. It is the duty of our High Commissioners, on behalf of British nationals, to seek access in cases where they are charged with any criminal offences.

    Fiji (United Nations Resolution)
    Sir G. Sinclairasked the Secretary of State for Commonwealth Affairs whether he has considered the resolution on Fiji adopted by the General Assembly of the United Nations on 12th December, 1966; and what action he proposes to take.
    Mrs. Hart: Yes, Sir. We voted against this resolution, and do not propose to take any further action on it.
    Sir G. Sinclair: But will the hon. Lady confirm that she will not allow such a visit?
    Mrs. Hart: The resolution, of course, covered various aspects of Fiji, but I can confirm that we are not prepared to accept the sub-committee's proposal for a delegation to visit Fiji.

    Singapore (British Forces)
    Sir G. Sinclairasked the Secretary of State for Commonwealth Affairs when he expects to initiate consultations with the Government of Singapore about the effects on their economy of the proposed reduction of British forces in the base by about 5,000 to 10,000 men.
    Mr. Bowden: The proposed reduction to which the hon. Member refers is one relating to British forces in the Far East as a whole. So far as Singapore is concerned, my right hon. Friend the Defence Secretary initiated these consultations on his recent visit there.
    Sir G. Sinclair: Would the right hon. Gentleman enlarge on that? Exactly how do we propose to make good in economic aid the shortfall in employment which will follow a reduction of the base in Singapore?
    Mr. Bowden: This was one of the reasons for my right hon. Friend's visit, to discuss with the Singapore Government the aid and means by which we would prevent the difficulties which might arise as a result of British withdrawal. These discussions are still going on.

    Zambia (British Subjects)
    Mr. Ronald Bellasked the Secretary of State for Commonwealth Affairs what representations he has made to the Government of Zambia concerning the recent treatment of British subjects in that country.
    Mr. George Thomas: Our High Commissioner in Lusaka has made representations to the Government of Zambia in individual cases wherever appropriate. In particular, the High Commissioner has taken all possible steps to ensure the correct treatment of those recently arrested under the Zambian Preservation of Public Security Regulations, 1964. If the hon. Gentleman will let me have details of any particular case or cases about which he is concerned, I shall be pleased to write to him.
    Mr. Bell: Could the Minister say in how many cases such representations have been made in the last six months and whether Her Majesty's Government are content with the response received?
    Mr. Thomas: We have made representations on a number of occasions. We are not entirely satisfied, but we are continuing to make representations where appropriate.

    Commonwealth Sugar Agreement
    Mr. Fisherasked the Secretary of State for Commonwealth Affairs what representations have now been made to him by independent and dependent sugar-producing Commonwealth countries to safeguard their interests under the Commonwealth Sugar Agreement in any negotiations for United Kingdom entry into the European Economic Community.
    Mr. Bowden: I would refer the hon. Member to the reply I gave to my hon. Friend the Member for Ealing, North (Mr. Molloy) on 25th April.—[Vol. 745, c. 247.]
    Mr. Fisher: In any Common Market negotiations—which, I hope, will develop very soon—will the right hon. Gentleman always bear in mind that we have a moral responsibility for all of these territories—and direct responsibility still for some of them—and that many of them would become tropical slums almost overnight but for the benefits of the Commonwealth Sugar Agreement or some equivalent of it?
    Mr. Bowden: Yes, Sir. I am well aware, and so are my colleagues in the Government, of the importance of the Commonwealth Sugar Agreement, not only to Commonwealth countries but to some of the dependent territories as well; and, of course, this is one of the main problems that will have to be safeguarded if Her Majesty's Government decide to negotiate for entry.

    Canada (Expo 67)
    Mr. Kenneth Lewisasked the Secretary of State for Commonwealth Affairs whether he will give special financial encouragement to British people to attend the Canadian exhibition Expo 67 in Montreal in 1967–68.
    Mr. Bowden: No, Sir. If the Question relates to a possible increase in travel allowances, I have nothing to add to the reply of my right hon. Friend the Chancellor of the Exchequer to a Question on 20th January.—[Vol. 739, c. 139.]
    Mr. Lewis: Is the right hon. Gentleman aware that this great exhibition celebrating the centenary of Canada, which is the subject of a joint Motion on the Order Paper in the names of the Prime Minister, the Leader of the Opposition and the Leader of the Liberal Party, will mean nothing if Her Majesty's Government do not allow British people to attend it, which clearly they cannot do on £50?
    Mr. Bowden: I am very well aware of the importance of this exhibition and of the high hopes of not only Canada but of the Commonwealth for its success. However, I cannot add to what my right hon. Friend the Chancellor of the Exchequer said in relation to the sterling allowance. There are undoubtedly other ways in which groups of people could arrange to travel rather more cheaply.

    Hong Kong (Textile Industry)
    Mr. Rankinasked the Secretary of State for Commonwealth Affairs (1) in view of the undertakings given by Her Majesty's Government that the Government of Hong Kong would introduce legislation to reduce the hours of work for women and children employed in the textile industry from 60 hours to 48 hours per week and the fact that these undertakings, have not yet been implemented, what steps he now proposes to take;
    (2) whether he will report his progress in achieving a reduction of the hours worked per week by women and children in the textile mills of Hong Kong.
    Mrs. Hart: Proposals for amending legislation covering this in part have already been before the Executive Council and will be considered by the Labour Advisory Board on 11th May. If I may, I will write to my hon. Friend with the somewhat complicated details of this legislation.
    Mr. Rankin: Is my hon. Friend aware that, since I raised this matter last, protests have come from the textile unions concerned and that they are very agitated about the conditions in Hong Kong? In view of the widespread protests—indeed, world protests—that are being made about this matter, will she make speed the essence of action in this case?
    Mrs. Hart: The essential point to remember is that legislation is now on its way; and I am confident that the necessary stages will be gone through as speedily as the procedures permit. It is a fact that an eight-hour working day for women and young persons is already being worked by more than 70 per cent. of people in the cotton weaving industry and by 100 per cent. of people working in the spinning industry.
    Mr. A. Royle: Is the Minister aware that the continued criticism of a number of people and of the Government of Hong Kong by hon. Gentlemen opposite is causing grave concern to the Colony? Will she confirm that working conditions in the Colony of Hong Kong are better than those in practically any other Far Eastern country?
    Mrs. Hart: There are, of course, different ways of looking at this. One can look at it in comparison with other countries of the Far East or in comparison with international standards generally. I am concerned to see that there should now be some steps taken by legislation; and I am glad to report that these are now beginning.

    Zambia (Mr. Cecil Swift)
    Mr. Biggs-Davisonasked the Secretary of State for Commonwealth Affairs why the British High Commissioner in Lusaka did not visit Mr. Cecil Swift, a Rhodesian British subject, in detention, on 13th April.
    Mr. George Thomas: It has never been the normal practice for British High Commissioners in Commonwealth countries automatically to extend protection to Rhodesian citizens. However, in the circumstances of this case, the Zambian authorities have now been requested to afford access to Mr. Swift for one of the High Commissioner's officials in Lusaka.
    Mr. Biggs-Davison: Are Her Majesty's Government in any way responsible for Rhodesia or not? Why did the representative of the British High Commission not visit this Rhodesian when he visited the other British subjects who were in detention? Is it intended that the inference should be drawn that Her Majesty's Government now think that Rhodesia is a sovereign State responsible for its own citizens?
    Mr. Thomas: The answer is quite simple. A Rhodesia citizen is not a United Kingdom citizen, although he is regarded as a United Kingdom national in international law. We have the right, although not an obligation, to act in the interests of a Rhodesian citizen if the circumstances justify it, and that we are now doing.
    Mr. Biggs-Davison: On a point of order. In view of the unsatisfactory nature of the Minister's reply and in view of the brutal treatment accorded this British subject—[Interruption.]—I beg to give notice that I shall seek leave to raise this matter on the Adjournment.

    Ocean Island (Phosphate)
    Mr. Henry Clarkasked the Secretary of State for Commonwealth Affairs how long the deposits of phosphate on Ocean Island will last at the current rate of excavation and export.
    Mrs. Hart: About 13 years.
    Mr. Clark: Can the hon. Lady tell the House what assets will remain in the hands of the inhabitants of Ocean Island—the Banabans—when these immensely valuable deposits are exhausted? Will the Government keep in mind the fact that when the original royalty agreements were negotiated Her Majesty's Government undertook to act as the trustees for these islanders and establish a trust fund?
    Mrs. Hart: There is no reason why the Banabans should be any worse off than the other inhabitants of Fiji when the royalties cease. However, what really matters is what will happen at the end of the 13 years; and, from this point of view, an investigation into alternative types of employment is being made and, indeed, a survey is being conducted into the whole question.

    Radio Tanzania (Broadcast)
    Biggs-Davisonasked the Sec retary of State for Commonwealth Affairs Whether he is aware that on 15th March a Mr. Elias Rusike made a broadcast to Rhodesia from Dar-es-Salaam on Radio Tanzania in which he incited Africans in Rhodesia to genocide; what other such broadcasts are being made; and what representations have been made, or other appropriate actions taken.
    Mr. George Thomas: I have no information about the particular broadcast to which the hon. Member refers. Her Majesty's Government have made it clear on many occasions that they deplore incitement to violence from whatever quarter it may come.
    Mr. Biggs-Davison: Will the Commonwealth Office take steps to secure a text of the broadcast in which this gentleman exhorted the sons and daughters of Zimbabwe to take up arms and kill all whites in Rhodesia? And was this gentleman formerly employed by the British Information Services?
    Mr. Thomas: I do not know anything about his previous employment. The House will be aware that Her Majesty's Government have no control over the broadcasting facilities of independent countries.

    Uganda (British Subjects)
    Mr. Ronald Bellasked the Secretary of State for Commonwealth Affairs what representations he has made to the Government of Uganda concerning the recent treatment of British subjects in that country.
    Mr. George Thomas: I would refer the hon. and learned Member to the reply given to a Question on the same subject by the hon. Member for Dorset, South (Mr. Evelyn King) on 21st March, 1967. No incidents have been reported to me since that date.—[Vol. 743, c. 216.]
    Mr. Bell: Is it correct, as recently reported, that a British couple were dragged from their car and made to dance in the roadway for an hour at bayonet point? Is it right that the British High Commissioner in Uganda warned British subjects of the danger of using certain roads, and has Her Majesty's Government recalled him at the request of the Uganda Government on that account?
    Mr. Thomas: There are three questions there. I will answer the last one first, if I may. We have not recalled Mr. Hunt at the request of the Uganda Government. He is still there. His tour of duty ends shortly, and he is returning to take up a new appointment. With regard to the other supplementary ques-
    300
    tions, it is past history. There have been no incidents since the end of March, and I know that the Uganda Government deplored them as much as we did.
    Sir J. Eden: Will the hon. Gentleman just make clear to what extent he protests about incidents such as these? Is he not aware that so far his answers to these questions have given the impression that the Government really do not care about what happens to British subjects?
    Mr. Thomas: Well, the hon. Gentleman has a wrong impression, because we have made very strong representations, through our High Commissioner, when incidents have occurred, and I myself raised this matter with the President of Uganda when I was in that country.
    Mr. Paget: Does it not begin to look more and more as though membership of the British Commonwealth was coming to be regarded as a licence to behave far worse to British people than to foreigners?
    Mr. Thomas: I think my hon. and learned Friend the Member for Northampton (Mr. Paget) has lost his sense of proportion. [Interruption.] There are 7,000 British nationals in Uganda; there have been 24 incidents in the past year—[HON. MEMBERS: "Oh."] I only wish that those with black skins in Rhodesia carrying British passports were as safe as those with white skins carrying British passports in Uganda.
    Mr. Wall: But will the hon. Gentleman make it clear that when British High Commissioners stick up for the rights of the British citizens they will have the full support of the British Government?
    Mr. Thomas: When the High Commissioners defend the rights of British citizens they are doing so at the request and on the instructions of Her Majesty's Government.
    Mr. Bell: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the reply, I beg to give notice that I will seek to raise the matter on the Adjournment.

    Nevis and Anguilla (Local Elections)
    Dame Joan Vickersasked the Secretary of State for Commonwealth Affairs what arrangements have been made for local elections to be held on the islands of Nevis and Anguilla.
    Mrs. Hart: Her Majesty's Government in the United Kingdom are no longer responsible for the internal affairs of St. Kitts, Nevis and Anguilla. In courtesy to those hon. Members who discussed these matters with me before statehood was granted, I can convey my understanding of the present position. I understand that the Nevis Island Council was inaugurated on 20th April with nominated members, and that the offer of a nominated Council was also made to the people of Anguilla, but their reply had not been received before the Premier left St. Kitts on his present tour. Elections will, of course, be held later this year.
    Dame Joan Vickers: Will the Minister of State say exactly when the elections are likely to be held? Further, I understand that money is held by the central Government—when will this be allocated to the islands?
    Mrs. Hart: Some of the money has already been allocated, and the rest of the allocation is at present under discussion. Preparations for the elections, which are somewhat technical and complicated, are now under way.

    St. Vincent (Associated Statehood)
    Dame Joan Vickersasked the Secretary of State for Commonwealth Affairs when he now expects that St Vincent will receive associated state hood.
    Mr. Bowden: We shall discuss this with the Government of St. Vincent after the General Election to be held there on 19th May.
    Dame Joan Vickers: In the meanwhile, will the Eastern Caribbean Development Agency and Development Bank be able to go ahead with plans to help these islands?
    Mr. Bowden: This point will have to be taken into consideration after the election when we are considering the new constitutional position of St. Vincent.

    VIETNAM
    Mr. Winnickasked the Prime Minister what consultations he has had with the United States President for a pause in the bombing of North Vietnam during the holiday in Vietnam in connection with the anniversary of Buddha's birth; and whether he has pressed for the pause to become permanent.
    The Prime Minister (Mr. Harold Wilson): As I told my hon. Friend on 27th April, I have nothing to add to the answer I gave on the 20th April, to a Question by the hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths).—[Vol. 745, c. 340; Vol. 745, c. 804.]
    Mr. Winnick: Is my right hon. Friend aware of the ever increasing anxiety felt in Britain over the day-to-day escalation of the war in Vietnam? Are we to urge any restraint at all on the United States, or remain silent while the whole of North Vietnam is devastated by American bombers? Is it not time the Government really acted on the matter?
    The Prime Minister: As my hon. Friend knows, we are in continual touch with the United States Government, and all other Governments that are concerned. With regard to the anniversary of Buddha's birth, the Government of Vietnam have said that they are ready for discussions with North Vietnam representatives about a possible extension of the truce.
    Mr. Philip Noel-Baker: Will the Prime Minister consider that the bombing of Haiphong and the speech of General Westmoreland to Congress are factors which greatly increase the danger of Chinese involvement in the war, and will he summon the General Assembly to consider a stopping of the war, as President Eisenhower summoned the General Assembly and stopped the Suez War?
    The Prime Minister: I am not responsible, of course, for speeches by American generals either to Congress or anyone else. On the question of the bombing of Haiphong, the position was made clear by my right hon. Friend the Foreign Secretary. On the question of Chinese involvement, this is one of the major considerations I have had in my mind all along.

    INTERNATIONAL TOURIST YEAR
    Mr. Blakerasked the Prime Minister whether he is satisfied with the coordination between the President of the Board of Trade and the Secretary of State for Foreign Affairs with regard to the observance of International Tourist Year; and if he will make a statement.
    The Prime Minister: Yes, Sir.
    Mr. Blaker: Since the Government supported the United Nations proposal to designate 1967 as International Tourist Year, would it not now be appropriate if they were to amend the Selective Employment Tax and the investment grant arrangements so as to remove the handicaps which they impose on the British tourist industry?
    The Prime Minister: I am not aware of any United Nations Resolution on the Selective Employment Tax, but the hon. Gentleman's supplementary question does raise pretty wide financial issues, and if he is successful in catching your eye, Mr. Speaker, in the later debate on the Finance Bill, he may be able to say a word about them then.

    TOWN EXPANSION SCHEMES (INVESTMENT)
    Mr. Eldon Griffithsasked the Prime Minister if he is aware that areas whose population is increasing with exceptional rapidity due to town expansion schemes, are placed at a disadvantage in attracting industry due to Treasury, Board of Trade and Ministry of Economic Affairs policies, as well as the investment programmes of certain nationalised undertakings, which indiscriminately favour development districts; and if, while recognising the needs of the latter, he will direct Ministers not to neglect the former.
    The Prime Minister: Although the development areas need to attract industry remains paramount, the requirements of the town expansion schemes are certainly not neglected. The Ministries concerned keep a close watch on their employment needs, which are taken fully into account in the operation of the industrial development certificate control.
    Mr. Griffiths: Is the Prime Minister aware that in some expansion towns, especially in East Anglia, new houses are standing empty and young families are finding it very hard to make ends meet? Is not this a result of lack of coordination, whereby homes and population continue to go up but investment, whether private or public, in industry or amenities is not keeping pace?
    The Prime Minister: I do not accept the suggestion about lack of coordination. My information is that the provision of jobs has been roughly in balance with the house-building programme. There are, I believe, 15 projects in the area the hon. Gentleman has in mind, but, certainly, if he has any specific problems about this, and will let me know, I will see that they are looked into.
    Mr. Philip Noel-Baker: Can my right hon. Friend give any assurance that dominant in the mind of the Government in this respect will be the needs of Swindon?
    The Prime Minister: Yes, Sir. My answer referred to all towns and town expansions.

    OVERSEAS AID
    Mr. Whitakerasked the Prime Minister whether he will ensure that the next National Plan provides for an increased amount, relatively and absolutely, of the gross national product being devoted to overseas aid and development.
    he Prime Minister: We shall continue to make the maximum possible contribution to overseas aid in keeping with our economic situation.
    Mr. Whitaker: Is my right hon. Friend aware that while the concept of a National Plan was very widely welcomed for enabling discussion of economic priorities, there was very much criticism of the smallness of our proposed contribution to overseas aid? Does he agree that the problem of the widening gap between poor and rich countries dwarfs our own economic preoccupations into insignificance?
    The Prime Minister: I hope my hon. Friend will always express concern, as I always will, at any level of aid which is

    305
    not the maximum, but I feel that what we are doing is reasonable in view of the present economic situation. We all want to increase it, but it is right to keep this in perspective, and in last year's report of the Development Assistance Committee on the aid programme of donor countries we appeared as one of the four countries which had consistently reached or exceeded the 1 per cent. target of 1962 to 1965, the others being France, Belgium and Portugal.
    Mr. Longden: Will the Prime Minister do what he can to ensure that the next National Plan will not be like the last, a brown study with purple patches, green in judgment yet red all over?
    The Prime Minister: I would not attempt, not having spent quite so late last night polishing up an answer to that question, to compete with the colourful nature of the hon. Member's observations.

    ADEN
    Mr. Martenasked the Prime Minister if he will now propose the formation of a Commonwealth Peace Mission to help to resolve the Aden situation.
    The Prime Minister: No, sir. I believe that an international contribution to the solution of this problem can best be sought in the United Nadons.
    Mr. Marten: How much longer is the Prime Minister going to allow the Aden situation to deteriorate into chaos? Has the Prime Minister not got a clear duty to humanity to restore order, and to restore order now?
    The Prime Minister: I have nothing to add to what was said in the recent debate initiated by right hon. Members opposite. As the hon. Member will know, Lord Shackleton is at present in this country reporting to my right hon. Friend. When there is anything further to say to the House, of course, it will be said.
    Lord Balniel: In the light of a deteriorating situation in Aden and the widespread reports that Lord Shackleton is returning with new proposals for Aden, can we have an assurance that the Government will make a statement on Aden before we rise for the Recess?
    The Prime Minister: I said that as soon as anything can be said to the House it will be. I should not like to put a date on it. The whole House is deeply concerned about the Aden situation, although two views have been expressed in debate about where the original responsibility lay. What now matters is the present and the future.
    Mr. Francis Noel-Baker: Arising out of his reply, can my right hon. Friend say what continuing role he envisages for the United Nations special mission on Aden?
    The Prime Minister: A very important one. We have made clear that despite the difficulties which arose we believe the United Nations has a role of central importance in this matter.
    Mr. David Griffiths: Is my right hon. Friend aware that some ex-Servicemen who have only recently come back from Aden state quite emphatically that the situation is not half as acute as hon. Members opposite are attempting to allege?
    The Prime Minister: I am aware, of course, of a number of statements which have been made, not least in this House, about where responsibility lies.
    Mr. Lubbock: Is the Prime Minister quite satisfied that no danger exists to the wives and children of personnel serving in Aden and that it is adequate to ensure that they are all brought home by July, or should they not be brought home sooner than that?
    The Prime Minister: Everything possible is being done in these difficult circumstances to guarantee their safety. There is no change in the plans which have been announced for bringing them home.
    Mr. Sandys: While the Prime Minister may argue about where the responsibility for the past lies, is he quite clear that responsibility for settling this matter now rests with him?
    The Prime Minister: Yes, Sir. I have made clear that the responsibility now lies with us. It is a pity that in this, as in a few other matters, it did not lie with us earlier. Then it would not have been quite—[Interruption.]

    BUILDING RESEARCH STATION
    Mrs. Renée Shortasked the Prime Minister why it has been decided that the Building Research Station should be transferred to the Minister of Public Building and Works; and what proposals he has to safeguard the independence of this scientific establishment in its new administrative setting.
    The Prime Minister: I would refer my hon. Friend to the Answer I gave on 20th April to a Question by my hon. Friend the Member for Bethnal Green (Mr. Hilton). Detailed arrangements for the future of the Station and its work are being prepared by my right hon. Friend the Minister of Public Building and Works and he will, I know, wish to make a further statement to the House in due course.—[Vol. 745, c. 152.]
    Mrs. Short: Is my right hon. Friend aware that there are important research projects now being held up, some of which have important export potential, because there are no administrative or financial decisions being made in the interim period between now and 1st July when the transfer takes place? This is an intolerable situation. Will he look into it personally?
    The Prime Minister: I am certainly not aware that anything is being held up by the conditions of the transfer. The transfer, on which I know my hon. Friend has views, was one on which a lot of time was spent, and it is a very finely balanced argument. I think it right that this Building Research Station should be sited within the Department which has the greatest call on its work and which is involved in the future work and research activities of the station.
    Mr. Chichester-Clark: Does the Prime Minister recognise that the confidence of the industry is somewhat shaken by what happened to the National Building Agency? Will he ensure that some weight is put behind the Minister of Public Building and Works to ensure that this station does not go over to the Ministry of Housing and Local Government?
    The Prime Minister: The Building Research Station has had a great reputation for many years. I remember being very much associated with it more than
    308
    20 years ago. We all know its high standard. I thought it would have more authority if it came under the responsibility of the Minister charged with responsibility for building activities. There is no question of transferring it to the Ministry of Housing and Local Government.

    EUROPEAN ECONOMIC COMMUNITY
    Sir G. de Freitasasked the Prime Minister whether, in considering whether the Government should apply to join the European Economic Community, he will take account of the fact that several African Commonwealth countries are negotiating for associate status.
    The Prime Minister: Yes, Sir. This is one of the many considerations relevant to the Government's decision.
    Sir G. de Freitas: Since this Question emphasises that we, like the other countries when they entered the Six, have special problems, will the Prime Minister make clear when he makes a statement on this subject that our application for entry into the Community will be clear-cut and straightforward and not accompanied by qualifications emphasising our particular problems?
    The Prime Minister: I think my right hon. Friend will probably wish to wait for a statement which I hope to make later this afternoon. Certainly in regard to Commonwealth countries all of us are aware of what was done by the founding members of the Community for African and other countries associated with them, and all of us want to regard that as the pattern for the future.
    Mr. Shinwell: Will my right hon. Friend take also into consideration the fact that a very substantial number of people in this country are against it?
    The Prime Minister: All relevant questions have been taken into consideration, but between now and 3·30 I doubt whether I shall make many changes in the statement I am likely to be making.
    The following Question stood upon the Order Paper:—
    Mr. SANDYS: To ask the Prime Minister, whether he is now in a position to announce the Government's decision

    309
    regarding an application for Great Britain's entry into the European Economic Community.
    Mr. Sandys: I will await the Prime Minister's statement in a minute's time.

UNITED NATIONS (FINANCE)
Mr. Brian ParkynQ8. Mr. Brian Parkyn asked the Prime Minister whether he will now introduce legislation to ensure that a royalty of 0·1d. per therm is paid by Her Majesty's Government to the United Nations on all North Sea gas brought into this country from outside territorial waters.
The Prime Minister: No, Sir. Her Majesty's Government's subscriptions to United Nations bodies are assessed on other criteria than their income from royalties of this sort.
Mr. Parkyn: Would not the Prime Minister agree that if we are ever to establish a world government the United Nations will urgently need a source of income in addition to the dues from Member States?
The Prime Minister: Most of us, I think, support my hon. Friend's objective of ultimate world government. The success of the United Nations in approaching towards that aim will depend on the extent to which its member nations cooperate not only on finance but other matters, and finance is very much a symbol of the backing which member nations give to the United Nations. In this, as my hon. Friend knows, we gave a lead at a very critical time two years ago when it was most needed.
Mr. Eldon Griffiths: Before he even considers giving royalties from North Sea gas, will the Prime Minister press on those members of the United Nations who are delinquent in contribution and ask them to increase their share before we increase ours?
The Prime Minister: That is a very fair point. This is what we have done. Despite that, we took the special initiative of June, 1965. On the first part of the Question, I was not intending to give consideration to this proposal.

BACK BENCH MEMBERS (PRE-LEGISLATION COMMITTEES)
Mr. William HamiltonQ9. Mr. William Hamilton asked the Prime Minister what plans he has for establishing pre-legislation committees of back bench Members of Parliament.
The Prime Minister: This suggestion is, so I understand, at present before the Select Committee on Procedure and I think we should await their Report.
Mr. Hamilton: Can my right hon. Friend give any idea of when these talks of his will be translated into action? Will he give an assurance that in his role as First Lord of the Treasury he will not be remiss in providing finance and bodies to staff these committees adequately?
The Prime Minister: Without wishing to prejudge the Report of the Select Committee, which, like my hon. Friend, I am awaiting with very great interest, I believe there is a very special role to be played by legislators in this House in pre-legislation committees particularly on issues which do not carry with them a great content of Government policy but on which very often there is a matter of controversy and essential progress is frequently held up by that fact.

EUROPEAN ECONOMIC COMMUNITY (APPLICATION FOR MEMBERSHIP)
The Prime Minister (Mr. Harold Wilson): With permission, Mr. Speaker, I should like to make a statement.
Her Majesty's Government have today decided to make an application under Article 237 of the Treaty of Rome for membership of the European Economic Community and parallel applications for membership of the European Coal and Steel Community and Euratom.
As the House will recall, I stated on 10th November last that my right hon. Friend the Foreign Secretary and I would embark on
"a series of discussions with each of the Heads of Government of the Six, for the purpose of establishing whether it appears likely that essential British and Commonwealth interests could be safeguarded if Britain were to accept the Treaty of Rome and join E.E.C."

311
These discussions took place between January and March. Since then, the Government have carried out an exhaustive examination of all the issues involved, resulting in the decision I have just announced.
The reports I have made to the House have made it clear that during the discussions in the Six capitals we were not engaged in negotiations. But my right hon. Friend and I, and indeed the House, have reason to be grateful to our hosts for the very frank exchanges which preceded today's decision.
These exchanges have enabled us to identify the major issues which we, for our part, shall wish to see settled in the negotiations.
On the Treaty of Rome itself, as I informed the House on 10th November, we have throughout our discussions taken the view that, as I then said,
"… the Treaty of Rome is not in itself or necessarily an impediment. There are anxieties … but the Treaty need not be an obstacle if our problems can be dealt with satisfactorily, whether through adaptations of the arrangements made under the Treaty or in any other acceptable manner."
In short, again to quote, as I said then,
"the Government would be prepared to accept the Treaty of Rome, subject to the necessary adjustments consequent upon the accession of a new member and provided that we receive satisfaction on the points about which we see difficulty."—[OFFICIAL REPORT, 10th November, 1966; Vol. 735, c. 1540–46.]
Our discussions in the capitals of the Six have confirmed the validity of this approach in terms of the practical working of the Community and its institutions.
It is in this spirit that the Government intend to embark on the negotiations which must precede entry. The House will, I am sure, agree that they ought not to be unnecessarily complicated with lesser issues, many of which can be best dealt with after entry. [HON. MEMBERS: "Oh."] It is our hope that the negotiations will be followed through swiftly, and will relate to the small number of really important issues which have been identified through our recent discussions, issues on which agreement should be reached if the House and the country are to be satisfied that essential British and Commonwealth interests will be safeguarded. This is the spirit in which the original partners to the Community conducted their own negotiations over 10
312
years ago. Our recent meeting with our E.F.T.A. partners has confirmed that they, too, view the matter in the same light. They will, we hope, also be making their approaches to E.E.C.
I turn now to the major issues which it must be our purpose to resolve during the negotiations.
First, there are the problems associated with the operation of the common agricultural policy of the Community—the problems of its potential effects on the cost of living and on the structure and well-being of British agriculture; problems of the budgetary and balance of payments implications of its system of financing; and certain Commonwealth problems with which I will deal in a moment.
As I have already made clear publicly, we must be realistic and recognise that the Community's agricultural policy is an integral part of the Community; we must come to terms with it. But the Government recognise that this policy would involve far-reaching changes in the structure of British agriculture. This will require suitable arrangements, including an adequate transitional period, to enable the necessary adjustments to be made.
It is also the Government's view that the financial arrangements which have been devised to meet the requirements of the Community's agricultural policy as it exists today would, if applied to Britain as they now stand, involve an inequitable sharing of the financial cost and impose on our balance of payments an additional burden which we should not in fairness be asked to carry.
There are also highly important Commonwealth interests, mainly in the field of agriculture, for which it is our duty to seek safeguards in the negotiations. These include, in particular, the special problems of New Zealand and of Commonwealth sugar-producing countries, whose needs are at present safeguarded by the Commonwealth Sugar Agreement. We have, as the House knows, been in touch with all our Commonwealth partners, and will make special arrangements to keep in close consultation with them, as with our E.F.T.A. partners, throughout the negotiations.
Again, as the House knows, capital movements raise questions of special

313
importance. Our discussions suggest that these can be dealt with by suitable arrangements.
Another important issue is the question of regional policies. Here, too, we had to satisfy ourselves that we should be able, as members of the Community, to continue to take the necessary steps to ensure the industrial and social development of those areas of the country with which this House is always and rightly especially concerned. Our discussions with the Heads of the Governments of the Community, not least the information we were given about the policies currently being pursued by member countries, have reassured us on this score.
As I have said, these are major and important issues, but I can tell the House that the Government believe that there is nothing either in the Treaty of Rome or in the practical working of the Community which need make them insoluble.
Mr. Speaker, I have gone into some detail about certain specific economic issues, on which hon. Members on both sides of the House are rightly concerned. But the Government's decision has been motivated by broader considerations of economic policy and still wider arguments to which I will turn later. On the economic arguments, each hon. Member will make his own judgment of the effect on exports and imports, on industrial productivity and investment. Equally, every hon. Member must make his own assessment of the economic consequences of not going into the Community and, in an age of wider economic groupings, of seeking to achieve and maintain viability outside.
But all of us are aware of the long-term potential for Europe, and, therefore, for Britain, of the creation of a single market of approaching 300 million people, with all the scope and incentive which this will provide for British industry, and of the enormous possibilities which an integrated strategy for technology, on a truly Continental scale, can create. I am glad to say that my right hon. Friend and I found that this concept has made a great impact throughout Europe.
But whatever the economic arguments, the House will realise that, as I have repeatedly made clear, the Government's purpose derives, above all, from our
314
recognition that Europe is now faced with the opportunity of a great move forward in political unity and that we can—and indeed must—play our full part in it.
We do not see European unity as something narrow or inward-looking. Britain has her own vital links through the Commonwealth, and in other ways, with other continents. So have other European countries. Together, we can ensure that Europe plays in world affairs the part which the Europe of today is not at present playing. For a Europe that fails to put forward its full economic strength will never have the political influence which I believe it could and should exert within the United Nations, within the Western Alliance, and as a means for effecting a lasting détente between East and West; and equally contributing in ever fuller measure to the solution of the world's North-South problem, to the needs of the developing world.
It is for all these reasons that we intend to pursue our application for membership with all the vigour and determination at our command.
The House will, of course, wish to debate this decision at the earliest opportunity and arrangements will be made for a three-day debate next week, when the House will be invited to pass a Motion approving this present statement, which will be presented as a White Paper. We shall seek to meet the requirements of Parliament for the fullest possible information over the coming weeks. A first paper dealing with agriculture will be available later this week and we shall take the opportunity of the debate, and of further White Papers which will be laid, to enable Parliament, and public opinion generally, to form a full, fair and informed judgment of the great issues involved.
For all of us realise that this is a historic decision which could well determine the future of Britain, of Europe, and, indeed, of the world, for decades to come.
Mr. Heath: We warmly welcome the fact that the Prime Minister and the Government have now decided to take this further step, which, we hope, will lead to membership of the European Economic Community. I and many on

315
this side have long put forward and supported the arguments of both a political and an economic nature which the right hon. Gentleman has outlined today, and I wholeheartedly support them now.
Also, we welcome the debate which the Government are offering the House at an early opportunity. We hope that this will give the Prime Minister and his colleagues the opportunity to explain a number of points which, obviously, must still remain unspoken today, in particular, the reasons for making the application at this time, what assurances the Prime Minister has had from all the member countries of the Six that Britain's membership on the terms he has outlined will be welcome, and what solutions he proposes now to the problems which he and the Foreign Secretary have outlined.
I have three questions to put to the right hon. Gentleman at this stage. First, does his statement mean that he now accepts the Treaty of Rome and the common agricultural policy, with the exception of the financial regulation which he has described?
Secondly, is the position now, as a result of the last E.F.T.A. conference, that Britain can become a member even though other E.F.T.A. countries are kept out?
Thirdly, as it is necessary, as the Prime Minister rightly said, to negotiate all the transitional arrangements and the special arrangements for the Commonwealth, can the right hon. Gentleman give the House an idea of the timetable which he and the Government have in mind?
The Prime Minister: I thank the right hon. Gentleman for his opening words, both about the announcement and about the arrangements which we have proposed for a debate, which, of course, will be finalised through the usual channels. As the right hon. Gentleman suggested, some of the questions which the House will want to go into in more detail will be best dealt with in the debate.
I come now to the specific questions which the right hon. Gentleman put. First, as regards acceptance of the Treaty of Rome, I stated the Government's position on this in November, and I have repeated it today. The answer is "Yes".
I said in my statement last week, and I repeated again today, that, if we are
316
realistic, we must accept that the common agricultural policy is an integral part of the working of the Community, and that we have to come to terms with it. How we come to terms with it, and the particular aspects of it, is a matter for the negotiations. I dealt with that in my statement.
The House will have seen the communiqué from the E.F.T.A. conference which my right hon. Friend the Foreign Secretary and others of my right hon. Friends attended last Friday. It was published in the OFFICIAL REPORT yesterday. The position is that we have stated our common purpose, on behalf of all the E.F.T.A. countries, to do our best to ensure that E.F.T.A. countries which want to be associated in one way or another with the Community shall achieve their objective. The right hon. Gentleman's interpretation on the particular point that he raised is correct.
The question of the timetable is not exclusively, or, perhaps, mainly, within our hands. It raises, also, one of the questions of which the right hon. Gentleman gave notice for the debate, the attitude of other countries. We have had to take this decision with no clear view on the part of all the countries as to what their attitude will be. I think that the House understands that. For the same reason, I cannot give any estimate about the timetable except to say that Her Majesty's Government will do everything in their power to secure a satisfactory solution at the earliest possible date. I repeat that, if we do not succeed, the House will, I think, be able to judge at the end of the day that it was not our fault.
Mr. Thorpe: May I applaud the Prime Minister's decision to apply for membership of the Community, congratulating him on his conversion to the viewpoint which we at least on this bench have consistently advocated. I express the hope that, unlike that of his predecessors, the Prime Minister's conversion will not come too late to yield fruitful results.
I have two questions to put. First, will the Prime Minister say what he has in mind in the light of the transitional arrangements for agriculture? Secondly, apart from the formal application, presumably, to the Council of Ministers under Article 237, what will be the nature

317
of the delegation which will argue our case before the Commission, who will compose it, and when is it likely to go to Brussels?
The Prime Minister: I shall not follow the right hon. Gentleman in his pre-ambular words. The question of the agricultural policy and the nature of the transitional, post-transitional or other arrangements to which I referred must be a matter for the negotiations, though the House will, no doubt, wish to exchange views on the precise forms of arrangement when we debate the matter next week.
It is too early at this stage for me to say anything about the arrangements for the negotiating machinery. We shall not intend to put in our application until the statement I have made today has been endorsed by the House. We shall do so as quickly as possible thereafter. But we shall have to have a clearer idea of the reaction of our friends in Europe to the form of the negotiations before it will be possible to say exactly how they will be handled.
Mr. Dickens: Is the Prime Minister aware that a large and growing body of opinion in the House and the country is opposed to our entering the Common Market, certainly on anything less than the full acceptance by the Six of the five conditions accepted by the Labour Party? Will my right hon. Friend state the Government's position on two of the five conditions which he has not mentioned so far, namely, those concerned with national economic planning and with foreign policy, and will he give an assurance that the five conditions as a whole will be upheld in the forthcoming negotiations?
The Prime Minister: I have answered a number of Questions in the House about the five conditions, and I have indicated the extent to which they have to some extent been eroded by time, for example, the one in relation to E.F.T.A., the first one on the list. My hon. Friend will, no doubt, wish to give very close study to my statement and form his own view—I have formed mine—of the extent to which what I have said today is in fulfilment of the conditions which were laid down some years ago.
318
As regards national economic planning, my right hon. Friend and I and the Government take the view, after our discussions, that we shall be able to carry out our economic policy in the way which seems best suited to the needs of this country. In addition, we shall have the enormous advantages, to which I have drawn attention, of the wider market and the growth of the technological community.
As regards foreign policy, I have made clear—last Thursday was the most recent occasion—that I do not think that many hon. and right hon. Members—there are some federalists whose views we respect—would feel that an application under Article 237 in any way involves for a very long time ahead any considerations of that particular kind. Certainly, we believe that our foreign policy could become more effective and our influence much greater if we were within a Europe which is growing stronger and more united.
Mr. Sandys: While expressing my unqualified delight at the Prime Minister's—[Laughter.]
Mr. Speaker: Order. The House must not delight itself in unqualified regret.
Mr. Sandys: While expressing my unqualified delight at the Prime Minister's momentous decision, may I wish him all good luck in the crucial negotiations which will lie ahead?
The Prime Minister: I thank the right hon. Gentleman, and I hope that he will allow me to refer back to the occasion of the previous announcement when I told the House of the tour of my right hon. Friend and myself. The right hon. Gentleman asked us to do everything possible to maintain the momentum, and I then said that we should do so. I hope that he will feel that that answer has been fully carried out.
Mr. Shinwell: In view of the unqualified approval expressed by right hon. Gentlemen opposite, may I assure my right hon. Friend, with all the force of which I am capable, even by myself, that I shall give him the most relentless and ruthless opposition? I had better be frank about it. He will need all the support he gets from the other side.

319
I have two questions to put to my right hon. Friend. First, he will recall that, when the right hon. Gentleman the Leader of the Opposition was engaged in negotiations, some years ago, and we asked questions about the process of negotiations, he always replied that these were confidential. In the process of negotiations which will ensue after my right hon. Friend has made formal application for membership of the E.E.C., will he inform the House from time to time in detail of the process of negotiations so that we may follow the course he proposes to take?
Secondly, will my right hon. Friend include in the White Paper which is to be debated and voted on next week the regulations which have been presented by the Commission responsible for the administration of the Treaty of Rome, regulations which interpret many of the Treaty provisions? As he knows, the interpretations by regulation of the Treaty provisions are much harsher in their effects than the Treaty itself.
The Prime Minister: On my right hon. Friend's first question, I certainly take note of his intention to ensure, what will be my wish, that this great debate will be carried forward over the months with vigour, ability and the very great sincerity and strength of feeling which I know my right hon. Friend has on this subject. Whenever possible, statements on the progress of the negotiations will be made. I think that the procedure followed by the right hon. Gentleman the Leader of the Opposition, of making a statement after each major phase in the negotiations, is the right one, and that this should be continued. We shall, of course, steadily make available to the House all the information we feel will help it in forming a continuing view of this problem.
The White Paper which will be tabled later this week will embody the statement I have made this afternoon—this follows many precedents—and the House will be asked to come to a decision about it. We shall also make available a series of Papers, starting this week with one on agriculture, which covers a considerable area of the problems the House faces. This will, as far as humanly possible, be completely up to date on the working of the Community and not
320
merely on regulations made. We shall do what we can in successive weeks, during the Recess and afterwards, to bring out further Papers, whether White Papers or some other form of Papers, to keep the House fully informed.
I do not, however, accept the implications of my right hon. Friend's concluding words, when he suggested that the working of the Community was in all cases harsher than the regulations which have been operated. One reason for the confidence of my right hon. Friend and myself is that in so many aspects of questions of vital importance to this House the actual working is a great deal more relaxed than the wording of the regulations may suggest.
Mr. Turton: Can the Prime Minister explain his condition of safeguarding essential Commonwealth interests? Does he envisage transitional arrangements, or will he aim for something like the annex to the Treaty of Rome which covered the overseas territories of the Six and was a permanent arrangement?
The Prime Minister: The particular form will be a matter for the negotiations, and what the right hon. Gentleman has suggested is certainly one possibility. There are others, as he knows. In my statement, I laid particular emphasis on New Zealand, the problem of which is widely understood in Europe, and I think that there is a wide desire there to deal with the problem adequately. I stressed the Commonwealth Sugar Agreement. Commonwealth interests are concerned. The right hon. Gentleman will know the wide range of methods which have already been used within the Community for protecting the essential interests of countries in Africa, Asia and elsewhere which were previously associated with member countries of the Six.
Mr. John Hynd: Will my right hon. Friend realise that this declaration will not only be received with enthusiasm throughout the country, as evidenced by the latest public opinion polls, but also with great relief and enthusiasm throughout Western Europe, not least by the trade unions and social democratic parties of Western Europe, who will recognise that this is a step towards that world government which we all seek and

321
which can only be reached by dismantling all national barriers; and that the decision will be regarded as a further rebuff to xenophobia and nationalism, which we sometimes see in this country as well as elsewhere?
Mr. Speaker: Order. Hon. Members should ask elucidatory questions briefly.
The Prime Minister: My hon. Friend was certainly correct in what he said about the views of the trade union movement, not only in this country but far more widely, and about social democratic parties, in which I know large numbers of my hon. Friends are concerned.
Sir J. Eden: While I congratulate the Prime Minister on his statement, in view of his earlier opposition to Britain's entry into the Common Market, may I ask whether he will say what were the principal reasons for his change of approach? Will he now immediately introduce changes, especially in taxation, which will be designed to help rather than handicap British industry?
The Prime Minister: A large number of right hon. Members have expressed different views at different times. I remember the mandate on which the party opposite won the 1959 General Election, for example. In 1960, I was very critical of the fact that the then Government were not approaching the European problem with enough sense of the European dynamic that was being created. [HON. MEMBERS: "Oh."] If the hon. Member wishes to make it a party matter he can get it back, but this is a matter that has divided both parties and at one stage even all three parties. [An HON. MEMBER: "It still does."] Certainly, it still does. Many right hon. and hon. Members on both sides of the House have changed their views. [HON. MEMBERS: "Answer."] I am answering the beginning of the question. I know the hon. Gentleman too well to let that go past.
As I explained in November, I think that my best short answer to what the hon. Member said is that my experience of the working of the Community, the actual practical working, and what we have learned in our discussions about its working, render unfounded the fears and anxieties which I certainly had and very
322
fully expressed, based on a literal reading of the Treaty of Rome and regulations made under it.
Mr. Alfred Morris: My right hon. Friend's statement is a defeat for those who have argued for unconditional entry into the Common Market and have argued, like the Leader of the Opposition, that there is nothing to negotiate about. Does my right hon. Friend agree that the Commonwealth Sugar Agreement is a matter of crucial importance, and that there can be no question of its being phased out?
Secondly, does he agree that there can be no question, if the Leader of the Opposition is right in saying that the price of British entry will be nuclear sharing with France, that Britain cannot pay that price?
Thirdly, will he agree that we have had a "mini-debate" so far and now want to see the start of the great debate?
The Prime Minister: I hope that nobody will say that this announcement and any action which will follow is a victory or defeat for anybody. I hope that it will not be regarded as mainly a question for party battling in the House, because I have said that all parties consist of Members with different views. Every hon. Member has a very great responsibility in this mattter to form his own judgment for or against what the statement has said, and there is no simple key to the answer. I fully recognise that the House is not even capable of being divided simply into the categories of Left and Right, as many of my hon. Friends know.
On the question of the Commonwealth Sugar Agreement, my hon. Friend will recall that in my statement and in a supplementary answer I stressed its very great importance for a large number of Commonwealth countries whose interests are at present protected by it, and said that this is certainly one of the major issues which it will be our duty to try to resolve in the negotiations.
Finally, there is the question of nuclear sharing. There has been no suggestion that an application to join the Treaty of Rome raises any questions affecting nuclear defence. I am sure that the House itself would not wish this to be involved in any way or any commitments

323
in that respect to be assumed from my statement.
Mr. Jennings: The Prime Minister outlined five main issues which would be negotiated on application for entry. He then went on to say that there were lesser issues which could be dealt with after entry. Would he now specify in similar detail what those lesser issues are on which this House will be asked to sign a blank cheque? Secondly, he said that each right hon. and hon. Member would be asked to make his own estimate of the consequences of entry. Does that mean that he will approve a free vote on each side of the House so that we can register our own estimates in the Lobbies?
The Prime Minister: I did refer in my statement to lesser issues. There are a large number which can be best settled after entry. We will take the opportunity of next week's debate to go into that problem more fully. My own view—and hon. Members may agree or disagree—is that the negotiations for entry should be concentrated on the really major issues and that we should not get bogged down in consideration of questions affecting a thousand different items of the lower groceries type.
Mr. Jennings: What about constitutional issues?
The Prime Minister: I will come to that.
As I was saying, we do not want to get bogged down in considering a large number of lesser issues. That is my view and the view also of others who have great experience of this problem. We feel that these issues can be better settled after entry.
Of course, the question of the constitutional issues is of fundamental importance to the House. I hope to deal with it next week and that we shall be able to issue a highly authoritative, lengthy and detailed Paper on all the issues affecting constitutional and juridical matters.
Finally, there is the question of a free vote. The question of the advice which my right hon. Friend the Parliamentary Secretary to the Treasury will give to his right hon. and hon. Friends, like the advice which the right hon. Member for
324
Penrith and The Border (Mr. Whitelaw) gives to his right hon. and hon. Friends, is a matter for those concerned. This is a major decision of Government policy and will be put to the House as such next week. It is recognised, with the tolerance shown in our party and, I am sure, in the party opposite, that this is a matter on which hon. Members may feel that very deep issues are involved. It is not for me to dictate to hon. Members the conclusions which they may reach.
Mr. Barnett: Does not my right hon. Friend agree that the economic and political consequences of our not going into Europe are likely to be worse than pursuing the policy of escapism advocated by some right hon. and hon. Members? Will he consider setting out those consequences in the White Paper?
The Prime Minister: The cost of the economic consequences of going in are hard enough to quantify. The cost of the consequences of staying out are equally hard to quantify. But we are not approaching this problem on the basis that we must go in or perish—certainly not. There are alternatives—including the alternative of staying out. Our approach to this question is that while there are alternatives, and that this country can get along very well if we fail—we shall not whine about it, as I said last week—we believe that the alternatives provide a second-best compared with the results of a successful application. We believe that we shall benefit ourselves and Europe, both politically and economically, if our application is successful.
Mr. Godber: The Prime Minister said that he would issue a White Paper not only on the general issues, but also a White Paper on agriculture. When will the White Paper on agriculture be available? Will it cover the aspects of the producer, the housewife and the balance of payments and go into the problems of commodities? Or will it be in general terms only?
Sir G. Nabarro: What about horticulture and the Vale of Evesham?
The Prime Minister: If the right hon. Member for Grantham (Mr. Godber) will forgive me—I did not say that. I said there will be a White Paper embodying the statement I have made today, that

325
there will be successive Papers on individual issues and that, this week—by Thursday, I hope; we shall do our best—there will be a Paper on agriculture which will be wide-ranging. The right hon. Gentleman will no doubt wish to wait for that and to study it before the debate.
Naturally, my right hon. Friends and I hope to give, in the debate, as much information as we can to the House in addition to what is in the White Paper on agriculture. But I remind the House that it has traditionally never debated only on White Papers. It sometimes takes account of speeches.
Mr. Michael Foot: Can my right hon. Friend say why he considers that the French Government may have changed their mind on British entry into the Common Market since 1963? Since he has always said that we would not wish to crawl into the Common Market, can he undertake to publish a White Paper on the Government's alternative proposals for dealing with the economic situation if the French Government continue to hold the same view?
My right hon. Friend, earlier, made a reply about defence and nuclear matters. Is he really telling the House that these matters have not entered into the discussions in the same breath as he tells us that political unity of Europe is the central matter which concerns him?
The Prime Minister: It is not for me to assess the adjudgments which will be applied to our application by any of the six Governments to which it will be addressed. After the talks in which my right hon. Friend the Foreign Secretary and I took part, it was argued whether we should make the application; and the Government believe it right to do so. There is no question of crawling in. That has been made plain.
The possible alternatives were dealt with in the debate last November and I shall be surprised if the House does not go further into them in the debate next week. As I have said, there are viable alternatives. It is our view, however, that, while they are viable, they are less satisfactory for Britain herself, and for Europe., economically and politically and, therefore, less satisfactory to an area wider than Europe itself.
326
The question of nuclear sharing and defence matters was never mentioned in our discussions. It is not an issue. I should be very surprised if I thought that it was the view of my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) that political unity could be expressed only in terms of nuclear and military arrangements. This matter has not been discussed, because, so far as I am aware, there is no proposition for any joint nuclear arrangements between Britain and a European country, apart from the discussions going on in N.A.T.O., and these, of course, have been going on for some time.
It is possible, I believe, to get much greater political unity in Europe without either advancing towards a federal control of foreign policy or the creation of a European defence policy. Our view is that the right place for defence policy is within the Western Alliance and not by any means in the creation of a separate nuclear force in Europe.
Sir D. Walker-Smith: Does not the Prime Minister think that the information which he proposes to lay before the House in advance of the debate in which it is to be asked to approve the decision—information apparently restricted to a reprint of his statement today, plus some agricultural information—is grossly inadequate, casts grave doubt on the sincerity of his desire for a great debate, and constitutes a disrespect to this House?
Secondly, does he really think that no single amendment of substance is required for the interests of this country either in the Treaty of Rome or in the conduct of the Common Market, in neither of which this country has participated in formulation or operation?
The Prime Minister: I think that the right hon. and learned Gentleman is pretty cool. He calls it disrespect to the House to have a three-day debate without the Government laying before it all the technical information that it is possible to amass. The Government of which he was a senior member—we did not complain then and I do not complain now—made their announcement about entering Europe on 31st July, 1961. [HON. MEMBERS: "He had resigned by then."] Apparently the right hon. and learned Gentleman had resigned by then. I apologise to him.
Sir D. Walker-Smith: Not only was I not a member of the Government in July, 1961, but I am on record as making the same protest then as I am making now.
The Prime Minister: I certainly withdraw my statement that the right hon. and learned Gentleman was a member of the Government at the time.
But that Government announced their decision on 31st July and, without any White Paper or technical information, we had a debate on 2nd and 3rd August. It was an extremely good debate. I did not find the House of Commons in any way inhibited, because most right hon. and hon. Members had already even then been studying the matter for some time.
The right hon. and learned Gentleman very much underrates his own very great knowledge of this subject if he suggests that he will be incapable of making a highly-informed speech next week if he does not have all these Papers available. We could, of course, have waited to have a debate after the Recess and sought to get out other Papers, but I thought it right that the House should have an immediate opportunity of debating the matter before the Recess. I hope that the right hon. and learned Gentleman will not take a churlish view of our decision to give the House the earliest opportunity of a full debate. There will be other opportunities afterwards in the light of the information which we shall be making available in that debate.
I think that the right hon. and learned Gentleman also asked whether changes had been made in the constitutional——
Sir D. Walker-Smith: The second part of the question was whether there was no single amendment of substance, either in the Treaty or in the actual operation of the Community, which the right hon. Gentleman believed to be required in the interests of this country.
The Prime Minister: It is our view that no definitive amendment to the Treaty, apart from those consequential on the accession of a new member which would come up in the ordinary way of negotiation, is necessary, because we are concerned with the practical working of the Community as opposed to the anxieties which the right hon. and learned Gentleman and I both had about the terms of the Treaty.
Mr. Bagier: My right hon. Friend said that he had received a reassurance about the Government's regional policy. Was he satisfied with the assurance which he received, and will entry lead to a reduction of the help which the regions may have or may need?
The Prime Minister: My right hon. Friend and I are fully reassured not only by what was said to us by our hosts on these visits, but also by the actual practices which they themselves are carrying out in regional policy. Everything which we are doing and anything more which we may need to do is fully consonant with the present practice of the Community. My hon. Friend may have seen a very interesting study, for example, in the Economist last week, about what is already done in regional policy by one of the countries particularly concerned.
Mr. Kirk: I welcome the Prime Minister's announcement, and particularly its political content. Is this a totally fresh application, which would give him the advantage of a clean sheet, or a revival of the old application, which would give him the advantage of the considerable detailed work done by my right hon. Friend the Member for Bexley (Mr. Heath) at that time?
The Prime Minister: In fact, it is a new one. We considered the point made by the hon. Gentleman. If, when we approach the Six, they say that from their point of view it would be more convenient for them to revive the dormant application which was adjourned at the last meeting in January, 1963, of course we would be prepared to go along with that, but we feel that all the arguments are in favour of making a new and clean application.
Of course, a great deal of the work which went on before will be very helpful in doing what I said earlier we hoped to do, which is to speed the negotiations without too much preoccupation with detail.
Mr. Heffer: As my right hon. Friend the Member for Easington (Mr. Shinwell) said that my right hon. Friend would be pursued with relentless opposition on this matter, is my right hon. Friend the Prime Minister aware that many of his hon. Friends who, in the past, have pursued him with a certain amount of opposition

329
on other issues are, nevertheless, in full support of the Government on this and welcome the decision which they have taken today? Is he also aware that we hope that he will not take too much notice of the Ancient Britons in the House?
The Prime Minister: I hope that my hon. Friend will not get into as much trouble for using the words "Ancient Britons" across the Floor of the House, in this very context, as I got into in the debate in August, 1961, again speaking to certain hon. Members who are now on this side. I shall, of course, welcome the ruthless and relentless support of my hon. Friend with the same enthusiasm with which I shall welcome the ruthless and relentless opposition of my right hon. Friend.
Sir Harmar Nicholls: Is the right hon. Gentleman aware that that part of his statement which causes most apprehension is that which says that many items will be left for settlement after we have signed the Treaty of Rome and that the context in which he said that was such that many of the things which we believe to be fundamental could be left over until the contract is signed? On balance, it would seem that we want a clearer statement from the Prime Minister than we have had that the fundamental questions which he has raised will be settled, which may well mean asking for an amendment of the Treaty of Rome itself.
The Prime Minister: I hope that in the three-day debate next week and subsequently we shall be able to go into all these matters. The hon. Gentleman perhaps tends to underrate the power of a Government when it is a member of the Economic Community to influence decisions on matters both of detail and even more fundamental. I draw to his attention what was said in Luxembourg last year.
Perhaps I can correct one thing which I said to the hon. Member for Saffron Walden (Mr. Kirk). He asked whether the application was a revival of the application last time. Technically, what happened last time was not an application in that form. It was a letter to the Heads of Governments, including a statement of the Resolution of the House of Commons at that time. That is one
330
reason why the Community would probably prefer a straight, clean application to a revival of what was done on the last occasion.
Mr. Manuel: Is the Prime Minister aware that, while there is a general agricultural problem arising from the application for entry, there are important implications for Scottish agriculture, especially for upland farming and crofting areas which are floating on heavy Government subsidy? Will that subsidy continue, or be ruthlessly swept away in those areas as uneconomic?
The Prime Minister: Some of the problems affecting British agriculture—I am here referring to structure and farm working as opposed to balance of payments questions—are particularly highlighted in some upland areas of Scotland and Wales and parts of England itself, and the problems in other areas are still more serious. This is a matter for the negotiations, but my hon. Friend should not too readily assume that, under the flow-back of levy money from the central fund for the purposes of aiding structural adaptation and improving rural facilities and improving agricultural production, we should not be able to lay claim to pretty heavy amounts for the very purposes which my hon. Friend has in mind.
Sir D. Renton: In answer to my right hon. Friend the Leader of the Opposition, the Prime Minister used the word "associated" with regard to the future of the E.F.T.A. countries. Would he confirm that he was not using it in the narrow technical sense, but in a broader sense? Secondly, will our immigration laws be the subject of negotiation before or after entry?
The Prime Minister: I confirm that I was using the word "association" in the wider and more general sense, "association" with a small "a" and not "Association" under Article 238 of the Treaty of Rome. We know that some E.F.T.A. countries will apply for full membership and some may apply for Article 238 Association, or connection in some other way. I meant some kind of association and not just the 238 type. Immigration and the free movement of workers is a difficult problem which will have to come up in the negotiations. There are difficulties for us in view of our

331
present policies and the problem of Commonwealth versus European workers, but, at the same time, there will be some difficulties on the other side. I do not want to stress them too much. These must be matters for negotiation.
Mr. Kenneth Lewis: On a point of order. As we have spent so long on Europe, can we now get on to Brierley Hill?
Mr. Speaker: I think that the hon. Member ought to let the Chair conduct the proceedings.
Mr. Anderson: Now that we have crossed this major Rubicon and are marching steadily towards Rome, does my right hon. Friend agree that it would be helpful at this stage to be a little more precise about our political commitments? In particular, can he say that we will not provide an obstacle to qualified majority voting in the Council of Ministers, nor to a democratic development within the European Parliament, and that we shall not act as a brake upon some political developments?
The Prime Minister: We said in Europe, and I said again last week, in my hon. Friend's hearing I think, that we shall accept the same obligations as our prospective partners in Europe, no more and no less.
Sir Knox Cunningham: Can the Prime Minister say, after his conversations with the Prime Minister of Eire, whether Eire will make an application to join at the same time as the United Kingdom and, should we fail in our application, whether Eire will withdraw hers?
The Prime Minister: This must be a matter for the Government of the Republic of Ireland. We had discussions yesterday. I do not know whether the hon. and learned Gentleman saw the statement made by the Taoiseach after the discussions. It is not for me to interpret the position of the Government of the Republic of Ireland to the hon. and learned Gentleman.
Several Hon. Members Several Hon. Members rose——
Mr. Speaker: Order. This is difficult. This is an historic occasion. Over 200
332
hon. Members wished to put questions. I have had to let it run. Mr. George Thomson. Statement.

BRITISH FORCES, GERMANY
The Minister of State, Foreign Affairs (Mr. George Thomson): With your permission, Mr. Speaker, and that of the House, I wish to make a statement on British forces in Germany.
I apologise to the House for taking up its time with a second statement this afternoon, but there are simultaneous announcements being made in Washington and Bonn, and I felt that hon. and right hon. Members would wish to have this information given directly to them at the earliest opportunity.
My right hon. Friend the Chancellor of the Exchequer informed the House on 11th April that the tripartite discussions with the United States and the Federal Republic of Germany had made satisfactory progress, and that we were confident that it would be possible to cover by far the greater part of the foreign exchange costs of our forces in Germany during the current year.
At the tripartite meeting held in London last week agreement was reached on proposals that would be put to our allies in respect of some redeployment of forces in Germany. We were also able to confirm the associated financial arrangements. I am now able to inform the House of these, and of the proposals that have been put to our partners in the North Atlantic Treaty Organisation and the Western European Union.
As regards our forces in Germany, we propose to redeploy to the United Kingdom one brigade group and to make economies in the expenditure on the Second Tactical Air Force, including the redeployment of one squadron. These forces would remain earmarked for assignment to Supreme Allied Commander Europe. The movement of these forces to the United Kingdom would be completed during the last quarter of the current financial year.
The United Kingdom Permanent Representative to the North Atlantic Treaty Organisation has informed our allies of these proposals, which will be taken into account in the North Atlantic

333
Treaty Organisation defence planning process.
These proposals have also been put to the Western European Union Council, in accordance with the Brussels Treaty.
The new Anglo-German offset agreement will provide for off-setting payments in the defence and civil sectors, amounting to nearly £50 million. The arrangements are very similar to those under the current agreement, with this difference that separate target figures are specified for the defence and civil sectors.
The United States Government are also taking certain measures which will have the effect of relieving our balance of payments in 1967–68. They have moved certain air force units to this country and have undertaken to make further purchases in the defence field in addition to those which they promised to make last November. Half of the latter can be attributed to the year 1967–68. In all, the advantage which will accrue to the balance of payments will amount to a little over £20 million.
Finally, the proposed redeployment of forces would result in foreign exchange savings of about £5½ million in a full year, but, of course, much less in 1967–68.
At their present strength, the deutsch-mark costs of our forces in Germany would have been £82 million. The arrangements which are described will, as my right hon. Friend the Chancellor of the Exchequer informed the House in his Budget speech, enable us to cover roughly £72 million of this total.
The House will, I am sure, welcome the overall agreement which has been reached in these discussions with our allies. The net foreign exchange burden of our forces in Germany will this year be less than it has been for many years.
It is moreover, recognised by the three Governments concerned that the balance of payments consequences resulting from stationing of forces abroad for the common defence continue to pose a problem for joint attention.
Lord Balniel: The Minister says that he is sure that the House will welcome the overall agreement which has been reached. Am I not right in thinking that in so far as troop levels are concerned, this statement is no more than an announcement of the proposals which
334
will be put before N.A.T.O. and W.E.U., and that the decision will rest in their hands, not in ours?
Secondly, may I ask, when these discussions have been taking place, involving a reduction of troops in N.A.T.O., have there also been similar discussions involving a balanced and verified reduction of troops, not only in N.A.T.O. but in Eastern Europe as well?
Mr. Thomson: We have always made it clear that we would go through the normal procedures of N.A.T.O. and W.E.U. These are reasonable proposals, and we have every confidence that our allies will feel that they are acceptable and meet the requirements of the common defence efforts.
On the second point, we very much hope that these reductions will provide an opportunity to explore with the Soviet Union and its allies the possibility of mutual reductions on both sides of the Iron Curtain. There again, this is a matter, in the first instance, for discussion with our allies in N.A.T.O.
Mr. Emrys Hughes: Can the Minister tell us exactly what the soldiers remaining in Germany will do there? Does he not realise that in view of the biggest gold robbery in London they would be better employed in the police force?
Mr. Thomson: I thought that my hon. Friend would welcome the arrangements that I have mentioned in so far as they make some reduction in the force levels. The decision that has been taken about the force levels to be maintained in Germany for the present is a recognition of the need to maintain collective security arrangements in Europe.
Mr. Powell: May I ask the Minister of State two questions? First, when does he expect that these proposals will be considered by N.A.T.O. and W.E.U. respectively? Secondly, as these financial arrangements apply, I understand, to this year only, are the Government envisaging further and larger withdrawals to meet foreign exchange costs in subsequent years?
Mr. Thomson: On the second point, I said in my main statement that this is a problem that will require continuing attention from our allies and ourselves. We shall be discussing with the Federal

335
Republic of Germany and the United States exactly how to proceed with studying the long-term aspects of this problem.
Mr. Dalyell: Can my right hon. Friend say rather more about the aspects of this from the point of view of the civil sector? What are the targets in the civil sector? Are there any concrete plans?
Mr. Thomson: On the civil side, there is a target of around £22½ million for civil purchases by public authorities in the Federal German Republic. In addition, there is a target of about £9 million for civil private purchases of various kinds that will be promoted by the joint efforts of the two Governments.
Mr. Blaker: In calculating the figure of £72 million, to what extent has account been taken of the foreign exchange contributions to this country, as a result of the presence of American forces here? If account has been taken, is this not a new practice?
Mr. Thomson: The American contributions, which are described in my main statement, including the contribution made by moving certain Air Force units to this country, are all entirely additional to any of those contemplated in any previous arrangements we have had with the United States.
Mr. Frank Allaun: Will my right hon. Friend confirm that, apart from the £82 million foreign exchange costs, we are spending £195 million a year in all in Germany? What is the purpose of this, in view of the fact that the Defence Minister says that there is no threat to Europe or Britain?
Mr. Thomson: The purpose of our defence expenditure in Germany is to make a contribution to the collective defence arrangements through N.A.T.O., which has always been part of the policy of the Labour Party and of the Government. These tripartite discussions have been devoted to the narrow but extremely important point of offsetting the foreign exchange element in that expenditure. As I have said, we have succeeded in doing better than any other British Government for a long time.
Mr. James Davidson: I welcome the fact that agreement has been reached, but
336
there are certain reservations. Is this a step in a proposed withdrawal from Europe? Secondly, what intentions does the right hon. Gentleman have regarding our rôle within N.A.T.O. after 1969?
Mr. Thomson: Those are very much wider questions. I have made it clear that what we have discussed over many months in these talks was how to meet the foreign exchange burden of our defence expenditure in Germany on a basis of mutual agreement with our allies principally concerned. There is no question, or any implications of any sort, of withdrawing from Europe. In view of the statement on the Common Market, I should have thought that this would have been self-evident.
Mr. Leadbitter: Is my right hon. Friend aware that this is a long-continuing problem and that disappointment in the past can be followed by disappointment in the future? I understand from what he said to the right hon. Member for Wolverhampton, South-West (Mr. Powell) that this is an arrangement for one year and that there have to be continuing discussions. In the event of failure to meet this offset arrangement—these are only proposals at this stage—has my right hon. Friend in mind any contingency plans either to reduce the forces or to have a longer-term arrangement with the tripartite countries?
Mr. Thomson: The arrangements which I have just announced take us up until March next year, until the end of the current financial year. That is why I said that there would need to be continuing study by the three Governments mainly concerned of the longer-term implications. Nevertheless, we have succeeded in making an arrangement which reduces last year's foreign exchange gap between outgoings and receipts by £20 million, and that is certainly something worth going on with.
Sir Alec Douglas-Home: The right hon. Gentleman said that a simultaneous statement was being made in Washington. Is this the only withdrawal of troops which is contemplated, or are the Americans making some withdrawal, too?
Mr. Thomson: No, Sir. As part of the tripartite arrangement there is to be on the American side a rotation of some of

337
their troops at present in Germany. As I understand, one American division will be rotated in a way which will leave one-third of it in Germany at any particular time.

