Sitting of 21 November 1967

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  NATIONAL FINANCE

    British European Airways (Currency Restrictions)
    Mr. John Hallasked the Chancellor of the Exchequer what representations have been made to him by the British European Airways about the effect of the currency restrictions on the Corporation's profitability.
    The Chief Secretary to the Treasury (Mr. John Diamond): None to me, Sir, although the Chairman raised this matter earlier in the year with my right hon. Friend the President of the Board of Trade.
    Mr. Hall: Does the right hon. Gentleman agree that the Chairman of B.E.A. made it very clear that he regards the currency restrictions as having a very serious effect on future profits? In view of the fact that this ill-conceived measure was chosen as one of the methods of trying to protect the £, now that we have devaluation, will not the right hon. Gentleman reconsider the whole question of currency restriction of this kind?
    Mr. Diamond: These restrictions continue to make a useful contribution to our balance of payments.
    Mr. Higgins: The right hon. Gentleman will be aware of the debate last night which spelled out the relationship between currency restrictions and B.E.A. finances. Could he say whether it is the intention of the Government to apply for an increase in fares under I.A.T.A. and, if so, what the position on this is?
    Mr. Diamond: That is entirely another matter, and one for one of my colleagues.

    Balance of Payments and Trade Returns
    Mr. Stratton Millsasked the Chancellor of the Exchequer if he will publish the balance of payments figures every six months instead of quarterly and the trade returns every three months instead of monthly.
    Mr. Diamond: No, Sir.
    Mr. Stratton Mills: But are not these monthly returns largely meaningless, creating a lot of disquiet abroad as well as a kind of national hysteria at home? Will not the right hon. Gentleman consider this matter again in the interests of the currency?
    Mr. Diamond: I am grateful to the hon. Member. It is of course unfortunate that some people attach so much importance to very temporary statistics, but it is also the case that these are economic indicators which are of genuine importance to the business world and the academic world.

    Sterling
    Mr. Martenasked the Chancellor of the Exchequer if, in view of the French policy in the Common Market discussions he will make a statement about the rôle of sterling as a reserve currency.
    The Chancellor of the Exchequer (Mr. James Callaghan): I have made it clear that I am ready to take part in constructive discussions about sterling's international rôle. I do not believe that any problem arises in this field which has to be solved before we could join the Common Market.
    Mr. Marten: Now that the French Government have made it absolutely clear that devaluation will not make it any easier for us to enter the Common Market, could the Chancellor go slightly further than that and categorically say that he will resist the French demand that we should abandon sterling as a reserve currency?
    Mr. Callaghan: There can be no question of abandoning sterling as a reserve currency until arrangements are made which are satisfactory to those who hold sterling. There are two parties to this transaction, those who hold it and those

    1109
    who have put it on deposit here. If there are proposals that are to be made which can be discussed about sharing more widely the reserve rôle there is no difficulty on my part in joining any such discussions, but that needs other people who are ready to join in sharing the rôle.

    Swiss Loan
    Sir C. Osborneasked the Chancellor of the Exchequer what was the amount, rate of interest and length of the loan he has recently negotiated with the Swiss bankers; and what particular factors made this additional borrowing necessary, at a time when Her Majesty's Government is pledged to repay existing foreign loans at the rate of £300 million a year up to 1970.
    Mr. Callaghan: £44 million at the new rate, 5½ per cent., 12 months. The loan was made on the initiative of the Swiss banks concerned.
    Sir C. Osborne: Could the Chancellor estimate roughly how much per year we shall have to repay our new loans as well as old loans? Will he consider issuing a White Paper so that we can really understand our situation?
    Mr. Callaghan: I will consider the second part of that question. I could not give an answer offhand to the first part, which goes wide of the original Question.

    Social Services
    Mr. Whitakerasked the Chancellor of the Exchequer whether he will in future increase the amount of money available for the social services by reducing the tax allowances of those who are wealthy.
    Mr. Diamond: I have noted my hon. Friend's views but he will understand that my right hon. Friend cannot commit himself to adopt them.
    Mr. Whitaker: I thank my right hon. Friend for that Answer. Would he not agree that it is economically and socially indefensible that the highest State help for mortgages, education and child allowances goes to those who least need it?
    Mr. Diamond: I think I covered that point in my first reply. Obviously it is inevitable arithmetical logic that those
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    who pay the highest tax must have the highest allowances.
    Mr. Ridsdale: Is the right hon. Gentleman aware that in my constituency more people are in need of social aid than in his and that they realise full well that, without the creation of more wealth and tax incentive necessary for this, they will not get the social services needed?
    Mr. Diamond: No, I was not aware of that, but I would be interested to be given the statistical information.

    Private Companies (Government Loans)
    Mr. Whitakerasked the Chancellor of the Exchequer whether he will make it Government policy that, whenever public capital is given or lent to a private company, the nation receives an equivalent shareholding and representation on the board of directors.
    Mr. Diamond: Taking an equity holding, and appointing Government directors, are not necessarily the most appropriate ways of securing the national interest in every case. I would refer my hon. Friend to the Prime Minister's remarks in the debate on the Gracious Speech on 31st October.—[Vol. 753, c. 29–34.]
    Mr. Whitaker: Would my right hon. Friend not agree that it is grossly unfair on the taxpayer that, when one of these projects makes a profit the profit goes to private shareholders, but when a project, such as Cunard, makes a loss, that loss is borne by the taxpayer?
    Mr. Diamond: It is the earnest endeavour of the Treasury to see that this does not happen.
    Mr. Patrick Jenkin: Does the Chief Secretary's first answer mean that the Government have abandoned the Industrial Expansion Bill, and does he recognise that an announcement of the abandonment of that would do more to strengthen this country's position than almost anything else?
    Mr. Diamond: It does not mean that. I take precisely the opposite view.

    Balance of Payments
    Mr. Bruce-Gardyneasked the Chancellor of the Exchequer what is his latest forecast of the overall balance of payments outturn for calendar years 1967 and 1968, respectively.
    Mr. Callaghan: In the first half of 1967 there was a deficit of £57 million. It has never been the practice to publish quantitative forecasts for the balance of payments.
    Mr. Bruce-Gardyne: Would the Chancellor not agree that that is probably a good thing, because any forecast of a balance of payments surplus that he now made would be regarded with some scepticism? Would he not further agree that anyone at home or abroad, who saw the Prime Minister's television performance on Sunday night would be bound to have considerable reservations about the ability of a Government led by him to fulfil their rôle?
    Mr. Callaghan: I do not think that anyone is likely to desert the Prime Minister in favour of the hon. Gentleman. As to the relevance of the particular supplementary question he asked, the position is that there will be a deficit for 1967, arising to a very great extent out of the closure of the Suez Canal, which is costing a very substantial amount—something like £200 million a year more in the course of a full 12 months—while more recent months have been heavily affected by dock strikes.
    Mr. Baker: In view of the contribution that agriculture can make to the saving of imports, can the right hon. Gentleman give the House any assurance that agricultural credit will not be restricted in the present circumstances?
    Mr. Callaghan: Yes, Sir. In the bank notice that has been, or will be issued, agriculture is mentioned as one of the priority areas for credit along with exporters and the development areas.

    Alcoholic Drinks (Revenue)
    Mr. William Priceasked the Chancellor of the Exchequer (1) if he will estimate the loss of revenue to the Exchequer due to the introduction of breathalyser tests;
    (2) whether he will consider seeking tax adjustments to help publicans to overcome the financial losses attributed to breathalyser tests.
    Sir G. Nabarroasked the Chancellor of the Exchequer what diminution of revenue he now anticipates arising from a fall in the drink trade following the
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    introduction of breathalysers; what was his 1967–68 anticipated revenue from alcoholic beverages; what is his revised estimate for 1967–68; and how he intends to stimulate the revenue to offset breathalyser depredations of revenue.
    Mr. Diamond: My right hon. Friend's Budget estimate for the revenue from alcoholic drinks this year was £718 million. It is too soon yet to make any estimate of the effect on receipts of the road safety legislation, but I shall keep this under review.
    Mr. Price: Is my right hon. Friend aware that we on this side of the House are delighted that the breathalyser tests are working, but is he aware that as a result many country pubs are facing grave financial difficulties? Will he consider what help he can give to the small men in the isolated communities who are helping to collect hundreds of millions of £s for the Exchequer and are at the same time providing a community service?
    Mr. Diamond: I understand that what my hon. Friend has said is quite accurate, that there is a certain switch from country pub to the really local pub. We will keep this in mind.
    Sir G. Nabarro: Does the right hon. Gentleman realise that in very rural areas, such as South Worcestershire, the drinking and catering trades on the fringe of dense industrial areas, such as Birmingham, the Black Country and Coventry are not just hard-hit by this measure, but many of the establishments are to be put out of business? As the loss of revenue will probably be of the order of £150 million in the full year out of £718 million, will he give an assurance that he does not propose to raise the standard rate of Income Tax to offset it?
    Mr. Diamond: I would go this far. I would invite the hon. Gentleman to recognise that I am not worried about the consequential effects of this, and I hope he will not be worried either.
    Sir G. Nabarro: I am very worried.

    Travel Allowance
    Mrs. Renée Shortasked the Chancellor of the Exchequer what savings he estimates have been made as

    1113
    a result of the £50 tourist allowance during this holiday season.
    Mr. Biffenasked the Chancellor of the Exchequer what is the estimated saving in foreign exchange arising from the restricted overseas travel allowance; and what proposals he has for ending this restriction.
    Sir G. Nabarroasked the Chancellor of the Exchequer what saving in foreign exchange resulted from the £50 travel limit in the travel year 1966–67, and what savings he estimates for the travel year 1967–68.
    Mr. Callaghan: As to 1967, I cannot at present add to the replies given to the hon. Member for Bournemouth, East and Christchurch (Mr. Cordle) on 24th October and the hon. Member for Louth (Sir C. Osborne) on 7th November. As to 1968, the effect of the exchange control restrictions is now likely to be greater than in 1967. Removal of the restrictions depends on the development of our balance of payments position.—[Vol. 751, c. 424; Vol. 753, c. 81.]
    Mrs. Short: Can my right hon. Friend say if in the meantime he intends to increase the allowance to take up the difference because of the devaluation? Will he not consider the loophole left for the big fish to get through who export large amounts of capital to buy villas in Spain and invest in industry abroad? Does he not realise that we ought to go after these rather than after the tourists?
    Mr. Callaghan: I have no proposal for increasing the travel allowance at this time for 1968. As regards property investment, my hon. Friend will be aware that there is no sanction or permission for anyone legally to export money from this country for the purpose of buying villas in Spain. There is only a property currency market, which has a revolving pool of currency which is, at the moment, outside the control of this country.
    Mr. Biffen: If the consequences of devaluation are as substantial as the Prime Minister has asserted, is this not the occasion to end one of the restrictions whose effect is widely believed to be so capricious?
    Mr. Callaghan: I do not like capriciousness in the administration of any of these regulations, and I doubt whether it
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    is as capricious as the hon. Gentleman says. There is always room for people who will illegally try to evade regulations until they are found out but I do not think that this is the right moment, at a time when people will be asked, and are being asked, to forgo an increase in their standard of life, to allow foreign exchange, in additional amounts, to be spent on foreign travel.
    Sir G. Nabarro: Does not the Chancellor realise that, post-devaluation, the travel allowance, for example in the countries of the E.E.C., is worth only £43 instead of £50 and, as this is a derisory sum to suggest that any reasonable person may take a 14-day holiday upon, would he not agree that we ought surely to have an adjustment to perhaps £60?
    Mr. Callaghan: I recognise that the value of the allowance has been cut by last Saturday's announcement, but I cannot come forward at this moment with a proposal for increasing it.
    Mr. Whitaker: Is my right hon. Friend aware that there is a very widespread feeling in the country that, while foreign exchange is in short supply, it is better that it should be shared among the greatest number of people, to enable them to have a modest holiday rather than that the hon. Member for Worcestershire, South (Sir G. Nabarro) should affect his health by over-eating pâté de foie gras?
    Mr. Wingfield Digbyasked the Chancellor of the Exchequer on what grounds he is applying for a waiver from the International Monetary Fund articles for an extension of the £50 travel allowance.
    Mr. Blakerasked the Chancellor of the Exchequer what representations he has received from the International Monetary Fund calling for the removal of the £50 tourist travel allowance; and what reply he has sent.
    Mr. Diamond: The Fund's continued consent to the £50 travel allowance was sought and obtained for balance of payments reasons. I have received no representations on the subject from the Fund.
    Mr. Digby: Have the grounds for continuing to protect Article 8 of the I.M.F. altered since devaluation? Is this application to be an annual event? Are not the real reasons Socialist prejudice?
    Mr. Diamond: No, Sir. The answer to the latter two parts of the tripartite supplementary question is "No." Under the Articles we are required to obtain the Fund's consent to restrictions, and that we did.
    Mr. Blaker: With reference to the answer which the Chancellor of the Exchequer gave a few moments ago, can the Chief Secretary say what is the ground on which one can justify a situation in which people are able to buy a foreign car thus spending foreign currency but are not allowed to spend more than £50 on foreign travel? What is the sense in that?
    Mr. Diamond: I think the hon. Gentleman is making the point that, in addition to foreign currency, there is the very important element of balance of payments considerations. That is absolutely right.
    Mr. Rankin: Why should members of the Opposition continue to try to kid us that £50 is all they get?
    Mr. Higgins: Will the right hon. Gentleman now answer the first supplementary question? Why is it that the Government are still justifying this action on balance of payments considerations? Are we to understand that we are still in balance of payments difficulties and that the Government expect these difficulties even after devaluation?
    Mr. Diamond: This application was made in advance and, as I have already said, it is still making a useful contribution, to the solution of our balance of payments problem.

    Civil Servants
    Mr. Farrasked the Chancellor of the Exchequer by how many the number of non-industrial civil servants increased in each of the last three years, to 1st October in each case.
    Mr. Costainasked the Chancellor of the Exchequer what was the total establishment of senior and other grades in the Civil Service; and what vacancies existed, in 1964, 1965, 1966 and the first six months of 1967.
    Mr. Diamond: Since 1st October, 1964, when the total number of non-industrial civil servants was 415,000, the
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    annual increases have been 8,000, 17,000 and 19,000: the last figure is for the nine months ended 1st July, 1967.
    The number of vacancies varies considerably by area and by class, but the overall shortage over the last two years is about 3 per cent.
    Mr. Farr: Does the right hon. Gentleman realise that everyone is working about one day per month now simply to employ this non-productive body of civil servants? If he realises that what will he do about it?
    Mr. Diamond: No, Sir, I have not realised that interesting statistical figure. What I have realised was that this House expected a number of services to be carried out and that this Government was endeavouring to carry them out.
    Mr. Costain: Does the Minister realise that this increase is phenomenal? Does he not realise that the Selective Employment Tax was introduced to stop these sorts of services and can he explain why it has not operated in this case?
    Mr. Diamond: The explanation is that there have been certain services which this House has asked to be carried out. There are, particularly, two Ministries affected, the Ministry of Social Security and the Ministry of Labour. Between them some 15,000 out of the figures I have given are dealing with the problems of the earnings related insurance benefits scheme, the effect of the earnings related benefit scheme on labour and the redundancy payments scheme. All these schemes were passed by this House and regarded as relevant to the present situation.