NEW MEMBER SWORN
William Fergus Montgomery, esquire, for Brierley Hill.
BILL PRESENTED.
  ANCHORS AND CHAIN CABLES
  Bill to make new provision in substitution for the Anchors and Chain Cables Act, 1899, presented by Mr. Douglas Jay; supported by Mr. William Ross, Mr. Anthony Wedgwood Benn, Mr. Roy Mason, Mr. George Darling, and Mr. J. P. W. Mallalieu; read the First time; to be read a Second time tomorrow and to be printed. [Bill 249.]

CENTENARY OF THE CANADIAN PARLIAMENT
4.35 p.m.
The Prime Minister (Mr. Harold Wilson): I beg to move,
That this House, mindful of its debates in February and March, 1867, which led to the passage of the British North America Act and to the establishment of the Parliament and Dominion of Canada and recalling the hopes then expressed that the foundation had thereby been laid for the development of strong and self-reliant parliamentary institutions in that country; notes that these hopes have been amply fulfilled in the continuing vigour and vitality of the parliamentary system in Canada and sends most friendly greetings and warm congratulations to the Canadian House of Commons on the centenary of its establishment, and all good wishes for the second century of its existence.
Moving in another place the Second Reading of the British North America Bill on 19th February, 1867, the then Colonial Secretary, the Earl of Carnarvon, argued at some length the advantages which he expected would accrue from the creation of a Confederation of the Provinces of Ontario, Quebec, New Brunswick and Nova Scotia as—in the terms of the Bill—
"one Dominion under the name of Canada".
As a Minister in the Government of a nation of shopkeepers, it was perhaps inevitable that he first drew attention to the commercial advantages—to the benefits of the abolition of tariffs, of the rationalisation of currencies and of an amalgamation of complementary economies. He looked forward to the time—as did all those who had a hand, on both sides of the Atlantic, in the creation of this Confederation—when it would extend from the Atlantic to the Pacific as one single economic unit. There were, too, he pointed out, the military advantages of having a single army under a single command rather than a number of separate militias each concerned only with the defence of its own province.
But it was not the economic and commercial, or even the military, aspects on which the Minister laid main stress. He reserved his peroration rather for the impetus to the growth of political responsibility, of Parliamentary institutions and of the concept of responsible government which he hoped would result from the Act of Confederation. Now, 100 years later, we are in a position to judge how well these potentialities were assessed and

339
how effective were the means proposed for achieving them.
As far as economics and commerce are concerned, there can be no doubt. A pioneer society of about 3½ million people has been transformed into a front-ranking industrial nation of nearly 20 million people with one of the highest standards of living in the world. But no less an achievement is to be seen on the political side. As I pointed out in a message which I sent to Mr. Pearson at the outset of this Centenary Year, Canada has opened up a road to constitutional independence which has since been trodden by two dozen other Commonwealth countries.
Since 1867, we have seen the Canadian Parliament, together with the Parliaments in each of the Provinces, conduct the affairs of that huge Dominion in a responsible, democratic manner which has been an example to the other nations of the Commonwealth and of the world: an example which, while it may have been lost sight of here and there and from time to time in other countries, is one which I firmly believe will be seen in the light of history to have pointed the way for nations striving to achieve prosperity and a free and democratic way of life for their peoples.
Canada has shown that an underdeveloped nation, with little more than the basic human and material resources available to it, can achieve for itself not only a prosperous way of life for its people, but also the mature and responsible political institutions to enable the people to live their lives in freedom and govern themselves in an effective democratic way.
In international affairs, also, Canada plays a distinctive role. She is a staunch ally in N.A.T.O. and our oldest Commonwealth partner. In Commonwealth affairs, the Canadian Government's attitude is constructive and enlightened; she has given disinterested aid to the developing nations of the Commonwealth. We value highly our continuous and close contact with the Canadians on current international problems. Of particular value has been their practical support for the United Nations and their willingness to devote men and resources to essential United Nations tasks, particularly in the sphere of peacekeeping. It is a happy coincidence, and indeed an index
340
of Canada's outstanding contribution to the work of the United Nations, that in this her centennial year she should be serving on both the Security Council and the Economic and Social Council.
I think, therefore, that this House and this country can share with Canadians their pride in their achievements over the past 100 years. The hopes of those who had a hand in the creation of Canada have been amply borne out. At the end of his speech on the Second Reading of the British North American Bill, 100 years ago, the Minister, Lord Carnarvon, said:
"We are laying the foundation of a great State—perhaps one which, at a future day, may even overshadow this country. But, come what may, we shall rejoice that we have shown neither indifference to their wishes nor jealousy of their aspirations, but that we honestly and sincerely, to the utmost of our power and energy, fostered their growth, recognising in it the conditions of our own greatness."
It is in that same spirit that I move this Motion.
4.40 p.m.
Mr. Edward Heath: Mr. Speaker, I gladly join with the Prime Minister in expressing the support of this side of the House for the Motion which he has so eloquently moved.
My right hon. and hon. Friends yield to none in our admiration for the achievements of the Canadian people which have, throughout these last 100 years, been based on a healthy and effective Parliamentary system. Although the Canadians have done so much to build up their own prosperity, they have not been content to confine their energies and activities to their own land, but have supported the democratic countries elsewhere in the world, notably in two world wars, and, in particular, have played a most distinguished part in the Commonwealth and all its activities. As the Prime Minister has said, they are strong and loyal members of N.A.T.O. None has been more active in the work of the United Nations throughout the world than have successive Canadian Governments.
Like many other hon. Members, I have paid a number of visits to Canada and, on those occasions, I have been in the Canadian Parliament. I always find on going into that Parliament, as I do elsewhere in other member countries of

341
the Commonwealth, that one has the feeling that, somehow, one is coming back home. We all have the same feel in the Chamber and the same attitude toward debates.
On this occasion, perhaps it is right that we should also remember the support which the Canadians have given to the Commonwealth Parliamentary Association, not only in its conferences but in its work from time to time throughout the Commonwealth. So it is really one member of a family, and the Members of Parliament in that family, sending our congratulations and good wishes to another member of the family on the remarkable achievements of a century.
I do not think that it will have escaped the notice of hon. Members, and I am certain that it will not escape notice in Canada, that the Prime Minister has moved this Motion after having made his statement about the application of the Government to join the European Economic Community. This has a particular significance for Canada as the senior member of the Commonwealth and, therefore, one with an important part to play in this period of our history.
There is a growing understanding in Canada of the importance of the European policy for Britain in the modern world. I have never believed that it is a question of choice between a European policy and the Commonwealth. No doubt it means changes in some of the trading arrangements between this country and Canada, and for the Dominion which was the home of the Ottawa Conference and all that that has meant for this country over the last 35 years, this is obviously bound to be important.
Apart from that, all the links between Britain and Canada, the links of the Crown, the links of language, the links of the same basis of common law and administration, the links of professional and business connections and, above all, the links between families and friends will continue. Forming the basis for the whole of this connection in the future, as in the past, will be that we both have the same Parliamentary democratic system.
So I believe that Canada will understand, as other countries of the Commonwealth will understand, that a European policy is not one which weakens the Commonwealth but provides the basis
342
for a stronger relationship in the years which are to come. It is in that spirit as well as the spirit of members of the family that I would support what the Prime Minister has said this afternoon.
4.45 p.m.
Mr. Jeremy Thorpe: Having returned from Canada last weekend, where I was privileged to attend the House of Commons in Canada and also the opening of the Exposition of 1967 to mark the 100th anniversary of the Confederation, may I associate myself enthusiastically with everything which the Prime Minister and the Leader of the Opposition have said?
Quite apart from the domestic achievements of Canada, she has given enlightened leadership abroad, whether it is, as the right hon. Gentleman has said, in her support for the United Nations, which, I believe, has led her to supply troops in every peacekeeping force which has been created by that body, whether it has been in giving support to the Commonwealth at some very critical stages in its history and evolution, whether it is in the recent move and initiative made by Canada in the hopeful solution of the Vietnam war, whether, indeed, it is in the solution of the very difficult problem of provincial government and the devolution of powers in countries which have those problems; in all those matters she has given wise statesmanship. She has provided great statesmen in the past, and she is still continuing to do so at this moment.
It is a very moving experience to walk along the corridor leading to the Members' Dining Room and see on one side many pictures of Canadian Prime Ministers and, on the other side, a collection of prints of British Prime Ministers going back to the time of Walpole. There are truly great bonds between our two countries.
In view of the Prime Minister's statement today, it is relevant to point out that Canada is the only country which speaks the language of France and of the new world, and she may have a great part to play in bridging gaps between those two Continents in the future.
Canada has the right to be justly proud of her achievements. As we salute the senior partner in the Commonwealth, we not only express our admiration for

343
everything which she has done, but wish her every possible success in the future.
4.47 p.m.
Mr. Philip Noel-Baker: I venture to add a few words in support of the Motion which the Prime Minister has moved, and I do so for the reason that my father was born in a log cabin in Ontario, that as a young citizen of Canada he lived through the momentous events of 1867, that he came to this country and was for many years a Member of this House, that I visited Canada many times in his company, and that through him I have had the privilege of the friendship of all the Prime Ministers of Canada and many other Ministers since the days of Sir Wilfrid Laurier until today.
I had exceptional opportunities in the League of Nations, the United Nations and elsewhere to appreciate the greatness which Canada has shown as a nation, and I look forward to Canada playing a still greater part in achieving world peace and disarmament in years to come.
Question put and agreed to.
Resolved, nemine contradicente,
That this House, mindful of its debates in February and March, 1867, which led to the passage of the British North America Act and to the establishment of the Parliament and Dominion of Canada and recalling the hopes then expressed that the foundation had thereby been laid for the development of strong and self-reliant parliamentary institutions in that country; notes that these hopes have been amply fulfilled in the continuing vigour and vitality of the parliamentary system in Canada and sends most friendly greetings and warm congratulations to the Canadian House of Commons on the centenary of its establishment, and all good wishes for the second century of its existence.

ORDERS OF THE DAY

  FINANCE (NO. 2) BILL
  Order for Second Reading read.
  4.48 p.m.
  The Chief Secretary to the Treasury (Mr. John Diamond): I beg to move, That the Bill be now read a Second time.
  This Bill achieves many purposes. It lightens the tax burden of many of our fellow citizens, it provides for the payment by every taxpayer of his fair share of taxation; it simplifies certain earlier provisions in the taxing Statutes; it makes the necessary provisions consequent upon other developments in our economy and in our fiscal legislation; it assists the development of the economy by removing barriers or impediments to useful and worthwhile commercial and business activity, and it encourages investment and enterprise by continuing those measures and those levels of taxation which promote them.
  I would like to deal with each of these purposes in turn. The tax burden is lightened in respect of Income Tax, Capital Gains Tax, Stamp Duty and Excise Duty. Income Tax relief is provided by Clause 16 which increases the maximum dependent relative allowance from £75 to £110, that is by £35, where the relative is maintained by a single woman, a term which includes a widow and a divorced or separated wife.
  Clause 16 also increases from £40 to £75, again by £35, the allowance given to widows and widowers and certain other taxpayers who have single-handed responsibility for children but do not have a resident housekeeper. This change in effect adopts a recommendation of the Royal Commission on Taxation and gives the same allowance to those who employ a resident housekeeper to look after the children as those who do not.
  Further tax relief is provided under Clause 17 which permits the spreading forward of lump sums received in respect of the sale of copyright in certain circumstances, so that the impact of the tax liability is much reduced
  The Bill also provides for relief in respect of Capital Gains Tax. Paragraph 1 of the Thirteenth Schedule allows the losses of a husband or wife to be set

  345
  against the gains of the other in future years as well as the year in which the loss occurred. This meets a proposal put forward during last year's debate which we promised to consider sympathetically.
  There are two Clauses which provide relief from Stamp Duty. Clause 25 increases the exemption limit in respect of transfer duty on houses from £4,500 to £5,500, and the limit for the reduced rate of ½ per cent. from £6,000 to £7,000, and Clause 27 exempts borrowings by local authorities from Stamp Duty on issue and transfer.
  The fourth category of relief which I mentioned is that of Excise Duty. Under Clause 5 the Bill abolishes the Excise licences which until now have been required for selling liquor by retail or supplying it in clubs. The requirement to hold a justices' licence or its equivalent will, of course, continue unchanged.
  The liquor licensing system is one of great antiquity. The first Statute bringing the retail liquor trade under the control of the local justices was passed in 1552, but over the years the two systems, that is to say the justices' licensing system on the one hand and Excise licences on the other, have become entangled, which explains why the abandonment of the Excise licences, which the Bill proposes, requires three rather lengthy Schedules to the Bill to make the consequential amendments to the law.
  In all those four fields the burden of taxation has been reduced. In one case only has it been increased, that is in respect of Stamp Duty on loan capital. Clause 26 provides that the rate of loan capital duty, hitherto 2s. 6d. per cent., shall be the same as share capital duty, namely, 10s. per cent. One of the repercussions of the introduction of Corporation Tax was that many companies which would have raised new money in the form of share capital now prefer to raise it in the form of loan capital. It seems sensible therefore that the level of duty should be equated. So much for the provisions dealing with the relief of taxation.
  I turn now to those Clauses whose purpose it is to ensure that every taxpayer bears his appropriate share of the total burden as laid down by Parliament. The general body of taxpayers looks to
  346
  the Government to ensure that those who pay their taxes promptly and in full, among whom one must put the average wage or salary earner as a shining example, are not called on to pay in addition that extra amount which has been avoided by their fellow taxpayers. Accordingly, the Bill contains a number of Clauses to assist in achieving this purpose.
  Clause 7 applies to the Pool Betting Duty a number of provisions which have been found helpful in securing prompt and proper payment of various other duties over a number of years. The main purpose is to extend to this duty the deposit procedure in the case of disputes which has been used for many years for Customs duties generally and also for Purchase Tax. A dispute over the basis of payment may take months or even years to settle, and in this time, with a pool each week, the amount of duty at issue can grow into a very large sum. This sum is received by the promoters as part of the money staked each week by participants in the pool. It is clearly in the public interest, as well as, coincidentally, in the Revenue's interest, that this sum should be held by the Crown and not by the promoter pending settlement of the dispute.
  Clauses 11 and 12 deal with the enforcement of Vehicle Excise Duty. Although the amount of evasion here is not nearly so great as has been alleged in some reports——
  Mr. Arthur Lewis: How does my right hon. Friend know?
  Mr. Diamond: Nevertheless, with the current yield of these duties at £255 million a year, we may be losing something over £3 million a year. The answer to my hon. Friend is that tests have been taken.
  Mr. Lewis: How can my right hon. Friend carry out a test when there are hundreds of vehicles on the roads without any registration whatsoever and about which the appropriate authorities know nothing?
  Mr. Diamond: My hon. Friend must not claim for himself greater knowledge than everybody else put together. He is in the same position as we all are. If it is not possible to examine every vehicle oneself, one has to rely on the normal

  347
  procedure of intelligent testing. This has been done, and the results are as I have just said, that is to say, something over I per cent. With a total yield of £255 million, something over I per cent. is £3 million. I am grateful to my hon. Friend for the campaign which he has waged to draw attention to this matter, because £3 million is a very useful sum, and I hope he will agree with the proposals we are making under Clause 11 which increases the statutory penalty for unlicensed use from £20 to £50 a year, or, if this is higher, from three times the annual duty to five times the annual duty. Thus the statutory penalty for using a private car without a licence will be increased, at present levels of duty, from £52 10s. to £87 10s., which is more appropriate, and no doubt will prove to be a more effective deterrent to evasion.
  There is, however, a further defect in the existing arrangements. As things are, a driver can only be charged with the single act of unlicensed use in which he is detected, however long he may have been using his vehicle without a licence. It may even be that some motorists have calculated that by the time they are caught the penalty they face will be less than the duties they have escaped. Under Clause 12, therefore, a convicted person will have to pay, in addition to the statutory penalty, an amount equivalent to the past duty dating back to the expiry of the last licence, or to the date when he acquired the vehicle.
  In the same category, there is the problem of the hobby farmer. The dividing line between those who seek to make a living out of farming and those whose main concern is to carry on a hobby is difficult to draw. Lord Amory, when he was Chancellor in 1960, attempted to deal with this problem, but he was not wholly successful. So long as the hobby farmer can say that he has the intention of making a profit, there is no scope for the refusal of tax relief, however great his losses may be and however remote the possibility of his actually earning a profit. These subjective tests are never completely satisfactory in taxation affairs. Accordingly, we are supplementing the old conditions by new and objective tests, with the result that where a farmer has incurred losses for five years running, no further losses will qualify for tax relief
  348
  by way of set-off against other income, except in the very special case of the potentially profitable farming venture which, by its very nature, cannot avoid making a series of losses in its opening years.
  A further point arises on the liquidation of close companies. Under the present law, the undistributed income of such companies would escape Income Tax and Surtax during liquidation if the company managed to show that it was not carrying on a trade or the business of holding investments. Accordingly paragraph 7 of Schedule 11 ensures that short-fall assessments can always be made on the undistributed income of close companies during liquidation.
  Similarly, paragraph 11 of Schedule 13 brings into charge gains and losses arising from exchange fluctuations which may affect the sterling value of money held in a foreign bank account. This provision is necessary because, although Capital Gains Tax applies to foreign currency, if it is in a bank account it is exempt, because technically a bank account is a debt and debts are generally outside Capital Gains Tax.
  These Clauses are designed to secure payment of the full amount of tax. Clause 38 is designed to secure that tax should be paid promptly and does this by bringing the rate of interest on arrears more into line with current circumstances by increasing the net rate with effect from 19th April from 3 per cent. to 4 per cent. The Clause also enables the rate of interest to be varied in future by Treasury Order. At the same time, we have taken the opportunity to save work and remove a minor irritation. At present, interest is not payable unless it exceeds £1. Under the Clause, that figure is increased to £5.
  So much for those Clauses designed to secure that each one pays his proper share of tax. I now turn to those designed to simplify and clarify the tax code. Clause 20, which is one such, removes doubts arising on certain provisions in order to facilitate consolidation of the law relating to capital allowances.
  Clause 22 ensures that where interest on United Kingdom Government securities held in connection with certain businesses carried on in the United

  349
  Kingdom by non-residents is exempt from United Kingdom tax under the terms of issue, a corresponding disallowance of interest shall be made in computing the profits of the business for taxation. Legislation intended to have this effect has been in force since 1940, but a recent decision of the Special Commissioners has cast doubt on its effectiveness and the Clause restores the previously accepted effect of the existing legislation.
  Then there are Amendments to the close company provisions, which are necessary to remove doubts which have arisen about the meaning of the term "the public", as it affects the definition of a close company. Paragraph 5 of Schedule 11 therefore provides broadly that "the public" are all the shareholders other than the five largest. That by itself should bring greater certainty.
  In addition, there is a substantial concession, in that shares held by open companies are to be treated as being held by the public whether or not they form part of the five largest holdings. Finally, paragraph 8 makes it clear that a person treated under certain of the close company rules as holding shares and other rights of his associates does not need to hold any of his own. This removes doubts expressed on this point by commentators who have noticed the phrase' "with one or more of his associates" and have misread its intention.
  As regards Capital Gains Tax, there is a provision in paragraph 4 of Schedule 13 enabling the tax liability of small cash premiums received on conversion of British Government and other securities to be deferred until the new securities are themselves disposed of. This should make life simpler both for the individuals concerned and for the Revenue. I should perhaps refer also to paragraph (6), which makes clear the position with regard to expenditure incurred in connection with part disposals.
  This, like every other Finance Bill, contains a number of provisions which are purely administrative and which perhaps I could deal with shortly. My hon. and learned Friend the Financial Secretary will be glad to answer any question on this or any other Clause in winding up.
  Clause 1 ends the Customs and Excise Regulator surcharges introduced last July and replaces them with new substantiverates
  350
  of duty and Purchase Tax, to which I shall refer later. It also contains what is now a normal provision by renewing the Regulatory powers for a further year from next August.
  Clause 10 arises from a decision that the number of probate registries should be widely extended to provide a better service to the public and when that happens, there will be no further need for the limited service provided by Customs officers in respect of small estates.
  Clauses 31 and 32 and the Fourteenth Schedule result from the betterment levy provisions of the Land Commission Act and adapt the Capital Gains Tax accordingly. Clauses 39 and 40 meet the recommendations of the Select Committee on Procedure in conection with the abolition of the Committee of Ways and Means. They contain the necessary changes to the provisional collection of taxes legislation which will enable Standing Orders to be amended to this end. Under Clause 41, the quorum of special Commissioners in tax cases is reduced to one in certain circumstances.
  An efficient tax code should avoid the creation of any barriers or even impediments to economic progress. It is the Government's duty to search them out and, where possible, to remove them. Accordingly, the Bill contains a number of provisions directed towards that end.
  For example, Clause 6 provides for useful modernising of Revenue procedures by abolishing official permits for the movement of spirits and tobacco. At present, about 600,000 permits have to be completed each year by the trades concerned. These were no doubt necessary in years gone by, but are no longer required in present-day circumstances. Although our predecessors hung on to them—quite unnecessarily, in our view—we propose to abolish them and to rely in future on normal commercial documentation. This change will mean particularly an easement of form filling for the export trade in Scotch Whisky.
  In Clause 4, we propose to abolish the extra licence duty of £1 a year taken out by makers of vinegar. This licence goes back to the time of Pitt, but is not necessary for modern Revenue control. Again, in order to assist the export of vehicles, we propose under Clause 9 to simplify the arrangements under which

  351
  manufacturers can supply vehicles free of Purchase Tax for export by visitors from abroad or intending emigrants.
  As we all know, many firms find it convenient to organise their commercial activities under separate companies for perfectly good commercial and administrative reasons. So far as reasonably practicable, the resulting groups of companies should not be prejudiced in their tax affairs by this division of activity. In particular, they should not normally be required to pay tax on their profits without getting relief for their trading losses.
  Accordingly, we are providing in Clause 19 and Schedule 10 for one company making a trading loss to agree to let another company in the group have relief for it against its Corporation Tax profits. This will allow relief straight away within the group instead of requiring the loss to be carried forward against future profits. This new relief has many advantages and will supersede the subvention payment relief which was carried over into Corporation Tax from Income Tax.
  It was also represented to us that the existing charge of Schedule F tax on transfers of assets at less than market value by a subsidiary company to a parent could be an undesirable obstacle to company reconstructions. Accordingly, Schedule 11(3) provides for the removal of that charge. It goes a little further, to deal with the converse case of a transfer by a parent to a subsidiary at more than market value.
  The next paragraph in the Schedule removes a difficulty facing the liquidators of companies which are being wound up, which arises from the fact that the rate of Corporation Tax on profits arising in any financial year during the winding up is not known until after the end of the financial year. The new rule will be that the rate on profits arising during liquidation in the final year will be the rate fixed in the previous financial year; this will prevent delays in winding up arising solely out of uncertainty about the proper rate of Corporation Tax.
  Clause 29 permits the use of franking machines by banks, thereby dispensing with the need for adhesive postage stamps for marking the duty, for example, on foreign bills of exchange such as travellers' cheques. There is also a pro-
  352
  vision nuder the Capital Gains Tax code affecting the transfer of assets by a close company at less than market value. Paragraph 5 of the Thirteenth Schedule deals with this point and aims, as does the relief from the Schedule F charge on similar transfers to which I referred at avoiding penalising bona fide business arrangements.
  Indeed, the provisions for group treatment of profits and losses, which I have mentioned, provides the third example of the desire of the Government to remove obstacles in the way of bona fide business arrangements. The trouble is that as soon as one provides relieving provisions by legislation in order to assist bona fide business arrangements, some taxpayers become active in the artificial creation of similar conditions so as to take advantage of these provisions. It would be possible, for example, to conceive of a scheme being devised—which, if put into effect, would take advantage of provisions enacted for the convenience of groups of companies—in order to create artificial losses.
  This would be blatent avoidance, and one is faced with the dilemma, therefore, of whether to facilitate bona fide business arrangements in the three ways to which I referred, with the attendant risk of some artificial tax avoidance, or to deny these facilities in an attempt to protect the Revenue against exploitation. I am sure the House will agree that the proper course is to include these provisions but to accompany them by a warning as I now do, that if they are abused my right hon. Friend will not hesitate to introduce appropriate legislation, if need be with retrospective effect.
  This process of assisting industry is carried one stage further in Clause 3, the provisions of which arise from the need to give more detailed information about imports to assist the efforts of British manufacturers to compete successfully. Information in sufficient detail cannot be made available under existing powers and my right hon. Friend the First Secretary accordingly informed the House on 7th March of the Government's intention to introduce legislation for the purpose.
  There is only one further aspect to which I wish to refer, and that is the general level of taxation, which is covered in Clause I affecting Customs and Excise in Clause 13 affecting Income Tax, in

  353
  Clauses 14 and 15 affecting Surtax and in Clause 18 affecting Corporation Tax. I will then have covered under what I regard as significant categories, all the main provisions in the Bill, with the exception of those which were fully explained during the course of the Budget debates.
  These Clauses, with one exception, continue the main direct and indirect taxes at their existing levels—Income Tax at 8s. 3d. in the £, Corporation Tax at 40 per cent., Customs and Excise duties at last year's rates, as increased by the 10 per cent, surcharge, and the one exception is Surtax, to which I shall refer.
  To say that the same levels of taxation are continued is not to draw any conclusions. To do that one must first escertain whether the level of taxation is comparatively high, in which case the continuation of the existing level is the continuation of a heavy burden, or whether the level is comparatively low, in which case, as a result of the Finance Bill, we continue to be comparatively well off. That being so, I will attempt the comparison.
  Hon. Gentlemen opposite hold the view that we are, by comparison, too heavily taxed.
  Sir Gerald Nabarro: Hear, hear.
  Mr. Diamond: Moreover, they explain that the position is made to appear worse because too great a proportion is levied by direct taxation, which is the more painful, albeit the more progressive, way of paying taxes, and far too small a part by indirect taxation, which is the more painless, albeit the less progressive, way. It is claimed in particular that industry, the productive sector of the community, is subject to a continually increasing burden in the form of company taxation, especially under a Labour Government. These are all propositions which have been supported by hon. Gentlemen opposite. Let us examine them.
  First, the proposition regarding the general weight of taxation in this country. I have had extracted from O.E.C.D. and E.E.C. sources the figures indicating the total tax yield, including social security contributions—expressed in the normal way as a percentage of the gross national product at factor cost—for the average
  354
  of the three years 1963, 1964 and 1965 of the United Kingdom and five comparable countries; France, West Germany, the Netherlands, Sweden and the United States.
  As was to be expected, the United States shows the smallest figure, with 30 per cent. of their G.N.P. going in taxes. Not only is the U.K. the next lowest, but it is well below the others I have mentioned. In round figures, the percentages are: U.K. 33, Netherlands 36, West Germany 40, Sweden 42, France 46. To repeat the figures in an even more simplified form; United States 30, U.K. 33, the average of those four other comparable West European countries, 41. In short, far from the U.K. being one of the most heavily taxed countries, it is one of the least heavily taxed.
  Mr. John M. Temple: Do those include all forms of local and State taxation in the United States and are they strictly comparable with the figures for Britain?
  Mr. Diamond: Yes indeed. They are strictly comparable. I am talking about the total weight of taxation, which therefore includes local taxes and rates.
  Mr. John Hall: I, too, have seen those figures. Would not the right hon. Gentleman agree that we have the most savage and penal rates of direct taxation at the highest levels of income at the marginal rate compared with any other major industrial country?
  Mr. Diamond: The hon. Gentleman is interested in the levels of direct taxation, and I will be coming to those. He has made a familiar point, which is that on salaries of above £15,000 a year—I am quoting these figures from memory—the levels of Surtax, added to the levels of Income Tax, produce a higher marginal rate of tax in this country than in most other countries. That is perfectly true—that is, when one considers levels of income in excess of £15,000 a year. If one is considering annual incomes of £20,000, £40,000 or even £80,000, it is true to say that the rates of taxation, including Income Tax and Surtax, are higher in this country than elsewhere. However, when one considers the levels of direct taxation on incomes below those figures, the results are interesting.
  The second proposition that is advanced is equally invalid as the first.

  355
  The way we are to get increased production, we are told, is to transfer part of the tax burden from direct taxes to indirect taxes, as other countries do. Let us look at the proportion of the total tax yield contributed by indirect taxes for the same five countries for the same three years: Netherlands, 31 per cent. of total taxation produced by indirect taxes; Sweden, West Germany, and the United States, all 34 per cent.; France, 45 per cent.; and the United Kingdom, 47 per cent. In short, we collect a higher proportion of our total taxation in indirect taxes than any of the other countries mentioned.
  Now let us look at direct taxation—to answer the hon. Gentleman's question—to see, first, whether the burden of direct taxes, including social security contributions, weighs more heavily on us, as is frequently alleged, than it does on others. In view of the current interest in the affairs of the Common Market, perhaps the House would wish to have the comparative figures. They refer to 1965, the latest year available, and are based on O.E.C.D. accounts. The share of the G.N.P. taken in direct taxation on incomes, including social security contributions, is for the U.K. 18 per cent. as compared with the Common Market average of 23 per cent. That answers the hon. Gentleman's question. That average figure hides nothing, because for each of those countries the percentage is higher than in the United Kingdom.
  Similarly, if one measures the amount which these taxes produce as compared with the total yield, our figure for direct taxation, including social security contribution, is 53 per cent. The Common Market average is 60 per cent. Once more, every one of the Six has a higher percentage than ours, so here, again, the conclusion is the same: not only is the U.K. one of the less heavily taxed countries—I might say the least heavily taxed country—but it also bears a lighter burden of direct taxation.
  All these figures are not really very surprising. They correspond broadly with the figures published in the Richardson Report for 1962, but, of course, in so many quarters it is not very convenient that the lesson should be learnt——
  Mr. William Baxter: My right hon. Friend has
  356
  produced some very interesting tables and so on. Can he go further and try to find out the percentage that goes on defence in all those countries as compared with this country?
  Mr. Diamond: The hon. Gentleman can put down a Question, or he can drop me a line on the issue and I will try to get the information. His question deals with expenditure, but today we are dealing with what is raised in taxation rather than with the spending of the yield.
  As I was saying, the figures are familiar to those who have read the Richardson Report, but the problem is that there is difficulty in getting the conclusion drawn and accepted. And lest any open minds should learn the lesson to be drawn, a propaganda campaign is mounted to the opposite effect. In particular, we have continual complaints about the increasing burden of company taxation, and I should like to examine that complaint also, both in terms of comparison with the five countries I mentioned earlier and also in terms of the trend in this country.
  The comparative figures for the average of the same three years—1963, 1964 and 1965—show the percentage of gross national product taken in direct taxation on companies in the United Kingdom to be slightly above that in Sweden and France, somewhat below the Netherlands and West Germany, and substantially below the United States. But perhaps the most illuminating figures are those relating to the trend in this country. They were given to my hon. Friend the Member for Barking (Mr. Driberg) in a Written Answer only yesterday. They show that since the war the proportion of companies' gross trading profits taken in taxes in the United Kingdom has been falling the whole time.
  The figures are striking, and I give them in five-yearly averages. From 1950 to 1954 the average of gross trading profits taken in United Kingdom tax was 37 per cent.; in 1955–59, the average was 31 per cent.; in 1960–64, it was 21 per cent., and for the two years 1965 and 1966 it was an average of 16 per cent.—that is less than half the average of the previous decade.
  Mr. John Nott: Will not the Chief Secretary agree that those figures

  357
  are completely misleading, because Corporation Tax represents an entirely different basis of taxation from the previous system of Income Tax and Profits Tax? We now have a system of double taxation on companies' capital, with this Corporation Tax deduction and standard rate of Income Tax on dividends, and we cannot separate the one from the other.
  Mr. Diamond: I do not know whether the hon. Gentleman has listened to the years I quoted or whether he thinks that we have had Corporation Tax all this time. I referred to the years from 1950 onwards, and I finished with the year 1966. I demonstrated that the figures showed an ever-increasing reduction in and lightening of the burden of company taxation as a proportion of gross trading profits from 37 per cent. in 1950–54 to 21 per cent. in 1960–64—long before there was any Corporation Tax.—[Interruption.] I am grateful that interest is shown—it is my desire that these figures should be listened to and that the lesson should be drawn. The lesson is that during the course of the last few years the level of company taxation has been about half what it was, on average in the previous decade.
  The hon. Gentleman is interested in the effect of Corporation Tax, so I will be only too glad to give him figures of how Corporation Tax has affected the issue. I explained them last year, when the rate of Corporation Tax was fixed at 40 per cent. We estimated then the likely yield for 1966–67 at that rate, together with the tax on dividends, would be less than would have been produced under the old system of Income Tax and Profits Tax. That estimate has proved to be the case. In fact, it would have required a Corporation Tax rate of more than 45 per cent. to produce the equivalent net yield—although, of course, all figures relating to what would have been the case in different circumstances are admittedly subject to a margin of error. The further one gets from the point of time at which the new circumstances begin to apply the less valid the comparison becomes.
  That is why I doubt whether there would be sufficient validity in any calculation on these lines made in future years. But I have asked the Revenue to let me have the most objective estimate it can make of the rate of Corporation Tax required to produce in the current year the
  358
  same yield of tax as would have arisen under the old system. The answer is that 40 per cent—the existing rate—would produce, when added to the estimated tax for dividends, the same yield as would have been produced under the old system. That answers the hon. Member for St. Ives (Mr. Nott). The trend has been continuing, as I have indicated. The ever-lightening burden of company tax has not in any way been disturbed by the introduction of Corporation Tax.
  Sir G. Nabarro: I must say at once that I reject the right hon. Gentleman's figures for the 15 years he quoted——
  Mr. Diamond: Obviously.
  Sir G. Nabarro: The right hon. Gentleman says "obviously", but if I get a chance to speak later in the debate I will deal with the figures. What does the right hon. Gentleman mean by gross trading profit? Is it calculated before capital allowances or after capital allowances? Is it calculated before depreciation or after depreciation? How, for example, does the Chief Secretary arrive at a figure for direct taxation on companies of 21 per cent. for the quinquennium 1960–64? The standard rate of Income Tax during those years was 38¼ per cent., or 7s. 9d. in the £, and the rate of Profits Tax throughout those years, in addition to Income Tax, rose from 12½ per cent. to 15 per cent., so the minimum in those years would have been 51¼ per cent. and the maximum in those years would have been 53¾ per cent.?
  Mr. Diamond: If the hon. Gentleman looks at today's OFFICIAL REPORT he will not only see the figures for each individual year but the notes at the end which answer the very questions he is asking. On a normal definition, gross trading profit is arrived at, of course, before taking into account capital allowances. If he is concerned about the effect of capital allowances let me tell him straight away that the present capital allowances at the rate of 40 per cent. are precisely equivalent to what they would have been under the old system.
  The hon. Gentleman still cannot, therefore, wriggle out of the lesson to be drawn from these figures—which is in sharp contradistinction to the strong

  359
  support he gave me when I suggested at the beginning that there was continual complaint about the increasing level of company taxation—the lesson being that ever since the war the level of taxes on companies, judged in any objective way, has been reducing year by year, throughout every Government, and is today standing at its lowest figure, notwithstanding the fact that we have changed from an Income Tax system to a Corporation Tax system.
  I have shown that at present levels the total burden of taxation in this country is less than in most. In this Finance Bill we are continuing those levels. I have shown that at present levels there is a reasonable balance between direct and indirect taxation. We are continuing those levels. I recognise that last year the 10 per cent. increase in Surtax, to which the hon. Member referred, produced some very high marginal rates for those with very substantial incomes. We are accordingly restoring the previous levels.
  I have shown that the tax burden on companies grows ever lighter. Corporation Tax at 40 per cent. has done nothing to disturb that. On the contrary, by continuing that level we are continuing to give considerable incentive to companies to plough back their profits in the form of new investment. Let no wage earner, company manager or surtaxpayer ever be heard again to say, "There is no taste in nothing".
  5.31 p.m.
  Mrs. Margaret Thatcher: The Chief Secretary to the Treasury has just made a very revealing speech, a speech which revealed a complacent attitude towards the level of taxation and towards the system of taxation. Whenever he quotes, time and time again, some of these figures about the burden of taxation, I am reminded of some of the threats which the Chancellor has made about increasing taxation. The Chief Secretary has quoted these figures and the implication is that there is plenty of room for increased taxes by this Government. I disagree with that conclusion very much.
  I notice that the Chief Secretary quoted a number of figures from the Richardson Committee's Report. Indeed, he claimed the Richardson Report as the source for
  360
  his figures. There was a very critical anlysis of the figures in that Report done in a booklet called, "A Tax for our Time", by Anthony Mitton. It took precisely the same figures as the Richardson figures, but allocated them differently as between direct and indirect taxation because the classification of some of the taxes is open to question, and it came to a completely different conclusion. Nothing was said about that by the Chief Secretary. I suspect that the same could be done with some of the other figures he quoted. We shall have a close look at HANSARD tomorrow morning.
  There were times when I wondered whether the right hon. Gentleman was describing the same Finance Bill as is before us, particularly when he said that it simplified and clarified the tax system. I turn at once to the current prize piece of jabberwocky in this Finance Bill in Clause 31(6). If this is an example of simplification and clarification, the Chief Secretary will believe anything. It says:
  "Where subsection (1) above is displaced by an election under this section, subsection (5) above shall have effect in substitution for sub-paragraphs (1), (2) and (3) of paragraph 23 of Schedule 6 to the Finance Act 1965 (assumed sale and re-acquisition at market value), but subject to sub-paragraph (4) of that paragraph, construing references to subparagraph (2) of that paragraph as references to subsection (5) above. …"
  etcetera, etcetera. That, of course, is in a part dealing with the betterment levy, a particular group of financial provisions which received more criticism for complexity than any I have ever known, even exceeding the criticism of Corporation Tax and Capital Gains Tax. The Chief Secretary went on to what I can only refer to as a kind of verbal explanatory memorandum which no doubt we shall find useful when we reach the Committee stage of the Bill.
  I turn now to some of the more important items of Budget judgment which, of course, are embodied in the Finance Bill. The Finance Bill I am talking about is certainly one which is historic. It is historic in that it levies on the British people the highest amount of taxation in history and the greatest amount of Government expenditure in history. In addition, it incurs the highest borrowing commitments in history. Those are all records which I am glad no Conservative Chancellor holds.

  361
  I turn to the atmosphere surrounding the Budget judgment. I think it was noticeable that it changed a few weeks before the actual Budget Statement. There was a sudden optimism, a sudden kind of euphoria caused, I think, in part by short-term money coming back into the reserves and in part by the fact that we had one or two months of good trading figures which we all welcomed at the time, and also in part by the mild winter which helped employment at home. Suddenly it seemed that everyone was expecting a much easier Budget and was expecting that our external position was now all right and our internal position was through the worst.
  When we came to Budget day, the Chancellor produced a sterile Budget but coupled it with some rather optimistic forecasts. I want to question the view that both the external and internal positions are now perfectly all right.
  Let us look first at the external position. On the reserves, it seems that the money flowing in is largely "hot" money which could move out as fast as it comes in. The underlying position of the reserves is that they are bolstered by second-line reserves, that is to say by some £316 million worth of liquefied dollar stocks. They are also bolstered by third-line reserves which arose from the disinvestment of dollar stocks, a part of the proceeds of which has gone straight into the reserves. So the true reserve figure is swollen by second-line and third-line reserves, namely, part of the Government portfolio, and part of encashment of the private portfolio. When one takes away the short-term money flowing in, the underlying position still gives rise to a certain amount of concern.
  Against this background one must look at some of the Chancellor's forecasts. On exports we heard a lot about having an export-led boom. It was one of the favourite phrases in this House at one time, but what we are getting now by way of reflation is a public spending boom. Exports, I am the first to admit, did better last year and that we all welcome. They should have done so because the terms of trade were with us and world trade was expanding. If they could not do better at that time they are unlikely to do better at a time when world trade is expanding less fast and
  362
  the terms of trade may not be in our favour in future as much as in the past.
  The Chancellor's estimate was that exports would be up 3 per cent. or 4 per cent. for the second half of 1967 compared with the second half of 1966, but others are already doubting his forecast. For example, in The Guardian on 20th April, 1967, it was reported that the C.B.I. had some doubt about the rate of increase in exports looked for by the Budget. The Financial Times of 21st April, in an article by Samuel Brittan, Economics Editor, says that although for the moment the National Institute and the Chancellor's forecasts about export performance agree
  "the Institute is however already thinking of reducing its export forecast in view of the worsened outlook in the U.S. and Germany."
  One turns to this week's Board of Trade Journal and sees in an article on "Orders, deliveries, production and exports in the engineering industries ", that comparing the three-months' period December to February in the preceding three months:
  "new export orders fell 5 per cent. producing a further drop in order books at the end of February and continuing the declining trend throughout 1966."
  There is a similar rather pessimistic forecast about commercial vehicle exports. It seems, therefore, that other people are beginning to revise the judgment of export performance. Incidentally, there was another revision in this month's Economic Trends, which reached me yesterday, pointing out that we are not likely to do so well in the United States market this coming year compared with the past two years because of the decline in aircraft deliveries.
  On the imports side, one notices that the Chancellor gave no forecast of what the stock position would be in the future, although stocks at the moment are rather low. It seems, therefore, that the underlying external position is unchanged and that the freeze and squeeze have done litle, if anything, to improve it.
  I turn now to the internal position. The Chancellor's optimistic forecast about growth towards the end of this year has already received enough comment. Within a few days of his announcement, other people were once again doubting whether the 3 per cent. growth rate could be or would be reached or was the right assessment for this year. One of the right hon. Gentleman's forecasts which interests me

  363
  greatly, and will interest everyone else, too, was his incomes forecast. This also is crucial. He forecast a 6 per cent. increase in wage rates over the 18 months from July last to December next. If, however, we look back to the comparable pay pause period and the figures of wage rates for all industries and services from July, 1961, to December, 1962, we find that, in the identical period, under a voluntary pay pause, wage rates rose by 5½ per cent.
  It seems that compulsion has achieved nothing and, in fact, was almost completely unnecessary, as we on this side have always asserted. What we were able to achieve voluntarily the Chancellor has been able to achieve only by compulsion, embittering relations a great deal in the process. Perhaps his speech at The Hague about a compulsory incomes policy being a bonus was one of the true flashes which he had at the time and one which may have turned out to be true because it was the financial stringencies which led to the present incomes position and not the compulsory wage freeze itself. But the spurt, even on the Chancellor's forecasts, will come at a time later this year, very late in the year, when there will, on his forecast, be a considerable upsurge.
  Over the last two years, the underlying structure has remained unchanged and, after two and a half years, the external position is still difficult. As regards the internal position, we have learned since the Budget that the index of production has fallen by one point and that the underlying problem of unemployment is even more difficult than we thought at the time of the Budget.
  The Chief Secretary devoted some of his time to giving us his attitude to taxation and to taxpayers. As he knows, there have already been large increases in taxation under the present Chancellor. The increases in rates alone have led to increases of about £1,000 million in tax charges. The largest increases are now falling inevitably on the broad middle-income groups. The day seems to have gone—I doubt that it was ever here—when the Labour Party could say that we could have increased taxation and increased expenditure but "they"—someone else—would pay.
  The lesson we have learned over the past two years is that public expenditure
  364
  has risen so much that it is the middle-income groups who pay the price of Socialism through constantly increasing taxation. We have threats of further increases, which the Chief Secretary did a certain amount to encourage.
  Every action produces a reaction of some kind. In face of these increases in tax rates, some people will prefer more leisure to more work. Others will look for ways of minimising the growing tax burden. Some ways are permissible. The Chancellor gave one in his Budget speech; he wants to encourage people to buy more National Savings Certificates. That is all right. There are other permissible ways of minimising the tax burden, specific life assurance reliefs and mortgage reliefs, for example.
  I do not quite know what the Chancellor meant in his Budget speech when he talked about looking at all tax avoidance, but it is worth mentioning that the present high rates of tax on high incomes are bearable only because there are specific reliefs within which people can legitimately put themselves to reduce the burden of taxation. This tax avoidance is not wrong in any way.
  One of the significant features of the Chief Secretary's approach and the Chancellor's approach is that they concentrate above all on the enforcement provisions. It seems to me that the Chancellor protects the revenue and the taxpayer can jolly well look after himself.
  Mr. Diamond: Himself?
  Mrs. Thatcher: I happen to be speaking at the moment, but I am referring to the ordinary citizen.
  Mr. Joel Bamett: He is on P.A.Y.E.
  Mrs. Thatcher: It applies to the P.A.Y.E. man, too. The Chancellor has threatened increases in taxation. He threatened them in his Budget speech. I understand also, from the Financial Times, that he threatened them in a meeting which took place upstairs afterwards. I am speaking of the person who is on the receiving end of the Chancellor's threats. This is why I refer to the middle-income groups who bear the increases in taxes. They always do. They pay the greatest price of Socialism. It always seems to be the Inland Revenue versus the citizen, with the Chancellor

  365
  concentrating everything on trying to get after the comparatively few people who do not co-operate in paying their taxes. The Chief Secretary said that the vast majority of people comply voluntarily and readily in paying their taxes.
  It is significant that the Inland Revenue, according to the last Report, the 109th Report, collects in gross receipts over £5,261 million a year in Inland Revenue receipts. Another significant fact emerging from the same Report is that back tax assessments over the last years have not varied very much. These are the results of the enforcement policies, of course, and the amount is approximately £15 million a year, or three-tenths per cent. of the total collected.
  It seems that the Chancellor, the Chief Secretary and the Inland Revenue concentrate their efforts on going after the three-tenths of 1 per cent.—or, perhaps, a few more—when it would be better if they took a completely different attitude for a few years and concentrated——
  Mr. Harnett: Would the hon. Lady do without enforcement?
  Mrs. Thatcher: Enforcement is always part of the work of the Inland Revenue. What I am suggesting is a change of emphasis from a great concentration on enforcement to a concentration on effort on enabling co-operative taxpayers to calculate and discharge their tax liabilities more easily. This would be a great change of approach. Instead of hounding the 1 per cent. with all their effort, some of the effort should be devoted to helping the 99 per cent.
  This would call for a fairly extensive programme. For example, the tax forms would have to be redesigned. This has already been done in the United States, where those with incomes of less than 10,000 dollars a year earned income—which would cover most people in this country—and not more than 200 dollars a year investment income fill in a tax form like the one I hold in my hand, which is about the size of a panoramic picture postcard. The forms have been designed by industrial consultants, and there is a great effort directed towards helping the taxpayer to understand and to comply with his tax requirements, helping
  366
  him instead of hounding him. I believe that it has been extremely successful.
  Another part of the programme would mean looking at Government legislation to reduce anomalies and not bringing forward pernickerty legislation designed to increase the anomalies already present in the taxation system. It would also mean, if one is to help the taxpayer, redrafting and redesigning some of those arrogant, dictatorial form letters. It would also mean, if one is to secure the co-operation of the taxpayer, paying as much attention to getting quick refunds of over-payments of tax as the Chancellor pays to getting in back tax. I notice that, in any one year, repayments of tax due to the taxpayer are of the order of some £500 million. Most of us know that it takes far longer to get money out of the Inland Revenue which has been overpaid to it than it takes the Inland Revenue to get money out of a taxpayer on which the taxpayer has been under-assessed——
  Mr. Barnett: I assume that the hon. Lady is making a constructive comment, but, naturally, she understands that most repayments arise because tax has been deducted at source—on dividends, for example. Does she suggest that we should not deduct tax in that way?
  Mrs. Thatcher: I do not suggest that at all. I am quite aware of it, and the hon. Gentleman and I share some taxation experience. Where the taxpayer is entitled to a refund the Inland Revenue should see that it gets there quickly. The hon. Gentleman knows quite well that people have to wait a very long time now for a refund. The Chancellor is now directing all his effort towards enforcement, and it would be better if he directed some of it towards helping the large number of people entitled to refunds.
  If the Chancellor were to embark on a campaign to help the taxpayer, it would also mean that he should be prepared to give advance rulings. We are very much behind in this aspect compared with other countries, judging by the papers presented to the 19th International Congress on Financial and Fiscal Law.
  The Chief Secretary spent some time on miscellaneous points in the Finance Bill itself. The more one learns about the Selective Employment Tax, the more absurd the tax seems to become. There are enormous cash flows created all for

  367
  £180 million of tax. There is an enormous cash flow into the Treasury and an enormous cash flow out, largely back to the same people from whom it comes. We have understood for quite a long time that the Selective Employment Tax system is undergoing a review, and a small part of the results of the review appear to be in the Bill.
  It would seem that the only major change in the Bill is the one about part-timers, and it is really only a grudging half-relief. It is noticeable that it does not begin to operate until 4th September. That is not really of much help to the hotel industry in the seaside towns or to the tourist industry in Scotland. Just after the hotel industry has its greatest need for part-timers, so the relief will begin to operate. Why does the Chancellor not put forward the relief to help the tourist industry in the development areas and to help the hotel industry, particularly in seaside towns?
  The relief was one for which we asked as a compromise a year ago. On that occasion, we were told by the Financial Secretary:
  "Now we are being asked whether some machinery is possible by which we could devise a repayment system which would be discriminatory and selective within the sphere of part-timers. We are discussing, in particular, an Amendment, and other Amendments grouped with it which are variations on it. suggesting that there should be a refund in relation to people who are employed between 8 and 21 hours a week. I must tell the Committee that we are unable to find no practical way whatever of devising a refund system on the basis of part-timers."—[OFFICIAL REPORT, 20th July, 1966; Vol. 732. cc. 806–7.]
  He then went into a long explanation of why he could not do it.
  We are grateful that the Financial Secretary has admitted that he was wrong. It would have been better had it been incorporated in the Bill last year. It would be better now if it came soon enough to help the people whom I have mentioned. On the legislation on betterment levy, it appears to be allowed as a cost instead of as a credit, and that means a certain amount of double taxation.
  I come now to the main taxes. I disagree with the Chief Secretary on his exposition about taxes. We have still too many, and they are still too high.
  In a recent article in the Financial Times shortly before the Budget, my right
  368
  hon. Friend gave his assessment of what we should do. In fact, people are so used to being hard hit by the Chancellor in successive Budgets that it seemed as if they were almost relieved not to be hit again too hard this year. However, the Chancellor could have given a certain amount of encouragement and relief to taxpayers who have had precious little of either during the period of Socialist Government.
  Towards the end of the Budget debate last time, the Chancellor wound up and had something to say about Budget judgments and about the 1963 Budget of my right hon. Friend the Member for Barnet (Mr. Maudling). He will recollect that he quoted what he said about the 1963 Budget in November. What he did not put was what he said about the 1963 Budget during the Budget debate. There is a note in HANSARD that there was an interruption at that time. I know what the interruption was, because I happened to be sitting next to my right hon. Friend. He pointed out that, at the time, the Chancellor said that the Budget was too cautious. That is perfectly correct. What the Chancellor actually said about that Budget was:
  "In my view, the Chancellor has been too cautious. I believe that there is a need for greater incentives if we are to get industry running full out. I do not believe that we can maintain it, but I think that there would be a case for arguing economically that we should have a relatively sudden spurt for a period of twelve months before we settle down to a steady rate of growth of about…4 per cent.—[OFFICIAL REPORT, 4th April, 1963; Vol. 675, c. 642.]
  I quote that to put the record right. I was looking back for some Budget judgment of the Chancellor's which would be accurate at the time that it was given. In fact, I found none. On my right hon. Friend's Budget, he said:
  "This is the same old stuff again, and the Chancellor knows it."—[OFFICIAL REPORT, 4th April, 1963; Vol. 675, c. 636.]
  That was a Budget which gave a large number of incentives. We are not suggesting that this Budget could give as many incentives at this time as that one gave at that time. But we are suggesting that it is time to give a number of incentives to ordinary taxpayers, at the standard rate, at the reduced rate and at Surtax levels. In accordance with my right hon. Friend's own Budget judgment, therefore, we shall move Amendments

  369
  during the Finance Bill to reduce the direct rate of Income Tax by 6d. and the reduced rates by 3d., and to reduce the Corporation Tax.
  My right hon. Friend has indicated how he would pay for this and, once again we note that in the Financial Statement there is plenty of scope for reduction in public expenditure. For example, there is £75 million for the nationalisation of steel which would not have been there had steel not been nationalised. There are still the premiums from the Selective Employment Tax. We believe that Income Tax-payers, both those living on earned income and those living on saved income, deserve and need some encouragement. It is clear that the taxpayer can no longer look to the Chancellor to give him a square deal. He can look to my right hon. and hon. Friends, and we shall not fail.
  5.59 p.m.
  Mr. Robert Sheldon: The hon. Member for Finchley (Mrs. Thatcher) says that the Chancellor should have given incentives in this present Budget. I am not sure what right hon. and hon. Members opposite mean by "incentives". I suspect that they really mean reductions in taxation, particularly in Surtax, and that incentives are a euphemism for reductions in Surtax. However, I shall deal with that later at some length, because it is an important point which needs to be established.
  When the present taxes have settled down, my right hon. Friend the Chancellor will become known as one of the great reformers of our taxation system. I accept that there has been an upheaval in the laws of taxation. More important, there has been an upheaval in the understanding of them, particularly in the established attitudes taken by so many people. When those laws have settled down—and they are beginning to do so—we will be able to achieve the benefits of the great reforms.
  One of the important aspects of the reforms which my right hon. Friend initiated has been the introduction of varieties of taxation. In particular, we must be grateful that he has extended the range of taxes by means of the Corporation Tax. Capital Gains Tax and Selective Employment Tax, although there are many details of the Selective Employment Tax that still need to be settled. Those
  370
  taxes have been added to the Excise Duties, Purchase Tax, Income Tax and Stamp Duty, to which I hope he will turn his attention in due course.
  Before my right hon. Friend set to work on our taxation system, there was very great difficulty in the act of raising sufficient revenue. Each tax was somewhere near the limit to which it could reasonably be put. It is hard to define the limit of each individual tax, but the House will understand what we mean when we talk of approaching the limit of any particular tax. For example, I believe that the Income Tax is very near the maximum practicable rate, not because we have the feeling that taxation, being the evil it is so often held to be, is somewhere near the maximum endurable, but because we have had experience of higher rates and can make a comparison between some of the bad effects of taxation at the higher rates and some of the more acceptable effects at present.
  Similarly, one can hold Purchase Tax to be somewhere near the limits of the rates at which it can be put. This is for a different reason, because here the Government are directly distorting the consumer's choice. This can be tolerable up to a certain level, but there comes a point where this kind of distortion becomes equivalent to laying down from on high what the consumer should desire. It distorts the choice between the desirability of the heavily taxed labour saving equipment for the wife who wants to go out to work and the low taxed fancy clothing on sale in the shops today. It distorts the choice between the highly taxed sports equipment and the untaxed luxury foods.
  This level of distortion of consumer choice can be tolerable only given a limited level of Purchase Tax. The Excise Duties have at long last reached an area where they are incurring the consequences of the law of diminishing returns. On top of these taxes we have now had added the potentially very heavy revenue raisers of the Corporation Tax and Selective Employment Tax, which will obviously be used and expanded in the years to come.
  As my right hon. Friend the Chancellor of the Exchequer has been building up this variety of taxation, he must now start to consider the way in which these

  371
  taxes can be used and related to each other. Relating the various taxes to each other, and the consequences of doing so, are particularly important. For example, the relationship between the Corporation Tax and Income Tax is very interesting. As Corporation Tax can be increased to increase the revenue it can lead to a reduction of Income Tax in order to increase incentives, which I will refer to later.
  Similarly, the relationship between the Selective Employment Tax and Income Tax is also interesting. Selective Employment Tax offers the possibility of eventually doing away with the manufacturing refund in certain cases, and if this were done, and it were adapted in the way I might like to see, it could lead to incentives to modernisation; the revenue coming from the Selective Employment Tax could be offset against reductions in Income Tax and the overtime and shift working of those working the machines concerned could be encouraged by reductions in their Income Tax.
  The other relationship to which I wish to draw the attention of the House is that of the Selective Employment Tax and the Corporation Tax. With Selective Employment Tax used in the way I have described to assist modernisation, the money from it can be used for a reduction in Corporation Tax thus increasing the cash flow of those companies which are able to obtain the funds for the necessary modernisation.
  These are only ideas but there is a field of great interest for the relating of these various taxes in the way I have described, which I think will be well worth tilling in the years to come. We have come a long way from the time when taxation was merely the raising of revenue and from when it began to be used in order to control the economy, because control through incentives from taxation is beginning to find its part.
  The incentives that the Government try to use in order to achieve not the direction of individuals but the encouragement of their actions in certain ways, the manipulation of the economy through taxation, is one of the tools the Chancellor of the Exchequer must use. We have seen the incentive to plough back given by the Corporation Tax and the
  372
  incentive to invest by the investment grants.
  If we accept that taxation provides such incentives we must also accept that taxation of effort may be a disincentive to that effort. Hon. Members opposite have always made a great deal of this, frequently rather too much. But there is something in it and the question we must ask ourselves is how much. The great incentive of our economic system lies in its financial rewards, but as they make the economy work so taxation to a certain extent tends to blunt the incentive of the individual. But also blunting it, as the hon. Member for Finchley said, are the difficulties of certain kinds of work such as overtime and shift work.
  The case is not quite as simple as might be considered. The individual very largely considers his own marginal rate of taxation, despite all that we have said here, and every individual paying tax is aware in one way or another approximately what his own marginal rate of taxation is. The overtime worker and the shift worker have a higher marginal rate of taxation, which is increased just at the period when their conditions are most difficult. Ideally, from the economic standpoint, a person should pay less tax in order to overcome his disinclination to marginal activities. In other words, the period when he will deprive himself of seeing his family in the evening is the period when, according to the economic argument, he should be paying less tax. In fact, that is the time when he is paying the most tax.
  Sir G. Nabarro: That nostrum has been canvassed in the House for 30 years. The Inland Revenue has never found a means, nor has any combination of industrialists and trade unions, of giving effect to it. It is utterly impracticable. Would not men slack in their normal standard working hours, or work short of their normal hours, in order to get greater lengths of overtime and higher pay for their overtime? How does the hon. Gentleman answer that?
  Mr. Sheldon: I was not coming to conclusions, but was merely stating the case as it is, and I am glad to see that the hon. Gentleman accepts it.
  Sir G. Nabarro: Utterly impracticable.
  Mr. Sheldon: I do not know what the hon. Gentleman means by that. I have not suggested a solution.
  Industry and the trade unions have always understood the relationship between disinclination to work and the need to pay more, and that is why overtime rales and shift work rates are higher. But the dilemma is, of course, the joining together of the disincentive offered by the higher marginal rates of taxation and the disincentive to work under difficult conditions. This difficulty is with us so long as taxation is used for the necessary redistribution of wealth and to promote greater equality. What we finally achieve in some: sort of compromise.
  The light hon. Gentleman the Leader of the Opposition said in Manchester on 29th March that taxation is a disincentive to responsibility. I do not believe that this is so. I believe that there are very few who refuse promotion and the prestige and the pay that promotion brings. But Income Tax can be a disincentive to risk and it is necessary to distinguish between the risk of the firm affected by Corporation Tax and the risk of the individual affected by Income Tax.
  When discussing this question of the disincentive of high taxation, we need some sense of proportion. The Government affect the profitability of a company far more by the economic conditions they bring about than by the level of taxation they place upon the organisation. Any company would far prefer higher taxation and good economic conditions than low rates of taxation and poor economic conditions. For any company, an increase of 2½ per cent. in Corporation Tax is far more acceptable than a 5 per cent. fall in production, with a greater fall in profitability as the operations become uneconomic.
  Similarly, the economic situation is far more important in encouraging a firm to take advantage of investment grants. No one is going to produce at a loss even if the machinery is offered free. No one will accept a gift from the Government in order to lose money. What the investment grants can do is offset partially the amount of risk. Although there are other considerations—the cost of the factory in expanding, the maintenance of the labour force, long-term investment and so on—this partial offset is of some consideration.
  374
  But if we accept that economic conditions are more important than an increase in Corporation Tax, then an increase in Corporation Tax does provide some disincentive. I do not believe that, when Corporation Tax is increased, the managers of a company work less hard or less long hours. What it does provide is the disincentive to risk, which must be overcome because it affects investment decisions. But these investment decisions can be partially offset, as I have tried to show, by investment grants and even more so if they were more widely available and promptly paid. So, to a considerable extent, the incentive to risk could be maintained.
  What is required is a lower rate of Income Tax paid for, if necessary for the purposes of increasing the revenue, by a higher Corporation Tax, which would itself be offset by investment grants. This lower Income Tax could provide a marginally higher degree of incentive for individuals and at the same time the investment of industry would be maintained by the use of the investment grants.
  But all this is only marginal to the problem. It could have a small and useful effect and would be proceeding in the right sort of direction. But what I find in this whole question of incentives is the surprising point that the Inland Revenue, which is so well suited to do so, does very little research into taxation. What we need to know and what the Inland Revenue should be obtaining—or, if not, the Inland Revenue then the D.E.A.—is the incentive and disincentive effects which come from changing rates of taxation.
  We need to know, for example, first, whether industry does its sums properly when the rates of taxation are changed. The Report on Investment Appraisal suggested that in that particular case, industry did not. How does industry anticipate future changes in taxation rates? For example, what about possible changes in the Selective Employment Tax? Does industry assume that the rebate will be paid for many years ahead? We do not know. How important is the level of taxation in the expansion of activities?
  Most important of all and most difficult to obtain is an understanding of the psychological factors—the margin of

  375
  effort that people put in because of the level of Income Tax at the margin. If we are to manipulate the economy through taxation, as to a large extent we do, these are matters we must know more about. When we discuss incentives during proceedings on the Finance Bill we do so with little of this sort of information. The Government need to take charge of this activity and provide us with information so that we may discuss these matters more adequately in the years ahead.
  6.15 p.m.
  Mr. Nigel Birch: With very much of the speech of the hon. Member for Ashton-under-Lyne (Mr. Sheldon) I agree and I am sure that most of my hon. Friends agree too. After a short further period of purgatory on the benches opposite, perhaps the hon. Gentleman may cross over to these benches. We have large hearts and we should welcome him. He does not seem to share the enthusiasm of the Chief Secretary to the Treasury for higher taxation. He thinks that Corporation Tax, Purchase Tax and Income Tax are as high as they can be pushed. He is perfectly right on all those points.
  I want to turn back to some of the main themes of the Budget debate. The first side issue, made in many speeches, was the effort to devalue the Budget and to say that too much fuss is made about it. It was said that there was nothing magical about the first half of April and that the Chancellor should do what he thought right from time to time.
  What the advocates of this course appeared to be saying was that the Chancellor this time should have turned up and said, "I haven't a clue. Anything can happen. You watch it." Had he made that speech we would have been bound to concede at once that it had the unusual merits of brevity, clarity and truth and contained the only sensible advice available in the circumstances. But would it really be progress? Would it really be planning?
  This idea of devaluing the Budget comes from that extraordinary series of mismanagements when the Chancellor was trying to deflate our economy. I tried to add up the number of times that the right hon. Gentleman has announced deflationary actions. He only finally got
  376
  deflation on 20th July last. That was about the 24th bite of the cherry.
  There is nothing natural about that. In all the golden years of Tory rule it never happened. Indeed, there never has been such a long series of misjudgments in our history. It might or it might not have been better for economic planning if God had decided that the earth should take a longer or shorter period to go round the sun, but that is not worth discussing.
  It is certain that every civilised country has an annual Budget. It is essential for the planning of ordinary people. It is the main item in the fiscal policy of a Government. It is a main and legitimate part of Government planning. Everyone else is affected. For example, the family deciding to buy a washing machine will be affected by what it will have to pay in taxation. The largest company deciding its investment plans, which mature over a long period, must be affected by cash flow in the current year. These decisions can only be made on the basis of a firm Budget. It may sometimes be necessary to have a supplementary Budget but if it has to be introduced it is not a sign of progress but of bad judgment.
  I ask hon. Members, particularly hon. Members opposite, who try to devalue the Budget, to think again. Surely they are reversing rather too rapidly. After all, it was only a few months ago when the present Foreign Secretary could tell us how many plastic mackintoshes we would export in 1970. Now we do not know what is to happen even a year ahead. This Gadarene flight down a steep place to Government-induced chaos is inelegant as well as foolish.
  Much of the debate has been dominated by the august figure of Professor Paish. I think that he is enjoying his apotheosis. I was much moved by a photograph of him sitting in his garden with his grandchildren. No doubt he was telling them of his glorious victory. I have always had a great respect for Professor Paish. I judge economists by a very simple test. Economics is a dismal science, without grace, or beauty, or fun, and the only excuse for the economist is that he should sometimes be right about what will happen next.
  In academic circles this test is considered to be very unsporting. The people

  377
  who get on there are those who can think of ingenious reasons for being wrong. Balogh and Kaldor have never been right about anything, and they have done rather well academically. Balogh predicted total disaster at the start of Professor Erhard's economic miracle in Germany.
  Professor Paish has often been right, not always, but often. I think that he must be right when he says that we cannot run the economy permanently absolutely flat out. Not only does that lead to crises in our balance of payments and to inflation and rising prices, but it does not lead to growth. It is worth noticing that in 1965, when the economy was grossly overheated throughout and consistently there was a labour shortage, with unemployment being much exceeded by unfilled vacancies, there was no economic growth at all.
  Now he has converted the Prime Minister. The Prime Minister was certainly not a Paish man. Anyone who still takes the Prime Minister seriously as an economist—I do not know whether there is such a person, but supposing there is—I advise to reread all the right hon. Gentleman's speeches on economic affairs when he was in opposition. It is a hideous penance, but it is salutary. Anyway, the Prime Minister has come round; he has gone to Canossa, but he has gone rather late.
  As I have said before, we are in a trap, and the trap is caused by a rise in expenditure far exceeding any small rise in growth which there may have been. Expenditure was too high when the Government got in, but as a proportion of national income it has sailed up and is still sailing up. It is not very much good the Prime Minister, as he often does, blaming it on the Tories. In fact, the estimates of expenditure this year are higher than those in the Government's own National Plan, produced after a year's study. And there has been no growth.
  At the beginning of the Budget debate, my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) quoted the key remark of the Prime Minister in the last election. My right hon. Friend the Leader of the Opposition asked in a broadcast, "How does Mr. Wilson expect to pay for his programme, which
  378
  is based on a 4 per cent. growth rate, when it is completely apparent that we shall not get that growth?". The Prime Minister replied, "It is only apparent to Mr. Heath; it is not apparent to us. We shall pay for our programme out of the provision in the National Plan for a 4 per cent. growth rate." That was his Hardy Spicer for the election of 1966. It was not only my right hon. Friend the Leader of the Opposition who knew that we had not had a 4 per cent. growth rate, were not getting it, and were not going to get it. Every Tory, every economist, every newspaper, and every hon. Member opposite, including the Prime Minister, knew it. The Labour Party must like this sort of thing. When the Prime Minister, through counsel, had to confess that he had invented the Hardy Spicer story, the Labour Party paid his legal expenses. We will have plenty of such stories at the next election. He has come round, but he has come round rather late, and as he stands bare-footed in the snow outside the Castle of Canossa, he would do well to read some words written by the sage himself in the Financial Times which appeared just before the Budget.
  In that article he said that unless we could get our expenditure down to a level commensurate with any likely rate of growth, if private investment recovered, taxation would have to go up. He thought that if investment recovered this year, which is not very likely, taxation would have to go up this year, and certainly next year if it recovered. The same point was made by Professor Hicks in a very distinguished pamphlet called "After the Boom", written after the July measures, but before the last astronomical rise in the Estimates, and making the point that we could maintain a balance in our balance of payments only if private investment fell and stayed down.
  An increase in private investment cannot be allowed without getting into trouble again if we have this level of public expenditure. That is a bad position to be in, because, unless we can control expenditure, we shall be committed to stagnation from now on. The Chancellor himself has perfectly well realised that this is true, and in his Budget speech he spent some time talking about what he described as an exercise in trying to keep Government expenditure down to a level commensurate with his 3 per cent.

  379
  growth rate, a growth rate which I doubt he will get.
  Whenever one talks about expenditure, someone asks, "What would you cut?". My right hon. Friend the Member for Enfield, West gave a good list and I have given lists in the past. But if the Chancellor of the Exchequer says that it is absolutely essential to the country to cut expenditure, then it is quite reasonable to ask, "What would you cut?". After all, he is supposed to be running the show.
  The only other comment I want to make about expenditure concerns military expenditure. Of course it is easy to say that we should come back from east of Suez and cut forces and cut down. This is the first thing which occurs to anybody and particularly to hon. Members opposite. But it is not quite as easy as it looks. Let us take the example of Malta. We do not know the end of that story yet, but my own guess is that it is probably more likely than not that we shall spend more money as a result of having to help Malta because we have taken the troops away than we would have had to spend if we had left them there.
  Take the position east of Suez. We have vast financial interests in the Gulf, and we have vast financial interests in Malaysia and Australasia, and most of those countries have very large sterling balances here. Is it to be supposed that if we were completely to abandon our military position east of Suez, everything else would remain equal? Surely that is not logical. They will not remain equal and, acting with ill-judgment and lack of consideration, we could easily land ourselves in a position in which we were making not a saving, but a large financial loss. I beg hon. Members, particularly hon. Members opposite, to be rather careful about this and to have some consideration for those, particularly the Foreign Secretary, who do not want to run right out.
  I feel desperately strongly about another matter. One of the most dangerous things which the Government have been doing recently is to cut down on our conventional forces, our Army, Navy and Air Force, and to say, as they do in the Defence White Paper, that this is compensated for by the deterrent, to say that it does not matter that we are cutting down our conventional forces, because we
  380
  still have the power to murder a couple of hundred million people with our bombs. I think that this is desperate. In his defence debate speech, the Secretary of State for Defence went out of his way to say that a strategic nuclear exchange was preferable to a prolonged conventional war. This is ghastly, it is wicked, and it is swinishly stupid. I hope that if we do cut down our conventional forces too much we shall not pretend that reduction in conventional forces can be compensated for by our having hydrogen bombs.
  My last point is on the monetary policy. The Chancellor was rather worried about this. He said, "I shall have to be careful that too much of my necessary borrowing this year does not come from the banking system." He had to be careful, because we are budgeting for the largest overall deficit that we have ever budgeted for, an overall deficit of £950 million. We had an overall deficit of about £750 million last year. There is £560 million or so of steel compensation stock to come in addition. So the increase in the National Debt and in Government securities on the market in two years is getting on for £2,300 million.
  It will not be an easy thing to find buyers for all this. One can do this sort of thing provided that one gets genuine buyers for the securities. It is true, as the Chancellor said, that at the moment he is doing quite well. He has sold a lot of stock. One always does well if one induces a depression and cuts down on private investment, because the money is available. In addition to that, he has done a sort of "mini-Dalton" in talking up his market. That means that he has got a great deal of speculative money in the gilt-edged market, which will leave it in due course.
  He is right to be extremely nervous about the position. It could easily and quickly turn sour. In this connection I doubt the wisdom of his encouraging the trustee savings banks to start unit trusts. Unit trusts are something of which we are not short. There are hundreds of them under the most respectable auspices. At least two of the Big Five have started unit trusts and people can buy units over the counter. What the Chancellor is saying to those in the trustee savings bank who used to buy Government stocks is, "I

  381
  have clone everything that I can to make the life of shareholders uncomfortable. I have put in Corporation Tax and Capital Gains Tax; I have induced deflation and reduced profits, shares look very high compared with earnings at the moment. Even so it would probably be better to buy ordinary shares than the muck that I am trying to sell." That is not a lesson that the Chancellor ought to teach.
  That is all that I have to say. When one comes to one's peroration of these finance debates, they are always the same. One always hopes that things will go right far the Chancellor but no one quite believes it. One gives him some credit for his courage—he has certainly shown the reckless courage of a mouse at bay. In the end one feels that his report would be:
  "Jim tries hard but he will not get an 'O' level."
  So, though I deeply pray that he will get himself out of this mess, I feel far from confident that my prayer will be answered.
  6.35 p.m.
  Mr. Joel Barnett: The right hon. Gentleman the Member for Flint, West (Mr. Birch) always honours the House with a witty speech, and he did so again today. Generally there is nothing of substance in it, but today he made two important points. One of them was that we should go back to the old method of running the economy with one major Budget a year. I gather from the right hon. Gentleman the Member for Enfield, West (Mr. Iain Macleod) that he does not altogether agree with this. The other point made was that Paish was right. Paish, or any other economist, can always be right if one sets one's sights low enough and strives for little enough. Then it is not a difficult achievement.
  Mr. Birch: What I said was that Paish was quite often right about what would happen. That was the point.
  Mr. Barnett: It is easy to forecast this. He was right in that, and I thought that the right hon. Gentleman was implying that Paish was likely to be right in future. I should like to deal with some of the points made by' the hon. Lady the Member for Finchley (Mrs. Thatcher) on the question of disincentives, and the tax system.
  382
  The Finance Bill mainly deals with Committee points, and no doubt we will have plenty of time to discuss them. I am sympathetic to the suggestion of reducing the level of direct taxation. But, because of the general assumptions that are usually made, including the claim that incentives are the answer to all our economic problems, and our problems of increasing productivity, it is important to destroy a few myths. The first is that the direct tax system is a major disincentive to increased productivity and production, and the second, that the value added tax is some sort of new panacea, some new answer to our problems.
  Let me take first of all the direct tax system, and deal with incomes above £5,000 a year. At the lower end of the £15,000 to £5,000 level, persons earnings £6,000 a year, pay, Surtax at about £112 a year. If we reduce that Surtax level altogether, there would be a reduction of about £2 a week. It may be that that is some sort of incentive, and I am not here talking about rewards and redistribution of wealth. I find it hard to believe that a person of the calibre sufficient to earn this sort of figure would find it much of an incentive to have a reduction in tax equivalent to an extra net income, of £2 a week.
  It is possible that the older man in this range would be reluctant to move. But I cannot help feeling that that is not only because of the smallness of the net extra income after tax. There are many other reasons. There are the disincentives to an older person to move his job, in not wanting increased responsibility. There is the question of a settled home, social life and the proximity of friends and family, and, of course, pressure from a wife. But pressure from a wife can work both ways as well, so it does not necessarily follow, and it has certainly never been proved by any survey that I have seen, that taxation is the major disincentive in this type of case.
  They take the very highest figure, about which we hear quite a lot from hon. and right hon. Gentlemen opposite. On the highest level above £15,000 a year, the marginal tax rate, apart from one year, is 18s. 3d. I find it very hard to believe that the Doctor Beechings of this world would work harder, or more conscientiously, were we to reduce the level of surtax upon them. It may be that this

  383
  category will lose interest in working at all. But, again, tax is not the only consideration. The sheer pressure of work on this sort of executive must have some serious effect. In the United States and Japan, and in some companies in this country, they are already starting to retire men in such categories very much earlier.
  Why, one might ask, does the tax at this level not affect executives of companies which are highly efficient, whose executives are paying no less tax than similar executives in other companies? Why are these companies so efficient despite the fact that their executives are paying a very high level of taxation?
  But, of course, the main group of people paying tax are those earning between £500 and £5,000 a year. These are the people who do the actual producing of the wealth of the country, the people on whom we depend for increased productivity, and for whom we depend for increased total production. They are presumably the people whom the party opposite have in mind when they talk about general incentives as being the answer to all of our economic problems.
  The right hon. Gentleman the Member for Enfield, West told us that in his budget this year, if he had had one, he would have taken 6d. off the standard rate, and 3d. off the reduced rate, at a cost, incidentally, of £200 million. I would have applauded such a move, because I felt that it would have created a mood which might have been very useful. But the right hon. Gentleman had something much more ambitious in mind. He implied that this, and further moves in this direction would be the answer, and would solve all of our economic problems. [Interruption.] Well, that it would be a major argument in solving our problems.
  The Opposition have made great play about incentives being the major argument for solving our problems. If it is true, it is worthy of consideration. But is it true? Take the person at the higher end of the middle scale, a married man on £5,000 a year with two children. On the right hon. Gentleman's proposals, he would be affected to the extent of about £100—£2 a week. I find it hard to believe that that would provide a great incentive to him to work harder, to in-
  384
  crease his productivity and to be more efficient. It might well be true, but I should want a lot more evidence before believing it, and I have not seen such evidence.
  On the other hand, I have always felt that workers at the lower end of the scale are affected when it comes to working overtime, and, therefore, direct taxation has an effect on total production. It is more psychological than real, but I have felt it was present. We must remember that the marginal rate of take-home pay, even if a person is paying the standard rate of tax, is 6s. 5d. For many average industrial workers, the marginal rate is only about 4s. 8d. Taking an average industrial worker who is married with two children and earns £20 a week—I am ignoring the fact that many such workers probably have mortgages—his tax would be reduced under the right hon. Gentleman's proposals by slightly over 50s. a year—under 1s. a week. Suppose that we quadruple it and make it 4s. a week. This may be a great incentive and the major answer to our problems. I do not know but it does not seem likely. However, I may be biased, like right hon. and hon. Members opposite, but in a different direction.
  So I tried to discover what objective research had been carried out in this matter. The most recent has been done by the Graduate Appointments Register. In the April issue, the director said that of the people he had interviewed only 4 per cent. were affected, and then only to the extent that they would not take a second job. He concluded:
  "No evidence whatever was produced to show that Income Tax inhibited people from giving their best in their main occupations".
  The most documented research is to be found in the Second Report of the Royal Commission on the Taxation of Profits and Income, which came out in April, 1954. A social survey was carried out and 4,000 people were interviewed. They were operatives and supervisory grades who could and did work overtime and were paid incentives. There is some very interesting information in paragraph 41 of the Report, which reads:
  "… the marginal rate seems to have little significance in affecting the behaviour of workers".
  This went directly against all that I had felt to be the case.

  385
  Paragraph 10 in Appendix 1 stated:
  "There was no evidence from this enquiry of productive effort being inhibited by the income tax structure within its present limits".
  The standard rate of tax then was 9s. 6d. in the £.
  Some even much more interesting information is to be found in Table 20 of the same Appendix. Questions had been asked about deterrents to productivity. One would think, listening to right hon. and hon. Members opposite, that direct taxation was a major deterrent.
  Sir G. Nabarro: What year is this?
  Mr. Barnett: The Report came out in 1954.
  Sir G. Nabarro: Twelve years ago.
  Mr. Barnett: The hon. Gentleman says "Twelve years ago", but it is the only objective Report which there has been, and it is directly relevant to what we are arguing about. The first deterrent to productivity which was given was not tax, as was thought by the people asking the questions, but first, lack of materials, secondly, poor working conditions, and, thirdly, poor management.
  It appears from Table 23 that 30 per cent. of the males who were asked thought that Income Tax was a deterrent and 25 per cent. of the females said that it was a deterrent. On the other hand, 27 per cent. of the males who were asked thought that Income Tax was an incentive to work harder and 22 per cent. of the females thought that it was an incentive to work harder. These are very interesting pieces of information.
  Some vital questions were asked in this survey. One was how many people would or would not work overtime because of the level of taxation. Only 5 per cent. said that they would not do so. On the question which many people make a lot about, namely, whether a man would refuse promotion because of the level of taxation, none said that he would. None said that he would refuse to change his job because of the level of taxation.
  I therefore came to the inevitable conclusion from this research that, while a reduction in direct taxation is desirable and may have a marginal effect on individual effort, in the light of the evidence which I have seen I must describe as a myth the idea that a reduction in the
  386
  level of direct taxation would be so great an incentive that it would transform levels of productivity.
  The next myth about which we have heard a lot recently is that the value-added tax is the answer. This is supposed to be the panacea. Apparently, it has some magical qualities. It is put forward as a new painless tax. I have no objection to it in principle. If we get into Europe, we may well have to use it. But I object to the manner in which it is being treated. We are being told that the Richardson Report should be reexamined, the implication being that opinions and time have changed, not facts.
  It is worth recalling some of the facts produced in the Richardson Report, which came out in March, 1964. The Committee was set up by the Conservative Party. The Report was never debated in the House. The conclusions which were arrived at were very interesting. In paragraph 298 the Report says:
  "The argument about the substitution of a value-added tax for the purchase tax is thus essentially an argument about which of two methods of imposing and collecting a tax on consumers' expenditure is more suitable to our particular circumstances—the multi-stage method or the single-stage method".
  In paragraph 299 the Committee says:
  "The multi-stage method would involve the establishment of extensive new machinery. ߖ"
  etc. Indeed it would. I am surprised that right hon. and hon. Members opposite should want to set up the enormous new machinery which would be necessary for a multi-stage tax of the description of the value added tax. The Committee concluded in paragraph 300:
  "If it is desired to retain the present coverage the purchase tax is plainly more economical and efficient".
  The right hon. Member for Barnet (Mr. Maudling), when he spoke in the Budget debate, said that we should consider the value-added tax again, with the implications I have referred to. I think that it is important that we should kill the myth which is building up that the value added tax is a panacea, because, as I hope I have shown, it is nothing of the sort.
  On any reasonable analysis, it seems to me that no great incentive is possible making attainable reductions in the level of direct taxation. But it is important

  387
  to ask whether there is anything to be said for a major dramatic switch from direct taxation to indirect taxation. I must admit that I was prone to dismiss such an idea out of hand, because it would naturally be a terribly regressive move.
  However, there was a very interesting article in the August, 1966, issue of the Bulletin of the Oxford University Institute of Economics and Statistics by A. J. Merritt and D. A. G. Monk. It was very interesting, because it showed clearly that, in the range of incomes between £500 and £5,000, the level of total taxation, direct and indirect, paid by all in this group is about the same. It is not as progressive as we thought. All work out at about one-third of the total income, including National Insurance stamps and rates.
  Professor Merritt concludes in his article that we could abolish all direct taxes and replace them with a 30 per cent. sales tax which would result in no less a progressive system than we have today, with the enormous advantages of a very simplified system. Anyone with experience of it knows that, for all that we say about trying to simplify the direct tax system, any form of direct taxation has an enormous number of anomalies, and that to get it reasonably progressive is bound to have difficulties and problems. The only way to get a true simplification would be to abolish the lot.
  It is a very interesting article, but what the writers have overlooked in their great over-simplification is that there are many fallacies. Inside that range of taxpayers, there are enormous variations between married men, people with children, people with mortgages, dependent relatives, and so on. If one wanted a reasonably progressive system, one would be in danger if substituting for a complicated method of collecting tax a complicated method of paying benefits in order to make the system progressive. It seems to me that it would be better to do something about National Insurance stamps and the rates, which are the items which make our total taxation more regressive.
  One point which emerges from any examination of our system of direct and indirect taxation is that, despite the various Committees and Royal Commis-
  388
  sions which have studied it, it is not certain that the right balance between taxing spending and taxing incomes, with all that that means to savings, incentives and growth, has been achieved. I first thought to suggest to my right hon. Friend the Chancellor that this might be an opportunity for a specialist Select Committee to take a longer look at the problem than the Chancellor can with his vast day-to-day and year-to-year problems of managing the economy. However, it is clear from the writings and speeches of right hon. and hon. Gentlemen opposite that it would be impossible to have a specialist Select Committee which could look objectively at the problem. Therefore, I should prefer the Chancellor to set up a permanent Standing Committee. That could do a very useful job in looking at the tax system generally and seeing that we get the right sort of balance.
  Finally, may I suggest that we abolish the earned income relief and have a new standard rate for earned income, which would be the present rate of 6s. 5d. As we reduced the level of direct taxation a bit, as I hope we could, we could get it down to under 6s. I should not expect a massive increase in productivity to result, but it would and could have an important psychological effect.
  6.54 p.m.
  Sir Gerald Nabarro: This is a puny Finance Bill, as one would expect, deriving from a colourless Budget which absolutely fails to satisfy the needs of the economy today.
  Let me say at once that I have no intention of following the hon. Member for Heywood and Royton (Mr. Barnett), but from time to time I shall allude to many of the fallacies which crept into his speech. It was an informed speech from a chartered accountant, but one of poor judgment, in my opinion.
  When I went to the Brierley Hill by-election to support the Tory candidate, now my hon. Friend the Member for Brierley Hill (Mr. Montgomery), I made widespread inquiries as to the cause of dissatisfaction with the policies of the Government. The Brierley Hill constituency is largely industrial. It was held by Labour until 1959, when it was won by my very old friend the late Alderman John Talbot, M.P., an alderman of the

  389
  Borough of Kidderminster where for 19 years I was in the political field, by 4,000 plus votes. It was held in 1964 by 4,000 plus votes. In 1966 it was held by Labour by 1,567 votes, and now there has been a massive swing to more than a 10,000 Tory majority. I questioned a number of electors as to the principal cause for their dissatisfaction with the policies of the present Government. Overwhelmingly, they replied, "Taxation and interference".
  The Chief Secretary devoted his speech today to trying to demonstrate to the House of Commons that taxation in this country is uncomplicated and light, which was the tenor of his speech, and his speech seemed to me to be not only utterly disingenuous but bordering upon the dishonest. I believe that the sentiments of the electors in Brierley Hill are felt all over the country today and that a principal cause of the decline in popularity of the Labour Government has been their continuous increases in every form of taxation, direct and indirect.
  The present Finance Bill is no exception. The Chief Secretary tried to represent it to us as an exercise in the reduction and simplification of taxes. Overall, there may be a £1 million or £2 million reduction in taxes if the out-turn estimated by the Chancellor proves to be correct, which is highly unlikely. But the fact is that this Finance Bill perpetuates and consolidates increases in taxation in almost every aspect of it.
  I turn, then, to the shortcomings of the Bill, and I deal first with direct taxes and the punitive levels of direct taxation continued in Clauses 13, 14 and 15. I was delighted to hear my hon. Friend the Member for Finchley (Mrs. Thatcher) stating in her speech that there would be amendments to reduce the standard rate of Income Tax and to reduce Surtax. My hon. Friend the Member for Yeovil (Mr. Peyton) and I will have parallel Amendments. No doubt they will be taken together, as they are similar in principle, though differing in amount. Within the Tory Party, there is always room for minor differences of opinion, though we are consistent in our adherence to fiscal principles.
  I attack, first, the punitive levels of direct taxation. I attack, second, the excessive levels of public expenditure. No doubt the Chancellor is now beginning to
  390
  see a red warning light. Public expenditure as budgeted is increasing in 1967–68 by £660 million, after Supplementary Estimates for last year's record expenditure of a further £86 million. So, by one means or another, mostly by borrowing, we have to raise an additional £746 million. My right hon. Friend the Member for Flint, West (Mr. Birch), who is very correct in his judgment, drew attention to the apprehensions which that causes in the minds of those of us who are interested in the purity of monetary policy.
  It involves a record level of borrowing during the year 1967–8, all of which will be deeply aggravated not just by the £75 million below the line for the capital expenditure programme of yet one more nationalised industry—the steel industry—but also the effect on the gilt-edged and other money markets by the issue in the course of the next 12 to 18 months of something above £600 million of steel compensation stock.
  These are dreadful considerations. I sit in this House to contain public expenditure and to reduce taxation. Right hon. and hon. Gentlemen opposite sit in this House to expand public expenditure and to increase taxation. I deplore their habits. I believe that their practices are inimical to the interests of this country, and we need here far more men behaving in the spirit of the late Sir John Anderson than those who revel and glory in the size of our annual Budget.
  Thirdly, I deplore in the Bill the lost opportunity for the harmonisation of various forms of indirect taxation. In Clause I we are promised energetic, and no doubt lengthy debates on Purchase Tax. This is the first time in many years that we have been able to debate Purchase Tax in detail. In Clause 1(4) it is proposed to consolidate the regulator and make the previous three rates of Purchase Tax, which were 10 per cent., 15 per cent., and 25 per cent., into the monstrously complicated rates of 11 per cent., 16½ per cent., and 27½ per cent.
  I remember saying to the Chancellor of the Exchequer in 1960, then the right hon. Derek Heathcote Amory, that he would do well to go away and read again Adam Smith's "Wealth of Nations" and write at the head of all his documents during the Committee stage on the Bill that an essential canon of good taxation is simplicity. Yet, he chose to reduce

  391
  the standard rate of Income Tax from 8s. 6d. to 7s. 9d. which was very difficult to order and manipulate in accounting processes. He brought in a gradation of 3d. for the first time. Successive Chancellors have continued this bad habit. Income Tax at the standard rate today is 8s. 3d. How much easier it would be for everybody to calculate if it were 8s. in the £ or two-fifths.
  For years I fought to get the rate per cent. of Purchase Tax readily divisible into our currency, 16⅔ per cent. to be divided into 1s. wholesale and get an answer of 2d. Now we have gone to 11 per cent., which is utterly indivisible into the currency. We have gone to 16½ per cent., which is utterly indivisible into the currency, and made thereby all commercial and trading processes infinitely more difficult.
  I hope that in the context of what I am saying the Financial Secretary will consider, some time in Committee, why it is necessary to have earned income allowance for Surtax at two-ninths, and then at one-ninth, both utterly indivisible into the currency. Why is the Treasury so persistent in selecting tax rates which lead to additional burdens in computation?
  But the lost opportunity is not the complexity of the rates. It is to perpetuate three rates of indirect taxation in Purchase Tax. The hon. Member for Heywood and Royton seemed to impute to my party an overwhelming desire to go over to a form of taxation analagous to the indirect taxation in France today, called T.V.A. There is no overwhelming desire to do so, but there is a good economic reason for it, and I propose to devote one or two moments to it.
  Mr. Speaker, you said that today was an historic occasion, not because of the Second Reading of the Finance Bill, but because of the application to join the European Economic Community. In Europe they have made a good deal of progress during 10 years towards what they are pleased to call—and I shall not translate it into the five European languages—the "harmonisation Of indirect taxation". The fact is that the E.E.C. has published its plans, and this is a considerable achievement. It reports that at a meeting of 9th February, 1967:
  "the Council of Ministers adopted the two directives proposed by the Commission with
  392
  a view to harmonising turnover taxes in the six Member States."
  I shall not read the precise details, but conclude by quoting from the Press statement which said:
  "This aim can only be fully achieved when the T.V.A. rates in the various Member States have been harmonised; this will be the object of a future directive. The Council will, if possible, take its decisions on the proposals before 1st January, 1970. The common T.V.A. system will come into force on 1st January, 1970.…"
  That is two and a half years hence. I do not suppose any hon. Gentleman opposite will contradict me when I say that the unrelated jungle of rates of indirect taxation among the principal exporting nations of the world represents a major problem in international trade.
  Let us consider Western Europe on the one hand, and the United Kingdom on the other. In Western Europe they had broadly two systems. One was the German turnover system, the "cascade" system, whereby approximately 4 per cent. was added at each process through each manufacturing firm, finally to wholesale and to retail, but was rebated on exports. This system was widely practised by other members of the E.E.C, with the sole exception of France. Now all the turnover taxes for members of the E.E.C, whether of a T.V.A. character, as in France, or a purer turnover tax of the other members, are standardised as T.V.A. and we ought to do the same at the earliest moment.
  I agree that our Purchase Tax is easier to collect, is simpler to understand, and is less complicated in computing, but the fact remains that we are the greatest exporting nation in the world. Because of the conditions of G.A.T.T., we cannot give direct financial and fiscal incentives to our exporters, but the best incentive within the system of indirect taxation that is permitted by the rules of G.A.T.T. is the French turnover system or T.V.A.
  Mr. Barnett: Can the hon. Gentleman explain precisely how it would stimulate exports if we introduced the T.V.A. system instead of Purchase Tax? How would our manufacturers be better off than they are at the present time?
  Sir G. Nabarro: I suggest that the hon. Gentleman studies some of my Amendments which will appear on the Notice Paper tomorrow.
  Mr. Burnett: Give the facts and stop being rude.
  Sir G. Nabarro: Really! I shall give way if the hon. Gentleman will repeat that.
  Mr. Barnett: I get sick of the hon. Gentleman being rude.
  Sir G. Nabarro: I was not aware that I was being rude to anybody. I merely said that the hon. Gentleman should study his Notice Paper tomorrow morning. On it he will find a number of Amendments in my name and that of my hon. Friend the Member for Yeovil. One is related to Purchase Tax, and it will undoubtedly be selected. It is simple in character. It reduces one of the rates of Purchase Tax. It is an artifice on my part to get a major debate on indirect taxation such as T.V.A. and means of rebating it for exporters. I do not wish on Second Reading to go into minute detail of that kind. I am at least as informed on the Richardson Committee's Report as the hon. Gentleman.
  My fourth criticism of this Bill is that there is no investment help at all. A grave feature of our national economy is not only the stagnation of production but the fact that private investment is bumping along the bottom. The C.B.I. estimate for 1967 is 15 per cent. below the 1966 level. The reason that investment is so low is not far to seek. Businessmen generally have little confidence in this Socialist Government, who are anti-business and anti-profits. Businessmen are in business to earn profits. For myself, I love profits. I am heavily taxed on them and they are mighty difficult to earn in a competitive society.
  I notice that for the first time this year there was a modest recognition of their value in the Budget speech. The Chancellor had the sauciness to say that he "would not kill the goose that laid the golden eggs." He has been taken up by many great industrialists since that speech—by Sir Stanley Paul Chambers, by Lord MacFadzean and by Sir George Harriman and many more—for that tardy recognition of the value of profits. But businessmen do not foresee a good year of profits. They are cast down by Government interference and the weight of taxation. If they do not foresee good profits in the early future, they are not
  394
  likely to raise their level of investment. There is nothing in the Bill to encourage the belief that profits will improve in the near future and therefore nothing to encourage industrial investment in the private sector.
  Finally—this is probably the worst indictment of all—there is nothing in the Bill to stimulate industrial efficiency. Of course, wearing my cap as humanitarian and social worker, I am delighted at the Chancellor's generosity in assisting widows by increasing the Income Tax allowance from £75 to £110 a year. Those are crumbs of comfort in our society. But we must create national wealth, which can come only from productive industry, to furnish the financial sinews for the masive public expenditure of £11,000 million in the coming year.
  Because there is nothing in the Bill to increase industrial efficiency—I now return to the hon. Gentleman and his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon)—I shall advocate in Committee and on later stages of the Bill modest reductions in the level of direct taxation, which I believe contributes to industrial efficiency. The hon. Member for Heywood and Royton has spent his entire working life in the cloistered atmosphere of chartered accountancy. Mine has been spent in industrial workshops. I know by contact and working with men at every level—from labourer to managing director and chairmen of companies—that incentives in the form of reduced taxation play an important part in the efforts which men are likely to make and the vigour with which they conduct their day-to-day work.
  It is not everything, as the hon. Gentleman tried to suggest I believe. It does not apply in all cases through every stratum in industry, but it applies in most cases. Most men at every level will take the view that they will make no greater effort or work more overtime if something between 40 per cent. and 90 per cent. of their additional earnings is stripped from them by excessive direct taxation.
  I am not afraid to move the reduction of the rates of Surtax. In the Surtax ranks—I talk of earned and not unearned income—are the nation's best brains. They do not earn over £5,000 a year and up to £50,000 a year because they are

  395
  not worth the money. They are the best brains, without which British industry cannot prosper and expand. Has the hon. Gentleman, in his accountancy activities, ever come across a top industrial executive paid £20,000 a year gratuitously and because he was not worth it? Of course not—
  Mr. Barnett: Will the hon. Gentleman give way?
  Sir G. Nabarro: I will give way in a moment.
  In a competitive society, there must be a few men at the top who are highly paid. If the Government tax them, as this year, at 19s. 3d. in the £ and leave them 9d., I hope that we will hear no more tommyrot, as last year, from the Chancellor of the Exchequer when he started arguing across the Committee with me that what he was concerned with was the effective and not the marginal rate. He tried to climb out of my argument and then the Chief Whip came in and closured the debate.
  I am not concerned with whether it is effective or marginal. I am saying that, above £15,000 a year, the top men in industry and the professions are taxed as to 96¼ per cent. this year, or 19s. 3d. in the £. Although we may not like the American industrial economy very much, we must at least recognise that it is generally extremely efficient. The highest paid American—in terms of earned income—for example, the President of General Motors, is taxed at 70 cents on the last dollar which he earns, or 14s. in the £. We think we know better and tax the equivalent man at 19s. 3d. in the £.
  I do not suggest that is the sole reason for the brain drain. As with the incentives argument, I could put it as powerfully from both sides. But it is a factor in the brain drain, as I shall bring out in Committee. Once again, I shall be delighted to be associated with my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). My hon. Friend the Member for Yeovil and I will move a complete recasting of the Surtax scale—not a 10 per cent. reduction—with an eye on incentives for those in higher and onerously responsible positions in industry, for the poor cannot survive without them. I will not quote Abraham Lincoln on the Second Reading of the Finance Bill. For
  396
  these six reasons, this is, I repeat, a puny Bill, deriving from an insipid and colourless Budget. I am sorry that my Party is not to vote against Second Reading, but I shall urge my Party to vote often in Committee on all the principles which I have sought to enunciate tonight.
  7.20 p.m.
  Mr. A. H. Macdonald: It is necessary to begin by commenting on the curious remarks just made by the hon. Member for Worcestershire, South (Sir G Nabarro) about cloistered chartered accountants and practical tycoons who know about incentives. I am not a chartered accountant but rather wish that I were, because I admire them. But if some of these tycoons paid more attention to the advice of cloistered chartered accountants they might know more about the practical effect of incentives.
  I vividly remember the occasion when I had to discuss a particular item with a certain tycoon. He was offering, or thought he was, a certain kind of incentive. It was not very difficult to point out that the incentive he was offering meant that he was losing over £3,000 a year and that he could handle the business more profitably by doing something slightly different. I take no credit for that. It was simple to see. This was a tycoon who thought that he knew all about incentives but in fact knew nothing.
  At the beginning of the debate, I wondered whether the Bill in possession of the two Front Benches was the same as that distributed to back benchers. My right hon. Friend the Chief Secretary to the Treasury is obviously a man who likes a "bang" opening. He started with a shower of gifts—it may have been gratifying to hear, but I thought he possibly slightly over-stated—the list of the admirable items in this relatively modest Bill. The hon. Lady the Member for Finchley (Mrs. Thatcher) is always worth listening to. She attacked the Bill by suggesting, though not actually saying, that it included some increase in taxation. It must be very charming to sit opposite and be scolded by her, but I wondered whether she had ever read a quotation from Richard III:
  "What dost thou scorn me for my gentle counsel,
  And woo the devil that I warn thee from?
  O, but remember this another day,
  And say, poor Margaret was a prophetess."

  397
  I thought of that when she talked of forecasts made and the forecasts she looked for in vain and her allegations of speculation on the future of the economy.
  I ventured upon a little forecast, rather rashly, a week before the Budget. I wrote a little article saying what I thought it should be like. I was highly relieved to find that the Chancellor had taken my advice and had got it almost exactly right, except for the bit about hire-purchase on motor cycles. He is on his own there. I did not advise him on that. For the rest, I think that his judgment is correct and I was gratified to hear his remark, which at other times might have sounded a little odd, that this was an off-year.
  I hold strongly to the view that the disincentive to industry is not the high taxation to which the hon. Member for Worcestershire, South was referring but the constant tinkering that takes place. I am sure that one of the ways to promote expansion is to introduce a measure of stability and avoid the changes which seem so constantly to take place. So often year by year alterations, both big and small, are introduced in the Finance Bill with the most plausible of reasons and it is impossible to disagree with any particular individual alteration. Yet the whole thing amounts to a measure of tinkering.
  It must be difficult for industrialists to plan ahead in these circumstances. I was rather surprised to find myself agreeing in some measure with remarks made by the right hon. Member for Flint, West (Mr. Birch) when he, too, called for some measure of stability. It is fashionable on this side of the House to argue that financial changes should be spread over the whole year instead of being concentrated abruptly in the Budget. I am not arguing against that but against frequent changes. I would be willing to accept the continuation of some anomalies and loopholes in order to obtain some stability.
  I thought that the hon. Lady—perhaps I misunderstood—suggested the abolition of the Selective Employment Tax and that she was criticising in particular the payment of premiums to manufacturers. If these were abolished with the abruptness her speech seemed to suggest, manufacturers who are no doubt preparing their budgets for several months ahead
  398
  would be considerably taken aback by so harsh a change as the sudden withdrawal of money they have come reasonably to expect.
  Therefore, I think that the Budget judgment was right in this instance—right also because I myself did not judge that the time was ripe to increase the spending power in the pockets of the people. Rather I thought it was right to encourage expansion not by the conventional means of increased spending power but by the method of promoting stability. I was glad that there were no major changes.
  One thing made me a little uneasy in my right hon. Friend's Budget speech. This was the reference he made to the vigilance with which in future he will seek to plug loopholes. I cannot agree with him on this. In this I am in agreement with the hon. Lady. I cannot see why, the tax structure being what it is, a man should not make an effort to put himself into a position lawfully in which he pays less tax than he would otherwise. I cannot see that this is an offence either moral or legal.
  The taxation structure is what it is, and I do not see why a business should not lawfully take advantage of that. If it be thought advisable to amend the taxation structure, by all means do so, but do not let us pretend that we should plug loopholes by implying that people who lawfully take advantage of the existing structure are doing anything morally improper. I cannot see that they are.
  However, if we are to have the tinkering, which I regret, I am sorry that one piece of tinkering in the Bill does not go further. I refer to Clause 38, in particular, where the interest chargeable on unpaid tax is proposed to be raised from 3 to 4 per cent. If we are to have this kind of tinkering, I cannot see why it should not be raised immediately to 5 per cent.—in which case it would be in conformity with the rate proposed in Clause 26—or, indeed, to 6 per cent., which would be a more realistic rate.
  I hope that it will not be said that the answer is that the Clause also gives provision to make subsequent alterations if these be thought necessary because this is the very thing I am objecting to—constant tinkering. If we are to have an amendment, I would rather have a whole

  399
  hog amendment and get the thing settled and fixed and have no proposal in subsequent years for further alterations.
  In my general opinion, the Budget and the Bill are right in not proposing major alterations. Indeed, there should not be major alterations until we have had more thought than appears to have been given so far into the question of the taxation of betting and gambling generally.
  It has been well argued that direct taxes are disincentive. I think that they are more of a disincentive to people who might otherwise work overtime than to highly-paid industrialists but, undoubtedly, they must to some extent be a disincentive. Indirect taxes are manifestly regressive and unfair in their incidence. I should have thought that the advantages of raising revenue by taxing gambling were quite substantial. A tax on gambling is, by very definition, a tax on money that can be spared. Another advantage is that such a tax cannot be passed on, whereas every other kind of tax may be passed on, in some way, in whole or in part. These are weighty arguments in favour of the taxation of betting.
  I am aware that there is already a betting tax, but what a miserable, puny tax it is. It would have been reasonable to have thought instead in terms of about 10 per cent. Nor can I understand the objection to and the delicacy that seems to be felt in some quarters about taxing gambling. We are not now entering into an argument on whether gambling is morally desirable or undesirable. The fact is that it is lawful—at any rate, it is not unlawful. That is right, because if a man wishes to dispose of his own money on gambling, after making proper provision for his wife and family, why should he not? It is his business, and it is not for the rest of us, even though we may disapprove of gambling, to impose any legal restraint on his right to do that. There is no need to encourage him, perhaps, but, if it be lawful to gamble, we have no right to forbid him to do so.
  It must therefore be realistic to think much more seriously than we have done of the proposition that we should tax gambling quite substantially. Why should honourable, virtuous and productive enterprises bear a relatively heavy rate of tax while gambling bears only this miserable 2½ per cent.? I think that during
  400
  the next year we should think more about that subject with reality and seriousness.
  The last Finance Act put a tax on fruit machines and on places where gambling takes place, but the flat rate that was imposed did not seem very equitable to me. The tax on the fruit machines did not seem to have any relation to the use made of them. Some sort of tax on the turnover would be a more equitable way of raising revenue. I therefore advocate that while we should not rush too easily into alterations in taxation—and, indeed, should accept some measure of anomaly for the sake of stability—when that stability is in operation, if stability can be in operation, we should give thought to taxing gambling rather more heavily than we have done up to now.
  I do not think that such a step would be unpopular. The effect on the odds or on the chance of winning something on the pools would not be significant and certainly would not be so marked as to have any deleterious effect on people who would otherwise indulge in this way. It is a reasonable—and, what is more, a painless—method of raising revenue without having the disadvantages that attach to other methods. I like to think that before we consider our next Finance Bill, more serious thought than has been given up to now will be directed to this topic.
  7.34 p.m.
  Mr. Richard Wainwright: I follow the hon. Member for Chislehurst (Mr. Macdonald) in his advocacy of a tax on gambling, but I ask: is it not very largely a wretched inhibition in this country, and in this Parliament, which prevents us from stiffening up taxes of this sort unless we can be satisfied in our rather perverse and perfectionist way that every little "i" is dotted and every "t" is crossed and that it will be totally fair in its incidence. That cannot be achieved with a heavy tax on gambling, but I do not think that the lack of a comprehensive system should prevent us from tightening things up on gambling.
  It has been heartening to find that every Government supporter of this Bill has, without exception, worked very hard to try to dissipate the extraordinary, bland complacency with which the Chief Secretary opened the debate. That is partly,

  401
  perhaps, because that those who spoke from the benches opposite represent people who are very largely in the rough and tumble of international trade, whereas I am always tempted to think of the right hon. Gentleman, the Chief Secretary, as the "Member for never-never land" where people bask gratefully in the continuous and unending bounties of the Government.
  I was particularly astonished that the Chief Secretary made no gesture of admission that this year his Finance Bill is very largely occupied with correcting the mistakes and omissions of previous years. I reckon that of the 100-odd pages of this Bill, about one-third are occupied in trying to do again work that has been ill done in previous years. In particular, there is the attempt to correct Selective Employment Tax for part-timers, and the fresh assault on the structure of Corporation Tax, reflecting troubles in previous Finance Acts.
  This, together with the increased complexity of the Finance Bill this year leads me to plead, as Liberals often have before, that it is more than high time that pre-legislative consultation with expert and informed opinion should now characterise each Finance Bill. Never has the lack of pre-legislative consultation been more amply illustrated than in the Measure on which we are now condemned to spend time this year. Added to that, we have an unexampled complexity to cope with, and citizens will shortly have the same burden.
  I say quite plainly that in my view this country, at any rate in its present phase, just cannot afford many of the complexities that are put into our fiscal legislation. It is not reasonable or fair to blame the drafting. It is not reasonable or fair to chide countries like the United States which can afford the resources of skilled manpower to have extremely sophisticated tax statutes in order to try to achieve the ultimate in fairness. I just do not believe that this country should, at the present time, devote the amount of manpower that is required to interpret and administer highly complex tax legislation.
  I do not think that we should in this Bill ask all these able people to spend their time on, for instance,
  "… the apportionment under paragraph 7 of Schedule 6 to the Finance Act, 1965 ….
  402
  being made:
  "… by attributing the fraction V(l)-V(2)/V(1)
  of the apportionable expenditure to what is disposed of."
  That is admirable, no doubt, in richer countries endowed with a greater proportion of skilled people, but it is not for us at the present time.
  It seems particularly tragic that both major parties should until now have set their faces so much against pre-legislative consultation when they are faced with the extraordinary gift of professions connected with taxation just longing for a simplification. What a contrast that is to the attitude of professional men in previous generations. The profession of law has, at any rate until now, consciously thrived on the complexity and sometimes on the confusion created by Parliament, and has not done very much in the past to offer to remedy that situation.
  Now, we have the leaders of the professions that are most intimately concerned with taxation clamouring for simplification and offering their help. Of course, that is not done simply out of sheer philanthropy and undiluted public spirit, but because they cannot in their professional offices get the capable young men with the necessary experience willing to devote their lives to the and pursuit of interpreting" V(1)-V(2)/V(1)"Lt is a simple fact of life that as a practising chartered accountant one cannot, and I think rightly, persuade many young men of the necessary ability to concentrate as specialists purely on the more sophisticated realms of tax matters—and a good thing, too. Mainly for that reason the Government could enjoy this boon simply by unlocking the door and asking professional people to come for consultation and pre-legislative discussion. If that had been done we could have been spared many of the difficulties of this Bill and could have considered some useful measures of tax reform instead.
  There has been talk today of an added value tax. I was glad that the hon. Member for Worcestershire, South (Sir G. Nabarro) reminded the House that members of the Common Market have now pledged themselves to adopt the French system, which is a tribute indeed to any country's system of taxation. The danger about an added value tax is that far too

  403
  many commentators are concentrating, quite incorrectly, on the marginal advantage it has over our Purchase Tax system as an incentive to exports. A rebate on an added-value tav on exports must have a marginal advantage over our tax system because it would include a wider range of things. It would include machinery and equipment which are not covered by Purchase Tax and on which there is no rebate for export; but that is marginal and to labour, as many commentators do, the export incentive advantage of added-value tax is a perverse way of considering this very successful French tax.
  The advantages which we should be watching with envy and with determination to emulate are that a tax of this kind, which has an extremely powerful yield, falls far less than our direct taxation does on efficiency and success, and falls far more on the social costs from which each employer is benefiting. An added value tax is in effect a tax almost entirely upon the pay-roll and the profits. To the extent that it is a tax on the pay-roll it would at long last mean that the employer of labour was asked to return to the community pro rata a great part of the social costs which have provided him with his labour force; the cost of educating, looking after the health, welfare and housing and training of his labour force.
  To put a serious tax at long last on the basis of the employer paying for benefits received, but with a rebate for export, would surely be a major tax reform. I regret very much that even this year, when I admit that public tolerance for tax changes is very strained, there was not even a hint of this change in the Budget. An added-value tax could have been administered by the Customs and Excise and I have no evidence that the Customs and Excise Division is unduly overburdened today.
  In contrast to the announcement of the Prime Minister on the Common Market this afternoon before this debate began, the Measure we are now discussing is a miserable and dreary thing. What a lift to the spirit it would have been if we could have had his announcement followed by the debate of a measure which at least contained some hint of harmonisation of British taxes with those which have proved successful in the Common Market and which would give the
  404
  British taxpayer some hope that there was to be a change of system in future. In Liberal opinion this Bill is a monument to missed opportunity.
  7.45 p.m.
  Mr. Gerry Fowler: I hope that I shall please the hon. Member for Colne Valley (Mr. Richard Wain-wright) if I, too, indulge in a little dissipating of complacency. I do not find that this Finance Bill sets my pulse racing. I find it a very dull Measure indeed, and I shall be a little critical of it, but before that I wish to allude briefly to the speech of the hon. Member for Worcestershire, South (Sir G. Nabarro).
  I noticed in passing that he gave a list of businessmen who recently criticised the policies of the present Government. I was a little surprised that as a West Midlander he omitted from that list the name of Sir Alfred Owen. Perhaps he did not see Sir Alfred's speech a few days ago in which he said that although he was a life-long Tory he thought the economic policies of the present Government were splendid and the only fault was that no Government had had the courage to pursue them before.
  Sir G. Nabarro: I have not seen Sir Alfred G. B. Owen's speech. The speech I referred to particularly was that of Sir George Harriman, Chairman and Managing Director of the British Motor Corporation, who announced the loss of £7½ million in six months, which he attributed most directly to the fiscal and economic policies of the present Government.
  Mr. Fowler: I shall not join in an argument about the losses of the British Motor Corporation. I find it a little odd that that was only one of the big five motor car firms which made a loss in that period while some of the others seem to be doing extremely well.
  The hon. Member also said that he visited Brierley Hill and found that the electors there complained that what they thought wrong with the Government was "taxation and interference". I was there too and not only did I not find any electors who claimed that they had been interfered with by my hon. and right hon. Friends, either singly or collectively, but not one complained of high taxation either.
  Sir G. Nabarro: The difference between us is that the hon. Member's side lost and my side won, which underlines the veracity of the point I put to the House earlier.
  Mr. Fowler: I wondered earlier in the debate whether the other side might have won by 15,000 had it not been for the visit of the hon. Member.
  Sir G. Nabarro: The hon. Member's side would have lost by 20,000 had the Foreign Secretary gone there again.
  Mr. Fowler: I found no criticism of the level of taxation.
  I come to the more serious point made by the hon. Lady the Member for Finchley (Mrs. Thatcher), who pointed out that the present system of direct taxation seemed to be a burden on the middle income groups in particular. I am not sure who exactly are the "middle income groups". They certainly cannot be the poor chaps we have heard about today who are earning over £15,000 a year. I suppose that I was and am a member of a middle income group. I cannot say that I have ever felt particularly over-taxed or significantly more heavily taxed since my right hon. Friend has been Chancellor of the Exchequer. I certainly do not object to paying, as the hon. Lady put it, for Socialist schemes.
  One of the criticisms I have of this Budget is that there was a place in it for a particular Socialist scheme which I do not find in it, nor in the Finance Bill. That is for some action to remedy child poverty. No alteration is proposed in the Finance Bill to the present system of tax allowances. We were told in a past debate that the Government would have had to decide to make such a change by November of last year. I appreciate that to have included something in the Bill about tax allowances would have meant making a decision some time ago, but surely we knew of the problem of child poverty before then, and I therefore regret that the Government have not taken action along these lines.
  There is a certain lack of courage—or a failure on the part of the Government to adapt to the implications of a lower rate of growth than we had hoped and expected to achieve two years ago. A low rate of growth implies that if one is to take action to remedy child poverty,
  406
  and other matters, there must be either cuts in expenditure in other directions or the risk of offending the more comfortably off and middle-class voter by indulging in still more redistributive taxation. I regret that the Government have not had the courage to take either of those choices, certainly not firmly enough.
  Naturally, a much better answer would be to get a higher rate of growth, and it is this aspect to which I wish to direct my remarks. The most worrying thing in our present economic situation is the lower rate of industrial investment. Perhaps, in this connection, we have missed some opportunities offered by the Finance Bill. Consider, for example, Selective Employment Tax. The Amendment made by Clause 24 to S.E.T. is overdue but welcome. However, S.E.T. could be a potent and subtle weapon to help us out of our economic troubles—that is, if we were prepared to make it a more complex weapon. We were told a year ago that the Amendment to S.E.T. made by Clause 24 would be difficult to operate because, by its nature, it would be complex. That being so, I make no apology for proposing even further complexities.
  In addition to considering the development areas, let us consider what are now referred to as the grey areas—parts of the country where there are declining industries but where there may not be a high rate of unemployment; although there is usually an above average iow activity rate which itself usually means a certain amount of concealed unemployment. The proposal in the recent Green Paper was to ignore these areas completely and to give additional help to the manufacturing industries only in the development areas.
  I have been disappointed since that proposal was brought forward that nothing more imaginative has been suggested. It is true that growth in the service industries normally follows because of the accumulator effect of growth in manufacturing industries, but this occurs most rapidly where population and incomes are rising quite sharply; and that is why we have seen rapid growth in service industries in the South-East since the war.
  Consider, though, an area where incomes have not been rising rapidly. In the north-west employment from 1953 to

  407
  1963 in construction and services grew by only 10 per cent. whereas the national rate of growth was 15 per cent. Since 1959, although there had previously been a rather faster rate of growth in that area, the rate of growth in distributive trades has been below the national average. In north-east Lancashire the service sector provides only 35 per cent. of total employment, which is lower than the national average.
  Why is this the case? It normally occurs because of a lack of demand, partly occasioned by low average family incomes. This means not only that men earn less and must keep their families on less, but that the families tend to be larger because of the age distribution in the more depressed regions. This means that the average family income is lower still; and there is in consequence the lack of demand to which I referred. In fact, this state of affairs does not only encourage migration but discourages immigration.
  Because of the poverty of the service sector in these regions there occurs a variety of phenomena which tend to depress such areas. For example, when a man moves to the area with his family, his wife finds it difficult, perhaps impossible, to get a job. There is, in addition to the poor physical environment, a poor social environment as a result of the bad services and this acts as a deterrent to key workers immigrating into these areas. Such key workers have become used to the standard of living which exists in the south-east and West Midlands. They do not want to give up their more comfortable style of life. We also forget, when we talk about services in a blanket way, that they cover part of the infrastructure of manufacturing, and this also detracts from the potential of these regions.
  It is not sensible simply to propose help for manufacturing industries, since to encourage services is indirectly also to encourage manufacturing. I agree that our principle aim must be to encourage manufacturing industries, but in encouraging services by, for example, remitting S.E.T. in such areas, we will, at the same time, be attracting manufacturing concerns to these areas.
  The proposal to amend S.E.T. in defined areas should also be extended to
  408
  many of the grey and overspill areas which we are attempting to develop, in addition to the development areas. In short, I am asking for more subtlety in the use of S.E.T., but I regret that I do not find it in the Finance Bill. If we had more subtlety in the use of this tax—if we used it in a regional way—I believe that we would be able to deal with residual unemployment in these areas and stimulate industrial investment, as well as investment in service industries, in these areas. I am, therefore, asking for more imagination to be shown.
  Let me give one more example. Before my right hon. Friend the Chancellor came to office he talked quite a lot about the introduction of a wealth tax. I will not discuss this at length since I dealt with it fully in a speech I made some months ago. I regret that my right hon. Friend appears to have abandoned that idea because it is possible to design a wealth tax to replace—and here I am arguing, as other hon. Members have done, for a simplification of the tax structure—many of the existing taxes, including Capital Gains Tax and Estate Duty, with its notorious weaknesses; this so called voluntary tax. We could thereby also obviate the need for gifts inter vivos.
  In addition we might replace by it many of the taxes on income—including Income Tax, Surtax, Supertax and probably Corporation Tax. The Chancellor could have fixed a rate of equivalence between income and capital. In other words, income would be multiplied by a certain notional figure to give the equivalent amount of capital on which the person would be taxed.
  If the rate of equivalence was fixed in the right way, such a tax could be used to do what we need to do more than anything else with our tax structure in our present economic situation, and that is to encourage high risk investment. It could be used as a disincentive to hoarding or storing capital which was earning a low rate of interest and as an incentive to making risky investments producing a high income.
  Mr. Patrick Jenkin: If he is going to assess the value of the capital by reference to equivalence to income, how does the hon. Gentleman think that it would operate as a disincentive to investing in low yielding assets? I accept the desirability

  409
  of encouraging investment in high yielding assets, but unless he goes for the actual capital value as the means of assessment, such a wealth tax would not achieve his objective.
  Mr. Fowler: There seems to be some misunderstanding here. This is exactly what I was suggesting. The tax is on the capital value, and the income is translated into capital by multiplication by a certain figure. I am suggesting that, if one chose the right figure, there would then be an incentive to the earning of high income. It is possible to translate it in all sorts of ways, of course, and, if one chose the wrong figure, the incentive would work the other way. It all depends or the figure chosen. It depends on whether one tries to put the main burden Of taxation upon capital or upon income and, by choosing the right figure, it would be possible to encourage investment giving a high yield.
  I give that merely as an example because, while I have no quarrel with any provisions of the Bill, what I miss and would like to have seen in it is a little more imagination, and courage in propounding imaginative solutions, at this time of economic difficulty. More of both imagination and courage will be needed if we are to secure what must be the principal objectives in the domestic sector for this Government over the three and a half or four years remaining to them.
  Clearly, these objectives are to secure more rapid expansion and to have a comprehensive revision and improvement of the social services. The two are interlinked. I am pleading for some imagination in the handling of the tax structure to enable us to solve both problems simultaneously.
  8.2 p.m.
  Mr. John Nott: In a short speech, I wish to devote attention to an aspect of financial management which is seldom debated in the House, doing so with reference to Part V of the Bill which is concerned with Stamp Duty. I hope later to say a few words about the control of credit and the emphasis which is now being placed by this Government, and was placed by latter-day Conservative administrations, on fiscal policy as opposed to monetary policy.
  I realise that, in selecting Part V, I may be thought to have chosen the most
  410
  technical and uninteresting section of this year's Finance Bill. However, the Stamp Duty provisions show the aptitude of successive Chancellors, Conservative and Labour, to tinker with our tax laws and Stamp Duty and to intervene unnecessarily in the market mechanism by fiscal control, when the time is long overdue to cut through the whole jungle of Stamp Duty law and much of our fiscal legislation, thus allowing the market to operate freely.
  The theory of intervention, if there be such an economic theory—the concept that the expert knows best or, anyhow, that the expert knows better than the market—has brought us to a sorry state, and, more particularly, to a situation in which markets are now even more imperfect than before. This results largely from the efforts which have been made to bring about their perfection. The situation is now such that we are in danger of destroying the market mechanism altogether with the result that the whole problem of financial management. monetary policy and fiscal policy, will become exceedingly difficult.
  First, as regards credit policy, the method of fiscal intervention and selective control now being used can be dated back, I think, to the Radcliffe Committee, which produced a thoroughly brilliant but, I thought, unfortunate Report. Secondly, in what is, perhaps, the more important field, that of investment choice—this is the other aspect I shall discuss—the energies of individuals and businessmen have been constantly restricted and hampered by unnecessary fiscal intervention in their daily affairs and in the factors which go to the making of investment decisions.
  Here is one example, which, I think, has become a piece of conventional wisdom on the part of both parties. I refer to the approach to the whole question of investment incentives. No one, so far as I know, has ever proved that tax allowances for capital investment or cash grants for capital investment do in fact persuade efficient, go-ahead and well managed firms to invest. The go-ahead, efficient, and well managed firm will invest in capital equipment anyhow in order to maintain its profitability. The monstrous edifice which we now have of investment incentives, previously tax allowances and now cash grants, to persuade industrialists to invest in more

  411
  capital equipment does not, in practice, encourage the efficient company to do so. Such a company would do it anyhow in order to maintain its profits and to improve its productivity. What the system does is to make a marginal difference for those companies which might not otherwise invest in new capital equipment, were the tax concessions not available. I should like to see us moving in due course to a situation in which all tax incentives for investment by industry outside the development areas were abolished and the saving used to reduce Corporation Tax. I see the Chief Secretary scribbling on his pad. If he is thinking of doing me the honour of comment here, I hope that he will take the point that I am suggesting that Corporation Tax should be reduced by a commensurate amount following the abolition of investment incentives outside development areas.
  This is but one field in which we have brought upon ourselves more and more fiscal intervention, to the extent that the market is being hampered and people are no longer able to come to rational investment decisions because the Government are deciding for them what they should do.
  Part V of the Bill contains some of the very few positive provisions in what I regard as a thoroughly negative Finance Bill. Naturally, I am delighted by Clauses 27 and 28. Clause 27 abolishes Stamp Duty on local authority borrowing, a thoroughly positive step which I welcome. Clause 28 abolishes Stamp Duty on overseas bearer bonds. The Financial Secretary and the Chief Secretary will know that I have pressed for these changes for some time, and I proposed an Amendment to last year's Finance Bill to institute one of them.
  Stamp Duty on local authority borrowing was always an anomaly. It was no more than a transfer of tax from one part of the public sector to another. Moreover, as the Stamp Duty was levied only on the longer end of local authority borrowing, it was an incentive to local authorities to borrow short, which was contrary to the Government's policy anyway. Here was one example, therefore—I am glad that the Government have now recognised it—of a Stamp Duty which was actually working against the
  412
  policy which the Government had advanced for local authority borrowing. It merely added to the cost of public sector borrowing by imposing a tax on itself.
  I make one plea here to the Financial Secretary who, I understand, is responsible for local authority borrowing. In his Budget statement, with reference to the whole future of local government finance, the Chancellor indicated that he was considering some sort of method for centralised borrowing, and I assumed from his statement that he was thinking of some sort of centralised loan bureau system, or the Public Works Loan Board going out and itself borrowing on behalf of all local authorities on the open market.
  At this early stage, I enter the plea that we should not have a system of centralised borrowing for local authorities. The independence of local government, with which local authority borrowing is very much bound up, is of fundamental importance in this country, and, if we have centralised borrowing for local authorities, we shall lose it. I should like to see the development of the regional loans bureaux which are now operated by the local authorities throughout the country, because regional loans bureaux would fit into a new pattern of local government structure. That is the plea I make in connection with local authority borrowing.
  I welcome also the removal of Stamp Duty on overseas bearer bonds, together with Clause 29, the Clause allowing the composition of duty on foreign bills. Both these Clauses are positive, and they will set the financial community much more free to go out in the international market and increase this country's invisible earnings. Similarly, I welcome Clause 25(2), which will facilitate company reorganisations. It enables subsidiaries to be transferred to fellow subsidiaries without going up to the parent and down again. It is a constructive Clause, and these three Clauses are the few really constructive ones in the Bill.
  The main burden of my complaint is to ask why it is that successive Governments have been so reluctant to abolish Stamp Duty altogether. There was an excellent speech from an hon. Member opposite earlier saying that if only the betting duty could be increased it could replace Stamp Duty, which now yields

  413
  the Government about £75 million a year. I wholly agree. Surely it would be possible to free markets by abolishing Stamp Duty, perhaps increasing the betting tax or using some other method of that nature, which I am sure would more than replace the £75 million that would be lost?
  Having made a welcome move to reduce the Stamp Duty on house conveyancing, it is worth pointing out that for an extra £23 million, the Government could have completely wiped out Stamp Duty on conveyancing houses altogether. The mortgage option scheme which the Government have introduced will require far more financing than the £23 million which would be lost to the Exchequer by the abolition of Stamp Duty on house conveyancing.
  This tinkering around with Stamp Duties has been going on ever since 1891. Why are the Government now increasing the duty from 2s. 6d. to 10s. per cent. on loan capital duty? The Chief Secretary referred to this and said—we realised it before he said it—that companies are resorting more and more to debt financing as a result of the Corporation Tax. That is not a good enough reason to change the tax. The increased yield to the Exchequer will be perhaps £600,000 to £1 million. It is very little. The best answer would have been to reduce the Stamp Duty on shares from 10s. to 2s. 6d. per cent. or, even better, to have abolished it altogether.
  The Financial Secretary laughs, but we are talking of £1 million and I could have found £30 million out of a betting tax. That would have been much more constructive than tinkering with Stamp Duties, which were first set out in 1891.
  The reason why I think this subject to be important is that in our economic system saving and investment are very infrequently carried out by the same people. There is a division between those who save and those who invest, and the translation of saving into productive investment is one of the most vital functions of the private sector. It provides no answer to take the savings out of people's pockets in taxation and get the State to invest it. What happens then is that people cease to save, and the Chancellor is finding this sort of problem developing now. Savings are going down.
  414
  If resources are to be efficiently allocated, it is important that savers and investors should easily and effectively communicate with one another, and Stamp Duty stands directly between them. The small savers on the one hand are the depositors with the banks, unit trust holders and the person who takes out a mortgage on his house or a small life policy. Stamp Duty stands between them and the investor, who might be the pension fund manager, the property developer and the insurance company.
  Stamp Duty is not a large item, but it is there and it is obstructing the working of markets. It stands between those who save and those who invest, and it yields very little. It is one of the most illogical imposts the British taxpayer must bear; it is very complicated; it is one of the most difficult branches of the law. It is levied only on transactions where documents are involved. If there is no document there is no Stamp Duty and therefore people spend a great deal of time trying to bring transactions into effect without any documents. It is the most expensive tax to collect, costing 4·9d. in the £, compared with Customs and Excise Duties, which cost 2·1d. in the £, and Income Tax, costing 3·4d. in the £. A whole department of the Inland Revenue is employed on it. It takes up endless time and yields about 1 per cent. of the total tax and Customs and Excise revenues.
  I wait with patience and anticipation for the first Conservative Chancellor of the Exchequer after the next General Election to hack through this whole fiscal jungle and abolish Stamp Duty, and forsake the interventionist tinkering with Stamp Duties and taxation which has gone on so many years, even under Conservative Administrations.
  Finally, I want to comment on the handling of our monetary affairs, the means we now adopt to control the level of credit in the system. My right hon. Friend the Member for Flint, West (Mr. Birch) referred to this earlier. To a large extent our present methods of credit control derive from the Report of the Radcliffe Committee which, as I have already said, I regard as having produced a brilliant, but thoroughly unfortunate Report.