    Husbands and Wives (Tax Assessment)
    Dr. Summerskillasked the Chancellor of the Exchequer whether he will seek to abolish the joint assessment of a husband and wife for Surtax purposes.
    Mr. Diamond: No, Sir. I share the views of the Royal Commission in favour of the present system.
    Dr. Summerskill: Would my right hon. Friend not agree that if the joint assessment were abolished, there would be a financial incentive to married women to return to medicine, teaching, scientific research and other professions where the Government urgently need them?
    Mr. Diamond: Yes, I take the view that there is a very considerable incentive as there is. If my hon. Friend will work out the figures, she will see that it is very substantial indeed.
    Mr. Iain Macleod: Would the Chief Secretary look at this matter again? It is a matter of considerable concern to those who wish to see married women come back into employment. Would the right hon. Gentleman agree that the Royal Commission's view is now perhaps out of date, and that we are out of line with every comparable country in our treatment of man and wife in this regard?
    Mr. Diamond: I share the concern of the right hon. Gentleman. This is a matter of anxiety, and the Government are anxious that married women should come back to work and, where appropriate, take part in their professional lives or whatever they are able to do. However, I am grateful to the right hon. Gentleman for raising this matter because it enables me to say that there is wide misunderstanding of the situation. For Income Tax purposes the wife pays the same Income Tax on her earnings as if she were a single woman. This is not generally appreciated.

    Loan Repayment
    Mr. Winnickasked the Chancellor of the Exchequer whether is is proposed to ask the International Monetary Fund to rephase the United Kingdom loan repayment.
    Mr. Callaghan: I would refer my hon. Friend to my reply to the hon. Member for South Angus (Mr. Bruce-Gardyne) on 28th February, 1967.
    Mr. Winnick: Can my right hon. Friend say whether we shall be repaying our loan commitments for this year and next year? Can he make any comment on the loan arrangements made last weekend?
    Mr. Callaghan: The latter part of that supplementary question goes rather wider than the original Question. As regards the first part of the supplementary, the original drawing in November, 1964, was finally repaid on 20th November—yesterday, in fact. As to the next repayments which are due before 1970, when our balance of payments situation begins
    1118
    to improve as substantially as it should do, this will make the problem of repayment that much easier.
    Sir A. V. Harvey: On a point of order, Mr. Speaker. Two or three weeks ago you ruled on the Prime Minister's reference to a Question that he answered in the late summer. The Chancellor has now referred to a Question that he answered last February.
    Mr. Speaker: Order. The hon. Gentleman does not appear to have read the Ruling that I gave.
    Mr. Callaghan: It is all right. I checked first.

    Balance of Trade
    Sir C. Osborneasked the Chancellor of the Exchequer by what percentage the terms of trade have moved in favour of Great Britain since October, 1964; by how many millions this has improved the balance of trade; which poorer countries mostly have suffered as a consequence; and what action he proposes to take to restore the wealth they have thus lost.
    Mr. Callaghan: On the first question, about 6 per cent. before the recent devaluation; on the second and third questions I would refer the hon. Gentleman to the Answer which I gave to my hon. Friend the Member for Lewisham, West (Mr. Dickens) on 2nd November; on the fourth question, I would refer the hon. Gentleman to my speech at the Annual Meeting of the I.M.F. and I.B.R.D. at Rio on 26th September.
    Sir C. Osborne: Would the Chancellor come clean and tell the House what 6 per cent. means? Does it represent something like £300 million a year? Is not this an additional extravagance that has got to be cut out if we are to deal honestly with the poorer countries in the world?
    Mr. Callaghan: No, it does not mean £300 million a year. That is why I cannot give an estimate. If the hon. Gentleman will refer to my previous Answer he will see that I said:
    "Prices of both imports and exports have risen, although export prices have risen more than import prices."—[OFFICIAL REPORT, 2nd November, 1967; Vol. 753, c. 13.]

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    One cannot make a precise estimate of the net effect on the balance of payments because it affects the importing propensities of the countries concerned and one cannot, therefore, make an estimate.

    Inland Revenue Staff (Arrears of Work)
    Mr. Stratton Millsasked the Chancellor of the Exchequer if he will make a statement on the substantial arrears of work with which the staff of the Inland Revenue at present have to deal.
    Mr. Diamond: The staff of the Inland Revenue have for some time been working under heavy pressure, but, because of their admirable response, arrears of work have been kept within manageable bounds.
    Mr. Stratton Mills: Does the right hon. Gentleman accept the statement by the Inland Revenue Staff Federation that over half a million hours of overtime have been worked in October, that something like half a million letters remain undealt with and over 800,000 tax assessments which are over two years old have not been looked at?
    Mr. Diamond: The situation is that the number of letters from taxpayers uncleared within seven days, which is the normal method of calculation, is now at a lower figure than at any time in the last four months.
    Mr. Biggs-Davison: Is it intended to increase the staff of the Inland Revenue, and if so, by how much?
    Mr. Diamond: No, Sir, except to the extent that those in training will shortly become fully qualified and will be able to assist the more.

    Charities (Tax Relief)
    Mr. Arnold Shawasked the Chancellor of the Exchequer whether he will review the definition of charities insofar as it affects the incidence of tax relief.
    Mr. Diamond: The meaning of charity for tax relief purposes follows the ordinary legal meaning of the term, and it has not been found practicable to introduce a special definition for tax purposes.
    Mr. Shaw: Would not my right hon. Friend agree that the present system raises many anomalies, that many institu-
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    tions such as public schools are getting tax relief whereas other really worthwhile institutions like convalescent homes have to bear the full burden?
    Mr. Diamond: I sympathise with the difficulties which my hon. Friend has mentioned. He will realise that this is the very difficulty which anybody has if he tries to redefine charities. It is a difficulty which none of us would like to have to decide upon.

    Private Investment Overseas
    Mr. Dickensasked the Chancellor of the Exchequer what steps he is taking to reduce the net outflow of private direct investments to developed countries.
    Mr. Frank Allaunasked the Chancellor of the Exchequer if, in view of the declared intention of Imperial Chemical Industries and other firms to export increasing amounts and proportions of capital abroad, he will give an approximate estimate of the effect of this on the balance of payments in this financial year and next year; and what action he proposes to remedy it.
    Mr. Callaghan: The Government's policy to reduce the cost to the balance of payments of direct investment abroad has been implemented by measures under the Exchange Control Act, the Control of Borrowing Order and the Voluntary Programme. All projects in the non-sterling area and the four developed countries of the sterling area are subject to one or other of these measures.
    Direct investment abroad by United Kingdom firms in the 12 months to June, 1967, was £41 million lower than in the preceding year, with a substantial proportion financed by overseas borrowing.
    I have no present proposals for further restriction.
    Mr. Dickens: Whilst this cut is to be welcomed, does not my right hon. Friend agree that we should now take steps to prohibit completely, for example, the private direct investment of capital to a country like South Africa? Why build up a fascist racialist economy in South Africa at the expense of full employment and economic growth at home?
    Mr. Callaghan: We have a very substantial trading relationship with South Africa and there are a great many British

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    firms with large interests in that country. I do not think it would be in our interests to prevent them from at least maintaining their position there. We cannot really be as generous as to write off all that capital.
    Mr. Allaun: Has not I.C.I alone announced that it will spend a further £50 million in this way? Would not tighter restrictions help to prevent this major burden on our balance of payments deficit?
    Mr. Callaghan: No, not necessarily, because I.C.I. and a great many other firms have been encouraged and, indeed, cajoled to raise a large amount of this new capital abroad on loan terms. To that extent it is no drain on the British balance of payments, but can bring a long-term benefit.
    Mr. Patrick Jenkin: Will the right hon. Gentleman draw to the attention of his hon. Friends the major difference between what the I.C.I. overseas director referred to as the greatest growth in investment overseas and the actual export of capital? Further, will he point out to them that, in fact, the great majority of this investment overseas, which is greatly to the advantage of this country, comes from depreciation, ploughed back funds and money borrowed overseas?
    Mr. Callaghan: Yes, Sir, that is the case; but, even though it is in the form of depreciation, it appears in some of the statistics as an export of capital, which to that extent may be misleading. However, I do not believe that any of us

    1964

    1965

    1966

    Duty

    Consumption per capita

    Duty

    Consumption per capita

    Duty

    Consumption per capita

    £m.

    lb.

    £m.

    lb.

    £m.

    lb.

    Cigarettes

    875

    6

    930

    5·7

    960

    5·7

    Pipe tobacco

    55

    0·3

    55

    0·3

    55

    0·3

    Cigars

    9

    0·1

    11

    0·1

    13

    0·1

    Notes to the Table

    1. Virtually all the tobacco duty revenue comes from the duty charged on the raw leaf when it is withdrawn from bonded warehouse, and the duty receipts do not record the use to which the leaf is ultimately put. The figures given in this table are approximations based on manufacturers' records of sales of tobacco goods.

    2. The figures for cigarettes include both manufactured cigarettes and tobacco for hand-rolled cigarettes.

    3. Consumption is given per head of the total U.K. population aged 15 and over.

    would wish to prevent large British companies with interests abroad from borrowing money abroad in order to maintain, develop or modernise their plant there.
    Sir J. Rodgers: Has the Chancellor's attention been called to the recent speech of Lord Cromer, a former Governor of the Bank of England, about the operation of the Exchange Control Act, and has he any plans, in view of this devaluation speech, to repeal that Act?
    Mr. Callaghan: No, Sir; none at all.

    Cigars, Cigarettes and Pipe Tobacco (Duty)
    Dr. David Kerrasked the Chancellor of the Exchequer what sums of money have been received as duty paid on cigars, cigarettes and pipe tobacco, respectively, for the three most recent 12-month periods; and what per capita consumption of each these represent.
    Mr. Diamond: As the Answer contains a table of figures, I will, with permission, circulate it in the OFFICIAL REPORT.
    Dr. Kerr: Will my right hon. Friend take it that I shall study those figures with interest, in the hope that someone, possibly his right hon. Friend the Minister of Health, is making representations to him about the need for a differential tax in the interests of the nation's health?
    Mr. Diamond: My hon. Friend will appreciate that that is a budgetary matter.

    Scotch Whisky (Excise Duty)
    Mr. James Davidsonasked the Chancellor of the Exchequer what is the latest available figure for the annual value of Excise Duty on Scotch whisky.
    Mr. Diamond: The amount of duty paid on mature plain British spirit, nearly all of which is Scotch whisky, in the financial year 1966–67 was £140·4 million.
    Mr. Davidson: Was this figure taken into account in the figures I was given recently in a series of Written Answers for the total Scottish contribution to the Exchequer and total Scottish disbursements from the Exchequer?
    Mr. Diamond: This figure is the amount of duty paid. One must be careful to distinguish between the amount of duty paid and the amount of whisky consumed. They may take place in different places.
    Mrs. Ewing: Does the right hon. Gentleman realise that the great value of this duty is one reason why a Scottish Government would have no balance of payments problem?
    Mr. Diamond: No, Sir; I am not aware of that.

    Budget Proposals
    Dr. David Kerrasked the Chancellor of the Exchequer whether he will in future indicate to the House the broad principles on which he proposes to frame his Budget proposals for the ensuing year, in order to allow more constructive discussion of their effects to be conducted.
    Mr. Callaghan: The broad objectives to which the next Budget will be directed can be inferred from the statement I gave the House yesterday. On particular proposals, confidentiality is important, and that is a limiting factor in the area of discussion.
    Dr. Kerr: I foresaw that rather platitudinous Answer. Will my right hon. Friend have another think about the usefulness of pre-legislation discussions by back benchers, particularly on the broad matters which he acknowledges are not subject to confidentiality?
    Mr. Callaghan: I regret the platitudes, though, on the whole, I am rather glad
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    to get back to a few bromides. I am aware that there is a great deal of discussion about budgetary principles and proposals. From this season onwards, the Chancellor is always subjected to a great many representations and a good deal of advice, most of which he does not take. Perhaps that is wrong, but he does not. If there is any particular matter on which my hon. Friend would like a discussion, it can, no doubt, be arranged.

    Members (Stationery)
    Dr. Winstanleyasked the Chancellor of the Exchequer if, in view of the free availability of stationery in the House of Commons racks, he will arrange to end the charge made for stationery obtained from Her Majesty's Stationery Office.
    Mr. Diamond: The hon. Member's suggestion has been made before, but I am arranging for it to be considered again in the appropriate quarters.
    Dr. Winstanley: I am grateful to the right hon. Gentleman for what he has said, but does not he agree that it is high time that Members were readily and freely supplied with the tools with which to do their job? Further, will he say that he cannot support the ludicrous situation in which hon. Members are given a rebate on any stationery which they return to the office, whereas any enterprising hon. Member can take away a sackful any afternoon?
    Mr. Diamond: I doubt that I should agree with the term "enterprising" as applied to that hon. Member.

    Public Service Pensions
    Mr. Goodhewasked the Chancellor of the Exchequer if he will introduce a Public Service Pensions Increase Bill.
    Mr. Diamond: I would refer the hon. Member to the Financial Secretary's speech on the Public Service and Armed Forces Pensions Commission Bill on 3rd February, 1967.—[Vol. 740, c. 985–90.]
    Mr. Goodhew: Does not the right hon. Gentleman realise that the purchasing power of the pensions of public service pensioners has been eroded just as has the purchasing power of the ordinary retirement pensioner who is having an increase, and it is likely to be even more

    1125
    eroded as a result of the Chancellor's weekend activities?
    Mr. Diamond: It will be appreciated that the increase in the ordinary retirement pension is closely relevant in this connection, since most public service pensioners are in receipt of that pension also. On the other point, the hon. Gentleman will remember that the last Act provided for increases of up to 16 per cent. and since it came into operation in January 1966, the cost of living has gone up by well under 5 per cent.
    Dame Irene Ward: Is the right hon. Gentleman aware that all these people, the great majority of whom are living on small fixed incomes, will be badly hit by the Government's new policy? Did not the Chancellor of the Exchequer say that he would do something for people who would find themselves in these circumstances? Will he keep his pledge, or is it to be another pledge abandoned?
    Mr. Diamond: My right hon. Friend said that the poorer sections of the community who will be hard hit—who might be hard hit—[HON. MEMBERS: "Will be very hard hit."]—might be hard hit, should be specially protected.
    Mr. Macdonald: What thought is my right hon. Friend giving to introducing the concept of automatic increases in these matters, so as to do away with the need for periodic Bills?
    Mr. Diamond: This matter has been considered from time to time, but one requires a certain flexibility in action.