  415
  The present emphasis on fiscal as opposed to monetary controls is a heritage from successive Conservative Administrations in the late 1950s and early 1960s. I consider that during that period we forgot, as a party, our historic role of the early 1950s, of being economic liberators and doing our best to set the market free instead of imposing our prejudices, the prejudices of Government, on the people. Unfortunately the prejudices of the Socialist Government are even greater than those of the 1960–64 Conservative Administration. Therefore, selective controls with more and more fiscal imposts proliferate, and instead of emphasising the monetary aspects of credit control we are getting more and more into a position where the whole market mechanism is becoming gummed up.
  Essentially, the arguments of Radcliffe in 1959, where all the troubles started, were that traditional monetary policy, operating mainly through interest rates and the supply of money, was being frustrated by other financial intermediaries such as the building societies, hire purchase companies and the pension funds, that they were frustrating Government monetary policy because they were not subject to it. For that reason the Committee suggested that there should be greater emphasis on fiscal as opposed to monetary control.
  On the political side—this was heavily emphasised by the Labour Party—monetary policy was rejected not because it failed to work but because of the way in which it worked, and it was criticised because of its arbitrary effect on employment, investment and economic growth. Therefore, there grew up the theory that in order to control the economy and create more efficiency, in order to prevent the arbitrariness of monetary policy, it was necessary to intervene and control credit by means of fiscal methods. Today, credit is regulated in this country almost exclusively by fiscal means and by selective controls such as special deposits at the Bank, hire purchase restrictions and attacks on the building societies for not having the right ratios.
  Now, the Bank of England is devising all sorts of methods for controlling the
  416
  liquidity ratios of financial intermediaries outside the main banking system. So controls proliferate because we have gone mad about fiscal controls as opposed to traditional monetary policy, which has been down-graded. One seldom hears today a sensible discussion about the supply of money. Perhaps it goes on in the Treasury but one has the impression that it is fiscal controls which count.
  This process has gone far too far and the enterprise of the financial and business community is being restricted by bureaucratic fiscal intervention and proliferating controls. The pressure to downgrade monetary policy comes not only from the Government but very largely from the Bank of England and the Treasury as well. If one is thinking of the management of the National Debt, clearly it is much more preferable for the Chief Cashier of the Bank of England and for the Treasury to finance the nationalisation of steel and all the other projects of the Government in the public sector if the emphasis is put on fiscal control rather than on monetary control.
  If interest rates are going up and down, this affects the gilt-edged market and makes debt management much more difficult and complicated. So there are pressures from the Bank of England and the Treasury the whole time to use fiscal methods to control credit instead of monetary methods. By this means, prices are kept at a reasonably stable level in the gilt-edged market, which makes possible large amounts to be raised, so that the Government have their decks cleared for the nationalisation of steel and for financing the large deficit about which we heard today. I question this trend to subordinating monetary policy in order to facilitate Government financing of the public sector, because it introduces restrictive and interventionist fiscal controls which are inhibiting markets in the private sector.
  We are seeing, at the moment, the exaltation of fiscal means of controlling our economy and I hope that, when the Conservatives return to power, or even before if the Government should change their mind—they are Paishites now it appears—they will abolish Stamp Duty, clear the markets and return to monetary policy, creating a situation in which individuals are free to work out their own

  417
  economic destinies without the jungle of controls and Stamp Duty which now surround them.
  8.23 p.m.
  Mr. R. B. Cant: I had not intended to speak. I came into the Chamber because I am naturally interested in the subject. Having been in the House for the discussion on Finance Bill procedure last night, I expected to find the benches opposite filled with hon. Members being very vigilant in exercising the historic and constitutional right of the House in relation to Supply. Having seen the empty benches, on both sides of the House, I find that I have a constitutional duty to speak for a few moments in order that we can reach the magic hour of nine o'clock.
  I want first to take up the point that is really not dealt with in the Bill but which was raised by my hon. Friend the Member for The Wrekin (Mr. Fowler). It concerns child allowances. The second point I wish to take up relates to the comment of the hon. Member for St. Ives (Mr. Nott) about local authority borrowing, which I want to discuss in the context of Consolidated Fund expenditure below the line.
  In a sense, I would relate both of these to our old friends, the gnomes of Zurich, because, to some extent, this is why I must wholly approve the Budget. I think that the constraints that have been laid upon my right hon. Friend in a number of respects have their origin in the fact that, quite properly, he had to be conscious of what reactions were likely to be abroad.
  It is probably true to say that the present Government's early mistakes which led to the run on sterling, apart from the failure to raise Bank Rate on 21st November, 1964, were such decisions as the abolition of prescription charges, the decision to raise retirement pensions and so on. Although these were accompanied by sophisticated Keynesian arithmetic, the gnomes of Zurich and others, whoever they may be, do not talk that sort of language or understand it and interpreted it as a Government hell-bent on welfare and one which would take a soft line with the economy.
  Although the Chancellor has earned a great deal of disapproval for not including
  418
  provisions for cases of real hardship with large families in the Bill, he has done the right thing. I think that he has to rebuild the economy on very firm foundations and not give people abroad the suspicion that he is going to make this sort of excursion into social welfare before our strength is built up again.
  There is a real problem here and this Government or any other have a moral duty to do something about it. There is the short-term aspect, and how this is to be solved I do not know. Perhaps it can be solved in a simple way by increasing family allowances for the third, fourth and subsequent children. It worried me to read an article in The Economist this week saying that there is some sort of conflict between my right hon. Friend the Minister of Social Security and my right hon. Friend the Minister without Portfolio, who is a member of the Cabinet and is obviously prepared to take a rather harder line in this matter and who, because of his seniority, may get his way.
  But perhaps by September the Chancellor will see the course of economic development more clearly and will calculate precisely what he can do in the short term and eventually we shall have a long-term review of the problem of poverty in society which will link not only the poor but many other categories who enjoy subsidies, pay taxes and so on. I am not in agreement with those who are critical that the Bill does not include the sort of provision to overcome child poverty that they wished to see.
  My second point relates to the whole business of the net borrowing requirement which this sort of Budget places on the Chancellor. We have to be concerned about this, if not this year, then some year, because I am certain that it will be a long time before countries abroad, even the United States which is getting a good deal more enlightened in these matters, appreciate what our Budget surplus and our net borrowing requirement are. It is so easy if one reads a figure of £1,500 million which the Chancellor will have to borrow to indict it as a SQrt of utter prodigality, a passion for spending irresponsibly by the Government, but it is quite obvious that, just because of the formal way in which we present our Budget accounts, many people abroad are given a quite misleading conception of what the position is.
  Mr. Nott: I wish that the hon. Gentleman would elaborate that point, because the Chancellor made it in his speech and I am sure that the hon. Gentleman understands what the Chancellor was getting at. Surely the gross capital formation of local authorities in housing and education and all the other items which they finance should be part of the Budget deficit, and I do not see why—and I should be interested to hear the hon. Gentleman's views—by separating them into different accounts anyone overseas should be deceived that their capital expenditure was not part of the overall public sector budget.
  Mr. Cant: It is obviously part of the capital formation in the community, but the point which I want to make is simply that under this general heading we aggregate a number of items, including the amounts which we lend, through the Public Works Loan Board, to local authorities and loans to nationalised industries, just to select two. I agree with the hon. Member that if we argue, as many do, that there should be a sort of public fund for public enterprise, which is all neat and tidy, that would be one way of solving the problem. Having been associated with local government for about 15 years and having seen the sort of impact on the whole ethos of local government activity which was a consequence of the decision in 1956 to throw local authorities on to the market, I agree with the hon. Gentleman in advocating that we should not accept this simple principle of trying one way or another to get local authorities back into the Budget. This private enterprising on the part of city treasurers and town treasurers and so on to get hold of funds from anywhere in the country, or anywhere in the world, has done city, town and county treasurers more good psychologically than probably anything else. I would favour the alternative which the hon. Gentleman suggests if the Government propose changes.
  In so far as we adopt this procedure, we reduce the net borrowing requirement. I would go further and say that surely the time has come when we can argue that as the nature of public expenditure is rapidly changing, the nature of the financing of public expenditure should change. The whole character of Government borrowing is very much the same as it was in the late nineteenth or early twentieth
  420
  century when it was to finance war or to finance—I will not call them non-productive works—the social infrastructure which has been mentioned.
  But since that period the Government in effect have gone into the equity market. They have taken over industries. Some of them do not show very substantial profits and the profits of some are negative, but if we want to reduce the burden of taxation, which I gather would be regarded as a good thing, and if we want to reduce the net borrowing requirement, which would certainly be a good thing vis-à-vis the gnomes of Zurich or anybody else abroad, it might be a good idea for the Government to try to finance the capital requirements of gas, electricity, the Post Office, or whatever it might be, by issuing some sort of quasi-equity to which people could subscribe on a non-gilt-edged terms. I should like to think that the Chancellor would consider that, if not in this, then in a later Budget.
  Perhaps I can reply on some other occasion to the issue raised by the hon. Member for St. Ives and certainly if I catch Mr. Speaker's eye on Thursday in the debate on the Government's statistical services, I shall hope to deal with this fascinating point of montary versus fiscal policy and our knowledge of it.
  8.35 p.m.
  Mr. Michael Alison: I am glad that the hon. Gentleman the Member for Stoke-on-Trent, Central (Mr. Cant) touched on the question of borrowing requirements, but I do not think that he fully stressed the difficulty in which the Government are likely to find themselves. Not only is the absolute amount very substantially increased, but the likelihood is that an exceptionally large proportion will have to be financed through the floating debt. It seems extremely unlikely that the Government will be able to get medium-term loans to the extent that they did last year and this year. The increase in the floating debt will multiply inflationary pressures in the economy when we do not want them.
  Before dealing with one or two of the internal implications of Budget taxation measures, I should like to pursue a theme which my hon. Friend the Member for Finchley (Mrs. Thatcher) touched on at the beginning of her speech. This was

  421
  the general performance of the British economy in terms of exports. This, after all, is the linchpin of our economic recovery. One thing that I have noticed in looking at the round up of our economic performance in that admirable statistical journal, Economic Trends, part of which is written by the Treasury, is the change in tone between the April and March issue.
  The April issue is a far more encouraging statement. No doubt the Financial Secretary is aware of this, and he knows that it is on the whole a poor performance by the British economy in terms of exports, against a background of squeeze and freeze deliberately designed to stimulate exports.
  The hard facts are that the rate of increase in the first quarter of this year, as compared with the rate of increase in 1966, is about one-half per cent. up. It has risen at the rate of 7 per cent. per year. The striking thing is that this rate of 7 per cent. increase in exports was achieved in 1965. There has been no net increase in that rate in the first quarter of this year. That is, there has been no increase over the rate attained in 1965, long before the squeeze and freeze.
  This increase was a reflection of Conservative economic policies of the year before, because the exports sprang from the circumstances that we left behind. The worrying thing is that the terms of trade were less favourable in 1965, and yet we still achieved only the same rate of increase in 1966. This offers very grave reasons for doubting whether the Government's fundamental economic proposition of an export-led boom or expansion in the British economy is catching fire at all. It does not seem to be.
  It seems to be hanging fire. The report in Economic Trends for April describes the difficulties that we are experiencing in the United States market and, perhaps more especially, in the E.E.C. market, which together accounted for our success in 1966. It makes one feel that matters will be far from easy in 1967, and that we have to increase the rate much faster than at present. I do not think that the Government have sufficiently taken the point that the squeeze of credit and investment upon British industry has been a disincentive to exports. Take the case of small firms, which always find that the
  422
  cost of setting up in an export market is disproportionate to their other costs.
  Take a small firm making office furniture. It finds that the market for its products in the United Kingdom is cut back. Here is a product which potentially could compete in overseas markets. Is it possible or feasible for this firm, in times of squeeze, to start opening up export markets? It is not. In difficult times and times of squeeze home orders are lower than in times of boom. The retailers who order their furniture normally for sale in this country cut down stocks because they know that they can order rapidly and easily in a depressed market from the manufacturers. Their scale of activity is cut. This is the wrong moment to expect them to go for export markets. This is patently true in the case of the large industrial complexes with very heavy capital overhead costs which find that home demand has slumped and unit costs have increased. Again, exporting is made more difficult.
  The Government must consider this matter very carefully, particularly against the background of the effects of the Budget judgment. One thing which has struck me while pondering some of the figures given and the statements made in our debates is that the Budget judgment is probably rather more reflationary than has been assumed or judged. I select just one or two items in the growth of Government expenditure which seem to me to suggest this.
  One of the most interesting sub-items, if one looks at the global totals, is the increase in current expenditure on goods and services. Under the broad heading of Government current expenditure there is a very substantial increase—as much as one-third, or £100 million—in supplementary benefits and assistance. One of the interesting things about this sort of transfer payment—this is particularly true when it reflects unemployment assistance—is that it goes from a sector of the economy in which saving is at the national average level to a sector in which saving is well below average. Part of it at least will be spent by a section of the community which was earning at one time, but which is no longer producing. Therefore, it is an inflationary trend. The same must be true of substantial increases in, for example, housing subsidy payments—about 15 per cent. this year.

  423
  These admittedly are transfer payments, but one of the worrying things, if one looks at Economic Trends for April, 1967, is the figures for personal disposable income. Here we get the other side of the coin—the effect on those from whom money has been transferred to make the transfer payment. The transfer payment goes to people who tend to save less of it and spend more of it, and those from whom the money has been transferred are dipping into their savings to maintain their standard of expenditure.
  Under "personal disposable income" in Chapter IV of April's Economic Trends, in spite of a fall in personal disposable income, consumers' expenditure has increased. The explanation which is baldly given is that this is due to a drop in savings. So there is a net transfer to people who spend more because they inevitably save less and those from whom the money is taken are dipping into their savings to maintain their standard of living. All this is much more reflationary, indeed inflationary, than the Government have perceived. When one associates it with the fact that the increase in gross domestic fixed capital formation which is designed for a more purposive objective—about one-third of this in terms of £.s.d., the alleged increase in investment, which is meant to compensate for the fall in private investment—is going on social services rather than economic services, then the net effect must be to reduce the competitive power of the British economy in terms of exports, discourage investment and encourage the social infrastructure which may have long-term but not short-term benefits and at the same time help investment in the manufacturing sector.
  If one adds to that an increase in the floating debt, which seems inevitable from the programme of deficit financing which the Government must face this year, there are a great many more inflationary—indeed, reflationary—subterranean veins in this Budget than has been appreciated.
  All this is against the background of exports increasing, on the whole, at a sluggish rate. Taking the three recent years as the trend, they are not doing nearly as well as they should against the background of squeeze and freeze which we have seen.
  424
  I make three simple suggestions about how we might have done better in this Budget, above all, to keep down industrial costs, to which the Government have not paid nearly enough attention. A great deal has been done to increase social service expenditure. We have had mild rebates in different directions which are proving valuable to many people, but there has been little in this Budget to encourage exporters and manufacturers generally by helping them to reduce industrial costs. On the contrary, the whole gamut of extra taxation has tended to push up industrial costs.
  One possible reform which might have been introduced for industry in this Budget relates to the duty on heavy fuel oil. It seems ludicrous that the Central Electricity Generating Board, whose obligation to burn fuel oil is based upon the need to safeguard the British coal industry, should have to pay something like £12 to £15 million a year to the Treasury and thus, in a sense, put it on to the consumers of electricity, at a time like this. Why could the Financial Secretary not persuade the Government to let at least some users of imported heavy fuel oil off the fuel oil duty, at any rate for the present time?
  It is amusing to look back over the explanation given for the fuel oil duty in the recent White Paper on Fuel Policy. There, we have these immortal words, which show how taxation in habit forming in the Treasury:
  "This duty was initially imposed for revenue reasons, but its protective effect on the coal industry was one of the factors taken into account in deciding to retain it."
  So really the reason for this fuel oil duty is to protect the coal industry.
  The Government have taken two steps to protect the coal industry since the fuel oil duty was imposed. They have introduced a whole new social programme of pit closures, of capital reorganisations and other measures to help the coal industry. At the same time, they have deliberately made it impossible for the electricity authorities to build an oil-fired power station without permission.
  Against that background, it seems self-evident that the way to keep industrial costs down, not only in electricity but for all consumers, is to remit for this year the fuel oil duty which has to be paid by the users of oil for industrial

  425
  purposes. It could be done easily. It would cost about £12 million, and the Government have already scooped up £40 million by consolidating the regulator charge on petrol and lighter oils. That is one thing which the Government could do, not only for the electricity sector but over the whole industrial spectrum.
  My second suggestion touches on the difficulties of the motor industry, which has had a poor export performance in the period of the freeze. One point which has come out recently is the difficulty imposed upon motor manufacturers by fluctuations in sales. Why could the regulator not be used to vary the rate of Purchase Tax on motor cars seasonally, either by putting them into a different bracket of charge, or deliberately introducing power to regulate and vary the rate of Purchase Tax to try to iron out the fluctuating problems of the car industry? This is something in respect of which, in the words of the hon. Member for The Wrekin (Mr. Fowler), there has been a lack of imagination. There has been a lack of sublety in the application of some of these Measures.
  The way in which selective employment payments discriminate between manufacturing and distribution is nowhere felt more painfully than in the motor car industry, because an essential element in the sale of motor cars—and this is particularly true in certain areas of the country, and among certain sections of the population which have not hitherto been car owners—is the possibility of studying cars in show rooms and at various distribution points. These should be provided in new towns and in areas where towns are expanding, and yet at this crucial moment in the affairs of erstwhile leader in export performance the Government have imposed a positive disincentive to the marketing aspect of the business.
  The industry has been given no incentive to provide showrooms and distribution facilities in new housing areas. Could not the premium be varied to give the distribution of motor cars a much needed boost? Motor cars are one of the few consumer durables which can be seen only in showrooms or on the streets. They are not otherwise easily visible, and in terms of retail sales there ought to be greater encouragement for
  426
  the provision of showrooms and distribution centres.
  Finally, we come to this ridiculous little jab at manufacturing industry in the decision to raise the Stamp Duty on loans issued by manufacturing and other companies. This is psychologically the wrong thing to do at the moment. One of the most serious effects of the Corporation Tax has been the gradual shift in the gearing of British industry in terms of its capital composition. We have hitherto been a country in which share capital, risk capital, as opposed to loan capital, has represented a high proportion of investment. One reason why we have been pioneers in many ideas is that risk capital has been available in our highly-developed capital market. This has played a large part in our fortunes, and it is now being discriminated against.
  One of the problems in future will be the unwillingness of people to take risks and to launch out and innovate. This will be the result of having induced a switch towards loan stock and loan capital, and to introduce this marginal fleabite, with such important psychological effects, seems to me to be doing what the Chancellor said he was not trying to do, namely, to kill the goose which lays the golden egg.
  I think that the Budget judgment is suspect. The spearhead of the operation, exports, is showing itself to be blunt and sluggish, as my hon. Friend the Member for Finchley said. The Budget has produced nothing to reduce costs for industry, and I think that the Financial Secretary can look forward to many serious Amendments and new Clauses being proposed to the Bill, which will keep us going almost as long as the Finance Bill of 1965.
  8.54 p.m.
  Mr. Gwilym Roberts: I, too, decided to intervene in this debate, not merely to take us to the magic time of 9 o'clock, but because I felt that there were one or two things which had to be said.
  I am sure that everyone in the House will agree with me when I say—and I am sure that this has been said already during the debate—that the Bill will perhaps be famous not for the things it contains but for the things that it does not. Many of us had been prepared to accept that at this juncture there may be

  427
  a need for standstill conditions, but this does not debar us from saying that certain aspects of it are disappointing from a constituency point of view. There is enormous disappointment in my constituency that nothing has been done to help the motor industry. Obviously no large export industry like this can flourish without a successful home market and we had hoped that the Bill would contain some provision for reducing the hire purchase deposit on cars, which would have provided a much stronger basis for the industry.
  Even if we accept that this is a standstill Finance Bill, the Treasury could consider our taxation structure. The Chancellor has established a reputation as a reformer. His Corporation Tax, whatever hon. Gentlemen opposite may say, was valuable in inducing companies to plough in rather than to distribute. Much more extensive reforms are now needed. Could the Treasury, for example, consider some form of P.A.Y.E. for companies? This may sound unrealistic, but there is no reason why firms should not have a four-weekly profit and loss account, with a tax calculation based on it.
  Obviously, in many cases, tax payments could not be made by companies, particularly those involved in long-term activities, on such a short-term basis, but there is no reason why a tax calculation should not be based on such a short term. Many small companies would welcome making payments much more quickly.
  There is also a great need for simplification throughout our tax structure. It is ridiculous that 61,000 civil servants are still employed on tax collection and that we will probably spend this year about £71 million. When we also consider the 100,000 tax accountants and staff employed on the other side of the fence, we realise the mass army which is tackling the taxation problem.
  One obvious direction for simplification, particularly as we move towards Europe, is the replacement of much direct taxation by indirect. It has been suggested that a sales tax of about 30 per cent. on the full range of goods could replace many forms of taxation like Income Tax, S.E.T. and even the rates. Approximately the same revenue would result. Some of my hon. Friends may consider this propo-
  428
  sal anti-Socialist and unhelpful to the problem of redistribution, but this is not so.
  The expenditure pattern of the lowest income groups shows that they already pay about 31 or 32 per cent. in indirect taxation.
  The problem of redistribution could be tackled in other ways; for example, by larger social security benefits and by the extension of those benefits to lower paid workers in general. This would, of course, have to be accompanied by higher levels of Surtax and death duties, as well as some changes in Corporation Tax. Experience has shown that taxation in general, and Income Tax in particular, is an ineffective weapon to deal with the problem of redistribution.
  The advantages of this simplification would be considerable. There would immediately be a considerable saving in the amount spent on tax collection. However, the main reason why I advocate this change is the incentive that it would give to the great bulk of the industrial population. If we simplified the present over-complex taxation structure, industrial workers would be provided with an enormous incentive. And make no mistake—the economic salvation of this country depends on hard work.
  9.1 p.m.
  Mr. Iain Macleod: If I followed the agreeable speech of the hon. Member for Bedfordshire, South (Mr. Gwilym Roberts) correctly, he began by making a plea for the introduction of tax reserve certificates—which, I assure him, fell on ready ears; we have had them for many years—and went on to make an interesting point about the balance of direct and indirect taxation, to which I will return in the course of what I hope will be a quite short speech.
  It has been said in another context that today is a historic day and an unforgettable one. Certainly that could not be said about the Budget, the Finance Bill or its Second Reading debate. It is a remarkably forgettable Budget with which we must deal. It is the first time since 1962 that the Chancellor of the Exchequer has not thought it appropriate to take part in the Second Reading debate, although I make no particular protest about that. The last time that was done was by my right hon. and learned Friend the Member

  429
  for Wirral (Mr. Selwyn Lloyd) in the spring Budget that followed his July measures. It is touching to see the vitality with which the present Chancellor follows the example of my right hon. and learned Friend, even though he has been a good deal less successful in his outcome.
  We are faced at the moment with the same Treasury team—or two-thirds of it—that has held the Floor, if one can use that phrase, since October 1964. With the exception of the Ministry of Agriculture, Fisheries and Food, this is the only Department that has gone on unchanged throughout two Parliaments, three Budgets and 26 deflationary statements. I do not know what the House has done to suffer this, but once more we must face exactly the same people as we have confronted in earlier years.
  The long days of the Committee stage lie ahead. I made clear by my vote last night—indeed, on three occasions last night—that I personally deplore the increasing tendency of the House of Commons to try to make formal matters out of matters which, in my view, are better left imprecise. I have always had a good relationship with the present Chancellor of the Exchequer, and I have no doubt that it will survive this Bill and other Bills which we will have to debate, on whatever side of the House we may find ourselves. But I believe it to be a mistake to have formal agreements about Committee stages of Finance Bills in particular. I believe that it is a mistake to talk, as the Leader of the House did, in terms of dishonouring an agreement whereas, at best, it can be a gentleman's understanding.
  There are many things, Mr. Deputy Speaker, as you will remember well from your experience of a year ago, that are unpredictable in our discussions of a Finance Bill. I would remind the Chief Secretary that once, a year ago, we were sailing along in comparatively calm waters when he suddenly discovered that the hovercraft was an ideal smugglers' vehicle. Having myself been in the Army, I made no comment—I thought it rather dotty, but I let it go—but my hon. and right hon. Friends who had been in neither the junior nor the senior Service "did their nut" about this, and we spent hours sorting out that particular observation. I very much hope that if there are to be references to hovercraft, rural
  430
  buses or anything of a similar nature, the Chief Secretary will absent himself from the Committee and we will see how we can toil along without him.
  All the same, there have been some remarkably good speeches, apart from those that opened the debate. We had the very elegant, witty speech of my right hon. Friend the Member for Flint, West (Mr. Birch), a typically rumbustious speech by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), and the splendidly Tory contribution, as usual, from the "heavenly twins" who sit opposite on the third bench below the Gangway, and who always put forward excellently Right-wing views, particularly on direct taxation. I believe that on this matter there was more agreement than one would expect, and it seems quite clear that one of the main issues—perhaps the main issue—of the Committee stage, when we come to it, will be the level of direct taxation. This is a challenge that we on this side are more than ready to take up.
  Rather than meander around the Finance Bill, as one can on Second Reading, I would prefer to concentrate on the Budget judgment; why I differ, if I do, from the Chancellor of the Exchequer, and what I think he might otherwise have done. Perhaps I might remind the House that a year ago I did not challenge the Budget judgment—and much was made of this in speeches from the Treasury Bench—in its total amount. I challenged the timing. Speaking in the Budget debate a few days ago, the hon. and learned Gentleman the Financial Secretary asked with some glee whether I had foreseen the seamen's strike and the run on the reserves. The answer to the first question is that "Yes, of course I had not." I do not have that sort of crystal ball, though most of us believe that all this stuff about being blown off course by the seamen's strike was grossly exaggerated.
  To the second question, the answer is, quite clearly, "Yes. I did from the beginning, and said so from the beginning, and so did many of my hon. and right hon. Friends." The clearest evidence I can give of that is to quote from the transcript of my interview on the Home Service at 10 p.m. on the day after the Budget, answering questions from Colin Jones, who was editor of the Statist. I

  431
  had mentioned the Budget judgment, and particularly the point—and the Chancellor of the Exchequer knows this very well—that nothing was to happen until the autumn. Perhaps I can now quote from the transcript. This is Macleod speaking:
  "I think he is taking a very serious risk that confidence may slide against us as we go through the second and enter the third quarter of this year, and I think this is the major criticism. It isn't one that I've seen very much comment on but I believe this is the major criticism against the Chancellor rather than the actual level that he has selected.
  JONES: DO you think the Budget is sufficiently deflationary?
  MACLEOD: I think it would be, so the answer to your question is 'yes', if it came in tomorrow. My fear is that this time-lag may induce a slide in confidence and so conceivably even difficulties in relation of our reserves."
  So it is abundantly clear that on this side of the House we could at least see beyond the end of our noses. We thought from the very first moment—as my hon. and right hon. Friends will recollect, from the moment the Conservative Finance Committee met a few minutes after the Chancellor sat down—that this was the first, the main and the lasting condemnation of the Budget judgment a year ago. I said, in the words I have just quoted to the House, over and over again that the most serious risk is being taken with our reserves.
  A few weeks later, two or three months later, those words as we know came true. This is just one more, but it is the most serious of all the many errors of the Government, some by the Chancellor but more by the First Secretary of the day, and some by the Prime Minister. The total cost to our country of these successive errors of judgment makes the 1964 deficit, half of which in any event was adding to our investment strength, simply small change.
  These are the massive miscalculations which have taken place in the last few years and the Chancellor of the Exchequer has been massively and overwhelmingly wrong. If he will allow me—I am sure he will—a small tease, he and I spoke on consecutive nights at Brierley Hill about a week ago and I read from my paper:
  "Mr. Callaghan jeered at Mr. Macleod's prophecy of a five-figure majority."
  432
  One of these days the Chancellor will perhaps listen to what is prophesied and what is said to him.
  The Chancellor of the Exchequer (Mr. James Callaghan): The right hon. Gentleman is entitled to get one right now and again after the way he got one wrong over Leicester City winning the Cup, one over the Tories winning the General Election and one over the Betting Tax being a failure owing to my gross folly. It is three to one now.
  Mr. Macleod: That was not a very good reply. If the right hon. Gentleman wants to follow this particular point, he will find that I prophesied three months ago, when the odds at Ladbrokes were 500 to one against me, that the Tories were going to win not only the G.L.C. but the Inner London Education Authority election also.
  This year the Budget judgment is rather different. The Chancellor has opted for what I might call a double standstill, that is to say not only a standstill in overall Budget judgment but a standstill within that standstill. It is, of course, perfectly possible to have a Budget which adds up to nought and perhaps abolishes Surtax and puts the whole of the extra cost on to beer, which would not be regarded by most hon. Members as a standstill Budget in the normal sense of the word. There is a certain discrepancy in the arithmetic about which I shall say a word in a moment, but his judgment is that there should be a £5 million reflation.
  My judgment, in an article which has been frequently referred to today was that there should be something like £30 million to £35 million. Clearly those two figures in the level of figures we are discussing are so near together that we need not argue about the difference. Both show that if there should be anything it should be very small indeed. The right hon. Gentleman was prepared, or rather he found himself able, to do nothing; whereas while my overall judgment came to more or less the same answers I wanted to reduce taxation, to do something in justice for closed companies, something about the poverty of the family and something in relation to Selective Employment Tax as a prelude to its entire abolition. These things can be done only if one is prepared to give oneself sea-room. The

  433
  Chancellor of the Exchequer was not. There were two ways in which I was prepared to do it. One of the methods, which is familiar to the House, is through transfer payments for prescription charges, school meals, and the like. The other is by reducing elements of capital expenditure.
  I turn for a moment to a discrepancy in mathematics which I regard as interesting only from a purely intellectual point of view. It does not, in a sense, affect my budget, because it is perfectly easy for me to substitute, say, the manufacturing premiums under the Selective Employment Tax, which we have always opposed and which will give me £130 million, which is roughly in the same sort of bracket as the regulator; or I could re-emphasise the difference between the savings achieved under a Tory Chancellor and the present Chancellor.
  However, I am interested, and it does not affect my budget, but the Chancellor's Budget, in the question of the treatment of the regulator. I asked the Financial Secretary if he would refer to the speech made by my right hon. and learned Friend the Member for Wirral in April, 1962. I am sure that he has done it. Talking about Exchequer prospects for that year, my right hon. and learned Friend said this:
  "Here, the figures are complicated by the surcharge and I want to be very careful not to cause any misunderstanding. The figures which I shall give are on the assumption that taxation continues for the full year at its present rates. … This is not the statutory position because, as the Committee knows, the surcharge is due to expire at the end of August."
  My right hon. and learned Friend later emphasised that point. He allowed the regulator to lapse, but he simplified the Purchase Tax structure in order to raise the same amount. His conclusion was this:
  "My proposals for changes in indirect taxation will provide revenue of £175 million … almost exactly offsetting the revenue I would have obtained if I had proposed to keep the Customs and Excise surcharge in force for the rest of this financial year."—[OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 969–93.]
  My right hon. and learned Friend was absolutely clear about how he was treating the regulator. He was also clear that he regarded his charges as adding to Exchequer revenue. The important
  434
  point—it may be academic, but I think there is more to it than that—is that the present Chancellor treated this in an entirely different way. He treated maintaining the regulator, not as an increase in revenue at existing tax rates, but as a cost to the Exchequer if he removed it.
  The consequence, in my judgment at least, is that the Chancellor's Budget is reflationary, and very substantially so, more so than people have realised, in that increased Government expenditure has not been covered by taxation. I believe that, technically at least, the Budget changes themselves were deflationary, for the reason I have given.
  It is more important to challenge, which I now want to do, this statement by the Chancellor in the Budget debate a fortnight ago:
  "It is a little absurd to pretend that in this world today one can talk about both increasing expenditure and cutting taxation, but the Conservative Party manage to have it both ways all the time."—[OFFICIAL REPORT, 17th April, 1967; Vol. 745, c. 212–13.]
  Why on earth not? This is what one ought to be able to do. This is what the Conservative Party did in those 13 years, because tax rates were cut between 1951 and 1964 so that £2,000 million less was being collected every year by 1964 than if 1951 rates had still been in force. But in that time central and local government expenditure at constant prices, taking inflation into account, increased by 39 per cent. That is evidence that it can be done.
  There is further evidence in the examples of countries like America which has managed to run what must be the most expensive social service programme the world has ever seen and at the same time cut taxation and run or finance an extremely expensive war in Vietnam. With respect, the Chancellor is on an utterly false point here. He has had to change his mind for the simple reason that Socialism has failed.
  The Chancellor's first thoughts were right. Speaking in Cardiff on 14th October, 1964, he said:
  "The whole basis of our case is that increased social expenditure will be financed out of a growing expansion of British industry."
  So it ought to be. That is what ought to have happend. That is what the 1964 and 1966 elections were fought and won

  435
  on. But the Chancellor now finds himself presiding—I am sure that he is as unhappy about it as I am—over a country with negligible growth, with stagnant production, with a disastrous fall in national savings, and with high and growing unemployment. It is the Socialist failure in this field that means that the Chancellor's brave words in 1964—his right words, which we repeat—are nonsense in 1967.
  This helps also to explain the Chancellor's attitude towards what I describe as in many ways the most important single issue to emerge out of this debate, the attitude of the two sides of the House towards direct taxation in particular. In the same speech from which I have already quoted, the right hon. Gentleman said:
  "What is more important is that it is not the marginal rate but the effective rate which matters."—[OFFICIAL REPORT, 17th April, 1967; Vol. 745, c. 213.]
  It simply is not true. If a man is Chancellor of the Exchequer and he has a large, or fairly large, income, as the right hon. Gentleman has, wholly paid for by the taxpayers of this country, and if he works as hard as the Chancellor does, it makes no particular difference to his industry whether 6d. comes on or comes off Income Tax. He will work as hard as ever. That is obvious. But it is not true for most of us. If we are not, as it were, financed in one form or another—and we are not—by the Government, then, when another project is put up to one, whether it be the idea of writing another article or the question of a board of directors taking a further risk, what matters is the marginal rate and not the effective rate of taxation. There can be little doubt about this.
  The hon. Member for Heywood and Royton (Mr. Barnett) quoted some evidence, which, he said, was the latest he could find, from a Royal Commission on taxation 12 or 13 years ago. With respect, may I bring him more up to date? The Canadian Royal Commission on taxation reported a few weeks ago or, at most, a few months ago. Here is its key conclusion, which is exactly contrary to the conclusion which the hon. Gentleman put to the House. I quote from page 163 of its Report:
  "We are persuaded that high marginal rates of taxation have an adverse effect on the
  436
  decision to work rather than enjoy leisure, on the decision to save rather than consume, and on the decision to hold assets that provide monetary returns rather than assets that provide benefits in kind. We think there would be great merit in adopting a top marginal rate no greater than 50 per cent."
  It should be added that that illustration comes from a country where the highest marginal rate of tax is 80 per cent. and where, to reach that highest rate, a man must earn no less than 400,000 dollars a year. In this country, on the other hand, our ordinary marginal rate at the highest level is 91½ per cent. and for this year is 96¼ per cent.
  I accept that there is a difference in philosophy between the two sides of the House on this. I can do no more than broadly state our position now. We shall pursue it in Committee. We believe that taxation at these levels is and must be a serious disincentive. We believe that it contributes to the brain drain. We believe that it impoverishes everybody by denying to the people of this country the advantages that would come if the dynamos of this country were given greater opportunities than they are at present.
  Sir G. Nabarro: Hear, hear.
  Mr. J. J. Mendelson: There is one of the dynamos.
  Mr. Eric S. Heffer: The hon. Gentleman is a dinosaur.
  Mr. Macleod: This Government have no policy for dealing with these problems of personal incomes, except the idea of cutting them off. We shall never get the high-wage, low-cost economy to which we all pay at least lip service if we persevere in this particular route.
  It is a pathetic delusion of some hon. Members opposite that the Government have a prices and incomes policy. That is not true. Therefore, we have the cries for price control. Price control as operated by this Government is a bluff, and they know it. They moved once on laundries, because they got 300 letters, and what have they done since then? They have reduced the price of marbles by 1d. in response to some perishing letter from a girl, probably the same one that we saw on the posters urging us to vote Labour in the G.L.C. elections. The truth is that the Government have a policy

  437
  which is jolly effective for keeping wages and production down, while prices and unemployment and even salaries rise. It is time to abandon it. It has little enough support, and what there is is eroded daily.
  I want to conclude by giving the reasons why as reported at col. 1216 of the OFFICIAL REPORT of 12th April, I found myself less able than the Chancellor to take a cheerful view of the position. One or two hon. Members opposite, including the hon. Member for Penistone (Mr. Mendelson) have said that I have supported the policy of severe restraint, deflation and squeeze and freeze, and have therefore found me guilty by association with the Chancellor of the Exchequer. That is only true as far as it goes. It is true that on 25th October—and this is the quotation that is mainly in the hon. Member's mind—I told the Chancellor that he should not listen to the siren voices that urged reflation.
  Mr. Mendelson Mr. Mendelson rose——
  Mr. Macleod: I shall finish my argument and then of course I shall give way. I said at the same time that the Chancellor should look urgently at the question of giving a much-needed boost to private investment, which was already showing lower trends, and ever since then in successive debates—particularly as I have analysed the unemployment trend, which I shall do for just three minutes before I sit down—I have dissociated myself from the policy of the Chancellor. It is not a question of jumping on the bandwagon. I climbed off this hearse long ago.
  Mr. Mendelson: I was particularly keen to remind the right hon. Gentleman and the House of the additional quotation which he has not mentioned, when he told my right hon. Friend the Chancellor that he must go on on the rocky road, with all the authority of Front Bench spokesman of the Opposition. That makes the right hon. Gentleman fully responsible for the policy of deflation, and he has no right to criticise the Chancellor now.
  Mr. Macleod: That was the 25th October last year. Of course I said that then. It is true, because one should not start a major operation and abandon it half way through. But if the hon. Gentleman reads that speech he will see
  438
  that I directed the attention of the Chancellor to private investment, and ever since then I have analysed the unemployment situation, as I shall do for a minute or two before I close.
  When I spoke in the Budget debate, I said that I took a less cheerful view than the Chancellor, and in particular I made this comment about unemployment:
  "… I believe that unemployment is a good deal more serious than it looks. I say that, first, because the mildness of the winter cloaks the real unemployment situation and, second, because the underlying trend is still adverse."—[OFFICIAL REPORT, 12th April, 1967, Vol. 744, c. 1214.]
  The April figures bore this out completely. There was a reduction in the wholly unemployed of 5,669. But the month from March to April is the best seasonally of the whole year and there is normally a seasonal reduction in the figure of 34,000. Therefore, far from the "jobless total falls", as some papers headed their stories, there was a most savage worsening of the unemployment trend in that month.
  I want to make one point clear, although, in a sense, I am arguing against myself in doing so. This is that, as the winter figures were much worse than the Government supporters thought they were, so it may be that the April figure is not quite as bad as it looks because if people are kept on in the winter months obviously they are not available and it is not necessary to re-engage them as the spring comes.
  I recall one more prophecy that I made at Brierley Hill and which I repeat. I think that in June—it may happen in May but is more likely in June—we shall see the worse figures for June unemployment since the 1930s because the graph in a month or two will cross that of the 1962–63 period. Moreover, the trend is getting worse. It is the weather alone, the mildness of the winter, which has saved the Government this winter from having figures worse than those of 1963. Only an incredible piece of luck next winter can save them from having worse figures than at any time since the 1930s.
  We will try in Committee to deal with some of these matters which I have indicated. We return tonight to the usual tradition of not voting against the Second Reading of the Finance Bill unless there are such matters, as there were last year

  439
  and the year before, of deep affront to us contained within it.
  A year ago, as I have shown the House, I phophesied—and unhappily was right—that there would be a dramatic result of the Chancellor's misjudgment. I make no such prophecy this year. I think that Bill is just a mess. The Bill is without ideas and without purpose. It will fall to the Opposition to try to give it more sense of direction during the Committee stage.
  9.33 p.m.
  The Financial Secretary to the Treasury (Mr. Niall MacDermot): By the standards which the Government have set we certainly would not claim that this Bill is exciting. The right hon. Member for Enfield, West (Mr. Iain Macleod) has assured us that it does not provoke any deep affront to hon. and right hon. Members opposite. It has been described by the hon. Member for Worcestershire, South (Sir G. Nabarro) as a puny Bill—a curious description of a Bill which exceeds 100 pages in length.
  Although we have not undertaken any major tax reforms, we have taken the opportunity to bring before the House a considerable number of minor measures which, as my right hon. Friend the Chief Secretary outlined, contain a number of useful provisions which will help to relieve the burden on the taxpayers, to reduce the administrative and paper work of a good deal of revenue collection, to simplify the administration, to clarify the law and to help industrialists, in particular exporters.
  Since my right hon. Friend spoke, there has been very little reference to the Bill itself. The hon. Lady the Member for Finchley (Mrs. Thatcher) took 22 minutes before she made any reference to the contents of the Bill. Hon. Members know that in some quarters of the House there is a movement urging that the Committee stage of the Finance Bill should be sent upstairs. Perhaps we should be a little careful about how we conduct our Second Reading debates, or there may develop a movement for sending Second Readings to the Second Reading Committee.
  The debate as a debate has suffered from the initial blow which was administered to the Opposition by my right hon. Friend the Chief Secretary
  440
  when, in his opening speech, he blasted them out of the water before their argument had begun on what is one of their pet hobby horses. He shattered the myth, which they constantly repeat, and which they have repeated so often that they have come to convince themselves that it is true, that we are the most heavily taxed country, that we have the heaviest burden of direct taxation and that we have the heaviest burden of company taxation of comparable countries.
  Hon. Members said that they wanted to study my right hon. Friend's figures, and I hope that they will. Although to some extent he knocked the stuffing out of them on this, he did not, of course, succeed in preventing them from repeating the phrase again. But they did not come forward with the same zest or enthusiasm which we are used to, and even the abdominal rumblings of the hon. Member for Worcestershire, South were, I thought, a little muted on this occasion.
  Sir G. Nabarro: There were no abdominal rumbles. I devoted 15 minutes, until I saw you getting a little fidgety, Mr. Speaker, because I was taking too long, to rebutting the entirely fallacious argument of the Chief Secretary, and I shall do so many times again in Committee.
  Mr. MacDermot: I was not referring to the hon. Gentleman's speech.
  Mr. Speaker: Perhaps I might assure the Financial Secretary that the rumblings were not abdominal.
  Mr. MacDermot: I thought that that was their source.
  My hon. Friend the Member for Hey-wood and Royton (Mr. Barnett) completed the demolition work on this part of the debate when he made such a telling speech on the supposed disincentive effect of the levels of direct taxation. In his winding-up speech, the right hon. Member for Enfield, West made a brave attempt to return to the charge on this issue, and I am sure that we will all study with interest his reference to the Canadian Report on taxation. However, in this country surely we are concerned with the incentive or disincentive effect on people in this country, in our economic situation and with the attitudes and experiences of people here.

  441
  Although he himself argued for a reduction in the levels of direct taxation, the right hon. Gentleman cleared away a lot of the dross which surrounds the argument on this subject. That does not mean, of course, that my right hon. Friends are advocating or arguing for higher levels of taxation, as the right hon. Member for Flint, West (Mr. Birch), who has now left the Chamber, suggested in his witty speech. We always expect a witty speech from him. He is very ironical at everyone else's expense and suggests that everyone except Professor Paish is a false prophet. I do not know how much his own gloomy prophecies would bear examination. I can remember his prophecies of last year about the prospects of the Government obtaining what they needed by borrowing during the coming year. I do not think that his prophecies on that have proved to be very accurate. In his speech, he gave a timely reminder of the point in my right hon. Friend's Budget speech, which was the importance of looking ahead and reining in the growth of public expenditure in order to make room for increased investment in the private sector if we are to avoid increases in taxation.
  The hon. Lady the Member for Finchley in her opening remarks, most of which were devoted, like the right hon. Gentleman's final speech, to the Budget statement, questioned some of the forecasts upon which the Budget judgment was based. One to which she referred in particular was the forecast on exports. She mentioned the fact that some outside commentators had questioned those figures. It is true that at present the United States and the German economies have not been expanding as fast as was hoped. There is a pretty general expectation that by the end of the year, they will be expanding again at a good deal faster rate, and we see no reason to revise the estimates upon which that forecast was made.
  I was a little surprised at the hon. Lady, with her great experience in tax matters, suggesting to the House that in some way the resources of the Inland Revenue Department were being wasted on back duty cases. As I understand it, the suggestion was that if one took the staff off back duty work, and put them to work helping taxpayers to fill up their forms, this would be a better use of resources. She quoted the fact that the amount of
  442
  revenue recovered in back duty was something in the order of £15 million, or three-tenths of 1 per cent. Surely she would be the first to recognise that the real effect of the very skilful back duty work is to keep tax evasion at what is, thankfully, still a very low level in this country compared with others.
  This is a difficult debate to reply to, because inevitably in the circumstances it has ranged extremely widely. A number of hon. Members have made thoughtful and interesting speeches, some advocating far more radical changes in our tax system than even those which the Government have introduced. Others have made general reflections upon the economic situation, upon my right hon. Friend's Budget judgment and upon monetary policy that may be pursued in the coming year.
  I hope that hon. Members will forgive me if I concentrate my remarks upon the contents of the Finance Bill, as I am supposed to be replying to the debate on the Second Reading of this Bill. A number of hon. Members mentioned the possibility of a value-added tax. Obviously that has considerable topical interest today in view of the announcement of my right hon. Friend the Prime Minister. I understand that the hon. Member for Colne Valley (Mr. Richard Wainwright)—I was sorry to be absent from the Chamber when he made his speech—raised this question of the need to study the possible harmonisation of our taxation system with the Six.
  I would remind the House that Article 99 of the Treaty of Rome provides for the harmonisation of turnover tax, excise duties and other forms of indirect taxation. It does not specifically cover harmonisation of direct taxation of social security contributions and, although there was some preliminary discussion of direct taxation at the recent meeting of the Council of Ministers, the possibility of eventual harmonisation of direct taxes and of excise duties is still fairly distant.
  The area in which they have made most progress is that of turnover taxation. On this, the E.E.C. Council adopted on 9th February two draft directives by the Commission to establish a harmonised value added taxation system among the member countries. The ultimate aim is harmonisation of rates of turnover tax, but

  443
  this is a long term question and it is unlikely that any harmonised rates will have been decided before our application is decided. It is important to bear in mind, as I pointed out on 27th January, that the coverage of indirect taxation in the Common Market countries is generally wider than it has been here, and the har-monisation of turnover taxation could involve us in extending the net to goods which have not been taxed here. This is the point which hon. Members who have been urging a value added tax as a panacea to our tax problems need to consider very carefully. It could mean extending indirect taxation to such matters as food, fuel, travel, and rents, all of which would raise very great problems in this country.
  In comparing indirect taxation here and on the Continent, we must bear in mind that at present five of the six Common Market countries have a broadly based turnover tax of the cascade type—that is, the tax is collected at each successive stage of production and distribution so that one item of goods may be taxed several times over. The immediate purpose of the Six in their present agreement to adopt a move towards the value added system is to avoid the economic distortions which this cascade method involves and also to enable precise adjustments to be made on exports and imports.
  As was pointed out by my hon. Friend the Member for Heywood and Royton, our Purchase Tax system, being a single stage tax, does not involve these distortions and already allows price adjustments on exports and imports. Therefore, to this extent we are already in line with the immediate objectives of the Six. Some hon. Members have in the past advocated the adoption of a value added tax system in this country, quite apart from the object of harmonisation with the E.E.C., on the ground that it would serve as a stimulus to efficiency and exports.
  The Richardson Committee examined all these arguments closely, took evidence from business men and concluded that there was not much in these arguments. The Six have not adopted this system of taxation with these objectives in mind. As is known, the Committee of the N.E.D.C. is looking at this matter again and taking the opinion of industry, and it will be interesting to see whether views
  444
  have changed very much since the evidence was given to the Richardson Committee.
  As I pointed out in the debate on 27th January, the coverage of indirect taxation in the Common Market countries is, generally speaking, wider than it has been here, and it is true that harmonisation would involve extending the net in the way that I have indicated. It is too early to say what the effect of this would be if we adopted it here, but if it shifted the incidence of taxation the extra growth revenue which would be derived from the extension would be available to restore the balance in other ways, whether through adjustments in other taxes or in welfare benefits.
  In the remaining minutes, may I refer briefly to one or two of the provisions to which hon. Members have referred in the debate. I think that there has been a general welcome for the increase in the dependent relative allowance. Some questions have been asked, particularly outside the House, as to why this has not been extended to give a similar increase to single men or indeed to all men.
  As my right hon. Friend the Chancellor pointed out in his Budget speech, he hoped that the House would accept that the fact that this was a year in which he was not able to do a great deal in the way of tax reliefs was not a reason why he should not pick out what appeared to be a particularly deserving class and one for whom a great many hon. Members have shown interest as a result of the work of the National Council for the Single Woman. The single women who are supporting relatives are, as a class, perhaps facing greater difficulties than men who are in a similar position.
  May I refer briefly to Clause 17, giving relief for creative artists on the sale of copyright? It is a matter of some personal satisfaction to me that my right hon. Friend was able to find room for this. It is a matter which was raised last year by the right hon. Member for Birmingham, Handsworth (Sir E. Boyle), speaking on behalf of the Arts Council, and it received support on both sides of the House. He explained then that the proposal was aimed primarily at relieving the plight of the less affluent author who was perhaps past the peak of his earning capacity, who was approaching retirement and in need of raising a

  445
  lump sum. He put forward a proposal which we felt unable to accept and adopt, but we agreed to study it and we have now brought forward the proposal which is in Clause 17.
  It has been suggested in some quarters that it is a derisory concession which would not be of a great value to authors. Perhaps I may give an illustration of the way in which it could work in the case of the kind of author referred to. If one imagines a professional author who sells the copyright in a work or a number of works for the sum of £3,500, and one assumes that he is a married man with no other income, under present law he would be liable to nearly £940 tax on the proceeds. Under my right hon. Friend's proposal, on the assumption that he has no other income over the six-year period for which he spreads forward the liability, the total charge over the six years would be just over £90, and if either he or his wife were over the age of 65, the charge in similar circumstances would be nil.
  There have been a number of references to the Selective Employment Tax, and no doubt we shall come back to it in Committee. The hon. Member for Finchley suggested that it was an administratively complicated machinery. I do not know whether she was suggesting that it was administratively expensive, because in fact the opposite is the case. It is probably the cheapest tax of all to collect. I think that 0·75 per cent. of the total revenue is the cost of collection. The administrative complications involved in the refund to part-timers which we are now proposing will raise the administrative costs quite substantially, as often happens when one introduces a relief to a tax.
  There have been some questions directed to whether a similar relief ought not to be given to the disabled and elderly. Perhaps all that I need say at this stage, because we can go into it further in Committee, is that the evidence which has been obtained and which we have studied very carefully does not support any suggestion that the Tax is working unduly harshly upon the employment of either the disabled or the elderly. We have not seen any need to extend a relief to those categories as such, though, in particular, employers of the elderly will benefit from the relief for part-timers.
  446
  The hon. Member for St. Ives (Mr. Nott) referred in kindly terms to the new Clause, Clause 28, dealing with the question which he raised last year of foreign bearer bonds. We have been able to go rather further than the proposal which he suggested last year in that we have extended it to bearers issued in foreign currency on behalf of United Kingdom companies, as well as to bearers issued by companies abroad. I was rash enough to say last year that if we drew the line at this point it would lead to pressure for it to be extended further, and I think I added "and rightly so". Perhaps, rather belatedly, I would like to withdraw those words and make it clear that where we have now drawn the line is where we are firmly convinced is the right place at which to draw it and to hold it.
  That was urged on me by the hon. Member for St. Ives himself last year, and I was sorry, therefore, to hear him today, having got his foot in the door, trying to push the door wide open by urging the total abolition of Stamp Duty for everything. This Duty brings in a revenue of about £80 million a year, and it is not one which my right hon. Friend could surrender, nor would he be able to transfer it in the way that the hon. Gentleman suggested to punters by increasing the betting tax.
  My hon. Friend the Member for Chislehurst (Mr. Macdonald) raised this question, too. He thought that the rate of 2½ per cent. was derisory, and that it ought to be about 10 per cent. He will remember that during our debates last year a number of points were stressed. First, this is a tax on turnover. There is a rapid turnover in betting, and the tax on any amount invested in betting, if that is the right term, gets taxed several times over. Thus the effective rate on the net amount which is invested in betting is considerably higher than 2½ per cent. There is also the consideration that we are anxious not to drive betting underground again, and to have a rate of tax and a system of taxation which will be worked by the betting community, and I am glad to say that this is being achieved.
  My hon. Friend the Member for Chislehurst also raised a question about the fixed rate of 4 per cent. laid down in Clause 38 for the interest on arrears

  447
  by dilatory taxpayers. He thought that this was an abnormally low rate. I hope he appreciates that it is, in effect, a net rate, since there is naturally no deduction for tax in respect of these interest payments. This corresponds, therefore, in the case of a company—and most of this money will come from companies—to a gross rate of 6⅔ per cent., and to a gross rate of 6·8 per cent. in the case of an individual taxpayer liable at the standard rate. For the Surtax payer it represents a much higher gross rate, so we judge that this should serve as a fairly effective deterrent, and if it does not we will have power to alter the rate as necessary by order.
  It might be of interest to hon. Members if I refer briefly to the provisions in Clauses 39 and 40 about the new procedure paving the way for the abolition of the Committee of Ways and Means. We have had, first, to provide a new machinery in future for setting in motion the Provisional Collection of Taxes Act before the Finance Bill becomes law. This will be done by a Resolution of the House in place of the former Resolutions in Committee.
  Clause 40 provides for this to be done by a provisional Resolution to be put down by the Chancellor which can be valid for only ten days. This will enable taxes to be collected at once, and in place of the old report Resolutions there will be new confirmatory resolutions within the ten day period on which hon. Members can vote after they have had time to reflect on and consider the Budget Resolutions. Unless these confirmatory Resolutions are passed, the provisional ones will lapse.
  448
  We have taken the opportunity to make three other Amendments to the Provisional Collection of Taxes Act machinery. At present the machinery is valid only for four months from the time when the Resolutions take effect. That, of course, is the beginning of the financial year on 5th April and time runs until 5th August, but if we had an early Budget before 5th April, as sometimes happens, the last date may be dragged forward into July, with consequent pressure on the Parliamentary timetable. We therefore propose that the Resolution will in all cases last until 5th August.
  Secondly, we are making clear that a Resolution can apply to the abolition of an existing tax as well as to the variation of this rate. Finally, we are extending the power to apply new Customs and Excise duties to services as well as goods, which would overcome the difficulty which happened, for example, in 1957 on the introduction of the Television Duty and in 1961 with the Television Advertising Duty.
  As the fatal hour has arrived, perhaps I should conclude. I could comment on many other provisions, but perhaps we could leave them to our discussions in Committee.
  Question put and agreed to.
  Bill accordingly read a Second time and committed to a Committee of the whole House.
  Committee Tomorrow.

  ADJOURNMENT
  Resolved, That this House do now Adjourn.—[Mr. Harold Walker.]
  Adjourned accordingly at one minute past Ten o'clock.

COMMONWEALTH AFFAIRS
  Hong Kong
  Hong Kong
  Rhodesia
  Rhodesia
  Zambia
  Zambia
  Malta (Joint Mission)
  Malta (Joint Mission)
  High Commissions (Qualified Economists)
  High Commissions (Qualified Economists)
  Mauritius and Swaziland (Independence)
  Mauritius and Swaziland (Independence)
  European Economic Community
  European Economic Community
  Tanzania (British Firms)
  Tanzania (British Firms)
  MAURITIUS (GENERAL ELECTION)
  MAURITIUS (GENERAL ELECTION)
COAL
  Opencast Mining, Scotland (Output)
  Opencast Mining, Scotland (Output)
  Smokeless Fuels (Safety)
  Smokeless Fuels (Safety)
MINISTRY OF POWER
  North Sea Oil and Gas
  North Sea Oil and Gas
  Shipbuilding Industry (Steel Prices)
  Shipbuilding Industry (Steel Prices)
GAS
  North Sea Supplies (Utilisation)
  North Sea Supplies (Utilisation)
NATIONAL FINANCE
  Capital Gains Tax
  Capital Gains Tax
  National Investment
  National Investment
  Travel Allowance
  Travel Allowance
  Public Expenditure
  Public Expenditure
  Income Tax (Personal Case)
  Income Tax (Personal Case)
  Purchase Tax
  Purchase Tax
  Foreign Exchange (Armed Forces)
  Foreign Exchange (Armed Forces)
  Balance of Payments (Overseas Investment)
  Balance of Payments (Overseas Investment)
  Parliamentary Commissioner's Office (Staff)
  Parliamentary Commissioner's Office (Staff)
  Tax Refunds (Disclosure)
  Tax Refunds (Disclosure)
LOCAL GOVERNMENT
  Brickworks, Woburn Sands
  Brickworks, Woburn Sands
  Sewage Disposal (Waterways)
  Sewage Disposal (Waterways)
  Development Plan (Southend Review)
  Development Plan (Southend Review)
  Rate Rebates (Bristol)
  Rate Rebates (Bristol)
  Baguley Hall, Manchester
  Baguley Hall, Manchester
HOUSING
  Rents (Peterlee)
  Rents (Peterlee)
  Key Workers
  Key Workers
  Rents
  Rents
  ANTI-BALLISTIC MISSILES
  ANTI-BALLISTIC MISSILES
  NUCLEAR DISARMAMENT
  NUCLEAR DISARMAMENT
  RHODESIA
  RHODESIA
  AFRICAN REVIEW (ANTIKOM)
  AFRICAN REVIEW (ANTIKOM)
  SOUTH ARABIA
  SOUTH ARABIA
  VIETNAM
  VIETNAM
  SOUTH YEMEN (F.L.O.S.Y.)
  SOUTH YEMEN (F.L.O.S.Y.)
  BRITISH FORCES, GERMANY
  BRITISH FORCES, GERMANY
ECONOMIC AFFAIRS
  Northern Economic Planning Council (Report)
  Northern Economic Planning Council (Report)
  Economic Planning Councils (Appointments)
  Economic Planning Councils (Appointments)
  EUROPEAN ECONOMIC COMMUNITY
  EUROPEAN ECONOMIC COMMUNITY
  PERMANENT STANDING ADVISORY COMMITTEES
  PERMANENT STANDING ADVISORY COMMITTEES
  WELSH OFFICE (RESPONSIBILITIES)
  WELSH OFFICE (RESPONSIBILITIES)
PUBLIC BUILDING AND WORKS
  Building Research Station
  Building Research Station
AGRICULTURE, FISHERIES AND FOOD
  National Board for Prices and Incomes (Fruit and Vegetables)
  National Board for Prices and Incomes (Fruit and Vegetables)
MINISTRY OF DEFENCE
  Military Aircraft (Anglo-American Offset Agreement)
  Military Aircraft (Anglo-American Offset Agreement)
EDUCATION AND SCIENCE
  Coronary Thrombosis (Sugar)
  Coronary Thrombosis (Sugar)
MINISTRY OF HEALTH
  National Health Service (Administrative Structure)
  National Health Service (Administrative Structure)
HOME DEPARTMENT
  "Torrey Canyon"
  "Torrey Canyon"
  Offenders (Community Treatment)
  Offenders (Community Treatment)
  Prisoners (After-Care Hostels)
  Prisoners (After-Care Hostels)
  Voluntary Children's Homes (Exchequer Grants)
  Voluntary Children's Homes (Exchequer Grants)
  Immigration Appeals (Report)
  Immigration Appeals (Report)
MINISTRY OF LABOUR
  Strikes (Lancashire)
  Strikes (Lancashire)
  Selective Employment Tax
  Selective Employment Tax
POST OFFICE
  Facilities (British Airports)
  Facilities (British Airports)
TELEPHONE SERVICE
  Waiting List (Rhondda)
  Waiting List (Rhondda)
OVERSEAS DEVELOPMENT
  Ceylon (Aid)
  Ceylon (Aid)
SCOTLAND
  Farquharson Lang Committee (Report)
  Farquharson Lang Committee (Report)
TECHNOLOGY
  Dounreay Experimental Reactor Establishment
  Dounreay Experimental Reactor Establishment
SOCIAL SECURITY
  Disability (Research)
  Disability (Research)
BOARD OF TRADE
  Investment Grants (North-East)
  Investment Grants (North-East)
AVIATION
  Stansted Airport
  Stansted Airport
  Live Animals (Carriage By Air)
  Live Animals (Carriage By Air)
SHIPPING
  Merchant Shipping (Liability of Shipowners and Others) Act, 1958
  Merchant Shipping (Liability of Shipowners and Others) Act, 1958
ROADS
  Accident (Gants Hill Roundabout)
  Accident (Gants Hill Roundabout)
  Rolling Programme (Schemes)
  Rolling Programme (Schemes)
TRANSPORT
  Bus Design (Standardisation)
  Bus Design (Standardisation)
  Conurbation Transport Authorities
  Conurbation Transport Authorities
RAILWAYS
  Aviemore—Grantown-on-Spey Line
  Aviemore—Grantown-on-Spey Line
  Closures (Wales)
  Closures (Wales)
WALES
  Migration (Cardiganshire)
  Migration (Cardiganshire)

Preamble
The House met at two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Lincoln.

RAILWAYS' NON-SMOKING COMPARTMENTS
2.5 p.m.
THE EARL OF KINNOULL: 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, in view of the public decline in the habit of smoking, whether they will persuade the Railways Board to provide a greater proportion of nonsmoking compartments on the rail commuter services.]
THE PARLIAMENTARY UNDERSECRETARY OF STATE FOR COMMONWEALTH AFFAIRS (LORD BESWICK): My Lords, following the Statement on smoking in public places made by my right honourable friend the Minister of Health in another place on January 27, his Department wrote to the Railways Board asking them to consider whether further provision could be made for non-smoking travellers. The Board replied that, as a commercial undertaking, they must have regard to the requirements of their customers, but that they carried out very long surveys among passengers, and reviewed non-smoking accommodation on the various routes in the light of the views of passengers and the observations of railway staff. The ratio of non-smoking to smoking accommodation has been increased substantially in recent years in both main line and local trains in all areas. It is, of course, for the Board to decide on the amount of non-smoking accommodation.
THE EARL OF KINNOULL: My Lords, while thanking the noble Lord for that full reply, may I ask whether he would agree that the provisions that the Ministry have taken already are more than ever necessary?
LORD BESWICK: My Lords, the views of the Ministry are that cigarette smoking may be killing each year more than 6,500 men under the age of 55. An independent survey recently carried out states that the death rate for men cigarette smokers between the age of 25 and 65 is almost double that of the non-smokers. In the light of a situation of this kind I am sure the House will agree that it is necessary to try to do all that is possible to bring home the dangers to our fellow-citizens.
BARONESS BURTON OF COVENTRY: My Lords, would my noble friend not agree that the London Passenger Transport Board, in connection with the Underground railways, have increased the amount of non-smoking accommodation available because they found that the number of non-smokers was increasing? If this is correct, would he bring it to the attention of the Railways Board?
LORD BESWICK: My Lords, I think it is generally agreed that the number of non-smokers is increasing. In fact, I understand that 46 per cent. of the people in this country are now non-smokers. So far as the London Transport Board are concerned, they now find that the passenger requirement is for two out of each three coaches on their service to be non-smoking compartments. So far as the Southern Railway are concerned—the principal commuting railway, I suppose—in accordance with the wishes of their travellers they now provide 50 per cent. as non-smoking coaches.
LORD PLATT: My Lords, I am not sure whether this is a supplementary question or not, but are Her Majesty's Government going to do anything about smoking on aeroplanes? Many aeroplanes on short routes are divided into three compartments, in all of which people are smoking heavily during the whole of the journey.
LORD BESWICK: My Lords, the difficulty is that the compartments are divided for reasons other than separating smokers from non-smokers. This is a vexed question, and the airlines have, I understand, been giving it considerable thought. They have not yet found a satisfactory way to divide the non-smoking sheep from the smoking goats.
BARONESS BURTON OF COVENTRY: My Lords, as we are ranging widely on these supplementary questions, may I ask my noble friend whether he can do anything to bring to the attention either of the Greater London Council or of the Government the question of smoking in cinemas, which is very objectionable to some people.
LORD BESWICK: My Lords, this is an extremely interesting question. Again, this is, I understand, a subject on which there is a great deal of controversy. Experiments have been carried out by certain of the cinema proprietors but they have not yet devised a way of providing for a division between non-smoking and smoking sections and enforcing it.
LORD BLYTON: My Lords, would my noble friend take advice to see that those who smoke are not entirely eliminated from the passenger service?
LORD BESWICK: My Lords, I quite agree that those who smoke have every right, if they so wish, to expedite their journey to another place.

RAIL PASSENGER FARE INCREASES
2.10 p.m.
LORD INGLEWOOD: 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 the increases in railway passenger fares, effective from April 23, had the approval of the Prices and Incomes Board.]
LORD SHEPHERD: My Lords, the Railways Board notified my right honourable friend the Minister of Transport, in the context of the prices and incomes policy, of their plans to make selective increases in fares and other charges to cover additional costs and to help contain their already large annual deficit. The proposals were fully considered by Her Majesty's Government before the Railways Board were authorised to go ahead. In view of all these considerations it was not thought necessary to refer this matter to the Prices and Incomes Board.
LORD INGLEWOOD: My Lords, is it not rather unfortunate that the Govern-
810
ment should apply one set of rules to the nationalised industries and another to the rest? Does the noble Lord not think it a strange business, too, that if the railways must increases fares, they should do so for journeys over 200 miles, which we are told is the section of the passenger services that is most hopeful and earning most profit, rather than on the shorter and less economic journeys, such as, for example, those in and near London, which always seem so much more prosperous than parts of England and Scotland which lie more than 200 miles away from the Metropolis?
LORD SHEPHERD: My Lords, the noble Lord is very adept at putting a speech into the form of a supplementary question. The Government have never treated nationalised industries and private industries differently in regard to the prices and incomes policy. It was the noble Lord's Party, when in office, who gave freedom to the Railways Board to conduct their affairs and fix prices according to the circumstances. The Government are involved only within the terms of the prices and incomes policy. In regard to the fares to which the noble Lord has referred, there is a very marginal increase—I believe of about one farthing a mile—for journeys beyond 200 miles. One further aspect on which perhaps the noble Lord and the House might like information is that one of the adjustments made was in the charges for first-class sleeping berths. That was last fixed in 1957, and has only now been adjusted by 5s. a berth.
LORD INGLEWOOD: My Lords, is the noble Lord aware that, at a time when the competition from the motorways is getting very much keener, for example, from families travelling long distances, it seems strange that he appears to approve of this increase in fares which, although described as only one farthing a mile, amounts to quite a lot if you travel from one end of these Islands to the other. Is not the noble Lord also aware that first-class sleeping berths—perhaps unfortunately—are now occupied only by business men, politicians, civil servants, and other people who do not have to pay for themselves?
LORD SHEPHERD: My Lords, the noble Lord is again quite sweeping in his question. Perhaps one day he may try to substantiate that statement to me

811
privately. I do not approve of unnecessary rises in prices, but the noble Lord, Lord Inglewood, will recognise that the Railways Board have to be realistic—unfortunately the noble Lord is not prepared to be so—and they have this large deficit which they are required to reduce. Therefore they must make some increases on those services which obviously require it in view of their increased costs.
LORD DRUMALBYN: My Lords, is the noble Lord aware that most Acts dealing with nationalisation include a provision against discriminating against certain classes of user? Can he say why the Government accepted this discrimination against the long-distance user?
LORD SHEPHERD: My Lords, the Government have not discriminated against the long-distance user. No doubt if we were to agree to a rise in fares in London we should be accused of discriminating against the London passenger. At this time this is one of the increases being borne by the long-distance traveller, but he has not been involved in an increase of this type for some considerable time.

TWIN-UNIT CARAVANS IN SCOTLAND
LORD DRUMALBYN: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether, in considering planning appeals in Scotland concerning twin-unit caravans, the same criteria are applied as are set out in the Ministry of Housing and Local Government Circular No. 17/65 issued on March 17, 1965 (as amended by the correction slip issued on April 6, 1965); and if not what are the comparable criteria in Scotland.]
THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR SCOTLAND (LORD HUGHES): No planning appeals of this kind have been made to my right honourable friend, but, if they were, he would deal with them on the lines set out in the Ministry's circular.
LORD DRUMALBYN: My Lords, I am much obliged to the noble Lord for his reply.

FAMILY ALLOWANCES
LORD DRUMALBYN: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what would be the cost of increasing family allowances in respect of:

(a) the second and subsequent children;

(b) the third and subsequent children;

(c) the fourth and subsequent children;

(d) the fifth and subsequent children,

for every shilling of such increase (child being given the same meaning as in section 2 of the Family Allowances Act 1945.)]
LORD SORENSEN: My Lords, the estimated annual cost for Great Britain of a shilling increase in family allowances for the second and subsequent children, is £17·4 million; for the third and subsequent children, £6·9 million; for the fourth and subsequent children, £2·7 million; and for the fifth and subsequent children, £1·0 million.
LORD DRUMALBYN: My Lords, I thank the noble Lord for his Answer.

GOVERNMENT STATEMENTS
LORD SHEPHERD: My Lords, at a convenient moment after 3.30 p.m. my noble friend the Leader of the House will be making a Statement on the European Economic Community and thereafter my noble friend Lord Chalfont will make a Statement on the British Forces in Germany. I would also inform your Lordships that, in view of the large number of speakers for this afternoon's debate, we have arranged for dinners to be available in our own Dining Room.

THE DEFENCE ESTIMATES
2.17 p.m.
LORD SHACKLETON LORD SHACKLETON rose to move, That this House takes note of the Statement on the Defence Estimates 1967 (Cmnd. 3203). The noble Lord said: My Lords, in rising to move that this House takes note of the Statement on the Defence Estimates 1967 I should first like to apologise to your Lordships if I am not able to be present during the whole of the debate. I did indeed doubt whether it would be proper for me to take part, since I have strong views on the attendance of Members of this House who speak in a debate: I think that they should be present. But I hope that today, in the circumstances—as your Lordships know, I am engaged in other activities—I may be excused if I am not present all the time.
This year's Defence White Paper underlined again the triple aims of the Defence Review which formed the basis of our debate on Defence a year ago. It is clear that we have to-day a very distinguished list of speakers; indeed, I doubt whether any Parliamentary Assembly in the world could muster such an expert and distinguished group for debate of this kind. I am sure that it would be the desire of your Lordships to wish the noble and gallant Field Marshal, Lord Montgomery of Alamein, a successful trip to Egypt in connection with the 25th anniversary of his great victory at Alamein, and also to wish him a safe return. I am very glad that we are to hear from the noble and gallant Viscount, and I am sure that noble Lords on both sides of the House await with interest his views on Defence.
My Lords, it was the aim of the Government, in setting the Defence Review in motion, to bring under control the frightening rate of increase in Defence spending which characterised the Defence Budgets and, even more, the long-term plans of the previous Government, so that in terms of real resources the burden on the Exchequer and the taxpayer would be stabilised, and if possible reduced. If the! noble Lord, Lord Carrington, is worried I can assure him that I propose to make as unprovocative a speech as I can.
The first part of the exercise was necessarily negative, and your Lordships
814
will recollect that discussions on Defence a year ago were dominated by the decisions relating to equipment regarding projects which, in the opinion of the Government, were disproportionately costly for the extra military effectiveness they would have yielded. We have now moved into a more positive stage of implementing the decisions stemming from the Review, and this year, as well as presenting in the White Paper an impressive account of savings, both budgetary and in foreign exchange, we can also show real progress in the relief of over-stretch of our forces world-wide, and this was one of the most serious Defence problems that we inherited. Your Lordships will also have seen from the White Paper that on the equipment side, too, despite fears which were expressed last year, particularly in relation to the aircraft industry, firm programmes, stretching in some cases into the mid-1970s, are now in hand.
The Defence Review set out the broad financial aim of achieving by 1969–70 a Defence budget of £2,000 million at 1964 prices. This year's White Paper demonstrates that substantial savings will be achieved even before the target year. The Estimates for 1967–68 are already £73 million under the 1969–70 target. This picture is even more impressive when seen in relation to the plans of the previous Government. Their Estimate for this year would at current prices have been £2,571 million, or £366 million higher than that in the White Paper. Comparing the three years of the present Government's life with the previous Government's Defence plans for the same three years, we can see a saving of £750 million. It has been claimed, of course, that these are artificial savings; but this claim does not stand up to examination. The long-term costing of the previous Government, with which we are making our comparison, was based on the most accurate estimate that could be made. We have kept below that figure by cutting some projects and by applying rigorous standards of cost effectiveness throughout the Defence programme.
Your Lordships will rightly ask whether too great a preoccupation with cuts and savings will not result in the end in a lopsided or inadequate Defence policy. I hope in the course of my

815
speech to dispel any fears that the Government have fallen into this error. We have sought throughout the Defence Review, and will continue to seek—for we see the Review as a continuous exercise—the most meticulous matching of military provision to the needs of our national security and our world-wide commitments that has ever been attempted in this country. This rigorous weighing of costs against results is making possible the achievement of savings which axe impressive in themselves and essential in the present economic climate.
At the same time, we have, I think rightly, eschewed any temptation to create a situation in which our forces are either being asked to do too much or being denied the tools they need to carry out their roles properly. If I may say so, one of the most encouraging and impressive features of the Defence Review has been that in both these respects (your Lordships will remember the problem of overstretch, in particular) the position has improved during the life of this Government, despite the substantial savings which are being made.
My Lords, I turn now to an examination of the overseas deployment of our forces, conscious as I do so that the test of the validity of the claims I have made in relation to the Defence Review must be that the disposition of our military forces is responsive to changing political circumstances. It is the view of the Government that those critics who insist on immediate withdrawal from our overseas commitments and those who deplore any suggestion of alteration in our pattern of deployment are equally weak in their stance, because neither is showing that sensitivity to a changing world which we regard as essential to effective Defence planning.
Let me deal first with our contribution to the North Atlantic Treaty Organisation. I am conscious that we have discussed this subject on a number of occasions in recent months, but it is so important that I think even now it is right to put it first, because I believe that the security of these Islands still depends primarily on preventing war in Europe. For this reason I believe that while the Warsaw Pact forces maintain their formidable military capability, the continuation of the North Atlantic Alliance is essential
816
to our safety. We are members of that Alliance, and I believe that we should continue to play our part by making a substantial contribution to the Armed Forces of NATO. I doubt whether any of your Lordships would dissent from that proposition. What is more controversial is the form which our contribution should take, and it is that which I should now like to discuss for a few minutes.
Circumstances in Europe have greatly changed since the North Atlantic Treaty was signed in Washington on April 4, 1949. At that time Europe was threatened by Soviet expansion, and it was necessary for Western Powers, which had demobilised rapidly at the end of the war, to build up their forces and to establish a co-ordinated military organisation to counter that threat. This the Western Powers successfully did, and I think we should recognise, as I am sure we all do, that this was a very notable achievement.
I wish I could say, my Lords, that this threat had now vanished for ever. But alas! I cannot do so. The Soviet Union and its allies maintain a vast military potential in the form of both conventional and nuclear forces, and while these remain in existence we cannot confidently say that there is not a threat. What I would maintain, however, is that in recent years the threat has receded somewhat. We now have a degree of détente in Europe which is clearly recognised on both sides. I believe that much of the credit for this must go to the continuing military strength and political solidarity, despite difficulties, of NATO. The Soviet Union is aware that any deliberate aggression would lay it open to a nuclear response so devastating that no prize could be worth the appalling risks involved. There are, of course, other factors involved, including Soviet preoccupation with China.
The points I want to make are, first, that in the foreseeable future Soviet aggression is unlikely; and secondly, that NATO in its strategic thinking must take account of this fact. In short, military planning must take account of Soviet intentions as well as Soviet capabilities. I do not believe that these intentions are at present aggressive, and although circumstances may conceivably change in the future I do not believe that this is likely to happen overnight.
If this assessment is correct—and the Government believe that it is—it has important implications for the military planning of the Alliance in general, and, in particular, the deployment of NATO'S forces, including those contributed by the United Kingdom. In particular, it raises the possibility of redeploying elsewhere some part of the forces now stationed in Germany, provided that they could be returned if an emergency threatened. This is one of the possibilities which has recently been under discussion in the tripartite talks between the United Kingdom, the United States and the Federal Republic of Germany, talks which have covered a wide range of subjects, including NATO strategy, the forces required to implement it and the most equitable means of sharing the foreign exchange burdens imposed by the stationing of British and American forces in Germany.
These talks were concluded at a further meeting in London at the end of last week, and a Statement about their outcome is being made this afternoon in another place. A similar Statement will be made to noble Lords later. I should like to apologise personally to the noble Lord, Lord Carrington, that he should be in the position of having to make his speech before he has this information. The only thing I would say on this point is that I do not think I shall be giving away any secrets if I say that the extent of the redeployment of our forces from Germany to the United Kingdom will be very much less than some of the alarmist reports over the last few months have suggested.
In the Middle East our plans for the withdrawal of our forces from Aden when South Arabia becomes independent are going ahead. Service families will all be out of Aden by the end of July. The removal of heavy equipment and other stores has begun. Political consultations with the Federal Government on the date of independence have been taking place, and discussions on a number of propositions are continuing. Your Lordships will not expect me to say very much about the situation in Aden, but there are certain things which I should like to mention. The reason I do not want to go into detail is that my mission is by no means completed. The terrorist campaign in Aden continues to provide a sombre backcloth, and we have had the recent awful example of the school bus that was blown up. Our troops, in co-operation with local
818
security forces have had to deal with a better organised and less primitive opposition than in the past. The range of weapons that are now available to the terrorists is great. They include energas, mortar bombs, grenades and machine guns.
In coping with their difficult and hazardous task among local populations, whose fears of terrorist reprisals make them unwilling to co-operate, our troops are displaying the greatest courage and efficiency. I had an opportunity of seeing something of them and their work. I visited groups at the check points and talked to some of the men as they came off duty, and I was able also to visit some of the wounded. The Army have conducted their security operations in a splendid way, with enormous restraint. Those who saw the television film in which a certain amount of roughness was displayed may not appreciate that some of the shots were taken after the troops had been continually grenaded and fired upon for a long period. I do not believe—and I hope this is not too much a piece of chauvinism—that any army in the world could have better carried out these operations with less loss of life. It is a thankless job the Army are doing, but I was immensely impressed by their approach to it. They were doing a job, and they were doing it with efficiency and determination.
I should also like to pay tribute to the civilians, some of whom have been badly wounded and others of whom have lost those near and dear to them. Yet they have returned to their posts. This quality shines through the tragedy that is being enacted there like a gleaming light. And let me say that all of them have been supported by the staunchness of the High Commissioner. May I also pay, for me, an unexpected tribute to the Press. The Press has been moderate, well-informed and co-operative, and has shown a full regard to the dangers and the opportunities that still remain there. I shall say no more about my mission except that it is my present intention to return to Aden shortly. I have certainly not given up hope that peace and stability may be brought to South Arabia. Despite the setbacks to the United Nations Mission, we still consider that the United Nations can play a valuable role in bringing South Arabia to independence, and we shall continue to give the Organisation every

819
assistance in its efforts. Our plans for the small build-up of our forces in the Persian Gulf are going forward. This increase will be limited to what is necessary to fulfil our remaining obligations in the area after withdrawal from Aden.
I should like to turn to the Mediterranean. The talks with the Malta Government in London early in March had a satisfactory outcome, and the run-down of our forces in Malta will now be phased so that the effects on Maltese employment will be spread as evenly as possible over the next five years. We have further undertaken to limit the loss of jobs in the first 18 months of the run-down to give the Maltese economy a breathing space. The detailed figures have been announced. As your Lordships know, the noble Lord, Lord Robens, has been appointed as Chairman of the Joint Mission which will go out and will make recommendations to both Governments about re-training and the creation of new job opportunities in Malta.
Let me now turn to the Far East. I am glad to see that the noble Viscount, Lord Head, is here and will be taking part in this debate. The ending of the confrontation with Indonesia in August last year gave us the opportunity to reduce our force levels in the Far East. I must again say that I believe that the action of the British Armed Forces in this area has been one of the most striking exercises of the use of armed power in the defence of peace. It is interesting to recall that during all that time the Air Force never fired a single shot in anger, yet the whole of our presence contributed ultimately to a peaceful settlement.
We said in the 1966 Defence Review that we would reduce our force levels as soon as conditions permitted. The plans we put in hand when confrontation ended covered the withdrawal of about 10,000 men to this country. These, of course, were largely drawn from the combat forces that had been sent out specifically for confrontation, and most of them are already back home. In addition, we have been able to put in hand earlier plans to reduce the Brigade of Gurkhas to a total strength of 10,000 men by the end of 1969. Now, following the recent visit of the Secretary of State for Defence to the Far East, we believe that it will be
820
possible by next April to bring the total number of men and women working in or for the Services down to 20,000 below the total at the end of confrontation. The Secretary of State for Defence also had preliminary discussions on the scope for further reductions during the following two or three years. We believe that it will be possible for the various changes we have in mind to be made in an orderly way without unacceptable consequences, provided we keep in close contact with the Governments concerned.
Naturally we shall continue to study the possibility of reducing our overseas defence spending throughout the world, and in doing so we shall always bear in mind our national interests and those of our friends and allies. But wherever it is justified by the facts of the situation, we shall be unremitting in the search for further savings. I claimed at the beginning of my speech that against a background of substantial defence savings, the Defence Review was also an exercise in reducing overstretch and in ensuring that our forces were better equipped than ever before for the roles which they are most likely to be called upon to fulfil. I hope that what I have said about deployment has been sufficient to justify the first of those claims.
I should now like to turn to the field of equipment for all three Services, and in what I shall say I believe that I shall demonstrate that the second claim also stands firm. For the Royal Navy, last year's Statement was a very significant one, because it recorded the decision to phase out the aircraft carriers during the 1970s. In the ensuing year, there has been a radical examination of the longterm size and shape of the Fleet after the carriers have gone. As the Defence White Paper explained, final decisions for the Navy, as well as for the other Services, have had to await the outcome of the NATO discussions, to which I referred earlier, but this does not mean that the Navy has been standing still in the last twelve months. Far from it. The new construction programme has been going ahead very satisfactorily. Of the two new assault ships, H.M.S. "Fearless" has joined the Fleet and H.M.S. "Intrepid" will shortly complete trials. H.M.S. "Fife" and H.M.S. "Glamorgan", the latest county class guided-missile destroyers, both equipped with the Sea

821
Slug Mark 2 system, have been commissioned.
Three new "Leander" class general purpose frigates joined the Fleet during 1966–67, and another three will join this year. Orders are being placed for further ships of this class. Among submarines —and it should be recognised that these are the capital ships of the future—two nuclear-propelled fleet submarines, H.M.S. "Dreadnought" and H.M.S. "Valiant", are already at sea, and a third, H.M.S. "Warspite", has just been commissioned. A further three are on order, and a seventh, with a greatly improved capability, will be ordered this year. Studies are also being made to improve the offensive weapons of this class which will enhance their already formidable anti-ship and anti-submarine capability. Of the four Polaris submarines, two, H.M.S. "Resolution" and H.M.S. "Renown", have been launched and the first of these will be operational by mid-1968. So much for the existing classes of ship.
Last year's Statement referred to a new class of guided missile destroyer, the type 82, which is the forerunner of the ships which in the 1970s will deploy the Navy's future weapon systems, in particular Sea-dart, a new medium-range surface-to-air guided missile which will succeeed Sea Slug. Additionally, the type 82 will have a new action data automation system, probably the most advanced system in service in any fleet in the world. New aircraft will also be coming forward for service with the Royal Navy. The first deliveries of Phantoms begin next year, and H.M.S. "Ark Royal" has entered Devonport Dockyard for a long refit designed in part to fit her to operate this aircraft. During the present year the Wessex Mark 3 helicopter will be introduced for service. Its anti-submarine equipment is the most advanced of its kind in any navy. In the longer term, this equipment will be incorporated in the Sea King helicopter, to which we made reference previously, with its great capacity, longer endurance and twinengined safety. H.M.S. "Blake" and H.M.S. "Tiger" will be converted to carry both the Wessex III and later the Sea King.
Let me now turn to the Army. I submit that it is to-day one of the best equipped in the world; and I think it would be
822
right for me to say at this point that much of the work that has led to its successful re-equipment was done by the previous Administration. Re-equipment of armoured regiments with Chieftain tanks to replace the Centurions is well under way, and there are now about 120 of the new tanks in service. Swingfire, a long-range anti-tank weapon, will be coming into service with units next year. Vigilant and Carl Gustav anti-tank weapons are already in service. Extensive re-equipment of B.A.O.R.'s field artillery is now virtually completed with the 105 mm. Abbot, the 155 mm. M109 and the 175 mm. M107 guns. All this adds up to a very high degree of weapon sophistication which, when combined with the increased mobility afforded by helicopters and the new armoured personnel carrier, makes, I am sure noble Lords will agree, for an extremely effective Army.
The Royal Air Force's re-equipment programme loomed very large during the Defence Review. Noble Lords will recollect that this Government inherited an aircraft re-equipment programme defective in terms both of cost-effectiveness and of timings. The aircraft planned were either too expensive or would not have arrived in time to meet the operational requirement. Major decisions—and we have debated these at length—were made to cancel the HS.681, P.1154 and TSR.2 aircraft and to adopt the Hercules, the Phantom, the P.1127 and the F.111. The decision was also taken to replace the Shackleton with the HS.801. These decisions were of very great significance for the Royal Air Force of the 1970s. What we are now able to report in this year's Statement is how far the decisions already taken are materialising into hardware.
To take the Hercules first, 66 have been ordered and the conversion training of crews has already been begun. Over 150 Phantoms have been ordered for the Royal Navy and the Royal Air Force and delivery commences next year. Although in concept and design these are, of course, American aircraft, the types we are purchasing will, as your Lordships know, incorporate a high proportion—this is particularly true of the Phantom—nearly one-half, of British equipment, including the very successful Rolls-Royce Spey engine. The F.111, for which the full order of 50 has now been placed, will come into service in about two years' time.
EARL JELLICOE: My Lords, may I interrupt the noble Lord for a moment, as he said he may not be here later? As he has left the Phantoms, may I ask whether the final order for Phantoms has now been placed, or arc there further orders to come over and above the 150 which he mentioned?
LORD SHACKLETON: My Lords, there are over 150. I am sorry I have not been able to refresh my mind on the precise state of the game with regard to this matter. As the noble Earl knows, there are a large number of stages. But I am sure that my noble friend Lord Chalfont will try to give further information on that point.
Production of two major British aircraft, each in its own fashion unique, is now under way. The P.1127, or Harrier, as it is now called, will be the first V.T.O.L. aircraft in the world to enter squadron service, and the HS.801 will be the first all turbo-jet maritime reconnaissance aircraft in the world. Both these aircraft should enter service during 196970. Progress has also been made in our collaborative arrangements with France. These cover the Jaguar and variable geometry aircraft, helicopters and the Martel air-to-surface missile.
I should like to clarify the position on the research and development costs of the A.F.V.G. Her Majesty's Government have not given a formal statement on the United Kingdom share of the development, but have indicated that in the discussions with the French we were working on the basis of a bracket—I am speaking of R. and D. now—of between £100 million and £125 million. My right honourable friend the Secretary of State has asked me to make clear that there has been no development to change this bracket. When he was answering an interjection in another place in the context of the 15-year programme cost, he gave a figure of £150 million as a forward projection of a basic development plan for the aircraft on the assumption that over the years there could well be further adaptation and improvement of the aircraft. This longer-term figure, therefore, in no way invalidates the estimate for the particular project on which we are working with the French.
To a very great extent we have a settled programme of re-equipment for
824
the Royal Air Force. But this does not denote that all we have to do is sit back and await delivery. A very critical eye has to be kept constantly on all our programmes to ensure that a balance is being maintained between strategic and tactical needs, on the one hand, and cost, on the other. Your Lordships, particularly those who have occupied Defence positions, will know the enormous amount of planning and organisation that is necessary to introduce aircraft of this kind.
My Lords, I hope I have shown that the Government have been energetic in examining and revising the disposition of our military forces and in providing them with the best equipment for their particular tasks. The organisation of all the effort that goes into day-to-day management and long-term planning has to be as effective as can be devised if the considerable resources employed in the Defence effort are to be used efficiently. I should therefore like to conclude by referring briefly to certain organisational changes which were made at the beginning of the year. Perhaps I may remind the House of what was done at that time.
First, the functions of Ministers were revised so that three senior Ministers now devote their attention to the problem of Defence as a whole. The Secretary of State is now free to concentrate on the wider aspects of Defence policy and planning, while retaining direct responsibility for operations and maintaining effective political supervision over the remainder of the Defence field, and he has been assisted by the additional resources of a team, enabling him to evaluate the various propositions. A Minister of Defence for Administration is responsible for personnel and logistics matters affecting all three Services, and a Minister of Defence for Equipment is responsible for matters concerning all three Services in research, development and production. and in procurement and sales. A Parliamentary Under-Secretary of State is in charge of each of the three Service Departments, and these arrangements have, we believe, improved the balance of the higher direction of our Defence effort.
Secondly, there has been the appointment of the Chief Adviser. Personnel and Logistics. who assists the Minister of

825
Defence for Administration, and is permanent Chairman of the Principal Personnel Officers' Committee and the Principal Administrative Officers' Committee, and we believe this has facilitated inter-Service co-ordination and the furthering of such important projects as the establishment of the Royal Defence Academy.
Improvements of this kind call for a major administrative effort for which the new organisation is proving to be well adapted. It recognises not only the growing interdependence of the Services, but the growing complexity of service management, as the complications of technical equipment increase, while automatic data processing and other modern management techniques progressively widen the scope of management and control. In such a situation the search for common solutions and the pooling of resources to deal with common problems in the personnel and logistics field becomes inescapable.
Another change in our organisation during the past few months has been the reorganisation of the duties of the Chief Scientific Adviser, and their reallocation to two Chief Advisers for Projects and Studies. The creation of these appointments recognises the growing burdens imposed on the one hand by the assessment of weapons development projects and, on the other, by the balancing of the weapons development programme against current defence policy, available resources, and operational requirements. It also recognises the need to develop the specialised effort required for carrying out the studies which are basic to the assessment of the capabilities of our forces and the planning of our defence policy.
My Lords, during the course of my speech I have referred to some of the more important aspects of Defence—the financial constraint, force deployment patterns, development and production of equipment and, lastly, administration. This by no means exhausts the subject matter of Defence. Indeed, it really only begins it. It is far too complex for that, touching as it does on so many areas of national life and international relations. All these interacting factors make Defence an extremely difficult field in which to produce spectacular achievements. What this Government have done, and will continue to do, is to make solid progress in the direction of realigning our Defence
826
posture and our political commitments with our economic circumstances. I would commend to your Lordships the Statement on the Defence Estimates as a record of this further progress, and ask for your Lordships' support in the task on which we are engaged. I beg to move.
Moved, That this House takes note of the Statement on the Defence Estimates 1967 (Cmnd. 3203).—(Lord Shackleton.)
2.56 p.m.
LORD CARRINGTON: My Lords, may I first say how glad I am—and I am sure the whole House will be, too—that the noble Lord, Lord Shackleton, has found it possible to introduce this debate this afternoon, during what must be a very busy period in London before he once again returns to Aden. Whatever we may think of the Government's policy hitherto in the South Arabian Federation, all of us, knowing the noble Lord as we do, will wish him the very best of good fortune in his difficult task for which, if I may say so, he is extremely well fitted, both by experience and by temperament. We understand that, naturally enough, he may not be able to be here for the whole debate. The only other thing I will say about his remarks in regard to Aden is that I think we were all more than glad to hear what he said, and the way he said it, about the conduct of British troops in that area.
I understand that the noble Lord, Lord Chalfont, is to reply to the debate, and though, as will appear in what I have to say, I am not a great admirer of the Government's Defence policy, he can hardly be blamed for that, as ever since he joined the Government his primary job has been as Minister of Disarmament. Whatever critics may say—and the noble Lord has had his critics—we who know him know how conscientiously he has worked at his job, and the skill and knowledge he has brought to it. It is not the noble Lord's fault that success has not yet crowned his efforts. But it is rather ironic that the Secretary of State for Defence should have been rather more successful, though I am sure inadvertently so, as a Minister of Disarmament than the noble Lord opposite. In two and a half years the Secretary of State for Defence seems to have got himself into a rare old muddle, and there can be no doubt that the capabilities of our Defence forces will be less than

827
they were when he took over their direction.
That is not to say that Defence is an easy problem. On the contrary, it is of enormous complexity, bound up inextricably as it is with foreign affairs and economic policy. After all, Defence is but a means of implementing foreign policy, and there can be no successful foreign policy which is not based on the economic strength of the country. Certainly anybody who has been concerned in Defence matters over the past decade will never underestimate the problems which a Secretary of State has to face. It is always difficult to know all the facts when one is in Opposition, particularly when one is without the skilled and expert advice of the Service Chiefs and their staffs, and the permanent and experienced staffs of the Ministry of Defence. Therefore, much of what I have to say, though not all of it, will be in an interrogatory form, since I think it is up to the Government to explain to us their policy. For it is they, and they alone, who are responsible for the safety of the nation.
There can be no doubt that when the present Government took office in 1964 the problems of Defence were greatly underestimated by Mr. Healey and his colleagues. With a fanfare of trumpets a Defence Review was announced. It was complacently stated that no such comprehensive review had even taken place before, and that from this review would flow not only a reorientation of our Defence policy, but substantial streamlining of our forces and larger cuts in Defence expenditure. The implication, clearly, was that all Mr. Healey's predecessors had been, if not fools, then incredibly incompetent.
SEVERAL NOBLE LORDS: Hear, hear!
LORD CARRINGTON: If I may say so, my Lords, that just goes to show the lack of knowledge and the arrogance of noble Lords opposite that they should say that.
None of us can see that this once-and-for-all marathon, this much-heralded Defence Review, has in fact achieved any of the objects for which it was set up. There has been no reorientation of our Defence policy. There has been very little streamlining of our forces, and
828
there has been no substantial saving in expenditure so far. And I must say that, having listened to the noble Lord, Lord Shackleton, I remain utterly unconvinced on any of those three.
It was not, I may say, that many people ever thought this Defence Review would do any of these things, but on several matters the Government seemed to me—and I say this with diffidence—to have learned a certain amount of wisdom. For example—and I will not stress this too much, because I know that it is a little embarrassing—they have continued their predecessors' nuclear policy. They have built, and are building, Polaris nuclear submarines. The Atlantic Nuclear Force, having served its purpose of confusing the issue and, perhaps more importantly, confusing the Government's supporters—a recognizable Wilsonian trick—has joined the other discarded gimmicks in the junkyard. I even doubt whether some noble Lords opposite could tell me what the Atlantic Nuclear Force was all about. We remain as we were three years ago, an independent nuclear Power with a nuclear capability around the world. Who, three years ago, would have thought it possible that a senior Minister in a Socialist Government and his wife would have launched one of these Polaris submarines and attended the commissioning ceremony, running the gauntlet of the C.N.D.—pillars of the nuclear establishment? This is, if I may say so, a sensible and reasonable change of heart, and we on this side of the House certainly welcome it.
I remember—and here I must be very careful not to say "I told you so"—that in a Defence debate not long after the Labour Party were elected I ventured to say to noble Lords opposite that however much streamlining and cutting back was done, the only way of saving any substantial amount of money was to cut your commitments. Of course, you can cut your capabilities and pretend you can still honour your obligations. But there was, and is, no other way of doing it except by cutting your commitments, and it is a pretence for the Government to suggest either that they have cut their commitments, except in one respect I shall come to in a moment, or that they have saved a substantial amount of money. I would, therefore,

829
it I may, at no great length, since there are many noble Lords who wish to speak, discuss the three broad areas of the world in which our commitments fall.
To me there can be no doubt—and here I venture respectfully to differ from my noble and gallant friend Lord Montgomery of Alamein—that from the British point of view the most important area is Europe. There are, it seems to me two questions which one can ask oneself. The first is, where is trouble most likely to happen in the world? I should have thought the answer to that question at the present time is without doubt the Far East. But there is, I think. an even more important question, and that is which is the area most vital to Britain? And here the answer must, as I say, undoubtedly be Europe. I equally have no doubt that the second question is more important than the first.
Of course, it is true to say that at the present time it does not look very likely that a serious conflict will arise in Europe. Not only, since the Cuba crisis, has there been the realisation by the Russians of the enormous preponderance of American nuclear power, but it is increasingly apparent that Russia is concerning herself more and more with her Chinese neighbour, understandably enough. But very strange things can happen in international politics. I do not think that any Government would be right to gamble on the assumption that this state of affairs will for ever be perpetuated, and so permanently adjust her strategic deployment. It could be that some accommodation, for example, might be reached between China and Russia. The German problem is by no means settled. And there are many other circumstances, by no means impossible, which might once more increase tension between East and West on the European Continent.
It surely would not be within the bounds of prudence and good sense for Britain to abandon her share in Western European defence and so remove a part of that deterrent which has brought about the détente between East and West. Nor at this particular moment, when we are about to apply, as no doubt we shall be told in half-an-hour, to join the E.E.C. would it be much evidence of a new European attitude on the part of Her Majesty's Government. I do not, of course,
830
say—and here I accept what the noble Lord, Lord Shackleton, said—that it is not possible to reduce our contribution in B.A.O.R., and no doubt an agreement can be reached—and surely agreement is a prerequisite of any withdrawal; agreement with W.E.U. and our NATO allies. If so, it may well be sensible to withdraw 6,000 troops, or whatever the figure may be, which again we shall undoubtedly hear about in half-an-hour—much to the surprise of the noble Lord, Lord Chalfont, who seemed to think it would be delayed until after Whitsun. But the fact remains that Europe is our most important commitment, and we should be careful not to weaken it in such a way as to invite trouble or to make nuclear retaliation absolutely inevitable at the outset.
I must say that I find myself a little apprehensive about what Mr. Healey has said in the last month or two on this subject. It is certainly a complete reversal of what he was saying four or five years ago. I could quote some of the things he said, but I do not want to detain the House. In those days. the whole direction of Labour Party thought was the reinforcement of Europe rather than a withdrawal from it. Certainly I can visualise situations in which just such a choice of using nuclear weapons or allowing a relatively small situation to get out of hand may cause great difficulty. I very much hope we shall soon have a definite statement from the Government on the new NATO thinking.
I said earlier that, save in one instance, there had been no reduction of our commitment. The reduction of commitment is, of course, the announcement of our intention to be out of Aden next year. Your Lordships will know that those of us on this side of the House have been exceedingly critical of this announcement, and—I dislike very much saying this—that decision was, in my view, responsible to a very large degree, not only for the increase in terrorism in Aden but also for the political difficulties with which the Government are faced. There can be no doubt that at the beginning of last year the Egyptians were on the point of collapse in the Yemen. Their morale was exceedingly low. The Royalists had won several significant victories, and informed observers were taking the view that President

831
Nasser was about to withdraw. The effect of the announcement about Aden was the equivalent of a major victory for the Egyptians. They could see opening up for themselves the opportunity of gaining control of the South Arabian Federation. A little patience, hanging on just a little longer until the British had gone, could well bring them the prize which fighting in the Yemen had not been able to bring them.
I believe that when historians write of this period of our decolonisation, and of this particular area of the world, they will say that this was a catastrophic blunder. FLOSY, politically inspired and directed from Egypt and operating from a rear base in Egyptian-held Yemen, has been given an opportunity to terrorise and murder in a way which I do not think would otherwise have been possible. We are therefore left with the appalling problem of what to do now. I absolutely understand that the noble Lord, Lord Shackleton, has not found it possible to say anything definite at this stage about the Government's future plans, but there are many of us in this House who feel that after the promises to the South Arabian Federal Government on Defence. which were undoubtedly made, it will be disgraceful, to put it at its lowest, if Her Majesty's Government abandon them after independence for what in many ways would appear to be purely financial reasons unconnected with British interests and obligations. I do not say they will do it. I only hope that what is said in this debate and in another place may have some effect on them before it is too late.
But of course there are other problems in the Middle East and in the Gulf. We have a number of important commitments to the Sheikdoms in the Persian Gulf, Kuwait and Bahrein being the two most important. I should have thought that here, too, the decision to quit Aden altogether must necessarily call into question in the minds of those rulers whether or not Britain is capable of fulfilling her part of the bargain. I know that there is a school of thought, and it may very well be right, that the oil which conies from the Gulf and which is our life blood in this country would still flow regardless of British presence or absence in that area. Noble Lords below the gangway feel that, too, I know. They
832
say it has got to be sold somewhere. This is, if I may say so, even if it is right, a fairly large and untried assumption on which to base so immensely important a decision. Can any responsible British Government bank on it when so much is at stake?
If the British presence were removed from the Gulf would it not create a vacuum? When you create a vacuum something is bound to fill it. Most of these States are fairly backward. Their rulers are trying to advance them as quickly as it is possible to do. Can one doubt that once again if a British deterrent disappears President Nasser will again be out for trouble-making? I should like to hear from the noble Lord who is to reply how the Government propose to reassure the rulers of these States about Britain's capability to fulfil her commitments.
There is, I understand, to be a small increase in facilities in Bahrein. How far will that compensate for the abandonment of Aden? What plans are there for naval support facilities? How can the Government convince the rulers that to abandon Aden with no replacement makes their position as secure as it was before? It may be that in the long term it will be Saudi Arabia which will become the important factor in this part of the world; and there is surely something to be said for building up a State which is basically friendly as a buffer to the ambitions of the U.A.R. But this is in the long term. Oil is vital to us, and I do not think that the Treasury would be very happy at the loss of the Kuwait sterling balance. Let us this afternoon have a forthright statement from the Government of their determination to honour this obligation.
Lastly, there is the Far East. Here, I find myself in great difficulty. We are told by Mr. Healey that there is no plan for the abandonment of Singapore or of our position in the Far East; and yet there is a good deal of evidence that something in that line has recently been floated. It would be altogether too much of a coincidence if both the Australians and the Americans had, if the Press can be believed, reacted so sharply to a nonevent—something neither discussed nor proposed, nor hinted at. Writing from Washington in the Sunday Times of ten days ago, Mr. Henry Brandon said that Mr. Brown left American policy-makers

833
with the uncomfortable feeling that Britain wants to opt out of the Far East altogether by the mid-1970s, and that they are contemplating the abandonment of Singapore, the sheet anchor of Britain's military presence. From Australia there have been reports of sudden Cabinet meetings: reports of Mr. Holt sending urgent telegrams to Mr. Wilson, and a sharp attack by Mr. Hasluck during the SEATO Conference on Britain's noninvolvement in the Far East.
What, then, are we to believe? Are we to believe with Mr. Healey that nothing is happening that has not already been announced; that no feelers have been put out about a withdrawal in the 1970s? What did Mr. Brown say in Washington? Did his reassuring statement in public contradict his private conversation? Not for the first time, nor, I fear, for the last time, are we left wondering what on earth Mr. Brown has been up to. I do not know whether it would be too suspicious of me, too unworthy of me, to suggest that these rumours may have something to do with the rumbling Left Wing of discontent at most important aspects of the Government's policy. If I may say so, it is a most natural discontent if one compares promise with performance. If the Government tell me at the end of the debate, as I hope they will, that there is no word of truth in any of these rumours, then all I can say is that their public relations must he utterly deplorable. Surely it is the essence of bungling to leave two of our major allies in a state of confusion and, I think, in some degree of resentment.
I think it quite reasonable that we should support the Government in the reductions which they have announced in the Far East. The end of confrontation has brought about a changed situation. The Army was largely built up to cope with confrontation, and the large reductions which have been announced are only those which, but for the Indonesian situation, would have taken place in any event. As I say, I think that that is nothing more nor less than we should expect. But timing is everything—timing in decisions and timing in announcements. The Americans, together with the Australians and the New Zealanders, are engaged in a considerable conventional war in Vietnam. One has only to visit America and Australia to realise how intensely preoccupied they are with that war. It is astonishing to see the number of Service
834
men on the streets in the States, and the amount of news in the papers in both countries about Vietnam, which dominates all other topics.
Surely we should have some regard to the feelings of our allies in this matter. To float ideas of a complete withdrawal from South East Asia, if indeed Mr. Brown did do this—or if he did not, to allow the rumour to get about that he did—must surely seriously harm Anglo-American and Anglo-Australian relations. Unless we are most careful we shall build up for ourselves in those two countries a resentment at our attitude which may well do us incalculable harm in the future.
My criticism of the Government's policy in the Far East, and indeed of the Defence White Paper this year, is that there is behind it no real clear strategic thinking. Mr. Healey, in a speech he made in the Defence debate last February, said that the main policy problems on which we must decide in the immediate future are the size and shape of the Services in the 1970s. He said that these decisions depend on greater precision in three main areas of our policy: the nature of British contribution to a revised NATO strategy, the type of military backing required, and Commonwealth policy outside Europe. I agree with that, and it is my complaint that no such precision has emerged from Government thinking.
I agree entirely with what Sir Alec Douglas-Home has said about what British policy should be in the Far East. We should aim at the creation of a belt of unaligned States—Cambodia, Laos and Vietnam—whose neutrality would be internationally supervised. Of course that will have to await the outcome of the Vietnam war. Indeed, it should be the result of it. Outside that neutral belt there should be an Asian SEATO composed of Thailand, Indonesia, Singapore, Malaysia, the Philippines and possibly, in the future, India and Pakistan; and that organisation, wholly Asian in composition, should work with the ANZUS Treaty forces which would be expanded to include Britain.
It seems to me that on this basis it might well be possible to recast the whole of Britain's defence commitments in the Far East. We should still contribute our share to the protection and guarantee of our allies in that area, and a new era of self-reliance for the Asian nations would

835
develop. We should still retain a military capability in the Far East: the ability to reinforce with air power and an amphibious force capable of showing a British presence in that part of the world, and useful not only for the support of the Asian SEATO but for international disorders and keeping the peace, and showing the flag in those areas of the Pacific for which we still have responsibility.
I intended to say something about weapons, but I will leave that to my noble friend Lord Jellicoe, since I have spoken for rather longer than I intended. There are questions to be asked about the size of the Army and about Naval weapons. There is uncertainty about the size of the forces, uncertainty about their shape, uncertainty about their role. I cannot pretend that the performance of the Government in the last two and a half years gives me confidence that they are capable of redefining our Defence policy and strategy. It must surely be wrong to approach Defence policy and to lay down a financial ceiling regardless of national safety, national interest or national commitment. Maybe that ceiling is all the money we need to spend. but internal politics must clearly not be the criterion of that.
So far, the Government have resisted the clamour of their Left Wing for abandonment of solemn treaties and obligations. All honour to them for that? Long may it last! But, equally, they have given so sign of a determination to give Britain a clear and unequivocal statement of what British interests are, what are the strategic implications of those interests; to give an estimate of their cost and an unambiguous declaration that it is both in our interests and our duty to bear that cost. We shall continue to question, to press, to debate with them until they make these statements, or until they make way for someone who will.
3.20 p.m.
LORD GLADWYN: My Lords, in the few minutes available to me before the epoch-making statement which is to be read to us shortly after half-past three, I should like first of all on behalf of my colleagues on these Benches to give an equally warm welcome to the noble Lord, Lord Shackleton, on his return. I am quite sure that if anybody can do some
836
thing about getting out of the mess into which we got ourselves in Aden it will be the noble Lord, Lord Shackleton. I should like also on behalf of my noble friends to associate myself with what he said about the British soldier in Aden. I think that the events during the terrorist campaign have shown the British soldier at his calm and determined best.
Seeing that I have very little time, I will not attempt to make any remarks on the broad question of NATO, on the defence of Europe, and indeed on the whole nuclear policy which is now, after all, settled, and about which we can do nothing for the time being, pending some disarmament or some new arrangements arising out of a new treaty for nuclear non-proliferation. I would only say that, so far as I understood what was being said, I agreed with the noble Lord's "assessment", as regards Europe and NATO, and I also very much agreed with what the noble Lord, Lord Carrington, said in both those respects. So I will concentrate on East of Suez.
It is now over two years since I had the honour to explain the Liberal Party's policy on Defence in this area, and I well remember the shocked amazement with which it was greeted by the Government and by the Conservative Opposition, both of whom were at that time, as your Lordships will recall, pursuing what was in our view an identical policy of ex-imperial "grandeur" East of Suez and congratulating themselves warmly on their wisdom in following these disastrous plans. It is seldom a good plan to quote oneself, but I hope your Lordships will forgive me if I just say that I then deplored this common view and notably what I called:
"the calm acceptance in the White Paper of the theory of Britain's peace-keeping mission East of Suez, as if this was not only a desirable, but also a positively inevitable thing."
Once again I ask, why should we any longer have such a mission? Having (wisely, as we on these Benches think) divested ourselves of our Imperial responsibilities, are we still destined by the Government to be, as it were, our brown brothers' keeper? Would it not be equally logical if Asians should now say that they would now like to have a peacekeeping mission in Europe? Goodness knows! we Europeans are quarrelsome enough. But, quite seriously, the thought that we might with advantage no longer

837
be the Asians' keeper now seems to have struck the Government, if not the Tory Opposition, and since April, 1965, as we gladly recognise, the Government have accepted Liberal advice to the extent of deciding to evacuate Aden and to bring hack a substantial proportion of our troops in Borneo and Singapore. Unfortunately, as we think, they still show signs of wanting to hang on to our bases in the Persian Gulf; indeed, as the noble Lord said, they have actually increased our forces there—in Sharjah, I believe, rather than in Bahrein. The noble Lord said that they had done so, but did not really explain why it was necessary to do so.
We are anyway assured that all this has nothing to do with protecting our oil interests. Nothing so sordid as that. In spite of recent fulminations in the Press by Lord Lambton, and in spite of what Lord Carrington said today, the Government. as I understand it—but I should like them to pronounce on this point—take the sensible view that we should get the oil somehow even if we did eventually evacuate the Gulf, and that there is little danger that any successor Government would wish to be paid for it in currencies other than sterling. Look at Kuwait. It was frequently said that if Kuwait became independent, or if it was not under our wing, the Iraqis or someone else might take over the oil, and we should have to pay for it in some currency other than sterling. Well, it has not happened. We sent forces to Kuwait, but we no longer can, or should, send them there now: because Kuwait is a member of the United Nations, and if she were invaded, by Iraq or anybody else, it would be a major international incident in which we and others should no doubt play our part. But there is no reason to suppose that that is going to happen.
There is no reason to suppose that we shall lose our oil if eventually, after two years perhaps, we succeed in evacuating our position in Bahrein; and I think that is the Government's view. What the Government are apparently afraid of is chaos—that is what the noble Lord, Lord Chalfont. said to me when I raised the point two years ago. They are afraid of chaos if we go, and are afraid that some struggle for power among the various Arab States in the vicinity; and after what has happened in Aden, we
838
can all understand these apprehensions, even though we may suspect that the present situation in Aden is to some extent the result of too hasty a decision to evacuate, and a decision to evacuate Aden irrespective of any decision to adopt a similar policy in other parts of the area.
But supposing that there were a struggle for power, as it is called, when and if we leave the Gulf, would that really be the end of the world? If we played our cards properly, I should have thought that, with luck, we could remain in the good graces of one party to the struggle for power or the other. After all, there is no reason why we should not continue to have a policy in all this area, even if we evacuated it militarily. Nor should we be inhibited in any way from continuing aid, military or other, for any country which we thought was pacific or democratic or otherwise worthy of support. This, after all, is the way of the modern world.
Neither the Soviet Union nor the United States, so far as I know, have bases in the Middle East, and they are not at this stage likely to have them. And yet both have very considerable influence. The disadvantage of bases is that if there is a row you are inevitably involved. You have your little finger in the wheel, and before you know about it you may even get involved in a "Vietnam" conflict. That is the danger of a base.
LORD CARRINGTON: My Lords, may I interrupt the noble Lord for one moment? If I understood him aright, he is saying that he does not mind what happens when we have left. Does he feel no responsibility at all for British commitments, which have existed over the past twenty years, for the safety of the people and their welfare?
LORD GLADWYN: My Lords, I am coming to what we should actually do and how we should actually clear out.
LORD CARRINGTON: But that is what the noble Lord said.
LORD GLADWYN: I did not actually say that. I described what might happen if we cleared out. I think that we should clear out; and we Liberals say that we should—not precipitately, but as part of a phased evacuation.

839
Part of the reason for the present mess in Aden was perhaps because it was an individual and perhaps also an unduly rushed operation. But if we now announced our intention to relinquish all our posts on the whole Arabian littoral in the reasonably near future without actually giving a date we might be able—and I think we should—to precipitate the issue without causing chaos, in the sense of giving time for any successor States—and, as the noble Lord said, they are mostly tiny sheikhdoms—to organise themselves and, if necessary, come together in some larger community or confederation. They will never do that without a shock. They would only sit back enjoying their enormous incomes. They would never do anything towards getting together, unless we had given them the signal for coming together by saying that it is eventually our intention to clear out. This is the point. Incidentally, this is more or less one of the conclusions of the all-Party Parliamentary delegation which recently went around the Middle East, of which I had the honour to be a member. That was the gist of the communiqué which we issued on our return after seeing many of the prominent people involved, including President Nasser, the King of Saudi Arabia, King Hussein and others.
We do not say that such a withdrawal from the Gulf would effect enormous economies immediately, or even in the long run, though with our present balance of payment difficulties one would have thought that £20 million or so a year was of some importance. We could, of course. save much more by insisting on a further run-down of our forces in Singapore, even if we had to compensate the inhabitants for a few years as a result; and, in any event, there is a case for a continuance—shall we say until the early 'seventies—of limited base facilities at Singapore if the locals want us to be there. But if we do agree to go along with this, it should surely be as a result of some arrangement whereby the Australians share the expense, and indeed produce troops to man the base. After all, the Australians spend now about 4 per cent. of their gross national product on armaments as opposed to our 6·5 per cent. If any such joint scheme is thought to be feasible, then our communications, as we on these Benches suggested a long
840
time ago, ought to be organised "West about" over Canada and the Pacific. Unfortunately, paragraph 27 of the White Paper makes it clear that the Government, in spite of the ever present danger of complete blockage of our over-flying rights, are still wedded to the "East about" solution for communications.
As for the islands and coral atolls in the Indian Ocean, which we seem to be tempted to purchase and develop, could irresponsibility really go further than that? What on earth is going to be the use of these expensive white elephants? What exactly are the F.111s which might be expected to use them going to do there? Are we going to buy and develop and fortify these islands simply to enable F.111s to fly "East about" to some base which by then will probably have ceased to exist? Is that the idea? If so, why go by a route which at any time could be cut? If that is not the case, how can any bombers intervene if some war breaks out East of Suez?
Are these 50 of so bombers, of which only about 25 will be fully operational, going to go out and bomb one side or the other at thousands of miles range? Even the United States, with half a million men in Vietnam and with convenient bases everywhere in the vicinity, and with aircraft carriers, to say nothing of super-bombers based on Guam, do not seem to be winning the war by bombing the adversary. If the Americans cannot with their vast machine, then what would be the role of some dozen F.111s? The whole conception seems to us on these Benches to be dangerous nonsense and a great waste of public money. We really should—and here I agree with the noble Lord, Lord Carrington—get our commitments straight before we plan to spend billions of pounds in the years that lie ahead.
The short point—and here I am coming to the end—is that if we abandoned completely our famous peacekeeping mission East of Suez, and limited our contribution to the defence of Australia by conventional means to be negotiated and to be supplied "West about", not only should we save, as I understand it, about £100 million a year, most of it across the exchanges, but we should, in addition, reduce our Defence budget by a great deal more than that, owing to the possibility of scrapping

841
many vessels, aircraft and armaments generally; and, above all, most of the famous F.111s. Such armaments which we then possessed would surely be deployed principally for the defence of Europe within the framework of the Alliance. Whether we should continue our programme of four nuclear submarines would be something which in the first place would be decided in conjunction with our European friends once we were in the European Economic Community, and in connection with any disarmament negotiations which might then be possible together with any developments arising out of the successful conclusion of Lord Chalfont's Treaty on non-proliferation.
I know that it may be said, and will be said, that such a policy as I have been recommending represents one of "scuttle" and of letting down our American friends and allies. So I should like to say two words in defence of my friends on these Benches against such rather elementary reproaches. The Americans are now engaged in a gigantic military effort to defend half the world against what they call Communism, and in Asia to establish an ascendancy which will ensure that they are not put at the mercy of any future great Asian power, and presumably therefore China. For this purpose they have formed what is in effect, though not in name, a military alliance with Japan, South Korea, Formosa, the Philippines, Australia, New Zealand and Siam, and they are also in military command of, and indeed in occupation of, South Vietnam and I believe also of part of Laos. All these countries are held together, therefore, by United States military power. In the bad old days it would have been called an Empire. In addition, American nuclear and conventional power prevents Western Europe from coming under the domination of the Soviet Union. In the Mediterranean the Sixth Fleet helps towards this end and throws the United States protective shadow across most of the Middle East.
There remains the area which the Liberal Party suggest that the British should now gradually—and I repeat gradually—evacuate; namely, the Persian Gulf and the Indian Ocean. It seems to me that we should be doing the Americans a service if we proceeded with the gradual "scuttle" which we recom-
842
mend; for otherwise our Allies, already more than fully extended in Asia and indeed in Europe, might well be drawn into hostilities in this area and into conflicts which might much more suitably, as we think, be left for their solution to what the Tory Shadow Minister of Defence very properly referred to not so long ago as an "Asian balance of power". Surely it would be better for us, more especially if we save money by evacuating our bases East of Suez, actually to increase in some way our contribution to European defence, thus relieving the hard-pressed Americans of some of their responsibilities in that area. But I recognise that very shortly we shall have an opportunity of saying a word or two on what the Government propose in that connection.
I think I have made it clear that we on these Benches stand for certain things, which are as follows. We stand for a European Britain, a loyal partner in the Alliance for as long as that machinery is necessary for the defence of Europe. but chiefly concerned to contribute to the defence of that Community of which many of us hope that we shall soon be an integral and, indeed, I think a most influential part. As I have said, we believe that we could and should, in addition, play some moderate role in the defence of Australia and New Zealand, and that this should naturally form part of a scheme agreed with the Americans for the general defence of South-East Asia. We should also, of course, as was mentioned by previous speakers, maintain our small garrison in Hong Kong—not to defend the place against the Chinese, which would be impossible, but rather to keep it open as the principal centre of Chinese trade with the whole world.
But otherwise we are convinced that we must now, at long last, break with the past and come to terms with the present century. If we did, it would not be a question of trying, rather ineffectively, to keep our Defence budget stable at £2,000 million a year at 1964 prices: we should be out to save something like another £300 million a year on that, as indeed was suggested last year by the former Minister of State for the Navy, Mr. Christopher Mayhew. To do this, we should need a strong, self-confident Government who are determined to stand on their own legs and not to be politically

843
subordinate to the United States, but rather, with our European Allies, a valid and respected partner of America. Perhaps when we get into the E.E.C., my Lords, we shall be able to produce such a Government.

THE EUROPEAN ECONOMIC COMMUNITY: BRITISH APPLICATION
3.41 p.m.
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): My Lords, with permission, I would ask leave to repeat a Statement which my right honourable friend the Prime Minister has just made in another place. His words are—and now I am quoting the Prime Minister:
"Her Majesty's Government have to-day decided to make an application under Article 237 of the Treaty of Rome for membership of the European Economic Community and parallel applications for membership of the European Coal and Steel Community and Euratom.
"As the House will recall, I stated on the 10th of November last that my right honourable friend the Foreign Secretary and I would embark on
'a series of discussions with each of the Heads of Government of the Six, for the purpose of establishing whether it appears likely that essential British and Commonwealth interests could be safeguarded if Britain were to accept the Treaty of Rome and join E.E.C.'.
"These discussions took place between January and March. Since then the Government have carried out an exhaustive examination of all the issues involved, resulting in the decision I have just announced.
"The reports I have made to the House have made it clear that during the discussions in the Six capitals we were not engaged in negotiations. But my right honourable friend and I, and indeed the House, have reason to be grateful to our hosts for the very frank exchanges which preceded to-day's decision.
"These exchanges have enabled us to identify the major issues which we, for our part, shall wish to see settled in the negotiations.
844
"On the Treaty of Rome itself, as I informed the House on the 10th of November, we have throughout our discussions taken the view that, as I then said "—
and I am now quoting what the Prime Minister said earlier—
"… the Treaty of Rome is not in itself or necessarily an impediment. There are anxieties … but the Treaty need not be an obstacle if our problems can be dealt with satisfactorily, whether through adaptations of the arrangements made under the Treaty or in any other acceptable manner'."
That, my Lords, concludes the quotation.
"In short, as I said then"—
and I resume the quotation—
"'the Government would be prepared to accept the Treaty of Rome, subject to the necessary adjustments consequent upon the accession of a new member and provided that we receive satisfaction on the points about which we see difficulty'."
That concludes the quotation.
"Our discussions in the capitals of the Six have confirmed the validity of this approach in terms of the practical working of the Community and its institutions.
"It is in this spirit that the Government intend to embark on the negotiations which must precede entry. The House will, I am sure, agree that they ought not to be unnecessarily complicated with lesser issues, many of which can be best dealt with after entry. It is our hope that the negotiations will be followed through swiftly, and will relate to the small number of really important issues which have been identified through our recent discussions, issues on which agreement should be reached if the House and the country are to be satisfied that essential British and Commonweath interests will be safeguarded. This is the spirit in which the original partners to the Community conducted their own negotiations over ten years ago. Our recent meeting with our E.F.T.A. partners has confirmed that they, too, view the matter in the same light. They will, we hope. also be making their approaches to E.E.C.
" I now turn to the major issues which it must be our purpose to resolve during the negotiations.

845
"First, there are the problems associated with the operation of the Common Agricultural Policy of the Community—the problems of its potential effects on the cost of living and on the structure and wellbeing of British agriculture; problems of the budgetary and balance of payments implications of its system of financing; and certain Commonwealth problems with which I will deal in a moment.
"As I have already made clear, publicly, we must be realistic and recognise that the Community's agricultural policy is an integral part of the Community: we must come to terms with it. But the Government recognise that this policy would involve far-reaching changes in the structure of British agriculture. This will require suitable arrangements including an adequate transitional period to enable the necessary adjustments to be made.
"It is also the Government's view that the financial arrangements which have been devised to meet the requirements of the Community's agricultural policy as it exists to-day would, if applied to Britain as they now stand, involve an inequitable sharing of the financial cost and impose on our balance of payments an additional burden which we should not in fairness be asked to carry.
"There are also highly important Commonwealth interests, mainly in the field of agriculture, for which it is our duty to seek safeguards in the negotiations. These include in particular the special problems of New Zealand and of Commonwealth sugar producing countries, whose needs are at present safeguarded by the Commonwealth Sugar Agreement. We have, as the House knows, been in touch with all our Commonwealth partners, and will make special arrangements to keep in close consultation with them, as with our E.F.T.A. partners, throughout the negotiations.
"Again as the House knows, capital movements raise questions of special importance. Our discussions suggest that these can be dealt with by suitable arrangements.
"Another important issue is the question of regional policies. Here, too, we had to satisfy ourselves that we should be able, as members of the
846
Community, to continue to take the necessary steps to ensure the industrial and social development of those areas of the country with which this House is always and rightly especially concerned. Our discussions with the Heads of the Governments of the Community, not least the information we were given about the policies currently being pursued by member countries, have reassured us on this score.
"As I have said, these are major and important issues but I can tell the House that the Government believe that there is nothing either in the Treaty of Rome or in the practical working of the Community which need make them insoluble.
"Mr. Speaker, I have gone into some detail about certain specific economic issues, on which honourable Members are rightly concerned. But the Government's decision has been motivated by broader considerations of economic policy and still wider arguments to which I will turn later. On the economic arguments each honourable Member will make his own judgment of the effect on exports and imports, on industrial productivity and investment. Equally, every honourable Member must make his own assessment of the economic consequences of not going into the Community and, in an age of wider economic groupings, of seeking to achieve and maintain viability outside.
"But all of us are aware of the long-term potential for Europe, and therefore for Britain, of the creation of a single market of approaching 300 million people, with all the scope and incentive which this will provide for British industry, and of the enormous possibilities which an integrated strategy for technology, on a truly continental scale, can create. I am glad to say that my right honourable friend and I found that this concept has made a great impact throughout Europe.
"But whatever the economic arguments, the House will realise that, as I have repeatedly made clear, the Government's purpose derives above all from our recognition that Europe is now faced with the opportunity of a great move forward in political unity and that we can—and indeed must—play our full part in it.

847
"We do not see European unity as something narrow or inward-looking. Britain has her own vital links through the Commonwealth, and in other ways, with other continents. So have other European countries. Together we can ensure that Europe plays in world affairs the part which the Europe of to-day is not at present playing. For a Europe that fails to put forward its full economic strength will never have the political influence which I believe it could and should exert within the United Nations, within the Western Alliance and as a means for effecting a lasting détente between East and West; and equally contributing in ever fuller measure to the solution of the world's North-South problem to the needs of the developing world.
"It is for all these reasons that we intend to pursue our application for membership with all the vigour and determination at our command.
"The House will of course wish to debate this decision at the earliest opportunity and arrangements will be made"—
that is, in the House of Commons—
"for a three-day debate next week when the House will be invited to pass a Motion approving this present Statement, which will be presented as a White Paper. We shall seek to meet the requirements of Parliament for the fullest possible information over the coming weeks. A first Paper dealing with Agriculture will be available later this week and we shall take the opportunity of the debate, and of further White Papers which will be laid, to enable Parliament, and public opinion generally, to form a full, fair and informed judgment of the great issues involved.
"For all of us realise that this is a historic decision which could well determine the future of Britain, of Europe and indeed of the world for decades to come."
That completes the Prime Minister's Statement.
It may be for the convenience of the House if I inform noble Lords that it has been agreed through the usual channels that we should have a debate on Wednesday, May 10, on the Government decision to apply to join the Common Market. The debate on future aircraft
848
needs of British civil aviation to be initiated by the noble Lord, Lord Balfour of Inchrye, will be taken on Tuesday, May 9.
3.51 p.m.
LORD CARRINGTON: My Lords, I think we are all grateful to the noble Earl the Leader of the House for having repeated that Statement. I certainly welcome wholeheartedly the Statement which he has just made about the Government decision to apply for membership of E.E.C.—not an entirely unexpected decision, in the light of all the publicity of recent weeks. I agree with the last words of the Statement, that it is an historic decision, just as it was an historic decision for the Conservative Government to make the same decision in 1961. I only hope that the outcome of this application will be different from the outcome in 1963. I say this in no Party spirit, but I believe that the Government will have the additional benefit of having the support of the official Opposition in their application which we were not fortunate to have in those days. The negotiations, of course, will be difficult, they may take some time; but we would certainly wish them well as they are proceeding.
The Prime Minister spoke about having a great national debate before the decision was reached, and I think this led many of us to expect that a number of White Papers would be issued, so that we might have rather fuller knowledge of what has been happening during the Prime Minister's visits to the other capitals of Europe. Am I to understand from the last few sentences of the Statement that other White Papers will be published before the debate in this House and in another place next week?
Lastly, might I ask this? The "usual channels" have rather surprised me, because I had no idea that we had arranged to have a debate on Wednesday, May 10. Indeed, the last words I had with the noble Earl the Leader of the House—who, I suppose, is a "usual channel"—is that we were going to have a debate on Monday. And I should have thought that that, on the whole, would be much more convenient, since it is the day on which the House of Commons start their debate. For us to start our debate on the last day on which the Commons have theirs does not seem to me, if I may say so, to be very satisfactory.
LORD BYERS: My Lords, this is indeed an historic moment. I will not at this point in time quarrel as to which are the right usual channels; but we on these Benches warmly welcome the decision the Government has announced, to apply for membership of E.E.C. As the House knows, we have been advocating this for over ten years. We certainly wish them every success. Indeed, if our application succeeds, this could be the beginning of a new era, not only for this country but for Europe as a whole. We might all go forward much stronger as a political entity in the future, and also stronger economically. I should like to ask the Government two questions on timing. When will the first negotiations take place? What form will they assume?
THE EARL OF LONGFORD: My Lords, perhaps I should begin by thanking both noble Lords for the very cordial, handsome welcome extended to the Statement. I do not think I will involve myself in discussions about the operation of the "usual channels". Once they were revealed in the full light of day they would lose much of their meaning. I thought that the noble Lord and I were (if it is possible to put it this way) above the level of the usual channels: I thought that they worked on some lower level. I therefore assumed that anything agreed on that level and agreed by me would be agreed by the noble Lord.
LORD CARRINGTON: My Lords, may I interrupt? My noble friends who are the "usual channels" deny making any agreement about a debate on Wednesday, May 10. In any event, whether they did or not, nobody has asked me. I have not consulted with any of my noble friends; but I do feel, with respect, that it would he rather a pity if we had our debate on the last day of the three-day debate in the House of Commons. I would ask the noble Earl, in all friendliness, whether he would look at this matter again. I do not think it is a very good idea.
THE EARL OF LONGFORD: My Lords, I am assured that there was agreement; hut, equally, I appreciate that the noble Lord. Lord Carrington, was not informed. In the circumstances. I can only say that the usual channels had better start work and proceed even more efficiently later on this afternoon. I can assure the
850
noble Lord—I am sure that he knows it well—that I have no prejudice in favour of one day rather than another; there are inconveniences in any of the days chosen. But, clearly, we must have this debate on a day acceptable to all. The noble Lord also asked about White Papers. The statement that I have just read will appear as one White Paper; and that will come under discussion next week. There will be at least one more before next week, and other White Papers. But I imagine that, in addition to this Statement read to-day, there will be more than one White Paper before next week. It is simply a question of how fast they can he prepared.
The noble Lord, Lord Byers, asked about timing. So far as we are concerned, once Parliament has approved the Statement, then the sooner this can go forward, the better. There is no delay on our side. It will be up to E.E.C. to decide how quickly they are prepared to consider our application and embark as I hope, on the negotiations.
LORD BLYTON: My Lords, is my noble friend aware that I am pleased, so far as it goes, with the Statement, because, first, it does not accept the position of unconditional surrender adopted by the noble Lord, Lord Gladwyn and others; and, secondly, because, after weeks of anxiety, it shows that the Government are not betraying their friends, the Commonwealth, or British interests. As the Minister says, they will be safeguarded. But could the Minister say why the Government see no difficulty in the Treaty of Rome in 1967 while the Prime Minister was very critical of it in 1963. As the Treaty is the same, could he explain the change of attitude? Could he say that we now accept the political implications of federalism?
THE EARL OF LONGFORD: My Lords, there is no question of accepting the implications of federalism. May I just say with what a feeling of relief I listened to the noble Lord, Lord Blyton. I had realised that this document was a masterpiece; but I had not realised quite what a masterpiece it was until I was able to hear it welcomed by the noble Lord, Lord Byers (and, I am sure, by the noble Lord, Lord Gladwyn) and by the noble Lord, Lord Blyton. I think it is the finest example of the draftsman's art in history.
LORD BYERS: Is the noble Earl aware that if the noble Lord, Lord Blyton, can welcome this Statement, it undermines our confidence in it?
THE EARL OF LONGFORD: My Lords, it is just possible that he has not got it right.