    Unused Capacity and Unemployment
    Mr. Frank Allaunasked the Chancellor of the Exchequer to what extent it is his intention to maintain a larger margin of unused capacity and the permanent pool of unemployed entailed.
    Mr. Callaghan: As has been made clear in a reply on an earlier occasion, the Government do not recognise a permanent pool of unemployment as any part of our policy. As to the earlier part of the Question, I would refer my hon. Friend to my Budget statement.—[Vol. 744, c. 973–1010.]
    Mr. Allaun: I welcome that, but is there not sufficient unused capacity today to fulfil our proposed and planned export
    1126
    increases without the cut in home consumption which will result from the three deflationary measures of Saturday? When will those be withdrawn?
    Mr. Callaghan: We shall be debating these matters later today. The answer probably is that there is sufficient capacity at the moment, but, as home demand is certainly going to expand at a quite rapid rate during the next 12 months, in 12 months' time there would not be that capacity available, plus the export-led boom which we desire to see.
    Mr. Gresham Cooke: Does not the Chancellor agree that the vicious four-pronged attack on exporting companies which he made in his devaluation statement yesterday will lead to a larger pool of unemployed this winter?
    Mr. Callaghan: No, Sir, I would not agree with that. But we are to debate these matters for two whole days.
    Mr. Higgins: As the Chancellor has stated what overall level of unemployment he regards as acceptable and has stressed the need for regional policies, will he put in the Library a list of figures giving the levels which he regards as acceptable in each region?
    Mr. Callaghan: No, Sir; it would be quite useless to tackle the problem in that way.

    Corporation Tax
    Mr. Ridleyasked the Chancellor of the Exchequer, in view of the fact that share prices quoted on the Stock Exchange have reached an all-time peak, if he will seek to amend the Corporation Tax by ceasing to tax equity dividends twice, thus encouraging the issue of more equity stock.
    Mr. Diamond: I do not think that the treatment of dividends under the Corporation Tax system calls for amendment. Share prices are affected by a great many factors.
    Mr. Ridley: Why is it part of Socialist philosophy to discriminate more against equity shareholders than against fixed-interest shareholders? Second, did the right hon. Gentleman foresee that the result of his policy would be to achieve an all-time record high in the Stock

    1127
    Exchange, and is that in accordance with Socialist philosophy?
    Mr. Diamond: The distinction which the hon. Gentleman makes has nothing to do with Socialist philosophy; it has to do with plain accountancy. Interest is different from a dividend.
    Mr. Hall-Davis: Does not the Chief Secretary recognise that not the least disadvantage of this tax is that an increase in the rate of Corporation Tax is, in effect, a levy on retained profits available for industrial modernisation?
    Mr. Diamond: The hon. Gentleman is helping me very considerably by making it clear that those who plough back the whole of their profits have minimum tax to pay.

    Invisible Exports (Committee's Recommendations)
    Mr. Turtonasked the Chancellor of the Exchequer what action he is taking on the recommendations of the Bland Committee on Invisible Exports.
    Mr. Callaghan: The Committee's conclusions and recommendations are being carefully considered.
    Mr. Turton: Does not the Report show up the inadequacies of the Reddaway Report? Will the right hon. Gentleman now reconsider Selective Employment Tax, in particular, in the light of the Bland Committee's recommendations?
    Mr. Callaghan: No, Sir. I do not want to set Bland against Reddaway in any form. The British National Export Council will no doubt, consider the Report because it was addressed to the Council, and I shall certainly look into any recommendations it makes to me. We had better give it some time to look at the proposals it wants to put forward.

    Close Companies (Undistributed Earnings)
    Mr. Turtonasked the Chancellor of the Exchequer whether it is the intention of the Inland Revenue to enforce Section 77 of the Finance Act, 1965, in such a manner as to cause no tax to be paid by close companies in cases where money has not been distributed by them in order to plough it back into the business.
    Mr. Diamond: As my hon. Friend the Financial Secretary pointed out on 24th October in reply to a Question by the right hon. Member for Thirsk and Mal-ton (Mr. Turton), Section 77 specifically provides for a company's development requirements to be taken into account in calculating shortfall. As hitherto, therefore, the Inland Revenue will make no shortfall assessment for any period where a trading company shows that those requirements would be prejudiced by an increase in its distributions.—[Vol. 751, c. 424–5.]
    Mr. Turton: Is the right hon. Gentleman aware that that assurance is being interpreted differently by inspectors in different parts of the country? Will he send out an instruction to ensure that there is one interpretation? Is he willing to receive cases where there have been interpretations by inspectors that run counter to the definition he has given today?
    Mr. Diamond: The answer to the last part of the right hon. Gentleman's supplementary questions is, "Certainly". The answer to the first two parts is that I am not aware of that, and that steps have been taken to make sure that there is a unanimity of view by inspectors of taxes throughout the country.
    Mr. Patrick Jenkin: Is the right hon. Gentleman aware that among the group of firms particularly affected by the operation of the close company legislation are the British export houses, whose association has felt that they have been unfairly discriminated against? In view of both my right hon. Friend's Questions, No. 33 and No. 34, will the right hon. Gentleman undertake to look into this?
    Mr. Diamond: I shall be glad to do more than to look into it; I shall be glad to receive a deputation. I am most anxious to remove any misapprehension on this score. As I have said in previous debates when the hon. Gentleman has been good enough to be present, if firms have a need to plough back the whole of their profits there is no reason why they should declare any dividend at all for these purposes.
    Mr. W. Baxter: Will my right hon. Friend see that this is made abundantly clear to the inspectors of taxes? It is a

    1129
    very important matter, sometimes appertaining to reasonably small businesses. If they are compelled to disburse their profits without sufficient regard to the expansion necessary for the future, this could have a very detrimental effect on the country's future.
    Mr. Diamond: I am grateful to my hon. Friend. Of course, I agree with him that this is essential for growth. That is why I have made the position clear on every occasion, and why the Inland Revenue authorities have taken steps to make absolutely sure that the previous practice has continued and has been advised to all inspectors of taxes.

    Taxation
    Mr. Hamlingasked the Chancellor of the Exchequer whether he will publish a White Paper showing the effect of direct and indirect taxation on taxpayers with moderate incomes during the last 25 years, and comparisons where possible with the effect of direct and indirect taxation in other leading industrial nations.
    Mr. Diamond: I would refer my hon. Friend to the estimates produced by the Central Statistical Office for the years 1957 and 1959–64, published in Economic Trends in November, 1962, February, 1964 and August, 1966. Corresponding information is not, as far as I am aware, prepared by other industrial countries.
    Mr. Hamling: Would my right hon. Friend make sure that that information is published in a more popular form so that the myths about Tory taxation policy can be exploded once and for all?
    Mr. Diamond: I should be only too glad to give that to make this information more readily available.

    Public Relations and Press Officers
    Sir T. Beamishasked the Chancellor of the Exchequer (1) if he will give details of the approximate cost in 1968 of the 113 additional public relations and Press officers appointed between September, 1964 and this summer, above the estimated annual salary cost of £230,000, showing separately wages and salaries of subsidiary staff contingent upon these appointments, provision for pensions or gratuities on termination of service,
    1130
    estimated expense claims, and other resultant costs including the provision and maintenance of additional office accommodation, and transport;
    (2) why 113 additional Government public relations and Press officers were appointed between September, 1964 and this summer; and what increases or reductions have since been made, or are proposed during the next 12 months, on the criteria laid down in reply to a Question on 7th March, 1966.
    Mr. Diamond: The 113 staff, not all of whom fall in the hon. Member's description, reflect the expansion of Government business and our wish to keep the public informed. Nine appointments have been made since May last, with nine more in the Post Office; it is not yet possible to say what posts will be approved for next year. Pay of subsidiary staff is estimated at £95,000, pensions, gratuities and National Insurance at £90,000, and accommodation and ancillary services at £95,000.
    Sir T. Beamish: How does the Minister account for the fact that the Government's popularity and their relations with the Press have both deteriorated in inverse proportion to the number of P.R.O.s and Press officers employed at such great expense to the taxpayer?
    Mr. Diamond: That would speak very well as to the Government's bona fides.

  EUROPEAN ECONOMIC COMMUNITY
  Mr. Martenasked the Prime Minister what further White Papers will be published concerning the implications of Great Britain joining the Common Market.
  The Prime Minister (Mr. Harold Wilson): None, Sir.
  Mr. Marten: Why not? Does the Prime Minister recall that we were promised a great debate on the subject? Is he aware that the ex-President of the Board of Trade, who was in the Board of Trade only a matter of weeks ago, has estimated the balance of payments deficit if we join the Common Market as being about £600 million? Is it not up to the Government to be just as honest and

  1131
  publish those figures, as the ex-President of the Board of Trade did?
  The Prime Minister: We had a great debate in the House, and it reached a conclusion. We have had four White Papers and a Central Office of Information booklet, and I do not think that at this stage any more information is needed for the great debate in the country. I dealt with the particular point about the balance of payments at very considerable length in that debate.
  Mr. Shinwell: Does my right hon. Friend still maintain that by going into the Common Market the standard of living would rise by at least 3 per cent.? In view of his additional statement that devaluation would increase the cost of living by 3 per cent., does he think that we can afford 6 per cent.?
  The Prime Minister: I do not think that my right hon. Friend needs White Papers to help him to make up his mind on this important question. By a slip of the tongue he said "standard of living" when he meant "cost of living". He will have calculated that a rise in food prices caused by the measures of last Saturday does not mean a further increase to assimilate prices on going into the Common Market.
  Mr. Winnickasked the Prime Minister if he will make a statement on the progress of Great Britain's application to join the European Economic Community.
  Mr. Barnesasked the Prime Minister if he will make a statement on Great Britain's application to join the European Community following the latest meeting of the Council of Ministers.
  The Prime Minister: The European Economic Council of Ministers resumed their consideration of Britain's application for membership of the European Communities at their meeting in Brussels yesterday. I understand that the discussion by the Foreign Ministers was adjourned until 18th December.
  Mr. Winnick: Whilst I recognise that we were right to make the application, is it not obvious that everything will be done by France to stop up becoming a member of the Community in the foreseeable future? If a serious offer is made by
  1132
  the Six, would we consider associate membership?
  The Prime Minister: We made clear our position on association many times in the House, and this has not changed in any way. So far as yesterday's meeting was concerned, I can understand that there was a new situation that had to be considered, and therefore the operative meeting is now in December. But I cannot accept that we should take the view that there will be a rejection of our application.
  Mr. Ronald Bell: Does the Prime Minister still think that we could stand the burden on our balance of payments which he described in his speech during the first five years after joining the Common Market? If he does not think so, will he now withdraw our application to join?
  The Prime Minister: The answer is that we are certainly in a much stronger position to withstand the immediate impact of joining the Common Market. Some of those in this country, and perhaps even more abroad, who believe that the position of sterling was an impediment to joining may now be thinking again.
  Mr. Heffer: In view of the recent developments, will my right hon. Friend indicate whether the Government will now make a personal approach to General de Gaulle to discuss the new—[Interruption.] I wish the anti-Common Marketeers would shut up for a minute. [Interruption.]
  Mr. Speaker: Order. I want to hear the Question.
  Mr. Heffer: Can my right hon. Friend say whether, in view of the new developments, the Government will now make a personal approach to General de Gaulle in order precisely to ascertain the situation of the French Government in this matter and see whether we should continue with any further discussions?
  The Prime Minister: I think that my hon. Friend, who knows the situation extremely well and has been involved in these matters for many years, will recognise that under the Treaty of Rome our dealings are with the Six and not with individual members of the Six once the

  1133
  application has been put in. The application is in, and I think we should see what the next step is going to be. My hon. Friend will know that I discussed these matters at great length with General de Gaulle in June.
  Mr. Longden: Is it true that what really worries General de Gaulle is the awful prospect that the policies of the Labour Government will soon result in our money becoming worth less than the paper it is written on?
  The Prime Minister: It is not for me to answer in this House what General de Gaulle or the French Government think, but from what General de Gaulle has said to me and also publicly, what still worries him is that we have still not got out of the Nassau mess which caused a sudden break on the last occasion. Despite what hon. Gentlemen opposite said in the last General Election, this was, as my right hon. Friend and I have found, exactly the issue which had upset General de Gaulle.
  Mr. Elystan Morganasked the Prime Minister at what point in time he will formally withdraw Great Britain's application for entry into the European Economic Community uness negotiations for entry have been commenced or there is reasonable prospect for negotiations.
  The Prime Minister: I have nothing to add to my speech in the debate on the Address on 31st October.—[Vol. 753, c. 38–40.]
  Mr. Morgan: Would not my right hon. Friend concede that the worst possible thing we could do in this situation would be to scratch inconclusively outside the gate of E.E.C. for a long time, such as Austria has done for 4½ years?
  The Prime Minister: There is no question of scratching away at the gate. We learnt that lesson from last time. The European leaders with whom my right hon. Friend and I have talked are well aware of the need for urgency, and there is a preponderant but not yet unanimous feeling among the Six that the negotiations must start early and be speedily concluded.
  Mr. Sandys: As the Prime Minister said a moment ago that the Nassau Agreement was one of the obstacles to
  1134
  our entry, can he say how he is getting on with the renegotiation of it?
  The Prime Minister: I did not say that the Nassau Agreement today was the problem. [HON. MEMBERS: "Oh".] I said that it was the treatment of General de Gaulle by the then Government over the Nassau Agreement. I stand by the words that I used in the General Election, which were—[Interruption.]
  Mr. Speaker: Order. I want to hear the answer.
  The Prime Minister: —objected to by right hon. Gentlemen at that time. What the General is still, I think, not clear about in his own mind after what happened on that occasion is whether we are unduly dependent on the United States for our defences.
  Mr. Ridley: On a point of order, Mr. Speaker. As the question which has just been touched upon—Nassau—is one of extreme importance to the House, and as it has introduced a new factor and a very important element, would it be possible for you to allow further supplementary questions?
  Mr. Speaker: The hon. Gentleman must leave the difficult matter of supplementary questions to the Chair.
  The Prime Minister: Further to that point of order, Mr. Speaker. If the hon. Gentleman will put that down as a substantive Question I will answer it. The hon. Gentleman is never backward in getting his Questions down, and I congratulate him on getting ahead of the Order Paper again.
  Mr. Macdonaldasked the Prime Minister if he will publish a White Paper on the alternatives open to this country in the event of the failure of Great Britain's negotiations to enter the European communities.
  The Prime Minister: No, Sir.
  Mr. Macdonald: Do we infer that my right hon. Friend has no other plans and that he is staking everything on this one throw?
  The Prime Minister: No, Sir. I have said many times that there are alternatives if this application should, unhappily, be rejected or should founder as a result of excessively long drawn out

  1135
  negotiations and discussions. I have said as many times that the alternatives which are available to us are, in the view of the Government, very much in the nature of second best. I think that it would be wrong, therefore, either to publish a White Paper or to start canvassing alternatives. We should get on with the job already started by our application to join the E.E.C.