THE DEFENCE ESTIMATES
4.0 p.m.
Debate resumed.
LORD ROWLEY: My Lords, I hope that the noble Lord who has just spoken from the Liberal Benches will forgive me if I do not follow him in his arguments, except to say that I have a measure of agreement with what he had to say about our commitments East of Suez. My only difference is that I consider it completely impracticable to suggest that we should sever our military connections, our defence connections, with countries to which we are committed East of Suez. I remember Sir Walter Nash, the late Prime Minister of New Zealand, telling me that within an hour of the United Kingdom Government entering the war in September, 1939, the New Zealand Cabinet met and ranged themselves alongside those of us who live in this country. I consider that it would be disastrous if our cousins in New Zealand and Australia, to say nothing of those to whom we have commitments in Malaysia, ever had reason to consider that we were no longer interested in their fate in view of what might happen in the international sphere.
LORD GLADWYN: My Lords, I am sure that the noble Lord, Lord Rowley, would not want to misrepresent what I said. I thought I said quite clearly that we had obligations to contribute to the defence of New Zealand and Australia, but that it should be organised the other way round—not going eastwards but going westwards. That was my thesis.
LORD ROWLEY: My Lords, I notice that the noble Lord, Lord Gladwyn, did not mention Malaysia. The Malaysians may have brown skins, but they are members of the Commonwealth of Nations and those of us who have faith in the Commonwealth of Nations must think very carefully before we give any indication that we are no longer con-
852
cerned with the security of all the countries which compose the Commonwealth of Nations.
I am sorry that the Leader of the Opposition has left the Chamber, because I want to say that I thought his reference to the speech of my noble friend Lord Shackleton was rather derogatory. The claim of the noble Lord, Lord Shackleton, of a saving of £750 million during the last three years did not seem to make much of an impression upon the mind of the Leader of the Opposition. But, of course, it is not very far removed from the amount of imbalance in the balance of payments that we found when we came into office four years ago; and we are entitled to remember the many hundreds of millions of pounds that were wasted during the 13 years of rule by the Party opposite.
To-day, my Lords, we are considering the future of our country and its security. Before I take up the point raised and dealt with by the Leader of the Opposition, I should like to suggest to my noble friend Lord Chalfont, who is to wind up the debate, that he might give some particulars to support the statement about the saving of £750 million. In Chapter III of the Defence White Paper there is a reference to rationalisation. One of the objects of amalgamating the three Defence Services under a unified Ministry of Defence was to enable these savings to be made. No doubt under the headings of motor transport, accommodation stores, food and other items, the saving may appear small, but it is small items which make the global figure. Perhaps my noble friend can give us some idea of the annual saving under those headings which appear under the title of Rationalisation.
Another part of the Defence Statement which I think of considerable importance is the question of the Government's consideration of the future size and shape of our Defence Services. It states:
"The Government is concerned to settle the size and shape of the forces for the next decade in a way that will provide the maximum possible stability for the men and women who are making their career in the Services."
I understand that there is a great deal of anxiety among people in the middle and junior groups, officers and noncommissioned officers and, for that matter, soldiers with long-term engagements, as to what will be their fate if

853
there are drastic reductions in the size and shape of the Services. I have no information about whether this is likely to be the case, but I very much hope that Her Majesty's Government will take great care not just to throw these men on the scrap-heap. I hope that if it is found necessary to reduce any branch of the Services everything possible will be done by way of compensation and training schemes to help those people concerned to utilise their abilities and energies in other directions and to cushion them against the effects of any possible reduction.
My Lords, in another part of this very interesting Statement on the Defence Estimates there is a reference to research and development. I think that something like £260 million is shown as being expended on this vital part of the Services. I was shocked to read in The Times a few days ago a report emanating from Geneva. I quote:
"Mr. Gunnar Myrdal, of Sweden, said here that widespread preparation for biological and chemical warfare is taking place in all countries. … He added: 'These types of non-conventional weaponry are cheap and do not require much large-scale research'."
The section dealing with research and development states that money has been spent in this country on what is called biological and chemical defence. I wish to ask my noble friend to make clear when he replies to the debate what that means. Are we manufacturing biological and chemical weapons for what is called defence? And what do they mean when they say it is for defence—if in fact these weapons are being manufactured? I should like to suggest to Her Majesty's Government that they should initiate an international convention with the object of prohibiting the manufacture and use of any kind of germ weapon.
The second major aim of the Defence Review was to reduce the overstretch of our forces. I listened with great interest to the noble Lord the Leader of the Opposition when he dealt with this problem, in a sense, on a geographical basis. He dealt first with the position in Germany, and I should like to make clear my position, which I think is the same as that of the Party to which I belong. I was a member of the Government in 1948 and I sat in the Defence Committee alongside the noble and gallant
854
Field Marshal, Lord Montgomery of Alamein, who was then Chief of the Imperial General Staff, when NATO was conceived and put into operation in its early stages. If there had then existed the position which exists to-day, I do not believe that we should have to consider the necessity of stationing 60,000 British troops and R.A.F. forces in Germany. We had to do it because we were occupying that part of Western Germany. What is the position to-day? I am told that there are 11 or 12 well-trained and well-equipped German divisions. The White Paper tells us that there are several thousand nuclear weapons at the disposal of the Alliance in case of emergency, and it expresses the view of the Government that these have been a powerful deterrent against any possible aggression.
It might be argued that we need to have British and American troops in Germany to keep our eyes on what the eleven or twelve German divisions may get up to. But that is not my view. I believe that we can maintain the Alliance, as we must maintain it—and here I share the view of the noble and gallant Field Marshal, Lord Montgomery of Alamein—without the necessity for ground troops deployed in Germany and in the other countries bordering on Germany. We have air transportation for troops and equipment which enables us to with draw even more than the one brigade which, according to the newspapers, is to be withdrawn by agreement following the tripartite discussions. I agree with what the noble Earl, Lord Swinton, said the other day, that there will be housing and other difficulties. But what about Malta? There is ample accommodation there. It is a sterling area, and no question of foreign currency arises. It would be as feasible to transport a brigade or, if may be, two brigades from Malta in the event of an emergency as it would be to transport them from Scotland or from Northern Ireland.
The White Paper makes this clear, and I think we must take the view of the Government, whatever its Party complexion. The Paper says, on page 4:
"We are discussing with our allies the possible strategic implications of this political assessment. Since political indications arc likely to give some warning of potential aggression, it may be possible to consider holding some of the forces which NATO would require if war were threatened, outside the area

855
where they would then be deployed. Improvements, both in the capability of transport aircraft and in the air-portability of much military equipment, can be expected to reduce the time required to redeploy such forces to the threatened area in a crisis."
That seems to me to support the view held by many of us, that it is not essential for us to keep a large number of ground troops in Europe in future. I do not mean that we should take them all out at once, but I hope that those engaged in the discussions that are taking place will face up to the possibility of a phased withdrawal.
I would apply the same view to the position in the Middle East and in the Far East. We are told that 20,000 troops are being brought back from the Far East. That is good. What I do not accept is any suggestion of severing the links which bind us to all those countries that form the Commonwealth of nations and to those other areas, like the Sheikhdoms in the Persian Gulf, with whom we have treaty commitments. End the treaties, by all means, but do not let us default on our treaty commitments.
At the same time, we have to face up to the fact that we are no longer a World Power. The World Powers to-day are the United States and Russia. But the fact that we are not a World Power does not mean that we are a Power without world interests. That is a far different matter. And we have interests in almost every part of the world. I am sure that both sides of the House agree that we must recognise that these interests exist. I do not think that we ought to accept confrontation between Eastern Europe and Western Europe as a lasting situation. We have had it now for twenty years. As the Defence Statement indicates, there are political aspects which we must take into consideration. What I should like to see—and I have advocated this before—is a treaty of non-aggression between the NATO Alliance and the Warsaw Pact countries. I believe that if we could get that it would pave the way to an eventual system of European security, which is, to my mind, the only stable basis for enduring peace in Europe.
There is nothing novel in this. The noble Lord, Lord Carrington, will remember that in 1955 the then Tory Prime Minister made a proposal, which I accepted—and I still think it is a good one
856
—that the two sides should withdraw; that there should be a demilitarised zone and that a start should be made with a measure of disarmament. It was not carried out. There was the Eden Plan and there was the Gaitskell Plan. The noble Lord rather brushed to one side any suggestion that we should alter the military status quo in Europe. I think that we cannot go on indefinitely with this sort of confrontation in Europe itself.
The noble Lord the Leader of the Opposition was entitled, I think, to contrast the fact that the noble Lord, Lord Chalfont, as Minister for Disarmament, is to-day going to reply to an armaments debate. I find myself in the same quandary. I think that my record, as regards serving our country in time of emergency, is like that of the noble Lord. Yet I believe that we have to pursue our efforts to secure a start with disarmament. We have been trying for 15 years, and we have not made much progress.
I hope that the noble Lord, Lord Chalfont, will succeed in obtaining a nonproliferation treaty. I understand that the main obstacle now is that Euratom want to inspect their own atomic stations, as against inspection by the International Atomic Authority. I hope that the Government will stand by the International Atomic Authority. The Russians have caused difficulties because they have not been prepared to have outside inspection for the purpose of verification. Here we see Euratom taking exactly the same position. I hope that the Government will stand firm on the need for verification by the International Atomic Agency. I believe that if we can secure this agreement it will pave the way to an improvement in the world situation.
The United Nations is extremely unpopular in some quarters at the moment, and there are some people in the United Nations who are doing a great disservice to that body. The British people and Government are being continually chided with the word "colonialism", yet we have a record that no other country in the world has. Six hundred million people have been given their freedom and independence since 1945, and by the end of 1970 there will be fewer than 5 million people who are not completely independent. So we have to ignore that kind of denigration. My Lords, I should like to see teeth put into the United Nations. I should like to see progress made with a

857
permanent peace force. I should like to see progress made in the sphere of world disarmament. It is because I believe that this is the most endurable basis of world peace that I wish God-speed to the noble Lord, Lord Chalfont, in the task he is endeavouring to carry out as Minister for Disarmament.
4.22 p.m.
VISCOUNT MONCKTON OF BRENCHLEY: My Lords, may I first ask the indulgence of your Lordships' House? It is my first occasion on my feet, and I find it rather awe-inspiring and somewhat frightening. It is rather like waiting for the point-to-point. I only hope that when I get going it will be the same feeling. Until last March, in fact, all my life since leaving Cambridge, I have been a soldier. I joined the Army through the Cambridge University Officers' Training Corps. I say this because I know that some years ago there was an attack on university O.T.C.s, and I hope that this will not come up again—indeed, I am sure that it could not.
I then had the great good fortune to serve in two of the best regiments in the British Army; namely, the 5th Innis-killing Dragoon Guards and the 12th Royal Lancers. I see that I have the honour of being followed by the noble and gallant Viscount, Lord Montgomery of Alamein. I suppose that if it were not for him I should not be here to-day, because I was a troop leader in the Innis-killings in the retreat to Dunkirk, and. by the Grace of God, was in the noble and gallant Viscount's Division.
I now have the great honour of having just become Colonel of the 9th/12th Royal Lancers. I have taken over from a late Member of your Lordships' House, the noble and gallant Duke of Westminster. So, looking around your Lordships, perhaps I might ask those of you who have sons and grandsons of suitable age who you think might make the grade to get in touch with me, and I will see, if they want to come as officers or troopers, whether they match up to the standards of the 9th/12th.
I have been brought up as a soldier, as I have said, and I was delighted to hear the noble Lord, Lord Rowley, mention the words "service" and "duty", neither of which had I heard previously in this debate. It was service for which I joined, as well as enjoyment; and I
858
believe it is for that that most soldiers join, though they probably do not say much about it outside their own minds. I believe, also, that the joy of being in a regiment, which gives the cohesion in adversity and the strength in fighting, is great. There can be no criticism of my tie. This is not confined to one's school, because the newly joined trooper and the retired General, like me, wear this with pride; and I believe it is a great strength in this country and in the Services to keep this regimental tradition going. We had a Bishop of the Established Church out in Germany a few months ago who had never seen the Army before. I asked him, on his tour afterwards, what he felt was different, and he said: "You are all on the same side, and that is not so back in England."
My Lords, more recently I served with public relations and got to know a lot of the Press, nationally and locally, in this country. I enjoyed that work enormously. But I did not enjoy last week, reading in The Times of April 25, what I thought was a very cheap and sneering article on the Queen's visit to that excellent brigade of the Army, the 16th Parachute Brigade. If that is a sign of the "new look" of The Times, I, for one, shall regret the change of ownership. Against that, I read last Sunday week the following passage:
"Usually soldiers are only spoken about in times of war. But since peace and freedom in the world still depend to a great extent on those who stand firm at their military posts, the public should now and then he reminded of them also in times of peace."
That was said by that great singer, great comic and great man, Harry Secombe, at an Army Benevolent Fund gathering last week.
That, I suppose, leads on to the man who does stand firm overseas, where I have just been standing not so firm before I voluntarily retired—I refer to the men in the Rhine Army and the Royal Air Force, Germany. These are both equally important. Most people, I think, consider Germany as being the home only of Rhine Army, but it is also the home of the Royal Air Force, Germany. Both are part of international forces commanded by British men. Really, it is a little bit of Europe, and I only hope that the Statement we are to hear later about the reductions, or the changeover from Germany to England, will not be too

859
great, because I find it rather difficult to contemplate how you can knock at the front door and slip out at the back.
Although there is no great tension at the moment, I believe that the tension would increase if we were to reduce greatly. If we reduce greatly, then others also will do so. To my mind, the success of the National Democratic Party in Germany is caused by the French defection, and by the doubt in the German minds of the British and American intentions. I think that that needs to be said. Also, it has been made public in Germany that there are at this moment 20,000 Communist agents loose in West Germany. Every year we, the Allied Forces in Germany, pick up 1,000; but another 1,000 are bred there much more easily. They are not there for nothing: they are highly paid men, of all countries—Germans, Poles, Czechs, and Russians—living and working to subborn the Allies and the peace and unity of Western Europe.
I come now to Malta, which I was delighted to hear mentioned by the noble Lord, Lord Rowley. To me, it is the beloved Island of Malta, where I have been very happy. Like most of your Lordships. I suppose, I was most disturbed during the course of the recent negotiations. At one time I was a good deal prouder of my wife's Strickland Maltese blood, and that of my children, than I was of my own British blood. But, thank God, that is forgotten, and we must congratulate both Governments on reaching an agreement, without forgetting that it was, I think, reluctantly accepted by the Prime Minister of Malta. Once more I take Lord Rowley's point and that of the noble Earl, Lord Swinton. Surely to heaven we should keep troops in Malta, where we are wanted; where there arc houses; where there is happiness and comfort for soldiers, airmen and sailors and their families, rather than have them posted back to the United Kingdom (I think a statement to this effect was made on television) because of a strict Defence requirement that two battalions should be moved from Malta to England. This I find hard to understand. England will soon be a non-family station for soldiers and airmen.
I hope the fact that Malta is in the sterling area, and also that it can be con-
860
verted, will not weigh too much. The Treasury have always said this, I know. But surely this cannot be so in Malta, where the banking, insurance and nearly everything sold in the shops is entirely British. One would like to be able to see clear figures on this to know what is the return from the very large amount that Britain spends in Malta, to the help of the people there. But, of course, the Maltese do not primarily want financial aid so much as work for their men. This is what the retention of British forces in Malta gave them. They, also, I think, felt strongly during the crisis. I was there at the time. I thought it almost shaming that at the height of the crisis in Malta it was the American Fleet that was inside the Grand Harbour and the Russian Fleet outside the Grand Harbour. The Royal Navy's all too small Fleet was there, but it was pretty shaming to be an Englishman there at that time.
Once more, rightly or wrongly—and I hope rightly—may I give your Lordships an invitation? There is one thing, surely, that we can all do. To replace the two battalions which are eventually to be withdrawn, if that decision is persisted in, it will mean that an additional 35,000 visitors a year will be needed in Malta to help the Island's economy to that same extent. Let us at least make sure that we take our holidays there.
The noble Lord, Lord Rowley, was correct in saying that there is uncertainty and anxiety among soldiers and officers, particularly those in the Middle East, about their future. Cuts, of course, there must be; and the Army, above all, accepts some. We do not want war: we know what it is like. But we want to do our duty where we have commitments to do a duty, and we want to do service where we are required to serve our Queen and country. This sounds old-fashioned, but it is honestly true in the minds of ordinary soldiers and ordinary officers.
At this moment I believe there is a Committee sitting to see how many more civil servants they can put in, instead of officers, in various fields. This seems strange to me, much as I have admiration for the work of civil servants in the Ministry of Defence, who have done first-class work. But they have increased rather more quickly than the soldiers and

861
officers, and surely it is time to cry halt to that situation. I am probably breaking every Rule of your Lordships' House in being controversial, but there is no point in standing up here unless I say what I think.
My Lords, we in the Services do not want to live in the past, but want to look to a future that is worth while—not fighting wonderful battles, for we know what that is like, but by being on the spot and preventing battles. It is the soldier and the airman on the ground in Germany who stop the war. If a war is started, it is lost. We win it by not allowing it to start; by being there on the ground. To have those young men, as I had, under command, was a wonderful experience. The young Britons serving in the Forces to-day are wonderful men. Let us make sure that we give them a chance to go on being properly used.

BRITISH FORCES IN GERMANY
4.32 p.m.
THE MINISTER OF STATE FOR FOREIGN AFFAIRS (LORD CHALFONT): My Lords, I intervene after a maiden speech from the noble Viscount, Lord Monckton of Brenchley, of quite remarkable quality, to which I shall want to refer again later. But, with your Lordships' permission, I should now like to repeat a Statement which is being made in another place by my right honourable friend the Minister of State for Foreign Affairs.
Perhaps before quoting the Statement I might be permitted to remonstrate in the most amiable way with the noble Lord the Leader of the Opposition who, with some justification, teased me about my answer to him yesterday. If he will examine the OFFICIAL REPORT I know he will find that, so far from suggesting that the Statement might be made afterwards, I in fact said that I expected it might be made well beforehand. As to the exact timing of the Statement, the noble Lord has enough experience of the joys and inhibitions of Government to know quite well that, even if he was surprised by to-day's Statement, I was not. May I now pass on to repeat the Statement being made in another place. It goes as follows:
"I apologise to the House for taking up its time with a second Statement this afternoon, but there are simultaneous announcements being made in Washing
862
ton and Bonn and I felt that honourable and right honourable Members would wish to have this information given directly to them at the earliest opportunity.
"My right honourable friend the Chancellor of the Exchequer informed the House on April 11 that the Tripartite discussions with the United States and the Federal Republic of Germany had made satisfactory progress and that we were confident that it would be possible to cover by far the greater part of the foreign exchange costs of our forces in Germany during the current year.
"At the Tripartite meeting held in London last week agreement was reached on proposals that would be put to our allies in respect of some redeployment of forces in Germany. We were also able to confirm the associated financial arrangements. I am now able to inform the House of these and of the proposals that have been put to our partners in the North Atlantic Treaty Organisation and the Western European Union.
"As regards our forces in Germany, we propose to redeploy to the United Kingdom one brigade group and to make economies in the expenditure on the Second Tactical Air Force, including the redeployment of one squadron. These forces would remain earmarked for assignment to Supreme Allied Commander Europe. The movement of these forces to the United Kingdom would be completed during the last quarter of the current financial year. The United Kingdom Permanent Representative to the North Atlantic Treaty Organisation has informed our allies of these proposals which will be taken into account in the North Atlantic Treaty Organisation defence planning process. These proposals have also been put to the Western European Union Council in accordance with the Brussels Treaty.
"The new Anglo-German offset agreement will provide for off-setting payments in the defence and civil sectors amounting to nearly £50 million. The arrangements are very similar to those under the current agreement, with this difference, that separate target figures are specified for the defence and civil sectors.

863
"The United States Government are also taking certain measures which will have the effect of relieving our balance of payments in 1967–68. They have moved certain air force units to this country and have undertaken to make further purchases in the defence field in addition to those which they promised to make last November. Half of the latter can be attributed to the year 1967–68. In all, the advantage which will accrue to the balance of payments will amount to a little over £20 million.
"Finally, the proposed redeployment of forces would result in foreign exchange savings of about £5½ million in a full year but of course much less in 1967–68. At their present strength the deutschmark costs of our forces would have been £82 million. The arrangements which are described will, as my right honourable friend the Chancellor of the Exchequer informed the House in his Budget speech, enable us to cover roughly £72 million of this total.
"The House will, I am sure, welcome the overall agreement which has been reached in these discussions with our allies. The net foreign exchange burden of our forces in Germany will this year be less than it has been for many years. It is, moreover, recognised by the three Governments concerned that the balance-of-payments consequences resulting from stationing of forces abroad for the common defence continue to pose a problem for joint attention."
My Lords, that is the end of the Statement.
EARL JELLICOE: My Lords, I am grateful to the noble Lord for repeating this Statement. And I forgive him, on my noble friend's behalf, for not doing the job yesterday. On the face of it, this would appear to be a more satisfactory outcome than appeared likely, given the way in which these negotiations were initiated in the panic days of last July; and I think that the Minister of State Mr. George Thomson, and his officials, deserve our congratulations. We shall doubtless have an opportunity during the debate to discuss bits and pieces of the Statement.
I should like to confine myself now to merely two points. In the first place,
864
I note the phrase in the Statement that the forces being withdrawn, the brigade group and squadron, remain earmarked for assignment to the Supreme Allied Commander Europe. Am I right in thinking that there is a difference between assigning these forces to SACEUR and earmarking such forces for assignment? Secondly, I note that these proposals are being put to our allies in the Western European Union Council and in NATO. Do the Government propose to seek the assent of our allies? And if by any misfortune they do not secure that assent, what do they propose to do about it?
4.38 p.m.
LORD OGMORE: My Lords, we on these Benches welcome this Statement. We feel that it is inevitable owing to the balance-of-payments difficulties. As to the actual details, I found it rather difficult to take in all the figures, in view of the complexity of the subject. But there is one question I should like to ask the noble Lord, if I may, and it is this. In view of the large numbers of troops who will soon be coming home to this country—not only the brigade group from Germany which he mentioned, but also troops from Malaysia—are the Government aware that the amount of effort which has been shown up to now in obtaining houses and flats for leasing is, as I have mentioned previously in this House, not one which can be commended? Is it not time that they put some further effort and imagination into this field, because otherwise they will find that soldiers' families will be unable to be properly housed and there will be a scandal, and everybody will wonder why the problem was not foreseen. So would the Government kindly foresee the problem in good time for once?
THE EARL OF SWINTON: My Lords, may I put one question, which I think the noble Lord could answer, together with the previous one? It is a little hard to do the arithmetic in one's head, but could the noble Lord say, in round figures, the total number of men in the Army, and the total number of men in the Air Force, who will come home from Germany when the Brigade Group and the Air Force unit are brought back?
LORD CHALFONT: My Lords, first may I thank the noble Earl, Lord

865
Jellicoe, for his congratulations to the Government on the way in which these negotiations have been brought to a successful conclusion. So far as the specific points which were made are concerned, of course there is a clear difference between the assigning of forces and earmarking them for assignment. It is a difference which I know is quite clear to the noble Earl, and in this case I confirm that the forces are assigned and not simply earmarked for assignment.
I shall, of course, bear in mind what has been said with regard to the housing of troops returning from Germany, and I can assure the noble Lord, Lord Ogmore, that the Government will watch this problem closely and will make the necessary contingency plans. I am assured that at the moment there is no difficulty about the housing of troops and their families when they return from Germany. However, I can assure your Lordships that the Government will bear the point in mind. So far as the third question, about numbers, is concerned, I have not the exact information by me at the moment, but I am sure it is easily obtainable and it will be communicated to the noble Lord.
EARL. JELLICOE: My Lords, may I ask one further question of the noble Lord, Lord Chalfont? He confirmed that there is a difference between "earmarked for assignment" and "assigned". My recollection of the Statement is that it said that these forces, on their return, will be earmarked for assignment. My recollection of the noble Lord's reply to me is that they would be assigned. I wonder whether he could clarify this point.
LORD CHALFONT: My Lords, I had no intention of departing from the Statement which I have repeated, and if I did so inadvertently, I apologise. The point that I was at pains to make, and I should like to make it again, is that these forces will be available for the task which they were originally performing. The only difference is that they will be stationed in a different place. I apologise if I confused the noble Earl, and I do not wish in any way to depart from the Statement.
LORD GRIMSTON OF WESTBURY: My Lords, would the noble Lord be kind enough to repeat a figure? I am not
866
sure that I heard it aright. What is the total saving to the balance of payments which will be brought about by this decision?
LORD CHALFONT: My Lords, I am reluctant to repeat such a large slice of the Statement which I originally made. Perhaps the relevant information is contained in the paragraph that says:
"At their present strength the deutschmark costs of our forces would have been £82 million. The arrangements which are described will, as my right honourable friend, the Chancellor of the Exchequer, informed the House in his Budget speech, enable us to cover roughly £72 million of this total."
I hope that answers the noble Lord's question.
LORD ST. OSWALD: My Lords, is the noble Lord able to tell the House which Brigade Group and which Squadron of the Royal Air Force will be with, drawn to the United Kingdom?
LORD CHALFONT: My Lords, I am not able to say that, but it is information which will be available in due course.

THE DEFENCE ESTIMATES
4.45 p.m.
Debate resumed.
VISCOUNT MONTGOMERY OF ALAMEIN: My Lords, it falls to me to congratulate the noble Viscount, Lord Monckton of Brenchley, on his maiden speech in this House. I was very glad to see him here because his father, Walter Monckton, was one of my greatest friends, and to see his son here is just exactly right. I hope he will continue to speak as a soldier. He has left the Army and is now on the way to becoming a tycoon in business—as I think they all become. If I had any advice to give him it would be that he should always speak as a soldier and not get too involved in politics.
My Lords, I find myself in rather the dilemma that the Deputy Leader of the House, the noble Lord, Lord Shackleton, said he was in, in that I cannot listen to the whole of this debate. To-morrow morning, very early, I leave for the Western Desert and Egypt, and if I cannot remain for the whole of this debate I ask your Lordships to excuse me, as there is still a great deal to be done.

867
Let me say at once that in my view the Statement on the Defence Estimates 1967, is not too bad. Of course a great many questions arise, but do not let the criticism be all destructive. I should like to approach the problem in a somewhat different way and, it may be, pour some oil on the troubled Defence waters in your Lordships' House—I hope. There is a great principle involved in this matter of Defence. In considering what is best to be done in the realm of Defence we have to distinguish between what is an immediate current requirement and the requirement of the longer-term future, the two being very closely related; and nothing must be done in the short term which would conflict with the long-term political and strategic aim. We have constantly to remind ourselves that we belong to an Alliance, and within that Alliance the overall strategy must surely be jointly conceived. It seems to me to-day that that is not the case.
I should like to make some constructive suggestions, in outline, of course, as to what might be a sound Western strategy for the Alliance—that is NATO, which includes the Mediterranean—and for the general area East of Suez. Then I should like to conclude by suggesting that the armed forces we raise need to play their part in that Allied strategy—speaking again, of course, in outline.
First, NATO. There is no Russian threat to-day in Europe, nor will there be one, in my view, in any future we can foresee, so long as the West is sensible and does not run down its nuclear strength. Therefore, the armed forces in NATO which are under arms to-day can be reduced, and I hold the view that the bulk of the NATO forces from overseas countries—that is, Britain, Canada and the United States of America—might well return to their own homelands, leaving small token forces in Europe side by side with the forces of the European Powers.
Of course, there is some difficulty in reducing Allied forces in Europe until the German problem is solved, and that is because of the Russian fear of Germany. Although it is safe to say that the threat from the East in Europe has practically disappeared, it is also true to say that it could be recreated. It could he recreated if we were to allow Germany to become the predominant military Power in Europe. As I have said, we
868
belong to an Alliance, and Alliances ride the waves uneasily, certainly in war time, as I know very well. But in peace time Allies can be difficult people, because of intense nationalism when fear has disappeared—and perhaps I had better leave it at that. NATO must be prepared and ready to oppose any aggression from the East with conventional forces, and if that aggression cannot be held it must be backed by the complete nuclear power of the West; but I do not see that happening. In the strengthening of NATO politically lies the proper strategy of the Alliance.
Now, my Lords, I turn to East of Suez strategy. I would suggest that we ought to reduce the forces we have on land East of Suez, but it would be a major error to withdraw completely until the Western nations have agreed upon a strategy in that part of the world. That strategy should include a phased withdrawal of our land forces from the Middle East. We cannot handle alone all the defence problems East of Suez. The United States, Britain, Australia, New Zealand, and I should hope France, must concert together and agree upon a joint strategy, and all contribute towards its implementation. The question of bases will be a major factor. I believe the fact has to be faced that the armed forces of the white man are not popular on land, in the Middle or Near East or in the Far East. I do not think the West is best served East of Suez by bases in countries where the inhabitants are none too friendly, or may not be too friendly for long. The only secure base is in a white Commonwealth country; for example, Australia. It seems to me that our future in the present British bases East of Suez is very uncertain. To sum up, there should be an unhurried phased withdrawal of our land forces in the general area East of Suez. But we must have a presence in that area, and I believe our presence in that general area should be an off-shore presence, on and under the sea, and not on land if that can possibly be prevented.
To carry out that strategy, what armed forces do we ourselves need? I have frequently stated in your Lordships' House my view that the armed forces should be based on a maritime strategy, sea power being backed by air power. Now this strategy, if agreed upon, will mean that the aircraft carrier will be

869
needed until V.T.O.L. aircraft are fully developed, and that would be certainly until about the early 1980s. The aircraft carrier is a mobile base of air power and its strength is offensive, carrying torpedo planes, dive bombers and fighters, and they are necessary to implement fully a maritime strategy. That strategy demands, and this off-shore presence demands, American naval domination in the Pacific and a strong British fleet in the Afro-Indian ocean. And it is a great pleasure for me, a soldier, to be able to refloat the British Navy. I say that because there are some noble Lords who thought I was trying to sink it. Not at all!
To-day, when a major war can be ruled out so far as we can foresee, we maintain—not in this country but we maintain altogether—armed forces of some 450,000 officers and men. If we can rule out a major war, that does not make sense to me. I suggest that there ought to be definite cuts in our Defence expenditure, and the first reduction should be in the large number of civil servants in the Defence set-up and in the enormous headquarters maintained in NATO on a war basis, planning for a war which will not take place. I also suggest that we need to-day a somewhat different Army from that we have had in the past. The only armed action we need consider to-day would be limited war operations against guerilla forces, irregulars and so on, in support of our friends East of Suez or in Africa. And for this we need a small, very highly efficient Army of, say, 140,000, 150,000—that sort of figure—kept mostly in the United Kingdom.
With a small, highly-trained professional Army we ought to aim to reduce all unnecesary top hamper, a very heavy attack being launched on large Staffs. I should also like to see the Army return to the organisation of "fours". I think "fours" ought to be in inverted commas—four companies in a battalion, four battalions in a brigade, four batteries in an artillery regiment and so on. The savings in overheads in top hamper would be very great in senior officers and Staffs. Furthermore, in active operations a unit organised in "fours" could remain longer in action without relief than one organised in "threes", as at present.
We must be able to launch quickly from the United Kingdom an operation anywhere in the Near or Far East or in
870
Africa with airborne and air-portable forces. That requires aircraft with an endurance of at least 5,000 miles with a reasonable pay load. One of the problems in that respect is that over-flying rights are difficult in some countries, or are becoming difficult. We therefore must have an all-sea route down the West coast of Africa, up the East coast of Africa, to some suitable areas in that part of the world. Without such an all-sea route, a friendly South Africa is vital and a friendly Rhodesia is very important. The immediate striking forces from our strategic reserve in this country should be "special forces". Here again I would put the words "special forces" in inverted commas, including parachute forces, S.A.S., and Royal Marine commandos. And it is worth considering whether all such "special forces" would not be best placed under a "special forces" command, in peace and war.
That, briefly, is how I see the Defence problem. And I should prefer to leave it like that; I should prefer not to go into details, which are more properly the province of the Minister of Defence and his professional advisers, the Chiefs of Staff. My Lords, I hope that I have not overstepped the normal time that I take in speaking, but I had to be quite certain that I refloated the Royal Navy.
5.0 p.m.
LORD FRASER OF NORTH CAPE: My Lords, I am afraid that I do not feel in good form to-day, because I think that one gets to the stage when one feels a little obsolete, like so many other things. I would start off by saying that I disagree entirely with most of what "Monty" suggests—at least, as the noble and gallant Field Marshal. I am never quite certain in my own mind what his maritime strategy is: he has never really defined it. If it is world-wide strategy, I agree with him. But in these days, to my mind, strategy is always a matter of the three Services working together. In some cases on the sea you get the Navy and the Air Force. When you spend a lot of your time embarking and disembarking armies, then you get the Army and the Air Force. But otherwise you must have bases if you are going to work overseas at all.
I was most depressed when the noble Lord, Lord Shackleton, still adhered to

871
the policy of evacuation and withdrawal. I think that is most remiss. I was not quite clear what the noble Lord, Lord Gladwyn, gave as his policy. It seemed to be rather: "I'm all right, Jack. Don't get involved in anything. Withdraw from everywhere." The noble Lord did not say whether he would also liquidate all our assets East of Suez. There they are vast and valuable, and if we withdraw our peace forces, it is rather as if we move London and expand the police force. I think that is the answer to that.
There are three things which form my text to-day. They are in this Defence Statement, and I think they are first-class. They refer to the last war in the Far East, but the text applies to everything. If your Lordships look at page 6, paragraph 22, you will see that the document says, regarding the campaign in South-East Asia after "confrontation":
"It was a fine example of what British forces can do outside Europe to maintain international stability. Without their contribution to the Commonwealth effort, much of South-East Asia might have collapsed into disorder, perhaps inviting competitive intervention by other powers with the consequent risk of general war."
To my mind, that sums up exactly what we are trying to do to-day.
Then, if we turn to paragraph 25 (and I think that in the Navy especially we have always thought this most important) we see this comment:
"This achievement would have been possible if the Commonwealth troops … had not won and held the confidence of the local inhabitants. … The 'hearts and minds' campaign was as critical to Commonwealth success in containing the conflict as"
anything else. That, I suppose, has always been a theme attaching to the Royal Navy. Then the last paragraph to which I wish to refer, paragraph 26, says:
"There can also be no certainty—so long as threats to stability remain—that those forces will not be required to give help to friendly Governments … as they have done in recent years."
It seems to me that those three paragraphs put the situation so clearly that it is difficult to get anywhere else with it. They represent two things: first, strength; and, secondly, what amounts to "showing the flag".
I should like to quote two incidents which occurred when I had the privilege of serving under the first post-war
872
Labour Government. They are two things which I remember so well. First, I remember the Chiefs of Staff being summoned to the Cabinet—I think it was at the time of the Abadan "show". "Ernie" Bevin, who was the great Foreign Secretary at that time, wanted some action taken. He was suggesting certain action in regard to which we said: "Sorry, but we are afraid we cannot do it." One of the reasons was this: when you think of reinforcing from this country, it is necessary to remember that you cannot take people from cold climates, pop them into 100 degrees and expect them to fight at a moment's notice. That is one of the difficulties of reinforcing from this country. I remember "Ernie" Bevin so well on that occasion. He was most depressed, and said, "I thought I had strength behind me." He threw up his hands, saying, "How can I possibly negotiate as a Foreign Secretary unless I have some power behind me?". That is how the matter stands today.
As regards the "hearts and minds" there are many people who, I think, rather look down on our "showing the flag", and that sort of thing. They regard it as a little bit of showing off, but it is most important. In that respect, I would again refer to the time of that Government, when the then Lord Chancellor, Lord Jowitt, had been to our exhibition at Copenhagen. When he came back he wrote a letter to the First Lord of the Admiralty, which ran rather like this:
"I have just returned from a visit to Copenhagen where the British Exhibition is now being held. You will be aware … that H.M.S. 'Maidstone' together with some attendant submarines "
was there.
"I should like to give you a first-hand impression of the value of this visit. The officers and men have done magnificently and the presence of that ship has done more to foster Anglo-Danish friendship than anything else. You could see a mass of small children being escorted round by the crew. On one occasion a special party for crippled children was given and this deeply touched the imagination of the Danish people. It is literally true to say that these children and their parents will never forget the kindness which has been shown to them."
My Lords, I think that is typical of what the Royal Navy has been doing for perhaps a hundred years. But I think that often it is not taken into account when

873
we talk about these withdrawals from abroad. To my mind contact of that kind is most important for keeping the peace.
After those opening remarks I should like to deal with some of the few details which so greatly affect my judgment. I should like to turn to some of the areas concerned; first of all, to the Mediterranean, which the noble Lord, Lord Monckton of Brenchley, has already mentioned. There the situation, from the Naval point of view, is just pitiful. We have in the Mediterranean, on an average day, 400 British merchant ships. Around the shores there are many countries which allow those ships to get into difficulties. We have observed Greece; we know about Palestine, and so on. I think we have two frigates, or something of that order, and an Italian Naval Commander-in-Chief. My goodness! How the mighty have fallen! It may well be, as the noble Viscount, Lord Monckton of Brenchley, has pointed out that, with American and Russian fleets off Gibraltar, one day, I suppose, the Government will ask them to look after our interests in the Mediterranean. It is the only outcome I can see. It is very depressing. The noble Viscount, Lord Monckton of Brenchley, has mentioned already what I was going to say about the troops in Malta.
I will turn to Aden, which I know fairly well. I do not know whether people realise the responsibilities of the Commander-in-Chief, Middle East. They are just talked about as "Aden". The Commander-in-Chief, Middle East, at Aden, is responsible, I suppose, first for the Persian Gulf, and I should say that we have £1,000 million worth of trading value in the Persian Gulf, which we are now just leaving to luck. Then he has his duties in relation to the Red Sea, where I think he runs the ports and lights at the South and all the navigational facilities for our main shipping lines to the Far East; and, of course, Aden is the main fueling station for those ships. Furthermore, people do not realise that he is responsible for Mauritius; he is responsible for the Seychelles, where lately he had to send a frigate to keep order. He is responsible for the three Protectorates of South Afrca, now, of course, independent countries, which may want help. He is responsible for the Rhodesia blockade—
874
it might be a good thing, perhaps, to give that up.
This large round of responsibilities is often disregarded, but it will have to be taken on by somebody. With our little force up the Persian Gulf at the top, the supply question is not an easy one; it can easily be cut off, and then the force is useless. To my mind, when we evacuate—if we do—there is no question that there would be a "Congo" in Aden. Anybody who knows Aden knows that that is going to happen. It is no good bringing in the United Nations people, with some United Nations General, for nobody is going to take the slightest notice of what he does. And if you put U.N. observers on the border, the hill tribesmen would just pick them off. It is our responsibility; we must take it; and I hope we shall be able to withdraw from this present situation.
Turning to the Far East, we find there a very difficult problem. I happen to know it very well indeed. I know many people there, and one feels great sympathy with them. I do not think it is realised in these days what tremendous influence we British have in those areas. Whatever people may say, wherever you go, the people respect the British; they like our influence; we are their friends—in spite of what "Monty" said—and they look to us for leadership; there is no question of that.
May I get in a piece of personal reminiscence? I had the honour not long ago to go as a guest of His Royal Highness in the Royal Yacht through the Far East. Two things there struck me. His Royal Highness joined the ship in Rangoon; he came by air. It was a wonderful sight, the yacht coming into harbour, its silver hull glistening in the sunlight, with thousands of Burmese around; and the organisation was perfect. There was an enormous guard and band of Burmese, all playing the tunes we hear the Brigade of Guards playing at Buckingham Palace. As he walked along two Burmese A.D.C.s in full uniform did the slow step in front of him; and it was a remarkable sight. It was all so friendly. I was standing with General Ne Win waiting for the Duke to arrive. I said "Have you still got a Fraser Street in Rangoon?", and he replied, "Yes, it is our main street". I said, "My father laid up in Rangoon when he was a young officer, and that street

875
is named after him". He shook me warmly by the hand.
Then I said to him, "Like most countries which are separated from us, I hope you are not going to name this street some awful name, like 'Ne Win Street'". He did not have time to reply; he smiled. As we went on board that evening, Prince Philip said to me, "By the way, General Ne Win told me to tell you that on no account will he change the name of the street". That, to my mind, is a tremendous example of hearts and minds, and knowledge of each other.
There is only one thing more I should like to say. Singapore is a very important base. Our entry into Singapore was fantastic. We came in escorted by a cruiser and two frigates, and there was a myriad of boats coming out, the water police trying to keep them away from the Royal Yacht, and Prince Philip beckoning them to come closer. And, of course, Prince Philip won. In the harbour were all the merchant ships, British and foreign, dressed overall, sirens blowing, and the waterfront lined with 200,000 people coming to see him. Next evening there was a great banquet given by the four chambers of commerce, Chinese, Malay, Indian, British, all joining together to give this great banquet of a thousand people in honour of Prince Philip. They elected the British Chamber of Commerce representative to the chair. We had bird's-nest soup, Indian curry, roast beef of Old England (which included Malayan ox, I fancy), and, of course, we ate with Chinese chopsticks. After the dinner Prince Philip in his speech said—and I thought this a bit daring—"You are soon going to be independent. I would ask Ministers not to assume office for the purpose of taking power and accumulating wealth, but to govern for the welfare of their people." It was astonishing to hear the applause he received. One might have thought that people would be a little upset about it.
That gives an idea of what we are losing if we depart from that area. We shall lose contact, we shall lose all our influence; and, as the Defence Review says, we may have to fight another sporadic war. All those things are going. I know these areas very well, India and Burma, and so on, and I know that the ordinary people there are more upset
876
about this than the high-ups. They all say, "The British have now lost all interest in our part of the world". And our friends will say, "We have been betrayed for thirty pieces of silver". That is what is going to happen.
One must be a little constructive. Many noble Lords have referred to the uncertainty of the situation. Uncertainty is more demoralising than anything else. What I should like the Government to do now is to say, "We will keep the status quo only for the next six years". That would settle everybody down, it would please the forces and safeguard all our interests. If the Government are compelled to save more money—I am sure that I shall get into trouble about this—I would say, "Scrap the last two Polaris submarines", because, in my view, I am afraid that something which cannot be used for anything else except when mankind has decided to destroy itself is rather a waste of money. I suppose that for prestige reasons you want to keep two, but I would certainly scrap the other two.
5.20 p.m.
VISCOUNT HEAD: My Lords, I should like at the start of my remarks to add my own congratulations to the noble Viscount, Lord Monckton of Brenchley, on his maiden speech. I thought that for a maiden speaker he was bold in introducing so controversial a statement as that the 5th Dragoon Guards was the finest regiment in the British Army. It is a great tribute to your Lordships' good manners and restraint that there were not at least a dozen noble Lords on their feet disputing that highly controversial and arbitrary statement.
I do not think that even the most critical or politically partisan of your Lordships would deny that the present time is not an easy one for any Government where defence is concerned: I concede that point at the start of my remarks. There is the economic situation, with the Treasury ravening for cuts; the fact that defence is always a most popular target for cuts—there are no votes in defence; the fact that the critics are now, on the one hand, saying, "Pull out of Europe", and, on the other, "Bring all the troops back from the Far East and from the Middle East". And there are others who say that we cannot afford to be a member of the "nuclear club".

877
If the Government were to meet all the critics, then the subject of this debate would probably be whether or not we could afford a Guard at Buckingham Palace and Horse Guards. Probably, the argument would be that we can afford it, because it attracts foreign visitors and we can pay for it in good hard currency from the visitors which it attracts. But it seems to me that the situation is much more serious than that; and the aspect of it about which I am apprehensive, and which has emboldened me to address a few remarks to your Lordships, concerns decisions that may be taken at this difficult time, and those that look like being taken. Those decisions may have very lasting and hazardous results for this country and, indeed, for the world in the future, because it is my belief that although we are not a rich country our example and performance in the field of Defence is still of very considerable importance to the world.
I followed and read what has been said about Defence, and I must confess that I cannot discern any clear plan. I admit that it is difficult, but what I found somewhat sinister about the remarks of the noble Lord, Lord Shackleton, is that he made it all sound so easy and simple. I believe that what I discerned in the plan is this; that there is a tendency to make cuts wherever the Government feel they can get away with them: for cuts in those places where it appeared easiest to make them, but without any discernible plan behind those cuts as to where we were going in the future and as to what should be the shape and size of the forces in the future. I should like to confine my remarks to two aspects, which I believe to be very important aspects, of our Defence policy in the future: they are, first, Europe, and, secondly, our problems resulting from granting independence to a very large Colonial Empire.
I should like to turn first to Europe. I must confess that I am anxious about the present trend in Europe. All your Lordships know well the attitude and behaviour of the French towards NATO. I have heard that, apart from the move which was announced to-day, the Americans are thinking of moving part of their Air Force back to the United States. We are removing a brigade,
878
and I am apprehensive lest all this is a trend away from the forbearance and restraint necessary to keep adequate conventional forces in Europe, and that the dyke is going to be breached.
I am not at all reassured by the voice of the noble and gallant Viscount, Lord Montgomery of Alamein. I must confess that I am not at all in agreement with him over this, though he is a very "large gun" indeed—I see that he is not in the Chamber, so that makes it easier for me. Therefore, I hope without discourtesy, I will try to reduce the size of his gun and to increase the size of my comparative pop-gun, by saying to your Lordships that eminent military figures are not always necessarily right where matters of future strategic policy are concerned. Lord Haig stated categorically that he saw no military future for the aeroplane, and I may say, with apologies to the noble Lord, Lord Fraser of North Cape, that the most eminent and brainy sailors practically "died in the last ditch" trying to prevent the introduction of the convoy system which saved our bacon. Later, your Lordships will remember the military attitude to the tank; first of all, in regard to its making and then its misuse when it was made. So it does not necessarily follow that over Europe the Field Marshal is right.
My point is that it is very tempting to reduce the conventional forces by saying, as he did, "Keep up your nuclear guard and you will be all right. There is no threat from Russia". I shall not quarrel with that, but the day may come when Europe is not so tranquil. In Europe we still have a divided Germany, and in each part of that Germany there are still latent, very strong political currents. Even in Czechoslovakia and Poland changes are going on politically. Suppose that the conventional forces were reduced to a state where one could not take prompt action to redress a snatch, a grab. We know how these things are excused: "Intolerable provocation. Had to take immediate action." Before you know where you are, East Germany has a bit of West Germany, or vice versa; or Poland has perpetrated a foul. Something may happen which could be dealt with and redressed by an adequate conventional force. But if it is not there, and one cannot deal with an incident by

879
conventional means, one is increasing the reliance on the nuclear deterrent.
I suggest that where we are going wrong at the moment is in our attitude towards the deterrent. The credibility and effectiveness of the deterrent is based entirely on our willingness to use it. Owing to a lot of wishful thinking and a good deal of self-delusion, we still think that people—or rather America, which is what it amounts to—will use the deterrent if and when a minor aggression unchecked by the lack of conventional forces demands it. I say to your Lordships quite categorically that they would not use it. If we think of the President of the United States and what would come from his pushing that button to release atomic weapons—and very few of your Lordships, including myself, know about the accuracy and increased horror of the last few years; if we visualise what the President would bring down on New York, San Francisco, Minnesota, Minneapolis and Washington, do we really believe that he would press it if somebody "nabbed" West Berlin or if there were a big incursion as a result of a quarrel between East and West Germany? I say to your Lordships that, in my view, there is not the slightest chance of his pushing the button.
What is the result? If we have no conventional forces to redress the wrong, the other side will get away with it, and we are back to the situation of the grab, which all of your Lordships can remember only too well before Munich. They say. "We will not do it again. Sorry." Then we say, "Well, peace has come at last"; and then there is another grab. Now, at this stage of affairs, not only do I regard a reduction of conventional NATO forces in Europe as dangerous, but I believe that, if it happened, it might well prove a disastrous step. I may be accused of being old-fashioned, but if anybody does so accuse me—even the Field Marshal—I say to them that they have not thought out this deterrent and its horrors. It is getting to be a kind of umbrella of terror, under which it will soon be comparatively easy for an evil-doer to do his evil and get away with it, if there are no, or not enough, conventional forces to put him right. I therefore address this plea to the Government, and to the Field Marshal: that
880
this force—unwelcome, expensive and burdensome though it be—shall not be prematurely reduced.
The other matter with which I should like to bother your Lordships for a moment concerns our duties as an ex-Colonial Power in retaining sufficient force to ensure the stability and, so far as possible, the peace of the ex-Colonial areas until the checks and balances which will come, as a result of their independence and of the power vacuum which the departure of the great Powers—not only us but Belgium, France and the Dutch—has left in these areas, have been worked out. It has been in these areas, because of their independence, because of the withdrawal of Colonial Powers, that all the rows have been caused since the last war—in Vietnam, the French; in Indonesia, the Dutch; in the Congo, the Belgians; and we have had our troubles in Cyprus, Malaya and Kenya. To shirk our duty would, I believe, be unfinished business on the part of a Colonial Power. So far I believe we have done a good job—in fact the best job of any ex-Colonial Power—during this transitional period of independence. But to reduce now our ability to intervene, especially where we have treaties, like Malaysia, is not only to create great difficulties for them in the future but, I believe, is to increase the likelihood of the sort of large-scale wars we have had in Korea and in Vietnam. After all, you could blame Vietnam on the French if you wanted to. I therefore think that adequate force for this purpose must be retained.
I do not want to be partisan about this (although I shall probably be accused of it because I have been a soldier) but in looking after the ex-Colonial territories since the war all three Services have done a tremendous job. I would make so bold as to say, however, that the Service which has borne the main burden, the maid-of-all-work in all this, has been the Army. I may be being contentious, but when I was abroad I was struck by a remark made not from this side of the House but by the noble Earl the Leader of the House. I hope I shall not embarrass him by praising him from this side of the House, but this is what he said. I am afraid I have not refreshed my memory from Hansard, but I hope that I remember it aright. He was talking of the role of the three Services in these

881
brushfire wars and minor wars all over the world. He said:
"The Air Force are doing a wonderful job, and they never stop telling us so. The Navy are doing a wonderful job, and they expect us to tell them so. The Army are doing a wonderful job, but they would be absolutely astonished if anybody told them so."
If I may say so, I think those were very perceptive words by the noble Earl. I think it is easy to overlook the importance of having an Army of adequate strength to fulfil this particular function.
I am apprehensive in this because what I foresee is the arrival home of a large number of soldiers from the Far East and a whole brigade (and a bit more, perhaps) from Europe coinciding with the Treasury ravening for cuts and no accommodation for the soldiers, or not much. These are circumstances which might easily bring about a situation in which the Army was cut well below its present strength. I concede that these are apprehensions but, knowing what I do, I do not think they are entirely unjustified. In my opinion, it would be a disaster if the Army was cut below the size at which it could fulfil this function.
It is no good the Minister of Defence saying that the Government have no intention whatever of ever being committed again to such a large extent in the Far East. That, if I may say so, is one of the most stupid remarks a senior Minister has ever made, because if you have treaties and you have troops there, are you going to become engaged with some minor Eastern Power—rather a difficult one—and say, "We said we would not become deeply involved, so you win, goodbye"? Of course not. You are going to reinforce. You cannot be beaten up by, say, the Indonesians, if it happened again, or by anyone else. Of course if you have troops there and you are taken on by a minor Power you must win and you must send the troops there.
I should like to say to the Government that the size of the Army was only marginally enough for us to get away with Indonesia—only just. Out in Indonesia there were far too many infantry battalions doing about three one-year unaccompanied tours within a five or six year period, and they were getting fed up. The Army was getting over-strained. The wives were saying, "This is not the life
882
for us", and were instrumental in getting some of the senior N.C.O.s, those who really matter, out. The Army was getting over-strained, and it only just got away with it. When it comes to the question of what size the Army should be to do this job, I hope that we first disillusion ourselves of the ability to control commitments once something happens. I would remind the Government that the assumption for the manpower plan of 1957 was that there would be no British soldier East of Suez by 1960. That was a hell of an assumption, and it shows that people can go wrong in these assumptions. I beg the Government not to cut the Army below the safety level for its job, and not to allow the Treasury to cut it to fit into the barrack accommodation and the minimum of married quarters, which is what I fear.
My last point, my Lords, is that these soldiers, sailors and airmen, particularly when they are doing these jobs all over the world, must be well equipped. Somebody said how splendidly equipped they were, which to some extent is true; but do not let us pat ourselves too much on our backs. I visited the forces in Borneo a great deal when I was in the Far East, and all three Services did a marvellous job. But at the start the Army were struggling with wireless sets which did not work at all, and but for the use of the Australian sets they would have been almost incommunicado. And, thanks to the inertia of the Indonesians, or to the fact that the Indonesian Generals' hearts were not really in it, on one or two occasions there was not really strong activity on the whole of the Indonesia border simultaneously. They happened one by one, and we just got away with it. The Army just got away with the number of helicopters they had. But two "pushes", and there would have been deep embarrassment. And there were no more in this country. We were using the seed corn by taking away the helicopters they were learning on in England. There was a desperate shortage, and a big delay in their manufacture because they had handed over the engines from one firm to Rolls-Royce. The reason for that was because the Royal Air Force was supplying a commodity for the use of the Army, and it is only human nature and only to be expected that it should go at the bottom of their estimates.

883
Take the Royal Navy landing craft as an example. Nowadays, these inter-Service matters should be taken clean out of the Service Estimates. Things like helicopters and landing craft should be put in a special category of their own. Otherwise, they will be squeezed out by these F.111s, about which I should like to say something, but there is not time. The noble Lord mentioned helicopters—no numbers, no expectations and no future manufacture. But for soldiers doing these jobs all over the world, which I think they will have to go on doing, helicopters are to-day an absolute sine qua non.
I think one can say—and all Governments are included in this—that in the years since the war we have been marvellously served by the three Services—and perhaps one could say that we have better Services than we entirely deserve. I pray that in the future they will be left at a size adequate to discharge their duties, and with equipment that will enable them to do so. They deserve it.
5.39 p.m.
LORD HARDING OF PETHERTON: My Lords, I feel that I should start my remarks by declaring my two interests in the matters which are dealt with in the Defence White Paper. The first is that I am an old soldier, and in that capacity I should like to add my heartiest congratulations to the noble Viscount, Lord Monckton of Brenchley, on his excellent maiden speech. My second interest is as the chairman of a company which is a Government contractor for Defence equipment in a fairly big way. That is a position to which I succeeded through the very sad and untimely death of a very distinguished Member of your Lordships' House—I refer to the late Lord Kilmuir. In that position I naturally have a close interest in those passages in the Defence Statement which deal with the questions affecting procurement of arms and equipment from industry, the problems of research and development in respect of military equipment and the relationship between the Ministry of Defence and industry.
Starting on the purely military side, I find a certain lack of realism in some passages in the White Paper. For example, in paragraph 6 of Chapter I it is stated that:
884
"… general and complete disarmament … is being pursued in all ways open to it, notably at the 18-nation Disarmament Conference at Geneva, with increasing prospects of success."
Without in any way wishing to detract from the very sincere and, I know, determined efforts made by the noble Lord, Lord Chalfont, in this context, I think that Her Majesty's Government are in danger of misleading themselves and the people of this country by statements of this kind. Thirty or more years ago I had the task in the War Office of doing the Staff work on this question of disarmament and similar matters. So far as I am able to judge, no progress towards general and complete disarmament has been made since then—rather the contrary. I should be interested to know why the Government struck such an optimistic note about the future. I should be only too pleased to be convinced on this point.
A little lower down on the same page of the White Paper, it is stated that:
"At their meeting in July, 1966, the NATO Defence ministers finally agreed to instruct their military advisers to revise NATO strategy in the light of the forces which Governments would undertake to make available on a rolling five-year programme, while retaining the commitment to the forward defence of the NATO area."
Having once had some command responsibility for the defence of part of the NATO area, I should like to emphasise that the possibility of retaining the commitment to the forward defence of the NATO area depends on the forces and resources available, and not on a political directive.
On the next page of the White Paper, under the heading "The Nature of the Threat", there seems to me to be further lack of realism. I do not attempt to challenge the statement that "tension in Europe has relaxed": I hope devoutly that the relaxation will continue. But I submit that it is essential to make clear the distinction between the military ability of a potential enemy to use force of arms to achieve his political ends, on the one hand, and his intention or political readiness to do so, on the other. It may be, as stated in the White Paper, that a change of intention is "unlikely to develop overnight". But it could happen quite quickly; whereas, as the noble Lord, Lord Chalfont, knows as well as I do, once Armed Forces have been allowed to run down it takes a long time

885
and costs a great deal, to build them up again. I agree with the Government that both political and military extension of the détente would best be achieved by mutual reduction of the forces of the NATO and Warsaw Pact Powers. But, so far as I am aware, there is no indication yet of any readiness on the part of the Warsaw Pact Powers to make significant reductions. From a military point of view I should like to stress a strong note of warning against unilateral reductions in the total fighting power of NATO.
Still pursuing the theme of realism, the fact is stated in the White Paper that:
"The pattern of deployment planned in the Defence Review will mean that a higher proportion of our forces will normally be stationed in the United Kingdom".
So far as the Army is concerned, this will substantially reduce our total military power unless it is matched by a corresponding increase in the air transport and air portability facilities. I find it difficult to make out from the Statement what, if anything, is intended in this respect. Troops quartered in this country, with its very limited facilities for formation training, will quickly atrophy and become a doubtful asset in our Defence balance sheet unless they can be moved quickly with their equipment to areas overseas where they may be required to intervene, and unless they can be trained accordingly.
To quote again from the White Paper:
"The peaceful use of military forces in this country is not a role likely to attract the type of man needed in the Army to-day."
My Lords, I would accept the argument, developed in the White Paper under the heading of "Planning for the Future", that it is not possible, nor would it be wise, to settle here and now in all details the size and shape of the Forces for the next decade. But the continued uncertainty (and this has already been referred to this afternoon) in the Forces, and particularly in the Army, is having a most serious effect on confidence. Unless something can be done quickly to restore the position in that respect, I fear that it will lead to the premature retirement from the Army of many very valuable people.
It is not difficult to imagine what would happen and what would be said of any large industrial organisation that made general and vague announcements of im
886
pending redundancies and then let month after month go by in complete silence about the details. The noble Viscount, Lord Monckton of Brenchley, has already referred to the, I would say, specious, and probably spurious, article in The Times on April 25 reporting the visit of Her Majesty the Queen to the Parachute Brigade, which ends with the words—and I will read them for the sake of those noble Lords who have not seen the article:
"The great unanswered question in the minds of parachuting people is what is to happen to these cheerfully lethal individualists as the bounds of Empire narrow and the chances of finding a bit of trouble grow steadily more brief."
The "great unanswered question" referred to there applies certainly to the Army and, I think, to the rest of the Armed Forces as well.
My Lords, so far as I can make out, the Government have given no indication in the Defence Statement of what they have in mind as to the general pattern of our forces. There does not seem to be any plan, any consistent theme or cohesive line of thought on our national strategy in the mind of the Government. In the opening chapter of the Statement it says:
"The main purpose of the Defence Review was to bring defence expenditure into balance with the nation's resources."
A little lower down it goes on:
"The second … aim of the Defence Review was to reduce the over-stretch of our forces."
A little later on the same page it says:
"A third aim of the Defence Review was to cut the cost of defence in foreign exchange."
But these are not aims of Defence policy; they are factors—very important and crucial factors—which have to be taken into account in order to relate our Defence policy and our foreign policy, on the one hand, with our economic situation and our available resources on the other; to determine what can and cannot be done; to decide where danger must be covered and where risk must be taken because the payment of the premium is beyond our means or for some other valid or relevant reason. The Statement goes on to say:
"The Defence Review of 1966 was not intended to provide a definitive answer to Britain's defence problems … 'We have always recognised that the defence review

887
must be a continuing process and a permanent part of our policy making.'"
What is Government policy? Take the Army, for example. What do the Government expect the Army to do, or to be able to do? The Statement goes on:
"It is now normal practice to examine defence programmes on a 10-year basis."
That is all very sound and sensible, but referring again to the Army, what is the planned programme for the Army for the next decade? For what role, what target, what contingencies is the Army to be organised, equipped and trained?
These are the great unanswered questions. These are the questions which I believe have to be answered, and then the necessary finance and economic criteria applied and a definitive policy framed from that investigation, from that relationship, from that reconciliation, between what needs to be done and what can be done, and where risks must be taken, and where dangers must be covered. To approach the problem the other way round is, in my opinion, to put the cart before the horse, and I hope that the noble Lord who is to wind up the debate for the Government will be able to give some indication of his views on the objectives of the Government's Defence policy, the threats which we face, the responsibilities which we must be ready to discharge which call for the provision of military power, and how that military power should be composed and provided. I believe that these are the foundations on which the Defence policy must be based, and without some clear indication of the Government's policy on these matters it is not really possible to make any worthwhile contribution to the solution of the practical problems of strength, organisation, equipment and positioning of our Armed Forces.
Referring again to the Army, it is my belief that in our present circumstances our primary need is for an effective field Army; a mobile, fully equipped, fully manned, balanced and cohesive fighting force, with the necessary logistic support and training organisation. It should comprise our Strategic Reserve in this country, our land forces, whatever they may be, in Germany, and such Army fighting formations as we maintain in other parts of the world. In other words, what I am suggesting is the concept of a small
888
but single all-embracing Army, and I think that such a concept, coupled with the task force system would provide us with more efficient and less expensive land forces and an Army in which all ranks now serving would be proud to continue serving, and which recruits would be proud to join. I hope that my suggestion can be given full consideration, so that as reductions in our overseas commitments and other changes in the deployment of our Armed Forces consequent on developments on the international scene take place, they are realistically and objectively planned to leave us with an Army really suited to our needs, and not with a hotch-potch of units with no possibility of making any effective contribution to national policy other than aid to the civil power.
At the other end of the scale there is the new A.V.R. III. During the past few months, I have attended three functions to mark the transfer or the passage of units from the old Territorial Army into the A.V.R. III. I have been greatly encouraged by the spirit of enthusiasm with which this process is being carried out. But if that spirit is to be maintained, I believe that some improvement on the basic scale of equipment provided for the A.V.R. III is very necessary. Otherwise, after a year or so, after the first camp with very limited scales of equipment, I think it will prove impossible to attract the type of men needed to join the A.V.R. III. At present, the numbers are satisfactory because you have the carry-forward of the old spirit of the Territorial Army. I hope that that spirit will be maintained, but I believe that one factor in maintaining it will be the provision of a slightly—not greatly—larger and better scale of equipment suited to the role of the A.V.R. III.
I will now turn for a few moments to the other interest which I have in this matter of Defence policy. This is clearly not the occasion to discuss the complicated problems of price negotiations, methods of costing, level of profits, and so on; except to stress the urgency (in the interests, I suggest, both of the Government and of industry) of accelerating the current negotiations going on between trade associations on the one hand and the Treasury on the other, on the important issues which are involved in this business.

889
The main points to which I should like to draw attention in this connection are two in number. The first is the need for greater and continuing efforts to secure closer and closer co-ordination between the requirements of our own fighting Services; the export potential of the international arms market and the value of the technological fall-out that stems from research and development of future weapons the communications systems and the military equipment, which is a very important feature in the advance of our technological skills and knowledge in this country. The second point I should like to mention is the need for our own fighting Services to be more commercially-minded both as regards costs and potential markets, particularly with regard to framing specifications for new equipment. It is the over-elaboration of specifications for military equipment more than anything else that puts up the cost.
In the same connection, I should also like to stress the need for even closer co-operation between members of the Foreign Service and the Armed Forces overseas, through our Ambassadors and at other places where we are represented, to help to sell British military equipment to overseas customers. I suggest that this is a vital matter of interest to the Minister of Defence who, I submit, could and should take an even stronger line in the future than he has done in the past; that is, regarding my first point, on closer co-ordination between the three interests involved, the needs of our own Services, the potential of the international market, and the technological outfall which comes from research and development.
On my second point, we in the company with which I am associated most warmly welcome the appointment of Mr. Raymond Brown as head of defence sales. He is well known in the industry in which I work, and is trusted as a competent businessman with wide experience in the appropriate fields. We only hope that his advice will be accepted, and that he will not be unduly hampered at any stage of his efforts by officialdom. We also warmly welcome the increasing interest now being taken by Her Majesty's representatives overseas in this business of the sale of British military equipment, as evidenced by the tour of British companies in this country
890
by our Ambassador in Washington during his recent visit to London. We have had excellent support at top level from our representatives overseas, but sometimes people lower down the scale are not fully educated and do not fully recognise the importance of this aspect of their responsibilities.
May I make one final point. As the Government must know, the business of competing for United States defence contracts is not quite such a simple matter as is stated in the Defence White Paper. However, I hope for an opportunity before long to discuss that and other relevant questions personally with some of those concerned in official circles, and so I will not take up any more of your Lordships' time by going into any details on that score. I should like to conclude by saying that from my experience in industry over the past five years I think that there is an urgent need for closer co-operation, more frequent consultation and better understanding on both sides of the other's point of view.
6.0 p.m.
LORD BOURNE: My Lords, I should like to associate myself with the congratulations to the noble Viscount, Lord Monckton of Brenchley, on his maiden speech and to welcome him as a reinforcement to the Cross Benches. He has just given up the post of Chief of Staff Rhine Army, and I hope that he will use his military knowledge to the full in future.
One advantage—or disadvantage, if one looks at it in another way—of being fifth in a row of soldiers and admirals, is that one is part of a team. On the other hand, if one has taken the trouble to write out a speech and finds that the previous speaker has said it all before, one finds it a little difficult, particularly as I agree so much with what the noble and gallant Field Marshal, Lord Harding of Petherton, has said.
I agree also with everything that the noble and gallant Field Marshal, Lord Montgomery of Alamein, has said, and I will not repeat his views. He has the great gift of clarity and of translating his ideas into a plan in about twelve minutes. He mentioned the "system of fours". I entirely agree with this and I would say, although I have been retired from the Army, that in Malaya I introduced a

891
"system of fives" and made every battalion go into the jungle with five companies.
I think that I can best illustrate my angle on the series of Defence White Papers by quoting passages to show that there has been a susceptible change in policy, and that a great deal more goes on between White Papers than we are aware of when we read them. In 1965, this Government's first White Paper said:
"British defence policy has two purposes, to guarantee the nation's security and to contribute towards peace and stability in the world as a whole."
Later it says:
"It must maintain a capacity for providing military assistance in many parts of the world."
It was easy to agree with those objectives. But it did not take long—about eighteen months—for the Defence Review, after a good deal of withdrawing and cutting of our forces, to say the following:
"We set out to decide which political commitments we must give up or share with others, but also to limit the scale of military tasks which may be imposed by the commitments which remain."
This shows that there has been a change of emphasis. Although we recognise that all our commitments remain, we shall have to limit the scale on which we honour them and do what the noble Viscount, Lord Head, said. We must say: "We are terribly sorry. We came to your war, but we haven't any more reinforcements, and we shall have to pull out. You win."
This year's White Paper is a splendid record, and the Ministry of Defence have to be congratulated on their achievement and on a good deal of progress in many senses—but Defence policy is not one of them. There is practically no Defence policy in it at all, except the hope that there will be a revision of NATO strategy to match the forces available. In other words, there has been a change in between these White Papers, a progressive change towards inability to meet our commitments. This is translated into cuts. And the White Paper this year says:
"The main purpose of the Defence Review was to bring expenditure into balance with the nation's resources."
892
The second and third aims were quoted by the noble and gallant Field Marshal, and I will not repeat them.
This is putting the financial cart before the defence horse with a vengeance—and I make no apology for repeating what I said a year ago in our Defence debate. I forecast then that we would pay for it, and I think that we are beginning to pay. I know that we must live in an age of economy, but not to the point of impotence. I cannot help asking what would have happened if we had followed the same policy of putting the financial cart in front of the defence horse in 1937 and 1938. Supposing we had said that there was no more money for the antiaircraft defence of Britain, or for Hurricanes and Spitfires? Certainly we should not have won the first two or three years of the war, and we might have been beaten.
I come to the other commodity which is also very short; namely, manpower. This may be crying before we are hurt, but we have had many inspired leaks about future cuts. We are not told what they are to be. The figure that I have read in the Press is of the order of 40,000 or 50,000. Observing that we have 440,000-odd men in the Forces, this is about 10 per cent. If we make a cut of 10 per cent., we save 10 per cent. of their pay, not to mention the other things, and one-tenth of the pay bill is £44 million. It is a real saving, because we cannot suddenly unwind the clock and put these men back into the forces. I hope that I am exaggerating this figure. I should like to think that I am, although I am afraid I may be right.
While this is going on, we have added 44,000 civil servants to the central establishment, and I dare not think how many we have added to the local authorities. The only figure I have seen is 160,000—and I hope that it is wrong. Would your Lordships rather have civil servants or soldiers, sailors and airmen? We ought to consider carefully before we make a decision of this kind, and I should like to be told by the noble Lord, Lord Chalfont, that I am crying before I am hurt, and crying unnecessarily. There is nothing I should like to be told more. I hope that I am wrong.
I will not deal with Europe, because that has been well covered already, but I should like to go abroad for a moment.

893
The Defence Review says that there will be no attempt to maintain defence facilities in an independent country against its wishes. That is right, and we all agreed with that statement this time last year. The corollary is that if a newly independent weak country asks for a defence agreement, they should get it—and we have been asked. To my mind, our interests abroad coincide with our friends in various parts of the world. I need not go round the map. If that is the case in South-East Asia, I hope that what Mr. Healey and the Prime Minister have said is correct; that is, that they have no intention of withdrawing completely. It would be a terrible thing to do that, because we would be deserting our friends and giving up our interests.
I think it is high time that we got "off the fence" over the Vietnam trouble. It is wrong to be an ally of the Americans in Europe and not to be their ally in the Far East. I think it is wrong to expect the Australians and New Zealanders to help us against Indonesia, where there was a war to all intents and purposes, and not to be alongside them in Vietnam at the present time. I think it is a false argument to say that we cannot be there because we are one of the co-Chairmen of the Geneva Conference. It is very wrong to say that and to fuss about whether our arms are used in Vietnam, when Russia are selling "Migs" and "Sams" as fast as they can to the North Vietnamese.
About a year ago we were all hoping that confrontation would end, that things would quieten down and that we should be able to bring our troops home. I remember sounding a note of warning to say that the Middle East could get quite exciting. At that time we had not made the fatal decision of February 22 of last year, when Nasser changed his mind and decided to leave his 50,000 men in the Yemen—the very day after the Government's decision. If we say, in our Defence Papers, that we intend to contribute to stability in various areas overseas, then I think that it is wrong deliberately to contribute to instability. That, I believe, is what we are doing in Aden.
I will not bore your Lordships with a repetition of the Aden problem, except to say two things which I do not think have been mentioned before in your Lordships' House. The first is that the tribes
894
of South Arabia, the men who live on the top of the Radfan, in those hundreds of miles of arid country, hate the Adenese like the devil; they look down on them as dock labourers. They have done nothing else for centuries. Secondly, all these tribesmen carry rifles, and if they are short of a rifle, and have not been given one by the British, they nip across the border and get one from a cousin. They have done that for hundreds of years, and will go on doing it. This is in order to show their manhood and to fight if they are attacked, even fighting each other internally. This they have done in Aden for centuries: not just while the British were there; not just while the Indian Army were in control; not just while the Royal Air Force exercised air control, and not, more recently, while the British Army have been more responsible. If they were left alone and not dominated by a great Power such as we are they would fight each other. In the Middle East one conqueror replaces another. That is how they fill their power vacuum.
You can debate Aden for many moons, but I think the short answer is to give the South Arabian Federation the Defence Agreement for which they have asked, and make it for a period of five years. You do not have to stay there with a large base; but you must have a foothold in the place. Incidentally, if we leave Aden and have no foothold there we shall probably find ourselves having to go back to war to rescue the country. That will be far from easy and extremely expensive. We really cannot leave them to chaos.
I think I have time for one other aspect of the cuts. This may be crying before I am hurt, and, if so, I should like to be told. There is the careers aspect, both for officers and men, in all three Services. We have lived in a period of axes; they have happened at regular intervals. We hoped that the 1957 one of the "golden bowler" was the last; but of course it was not. What I want to say is a glimpse of the obvious, but there is no other profession, except in Parliament, where you are cut off in the middle of your career. If you are an architect, a doctor, a chartered accountant or a lawyer, when you enter the profession you expect to retire from it and not to be kicked out. This, unfortunately, is what happens in the Services.

895
As a retired officer, one hears a great deal about these problems; and the instability which the noble Lord, Lord Rowley, mentioned is very much the case. People are worried. If you are an officer of 30 to 35, wondering whether you will get into the Staff College, with two children who have to be educated and a wife who does not want to go rushing all over the place but is prepared to serve with the Army, and you are suddenly faced with having your career changed and do not know what you will do next, it is extremely serious. All the ceilings that have been offered—service up to 55—amount to paper transactions. The Navy paid no attention to it; the Royal Air Force had great difficulty; and the Army, although they tried hard, cannot keep most people until they are 55. In other words, you go at 30 to 35. On the last occasion I think it was Sir Frederic Hooper (I hope I have the name right) who headed a small committee of top industrialists to help officers retiring into civil life. And it must be remembered that it is more difficult now to get into industry than it was 15 years ago. I have cases of this almost every day. I hope that a successor to Sir Frederic Hooper will be found and that we shall help these officers as much as possible.
I now come to my final point. My chief comment on the Defence White Papers as they come along one a year, or the Defence Reviews, is that the decisions are not taken in the White Papers themselves but are taken in between, and every time we are faced with a fait accompli. We debate the issue in the other place and in your Lordships' House after it has been settled by the Government. The Government have the advantage of professional advice from the Chiefs of Staff, but sometimes the decisions are not right, and they need to be aired. I should very much like to see set up in this Parliament a Defence Committee consisting of Members from both Houses, who could hear the confidential information from the Government and consider it with expertise. There are plenty of people in both Houses who have a continuing interest and could be trusted to take part in these confidential discussions. I think this could well have a great influence; it certainly does in Washington. I strongly recommend that system.
896
My conclusions are, therefore, three. If these decisions are to be made, do not let them be made by default. If we decide that hospitals, schools, universities and social security come higher in the batting order than Defence expenditure, then let us do it consciously and not by a fait accompli; let us not be faced with these cuts and then debate them afterwards. If, secondly, it is decided in this country that we cannot afford to meet our commitments overseas —in Europe, the Middle East and the Far East—and we are definitely on the way to becoming a second Holland or a second Portugal, then let us act consciously, and let us debate it: do not let us slide into it.
We have to remind ourselves, that power is made up of more than industry, finance and economics. It contains the other element, of force. You cannot sit at the top table, as has often been quoted —we have marginally helped in this or that transaction through sitting at the top table—you cannot get near the top table unless you have power; and force is an element of power. Do not let us slide into these wrong decisions just because of a period of financial difficulty.
6.18 p.m.
LORD BROCKWAY: My Lords, I recognise that I take part in this debate with many disadvantages compared with those who have already contributed to it, but, at least, I have one advantage over the noble Lord, Lord Bourne, who has just addressed your Lordships. He remarked that it was a little difficult, after a long series of speeches by distinguished representatives of the Armed Forces, to follow them, because he would be repeating what they said. I, at least, have the advantage that no one in this debate, with the exception of my noble friend Lord Rowley in part of his speech, has said the kind of thing which I want to say to the House.
There is the great danger in a debate on a broad subject like Defence of painting a wide pattern. I admit that I am tempted to enter into many matters because of what has been said during this debate. I am, however, going to resist that temptation. I want to speak about what I believe is the most urgent issue in Defence at the present time, and that is to bring about some limitation of the

897
distribution and strength of nuclear weapons in the world. I listened to the speech of the noble Viscount, Lord Head, with great interest. He assumed that because both America and Soviet Russia would fear the consequences of nuclear war, such a war is not likely to take place. I recognise the strength of that argument at once. But there is always the danger, first, that nuclear war may be let loose by accident, and, secondly, perhaps greater, that it may emerge from a local situation without any intention but become so widespread in its consequences that world war ensues.
But I will, if I may, say this to the noble Viscount. The danger to-day is that the possession of nuclear weapons may spread. Already the United States of America, Soviet Russia, the United Kingdom, France and China, and twelve other nations to-day, are in the technical position where nuclear weapons could be produced. If that tendency proceeds, I would say that within a decade the weight of the chances would be on the side of a nuclear war taking place, rather than against it. And in that situation the most important task which has to he done in relation to Defence is to obtain a limitation of the spread of nuclear weapons in the world.
I am glad that the final speech in this debate is to be made by the Minister for Disarmament. I want to pay my tribute not only to his sincerity but to his persistence and ability. The way in which the noble Lord, Lord Chalfont, at Geneva and elsewhere, has pressed the proposals for a non-proliferation treaty should have made all of us who desire that end proud of the fact that he should have been the representative of our Government on those occasions. It is to the nonproliferation treaty, because I regard it as a most important and urgent matter, that I want to address my remarks.
Its first difficulty is that, even if that treaty be signed, two nuclear Powers may not accede to it. France may not do so, and China is not likely to do so. We must pay some attention to their attitudes and try to meet them if the nonproliferation treaty is to be in fact successful. So far as China is concerned, I think there is some reason for less fear: first, because of the internal divisions which are within it and which will demand the attention of her Government and people,
898
and, secondly, because of her concentration upon her own social and economic construction; and while China is doing that she is unlikely to become involved by her own initiative in a nuclear war. But I should like to urge upon our Government not to rely only on events within China. We have some part to play in preventing that danger from China. We have the part to play of using our influence to restrain all those forces in the world which may help to provoke China in this situation.
I was one of those who welcomed the fact that our Government dissociated themselves from the action of the Government of the United States of America when first they extended their bombing to the neighbourhoods of Hanoi and Haiphong. There is now very great danger indeed that that strategy will be taken much further, to the port of Haiphong and to the very centre of Hanoi. Action of that kind will inevitably bring reactions in China. I would urge that our Government should use their influence to exercise restraint upon the American Government so that they do not pursue policies in Vietnam which are likely to bring dangerous actions by China.
LORD SOMERS: My Lords, may I interrupt the noble Lord for a moment? It is very easy to make statements of that kind. Of course, one can sympathise with the noble Lord's point of view, but I think that one should know the situation inside a little more before making such statements, and realise the problems that the American Forces are up against, not only in North Vietnam but also within South Vietnam. They have their difficulties there, too, and I think one should not condemn them for fighting against what is a very real danger.
LORD BROCKWAY: My Lords, appreciate the point of view which the noble Lord has expressed. He will forgive me if I do not follow him in detail, though I can assure him of this. I have tried to study that situation, both in North Vietnam and in South Vietnam, just as fully as it is possible for anyone in this country to do. I have followed events at Washington, and I should have said that the recent events in Washington justify the kind of warning which I will now sound.

899
When one faces the problems of China, one faces not only the immediate dangers which will arise from them. But I would say this. When we are thinking in longer terms in relation to China, we are likely to see happen a change in its philosophy similar to the change which has taken place in Soviet Russia. When Soviet Russia was isolated in the beginning of its revolution it had much of the ideology that is present in China. It has now become aware of the dangers of nuclear war. It has now become a part of the community of nations pursuing policies which are bringing a détente with the West. And I think it very likely indeed that in China's experience, as it gives its attention to the construction of its new society, it also will pursue foreign policies which will not bring dangers in the form of nuclear war. If we will recognise that it should be a member of the community of nations, with its right place in the United Nations and the Security Council, then I think the danger of China will be lessened.
I would say that the case of France, which also may not sign the non-proliferation treaty, is more a matter of her status and her prestige than a matter of preparing for war. France is not likely to be at war with America or Soviet Russia. She might even be neutral if the disaster of war between America and Russia took place. If one looks at France, one sees that it has neither the danger of the necessity of defence nor aggressive intentions. One can only come to the conclusion that President de Gaulle is thinking in terms of the status and position of France, rather than of the actual use of his nuclear weapons. In regard to that, Britain could make a big contribution towards meeting that desire of France for status. The spokesman for the Opposition remarked that the Labour Party in this country had stood for the termination of an independent nuclear deterrent and that we had not carried out that policy. If we did carry out that policy it would be of some advantage in appealing to France to recognise that she can have status in the world and contribute great moral principles to the world without having the nuclear weapon which she now possesses.
My Lords, I had proposed to discuss the suggestion that the British deterrent
900
should be handed over to NATO, but in view of the time and what has already been said I do not intend to pursue that matter. What I want to say, looking at the non-proliferation treaty, is this. There is, quite naturally a certain resentment among the non-nuclear nations of the world that this great nuclear power should just be left in the hands of America and Soviet Russia, really to determine the destiny of the whole of mankind. They have the feeling that these are to be the two great Powers which, because of their maintenance of nuclear force, will be able to determine the future pattern of the world. It might almost be described as a new form of nuclear colonialism.
If we are to face that psychology in the world, I believe that the non-proliferation treaty must be accompanied by other measures, and those measures have been suggested by a number of non-nuclear nations, including India. Those proposals are that non-proliferation of nuclear weapons must be accompanied by a general disarmament treaty. They are urging that it is not enough for America and Russia to say to the other nations that they should not have nuclear weapons; America and Russia themselves should give some example of the disarmament which they are hoping for in the world. And if, accompanying the non-proliferation treaty there were offers by America and Russia to limit, and indeed to look forward to the termination of, their nuclear weapons and to limit their expenditure upon armaments, they would have much more response from India and the neutral nations which are now a little suspicious of the non-proliferation treaty.
I should particularly like to ask the Minister, if I may, what has happened to the proposals for general disarmament which were brought forward both by the West and by Soviet Russia a few years ago. They both had the intention of stages of disarmament which finally would lead to a disarmed world. There was not an extraordinary difference between the proposals which America and Soviet Russia made; they were proposals about which there could have been discussion and considerable agreement. What has happened? Why have they not been pursued? Why do we not hear of them now? I am urging upon the Government that if they are hoping that the non-prolifera-

901
tion treaty will be successful there should be a reversal to the drastic proposals on disarmament which only a few years ago were being considered at the Geneva Conference and which came from both America and Soviet Russia.
I want now to say one thing in support of Lord Rowley's reference to the danger of chemical and biological warfare. A considerable sum of money is allowed in the Defence Estimates for scientific advance and for development, and the noble Lord asked whether that covers the researches which have been made into chemical and biological warfare. He asked particularly if that expenditure was to be upon an offensive use of chemical and biological warfare. I doubt very much, because of security reasons, whether the Minister will be able to indicate what is being done in the way of research, but I shall be very surprised indeed, because of the theory that the best defence is offence, if in the research which is now being carried out by departments in this country and in other countries attention is not being paid to germ warfare, which may be even more destructive than nuclear warfare and which in fact is cheaper to produce, and can be produced much more widely. I urge upon the Minister for Disarmament, when he replies, to give us some hope that the problem of biological and chemical warfare will be considered and an initiative taken to try to include that in general disarmament proposals to accompany the proposal for the non-proliferation treaty.
My Lords, probably the years in which we are living will prove to be a decisive time in the history of mankind. These generations are the generations of great scientific development. Those scientific developments could lift the whole of mankind to a standard of life which has never been known. They could also destroy mankind. Many of us are urging in this Defence debate—and I know the complete sympathy which the Minister for Disarmament will have for these proposals—that the Minister will not only proceed with the proposals which he has put forward but will add to them the proposal for a wider general disarmament, and particularly will look at the new ways of warfare which are now being found and which may be so destructive to mankind
6.37 p.m.
LORD TEYNHAM: My Lords, the noble Lord, Lord Brockway, said that the most urgent issue in Defence at the present time is the limitation of nuclear strength among the nations of the world. I am rather inclined to agree with him, although I cannot follow him in many of the other points he has made. That is an important point, although there are other issues which I have to put before your Lordships shortly.
I am sure that all noble Lords who are associated with the Navy will appreciate the support of the noble and gallant Viscount, Lord Montgomery of Alamein, when he said that he had refloated the Navy. I think he also said that he supported aircraft carriers. I am not sure whether he supported the large carrier or the smaller and less sophisticated carrier, with vertical take-off aircraft, about which I wish to say something later.
Referring to the speech made by the noble Lord, Lord Gladwyn, I have never heard in your Lordships' House, in a debate on Defence, such a policy of "scuttle" as that put forward by the noble Lord. I can hardly believe that the policy he evolved is that of the Liberal Party. No wonder the Party has lost support in the country! We are not yet a nation of "Little Englanders", though we seem to be somewhat on the way at the present time.
My first reaction, on a study of the Statement on the Defence Estimates, was to be taken somewhat aback by the rather mystifying heading, "Royal Navy General Purpose Combat Forces", on page 34. What on earth does this mean? Surely the old term "Active Fleet and Supporting Forces" is much more descriptive than this continual use of American jargon. What does it all mean? Also, what has happened to the Working Party on the Future of the Fleet? I think it was last December that the Minister of Defence said that the Working Party had made its Report to the Admiralty Board. I hope that today we may be told something about the contents of this Report. Are we to be told what types of ship are to be provided for the Fleet when the carrier is phased out in the 1970s? There is no indication at all in the Statement before the House to-day.

903
In spite of the cancellation of the large CVA carrier, I understand that recruiting and re-engagement in the Fleet Air Arm is still very high indeed, and perhaps the Fleet Air Arm visualise the eventual construction of smaller and less sophisticated carriers with the vertical take-off aircraft. I should like to ask Her Majesty's Government whether they are making a study of the potentiality of the small carrier with the vertical take-off aircraft, which I am sure should be the basis of the striking force of the Fleet in the future and, of course, air cover for local and amphibious operations in a limited war.
I would turn for a few minutes to the question of conventional war about which we hear so much these days. It is maintained in some quarters that conventional war is unlikely to last long and that the escalation into nuclear weapons would occur very quickly. That may well be so on land, but what about maritime warfare? I suggest that a war of attrition at sea by enemy submarines might last a very long time, and no country would be prepared to risk an all-out nuclear attack on land to win a war at sea. That is the point. It is clear that if a country such as Great Britain loses command of the sea she cannot regain it by unleashing Polaris on enemy land bases: it could not be done. It would be like saying, "If you continue to starve me, I will commit suicide". The only valid defence is to regain command of the sea in the conventional manner; and this, of course, highlights the submarine.
In the last war, the Germans, I think, had 24 ocean-going submarines when the war began; and eventually they reached a figure of 100 in service, and very nearly brought us to our knees. The Russian submarine fleet is believed to number some 400 ocean-going vessels, many of them nuclear. The nuclear submarine with only a torpedo armament can deny the sea to commerce. But there is still one more development to come. It is only a matter of time before surface-to-air guided weapons are adapted to submarines. In future, the submarine will not be living in fear of aircraft: it is likely to be the other way round. Tactical weapons, such as nuclear depth charges or other weapons might of course be used at sea. It can be argued that
904
the use of tactical nuclear weapons at sea would lead inevitably into an all-out nuclear war. On the other hand, they might never be used.
I would say that the greatest danger to this country lies in a conventional war at sea, in the threat to destroy our commerce, which can well happen without all-out nuclear attack taking place. It is true that we have a few so-called nuclear "killer" submarines, armed with torpedoes, but I suggest that we need many more of this type, together with other anti-submarine forces, to combat the nuclear submarine menace from Russia. We have seen the large aircraft carrier supersede the battleship, and we are now on the threshold of seeing the large carrier superseded by the all-purpose missile-carrying submarine, capable not only of attacking other submarines and surface craft but also of shooting down aircraft. There is little doubt, I think, that this type of nuclear submarine will be not only the dominating weapon of sea power but the means by which sea power will exercise in the future a far greater influence than it did in the past. May I suggest that Her Majesty's Government have another very close look at the submarine menace, with a view to research and establishment of the all-purpose submarine which will undoubtedly become the capital ship of the future?
6.47 p.m.
LORD ASHBOURNE: My Lords, your Lordships might expect me, as an old submariner, to agree with the noble Lord, Lord Teynham; and I certainly do. There is little doubt, in my view, that the nuclear-powered submarine is the capital ship of the future. I think I should perhaps at this stage declare an interest, to the extent that I have a son in the Navy. Having served in it myself for much of my life, I have also a natural interest in its wellbeing.
There is at the moment a strong movement to cut down our Armed Forces overseas, and in particular East of Suez. From the financial angle this is, of course, very good sense. There is one thing that this country cannot cut down on appreciably, and that is overseas trade. So long as our overseas trade is carried by sea, so long must we have sufficient maritime forces to ensure its safety. In my view, we are already well below the

905
low safe limit in this respect. To give a general view of our trade East of Suez, something like one-third of our overseas trade is with this area. We do substantial trade, of course, with Australia and New Zealand. Our rubber and tin comes from Malaya; enormous quantities of oil from the Persian Gulf, and so on. From the latest figures I can find, in one day we have 285 ships at sea in the Indian Ocean and another 131 in port, making a total of over 400 ships in the area on any one day. In 1964, 3,800-odd British ships passed through the Suez Canal, or rather more than ten a day.
To move now from the general to the particular, some years ago I drew your Lordships' attention to our dependence on oil from the Middle East. I should like to touch on this matter again this evening for a few moments. There is very little reference to it in the White Paper. When I last addressed your Lordships on this matter we obtained more than half our total requirements of oil from the Persian Gulf. Since then the proportion has dropped: we now get appreciable quantities from both Libya and Nigeria. But we still get 30 per cent. of all our requirements from the Persian Gulf, and another 14 per cent. through the pipe-lines to the Mediterranean, making a total of 44 per cent. altogether from the Persian Gulf area. Your Lordships will realise that this represents an enormous figure, as our total imports of oil nearly double themselves every six years.
When I think of these things I cannot help thinking also of Russia's enormous submarine fleet. As the noble Lord, Lord Teynham, has already said, there are something like 400 vessels altogether, many of them now nuclear-powered. They are not there for fun. They are there to be used, in certain circumstances, to bring strong pressure to bear. I know very well that relations with Russia have recently improved, but these submarines are still there, and the threat from them could become very real in a comparatively short space of time.
We are told at page 5 of the White Paper that it is no longer realistic to attempt to provide maritime forces for a prolonged sea war after a strategic nuclear exchange. I daresay most of your Lordships will agree with that; but, without
906
stretching the imagination too far, I can think of a most unpleasant situation in the Arabian Sea, when our maritime forces, both sea and air, could be stretched to the limit and beyond, before any general nuclear exchange had taken place.
When we leave Aden next year it is certainly not impossible that Colonel Nasser may move in. Suppose he does. He could, I imagine, if he wanted, get control of the Red Sea, the South East Coast of Arabia and those pipe-lines to the Mediterranean. If he did that, and if relations with Russia became strained, as has happened before, I should be surprised if Russia did not get some of her submarines down from Vladivostock and station them in the Indian Ocean and perhaps the Aden area; and I should be surprised if she did not get some more of her submarines down from the Black Sea and station them at Alexandria, where we stationed our submarines in the last war and from where we carried out such devastating attacks on Rommel's supply lines.
I can visualise Russian maritime aircraft ranging over the Arabian Sea and locating our tankers on their way from the Persian Gulf to the Cape—for, of course, the Canal would then be closed—and directing her nuclear-powered submarines. with their enormous speed and almost unlimited endurance, on to them. It seems to me that most unwelcome pressure could be brought to bear on us in this way before any nuclear exchange took place unless we had substantial anti-submarine forces down in the area and a base from which they could operate. For a while, the anti-submarine ships themselves could work with the use of fleet support ships, but before long a base would be required for docking, repairs, recreation and so on, for I believe that both Singapore and the Cape are too remote. In the Mediterranean could not Russian submarines based on Alexandria create havoc with our oil tanker traffic from Libya? And should we not then be very sorry indeed that we had virtually no Fleet in the Mediterranean and no base at Malta?
As I say, we should need substantial anti-submarine forces to counter this submarine threat to our oil supplies, both in the Arabian Sea and in the Mediterranean. Where those anti-submarine forces are to come from, I cannot imagine. Our CENTO allies could perhaps

907
help, but only marginally, for they have only small navies, even smaller than our own. Looking at the list of forces in the White Paper I cannot see that we can produce any substantial quantity from there. As an indication of our naval weakness, I have recently read in the Press that we have not even sufficient ships to provide for a Navy Week at Rosyth this year; and in the near future we are to hand over the NATO appointment of Commander-in-Chief Mediterranean to an Italian admiral. I understand the reason for these examples, but I find them deplorable, for they point all too clearly to the fact that the Navy is already numerically well below a prudent safe limit.
There is, of course, no easy solution to this problem, and what I am afraid of is that the noble Lord who is going to reply to the debate will simply say that we cannot afford the Armed Forces we require. If this is so, I earnestly hope, though I doubt, that the country understands what a grave risk we are taking in not paying up our insurance premium. It is no use imagining that when trouble comes we can press a button and then have the larger forces we require, for it takes years to build ships and aircraft, and years to train the crews to man them; and we are most unlikely to be given years. If we are lucky, we shall have months, or perhaps weeks; if we are unlucky we shall have minutes, or perhaps hours. We were told last year that we would not undertake major operations in war except in co-operation with allies. We may not wish to; but unfortunately these matters are not always under our control, and certainly in the last war, and certainly much against our wishes, we had to manage for a long time without the help of any allies.
To move from the Arabian Sea, I thought of referring to the shortage of carriers this evening; but I feel that this has been sufficiently covered over the year, and I say only that I just do not believe that a few F 111s, working from island bases in the Indian Ocean, can effectively take the place of carriers. I trust that when our present carriers have had their day there will be some smaller and cheaper carriers—mini-carriers, if you like—to take their place; something much smaller and cheaper, as was suggested
908
by the noble Lord, Lord Teynham, that can operate with the V.T.O.L. aircraft. I wonder whether we should not follow the example of Spain, and buy a few ships like the U.S.S. "Cabot", a ship of 15,000 tons and 32 knots, which can carry about 25 aircraft. This might fill the bill and would save a lot of money. In passing, I believe that these high speeds such as 32 knots will be essential for most of our ships in the future, to help to balance the high submerged speeds of nuclear submarines.
Now a word about over-stretch. I see right at the beginning of the White Paper, in Chapter 1, paragraph 2, that reduction in over-stretch is now being achieved. The paragraph goes on to say that large numbers of Service personnel and families are being brought home. But the fact that personnel are brought home, though perhaps it may help, does not necessarily overcome what I understand is meant by over-stretch—indeed, it may aggravate it. In addition to separation from home and family, I understand "over-stretch" to mean, briefly, all work and no play. That is no good to anyone in peace time. We expect it in war; it is all part of our business. But in peace time we must have sufficient forces to carry out our commitments, both in operations and in exercises, and to allow an adequate margin for relaxation and recreation. If we do not do this, we shall soon most certainly have a discontented Service, and recruiting will surely suffer. In this connection, I wonder whether the noble Lord who is to reply to the debate could say how many lieutenants, lieutenant-commanders and commanders have applied to retire during the last two years. A comparison between this figure and that for the years 1960 and 1961 might show a surprising increase. If it does not, I shall be one of the first to be very pleased indeed.
I turn now to page 20, paragraphs 42 and 43, of the White Paper. This reads as if our negligible force in the Mediterranean has been doing its best to fill odd gaps around the station and indeed outside it, and no doubt in consequence forgoing the peace-time flag-showing cruises we used to have and which are so important from the prestige and trade points of view; and forgoing periods at Malta where families may be waiting hopefully, but in vain. I wonder whether I might just read out those two paragraphs? They are quite short, but they

909
are most illuminating. This is what it says:
"On several occasions ships intended for the Mediterranean station had to be sent East of Suez for operations off Beira and Malaysia. It has also been necessary to reinforce the West Indies station by one frigate from the Mediterranean. To balance these reductions in the Mediterranean, units of the Home Fleet were detached to the station for visits when opportunity occurred.
"Some of the ships, which regularly pass through the Mediterranean on route to and from the Far East and Middle East theatres, also stopped there for occasional visits and exercises."
This might be regarded as an indication of flexibility, and I would absolutely agree with that. But I would also call it "overstretch"; and the example which I gave of the lack of ships for a naval exercise at Rosyth, owing to a requirement for them to take part in a NATO exercise, looks to me uncommonly like over-stretch. I know how important the Defence Minister rightly considers a reduction in overstretch to be, and I only hope that he is succeeding in reducing it. Somehow I have grave doubts.
That covers the points I wanted to put to your Lordships this evening. Perhaps I may sum up by saying that I believe it is vitally important, so far as the Navy is concerned, that over-stretch should be overcome, and overcome quickly. And the proper way of doing this, if I may suggest it, is to stop our dangerous downward slide in naval strength and build up a class of mini-carriers, and to see that our anti-submarine forces (including nuclear-powered submarines and maritime aircraft) are at such a strength that we may at least be in a position to deal with a likely submarine threat in the most vital areas.
7.2 p.m.
LORD THURLOW: My Lords, I seem to have got into a naval bloc of two distinguished sailors ahead, two astern; and an Admiral of the Fleet who I thought was safely over the horizon has now come back again. But I will not follow my noble friends, though I entirely agree with a great deal of what they have said. Having been to Malta fairly recently, I agree that it is tragic to see that the British Navy is hardly visible there at all.
As has been said already, our main criticism of the Government is that they
910
are proposing to impose arbitrary cuts in overseas garrisons to save money without any clear political or strategical aim; with no regard to the unexpected in the future; and, we suspect, without paying much attention to the feelings of our allies. Surely to-day we are members of a team, and therefore we cannot walk off the field. Admittedly the French have walked off the field, but they are still kicking about on the next pitch, and they would be quite ready to join the team in an emergency. We are not saying that cuts are wrong, but arbitrary cuts which are imposed only for financial reasons, and with little regard to existing and future possible commitments, must be wrong. So, if we accept provisional cuts in the British Army of the Rhine, we want to know a great deal about the strategic and political implications and about the attitude to this of the Supreme Allied Commander, Europe.
So I would ask the Minister what our Allies think of this proposal, and ask him also whether Belgium and Holland are going to pull out a fifth of their troops, too—because it would not surprise me at all if they did. I hope that he can give us reassurance. Presumably this matter had already been carefully studied before this decision was made. We are not in Western Europe only to protect Western Europe: we are there to defend ourselves. And do not let us forget it. The Channel may have saved us last time, but it will not again. The British invention of the hovercraft, which has been quickly seized upon by others, alone would see to that.
As regards the Far East, the Minister said yesterday in another place that it would be possible to reduce the number of men and women working in or for the Services by about 20,000 compared with the total at the end of confrontation. Is this a reduction on the figure before confrontation, and are there any reasons other than financial stringency for it? If there are, what are they? And what will be left after 20,000 British troops have been brought home? We might accept the decision to reduce to the pre-confrontation figures, though, speaking personally, I deplore the reduction of 4,000 in the Brigade of Gurkhas who are invaluable for service in tropical countries. But any further reduction of our pre-confrontation figure is surely unwise until the situation improves considerably. There

911
is no part of the world which has such ominous possibilities in the future.
Then what do Australia, New Zealand and the United States think about it? Or is it the Government's policy now to disregard their views? In the Daily Telegraph there was an excellent article a day or two ago. It said:
"To put it bluntly, our allies have great admiration for the quality of the British forces but they feel that if you scratch the surface of British intentions you find a Government that just doesn't want to know what its commitments mean."
The article ends:
"When the Minister of Defence does detail his cuts he should also say clearly what our policy now is towards Far Eastern commitments. Vague assurances of 'continuing interest' are no longer enough to convince America and Australia that we are not merely covering up an underlying intention to pull out altogether."
I would ask the Government spokesman to answer these points, which in our view are very important.
The Government have never given any reason for abandoning their oft-expressed policy of increased conventional forces, and it appears that they intend to reduce the Defence forces to the bare minimum to deal with the problems of to-day. Surely it is a terribly dangerous step, and one that might have the most serious repercussions in the unknown future. Are we quite happy at dropping from being militarily a second-class Power to being of the third or fourth rate? We know that we can no longer afford to stand on our own militarily: we are dependent on our allies. But these allies expect us to continue to play our traditional part in the defence of the Free World and all that we fought for at such great cost in the past.
Though the Government appear to be quite oblivious of it, it is still, rightly or wrongly, a fact that the countries of the world pay a great deal of attention to military capability. Our voice is still listened to with a certain amount of respect as a result of our past record. We are still dependent for our food and livelihood on the security of the sea lanes and on our overseas commercial interests. That is why we cannot afford to commit the tragic mistake of former years and allow our defences to be reduced below danger point. The Minister
912
of Defence is reported to have given assurances in Malaysia, and on his return, to the effect that we can always reinforce a small garrison out there if need arises; and the noble Lord, Lord Shackleton, has said the same thing to-day. Of course, we can reinforce existing garrisons anywhere if we are up against a very poorly armed enemy, but even in limited war if the enemy is well armed, a reinforcement force will need a great deal more equipment than can be carried in the aircraft which could be made available.
Then there is the very important question of training troops in this country for operations in different climates and conditions. This point has already been touched upon by the noble and gallant Admiral of the Fleet, Lord Fraser of North Cape. Noble Lords who have served in the Army will have taken part in many TEWTS—tactical exercises without troops. Is it proposed on Salisbury Plain to introduce JEWTS—jungle exercises without trees; or DEWS—desert exercises without sand? How do the Government propose to train and acclimatise the Army in this country?—for they will not be acclimatised in these conditions. This underlines the folly of giving up Malta, where some degree of acclimatisation can be carried out in pleasant welcoming surroundings, with modern barracks and married quarters on which so much money has been spent recently.
I am very glad that to-day my old friend and colleague the noble Viscount, Lord Monckton of Brenchley, made his maiden speech, and I heartily congratulate him on it. I was very glad to hear what he said about Malta and I warmly agree with him. The position was also most ably put by the honourable Member for Northampton, Mr. Paget, in another place on March 6. He described the Government's policy regarding their decision to abandon Malta as, "the craziest of all". He gave a number of other good reasons for retaining our garrison there, but omitted the very important one of acclimatisation. These obvious criticisms make one wonder whether the Ministers of the Defence Departments know anything about operations, training and logistics, or whether they ever take professional advice. Or perhaps, if they do, it may be that their senior colleagues will not listen to them.

913
A great deal has been said in another place about the accommodation to be provided for returning units. I wish to make only three points which seem to me relevant. These reductions overseas have caused very much concern. We have heard statements in another place about a number of new barracks which are being provided, and about a large number of married quarters which are to be built or bought. We now know to-day that 20,000 are coming back from the Far East and that a Brigade Group, which I presume is about 6,000, will be coming from the British Army of the Rhine by April of next year. I should like to know, therefore, whether accommodation is being provided for 26,000 troops. I should like an answer from the noble Lord, Lord Chalfont, on this point. What are the Government going to do? If accommodation is not being prepared, are the Government planning to disband the troops or to amalgamate units? This is very important and we should like an answer. If the troops are to be disbanded, what is the total figure of the Army to be?
Secondly, I am convinced that there will never be enough training areas in this country. It is obviously out of the question to take any more agricultural land, and the wild mountains and moorland areas, such as exist in Northern Scotland, are not at all suitable for formation training for a mechanised Army. The Government must face the fact that, although a Minister in another place said that it was hoped to purchase more training areas, this country is too small. Therefore I suggest that, with the help of the Navy and the Royal Air Force, more training should be carried out in other countries. This would be immensely popular and would do much to counteract the boredom of a home-based Army, hemmed in by the restrictions which exist in the present available areas; and it might do something towards acclimatisation and the understanding of tropical conditions. I hope that the Government will also remember that our forces are splendid ambassadors, quick to make friends, defeating all language barriers and generous spenders. They can do much to restore our declining prestige.
I think the Government have made a mistake in disbanding, as they have just done, the district headquarters in this
914
country, if many units are being brought back. I know, having been a district commander myself, the enormous amount of administrative work which is involved in looking after only a few Regular units, even if they are under somebody else's operational command. It is wrong that operational brigade and units staffs should be bogged down in the endless paper demanded by our bureaucracy, both national and local.
Lastly, I should like to make a point about community assistance. A special study has now been made of this by one Command, and I am sure there is a great deal in it. The impending withdrawal of so much of the Army to the United Kingdom will require a readjustment of Service outlook, so that military resources are used more extensively for the benefit of the community. The need for the Army to share more fully in everyday life demands wider recognition. Work for the community can be designed so that it has a military value equal to that of more orthodox training. There is much to be done which civil authorities and voluntary organisations would like to do, but which, with their limited resources, they cannot do. Often such work is well suited to the Services. Also, the Army has a valuable potential in the field of youth.
There is increasing concern among many of us about the possibility of cuts. We feel that the time has now come when it is no good just lopping-off bits of the Army, yet still retaining the same framework. It is necessary to re-think the whole structure anew, if in the changed circumstances of the Army it is to be a cohesive force. If these cuts have to be made on financial grounds alone, as seems apparent, would the Government remember that while in an emergency they may be able to build up quickly quite a lot of administrative units, the same is not true of fighting troops? They can get from civilian life categories of soldiers, sailors and airmen who can follow the same trade in the forces as they do in civilian life, but they cannot lay their hands on tank and armoured car crews, gunners, infantrymen and, indeed, trained sailors and airmen. They need such a very complicated training nowadays. Their lives, and the lives of their comrades, depend on their skill which is achieved only by hard training.

915
When the Government disband teeth arm units they disband them for good. There will be no longer a "phoney" war period for starting up from scratch. Therefore, I again stress the importance of not putting into effect any reorganisation of the Army before we know the commitments and are much clearer about the future. This gives force to my argument that it is extremely unwise to cut down the infantry. It is the only arm which can be moved quickly by air, with all its equipment—except, of course, its new armoured personnel carriers. It always suffers the most casualties. It is no longer backed by a Territorial Army which is similarly armed and trained, but has only a small reserve which would quickly be swallowed up by a period of hard fighting; and, of course, it no longer has the well-trained native troops of a great Empire. In addition, the infantry provides probably the major share of personnel for staffs and training establishments, which mushroom so quickly in an emergency.
Surely a little time is needed to appraise the world situation and see how things develop in the Far East. The infantry, as constituted to-day, require security of tenure and stability. Infantry units have been overstetched and pushed around for too long. For example, the Argyll and Sutherland Highlanders have had eighteen changes of station since 1945, not counting local moves around Borneo, and eight of their moves have been outside the United Kingdom.
But if the Government insist, unwisely in my opinion, on further amalgamations or disbandments, may I put in a special, rather private plea for the position of the Scottish regiments? The move towards the large regiment, the grouping of several of the old regiments, is going well in England and has been brought about voluntarily. But in the English brigades there are not many obvious distinctions and differences between regiments: only differences of cap badges, buttons, perhaps a lanyard—that is all. In Scotland, however, officers and men join a specific regiment, not the Army, and they wear their own traditional uniform, their own tartan. Any change affects morale and recruiting. Change, if it comes, must come up from the bottom. It must be proposed by the young officers and the N.C.O.s, and not forced by decree.
916
I make this point particularly as I am aware that there are no Scottish Ministers concerned with the Ministry of Defence and, so far as I know, only the Secretary of State for Scotland in the Cabinet. I would ask the noble Lord, Lord Hughes, whether he might ask for a rise, so that at least we would get two Scottish Ministers into the Cabinet.
That leads me on to the redundancy terms, which have been expected for several months. As has been brought out by several noble Lords, there is considerable disquiet among young officers at this delay. Many officers have recently resigned in disgust, without waiting for the terms to be announced. Morale is not as high as it should be, and it is daily getting lower. The Government are losing the confidence of the Forces. There is an appalling feeling of uncertainty about the future: it has never been so bad as it is to-day. To-day, everyone in the Forces who thinks and reads at all is convinced that a Socialist Government know and care nothing, so far as the future defence of the country is concerned, and care little about the people they intend to discard. They are far more concerned with vote-catching ideas and with obtaining the money to put these ideas into effect. When the Government came in they took over the best Defence force in the world for its size, small and over-stretched as it was. They appear to be on the way to ruining it by lack of understanding, foresight and interest, in their exclusive preoccupation with schemes which will appeal to the type of elector mentioned by the noble and gallant Lord, the man whose motto is, "I'm all right, Jack …".
7.23 p.m.
THE EARL OF GLASGOW: My Lords, as a sailor, may I first add my congratulations to those already expressed to my noble friend Lord Monckton of Brenchley on a very soldierly maiden speech? I hope we shall hear him very often in this House. Like many other noble Lords on this side of the House, I read the Defence White Paper with considerable misgivings, and nothing that has been said in another place has given me any reassurance. The White Paper has been described as an exercise in accountancy. I think that is really a quite apt description. Noble Lords have already complained of a lack of overall policy, that

917
cuts have been made piecemeal, and that many of them are of a very arbitrary kind. I do not wish to labour this point, as it has already been well made.
The point that I should like to take up this evening is on the question of the apparent departure from a maritime strategy, and I should like to deal with this in its peace-keeping context rather than in its war-time context. The maritime strategy has served this country well for 400 years and longer, but at the moment, according to the White Paper, we seem to be getting away from it. While retaining 50,000 men or so in Germany—and I do not question the need to do this—we are abandoning the aircraft-carrier, we are removing ourselves from our overseas bases, and we are recalling our warships from the oceans of the world. It is with this aspect of policy that I should like to deal this evening, although I have had considerable assistance already. The noble and gallant Field Marshal has re-floated the Fleet for me, and the noble and gallant Admiral of the Fleet has already said much of what I would have wished to say. I will endeavour, therefore, to be as brief as I can.
My Lords, the situation at the moment, as I see it, is as follows. We have emerged with little credit from what I think the noble Lord, Lord Gladwyn, would describe as the scuttle from Malta; we have handed over the command of the Allied Forces Mediterranean to an Italian Admiral; and we are now embarked upon the scuttle from Aden, in the course of which operation I see a grave danger of betraying our friends in order to appease our enemies. I can also see not far over the horizon the beginning of the scuttle from Singapore. As if this was not enough, in very recent months we have removed our Commander-in-Chief South Atlantic from the Cape. Some of your Lordships may not realise what are the duties of this officer. In times of tension and trouble it was his duty to assume command of all Allied Forces interested in the defence of the Cape route, now more vital than ever before. We were under no pressure from the Government of South Africa to remove this officer. It was entirely voluntary, and the financial saving must be absolutely negligible.
918
We have heard a little of the intentions of the Government in the Persian Gulf, but I should be grateful if in his reply the noble Lord, Lord Chalfont, could tell us a little more of what is intended in the Indian Ocean. I have always understood that from a peace-keeping point of view the Indian Ocean has been regarded as a British responsibility.
My Lords, one of the planks of the Government's foreign policy has always been the preservation of world peace. I do not think there is any one of your Lordships who would disagree with that policy. I believe, and I believe very sincerely, that the removal of a British military presence—and here I am thinking chiefly, but not exclusively, of the naval presence—from such places as the Mediterranean, the Middle East, the Cape, and even the Caribbean, is doing no great service to world peace. These are areas in which for 200 years we have exercised an absolutely decisive influence for peace and stability, very often with extremely small military forces. The Pax Britannica of the last century was maintained because the White Ensign was flying in almost every port in the world at any given moment, and it kept the peace for 100 years. We are turning our backs on this, and I regard it as a very serious step. We cannot of course afford to do this now—of that I am absolutely aware—but it is a very different matter from withdrawing our naval presence altogether from parts of the world where we have been for so long predominant. It is too often forgotten that the Royal Navy can be and has been the most powerful force for peace since the Roman Legions—and it could be so again with a little assistance.
There are also our national responsibilities. This country still has financial assets and long-standing interests all over the world. Are these to be undefended? Patriotic British businessmen are working in small and large, comfortable and uncomfortable, parts of the world trying to push our exports, on which the Government rely so much for our financial recovery. Are we to let these men remain unsupported because we have taken away all the ships?
I have always found it quite impossible to persuade either professional politicians or civil servants of the importance of this rather material activity called,

919
"showing the flag", to which the noble and gallant Admiral of the Fleet has already referred this afternoon. I know that to some this sounds at best as though it were a sort of large luncheon given by a firm to many possible customers on a very large expense account. I speak with some knowledge of this particular activity because over a period of 35 years, during intervals of furthering my naval education, exercising at sea and the fighting of wars, I have been doing little else. I should like to assure the House that the expense account does not in fact cover the performance, either for officers or for ratings. I know this very much to my cost; but I do not believe that those of us who have spent quite a lot of money entertaining foreigners in foreign ports have ever grudged a penny of it.
I think it would be fair to say that a successful visit of a British ship to a foreign port—and these visits are successful; sailors are good at this sort of thing—can do more good in a short time than official visits, welfare visits or all the other types of visits that take place. As the noble Lord, Lord Thurlow, said, our soldiers and sailors are the best ambassadors we have. Let them loose, and they will do the job for us. The effect on the British communities in these places, whether it be of the visit of a single frigate to a small port, or of an aircraft carrier or a squadron to a large one, is dynamic. I know from experience the amount of good that it does. This aspect of our world-wide naval presence should not be forgotten, and neither should the support, comfort and help it gives to those of our countrymen abroad who are trying to help us to get on our feet.
In conclusion, I should like to put into slightly different words what the noble Lord, Lord Bourne, told us a short time ago; and I agree with every word he said. We do not yet live in a perfect world. The influence for good that we can exert still depends on the size and quality of our military forces and, perhaps even more important than military forces, on the will to use them to stop wars and to prevent small conflagrations from escalating. My own fear is that, if our present Defence policy is continued to its logical conclusion, we shall find overnight, and possibly rather to our
920
surprise, that we have become a fifth-class Power. I read recently that our prestige in the Far East was now considerably below that of the French and only a little above that of the Portuguese. This is a very high price to pay for more schools, more hospitals, more roads, more pensions and more free teeth. I honestly believe that the average British voter, if he realised what was going on in his name, would not stand for it. I am only too well aware of the hideous cost of the defence programme in this technological age and the size of the problem that it poses. But let us please look first not at a "cash ceiling", but at our worldwide responsibilities. Let us try to meet those responsibilities in the most economic way we can, even if certain sacrifices have to be made at home. If we do not do this, I am convinced that the voice of this great nation will cut very little ice in the councils of the world.
7.35 p.m.
LORD AMPTHILL: My Lords, once again this great and hallowed debate on Defence is drawing to its close. Again it is my privilege and my duty to address your Lordships in the closing minutes of the last dog watch. It always seems to be my fate to do that, but I will not detain your Lordships any longer than I can help. I shall be assisted in this because obviously a number of noble Lords have heard the pipe: "Cooks to the galley", and have left the Chamber. This relieves me of the responsibility of replying to any points they may have raised. In any case, most of my noble friends have already said what I wished to say. But I must just refer to the remarks of my noble and gallant friend Lord Montgomery of Alamein, who has had to leave us. He said that he refloated the Navy. This is from a slightly guilty conscience; because last year he did the opposite and we had to dis-rate him in conversation outside the House. But when he returns from Libya, we may well offer him honorary membership of the Navy League.
My Lords, I have never found it particularly easy to make a worth while contribution to these important debates on Defence. I must say that this year I find it unusually difficult, because the White Paper (Cmnd. 3203), of which we are called to take note, leaves so much of real importance in the air. For example, paragraph 42, "Planning for the Future",

921
under the heading of "Combat Forces"—I wish we could get away from that horrible American expression—says merely:
"It is hoped to announce further plans later this year."
Does that mean that we are to have another Defence White Paper and the opportunity of another debate? I hope so.
Later, in paragraph 61, appear these words:
"Although we cannot now settle the shape of the defence organisation for the 1970s, we can insure that any further changes will be decided and introduced as quickly and smoothly as possible."
I find that paragraph slightly difficult to follow, because if we do not know the shape of the organisation how are we to ensure that:
"further changes will be … introduced as quickly and smoothly as possible."
However, I freely admit that it is very difficult to foresee precisely what our Defence requirements may be in the 1970s. Nevertheless, the attempt must be made. It is the responsibility of the Government of the day to do so. Moreover, the Government of the day, unlike humble Back Benchers like myself—and unlike even my noble friends on the Front Bench—have available to them masses of information (through diplomatic, Intelligence and other sources) which should enable them to make intelligent forecasts.
During the last war we had a body of able men safely in some dug-out in London who were known as the "Fops"—the Forward Operational Planners. I am sure that to-day we have "Forward Contingency Planners". I am equally sure that they are able, intelligent men, and perfectly capable of preparing plans for the 1970s. In fact I suspect that they have done so already. I also suspect that it is the cost which frightens this Government. However, we do not have to have special staffs, special sources, or any unusual amount of common sense to predict with some certainty quite a number of things that will be with us in the 1970s; and of these I propose to give the most important examples. Naturally, I start with the oceans of the world. Those of your Lordships who have listened to my previous speeches know that I am a fervent advocate of maritime strategy, but I shall not pursue that to-
922
night because it has been pursued so ably by a number of my noble friends.
At any rate, the first important thing which will be with us in the 1970s is the oceans of the world, free to all from let or hindrance, and free of political interference, if only we and our Allies provide and maintain sufficient of the right sort of forces to keep the freedom of the seas. Secondly, we and our Allies, particularly ourselves, will still rely on the bulk of our requirements being carried by sea. Thirdly, our potential enemies must surely have learned the lessons of the last two wars, when we were brought near to defeat by the violent attacks on our sea communications. My noble friend Lord Ashbourne has already drawn the attention of your Lordships to the potential menace of the Russian submarine force, and so it is unnecessary for me to discuss that further. These three factors, my Lords, are probably the most important which it is safe to assume will still be with us in the 1970s, as in fact they have been for many years.
There are other factors which can be recognised and taken into account, and I should like to refer to them very briefly. First, there is the "diminishing base" factor to which I have often referred in your Lordships' House. This has been operating faster and faster since I first coined the phrase several years ago during one of these debates. Malta, Aden, Simonstown and others are no longer available, and now Singapore, as one of my noble friends has said, looks like joining the list of those which are on the way out or are out. Strategically this may be justified, but I do not want to go into that to-night. However, something must be put in their place to support and nurture the amphibious forces which, in my submission, we shall still require.
Years ago, when I first went to sea, the world map was dotted with red spots, every one of which was a coaling base. Everywhere one went during World War I one found a collier waiting with open hatches, with coaling shovels and bags. Well I know that, for I can still smell the coal dust in my nostrils, as I suspect can my noble friend Lord Teynham. In World War II we still had many bases, and at them we found the ubiquitous tanker from which to replenish. Since World War II the art of taking in oil at sea has been brought up to a fine pitch.

923
But this is not enough. Tankers themselves have to be replenished from time to time, and for this purpose they need a port; and while at sea between their filling up point and operational zone they are a constant liability, having need of protection and escort.
All this about bases brings me to the inescapable conclusion that over the next twenty years we must move towards a situation in which all our major naval ships and vessels are nuclear powered. I should have liked to see some mention of this in the White Paper as a long-term plan. After all, one of our fleet submarines which has a British built and fitted nuclear power plant has just completed a 12,000 mile voyage submerged, so at any rate we have the experience.
May I get back to what we shall find in the 1970s, my Lords? In my opinion, what we now describe as the newly independent nations will still be there, a little less newly independent but still new in terms of world history. They are exceedingly unlikely to have stable Government on the Westminster model, and they will still be sensitive to such matters as over-flying rights, bases, airfields, et cetera. Moreover, by that time, judging by what one knows is going on at the moment, they will have acquired, in one way or another, a frightening quantity of sophisticated arms. No doubt your Lordships saw in the newspapers that the mothers and children who are being brought home from Aden had to make a detour of 1,500 miles because of some restriction on over-flying. I am very glad to see that the noble Lord, Lord Shackleton, arrived home safely from Aden. I understand that he is to go back shortly, and I only hope that he will not have an unnecessarily prolonged flight due to restrictions on over-flying.
In the event of trouble there is a need to protect our interests, the main one being the safe and timely arrival of the supplies needed by the Free World, mostly, I think, by us. It is our declared policy that we are not going to fight any war ourselves; we are going to count on the assistance of Allies, with the United Nations and so on. In planning our defence forces for the 1970s we must surely take account of the fact that our main Allies are the United States of America and the older Commonwealth
924
countries. There are a few others, but they are very small and could give us only limited assistance. Alas!, my Lords, the United Nations has not yet developed into the world force for peace for which we had hoped, and I fear that it is unlikely to overcome its present difficulties and defects before the end of the 1970s. Therefore I think that in our planning for the 1970s we may safely assume that in the main the United Nations will not be of much help. Of course, the contingency planners have all these facts in mind and many others. I have not referred to the difficulty which has been mentioned by some of my noble friends about the German problem. That is a long legacy of the war, with the Berlin Corridor and the rest of it.
These facts I have tried to set out as briefly as I could, and I feel that I have done so incompletely. They lead to the conclusion that we must plan in the 1970s for three amphibious, tri-Service task forces. I do not intend to detain your Lordships by expounding my views on the detailed composition of these forces. I am quite clear in my own mind of what they should comprise. Some of my noble friends have mentioned many of the components which I think we should need. I will confine myself to saying that each task force must include an aircraft carrier. Here I may say that I have never been in favour of building the carrier described as C.V.A.01. I used to think that smaller carriers were preferable—I thought that you could get two or three for the price of one—but on further consideration I have come to the conclusion that aircraft carriers must be large. This is to do with the number of aircraft they can embark, maintenance facilities and all that sort of thing; but nevertheless, even if they are large I still think that their design may be simplified. After all, we are not going to expect our carriers in the middle 'seventies to fight battles of Midway or Matapan. Their main purpose will be as offshore air-strips.
I was further influenced in this view by the realisation that we now have the technique of building very large ships very cheaply. I read in the technical Press that tankers of 100,000 tons, and more, can be built for £60 a ton; and if we laid down three of them we should probably get them much more cheaply than that. In my view, such ships can be made to carry and

925
fly the whole range of aircraft likely to be available to us in the 'seventies, or even further ahead. Most important, they would have the speed, the space and the facilities to service these aircraft anywhere in the world. There would be no need to develop island bases at great expense, bases which would be even more vulnerable than aircraft and could be put out of action by one Chinese junk and a few determined men.
The cost of the whole Defence programme is fantastic, but this great country must, and can, afford adequate forces for our defence. What we cannot afford is a cut-price insurance policy. We have had plenty of examples recently in other spheres of what disasters follow from a cut-price insurance policy. I read this morning what (he noble Lord, Lord Bourne, mentioned: that the Chancellor of the Exchequer has said that we are going to take on another 7,500 civil servants this year, and that by the end of the year the total increase since the Socialist Government came into power will be 46,000–12 per cent. plus. If we can afford this additional burden of more people sending income tax claims to Samuel Pepys (there is no doubt that your Lordships saw that brilliant effort the other day) we can surely afford proper Defence forces.
Mention of Samuel Pepys reminds me that 300 years, plus a few months, ago the cry was heard here in Westminster: "The Dutch are in the Medway". The ancestor of my noble friend Lord Albemarle mounted a horse, rode to Gravesend and organised a spirited defence. We are not likely to hear that cry again, but we are likely to hear, as a result of the Government's present Defence policy, something much more sinister like: "Nasser is in Aden", or "The Chinese are in India". Noble Lords opposite will not have horses to mount. Perhaps they will get on an F 111 something or other and fly there. Let us hope that they find a concrete landing strip to come down on.
7.54 p.m.
LORD ST. OSWALD: My Lords, in picking up the final words of the noble Lord who has just spoken, I shall this evening restrict myself to one issue only, the most acutely painful and perhaps the most immediately perilous issue of the day—our threatened, precipitate withdrawal from Aden. Five days ago I flew to Aden, returning on Sunday. I did this
926
because I had not been there for five years and I felt that some speaker on this side of the House should be able to base his words on recent observation. I did this not to argue with the noble Lord, Lord Shackleton, but rather in the hope of finding some common ground with him from common observation. As all of us in this House would expect, I found when I was there that the noble Lord had won for himself the respect of those who met him. They found him a patient, attentive and sympathetic listener. He has left behind him in Aden hopes that this sympathy will bear fruit—and perhaps that fruit will be gathered after he returns there.
I am not going to set my two days against his fifteen, aided as they were by a Comet-load of assistant fact-finders—experts every one. But thanks to the helpfulness of Sir Richard Turnbull, in my two days I was able to see the High Commissioner himself, the Commander-in-Chief and other Service Chiefs, the Commander of the Federal Army; and also, most essentially, I was able to speak to some of the senior Ministers heading four of the main Departments of the Federal Government and to a number of Federal Government officials. For all this help I know how much I owe to the personal, almost fraternal, introduction of the noble Lord himself who, unhappily, had left before I arrived. The very intensity with which I had to use my time has engraved certain impressions, and the convictions of those with whom I spoke, on my mind.
First of all, I am certain that there is something adundantly worth defending in the South Arabian Federation. That seems to me the first demand of a Defence policy. And it is worth defending for its own sake and for ours. This is a debate on Defence, and on thinking out what I should say I found myself bringing in material facts to illustrate this aspect of the worth of the South Arabian Federation, the aspirations of its leaders to-day. Rather reluctantly, I have excluded this for the sake of brevity, and because such detailed matter falls outside the strict scope of a Defence debate. But I must stress that the men I spoke with were nationalists, in the best sense of the word. They themselves feel, and they wish to create in the territory, a sense of loyalty to the nation they are building.

927
In this context, I have two criticisms and only two criticisms, of the noble Lord in his mission so far, and as I have never flinched from his criticism it may be better to state them early and set them behind me. It appears that on arrival in Aden he had referred at a Press conference to the terrorists as "Nationalists". I was taken aback when I read it, and later learned that others among those whose interests he was and is most ably seeking to serve were taken aback, and indeed offended. I am very ready to accept that this was a remark taken out of context, and that at worse it must have been one of those vernacular slips which seem more fundamental and calculated than in fact they are. But it seemed to imply that in the view of Her Majesty's Government the terrorists, or extremists, to seek a more euphemistic term, are the true nationalists and patriots, more so than the Federal Government itself. The exact reverse is, of course, the case.
LORD SHACKLETON: My Lords, the noble Lord was good enough to tell me that he was going to raise this point. As he knows, I am very anxious to say nothing which is liable to make my mission more difficult. Although I was exceedingly careful in my Press conference, there is always a possibility of misunderstanding. As one with Irish family connections I do not wish to suggest that terrorists are not necessarily nationalists. I believe this to be correct. But I certainly would not wish the corollary to follow; that there are not others who are not themselves pursuing courses of terror but who are not as determined to seek the national interest and therefore to be called nationalists. But the use of these terms is always somewhat misleading. Without wishing to take refuge in the statement that this is semantic argument, I fully take the noble Lord's point. It is terribly difficult to say anything, in Men that will not offend someone. Clearly at some time I may have to say things that offend some people. But I do not wish to erect any obstacles in the way of what I may or may not be able to do.
LORD ST. OSWALD: I completely accept what the noble Lord has said, and I take into account, of course, his Irish background and prejudices. From my observations I would say that of the
928
two terrorist organisations FLOSY is the paid servant of a foreign and power-greedy Government. Its two main organisers, Makkawi and Asnag, are better known in the world outside than they are in the territory of the South Arabian Federation, except for the villages of Crater and Sheikh Othman. Neither of them has ever visited any State in the Federation beyond Aden itself, and nobody outside Aden even knows what they look like. The rioters and ruffians whom they employ are not nationalists in any sense which we could accept; they are hooligans and unemployed toughs, in it for the pay and loot. They are almost entirely Yemenis, with no permanent stake in Aden. And I cannot believe that there is any connection between them and the noble Lord's ancestors in Ireland.
In the troubles from February 10 to 13, for instance, 19 Arabs were killed in the riots, of whom 17 were Yemenis and one came from the Hadramaut; that is to say, only one was a citizen of the Federation. In the view of most of the men to whom I spoke and who were closest to the problem, the other organisation, the National Liberation Front, are regarded as being more nearly nationalist in their character and composition; but this organisation also operates through terrorism, and was also spawned initially by Egypt; and the indications are that it is still paid by Egypt.
My Lords, these considerations, to my mind, come clearly within the ambit of this debate. The defence of South Arabia is divided between two separate commitments, confronting separate attacks, and these should be two quite separate responsibilities. There is no dispute between us across the Floor upon this point. There is no argument between the Federal Government and Her Majesty's Government. The attack from within, the immediate and so far unsuppressed campaign of terrorism and civil disorder, should and must become the responsibility of the Federal authorities. They are determined to accept that responsibility and they are confident that they can discharge it within a matter of months. Indeed, they will take over full responsibility in this respect in the whole territory outside Aden as from July 1, and this comprises all but 1/400th of the

929
territory and 5/6ths of the population. Nine weeks from to-day the whole of this area will become entirely a responsibility of the Federal Army, and well within this year they intend to take over the internal security of the Aden State as well. They cannot do so at the moment, because they are at a stage of expansion from five battalions to ten battalions, and some of the best officers and N.C.O.s are therefore engaged in training.
Before going further, I will, as promised, express my second criticism of the noble Lord, Lord Shackleton, in his most valuable mission, in which we all, and I as much as anyone as he will know, wish him the most complete success. In his enthusiasm for the task he had been set, he stated (and this is a conscious paraphrase) that he would go anywhere and see anyone connected with the terrorist organisations. We know this to be characteristic of the whole-hearted vigour which the noble Lord puts into anything he undertakes. Others, who do not know him, saw it otherwise. To them, it seemed that we were ready to make a pact not simply with the Devil himself, but with the Devil's meanest and lowliest lieutenants—the Devil's hired assassins—in our desperate urgency to abdicate all authority or responsibility in this area.
LORD SHACKLETON: My Lords, I am reluctant to join in at this stage, because it is obvious that any remark that I make is going to flutter a dovecote somewhere. I must make clear that certain of the opinions of the noble Lord, and indeed certain of his statements with regard to the taking over of security, are matters still to be examined and considered, and I hope that he will not press me on this subject. Certainly I said that I was willing to go anywhere and see anyone. The first people I called upon were the Federal Government, and I believe I established good personal relationships. I do not think, however justified it may be, that it would be advantageous for me to join in labelling anybody at this moment with a particular type of characteristic. Indeed, the terms the noble Lord applied to the terrorist organisations were undoubtedly applied to Irish terrorists who subsequently be
930
came patriots, and with whom the British did business.
I want to be very careful on this matter, but I would repeat firmly that if we are to achieve a settlement here it will be necessary to talk, and, so far as I am concerned, I am willing to talk to anyone. This, I think, must be accepted, and Her Majesty's Government are not laying down terms in advance, as unfortunately FLOSY has done. But Makkawi and Asnag are well known to people in Aden. Certainly there are those in Aden who regard them with considerable respect, and this will be found even in the Federal Government. Therefore I only say that, so far as I am concerned, I leave all options open, and I hope that no one will read more into what I have said previously or what I am saying now. I hope that I have made my position clear.
LORD ST. OSWALD: My Lords, I think the noble Lord has made his position clear. I think that later on in what I have to say we shall find ourselves in some dispute, but I am sure the noble Lord will not mind that. What I have said brings me fairly naturally on to the second aspect of defence; that is, against the other form of attack to which South Arabia may be submitted, and against which the Federal Government and Federal forces cannot be expected to defend themselves.
LORD SHACKLETON: My Lords, may I interrupt the noble Lord once more? There is one thing that I regret I did not say earlier, and I should like to take this opportunity of saying it. It is not only English lives that are at stake. I am sure every noble Lord will agree that the real tragedy of what is going on is the killing of Arab by Arab. This is something which is a great source of sorrow. Indeed, it is arguable that they are the ones who may suffer the most.
LORD ST. OSWALD: Indeed, I may say that one of the achievements of the noble Lord while he was there, as I can witness, is that he got his own personal concern across. That is part of the good that he has been able to do. But I have moved on to the wider form of warfare, when Arabs of the Federation may be killed by others from outside the country; that is to say, by forces invading the

931
country from whom they cannot be expected to defend themselves. It is in this sector that they feel themselves betrayed, and indeed brutally betrayed, by the present British Government. I am speaking, of course, of invasion by a foreign aggressor from over the frontier. There is no pretence, so far as I know, that they can deal with this. Yet our Government have stated their intention of removing the whole of the British defence which at present we provide and which they had every reason to expect would be provided for at least some time in the future.
We cannot, I suppose, nor would I wish to, go over again the issue of whether the British pledge to the Federal Government was broken or not. Suffice it to say that those who gave the pledge and those who received it both consider that it has been broken, as my noble Leader said earlier to-day; and so does everyone most closely concerned except Her Majesty's Government, who by some morality of their own are pleading innocence while the world cries "guilty". Great delight is given to Egypt, presented gratuitously with another means of discountenancing Britain.
What has to be realised (and I doubt from their statements whether Ministers do realise it) is that President Nasser will be content only if he can show the world—in particular, of course, the Arab world—that he has not only forced us out but panicked us. He is determined to rub our noses in defeat. In this operation he is obtaining, in the opinion of a watching world, the aimless, unwitting collaboration of Her Majesty's present Government. If he can call attention to the fact that we have broken our word, then indeed "bully for him" and his ambitions!
For us to-day on this side of the House it is not even necessary to argue from the basis of a broken pledge. For us it is clear that, even if that pledge had not been given, the necessary measures of defence for this new country would have to be afforded by a British Government. After 130 years we cannot pull out and leave, in a state of defenceless chaos, those who have been our loyal friends, who have stood by us when we needed them, and who undoubtedly need us more than ever in the hour of independence. What the Government appear
932
prepared to say to them—and I do not, I am afraid, care how harshly I express this—is: "You have been our friends. Because you have been our friends you are on the black list of our mutual enemy. You will undoubtedly suffer from that if we leave you entirely alone. Nevertheless, we are proposing to do precisely that." The language will be more diplomatic, but the meaning contained will be as raw as I have stated. Or do the Government claim that the new State would be able to defend itself against an Egyptian Army, with a modern Air Force, a force which I believe even now nearly matches our own stationed in Aden? They cannot possibly, I believe, claim that. Therefore, present policy means surrendering Southern Arabia to her enemies.
My Lords, it is inconceivable to me that the noble Lord, Lord Shackleton, would associate himself with the implementing of such a decision, after seeing the situation on the ground and meeting the people most closely concerned, including those, as I see it, condemned by the present policy. These are people as indigenous to that territory as we are to these islands. They are not, as the noble Lord now knows, a set of narrow, haughty men trying to exclude everyone else but themselves from power for selfish purposes.
There has been a rational appeal from Her Majesty's Government that they should broaden their Government. This on the face of it, and indeed in depth, is reasonable. Nor is it opposed. A senior Federal Minister said to me three days ago: "We will broaden our Government to the limit. That limit is bounded only by a determination to serve South Arabia. We cannot and will not bring into our Government men paid by another country to destroy our new State from within." I ask the Ministers on the Benches opposite, and their colleagues, as reasonable men: Can they deny that this is the attitude of the Federal Government, and can they ask more of that Government? I have spoken of our confidence in the noble Lord's own sense of justice now that he knows the facts. We also count upon his persuasiveness among his colleagues now that he commands the facts.
I think that perhaps little is known of the lengths to which Federal Ministers

933
have already gone in their endeavour to broaden their Government. I have been shown, on a Minister's personal file, a letter to him from Mr. Asnag, who has been mentioned by the noble Lord, written from Cairo on March 20, 1966, accepting the invitation of Federal Ministers to a meeting in Beirut on the following April 5, with the object of bringing four Ministers from the Party which later became FLOSY into the Federal Government. That letter accepted the date, the place, the conditions and the agenda. But what happened? The Federal Ministers flew to Beirut on the day appointed. Their four prospective colleagues then in Cairo were ordered by President Nasser, at the last minute, not to go.
Mr. Asnag and Mr. Makkawi submitted obediently to their master. The other two, Naib Ja'bil bin Hussein and Sultan Achmet el Fadhli, insisted that they had given their word; that this was a genuine endeavour to form a broader Government, and that they would go. They were told that their take-off would be forbidden, and they replied that they would go to the airport—publicly restrained, if need be, from entering the aircraft. In the face of this courageous and forthright conduct Nasser gave way, and the two who would not break their word flew to Beirut, only to learn on their arrival that they had been dismissed from the Party. The meeting, therefore, as planned did not take place. So much for the contribution that FLOSY, or Mr. Asnag and Mr. Makkawi, can make to the South Arabian future. They are, on the basis of the evidence of that, foreign "stooges", and no more welcome to the South Arabian Government than foreign "stooges" would be in ours.
My Lords, I make no apology for bringing such political considerations into a Defence debate, because the first essential of Defence on this internal front is strong Government, and I do not believe that the present Federal Ministers should be urged to expand or broaden their Government by taking in catspaws of the principal enemy of their country. That is weakened Government. To broaden it, of course, by bringing in delegates from the Eastern Protectorate, would be a very different matter; but I see small chance of their adherence while the pre
934
sent uncertainty continues. But if the noble Lord can achieve that, or some other broadening, then I shall look forward to being the first to congratulate him.
In my remaining words I shall ask the Government some direct questions, and I shall touch upon what I very personally believe could be done. My belief does not entail anything very extravagant, and its object is in fact to prevent extravagant losses. Honour and our own national interest are closely involved in this outcome, and I do not concede that the two are divisible. "Honour" may be an old-fashioned word in sophisticated political exchanges to-day, but that does not devalue its concrete importance in negotiation. The repute of negotiators, the credibility of their utterance, may hang upon the importance they give to it. That is especially true in the Middle East, where honour is not regarded as an old-fashioned term.
In immediate physical terms Britain stands to lose a great deal if Aden passes into hostile hands and its facilities are either confiscated or refused to us. For instance, last year Khormaksar Airport was the largest, or the most intensely used, R.A.F. aerodrome outside Britain. Aden itself was the second largest bunkering port in the world, after New York. The British Petroleum refinery supplies 3 million tons of fuel a year, which is one-fith of its total world bunkering service. To replace that refinery in another part of the world would cost £50 million, about £35 million of which would be, as I understand it, in foreign exchange.
I have asked in advance, do the Government accept these figures, because I understand that they are figures which have been submitted to them and, of course they have the means of checking them? Have they measured these figures against what they would expect to save by total withdrawal? In a different context, what have they done so far by way of preparing the Federal State for its own self-protection? I know that the assistance given to double the Federal Army has been appreciated and effective, but what of the air component? When will the complete force of jet Provosts, in particular, and also the other aircraft and helicopters, be delivered? When will all, or even some, of the necessary pilots be