  VIETNAM (COMMONWEALTH MISSION)
  Mr. G. Campbellasked the Prime Minister whether ex-President Nkrumah has resigned or been replaced by the Commonwealth Prime Ministers' Conference as a member of the Commonwealth Mission on Vietnam.
  The Prime Minister: I would refer the hon. Member to the Answers given to similar Questions by him on 13th and 20th June, 1966, by my right hon. Friend the then Foreign Secretary.—[Vol. 729, c. 1022; Vol. 730, c. 36.]
  Mr. Campbell: As those Answers provided virtually no information and as the Prime Minister referred again to this Mission in this House last Thursday and has also recently referred to it on television, why does he not tell the House more about the state of readiness of the Mission?
  The Prime Minister: The hon. Gentleman will be aware that ex-President Nkrumah was not appointed in a personal capacity. He was appointed by the Commonwealth Conference as Head of the Government of Ghana. Should there be a possibility of mounting this Mission, we could speedily get the consent of my Commonwealth colleagues to the appointment of four suitable representatives.

  RHODESIA
  Mr. Elystan Morganasked the Prime Minister if he will seek to convene, at an early date, a Commonwealth Conference to consider the Rhodesian situation; and if he will make every effort to have Mr. Sithole and Mr. Nkomo attend the said Conference.
  The Prime Minister: No, Sir. We are already in the closest touch with other
  1136
  Commonwealth countries on Rhodesia and I do not think that an early Conference is needed.
  Mr. Morgan: Does my right hon. Friend not agree that only a settlement which is manifestly acceptable both to African opinion in Rhodesia and to the whole of the Commonwealth can have any lasting validity for Africa, and that the calling of a fresh conference is a pre-condition to such a situation?
  The Prime Minister: It is because I realise this that we took the Commonwealth Conference on this question so seriously, and it is for the same reason that we have insisted on standing by the principles laid down in this House. I do not think it is time to call a fresh conference at this point.
  Mr. Gwynfor Evans: On a point of order, Mr. Speaker. Might the attention of the House be drawn to the fact that the hon. Member who asked the Question is not the hon. Member for Carmarthen?
  Mr. Doughty: Whatever be the rights and wrongs of this tragic dispute, has not the time come, in view of our financial situation, not to put a burden of more than £100 million a year on the Treasury by continuing sanctions?
  The Prime Minister: The economic consequences to Britain in trade with Rhodesia, if one allows for the fact that we have greatly increased our trade with other Commonwealth countries, are nothing like £100 million. The direct effect of trade between Rhodesia and other Central African countries is about £30 million and about £10 million through the increased cost of buying tobacco elsewhere.

  NATIONAL DIVIDEND
  Sir Knox Cunninghamasked the Prime Minister what progress he has made with the national dividend.
  The Prime Minister: As the Answer is rather long, I will, with permission, circulate it in the OFFICIAL REPORT.
  Sir Knox Cunningham: Is the Prime Minister aware, as the self-appointed overlord of our economy, that his policy for the months ahead will ensure to the

  1137
  people of this country a national dividend of misery?
  The Prime Minister: The hon. and learned Gentleman is entitled to his own view about that. We shall see. The question of the national dividend which was discussed last year is, of course, a matter for discussion between the Government and both sides of industry. The hon. and learned Gentleman will be glad to know that my right hon. Friend started talks on this question in the new situation with the C.B.I. and the T.U.C. yesterday, and that on Friday night I had talks with the general secretaries of both bodies.
  Following is the information:
  The idea of a national dividend relates to the additional amount of resources available for personal consumption after allowance has been made for investment, the foreign balance, defence and social expenditure as the result of the increased national product. The concept of such a national dividend is, of course, associated with the annual review which the Trades Union Congress announced on the 2nd of March this year they would hold annually. The Confederation of British Industry are, of course, equally involved. Since the decision of the 2nd of March there have been continuing talks between the Government and both sides of industry on the application of the new prices and incomes policy and the hon. Gentleman will be aware that in the new situation following last Saturday's announcement my right hon. Friends the Minister of Labour, and Secretary of State for Economic Affairs have initiated further talks with both sides, since as my right hon. Friend made clear yesterday the priority need this coming year will be to release resources from consumption to exports.

  DEPARTMENT OF TECHNOLOGY
  The following Question stood upon the Order Paper:
  Mr. WYATT: To ask the Prime Minister, whether he will appoint a Minister with scientific qualifications to the Department of Technology.
  Mr. Wyatt: On a point of order, Mr. Speaker. In view of a satisfactory visit I paid to my right hon. Friend the Minister of Technology yesterday, I would like to withdraw my Question.

  PAYMASTER-GENERAL
  Sir F. Bennettasked the Prime Minister which Minister he has appointed to carry out the official duties of the former Paymaster-General, other than those connected with security.
  The Prime Minister: The Office of Paymaster-General is not one which needs to be continuously filled, Sir, and, indeed, since the post in its present form was created by Statute in 1835 there have been seven earlier periods in which the Office was temporarily vacant, among the longest of which was the period between December, 1955 and October, 1956.
  Sir F. Bennett: Can the Prime Minister now answer my Question, which was quite specific? I repeat, which Minister will now fulfil these duties, other than those of security, which have been handed to the noble Lord, Lord Shackleton, in another place? If the former Paymaster-General had no other duties, what was the taxpayers' money being spent on in supporting a Minister whose only duties, according to the right hon. Gentleman, can be carried out part-time by another Minister?
  The Prime Minister: The various tasks allocated to the former Paymaster-General from time to time in accordance with the usual practice on non-Departmental functions—
  Sir F. Bennett: Who is going to do them?
  The Prime Minister: —will now be shared by the other non-Departmental Ministers. But, as I have said, I never allocated to him what right hon. Gentlemen opposite used to allocate to their non-Departmental Ministers—namely, party jobs at the taxpayers' expense.

QUESTIONS TO MINISTERS
Mr. Bruce-Gardyne: On a point of order, Mr. Speaker. Yesterday, I put down Written Question No. 3 to the Foreign Secretary regarding a 47 per cent. increase in Swiss imports from Rhodesia. The Answer to this Question appears to have been carried in the Financial Times this morning, but it did not appear in HANSARD. I would like

1139
your guidance as to how this can be corrected.
Mr. Speaker: It is not a matter for the Chair. The hon. Gentleman must take it up with the Minister concerned.
The Secretary of State for Foreign Affairs (Mr. George Brown): Further to that point of order, Mr. Speaker. I did not know until three minutes ago that the hon. Gentleman intended to raise this matter, and then I was not informed by his courtesy. I make it clear that my Department slipped up yesterday and I apologise.
The Answer will appear in today's HANSARD and I will take all the steps I can to ensure that this sort of mistake does not happen again.

ECONOMIC SITUATION
Mr. Speaker: Before the debate commences, I should announce that so far 71 right hon. and hon. Members have indicated that they wish to speak in this two-day debate. I would again urge that, when the general debate begins, those who are called will think of those still hoping to be called and will make their contributions reasonably brief.
I also announce, for the guidance of the House, that I have not selected the Amendment standing in the name of the right hon. Gentleman the Member for Devon, North (Mr. Thorpe) and the names of his hon. Friends.
Sir Harmar Nicholls: On a point of order, Mr. Speaker. May we hear from the Leader of the House why he is not allowing the Prayer on the expansion of Peterborough to be taken tonight? It is a matter of some importance. I believe that it could be taken tonight without interfering with the main business of the day.
Mr. Speaker: That is a matter not for the Chair, but for the Leader of the House.
3.34 p.m.
The President of the Board of Trade (Mr. Anthony Crosland): I beg to move,
That this House approves the Statement of 20th November by the Chancellor of the Exchequer on the measures in relation to the economic situation.
We are discussing this afternoon not merely a short-term economic crisis. We and discussing, also, the effects of a long-term deterioration in Britain's trading and payments position. During the last 10 years, we have had on recorded transactions three years of balance of payments surplus and seven years of balance of payments deficit.
What has been most disturbing has been our apparent inability to combine a surplus with rapid economic growth. Every time we had a boom, we ran into a deficit. And, worse still, the deficits grew bigger with each successive boom. During the two years 1954–55, the deficit was £350 million. In 1959–60, it was £550 million. Over 1964–65, it grew again to over £1,100 million—of which £800 million was, of course, the bill for 1964

1141
left behind by the right hon. Gentleman the Member for Barnet (Mr. Maudling)—a point which received singularly little attention in last night's broadcast by the Leader of the Opposition.
We could only earn a surplus in periods of recession; and, again, with each recession the surplus grew smaller. During the two years 1957–58, we had a surplus of £280 million. In the next stop period of 1961–62, we were just in balance. And in the last two years we have been in deficit despite the severe measures of July, 1966.
The last time we had a surplus of over £100 million was in 1958. Since 1960, the cumulative deficit on recorded transactions has by now reached about £2,000 million. The monetary movements have been less than this, but most of this £2,000 million has either been lost to the reserves, or borrowed, or financed by liquidating assets.
Part of the explanation for this trend, but only part, is to be found in the current account. As the Economist said this week:
"time and time again it has been proved that Britain's exporting structure is too weak and its propensity to import too strong".
During each of the last 11 years Britain's exports have grown less than those of its main competitors; their average rise has been—in value—4·8 per cent. a year, compared with the world's average of 8–9 per cent. At the same time, imports of manufactures have risen sharply as a proportion of national income.
On top of this, the burden of overseas expenditure until very recently has grown steadily, due to such things as the loss of support costs in Germany, increased overseas aid, and the confrontation in Malaysia. This needed an even larger favourable balance on current account if it was to be paid for. It is not so much that we have been uncompetitive. But we have not been competitive enough to compensate for the burdens of our indebtedness and the responsibilities that we have been carrying in the world.
This has been the trend—a balance of payments problem which has increasingly overshadowed our economic life for more than a decade past. Successive Governments have tried to deal with it in various ways. It is interesting to remember, in view of the self-righteous language now
1142
being used by the Opposition, that the Conservative Government in 1955, having run into one of their innumerable deficits, seriously considered letting the exchange-rate float downwards.
We then had the two periods of severe "stop" associated with the names of Mr. Peter Thorneycroft—as he then was—and the right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd). Then the Conservatives went into reverse, and we had the so-called Maudling strategy—really, grit your teeth and hope for the best—which landed us in the disastrous deficit of 1964, with which this Government have been struggling even since. [Interruption.] I am trying to give the right hon. Member for Enfield, West (Mr. Iain Macleod) some facts to chew on in his speech.
None of the Tory policies worked. All were a disastrous failure. So this Government, on coming to office in October, 1964, facing the largest peacetime deficit in our history, needed to find fresh policies. We could have devalued then. Some commentators have suggested, and some suggested then, that we should have devalued as soon as we came into office. At least, we should then have pinned the responsibility fairly and squarely.
But there were overwhelming arguments against it. The economy was overheated and so the additional exports would not have been forthcoming—there were no spare resources to produce them.
If we had devalued under those conditions, the effect would have been frustrated through internal inflation. Moreover devaluation at that time would have been regarded as an aggressive act on our part by other countries. And if we had devalued without general acquiescence for the move, it might have been followed by retaliation and devaluations by other major countries.
This would not only have lost us the competitive advantage. It would also have seriously endangered the position of the U.S. dollar which, whether we like it or not, was and is the key prop to the monetary system of the world. We all want—or most of us do—to create a new international reserve unit which in time could take over the rôle which the present reserve currencies perform. But this is a very slow process as my right hon. Friend the Chancellor of the Exchequer

1143
knows only too well, and in 1964 a serious threat to the dollar could have had the most damaging effects on the world economy.
So we rejected devaluation, and adopted first the import surcharge and later the painful measures of July 1966. We also introduced a succession of longer-term measures to improve the underlying competitiveness of the economy.
These policies for a time looked like achieving success. Excluding the import of U.S. military aircraft, which is offset by a corresponding credit on capital account, as hon. Members know, our current balance improved from minus £400 million in 1964, to minus £98 million in 1965, and minus only £18 million in 1966.
We also took far-reaching measures, much criticised by the Opposition in some cases, to improve the balance on longterm capital account, and I am glad to say that this year the capital account for the first time for many years will be in full balance, or even show a small surplus—a remarkable achievement. We also made strenuous efforts to improve the balance on invisibles, and on Government expenditure overseas we at last halted the steeply rising trend of recent years. As a result, we achieved a surplus both in the last quarter of 1966 and in the first quarter of 1967.
But the surplus was not large enough considering that we were in a period of recession. Exports were growing slower, and imports faster, than we had hoped. And then, on top of that underlying cause, we had the economic recession in Germany and the United States which set back world trade, and hence our exports, and the outbreak of the war in the Middle East and the closure of the Suez Canal.
It became evident that we should not attain the surplus in 1967 which we had confidently expected at the time of the April Budget; indeed, we faced a balance of payments deficit this year considerably larger than last year. Still more serious, our forecasts showed that we were likely to be in deficit again in 1968.
Mr. Michael Shaw Mr. Michael Shaw (Scarborough and Whitby)rose—
Mr. Crosland: I will give way very gladly when I have got into my argument and made at any rate some part of the
1144
case which, I take it, the House wants to hear from the Government.
It therefore became clear that continuing with our existing policies involved too great a risk. A change of policy was needed. We considered various alternatives. One we rejected instantly—a further stop in the stop-go cycle. The country has had enough of that.
We considered putting on import controls. We rejected them because they would not have given us as large an improvement as we needed, because they are a once-for-all device which does nothing to improve our long-run competitiveness—indeed, they make things worse by protecting uncompetitive industries—and because they are inconsistent with membership of the E.E.C., and would have wrecked any chance of negotiations starting.
Another alternative might have been a further massive long-term loan, designed to give us the extra time required for our longer-term policies to work. But there were two over-riding objections to this course. First, it would almost certainly have been accompanied by unacceptable conditions as to our domestic policy, and these we were not prepared to accept. Secondly, more and more borrowing cannot be a permanent substitute for a policy to eradicate the root causes of the balance of payments problem, and for that reason we rejected the possibility of further long-term borrowing.
Whether the Leader of the Opposition approved of our rejection was not made clear by him in his broadcast last night. The tone of his broadcast was in very marked contrast to the dignified tone of my right hon. Friend the Prime Minister.
Mr. Edward Heath Mr. Edward Heath (Bexley) rose—
Hon. Members: Sit down and take it.
Mr. Speaker: Order. I hope that the debate can go on in a dignified way. While we can have demonstrations of mass enthusiasm or mass protest, mere shouting by individual hon. Members to each other is not worthy of them.
Mr. Heath: Will the right hon. Gentleman kindly tell the House which Government offered Her Majesty's Government a long-term loan? What was its size, its rates, its period and conditions?
Mr. Crosland: The right hon. Gentleman cannot have been following my argument at all closely. As I said perfectly clearly, this was an alternative which we might have chosen to adopt, but rejected.
Mr. Heath: In fact, then, no offer of a loan was ever made to Her Majesty's Government?
Mr. Crosland: No offer was made, because, as I have explained, this was a course of action which the Government chose to reject.
The next thing which the House will want to know when the right hon. Member for Enfield, West speaks is whether the Tory Party would have asked for such a loan and, if so, how far right hon. Gentlemen opposite might have been prepared to jeopardise our social progress in the interests of our creditors.
So, having weighed the evidence which I have given to the House of a long-term deterioration in our trade and payments position, having faced the fact that our hopes of a substantial surplus in 1967 and 1968 were no longer realistic, and having rejected, for the reasons I have given, more deflation, import restrictions, and adding to our long-term debt, we were led inevitably to consider a change in the exchange rate.
In his broadcast last night, the right hon. Gentleman the Leader of the Opposition criticised not only the policy but our method. He said it was done in the worst possible way at the worst possible time. I fancy that in a year's time many of his party will not want to remember those words. Certainly, the right hon. Gentleman is in danger of getting himself into a very lonely and isolated position. I do not know whether he has read the comments of the central bankers, the governors of the I.M.F., and of foreign Governments on the way in which this was done, but if he has he cannot conceivably use words like that.
In fact, this devaluation was carried out in exactly they way laid down in the International Monetary Fund, and the technicalities of it have been very much applauded by a great number of experienced bankers. Proof of this lies in the fact that the dollar, the franc, the mark and all these other major currencies have
1146
held firm just because we did consult our friends and did not act unilaterally.
Before I come to the consequences of this decision, I must deal with the argument held, I think, by some hon. Members that devaluation is unacceptable under any conditions and that there is something immoral or dishonest about changing the exchange rate—unlike other solutions, such as deflation, or borrowing, or import controls, or what you will. On the contrary, the fact is that a change in the exchange rate is the only long-term solution to a fundamental disequilibrium that is universally acceptable to the international monetary community and is enshrined in the rules of the International Monetary Fund.
If, as some hon. Members appear to suggest, it is sinful to change the exchange rate, then the advocates of sin include the governors of the I.M.F., the distinguished members of the Radcliffe Committee, appointed by the Tory Government, the many Governments and the central bankers who have publicly applauded our decision, and even some right hon. Members opposite.
I do not think that many of us would go to the other extreme and treat the whole matter in a frivolous way. I do not think that many of us would agree, for example, with a statement which I should now like to quote:
"Look at that great national totem, the pound sterling. It is a matter of great national honour, we declare, to uphold the decree of Providence that the pound was created equal to two dollars eighty, give or take two cents.
If the equation is fixed, and the behaviour of one side of the equation, the economy of the outside world, is not in our control, it follows we must be ready to adjust the other side, our own economy, to fit.
We are not willing to face this.
It is difficult to describe, without using terms derived from psychiatry, a notion having so few points of contact with reality."
That comes from a speech made by the right hon. Member for Wolverhampton, South-West (Mr. Powell), in May of this year. [Hon. Members: "Where is he?"] I imagine that most of us would not go so far as that.
The fact is that the pattern of world trade and demand is continually changing, so that it would be absurd to expect that a given set of exchange rates will remain suitable for all time. Other

1147
countries, often under the most respectable, or sometimes less respectable, Right-wing Governments, have found that a change in the exchange rate should not be ruled out as an instrument of economic policy that can, and occasionally must, be used to reconcile external balance with internal growth and full employment.
During the last decade, countries which have had to align their exchange rates one way or the other in the interests of external balance include France, Canada, Germany, Holland, India, Finland and others. It is true that none of these countries operates a reserve currency, whereas we have the responsibility of the sterling balances. But these sterling balances have been earning very high rates of interest over many years, and these cumulative earnings much more than offset the loss involved in the 15 per cent. devaluation.
It would not have been right to think in terms of a "large" devaluation of the order of 30 per cent. or so. It would have been quite unnecessary. It would have been self-defeating, since it would have forced almost all other major countries to come down with us; and it would have been an irresponsible blow at the still distinctly fragile structure of international monetary co-operation.
The new rate has been chosen with great care. We judge that it will be wholly adequate to stimulate exports and check imports and so put the balance of payments on a strong footing. Yet it is not so large as to place other countries in an unduly weak competitive position, or to endanger the stability of the world monetary system. This is confirmed by the fact that hardly any other major countries have changed their rates.
But we must be utterly frank about what we are doing by devaluation. Import prices will rise relative to export prices, and so we shall need a greater volume of exports to pay for any given volume of imports. It is no good blinking these facts. This is the price we pay for not having had enough output at the right price at the old rate of exchange. This is fundamentally the sacrifice involved in turning the terms of trade against this country. But the Government are willing to accept it in the conviction that all the alternatives—deflation, more borrowing,
1148
import controls, or what you will—would also have involved a sacrifice, but none of them would have offered the hope which we now have of continuing growth and expansion with a healthy balance of payments.
We are determined to get the growth. The measures announced by my right hon. Friend the Chancellor to restrain demand are not designed to cut back growth. This is not a return to the traditional stop-go policy. This is not, as the Leader of the Opposition suggested last night a policy of deflation, for the reason which I will now explain.
On present estimates, demand will grow over the next 12 months, not just by the 3 per cent. to which the Government are committed, but probably by over 4 per cent. There will be a progressive reduction in unemployment over the same period. The cuts in demand are not intended to reduce this growth or increase the unemployment. Their purpose is to switch resources, within this rate of growth, from home spending to exports and import substitution. The growth will continue. But because devaluation means more exports and more import-substitutes, we must release the necessary resources. That is the sole purpose of the cuts in demand which have been announced.
Mr. John Hall: Would not the right hon. Gentleman agree that on previous occasions when a policy of devaluation has been successfully applied in other countries it has been accompanied at the same time by a deflationary policy?
Mr. Crosland: I think that the circumstances in which other countries have done it have varied enormously. Whether it requires deflation depends upon whether one starts from a position of full employment. We are starting from a position where we have excess capacity at the moment. We have idle men and idle machines. We think that because of the growth which we shall get anyway we shall need to restrain that demand. This is a policy of switching resources from one use to another and not of cutting back the rate of growth to which the Government are committed.
The rise in import prices will of itself free some of the resources that are

1149
needed, by making goods dearer and so reducing consumption. The rest depends on action by the Government. We have tried to match that action to the pace at which we expect to see the balance of payments improve. Some of the measures will have relatively little effect over the next six months. For example, the cuts in public expenditure will take some time to take effect, but will become steadily more important over the year. This is in keeping with our expectation that the shift of resources into exports will also take some time but will gather momentum as the year goes on.
Other measures we have taken will tell at once, such as the restrictions on hire purchase and on credit and the increase in Bank Rate.
I must say a word about the motor industry. It is already a major contributor to our export trade; in terms both of the proportion of its total output and also in absolute terms. Devaluation gives it an immediate opportunity to do even better. To ensure that the industry can take full advantage of its new export opportunities, the hire-purchase restrictions on cars have been intensified with the object of restraining demand in the home market. We cannot afford the larger increase in domestic sales which would otherwise occur. The industry must now seize its export opportunities.
As a result of these immediate measures there could be in the very short run a slight check to industrial recovery, but we shall have, as I have said, a rapid growth of output over the next 12 months. That is the answer to the question about deflation. The difference is that expansion will now be export-led and its speed will be governed largely by our success in export markets.
What we want is a transfer of resources, not a damping down of output. The first condition of success is that we actually obtain the switch of resources—that we release the resources needed to exploit this opportunity for higher exports. If the measures announced by my right hon. Friend the Chancellor prove inadequate for this purpose, we shall not hesitate to reinforce them.
Mr. R. Gresham-Cooke Mr. R. Gresham-Cooke (Twickenham) rose—
Hon. Members: Sit down.
Mr. Crosland: That is a responsibility on the Government. Then there is a responsibility on both Government and industry to ensure that we exploit the export opportunities open to us now.
The individual exporter has now been given a clear price advantage over his major foreign competitors in all the growth markets of the world. He can, and must, aim at a big increase in sales. We shall have a flow of inquiries from overseas for our goods, which will now be very attractive. But I cannot stress too strongly the urgency with which we must pursue this advantage.
I intend to have urgent discussions with the C.B.I. and the British National Export Council on how best industry and Government should proceed together to follow it up. The Board of Trade and other sponsor Departments will also discuss with the various trade associations how we can jointly secure the maximum benefit. It is my responsibility to ensure that the Government services at home and abroad, all our export services, are fully staffed and deployed in support of the effort by industry. Our export services have been considerably strengthened during the last few years, but I shall see whether any further strengthening is necessary in this new situation.
There is one further point on export prices. It has been suggested that we should not have withdrawn the export rebate. But we really could not justify keeping the rebate, which was intended to make our exports more competitive, when we are taking this much larger step which makes it unnecessary.
Similarly with the S.E.T. premium, which is now no longer necessary in view of the much larger effect of devaluation. But we are not removing the S.E.T. premium from manufacturers in development areas. They will receive the same amount as before, and so gain a greater advantage over manufacturers in the rest of the country.
Mr. John Peyton: From what date is the export rebate being withdrawn?
Mr. Crosland: April, probably, as far as we can tell.
Hon. Members: Of which year?
Mr. Crosland: April, 1968.

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One effect of devaluation will be an increase in profits. So far as this means higher profits on exports, it is all to the good. One reason why we have not had enough exports is that they have been often less profitable than production for the home market. But there is no reason why other manufacturers should increase their profit margins, and we think it reasonable to ask that some part of the sacrifices for which we are asking should come from profits generally. This is why we propose to increase Corporation Tax in the next Budget by 2½ per cent.
This raises a more general point. There is a cost involved in improving the balance of payments, by whatever methods we choose to do it. Our standard of living at home will be lower than otherwise, to the extent that the balance of payments is improved, by whatever methods we choose to do it. The crucial question is how the burden is shared.
Mr. Victor Goodhew Mr. Victor Goodhew (St. Albans) rose—
Hon. Members: Sit down.
Mr. Speaker: Order.
Mr. Crosland: The Leader of the Opposition, in his TV performance last night stressed that real wages must fall. At the same time, he gave us his solution to the balance of payments problem which his party failed to solve in 13 years—more incentives. His answer is clear—lower real wages, and higher real salaries.
Our answer is that the burden must be fairly and equitably shared. That is why we think that corporations should make their contribution. And that is why my right hon. Friend the Chancellor made it clear that we intend to take measures to protect the worst-off sections of the community.
I turn briefly to import prices. Devaluation will mean higher prices. It did not need the Leader of the Opposition's broadcast last night to tell us that, but prices will not rise by anything like the full 14.3 per cent. The bulk of what we consume is produced at home. Imports represent only about one-fifth of what we consume. We estimate that devaluation by itself may add 24½–3 per cent. to the retail price index. My right hon. Friend
1152
the Secretary of State for Economic Affairs, when he speaks this evening, will tell the House of the crucial part that our prices and incomes policy must play, with the full co-operation of the T.U.C. and C.B.I., in ensuring that movements of costs and prices are confined to what is fair and justifiable.
Devaluation is not, and nobody pretends it is, the easy way out, as some have suggested. On the contrary, it is in some ways the hard way out, since it involves turning the terms of trade against us. That is the measure of the additional sacrifice—and I do not seek in any way to minimise it—required of the British people. But I am certain that any other than the hard way out would be merely a palliative, merely a short-term alleviation, whereas we want a long-term cure. It will be well worth the extra sacrifice to get the problem off our backs once and for all.
Nor is devaluation by itself a cure-all or a panacea. We could "fritter away" the advantages it gives us—
An Hon. Member: And you will.
Mr. Crosland: The Opposition cannot have it both ways. Last night the Leader of the Opposition told us that terrible sacrifices would be involved. That would not happen if we frittered it away, so the Opposition had better make up their minds which side of the argument they are on.
We could "fritter away" the advantages either if, as a nation, we insisted on inflationary wage-settlements, or if, as a Government, we failed to free the resources needed for higher exports and import-substitution. It is not, by itself, a complete solution. We still need action on many fronts to increase our efficiency. But it is, I am convinced, a necessary condition of finding a complete solution.
Moreover, if it is accompanied by the other measures which we all know to be necessary—a rise in manufacturing investment, a responsible attitude to prices and incomes, a more aggressive sales effort by management in markets abroad—then we shall find the solution. And it will not, as some fear, be a merely short-term advantage; it will be a long-term benefit for years ahead.
In 1952, 1956, 1961 and again in 1966 the country had to accept stop-go

1153
and deflation because of our balance of payments difficulties. I believe that the country is sick of this policy, and the loss of production and wealth which it entails. We have been nagged and harassed for too long by the balance of payments constraint. The country now wants a new strategy—more successful than any it had during those long 13 years—based on expansion and export-led growth: a strategy which offers hope and opportunity, instead of endless bouts of stop-go. Last Saturday's decision offers this opportunity. It is now up to all of us to seize it.
4.10 p.m.
Mr. Iain Macleod: I start with two small points on the small change of the President of the Board of Trade's speech. First, on the export rebate, I was somewhat surprised to find that he did not know the answer and had to ask it from his right hon. Friend the Chancellor. It is a matter of the first importance to know exactly when the export rebate comes to an end. Export contracts, in many cases for long periods ahead, have taken it into account. If it is not clear, perhaps the Secretary of State for Economic Affairs will add something on the point when he comes to wind up tonight, because it is of the greatest interest to industry in this country.
My second point is one on public expenditure. In his statement yesterday, the Chancellor of the Exchequer said that he was cutting the rate of growth by £400 million. Is this a new figure? If I could remind the House of the position, the National Plan laid down public expenditure figures of 4¼ per cent. and, even though the growth targets have been abandoned, those targets for public expenditure still remain, because the Chancellor has said that they will be 7·8 per cent. in the first year and 3 per cent. afterwards.
Those are at constant prices, and the point is that, on the base of 1966–67 expenditure, 7·8 per cent. is £974 million and 3 per cent. is £375 million. That is a difference, roughly, of £600 million, so the Chancellor's £400 million is either less than we have already been promised, or it is a new figure and we are to have them both. I should be grateful if the Secretary of State for Economic Affairs would clear up the point, and perhaps
1154
the Chancellor might wish to return to it, because, clearly, it is a matter about which we should have no doubt.
I hope to make a reasonably short speech today, Mr. Speaker, bearing in mind what you have said. If the House will permit me, I think that it would be courteous to concentrate on the Prime Minister and the Chancellor of the Exchequer.
There was no hint at all in the President of the Board of Trade's speech that we have, after all, been here before. This country has only had three Socialist Prime Ministers, and each of them has devalued the £. This is no coincidence, except the coincidence of incompetence. There is only one man living who has sat in two Cabinets which have devalued the British £, and that is the present Prime Minister.
Yesterday, to cries of astonished delight, the Chancellor produced a new red herring about a man who came to see him a month after he took office. The right hon. Gentleman proved too much. If I could recap, we know that, immediately after the General Election, the Chancellor, the Foreign Secretary and the Prime Minister considered devaluation and rejected it, in my view rightly. We know from the Prime Minister's speech on 23rd November that speculation only started a week before that; that is to say, a month after the General Election. There was no speculation at the General Election, nor in the weeks afterwards.
It was when the November Budget was known, when the breach of faith with E.F.T.A. was known, and when the financing of prescription charges was known that this unnamed man came to see the Chancellor, and he doubted the financial competence of this Government, not that of the past one. To that extent he was right, because there have been three wasted years of freeze and squeeze. There have been years of inflation and debt followed by years of deflation and debt, and if this wise man foresaw it all at least the Chancellor did not.
I want to recount to the House the story of the mismanagement of these past few days. It is a horrifying story of bungling incompetence at a brutal cost to our reserves.