935
trained? I ask this because I understand that the delivery dates and the dates for completion of training are long after any date so far mooted for the last British Serviceman to leave Aden.
What is to be done in training the Federal Army in British intelligence techniques? Will intelligence material and facilities be handed over to the Federal Army when they take over their responsibilities? Can the noble Lord, Lord Chalfont, who is to reply, say that anything has been done as yet to train them in British intelligence skills and procedures? This is a vitally important question, because it is cardinal to the success, the effectiveness, of internal defence, which is to be taken over in the very near future by the Federal Government.
My Lords, to widen my inquiries, what do the Government think would be the consequences of total withdrawal? That is not only a fair question, but it is one which we are obliged to ask and which the Government, it seems to me, are obliged to answer. What they propose has been a sudden, unforeseeable, shattering, twist of British policy. It is not too much to say that those most concerned, the prospective victims, were dazed and disbelieving. It is a compliment to this country that they should he so disbelieving. It is not a treatment that admirers and collaborators of Britain had ever conceived at the hands of Britain. So, on their behalf and ours we are bound to ask, where do the Government suppose that this policy will lead?
Are they satisfied that it will not lead to the invasion and conquest of Aden? I suggest that, looking facts in the face, they must conclude, with others, that their declared intention, if carried out, would almost certainly lead to that. And where would it lead beyond? Eastward across the breadth of Arabia, pursuing us into our new bolt-holes in the Gulf—to our stopgap bases, Sharja and Bahrein? Are the Government entirely saguine that this does not describe the probable course of events?
I find it hard to believe that present Ministers would not find the same answers to these questions as I do, and those answers would bring about a change of policy. This would mean the Government swallowing some of their words. Every Government has to swallow some
936
of its words, and in all friendliness I should have thought that the present Government had developed the digestion of a healthy camel in this respect. This would be a recasting of policy which no thoughtful politician could deride. It would manifest strength of purpose, not infirmity.
In a situation infinitely complicated I believe that the minimum essentials are relatively clear-cut: the essentials of freedom in Southern Arabia and of honour for us. After 130 years of total responsibility, we cannot give a few calendar months of notice of our complete withdrawal. The first necessary steps have already been taken: I mean the preparation of the Federal Army and the handing over of the internal security task. Gratitude will long remain in Southern Arabia for the work of such regiments as the Cameronians and, now, the Northumberland Fusiliers. There is nothing new in saying that they have aquitted themselves magnificently in the difficult, disagreeable and dangerous role they have been required to play. There is something new—and I think something necessary—in saying that needless handicaps have been imposed upon them, and that their effectiveness has been needlessly limited. Yet this I believe to be true. The technique, the discipline of minimum force, is I am sure, right. But once arrests have been made with minimum force they should be followed up by action, and by punitive action which hurts the proved offender. That has not been done and is not being done.
There are to-day several hundred prisoners in Mansura prison, most of them murderers or attempted murderers, who have not the faintest anxiety for their future and, by the look of it, need have no anxiety. Hundreds have been arrested; none has been even prosecuted. The reason for this is a public and official acceptance of the fact that under trial by jury most, if not all, of the jurors would be too intimidated to do their job and give a verdict of guilty. While these conditions prevail Her Majesty's Government, through their representatives in Aden, are not punishing those dangerous men, they are protecting them. This is not a rush to Judgment—it is a cringing from judgment. Will not Her Majesty's Government have to begin to think in terms of introducing some emergency

937
regulations, so that this leniency, amounting almost to exoneration, will no longer continue to encourage murder?
I believe, with others, that the first thing to be done is to restore public order, to restore a situation in which innocent men and women do not walk in fear of their lives, and murderers have cause to fear punishment. This can be done either sooner, by British troops, as we should all prefer, or later, by the Federal troops, when they take over in Aden State. By then the death roll may be longer, and public confidence harder to re-create.
Once order has been restored, as I am certain it can be, there still remains the danger of invasion, after our departure and so long as Nasser rules in the neighbouring Yemen. It is 80 miles by road from Taiz, just beyond the Yemeni frontier, to Aden itself. At Taiz there is a well-equipped Egyptian force, including armour, separate from the 40,000 or 50,000 men engaged with the Royalists. Indeed, as my noble friend said earlier it is the presence of Egypt in Yemen as a base which enables Nasser to cause confusion and intimidation in Aden. through control of Radio Sa'ana and Radio Taiz, and the constant passage of money and arms across the border. In fact the noble Lord, Lord Shackleton, spoke to-day of the sophisticated nature of the weapons which were arriving for the terrorists over that border. It is the rich plum of Aden which keeps Nasser in the Yemen. Once he is convincingly denied, and for some clear time ahead, the plucking of this prestigious and strategic plum, which he now anticipates within a twelve-month, he will pull out of Yemen. With an ill-grace he will leave our friends and supporters in the Federation to build their new country as they desire. This would be a case, as instanced by the noble and gallant Viscount, Lord Monckton of Brenchley, in his impressive maiden speech, of British forces preventing warfare by being on the spot.
There is more than one formula in my mind for achieving this, but each effective formula that I can envisage contains a continuing British presence in Aden, if only in the form of air power, beyond Independence. This cannot conceivably be an indefinite presence, an indefinite undertaking. The South Arabians themselves would not ask for that. I think
938
it must be tied in some way to the intrusive and bitterly resented presence of Egypt in the Yemen. It could be a treaty in terms as bald as that, for South Arabia has only one enemy of significance. It could be an undertaking to remain for three years, with an option to vary that date by mutual agreement, which would he understood to mean the same thing. Whatever British forces remain would he guarding our interests in the Gulf, as well as the very life of the new country we have established and in which, one day, we may take as great a pride as we do in other free nations of the former Empire. The fate of South Arabia hangs at this moment between salvation and sacrifice. It may be for Ministers opposite and their colleagues to determine which will transpire.
8.29 p.m.
THE EARL OF KINNOULL: My Lords, it is not often one has the privilege of listening to such a valuable and well informed speech, if I may say so, as that given by my noble friend. I am only sorry that so few of us were here to listen to it. After the many interesting speeches, particularly on military strategy and deployment, that we have heard so far—and no doubt there are many powerful speeches still to come—I should like to touch briefly on a subject which I believe has not yet been covered fully, and that is the procurement of military aircraft.
Anyone who has studied the Defence Estimates, who has read recent Hansards and who has talked to those in the British aircraft industry would, I am sure, agree that the success of the Government's controlling policy is in grave doubt. But whereas the general policy is in grave doubt, the specific policy for strategic strike reconnaissance aircraft appears, in my view, to be near collapse. The reason for that is the uncertain future of the A.F.V.G. project. This project, as the House will be aware, was born in 1965, was acclaimed in 1966 as the core of the Government's future policy, and yet still has to get its specification agreed between the countries. The problem of the specification, perhaps rather like that of the TSR 2, is that both countries appear to want it for differing reasons, the French for an interceptor aircraft and the British as a bomber, and no specification can

939
apparently suit both of these in one aircraft.
In recent months, the French have appeared to somewhat cool off from the project, and one reads of attempts being made to interest the Germans. But should the French pull out and should the Germans not participate, what will become of this project? Does Britain intend to "go it alone" in this field, or will it have to turn and buy more F 111s? I hope the noble Lord, when he comes to reply to-night, will be able to comment on this project and help clear the smokescreen of verbiage which has surrounded the project during the last few weeks. Can he say, for instance, whether a target date has been fixed for an agreed specification and what interest has been shown in this aircraft by other countries?
When one studies the list of military aircraft in the Defence Estimates one finds that almost the only new aircraft that has come through its entire production programme unscathed by criticism and rumour is the American Phantom aircraft, which, as the House will recall, is due to enter service in 1968. It is perhaps a strange quirk of irony that the present Government are not able with any conscience to accept congratulations for this order, because, like so many good things, it was a contract they inherited from the previous Administration and one in which my noble friend Lord Jellicoe played such a leading role. Before leaving this almost unique success story of aircraft procurement, may I ask the noble Lord what is the up-to-date percentage of British equipment installed in this Phantom order, and what is the estimated rise in cost of the aircraft since the order was originally placed?
Turning briefly to the F 111 aircraft, which I appreciate was dealt with most fully in another place yesterday, I would point out that there is one feature which I believe is now beyond dispute, and that is the fact that this is the only aircraft available to-day to meet the requirements of the Royal Air Force. With this in mind, it was interesting to read only the other day that Air Chief Marshal, Sir Wallace Kyle, Chief of Bomber Command, was asked in America about the 50 F 111 aircraft that have been ordered and was quoted as saying: "This does
940
not necessarily mean it will be the end." In other words, we presume this is not necessarily the final order. Perhaps the noble Lord when he comes to reply would comment on this point. And may I suggest that if there is to be a further order the opportunity should be taken now, before the cost rises?
I would now turn to certain specific questions on the F 111. I am wondering whether the noble Lord can now tell us more about the technical support arrangements for this aircraft. It is my information that no British firm has yet been invited to tender as a sister or daughter firm to the prime contractor, and in view of the comparatively short lime that now remains I should be grateful if the noble Lord could indicate the Government's intentions in this matter. I may remind him that the Phantom order in this context was placed with Hawker Siddeley some years ago. The other specific question on the F 111 concerns the automatic test equipment. As I understand it, this considerable order, which comes to something like 15 million dollars, will be awarded either to a British firm, Elliott Automation, or an American firm, Emersons. Her Majesty's Government will no doubt have in mind the many advantages that will obviously accrue if it can be placed with a British firm. I would ask the Government tonight whether they can confirm that members of the Ministry of Technology have been to both the British and the American companies to evaluate this order; and are the Government, under the contract on the F 111, perfectly free to place this order wherever they wish?
I should like finally to inquire very briefly on the Anglo-French Jaguar project. Not much, I believe, has been disclosed in recent months as to the advance of this project, but perhaps the noble Lord could advise us what is the total of research and development costs so far committed by the British Government in this project. As I said at the beginning of my short intervention, I believe the present military procurement policy is going through a most shaky period. It is not the first time that a Government has faced such a shaky military policy, but it is, I suggest, the first time that the central core of any Government's policy has proved so suspect and so rotten.
8.37 p.m.
THE EARL OF CROMARTIE: My Lords, first of all I should like to join in the congratulations to the noble Viscount, Lord Monckton of Brenchley, on his very excellent maiden speech. There have been many speakers and there are more to come in this very important debate, and nearly all the points which I had in mind have been well and truly covered. Therefore I shall be very brief and stress only what I consider to be important factors affecting the Reserve Forces, and in particular A.V.R. III, which has hardly been mentioned during this debate. I would urge the Ministry of Defence to be flexible and try to remember that particular areas have special needs. Standardisation and centralisation for their own sakes may be justified in the Regular Army, but the Army with which I am dealing is made up of part-time volunteers often widely dispersed.
This is not a good time to suggest any additional material expenditure, but I would ask Her Majesty's Government not to starve the Territorial Army, particularly in marginal matters, such as accommodation and the question of civil employee redundancies, which may not be strictly covered by the Home Office £3 million. Such starvation should be resisted, if there is indeed a serious desire in Whitehall that this force should succeed. I would remind noble Lords that it was only the pressure of patriotic people from all political Parties that saved the clay for the survival of the Territorials, and that there are still plenty of people in the Government and in the Ministry of Defence who would be only too happy to see the Territorial Army die of starvation. I hope that we may have a statement from the Minister in support of the Territorial Army. It would go far to allay this fear.
Finally, it is vitally important that those Territorial Associations which are retained, albeit on a vastly reduced scale, should keep their independence. As "Yes-men" to the Ministry they cease to be of any real value. Here, again, an assurance from the Minister would be of value: an assurance that the Associations will not be forcibly divorced from contact with local opinion. By centralising the professional servants—that is, the secretariats—and bringing them to a far greater degree into the military chain of
942
command, this result would seem to be aimed at. There is also the possibility of doctoring Associations' future legal constitutions. This tendency presumably springs from a determination in Whitehall that never again will the Associations be in a position to mobilise public pressure on the Minister as they did in 1965. I submit that it is the duty of all noble Lords to resist always the ever-growing introduction of "Big Brother" into what is still supposed to be a part of democratic Government.
8.40 p.m.
LORD MOTTISTONE: My Lords, it is getting late and there have been many speeches, many of which have covered the ground that I am now about to try to sum up. I hope that the noble Earl, Lord Cromartie, will forgive me if I do not immediately follow him, but I do not believe the theme of the Reserve Forces is quite what I should deal with. I am dealing really with the 1966 Defence Policy, not that of 1967. As I see it, the 1967 White Paper is a dull continuation of a desperate theme, and it is with the 1966 theme that I want to deal.
It is sad indeed that the Government, like so many Governments over the last 300 or 400 years, have made a monster blunder. This has happened, if you look back in history, usually after there has been a long measure of peace. It is indeed sad that it should have occurred at this time, because whereas in the past if Governments made blunders because they did not understand either the need for or the potentialities of their fighting forces, there was usually time to make up the mistake before the situation became desperate, now it takes ten years to develop a weapons system, and we have not the time to make good the fault unless we do it quite soon.
This unfortunate theme stems, I believe, from the fact that the Government have not thought out what the long-term purpose of the fighting forces of this country should be. Earlier in the debate various noble Lords said that defence planning is complex. I believe it is complex only if you do not know what you are trying to plan for. But if you do know what you are trying to plan for it really all fits into place. You must, of course, look far, far ahead; and you must look beyond the stage at which you can make guesses, with scenarios as to what might be or what might not be.

943
There are one or two absolutely cardinal features for which we in this country need defence. First, we must defend our own country; secondly, we must help our allies to defend theirs; and, thirdly, we must ensure peace in those parts of the world with which we trade. Those three features are equally important because, being a country with a great many people, a high standard of living, and virtually no natural resources of any importance, we must trade. This has always been so. People said that trade followed the flag. It did not; the flag followed trade. It was the East India Company which developed India, not the forces of the Crown. So we have to look to what is required to ensure that there is peace in the area in which we trade, as well as provide the necessary forces to protect our own country and, of course, our allies with whom we are so closely linked.
I would make one distinction which has not been mentioned before; namely, that there is a subtlety between the defence of trade routes and keeping the peace in areas with which we trade. The defence of trade routes is really beyond our resources on the scale on which it is necessary; but if we can keep the peace in areas where we trade, two things will come from this: first, our trade will continue to flow uninterruptedly; and, secondly, the countries concerned, mainly undeveloped ones, will be able to cross this economic barrier with which they are all confronted in order to make themselves self sufficient. By doing that, not only do we do ourselves a good turn, but we do them a good turn, too.
Your Lordships may say: Why should we do this? Why should not somebody else do it? The answer to that is that we, not alone but more than most other countries, must have this free-flowing trade Other countries could get by with losing trading facilities here and there, but we cannot. We depend on it wholeheartedly; so therefore it is beholden to us to concentrate a measure of our fighting forces to make quite certain that our trade is not interrupted.
The second point, which I pass over quickly, is, where should we have our forces? Of course, the answer is world wide, because our trade is world wide. And because it is world wide, our policy
944
must surely be wholly flexible as the years go by—and I am looking to the 1980s or 1990s, not just the 1970s. Our long-term policy must allow us to deploy our forces wherever we wish to in order to help prevent war in localities around the world. At the moment, as we heard earlier this evening, the pressures are in areas such as the Arabian Peninsula, and we have recently had them in Indonesia. The pressures in the future may be anywhere. They may well not be precisely where we think they may be. There may be some splendid new mineral discovered in some part of the world that nobody has thought of before, and we shall require to make sure that the trade in that mineral is uninterrupted and free.
It might be said: Why do you think that there will be trouble in these various areas? The answer to that is that, sadly, we are all human, and if people do not have some sort of restraining influence, if they get greedy, as Nasser has, or it they get greedy like other people might—I will not elaborate on that—they will cause a war with their immediate neighbour. Not only is this to the neighbour's disadvantage, but it is to our disadvantage, too.
If we establish this, the next point is, how are we to carry out this policy? Because we have to be flexible and have to work all over the world, we can only do this effectively from the sea. To do it from the sea, we must have comprehensive seaborne forces. We must have forces which include submarines, surface vessels and seaborne air power. We need seaborne air power for two reasons. One is because in the future we shall not have the bases, even the few remaining ones we have now. Whatever happens, we are bound to lose bases, partly because it is uneconomic to keep them going, and partly because the world as a whole does not want people to have bases overseas. Again, I am not thinking of the immediate future, but right into the distant future.
The other reason why we must have seaborne air power is because it can be shown—I will not go into details—that at quite a short distance from a shore-based air base it starts to become uneconomic to provide the air power from the shore instead of providing it from the sea. It is also a fact that what one requires, in effect, is a tactical air force,

945
such as soldiers will recognise, in support of your sea power. Therefore, you must have seaborne air power. You must have it for reconnaissance and for strike, and you must have it for a long time to come. And certainly beyond the period set out in the 1966 White Paper you will require it for air defence as well.
In regard to the 1966 White Paper, in cutting off the aircraft carrier the Government, by denying to their successors flexibility in being able to protect the trade of this nation, did a great deal more harm than am sure they realised. Because it takes ten years to develop a weapons system, we cannot afford to let the expertise which is built into the aircraft carrier, let alone the actual systems themselves, dry up in the mid-'70s because it will do untold harm to our country in the future. It may be said that we cannot afford the aircraft carrier. If we set our policy based on the sound ground of what we require in the future, and say that we must have a maritime policy to deal with the trading areas around the world as well as having the facilities at our front door for protecting ourselves against immediate attack, if we get that in balance, then we can start looking at what we really require. We require comprehensive seaborne forces.
I would question whether we require 50 F 111Ks. I think that 10 would be enough. It is, sadly, about a month too late to press the Government not to buy the other 40, but if they were businesslike about it they would cut their losses and get rid of them as best they can. We need 10 in order to learn how to operate variable geometry aircraft, because we shall definitely need the follow-on Anglo-French variable geometry aircraft when it becomes available; but, of course, we shall not need it unless it can be operated from the sea as well as from the shore. All new major aircraft in the future should be operable from both the sea and the shore, so that they are really flexible. As for the immediate future, the Buccaneer Mark 2 can do all that the Air Force wants as a successor to their older aircraft to cover the gap until the variable geometry aircraft becomes available.
It may be argued that if we were to cancel the 40 F111Ks this would be
946
contrary to the offset purchase agreement with the United States. This would be nonsense. As far back as I can remember we have had an interdependence agreement with the United States, in which we bared our hearts and exchanged happily all sorts of technical information without any restrictions whatsoever. We exchanged research and development techniques, and we have done so for ten years at least. But whenever we come to the stage of saying to our gallant allies—and I would hate your Lordships to feel that as fighting men I do not greatly admire our allies—"How about your buying some of our equipment because we are already buying a lot of yours?", they have said, "Oh, no, we cannot do that since we have a law against it". This was incredibly bogus, because they owed us so much in ideas and were not prepared to do a straight deal when it came to the production stage of the contract. So they owe us the offset agreement "for free", and there is no need to buy 40 F.111Ks to get it; and we should I am sure save the necessary cash in that sort of way, based on a sound future policy which really achieves what we in this country will require through the years into the future.
If I may briefly sum up, what we must have are flexible fighting forces which can be deployed where a Government wants when it wants; and if you have them on the sea you can put them where you want in the world. If they are not needed, then you take them away again. If they are needed, they are available to carry out the task that is required. If you do not need them around the world for a period, you just keep them at home while you are not using them. And we need, of course, the land and air forces necessary to work in with NATO, or with any successor which it may have, for the immediate protection of this country and its neighbours.
8.57 p.m.
LORD BALERNO: My Lords, I hope that the noble Lord, Lord Mottistone, will forgive me if, as an infantry soldier, I do not follow him on his flights across world strategy but confine myself to somewhat more pedestrian matters. I should like to join in the congratulations

947
to the noble and gallant Viscount, Lord Monckton of Brenchley, on his illuminating speech. I remember the time when his father was Minister of Labour and had a great deal to do with the Services and in the run-down of National Service. Certainly in the noble and gallant Viscount we have a "chip off the old block".
I was particularly interested in what the noble Lord, Lord Thurlow—a fellow infantry officer, and a Highlander at that—said about community assistance in regard to the Army at home. I should welcome any extension into the sphere of the youth services. I trust that particular effort will be directed towards the Duke of Edinburgh's Award Scheme, where useful work can be done; but it must be carried out at the lower levels of the Army units connecting up with the local youth clubs and other youth organisations. As for what Lord Thurlow said about the possibility of cuts, I would reinforce his statement that if the Government disband they disband for good. And his statement that in Scotland a man joins a regiment rather than the Army is certainly true.
The main purpose of my speaking here to-night is not to look far into the future, as the noble Lord, Lord Mottistone, has done, but to come back to a more immediate point; that is, the provision of officers for the Forces. There are, of course, the Service academies and schools, but I wish to draw particular attention to the part which universities can play in matters of Defence. I would draw your Lordships' attention to the fact that there is a very steady increase in the numbers of young men who are entering the universities. Great pressure has been put on the universities to increase their numbers, and the proportion of young men of the age group who would normally be going into the Services but who are now going into the universities is steadily increasing.
In Scotland, where the population is static and not increasing, the universities are clearly taking a very substantially larger proportion of that age group. They are taking every year a bigger and bigger cut of young men: young men who possess the very qualities of integrity, self-reliance and a sense of service and duty that are essential for officers of the Armed Forces. The pressure has already
948
been clearly manifest in the case of the medical services, and here the situation has been saved only by the introduction at the universities of medical cadetships for each of the three Services. But for the fact that these were introduced, with some considerable foresight, a few years ago, there would have been a desperate shortage of medical officers in the Services.
In the Statement on the Defence Estimates, we have on page 67 the statement that in the Royal Navy there is a marked shortage in the engineering specialisation. Of the provision of officers for the Army, we read that certain marked shortages remain—for example, among junior officers in technical corps. We also read of a shortage of about 25 per cent. in the appointments to short-service and limited-service commissions. Of the Air Force we read on page 68 that,
"Recruitment for the main ground branches is … still … 25 per cent. short. In the engineer branch, the number of graduates and professionally-qualified men who enter has again been extremely disappointing."
There will always be some dedicated boys who enter the Service Colleges direct from school. Some of these will be of the very highest calibre, as they have been in the past; and by and large the senior ranks of the Service will always be recruited from such boys, rather than from entry by other means. That is almost invariable. But the ordinary run-of-the-mill boy who has sufficient intellect to get into the university will be going there in steadily increasing numbers, and there will be left for the Service Colleges simply the residuum of those who have been unable to pass the necessary examinations to get into the universities.
When a young man is at the university there is direct competition for him between industry and the Services. The competition from industry is steadily increasing. In the old days industry wanted graduates only for the technical and scientific branches. Now it needs graduates for management at all levels; for management at levels to which the foreman used to be promoted. Now it has to have men of graduate calibre brought in and trained by the big firms. In the old days salesmen could be taken up from almost anywhere. To-day the salesmen in the big firms are almost exclusively graduates.

949
An example occurred recently at the University of Edinburgh, where a young man was due to take Honours in Economics in July. He was "got at" by four of the major firms. At the same time he had quite a desire to take a commission in the Army. He went in the spring to the interview boards of those four big firms, each of which offered him a job if he went there. Luckily, we persuaded him to hold back till he could have his Regular Commissions Board, which fortunately he passed, and I hope that he is going into the Regular Army. But almost intensive pressure was brought by two or three of the university staff to persuade this lad not to accept what the firms had offered to him, and to stick to his own basic desire.
The image of the Services in the universities is definitely improving. We have got over the pacifist period which rather dominated us towards the end of the National Service period, and for some time after that. The universities would welcome the far-sightedness on the part of the Ministry of Defence in establishing Defence lectureships in certain universities. Each of these Defence lectureships—and I think they exist in six or seven universities—is working on a somewhat different aspect of Defence, and each will be accumulating around it a body of post-graduate students, some of them Service, some of them Civil Service, and some of them, we hope, industrial. The different Defence problems can be threshed out in an academic atmosphere, and they will contribute not merely to the thinking at the Ministry of Defence hut, later on, as they grow more mature, to the thinking of Defence problems in the nation at large.
The noble Lord, Lord Bourne, spoke of the Joint Committee of the Senate and Congress which has been set up to study Defence matters. Here, in the establishment of these Defence lectureships at the university, we have another example of learning from the United States. It was the present Secretary of the United States Navy, Mr. Nitze, who pressed for the establishment of these departments of Defence which have been set up in certain of the American universities, and the Ministry of Defence is greatly to be congratulated on studying this development in the United States
950
and on putting it into operation in this country.
In the majority of the universities of this country there are Service units. The university air squadrons have, I think, fully justified their existence by producing a steady flow of young officers for permanent commissions in the R.A.F. The few universities who have Royal Naval sections, usually based on their local R.N.R., have also been producing, so far as their small size has allowed, a steady number of both medical and seamanship officers for the Royal Navy. In proportion, the Officers Training Corps, one must admit, has not been providing so many young officers for the Regular Army. That is largely because it has been geared to the Haldane tradition and to the purpose for which it was set up—that is, providing officers for the Territorial Army. I think that its scope for providing officers for the Regular Army can be developed.
During the past few years the total number produced from the British universities has been of the order of 40, but now that more pressure has been put on within the universities the number in the pipe-line at present, due to graduate this July and to commission thereafter, is of the order of 54. But in addition to those who go through with university commissions—that is, those who graduate and then go on to a commission—there is a large number of young men, fully as many, who I would not necessarily say fall by the wayside in their examinations as they go through university but who go through to the Army without, for one reason or another, having taken their degree. It is often that they have taken the wrong course at the university; and rather than start off on another course, take their degree and go into the Army, they go straight into the Army.
I would also draw your Lordships' attention to the fact that these Service units have a counter-balancing value to the university. They contribute very considerably to the life of the university and engender goodwill towards the Services, both among the students and among the staff.
I welcome the announcement which was made recently by the Under-Secretary for Defence in another place concerning the establishment of a Royal Defence

951
Academy which is to exercise control over the Engineering Department of Cranwell and its counterparts at Manadon and Shrivenham, as well as the new Royal Defence College. By these means suitable young officers will be educated to university degree status. These colleges must be staffed by graduates and, if they are to be any good at all, the staff must have academic ambitions. In other words, the staff must be continuously interchangeable with the existing universities. The staff must move from these Service colleges to the universities, and vice versa. There must be a continuous change.
My Lords, university education and the education of the young officer of the future is going to be a very fluid thing, with movement one way and the other. Unless the Services maintain this cooperation in close contact with the universities, there will be in the future a very serious deficiency of officers of sufficient education and sufficient intellectual quality for all three of the Services.
9.15 p.m.
EARL JELLICOE: My Lords, I am always grateful for small mercies, however small. I am grateful for two now. The first is that this long debate is drawing to a close. The second is that we have not been asked this year by the Government to approve their Defence policy. "Not too bad," I think the noble and gallant Field Marshal called it. Bits and pieces of it are not too bad; but as for Defence policy there is very little Defence policy in it: It is virtually invisible. Such policy as does emerge is uncertain and inconsistent, inconsistent at least with almost everything that the Labour Party were saying in those far-off days before October, 1964, it is of course, only consistent with "Tailor" Healey's need to cut his Defence coat from the rigidly-determined amount of cloth that he has managed to wring from Mr. Callaghan and his colleagues.
That is the note which we have heard sounded time and time again in this debate this evening: a note of serious disquiet about the uncertainties, above all, that hang over this whole area of our national life; uncertainties which touch and are tarnishing—as we have heard from many expert witnesses, and not
952
least the noble and gallant Field Marshal Lord Harding of Petherton—all three of our Services, or threatening to. That is the note which has, I think, predominated throughout this debate.
There have been some "noises off", some voices of dissent. There were the noble Lord, Lord Brockway, and the noble Lord, Lord Gladwyn, who produced his new, watered-down, theory of "scuttle". Two years ago it was all going to be done in one year. I will give way to the noble Lord if he will allow me to finish my sentence. It is now a policy of staggered "scuttle".
LORD GLADWYN: My Lords, the noble Earl has not read the speech that I made two years ago.
EARL JELLICOE: I have it here, in fact; I was refreshing my memory:
"In 1966 we should contemplate a reduction of £100 million in our expenditure on the base at Aden and in our establishments in the Persian Gulf."
That sum is more than our total expenditure in one year. I assume, therefore, that it was a policy of total "scuttle" in one year.
LORD GLADWYN: The noble Earl has not read my speech.
EARL JELLICOE: I have read it; and that was the conclusion I came to. I will re-read it, I promise the noble Lord. We have heard a voice of dissent from the noble and gallant Field Marshal. There were only two things that I was prepared to predict about his speech when I came into your Lordships' House this afternoon. First, that it would be out of step with the policy of the official Opposition. It was. Second, that it would hit the headlines to-morrow. It will.
This is still, whatever gloss Mr. Healey put on it, after two and a half years of Labour Government, a Defence policy in constant flux. I will not pretend, any more than my noble friend the Leader of the Opposition or my noble friend Lord Head, that these are easy matters. They are not. I am quite prepared to give the Government credit where credit is due. Of course, there are some certainties embedded in their constantly changing Defence policy.
First, the Government are clearly determined, having now thoroughly digested their 1964 words, to retain a British

953
nuclear deterrent ultimately under British control. The White Paper is uncommonly coy about this. There are only two paragraphs on nuclear matters in the whole of its main part. But no matter: the nuclear submarines continue to come down the slipway, spurred on by Mr. Mason. The second certainty is that, whatever else happens, we know that our Defence policy will remain within the rigid and arbitrary straitjacket of the £2,000 million at 1964 constant prices—that original snap decision imposed, I still like to think, on a reluctant Secretary of State from which so many of our present Defence ills spring.
I am not querying the need for a limit. What I am querying is the decision at that time to impose that particular arbitrary limit, at a time when the Government could not have appreciated our Defence commitments in the large and our capability to discharge them. And I fear that there may be another certainty creeping up upon us because of the Government's total failure to secure the increase in national production to which they were pledged, and because they are now coming under stiff pressure from their Left Wing. It is, I fear, only too predictable that pressure to make further arbitrary cuts within this already arbitrary ceiling will mount. Apart from this, my Lords, all else is in flux, despite the superficial tidiness of this White Paper.
I agree with some words—in fact with a great deal—spoken much earlier in our debate by the noble Lord, Lord Rowley. I agree that we may not now be a world Power. But I also agree with the way in which he put it: that although not a world Power, we are still a Power with world interests and world-wide commitments. What worries me at the moment is the Government's approach to those world-wide commitments and our capability to discharge them. We have heard from a number of speakers that our Defence policy in the Far East appears to be drifting and that this drift is a matter of very grave concern to many of our Allies. Last year we had those ringing declarations from Mr. Healey while he was on his way through Australia. This year, yesterday to be precise, we had some very careful words indeed.
We are now told that the Government aim by next April to achieve a reduction
954
of some 20,000 men and women in the Far East theatre working in or for (careful phraseology) the Services. I have no particular quarrel with that figure as such, but I should like to know on what assessment it is based. What worries me is that neither in this Statement nor in the White Paper, nor in the Defence debates in another place, has any coherent picture emerged of the Government's approach to their strategy in the Far East, to the part that they think we need to be playing in the 1970s and the 1980s in that part of the world and the equipment that we should need to discharge that part. All we are told, and that yesterday, is that the Government are contemplating further reductions over and above the 20,000 and that these will be explained to Parliament in due course.
My Lords, I do not wish to be a Cassandra but I am getting to know this Government. I suspect that in the last resort, probably just before the Summer Recess, we shall be confronted by some form of fait accompli. I fear that our Allies, too, may be confronted by a fait accompli. I fear, above all, that whatever cuts may be proposed will be more the product of passing financial, and possibly more permanent political, pressures than of a deep and, if need be, radical reassessment of our commitments and capabilities, that reassessment time and time again the Government have told us they were engaged on. I fear this, because we are getting to know this Government and we have seen what they have done in the Middle East.
I shall not speak about the Middle East. My noble friend Lord St. Oswald has had his say—almost more than his say—on that subject. But I should like to add my voice to the voices of many of your Lordships in wishing the noble Lord—I am almost inclined to say in this respect, our noble friend—Lord Shackleton well in the mission on which he is in mid-course. I am sure that all of us join in that sentiment, and I am sure, too, that we have been impressed by the largeness of view and the moderation which he is bringing to this very important task. We wish him well on this mission, we deplore its necessity and we deplore the fact that it is the Government's actions which have caused this mission to be necessary.

955
Nowhere are the inconsistencies and uncertainties of the Government's Defence policy more clearly seen than in Western Europe. Nowhere is their failure closely and coherently to relate the military, political and economic aspects of their policies more clearly to be seen. Nowhere is the pre-eminence of purely Treasury considerations more naked than here in Western Europe. As my noble friend Lord Carrington said at the start of this debate, day in and day out, year in and year out, in the 'sixties our present leaders when in Opposition deplored the weakness of NATO on the ground, in the air and at sea. Day in and day out, year in and year out, they pressed for a stronger British conventional contribution, through B.A.O.R., to the conventional defences of Western Europe.
Much of this still seems to be recognised by the Government, or at least by part of it. The Secretary of State for Foreign Affairs stated in the Defence debate in another place that
"the consequences of any ill-considered withdrawal of our forces from the mainland of Europe would be disastrous."
I agree. Such a withdrawal, as the noble Viscount, Lord Monckton of Brenchley, said in his remarkable maiden speech, could well start a chain reaction within NATO, already—heaven knows!—weakened sufficiently by the defection of France; the end result could very well be German hegemony within that weak NATO. That is the precise result, precisely the opposite result of what the noble and gallant Field Marshal desires, which would flow from the adoption of his policy of withdrawal from Europe.
Now that the Government are poised, the jays and the other cuckoos in the nest consenting to launch themselves into Europe, one should have thought that at least in this our leaders would have been consistent, that they would have put in the forefront of their considerations the need to maintain strong British conventional forces in Europe alongside our allies on the Continent. But this is not what we see. I do not see a considered, well-knit policy here, embracing the political, the military and the economic. For here, like almost everywhere else in the Government's Defence policy, it has not been defence or foreign policy considerations which have been paramount.
956
It has been the Treasury warriors who have been making all the running. Mr. Healey himself has made it as plain as a pikestaff, for it was he who said that:
"… the size of any reduction in our forces in Germany will be dictated by the need to bring the foreign exchange costs down to the level covered by offset and other payments."—[OFFICIAL REPORT, Commons, 9/8/66, col. 306.]
There could be a good strategic case for reducing B.A.O.R., that marvellous instrument, possibly by 5,000 or 6,000 men, yet it would seem surprising that we should have hit on the right strategic answer when, by the Secretary of State's own admission, the choice has been dictated by other than strategic decisions. I must confess that the Government's reasoning in the White Paper—their ex post facto reasoning—rather worries me, as I think it has worried many Members of your Lordships' House this afternoon. We are told that the NATO alliance cannot very well be expected to prepare for a long war in Western Europe, a long, conventional, slogging match. I am perfectly prepared to accept that. Such a war would almost certainly escalate into the nuclear sooner rather than later.
But there is a grey area here. What worries me is that Mr. Healey sees all this in black and white. At one end of the spectrum, an attack which even depleted NATO conventional forces could contain by conventional means, "at the lowest level of military force"—a batallion or two gone berserk. At the other end of the spectrum, the unthinkable, and therefore impossible, nuclear holocaust. Is life, is military choice, always so cut and dried, so black and white, as this? We are told confidently in the White Paper that:
"it is recognised that aggression at any level will always be met by an appropriate military response."
Is it so recognised? Recognised by whom? And what will the appropriate NATO response be if the attack is at a rather higher level than the lowest level of conventional military strength? These are difficult and puzzling questions. That is why I find the sublime confidence of the White Paper so disturbing.
Would it not be wiser to admit that we are all fallible in this area—the Russians included—and leave a rather wider margin of error? Is it wise, is it

957
rational, to confront the Alliance with this stark choice between abdication and self-incineration in all cases save Mr. Healey's chosen circumstance—
"attack by accident at the lowest level of military force"?
Would it not be wiser, by keeping our conventional guard stronger, to widen our conventional non-nuclear options? Would that not increase the efficacy of the nuclear deterrent itself? Should we not strain every nerve to put NATO in a strategic posture whereby if the Alliance is faced with a choice in the grey area there is time for us, and for those on the other side of the hill, to reflect on the awful consequences of escalation?
But, no; Mr. Healey is confident. Having preached for all those hard years in the wilderness the need for an adequate range of conventional responses, now that he has entered into his kingdom, he seems to have embraced in all its terrible and I believe, deceptive simplicity the trip-wire strategy of Dulles and de Gaulle. Of course, he may banking on the pacific intentions of the new bourgeois Soviet leadership. He and the noble and gallant Field Marshal may be right here. Major wars between the major industrialised Western Powers may he as inconceivable to the present generation in the Kremlin as it is to us. It may well be so. But I would remind your Lordships that leaders can change and so can circumstances, and that there still remain vast and potentially explosive issues right at the heart of Europe.
Of course, the noble Lord opposite may reply (I do not know whether the noble Lord, Chalfont would; I doubt if he would) that the maintenance of reasonably strong conventional NATO forces in Europe reduces the chances of disarmament and arms control in Europe, which we all desire. If so, I would entirely disagree. Certainly such a reduction should be our aim. But these should be mutual reductions, mutually agreed. Unilateral reductions in our conventional forces, above all, unilateral reductions in transparent response to political pressures and short-term economies, will have the reverse effect, because they entail the surrender, without recompense, of our bargaining position.
958
I have sketched some of the uncertainties suspended over our commitments and our ability to discharge them. Those large uncertainties are reflected in the uncertainties surrounding the role and structure of the three Services. These, in their turn, as we have heard from many expert witnesses to-day, are gravely affecting the morale of our Armed Services.
My noble friend Lord Thurlow speaks with such weight on the Army that I wish only to underline two points which he made. We all suspect that heavy decisions vitally affecting the future of the Army are in the air. So far the Government's Defence Review and policy is nothing but a quilt of ad hoc, piecemeal, decisions. I urge the Government, if they are considering, as we are told they are, the future of the Army, to get down to fundamentals; to consider its future structure, if need be ad initio, in the new circumstances of 1967. Whatever else they do, I implore them not just to chop down the Army strength to whatever figures may temporarily correspond to temporary withdrawals, or temporary reductions, or temporary shortages of accommodation, or transient financial and political pressures.
Secondly, I would urge the Government to bear in mind the paramount value of our infantry. I hope they will bear in mind the words of their own Under-Secretary of State, which he used in the other place in the Defence debate a few months ago. He said:
"In considering what provision should be made for the unforeseeable contingencies, we shall no doubt continue to find that the infantry battalions in the modern Regular Army —and here I include the Parachute and Special Service units—give us as outstanding value for money as any other category of expenditure in the Defence budget."
My Lords, an equally long shadow hangs over the Royal Navy. It is having an equally grave effect on Naval morale, as I know myself from only too many first-hand reports. Frankly, I can understand the feeling of the Service, which has had many echoes in your Lordships' House this afternoon. Having absorbed the shock of the misguided carrier decision—and here I am at one with my noble friend Lord Mottistone—the Navy was told that a senior Committee, the Future Fleet Working Party, had been set to work to recommend on the size and shape of the future Navy. That Committee

959
reported, I understand, in September, 1966—eight months ago. Yet, my Lords, we are told in this White Paper that new ships which the Royal Navy will need for its future tasks are being planned—that is all; no more; no background; no glimpse into the future; nothing. And that after all these months of incubation.
What the Navy requires, after two and a half years of Defence reviewing—I prefer to call it Defence to-ing and fro-ing—is a real sight of the real future ahead. It needs to know what the task of our Navy in the 'seventies and 'eighties is really going to be. Apart from the Polaris force, is it to remain an oceanic Navy, with world-wide commitments, as the build-up of our amphibious forces, and perhaps the build-up of our "hunter-killer" forces, seem to indicate? Or shall we go back to the role of a pre-Tudor Navy—coastal defence with a dash of fisheries protection, and conveyance for the Prime Minister's next Summit Conference thrown in?
It is not surprising that Naval officers, and indeed all those concerned with the future of this Service, are asking these questions, because as yet the Government have failed to answer any of the really crucial questions. They have not told us whether a small fleet of Healey or Montgomery carriers is to succeed the carrier force which they have scuppered. They have not told us whether in default of carriers, we are proceeding, along with our allies, in developing surface-to-surface missiles. They have not told us what lies behind their thinking about the "hunter-killers". Nor have they told us what their future escort programme is—the backbone of any Navy. We were told last year that the Type 82, for example, was the first of its class. Is it, or is it not, the last of its class?
So, in conclusion, to the Air Force. One would hope, when one reads that the Government have settled the broad shape of the future programme of Service aircraft, that the uncertainties which hang over the future of the Army and the Navy do not cloud that of the Royal Air Force. If so, one would hope in vain, as my noble friend Lord Kinnoull pointed out, because the Government have put their shirt, and that of the Royal Air Force, on the Anglo-French variable geometry aircraft. That project is termed by the Government the "core"
960
of their long-term aircraft programme. More. It was made clear by the Secretary of State in the last Defence debate in another place that, without it, there was no future for the aircraft industry, not only in Britain but also in Europe. Personally, I think those are strong words; in fact, I am inclined to think a little exaggerated. But that is by the way. That is a paraphrase of the Secretary of State's own words.
I trust that this important project will succeed, for a whole host of reasons. But it is clear that Mr. Healey has raised our hopes prematurely. No project study has yet been agreed. That, of course, is impossible, because so far there has been no agreed definition of the project between the French and British Governments. I was told only five weeks ago from an extremely reliable source that in fact there are, or were, five different designs competing for this aircraft. And only the other day we learned that the escape clause open to either Government has been put back 18 months or so. It almost defies belief that a project at this stage of non-development now, in May, 1967, could have been termed by the Government in their White Paper of 1966 the "core" of their major aircraft programme".
My Lords, I have spoken for too long and I will conclude. My noble friend Viscount Head said at the conclusion of his most telling speech that he thought that this country since the war had obtained better Armed Forces than perhaps we had really deserved. I am very much inclined to agree with that view. This White Paper makes the point in more ways than one—sometimes in ways it does not intend to. I hope that one day, even under this Government, we may get the Defence White Paper which the Armed Forces and this nation really deserve. This, my Lords, is not it.
9.41 p.m.
LORD CHALFONT: My Lords, many noble Lords with great experience have spoken in this debate—this long debate—and I am reminded of a remark made by that great Foreign Secretary, Ernest Bevin, who has already been quoted once this afternoon, when he referred to a problem which he was facing in foreign policy as "a Pandora's Box full of Trojan horses". The debate this afternoon has

961
reminded me in some ways of that remark, but at this late hour in the evening I do not propose to gallop after all the Trojan horses which have appeared from the box, especially as some of them, on closer examination, by some curious zoological transformation, have turned out to be red herrings after all. But as the Government have been accused of almost unrelieved negligence in the formulation of their Defence policies it might be as well, even at this late stage of the evening, to look briefly at some of the principles upon which a Defence policy must be based, and upon which this Government's Defence policy is based.
Some of the speeches that we have listened to this afternoon have touched on the peripheral elements in a Defence policy, and some of them have dealt with the machinery needed to put a Defence policy into effect. We have discussed the organisation of the military establishment, we have discussed the morale of the Armed Forces—although I must say I think altogether too much emphasis has been placed on the rival claims of the individual Services, a procedure and an approach which to my mind is obsolete to the point of anachronism. We have discussed how the forces are deployed, how they are equipped, and we have touched upon—although I think rather less seriously than it warrants—the resources which this country has and can afford to devote to all these activities. But all these are largely peripheral matters.
If we are to formulate a rational and intelligent Defence policy, we have to look a little deeper into the problem than that. What is a Defence policy? It is essentially a complex of decisions about the size and shape of a country's military establishment. It is about the proportion of the nation's resources that can be devoted to the military establishment—a very important point—and, as I have suggested, the way in which that defence establishment is organised, equipped and deployed. The function of this military establishment is, of course, security; that is to say, quite simply, assuring the safety of the people of this country.
It is possible to argue that the only real security, not only for this country but for every other, is in a disarmed
962
world; a world in which there are no military establishments, except possibly in the context of internationally controlled peace-keeping. This is an argument for which I have a great deal of sympathy. But we must deal with the world in which we live, not with the world in which we should like to live, and the world in which we live is one still organised into nation States riven by mistrust and suspicion, and in which each nation State still seems to be prepared to use its military forces in pursuit of what it conceives to be its national interests. In a world like this it would be an irresponsible Government that abdicated from its responsibility for the security of its people.
General and complete disarmament is unhappily a long way away. With a bitter war going on in Vietnam; with a deep hostility between the United States of America and Communist China; with a wide and growing idealogical and political gulf between the Soviet Union and China; and a cold war in the European Atlantic area only now beginning to thaw and give way to a new climate of confidence and dètente, it seems to me unlikely that the great Powers can agree in the near future to any spectacular measures to reduce their military establishment. This Government can, and does, pursue the ultimate aim of disarmament; we can, and we do, pursue vigorously partial measures of disarmament, like the non-proliferation treaty and the comprehensive Test Ban Treaty which are the first steps towards the ultimate aim. And it is true, in spite of what has been said by noble Lords opposite, that progress is being made in this field. There are still problems, even problems about the non-proliferation treaty. Success in the final achievement of that treaty is not just around the corner. But it is false and misleading to say, as one noble Lord has said, that there has been no progress in the last 15 years in disarmament. Of course there has been progress, and there continues to be.
How, then, do we go about formulating this Defence policy that will keep the country safe and must at the same time do nothing to conflict with the ultimate aim of disarmament and international co-operation? This, of course, is where defence and foreign policy interact. Basically, the military establishment and

963
the Armed Forces—and we realise this quite clearly—are an instrument of foreign policy. But at the same time rapid developments in military technology often influence what is possible in foreign policy, and the two are closely and indissolubly linked.
I think that one aspect of this subject that has been wilfully neglected is the fact that we must guard, too, against the danger that in concentrating too much on safety and security and defence we forget that we have another responsibility to the people of this country, a responsibility for their wellbeing and for their prosperity. This equation seems at first glance to be a very simple one. If we spend too much on our defence arrangements we shall have too little left for the essential needs of social justice and prosperity in this country. If we spend too little on defence our prosperity and wellbeing will constantly be at risk from the ambitions of others. But again, of course, things are not quite as simple as this. These factors are not mutually exclusive. They constantly interact with each other, and the search for a rational and intelligent Defence policy must be a continuous and continuing process. It cannot be a policy made once and for all; it is dynamic and not static.
In spite of the remarkably naïve statements of some noble Lords opposite, the Government, I assure your Lordships, have examined closely the long-term direction of these policies, and the continuing review of Defence policies that is even now taking place is a part of this examination. It would be quite inappropriate and unwelcome for me at this time of night to develop this theme at any greater length. We have had an interesting and wide-ranging debate. My noble friend Lord Shackleton, who apologises for his absence, has outlined the way in which the recent Defence White Paper seeks to embody some of the principles in our constantly developing policies for Defence.
I should like briefly to refer to some of the points that have been raised. First of all, let me say quite plainly that I cannot and do not propose to give detailed answers here and now about the final deployment of our Armed Forces, whether Regular or Reserve, in the 'seventies and the 'eighties, nor about
964
their shape and size and equipment, nor about housing and training areas in this country. All this, as I have said, is a matter of continuous review and detailed planning, planning which is even now going on. All the points and comments of noble Lords opposite will be taken into account in this planning.
LORD CARRINGTON: My Lords, may I interrupt the noble Lord? Does that mean that he is not going to answer my question about what Mr. Brown did or did not say in Washington about our likely attitude towards our base in Singapore in the 1970's.
LORD CHALFONT: My Lords, I might comment on what Mr. Brown did say. It would be difficult to comment on what he did not say. But when I come to deal with that point I hope that I shall be able to satisfy the noble Lord.
There were a number of points made in the debate which were made with constructive intent. Those I shall hope to answer. There were others—and I seem to remember one which contained a reference to the Government swallowing its words—which, in my view, were largely provocative and destructive and even mischievous. And I felt at times this evening that we were engaged not so much in a Defence debate as in a protracted period of Question Time—six or more hours of it. The fact that I do not altogether welcome this method of conducting a general debate may be of little importance to noble Lords opposite; but what I am afraid is decisive is that in the short time that I have left I cannot possibly answer more than a handful even of the constructive questions that were asked, and I am sure your Lordships would scarcely forgive me if I did.
The noble Lord, Lord Carrington, mentioned that the Secretary for Defence had turned out to be a better disarmer than the Minister for Disarmament—a happy shaft of wit, but not a very accurate one, because of course the Secretary for Defence and the Minister for Disarmament work together in the same Government. We do not work against each other; we are not in competition for policies of Defence or disarmament. We are colleagues, and we work both in the same direction and towards the same goal.

965
I will pass over, for all sorts of reasons, largely those of decorum, the noble Lord's statement that the Government's policies are responsible for the tragic trouble in Aden. I think that, on mature reflection, he may probably regret that remark.
LORD CARRINGTON: I do not.
LORD ST. OSWALD: The Government should regret.
LORD CHALFONT: When he speaks of the rumbling discontent of the Left Wing in the Labour Party in Defence matters (a reference also made by the noble Earl, Lord Jellicoe), I find this a strange suggestion from a Party which seems to have as many Defence policies as it has Shadow Ministers, and as many strategic concepts as it has retired officers.
To deal with all the questions raised by the noble Lord would, I fear, take too long. I hope he will acquit me of discourtesy if I do not, for example, follow him and his noble friends down all the Aden trails. These are interesting matters; perhaps we can debate them at a later date.
On the question which he seemed to be particularly anxious to have answered, the fluttering in the dovecotes in the United States and Australia, about our East of Suez policy, I conclude that the noble Lord was referring to reports which have appeared in some of the more sensational organs of the British Press suggesting that we are about to embark on a complete withdrawal of our forces from the Far East at any moment. Had my right honourable friend the Foreign Secretary made any such statement, it would indeed have caused a flutter in the dovecotes, or put a cat among the pigeons, or any other biological simile that one might like to employ. But the truth is, I am afraid, more mundane.
My right honourable friend took advantage of the meeting of the Council of the South East Asia Treaty Organisation in Washington, to give the United States Government, and his Australian and New Zealand colleagues, advance notice of the consultations which my right honourable friend the Defence Secretary would be having with Commonwealth Governments during his visit to the Far East. He explained the reductions we
966
had already made, and the reductions we were proposing to make in the near future, along the lines foreshadowed in the Defence debate, and more recently those announced by the Defence Secretary in another place on May 1.
My right honourable friend the Minister without Portfolio gave some details earlier in this debate of the sort of reductions we now have in hand. For the more distant future my right honourable friends made it clear in Washington, in Malaysia and Singapore respectively, that, as was explained in the Defence White Paper, the long-term purpose of our diplomacy is to foster developments in those areas which will enable the local peoples to live in peace without the presence of external forces. But provided they are needed and welcome, provided that the continuing presence of British forces can help, then they will remain there. I do not think it would be profitable, nor do I intend at this stage, to speculate how fast and how far we can go at any particular time.
LORD CARRINGTON: My Lords, may I ask the noble Lord one question on that matter? I do not know that the Editor of the Sunday Times will be very pleased to hear his newspaper described as a "sensational newspaper", but never mind about that. May I ask the noble Lord to confirm that he is denying categorically that any idea of British abandonment in the early 1970s of the base in Singapore has been floated either in Washington or in Australia?
LORD CHALFONT: My Lords, the noble Lord is using tendentious and loaded language. He spoke of the "abandonment of our commitments in the Far East", the "abandonment of our base in Singapore". Of course the future of our deployment in the Far East has been discussed and is being discussed with our allies. As I have said, I cannot and do not intend here to speculate on the speed, the phasing of that withdrawal, and how any residual presence of forces will be deployed or where it will be placed. This is a matter of continuous planning and consultation with our allies. It would be foolish and irresponsible of me to speculate on that in the middle of the most delicate diplomatic exchanges with our allies.
LORD CARRINGTON: My Lords, in that case the noble Lord has more or less answered my question. I think all of us must draw our own conclusions from his lack of an answer.
LORD CHALFONT: My Lords, the only conclusion I would ask noble Lords to draw is that we are in the middle of delicate diplomatic consultations about the future of our whole Defence policy, including our deployment in the Far East. Anyone who draws more specific conclusions than that may well be misled.
May I now pass to the characteristically pungent speech of the noble Lord, Lord Gladwyn? I personally acquit him of any crime in quoting himself in his speech. I cannot think of a more authoritative source to quote. But I wish that we could get away from this habit of suggesting that anybody embarking on enlightened and imaginative policies is said to be accepting Liberal advice. This is a condition of political euphoria. That may be a comfort in the Liberal Party, but it helps us very little. It seems to enable the spokesmen of the Liberal Party to propose ideal solutions for any problem, however unrealistic they may be and however irrelevant they may be to current political realities. And then, when patient negotiation and years of international diplomacy has contributed to changes in the international climate which lead to a solution, they are able to say in the same way, with the complacency of a successful racing tipster, "I told you so". Really! One has come to expect more from the once great Party which the noble Lord now represents.
LORD GLADWYN: My Lords, all I would say is that what we said is true, and has in fact been accepted; and that is that.
LORD CHALFONT: As the noble Lord said, "he told us so".
I should now like to comment briefly on the extremely knowledgeable and constructive speech of my noble friend Lord Rowley. I know that he will forgive me if I do not at this time follow him along all the interesting trails which he pointed for me. Perhaps we can discuss these things at some other time. I should, however, like to comment briefly on the point he made about chemical and
968
biological warfare. I know that he is anxious that I should comment on this facet of his speech. I must confess, if I may say this without discourtesy to the gentleman concerned, that the views of Mr. Gunnar Myrdal on this matter are familiar to me, and I cannot characterise them as very authoritative or particularly new. Certainly the Government would like to see action taken to deal with biological and chemical weapons in the arms control and disarmament context. We shall take every step we can to see that these weapons are dealt with in that context. But there are signs that the international community is concerned about these dangers, and I share that concern. Indeed there was evidence of this at the last General Assembly of the United Nations, which passed by an overwhelming majority a Resolution calling for strict observance by all States of the principles and objectives of the 1925 Protocol on these weapons, and both the United Kingdom and the United States voted in favour of that Resolution. I hope that if there are any other points about this—
LORD ROWLEY: What did Russia do?
LORD CHALFONT: At the moment, I cannot recall exactly how Russia voted, but I can certainly look up the records and let the noble Lord know.
My noble friend Lord Rowley also expressed a fear which is in the minds of many noble Lords in all parts of the House. I can say categorically that there is no question in any of the Government's plans for the redeployment or the reorganisation of the Defence forces, or in its Defence policy, of defaulting on any of our Treaty commitments.
The remarkable maiden speech of the noble Viscount, Lord Monckton of Brenchley, has already been referred to. I should like to refer to it again, because I thought it was one of the most remarkable maiden speeches I have heard in my short time in your Lordships' House. It was perhaps unconventionally polemical and pungent, but then, as he said, there is no point in getting on your feet unless you have something to say. I personally welcomed the constructive and fluent tone of his speech. I should like to join with the noble Viscount, Lord Head, in expressing some perplexity

969
at his curiously perverse remark about the finest regiment in the Army. Perhaps what he really meant was the finest cavalry regiment in the Army, because I am sure all of your Lordships will be able to identify quite well which is, in fact, the best regiment in the Army, and I am sure I do not need to name it.
I should have liked to comment at some length on the speech of the noble and gallant Viscount, Lord Montgomery of Alamein, but as he is unable to be here I shall simply content myself with saying that it was as usual brief, constructive, knowledgeable and, of course, it had the supreme merit of differing almost diametrically with the views of the Front Bench opposite.
I should like now to refer briefly to the question of nuclear weapons—an important, solemn question referred to by, among others, the noble Viscount, Lord Head, and the noble Earl, Lord Jellicoe. The North Atlantic Alliance has at its disposal now a vast armoury of nuclear weapons, and the United Kingdom makes a substantial contribution to that armoury. As I said earlier in the more general context of Armed Forces and military establishments, these weapons exist because of the state of conflict and mistrust that pervades the world. Speaking both personally and as the Minister with special responsibility for disarmament, I wish most profoundly that these weapons did not exist. But I think we must face the fact that the maintenance of some sort of uneasy stability has been achieved since the end of World War II to a large extent by the nuclear balance between East and West, and the fact that in the event of nuclear war each side could destroy the other.
It is arguable, and I myself would argue it, that we are now moving into an era in which this balance is in grave danger of being disturbed, and we shall have to rely in the future on bringing the nuclear weapon more firmly under control by measures of international agreement, rather than on the simple ability of the nuclear weapon to maintain stability by the balance of terror. But in the meantime the nuclear confrontation exists. and the United Kingdom provides a contribution to the Western Alliance upon which, as my noble friend Lord Shackle-
970
ton has said, our security ultimately depends.
Perhaps I might take the opportunity here to reply to the specific question of the noble Earl, Lord Jellicoe, about the Polaris programme in which we are engaged. There have been some delays in the programme itself, but we are confident that, essentially, the Polaris programme will meet the original date planned for its completion.
EARL JELLICOE: My Lords, does that mean that all four Polaris submarines will be operational during 1969?
LORD CHALFONT: My Lords, essentially, the original, planned programme, which is as the noble Earl has indicated, will be met. We have had some difficulties over the training facilities, but we have every reason to believe that here, too, all the problems there have been satisfactorily overcome and that we shall meet the main target dates.
But, having said that, I should go on to say that, in spite of the Smoke screen that certain noble Lords have tried to draw across this, providing such a contribution to the Western nuclear deterrent is a very different matter from trying to maintain an independent British nuclear striking force. I do not know how many more times we have to go on saying this. As my right honourable friend the Secretary of State for Defence has said in another place:
"We just cannot conceive of circumstances in which the United Kingdom would want to use nuclear weapons independently, and as long as we find it necessary to keep these weapons our clear policy is to internationalise them."
Our V-bombers are already assigned to the Supreme Allied Commander in Europe; and when the Polaris force becomes operational it, too, will be committed to NATO and assigned to the Supreme Allied Commander.
There are those—not, I may say, on the Benches opposite—who suggest that this policy of internationalisation is not enough, and that the United Kingdom should unilaterally abandon its nuclear weapons capability. This, I may say, has never been the official Labour Party policy, despite indications to that effect from the Benches opposite. If an action of this sort showed any signs of leading

971
to a change in the international climate and to substantial measures of disarmament, there would be a great deal to be said for it. But all the evidence we have at present—and there is a great deal of it—convinces us that there would, unhappily, be no such effect.
I should have liked to dwell for a few minutes on the subject of nuclear-sharing in the Alliance—one of the most intractable problems concerning the internationalisation of nuclear weapons—but I fear that time will not allow me to do this. I am indeed only too well aware that I have no time to answer many real, factual questions that have been asked here to-day. It will be obvious, I think, why; and I intend no discourtesy. The comment from the Benches opposite that perhaps the reason is that I do not know the answers is lamentably wide of the mark. If noble Lords are prepared to bear with me for another hour and a half I am quite prepared to answer all the questions that have been put.
My Lords, one point has been made tonight upon which I feel I must comment, in a somewhat disobliging way. It is difficult to provoke me into Party polemics, especially on an issue like Defence, but I must take grievous issue with the noble Lord, Lord Thurlow, on his remarks about the Armed Forces. To suggest that the Armed Forces are in a collapsed state of morale as a result of the depredations of the Labour Government is one of the most breath-taking accusations I have ever heard from a member of a Party which, when it was in Government, consistently kept the Armed Forces short of equipment, over-stretched them and gave them commitments to carry out which they could not possibly fulfil. Under a kaleidoscopic succession of Defence Ministers the Conservative Government did their best to turn the Armed Forces into a "stage" Army, and it is that damage which we are only now beginning to repair.
Even if this were not an outrageous suggestion against Her Majesty's Government and their attitude to the Armed Forces, it would in my view be a disgraceful reflection on the state of morale in the Armed Forces to-day. The noble Lord has painted a picture of an Army in a state of collapsed morale. I must confess that I do not recognise this Army.
972
I do not recognise in it the troops who are carrying out their duties magnificently in Aden; I do not recognise it in the highly efficient and well-equipped body of men in the British Army of the Rhine. I do not recognise it at all. To suggest, as the noble Lord has suggested, that the Labour Government do not care about their soldiers is the most disgraceful suggestion of all. I am sorry to be polemic about this; but this was simply a series of accusations that I could not possibly allow to pass.
LORD THURLOW: My Lords, may I interrupt the noble Lord? The main purpose of my accusations on this point was the frightful worry about the future of the Army. It was not that the Army's morale is in a poor state in Aden, or anywhere else, but that the men are all extremely worried about the size and shape of the Army. If I did not make that clear I am sorry. Certainly I did not intend that my remarks should be taken in the context that the Army morale, from the point of view of doing its job, was in a bad way. It is not. But there is no doubt in my mind that there is worry in the Army about the future. I should have stressed the worries more than the morale. But I apologise; I did not mean to put it as emphatically as the noble Lord has taken it up. But there is a definite worry. If I can withdraw the remarks I have made about morale I will willingly do so. It is the worry about the future that I intended to stress.
LORD CHALFONT: My Lords, I accept entirely that handsome statement from the noble Lord. I regret it if I misunderstood him. He and I are both so committed to the welfare and morale of the Armed Forces that I can understand that we both probably went a little too far.
In conclusion—and I really must stop now—the process of Defence policy-making, as I have said earlier, must never be static: it must be dynamic. In spite of what some noble Lords opposite have said, we must, and we do, look ahead to the way in which the international structure of the world will develop in the next 10, 15 or 20 years. As noble Lords have said, it is difficult to be certain of anything in the future of international relations. But of one thing we

973
can be fairly sure: that the world will still be a very dangerous and precarious place to live in. The growth of China as a nuclear Power; the dangers of the proliferation of nuclear equipment; the dangers of an intensified arms race among the super-Powers; all these, and many other developments of a political kind—as in Europe, in which connection we have heard the historic statement earlier in this House to-day about our own relations with the Continent of Europe—and developments of a technological kind expressed in the field of nuclear weapons and nuclear weapon systems, will paint the broad canvas against which we shall have to construct our national policies.
My Lords, there are greater and more significant developments even than this taking place, with which I have not had time to deal in the House to-day: the rapidly expanding populations, especially in the developing countries of Africa and Asia, and the incredible speed of scientific discovery, especially in the field of exploiting natural resources. All these will be significant elements in what will be, unless we begin to deal with it now, urgently and imaginatively, a greater and more terrible confrontation than any we have seen so far in the world, a confrontation between the industrial countries of the world, with so much of the wealth and security and happiness of the world in their grasp, and the developing countries that are now beginning to seek their fair share of the benefits of science and technology; the confrontation, in fact, of the rich countries and their high standards of living with the poor countries where starvation is too often a familiar part of the pattern of life. My Lords, this is not as irrelevant as at this late hour of the night it may seem to you to be. It is against this background that we must begin to imagine and outline the foreign policies of the coming years, and the defence policy that will be needed to carry them out. The noble Earl, Lord Jellicoe, said that he is getting to know this Government. There will be opportunities during a great number of years to get to know them even better. As I have said, this is a great and complex task that we are embarked on, and I can do no more tonight than reiterate, in the last few seconds of what I have to say,
974
the basic principles on which our defence policies are based.
First, and most important, they move hand in hand with our policies for disarmament and arms control. Secondly, they follow rational priorities which will enable us to make Britain not only safe, but prosperous as well. Third, they show to the world our determination to follow the principle of releasing precious resources from the field of military expenditure so that they can be devoted not only to improving our own quality of life but to giving hope to those countries where the quality of life is already so appallingly lower than our own. Finally, all our changes in Defence policy are made with full recognition of our solemn international agreements and in full consultation with our Allies.
In short, our Defence policy plays its part in buying for this country security, prosperity, and at a price which is not only acceptable to us but is relevant to the real and growing needs of the rest of the world. My Lords, the next 15 or 20 years will present a great challenge to Britain and the other great countries of the world. We are seeking a revolution in international politics, a new system of international security. The White Paper which we have been debating to-day claims to be no more than one of the early signposts for this long, planned road to a new system of international security. This challenge is one that this Government are determined to meet.
LORD CARRINGTON: My Lords, before the noble Lord sits down for the last time, may I ask him this question? I fully understand that he could not answer all the questions which have been asked—his speech would have been of an intolerable length if he had answered them all. I would not for one moment suggest that he did not know the answers to a number of the questions, largely because my noble friend Lord Jellicoe and I had given him advance information of the questions that we were going to ask; therefore, clearly, that cannot have been the reason. But it is rather important that we should get answers to these questions. I would therefore ask the noble Lord whether he would write to each one of us who has asked these questions and send us answers; because it is fairly clear from the debate we have had that it will be necessary for my noble friends and myself to put down another Motion about

975
the equipment of the Forces, since we have not had the answers this evening.
LORD CHALFONT: My Lords, of course—and I apologise for not making this clear—I shall take steps to answer those questions which have been asked on matters of fact, and questions that were designed to elicit information, if I have not been able to answer them in your Lordships' House to-day.
LORD TEYNHAM: My Lords, may I just add that I am sorry that the Minister has not found it possible to answer any of the questions put to him to-day about maritime warfare and the Fleet in general?
On Question, Motion agreed to.
House adjourned at nineteen minutes past ten o'clock.