1155
First, there were the two increases of a ½per cent. in Bank Rate, which were useless and which were swept away. There was the ridiculous episode of the £37 million loan from Switzerland, now £44 million, which started so many people wondering. There was the complete muddle over the loan of £90 million-odd. In fact, this was for purely technical reasons. There was nothing sinister about the loan. It was to cover repayments to the I.M.F. in December. It was easy to explain, and we did not even put down a Private Notice Question about it.
However, by the time that the facts had been dragged out of the Treasury and the Bank of England, it was presented in a very different light. This is what was said on radio at 10 o'clock on the 14th:
"The spokesman for the Bank of England said that the initiative for this loan came from the Bank of International Settlements. Britain herself had not asked for it. Apparently the foreign bankers offered this loan because they felt that Britain was in need of help at a time when the pound was under pressure."
Not surprisingly, as a result of this ham-fisted performance, there was further uncertainty and further pressure.
But all this pales to insignificance against the really criminal delay in announcing devaluation once the Cabinet had decided upon it. Few people know the exact extent of the loss. My own estimate agrees fairly closely with many that I have seen. I calculate that, from the Chancellor's moment of decision which was at least a fortnight ago, about £1,000 million was spent in supporting sterling. I calculate further that, from the moment of Cabinet decision at lunch-time on Thursday to the announcement, about £300 million was spent in supporting sterling. Of course, following devaluation, the money comes back, but we have to pay the cost of the devaluation, and perhaps we have lost for good about £150 million; and it may be more.
There can be no excuse for such ignorant negligence, and this stems from the Chancellor's statement on Thursday in response to a Private Notice Question from his own side of the House. Again, we did not put it down and I am certain that the Prime Minister and the Chancellor did not want one put down. The Chancellor gave an answer which was petulant and abrupt. As a result, sterling went virtually through the floor
1156
that afternoon. It would have been easy for him to have given a reassuring answer which would have held the position.
Yesterday, the right hon. Gentleman read a tribute from a Brussels commentator. There are other tributes on the same page of a very different sort which he could well have read. I calculate that, at about £10 million a word, it was an extremely expensive tribute that he got from Brussels.
Mr. Robert Maxwell Mr. Robert Maxwell (Buckingham) rose—
Mr. Macleod: I will give way in a minute. I am concentrating here.
If a Socialist Government had set out to prove that they were incapable of understanding how the financial world reacts, they could not have given a more convincing demonstration than they have done during the last few days.
Mr. Maxwell: Will the right hon. Gentleman give way now?
Mr. Macleod: I will in a minute.
I will make one point to the Chancellor about Bank Rate. I think that raising Bank Rate to 8 per cent. is a blunder. It will bring "hot" money into the country, particularly into local authority borrowing and into short gilts. It is not desirable money. There is no need for the extra interest now that the necessity to provide forward cover for sterling is removed. No doubt it will come down presently, but I see no reason why it should be imposed at present.
Now I will give way to the hon. Member for Buckingham (Mr. Maxwell).
Mr. Maxwell: Even assuming that the figure given by the right hon. Gentleman of the net cost to the reserves for good is £150 million, which I do not accept, my right hon. Friend the Prime Minister and the Chancellor of the Exchequer have succeeded in negotiating a devaluation, with most of our competitiors still at their rates of exchange, thus giving us a benefit and thus giving us a trading advantage. At the same time, they have succeeded in obtaining loans to enable us as exporters to obtain export orders—[HON. MEMBERS: "Too long."] This is surely—
Mr. Speaker: Order. If the right hon. Gentleman allows an hon. Member to

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intervene, it is not for the purpose of making a speech.
Mr. Macleod: I will respond briefly to the hon. Member. He is making the same point as the Chancellor made when he said that consultation was, in effect, worth Friday. I do not agree. I estimate that cost at about £300 million. A more intelligent answer on Thursday afternoon, followed by swifter action, could in my judgment, and in the judgment of everyone to whom I have spoken, saved the country an enormous amount of money.
The Chancellor of the Exchequer (Mr. James Callaghan): The right hon. Gentleman has told us about unnamed spokesmen to whom he has talked on this issue. There is no one that I know of concerned with this particular brace of affairs—which I should be very glad to discuss tomorrow night—who does not accept, and, indeed, has repudiated the words of the Opposition Leader yesterday, that this affair has been conducted in a manner which has done the minimum of damage both to this country and to the international monetary system. I would like to know who are these unnamed people to whom the right hon. Gentleman has spoken.
Mr. Macleod: I, too, would like to know the unnamed gentleman yesterday, who came to see the Chancellor of the Exchequer
Mr. Callaghan: If the right hon. Gentleman will tell me his names I will give him the name of my man. Will he do that?
Mr. Macleod: The answer, of course, is "No". Both the Chancellor and myself talk to a wide range of people—
Hon. Members: Name them.
Mr. Callaghan: I rise, not on the 1964 point, but to refer to the Leader of the Opposition's broadcast last night, in which he referred to the bungling manner in which this operation was carried out. Immediately after his broadcast the B.B.C. commentator put to Dr. Emminger, in Bonn, who has been at the very centre of these affairs and is Chairman of the Deputies of the Group of Ten this phrase—[Interruption.] I have been challenged on something I have said about the cost to the country of £150
1158
million. This is what the commentator said:
"Mr. Edward Heath, the Conservative Opposition Leader here, you may have heard at the beginning … before this programme, said that this deflation had been done in the worst possible way and the worst possible time. Do you agree with him?
Dr. Emminger:"—
and remember the reputation of this man—[Interruption.]
Mr. Speaker: Order. We ought to leave this to the two Front Bench debaters.
Mr. Callaghan: The question was:
"Do you agree with him?"
Dr. Emminger replied:
"No I wouldn't, because I think as concerns the manner in which it has been carried out, it has been done in a very orderly fashion. There has been no chain reaction in the world's exchange markets, and there has been enough concerted action, advance consultation, so as to ensure that the other currencies, the major currencies, have stayed firm And I think if you compare this devaluation with the one in 1949, there is a great contrast and in favour of the present one…. It has been a much more orderly process and I think this has been very much to the advantage of the £."
This is the man to whom I was referring. [Interruption.]
Mr. Speaker: Order. Noise does not help either side at all.
Sir Henry d'Avigdor-Goldsmid: I would like to be able to enlighten the House a little. I spent the entire morning in the City, the exchange markets. I, too, estimate that there was an absolutely unheard of turnover amongst the clearing banks, all based on undoing transactions which had been entered into on Friday. Various sources gave me their estimate of anything up to £500 million changing hands today as a result of undoing transactions in foreign exchange made on Friday.
Mr. Ted Leadbitter Mr. Ted Leadbitter (The Hartlepools) rose—
Mr. Speaker: I would remind the House that none of this noise does either side any credit. A point of order, Mr. Leadbitter.
Mr. Leadbitter: On a point of order. On a number of occasions previously, when questions relating to sources of information have been brought to the notice of Members, when quotations were used or information given implying a source,

1159
it has usually been a matter of courtesy to indicate the source. When the Chancellor has complied with the normal courtesy in indicating his source of information, why does the right hon. Gentleman not do likewise?
Mr. Speaker: That is not a point of order.
Mr. Macleod: I hope that the Chancellor when he winds up the debate tomorrow night—I am not on the point of names here, I am on the point of fact—will tell us whether my hon. Friend's estimate or mine, or any other, was right and then we can judge what the actual loss was.
I turn to the Prime Minister's broadcast on these grave developments for the nation. It is clear who he thought was to blame, I have the script here. First, the Tories. Secondly, foreign speculation—people who dared to doubt the Prime Minister's words and, tragically, were right—third, the war in the Middle East; fourth, the dock strikes and the unofficial strikes; fifth, the National Union of Seamen; sixth, some provocative councils. These were, presumably, Tory, because, largely thanks to the Prime Minister, almost all councils are now Tory. Everyone was to blame except himself. Yet it was he who won the 1966 General Election on a bogus prospectus. It was his Ministers then who said, "There are no alibis left." It was he himself, on 20th July, who took the full responsibility for all action, and it was he himself, only a short time ago, who assumed personal control of the economy.
The country is sick to death of this whining and whimpering from the Prime Minister. The Broadcast itself it would be polite to describe as a series of half-truths. The Prime Minister said that the £ in the pocket and the purse had not been devalued. Has it not put up the prices of bread, meat, tea and petrol? Is it true that programmes are unaffected? As far as London alone is concerned every 1 per cent. on the Bank Rate means £1 million a year.
There are those who say that it is pointless to bring charges now of bad faith. I personally hold the view that if the Prime Minister breaks his word it should not lightly be forgotten. I say this for the record. This is what the Prime Minister said in 1963:
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"Devaluation, whether of the dollar or sterling, or both, would be a lunatic and self-destroying operation."
In 1964, speaking in Guildhall, he said:
"My Lord Mayor, I want to take this opportunity tonight, in the heart of this great financial centre, to proclaim not only our faith but our determination to keep sterling strong and to see it riding high."
In 1965, when he spoke abroad, there was the headline about the Prime Minister's
"unalterable determination to defend the £."
In August, 1965, he spoke at home, and the headlines read:
"Decision not to devalue sterling 'permanent'. Prime Minister's categoric statement in exclusive Guardian interview."
In 1966, again at Guildhall, that graveyard of so many of his speeches, the Prime Minister said:
"More than once when the Chancellor and I were discussing the severity of the attack we were facing, I had occasion to quote the words of the Duke of Wellington at Waterloo, 'Hard pounding this, gentlemen. Let us see who will pound longest'."
The world now knows.
In 1967, on television, talking about devaluation, the right hon. Gentleman said:
"The first thing you do of course is, you've got to export more to pay for the imports we need. However we're able to cut back on manufactured goods imports, well; we still need our raw materials, we still need our food. It simply means that every British worker has got to produce more, has got to work harder and longer, to send more exports abroad to buy the same quantity of imports that we need."
Mr. Jack Ashley Mr. Jack Ashley (Stoke-on-Trent, South) rose—
Mr. Macleod: Not now, if the hon. Gentleman will forgive me.
I would remind the Prime Minister of the ending of my speech on 27th July a year ago. I had commented on the actions of the Chancellor of the Exchequer and of the First Secretary, who is now the Foreign Secretary. My last words were:
"The charge we bring against the Prime Minister is a simpler and a graver one. It is that, as long as he sits in this House, on whichever side he sits, my hon. and right hon. Friends do not feel that we will ever be able to trust him again."—[OFFICIAL REPORT, 27th July, 1966; Vol. 732, c. 1846.]
It is not only on this side of the House. Will other countries who kept their

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money with us do so still? I think that they will, but they have suffered cruelly. Countries in Africa, Asia and the Caribbean, some of the very poorest countries, are poorer today as the result of the action of the Prime Minister. There was not a word about them in the Prime Minister's broadcast.
But this matters to the Chancellor of the Exchequer, as he has proved over and over again, and it matters to us. I do not want to hark back to that speech of 24th July except for one sentence. It must haunt the Chancellor of the Exchequer. He said:
"So far, I have been talking about the domestic consequences, but we live by international trade and finance as well, and we must have regard to the international consequences of what we do. We should break faith with Governments and private citizens overseas."—[OFFICIAL REPORT, 24th July, 1967; Vol. 748 c. 100.]
So, if we had not taken—
Mr. Ashley Mr. Ashley rose—
Mr. Macleod: I will give way in a minute. I promise that I will do so, and I will not break the promise.
Let us take that marvellous country, Australia. For the very first time now she is not taking the same action as we are. In theory, this means that her key exports—our imports—will cost more. It means, also, in theory, that we have a splendid chance to increase exports to Australia. But I fear very much that at least in the medium and the long term it will not work out like that, because the fact that we are now separate on a matter of such importance from Australia means that she will surely move nearer to America and especially Japan, and that is a tragedy.
Mr. Ashley: I am most grateful to the right hon. Gentleman for giving way. In his condemnation of the Chancellor and the Prime Minister's statement is he asserting that the Chancellor or the Prime Minister should have given notice to the world that they were about to devalue?
Mr. Macleod: It is their claim that that is precisely what they did.
Every time since October, 1964, that I have heard an announcement of Government measures I have had exactly the same fear, and I have it today. I fear the irresolution of the Prime Minister. I
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fear what I have called before the "soft shoe shuffle". We have seen it already in the suggestions "these measures will not hurt you", "some people are going to be insulated from them", "we will cushion some of these". As people read the small print abroad and at home confidence may well slip away again.
The Prime Minister will be backed tomorrow as solidly by his party as he has ever been. They will march into the Lobby to support devaluation of the £, just as the same men and women marched into the Lobby on 24th July to support a passionate plea to maintain the parity of the £. Devaluation of a party could scarcely go further than that. The Prime Minister—he must know this—has no authority and no credit left. Every promise he has made has been broken. He now offers to the country as a new and exciting challenge a policy which he has denounced as lunatic, as a flight from reality and as a betrayal of trust. Yet, of course, he will cling like a limpet to the Treasury Bench.
Yesterday, in the House, I spoke to the Chancellor with respect and on a matter which seemed to me to touch his honour, and I was content with his answer. I use no such words to the Prime Minister today. I have no respect for him, and I will not weary him with talk of honour. For him there is a simple message. He has not only devalued the £. He has devalued his own word, he has betrayed his high office, and it is time for him to get out.
4.40 p.m.
Mr. Michael Foot: The House has debated this question, and, no doubt, will continue to debate it today and tomorrow, in an extremely heated atmosphere. I do not complain on that score. I merely remark that, perhaps, a part of the heat is due to what some of us have felt to be a misfortune in discussing the exchange rate. Some of us believe that questions of the exchange rate are technical economic questions, but, very often, they are transformed into deeply moral and passionate questions as the right hon. Gentleman the Member for Enfield, West (Mr. Iain Macleod) has treated them.
I do not believe that this is the wisest atmosphere in which the country should make up its mind whether it is right

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for us to hold the old exchange rate, with all the perils which it had for us, or whether it is right for us to move to the new exchange rate, with all the perils, and with the advantages, too, as some of us have believed for a long time. Therefore, whatever may be the uproar in the Chamber, about which I make no complaint, I hope that the House and the country will discuss this question as one of profound economic concern to the whole country but not solely one which can be debated in the kind of moral terms which the right hon. Gentleman has invoked, especially as we do not regard him or his associates as the best authorities on such moral questions.
It is right that the Government should be under severe test—I shall have something to say in criticism of them a little later—but, if the Opposition Front Bench are asking the Government to resign, which, if I understood him aright, was the purport of the right hon. Gentleman's last remarks, one of their main aims in this situation should be to present themselves as the alternative Government.
Not only today, but over the past few months, none of us has regarded the Opposition as the alternative Government. During the past months, they have looked to me much more like a row of political vultures waiting until the previous policies of the Chancellor of the Exchequer had screwed the last drop of life from the carcase of the Labour Government. That is what they wanted, and that is what they looked like—much more like that than like an alternative Government. We have often seen the right hon. Member for Enfield, West anticipating his feast. We saw him do it, not so much today, but a week or so ago, when he was pursuing the previous policy. He could hardly get to the Dispatch Box, in anticipation of his feast, without rubbing his claws and licking his beak.
Why is the right hon. Gentleman so angry today? We have not seen him so angry for years. The reason is that the platter has been snatched from him. He should contain himself better. When it comes to slinging mud about, we all know that he is one of the masters. He should never rely on nameless experts again.
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To change the metaphor, I remember the debate which we had a few weeks ago, a much more disagreeable debate, in my opinion, when there was a consensus between the two Front Benches and the right hon. Member for Enfield, West could not contain himself in tributes to the Chancellor of the Exchequer. How eager he was that the Government should continue right to the very end of the rocky deflationary road. That is what he wanted, and we all know why—because he knew that that road ends in the electoral ditch. This is the temper of his patriotism, and I am glad to see it clearly displayed.
Some of us who have been urging the Government all along to escape from the road leading to the ditch are very pleased. I am considerably more cheerful when I see the Front Benches quarrelling than when I see them embracing one another. It makes it much more convenient in the Lobbies, for one thing.
Some of us, I say, are relieved. No one, so far as I know, has said that devaluation is a solution to all our problems. Nothing of the sort. But what some of us have argued for a long time has been that, partly on technical grounds, our exchange rate was wrong and our £ was overvalued, as it was overvalued so disastrously for the country after 1925. When the right hon. Gentleman makes such play of the argument that under Labour Governments there have been devaluations I remind him that there have been some things in the economic history of this country much more deadly than any devaluation. I refer to the massive deflations which he and his party imposed upon the people, raising unemployment to 2 million and beyond. The right hon. Gentleman was the biographer of Mr. Neville Chamberlain. If the choice is between a policy of devaluation and growth and deflation and mass unemployment, which he and his right hon. and hon. Friends stood for, no one should doubt what the reply should be.
Mr. F. A. Burden: The hon. Gentleman refers to the unemployment in the early 1930s. If what he says is right, and it was the result of Conservatism, why did the people in 1931 return a Conservative Government by a massive vote, even the people of Jarrow returning a Conservative Member?
Mr. Foot: Even the British people can make serious errors, as they did in 1931—as no one has described more brilliantly than the late leader of the Conservative Party, Sir Winston Churchill. It is not a very telling point for the right hon. Member for Enfield, West to try to identify devaluation with disaster for this country and, presumably, the policies of heavy deflation which he and his party have pursued so persistently as somehow associated with prosperity. That is a very crude way of conducting the argument, and it will not assist the right hon. Gentleman in the country.
Many of us have argued for a long time, in the newspapers, in the House and elsewhere, that one of the measures which should be taken to try to escape from the old stop-go cycle was to refuse to allow the exchange rate to have paramountcy in our thinking. We have taken this view not only because we believe that a change could have a dramatic effect, if we exploited it properly, on our balance of payments during the next 12 months and the years to come, but, even more, because it was becoming freshly evident, as we should have learned over many years past, that, when we were dependent on borrowing huge sums abroad and whenever we started to move towards a boom situation, we ran the risk of a run on the £.
One could never tell what might cause a run on the £. The right hon. Gentleman referred to 1964, and gave examples of some of the factors which might have started the run on the £ then. Many people believe, and I think that the right hon. Gentleman may have argued it at the time, that the proposed increase in old-age pensions set it off. I also remember the right hon. Gentleman describing to us once what he thought might have set off the run on the £ in 1966. He said that it was because of the publication of the Iron and Steel Bill.
That conjured up for me a remarkable scene amongst the gnomes of Zurich: a gnome comes down to breakfast one morning and says to his wife, "They are going to nationalise the steel industry". But it had all been announced years before. Apparently the word flashed very quickly around these emiment gentlemen, so skilled in the operation of money, and before we knew where we were there was a run on the £.
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It may be said that that is a laughable illustration, but it is a true illustration of how runs on the £ may start. Some are started by speculation. It is no good the right hon. Gentleman saying that speculation has nothing to do with it. It has a great deal to do with it, and it maximises and multiplies the danger at every crisis. That has been a further reason why some of us have wished to escape from the dependence on the appalling whims of the financiers.
Over and above that, it has been evident not merely in the present crisis, but in previous crises, that when the Government seek to reflate they cannot do so at the pace which would be in the interests of our economy, because we must take into account what is thought about the economy by many people from whom we borrow money. Some bankers—I do not say all, and I hope that my own bank manager is not listening—are very stupid people. To impress stupid people, one often has to adopt stupid policies. That is what deflation very largely is; it is a stupid policy designed partly to comfort the people from whom one has borrowed money. The best thing is to escape that situation.
One of the main reasons why I am strongly in favour of the action the Government have taken is that I trust that the pace of our escape from the recession will now be guided by the interests of our economy, and not by the esoteric calculations of those unnamed persons as to what might be the effect.
Sir Cyril Osborne Sir Cyril Osborne (Louth) rose—
An Hon. Member: A little gnome.
Sir C. Osborne: Does the hon. Gentleman think that he is doing the country any good, or helping the Chancellor of the Exchequer, by sneering at what he calls the gnomes of Zurich, to whom the Chancellor has paid tribute for the help they have given our country in its time of need?
Mr. Foot: I do not always agree with my right hon. Friend the Chancellor in his choice of friends, even when I am supporting him, and certainly not when I am going to criticise him. I want to keep my audience.
The pace at which we shall escape from the recession is a governing factor,

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particularly because there was growing evidence of heavier unemployment which, of course, has caused grave concern on this side of the House, and, I dare say, among many hon. Members opposite. Many of us were deeply concerned about the statement by the Governor of the Bank of England a few weeks ago and the apparent acceptance of that policy by my right hon. Friend the Chancellor. I do not believe that one could wrench words from their meaning so far as not to imply that the Governor of the Bank of England was talking about a permanent pool of unemployment. He was talking about a larger margin of unused resources of manpower, and that means more permanent unemployment, in my opinion.
But the Chancellor and others told us, "You must not interpret it in that way, because this is a proposal solely concerned with the comparison between employment in the regions and the other parts of the country." I do not believe that a single hon. Member imagines that the Governor of the Bank of England was referring to regional policies. Certainly, he did not mention it to the bankers in Buenos Aires. They were not interested in regional policies, and if they were not interested why mention a point solely concerned with such policies?
The idea of a bigger pool of unemployment has been knocking around the City of London, the Economist and papers like that for the past 20 years. I remember Lord Woolton advocating it in 1947. Some of us have been bitterly opposed to it all the time. What outraged us was that the stamp of approval by a Labour Government appeared to be given to this new idea, which the Governor said had been courageously adopted by the Government, and some of us were not prepared to tolerate that. I was very angry. One of our considerations in believing that the Government had moved towards that policy, to put it no higher, was that it appeared that they had felt it necessary to adopt this measure to carry through their general deflationary policy. That is another reason why we are glad to see now that policy in the process of being buried.
One of the arguments used by the Chancellor at that time referred to the
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development areas, about which many of us are deeply concerned. The Government took a series of measures to protect those areas in the old deflations. I would be the last to deny that. If it had not been for the measures taken by the Government to protect development areas the results in my constituency and the areas around it would have been catastrophic. The Government are taking further steps of great importance; no one should minimise their importance, for that would do a great disservice. But that does not alter the fact that a fierce deflation hits the regions worse than the other measures the Government put forward could protect them. It is no good the Chancellor arguing with me about that.
I know that in Wales the situation is slightly different. In Scotland and elsewhere—and good luck to them—they have suffered from the deflation, but not quite as badly as last time. In Wales, unemployment has gone up since the squeeze on this occasion more than it did in the squeeze instituted by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd). In my constituency and some places around it, each deflation hits the people harder. When the storm blows, it naturally hits the weakest hardest. That is another reason why I am desperately anxious to escape from the deflation policies, which hit the regional areas harder, whatever steps the Government may take to protect them.
Mr. John Hall Mr. John Hall rose—
Mr. Foot: I have given way several times, and I must proceed.
A policy of real permanent assistance for these areas can be carried through only in a time of buoyancy, boom and expansion. It is only by operating severe controls in the interests of the regions at such a time that we shall divert a sufficient number of industries to them, and that is why the sooner we get expansion the better. I believe that the chance of getting to the expansion is brought immeasurably nearer by the measure the Government have taken.
However, like the Government, I wish to add these important addenda to their proposals. Of course, it is necessary that we do not dissipate the advantage. We must take every precaution. It could be dissipated by a huge, wild inflation

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throughout this country. Nobody could deny that, but it could be dissipated in many other ways as well. It could be dissipated by sustaining, or trying to sustain, the huge military expenditure that we still have. Indeed, the devaluation almost wipes out the £100 million cut in military expenditure about which we have been told, and about which I am very glad to hear. I seem to remember that every time we have an event like this we hear about a £100 million cut on military expenditure. I am not quite sure if it is the old one or a new £100 million. Healey's £100 million turns up like a free coupon in every package. I want to make sure that not merely is there a new £100 million cut, but that there are many more, cutting much deeper.
I hope that the Government will recognise that the argument which we have presented on this aspect is extremely valid. However ingenious and diligent the Minister of Defence may be, it does not make sense to say that we shall make big cuts in military expenditure unless we change the commitments, too. Many of us have argued for a long time that we should cut the east of Suez commitment, which I am glad to say we are doing, although I think that we must do it faster. I hope, also, that we will review the proposal to take on new commitments in the Middle East, which would be absurd.
I hope that, over and above that, we will consider making a cut in the biggest military burden which this country, most unfairly, has to bear, namely, the huge expenditure on the Army in Europe. The most foolish pledge ever given by a British Government was that given by right hon. Gentlemen opposite that we would keep four divisions in Europe until the end of the century, whatever the costs, whatever the circumstances, whatever the difficulties. It was a hopeless pledge which has meant that this country has started on every effort to deal with its economic position with a burden not borne by any other Western European country. I therefore hope that that will be reconsidered, too.
There are other matters on which 1 should like to speak, because there are many items in the policy which must be examined with the greatest care, but I have gone on for too long. There is
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the deflationary package itself and the proposals which the Government are to bring forward to assist those who will be hit hardest by these proposals. Nobody can deny that some people will be hit hard and the Government are right to take time to think out carefully how measures to shield them should be applied. But do not let anybody mistake it: the Government are committed to bringing in major proposals for increased expenditure on the social services in order to deal with this situation. That is how I would interpret the undertaking.
Finally, I come to a matter on which the House has argued, debated and voted on previous occasions and has appeared to reach a decision. I hope that the Government will reconsider it. I do not expect them to decide on it this week. One conversion a week is good enough for me. I hope that in the new circumstances, they will consider afresh very seriously—I do not suggest that they did not consider it seriously before—the question of Britain's application to enter the Common Market.
If the Government's plans for escaping from our balance of payments burden succeed, which I believe is possible, what utter madness it would be to thrust us back into the same difficulties again. The speech of my right hon. Friend the Member for Battersea, North (Mr. Jay), the previous President of the Board of Trade, made on this matter in the House a few weeks ago, has never been answered by the Government. They should answer it in detail.
I am as good an international Socialist as any of my hon. Friends on the Front Bench, and I am in favour of the best possible relations with countries in Europe. It may be a kind of favouritism, but, in particular, I am in favour of closest relations between this country and France. I do not think that it makes sense for this country to be quarrelling permanently with our nearest neighbour with whom we have had to associate, and gladly associate, most closely in the biggest trials which have ever faced us.
I therefore hope that there will not be any feeling of bitterness and spite towards France left over from the events of the last few days. It is foolish for anyone to speak in such terms. Indeed, I would renew the proposal which I made

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to the Government when we debated this matter. If the Government wish eventually to get into the Common Market on acceptable terms they will never be able to do it by trying to outmanœuvre President de Gaulle. If they try to do that, they will drive not merely de Gaulle but the mass of France into exercising their veto powers, which undoubtedly they possess, not only to injure Britain's attempt to get into the Common Market, but to injure this country's position in the kind of financial extremities which we have experienced in this past week or two.
Nobody can deny that some of our difficulties have arisen because of the dispute between ourselves and France. If we were to withdraw the application, if we were to say that we recognise what President de Gaulle and others have said about this matter, some of my hon. Friends might wish to renew it later, others of us might not wish to do so. But it is not merely an unwise course but a futile course for the Government to persist in believing that we can get into Europe in defiance of France and of what are considered by a large number of French people to be deep and genuine French interests. I therefore ask the Government to reconsider that policy, too.
The Government have a lot to reconsider. Over the past two or three years, many of us have been extremely critical of Government policy. But I think that many of us are more hopeful today than we have been throughout that period, because, whereas previously we were travelling along a road which led to darkness and catastrophe, we are now on a different road, and if we use the opportunity to the best advantage, we can place the people of this country on the road on which they should be.
5.5 p.m.
Mr. Jeremy Thorpe: The hon. Member for Ebbw Vale (Mr. Michael Foot) will not expect me to agree with his remarks about Europe. I believe that the effect of devaluation will be to make it easier for this country to join Europe, because one, although by no means the only, obstacle under Article 108 has been removed.
However, the hon. Gentleman and I can at least share the pleasure of having
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converted the heathen to various policies which have long been advocated to the Government Front Bench and which have been resolutely rejected. If the decision to devalue means anything, it means that the Government have been forced to change their priorities and they are no longer prepared to sacrifice economic growth and full employment to maintaining the £ at its previous rate in squeeze conditions. That is something for which we must be profoundly grateful. Not only have the Government been forced to change their priorities, but they have had to admit that in trying to sustain them they have failed. At last, in their economic policies they have, for the first time, departed from the priorities of their Conservative predecessors.
In my view, the two greatest failures of the Government have been in clinging to the two Conservative symbols of the £ and the bomb. It is very difficult to know what is the Conservative position from the speech of the right hon. Member for Enfield, West (Mr. Iain Macleod). Are the Conservatives saying that, given the present situation, they would not have devalued? Is the Leader of the Opposition suggesting that a loan could have been successfully applied for? Or are they saying that if they had been in power there would never have been circumstances in which it would have been necessary to devalue? If they are saying the latter, they are certainly entitled to that view, but I think that, on the evidence of 1964, they would have had very great difficulty in convincing the electorate. When the right hon. Gentleman told us about his unnamed experts and then found himself unable to give any indication as to who those people were, he showed himself I think too clever by 14·3 per cent.
Mr. Peter Hordern: Would not the right hon. Gentleman agree that his party's policy on the £ and the bomb is very simple to understand. It is to devalue the £ and to drop the bomb.
Mr. Thorpe: If the hon. Gentleman will wait, I will develop my case.
We have always taken the view that there is no case for an independent nuclear deterrent. That is the view to which the Government were temporarily converted, but they have now gone back to the classic Conservative line. Although

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there have been people, and in our party, who as far back as 1964 advocated devaluation, we did not advocate it as a party. What we said, and what we continue to say, is that if a nation has a high rate of spending and a low rate of growth, the currency is bound to be weakened, and if one is then faced with devaluation it must be planned rather than forced in emergency conditions. I am sure that that is right As it is, we have in the present devaluation the worst of both worlds. The £ has been defended at excessive cost and suddenly devaluation has been sprung upon us.
I believe that devaluation in the circumstances was necessary. We have not heard today from either the Leader of the Opposition or the right hon. Member for Enfield, West whether, if they were inheriting the precise economic situation of today, they would have devalued. If they would not have devalued, it is clear that they wish to perpetuate the old priority of sacrificing economic growth and full employment for the sacred cow of the £. The Opposition must answer this question, but so far they have not done so.
If there is any doubt about the Government's lack of planning, it is shown by the reflation of the Government in June by relaxing the regulator, only to bring it back with a bang in November and then to choose that as the moment to devalue. Had this decision been taken earlier, we could probably have saved £300 million in gold guaranteed debts and certainly we need not have prolonged what has been a period of wasteful unemployment.
What has depressed me has been the lack of direction about what should be the package accompanying devaluation, what are the opportunities which present themselves and how we should make best use of them. This is only a temporary opportunity. I think that every hon. Member would agree that, unless we take full advantage of those opportunities, the future of the country will be very grave indeed.
On 23rd October this year, I said in the House
"Devaluation—almost a dirty word in this House—on its own achieves very little. It can give a temporary feeling of wellbeing, but it is no good lowering the fence three inches if the horse has not been properly fed in the
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stable in the first place. That feeling of wellbeing is dissipated if there are not proper tariff cuts and other measures immediately following devaluation."—[OFFICIAL. REPORT, 23rd October 1967; Vol. 751, c. 1262.]
There are, of course, grave risks if we do not take full advantage of those opportunities, and I want to mention what they are.
First, however, I would like to ask the Chancellor a question about the circumstances of devaluation. Yesterday, in reply to a question from me, the right hon. Gentleman went out of his way to proclaim the responsible way in which devaluation had been brought down. He said:
"As to the timing and nature of the operation, outside those who wish to take some party advantage, the rest of the world believes that the timing of the operation and the manner of its execution have been exceedingly well carried out. The degree of consultation that took place with all the major areas affected—[HON. MEMBERS: 'On Friday?'] Yes, on Friday.
The degree of consultation which took place has undoubtedly resulted in our being able to take this step without incurring the hostility of those adversely affected by it"—[OFFICIAL REPORT, 20th November, 1967; Vol. 754, c. 942–3.]
Yes, indeed. When did the banking world first know of the decision to devalue, and how much notice was given to those who then withdrew their sterling balances?
Eight days ago, a colleague of mine who is a professional man was in Basle. His work brought him in touch with a prominent banker. He was told on that occasion that a loan of £1,000 million would be provided for the United Kingdom and that the Government would devalue up to 15 per cent. He returned to Britain on the Friday. He had not read British newspapers and he concluded that in the light of this information that when he got back devaluation would already have taken place. [An HON. MEMBER: "What is his name?"] I will certainly give his name. I do not know whether I can remember his telephone number. He is Colonel Geoffrey Taylor. I am not at liberty to disclose the name of the banker, but I can certainly vouch that if my colleague was prepared to give that information he could hardly have been expected to have fabricated it.
I merely ask, was that information the result of second sight or of first-hand

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knowledge? Let us hope that it was second sight. But it seems to me to be an extraordinary coincidence, however, that both the figure which we now know to be the case and the accompanying action by the Government were accurately predicted. What has been the loss to the reserves in the period of uncertainty? I would put it at between £250 million and £450 million.
It seems, therefore, that even the timing—not taking into account whether it should have been done six months ago—has given advance warning and has caused a far greater drawing on our reserves than was necessary. I hope, therefore, that the Chancellor or whoever replies to the debate will be able to reassure us about this. If it is the fact that the action which the Government have now taken was general knowledge eight days before it occurred, that is a grave indictment of the way that the Government have handled devaluation.
Mr. R. T. Paget: Surely, one does not have to suspect a leak. Was it not a reasonable deduction from everything that was happening? I telephoned my co-trustee and told him that it was going to happen.
Mr. Thorpe: This is where I disagree with the hon. and learned Member. To many of us, it has been obvious that the £ was over-valued and that economic growth of 1 or 2 per cent. and an unemployment figure higher than for the past 27 years made the revaluation of sterling inevitable, but the only people to whom it was not an inevitability were Her Majesty's Government. The continuation of the policy of sacrificing everything for the sacred cow of sterling made many bankers feel that perhaps the Government were entirely firm and that they were genuinely not intending to revalue.
Now, what should we do? In 1958, France was the sick man of Europe. The French had virtually no exchange reserves and their debts were 3,000 million dollars. As a result of devaluation and the measures which accompanied it, their exports rose by 16 per cent. in the first year and by 21 per cent. in the year after. Shortly afterwards, their reserves grew to 4½ billion dollars and they paid
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off 2,400 million dollars of debts. If we can get the right policies to support devaluation, there is no reason why this country should not likewise have that rate of economic growth. This is why I found the speech of the President of the Board of Trade very disappointing. It was all very well to dig up what the Tories had done, but we did not hear very much about the package deal which would support devaluation.
I would like to make one or two suggestions, first in regard to tariffs. I believe that this is the moment for us to start cutting selectively certain tariffs. It is true that this would lose us some of the advantage of devaluation, but, at the same time, we will face price increases for many of the raw materials which we import for our manufacturing industry. I think particularly of wool and textile manufacturers.
It is true that New Zealand has indicated that she will follow suit in revaluing her exchanges. I was talking this morning, however, to a woollen manufacturer who takes the view that as a result of devaluation and the increased cost of the raw materials which we have to import he will have to increase his prices by between 5 and 10 per cent. I agree that it is too early to assess the final figures until we know which countries will follow suit, but there was never a time when it was more important to allow our manufacturers to buy their raw materials in the cheapest market and, at the same time, by cutting tariffs not to allow them to have a sense of false security.
I also believe that there could be cuts in things like chemicals and fertilisers, which we have to a certain extent to import. Therefore, the first thing which I urge upon the Government is, without waiting for the Kennedy Round, to cut tariffs selectively in order to stimulate competition and to reduce as far as possible the cost of our imported raw materials.
Sir Tatton Brinton: If the right hon. Gentleman's argument is to stand up, he will have to specify which raw materials are carrying tariffs, because wool does not carry a tariff.
Mr. Thorpe: With respect, it does, from non-Commonwealth sources, at 10 per

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cent., so there is one case with, wool which we import from non-Commonwealth sources, where there is a 10 per cent. tariff which could be cut down.
The next point is, obviously, that we want to make the maximum degree of import saving. I would say that one way in which this could be done is by boosting agricultural production. I see no reason why we should not be able to get very nearly £200 million more out of the agricultural community.
Mr. James Davidson: £300 million.
Mr. Thorpe: That is a matter for negotiation. As I see here one of my hon. Friends from Scotland, I should like to take account of his susceptibilities in view of recent events. For example, we could have a boost in beef production in this country. The Minister of Agriculture should at this moment be seeing whether the hill cow subsidy which was cut back in 1964 might not be reintroduced to help the small farmer to make his contribution.
There there is the question of Bank Rate. I hope that the Bank Rate of 8 per cent. will be only a very temporary measure, because it seems to me that it has two disadvantages. The first is that it is going to pull dollars out of the United States, because sterling at 8 per cent. is a very attractive investment, and this in turn might weaken the dollar, and that would be bad for sterling. Secondly, we need loan money and working capital for investment in exporting and import saving industries and if borrowers have to pay 9 per cent. or 10 per cent. it will be very dear indeed.
Then, on Government expenditure, we are told we are going to cut £100 million off the defence budget, which I welcome. They are at long last converted to the idea of reducing our commitments east of Suez. But is this going to be enough? The Defence Correspondent of The Times today says that our existing gross overseas expenditure as a result of devaluation will go up by £300 million. I do not know whether that figure is correct or not, but assuming for the moment that it is, it means that we shall have to make a saving of £400 million in order to have a £100 million net saving.
Mr. Robert Sheldon: The right hon. Gentleman has got
1178
the figures wrong. That is a total of £300 million of foreign exchange expenditure, as I understand it.
Mr. Thorpe: It will be increased money we shall have to find to pay for overseas expenditure, therefore—
Mr. Sheldon: Totally wrong.
Mr. Thorpe: —to get a £100 million reduction I hope that the Government will indicate what they have in mind. Is it chiefly on overseas expenditure, or, for example, by releasing engineering capacity for production in this country and thereby putting it into the export drive?
Again, what about tax incentives? I find it very difficult to see why the Government consider increased Corporation Tax is going to help the export boom. If there are increased profits the Government say these should be shared. I think that there is a rather old-fashioned Socialist idea behind this move, as though there were really something rather dirty about profits. This is something we should guard against. I would rather see the Government give definite fiscal encouragement to profit-sharing, so that the workers who help to produce the profits may also share in them.
But, if one thing has become clear, it is the complete anomaly in the present circumstances of the Selective Employment Tax. The whole thing has really now become a farce. What, I think, is one of the gravest charges against it is, that it does hit one of the largest individual dollar-earning industries in this country, tourism, and I cannot see how this is to assist in the balance of payments. Surely there is a case for Selective Employment Tax to go, and if the Government wish to reward those who go out into the export markets, here is a case for the introduction of an added profits tax.
With regard to wages and labour relations, since July 1966 the workers of this country have been under a wage freeze of differing degrees of coldness, and I wonder whether the Government are now intending to have a freeze upon a freeze, because if at the end of a long period of freeze they are then going to have a further freeze at a time when the cost of living is going up, then I think they have a very great political problem on their hands. It is going to be a very difficult

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problem indeed. I believe that across-the-board wage increases are obviously something which must be discouraged. We have got to try to get more local productivity bargains. I believe that, despite the fact that we know that spiral wage inflation will completely minimise the effect of devaluation, it is the responsibility of the Government to look at some of the lower-paid workers who are getting £9 or £10 a week and who are going to be severely hit. This is something the Government have got to plan.
There is one other matter with regard to labour relations. There is no good asking people to pay more for their food, encouraging people to export more, if we cannot get those goods through the docks. I must say that I think the Government must press a little harder in using their agencies, their good offices, to bring about a settlement of that dispute, which is severely damaging to the economy. I am not one who, like the Prime Minister, blames it on the dock strike, who blames it on the seamen. I lay the blame for most of our difficulties on the priorities which the Government have clung to for the last three years and which they adopted from their Conservative predecessors, and to which they have faithfully and slavishly clung.
We must now make a real effort to get a new reserve currency in the world, whether it is a European currency, or whether it is through the I.M.F., but we must not again have sterling subjected to the vaguaries and pressures which we have seen through the last ten or fifteen years because of the fact that we have a reserve currency.
The Government may well have to take unpopular measures. If those measures are right, we will certainly support them. What I find disappointing about the Government speech today and about the statement of the Chancellor is that although he has devalued there is no guarantee that the supporting measures behind it will be sufficient to get the economy moving. That is what is profoundly disturbing, because if we do not take advantage of this opportunity then the last state of this house will be worse than the first.
If it means we as a nation are going to stop preaching and begging and borrowing and mortgaging to keep the £
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afloat, if it means we are no longer to sacrifice growth in the economy, sacrifice full employment to the £, then this is at least a start in the right direction.
What frightens me about the Prime Minister in charge of the economy is not that the Prime Minister has not the courage to be unpopular. The Prime Minister has taken many measures which have courted unpopularity. The great danger with the Prime Minister is that he is always at his most brilliant at the eleventh hour and the fifty-fifth second when dealing with a situation, usually by severe measures, which need not have arisen in the first place if he had had sufficient foresight.
I believe that the decision to devalue was inevitable. At last the Government are beginning to get their priorities right. It is because I am not satisfied, I have not confidence in the adequacy of the package measures behind it to enable full advantage to be got out of it, that I and my hon. Friends will go into the Lobby tonight—[HON. MEMBERS: "Tomorrow night."]—tomorrow night—I wonder if we could get in twice?—because we do not feel the Government have as yet given to this House any adequate indications of how we are to maximise this opportunity. If we have those policies which will enable us to take full advantage of the opportunity this country will respond, and, if we can take advantage of this, the whole wretched business of balance of payments crises and recurring squeezes will go, and once again this country will have a healthy economy and all the influence and power which that implies in the world.
5.30 p.m.
Mr. Brian Walden: For me the decision that the Government took on Saturday brought to an end a long period of personal and political unhappiness, because the Labour Party won the election in 1964 and again in 1966 on what I regarded as a clear alternative policy to that which had been followed before. The Labour Party promised growth; it promised expansion. It did not say that there would not be sacrifices or difficulties.
It certainly did not suggest in the first of those two elections—and only in a

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muted way, if at all, in the second—that it somehow regarded the current exchange rate of the £ as inviolate and would give it priority over growth, expansion and full employment. It was therefore difficult for me, believing as I did and still do believe that the Government we then had was the only radical alternative that the country could ever have, to see it go through a period which I can best categorise as agony, during which my Front Bench carried out a policy which, in essence, was the policy of the Front Bench opposite. It was the remedies of the party opposite that were being applied and not our own.
I shall not recriminate. I want principally to talk about devaluation. I feel the greatest sympathy for the Chancellor. I do not regard him as being in any way the devil in the machine. I think that he was too easily persuaded, as many people in this country are, that the people who know best about our economy are the financiers, and not the industrialists or the economists. That is a nonsensical conception. Between the wars there was a great intellectual argument, with two great protagonists taking part—one the Governor of the Bank of England, representative of the City opinion, Mr. Montagu Norman, and the other an academic economist, Maynard Keynes. Who was right? Keynes was right.
I want to refer to some of the remarks of the right hon. Member for Enfield, West (Mr. Iain Macleod). Nobody could have listened to his speech without feeling an inner compulsion to respond. One wise man in this country said that Britain was the only major industrial country in the world where finance dominated industry, and I believe that that is true. I want to give one illustration of that obsession. There is a lot of talk about what we may have lost last Friday, in terms of reserves. Was it, as some hon. Members have asked, £250 million? Was it £450 million? How often is the same concern expressed about the value of production lost by deflation? That is vastly a larger figure, but it worries hon. Members opposite a good deal less.
This is a nation which, for some strange reason for which I cannot provide an explanation—it may be something to do with the fetish of the London money market, which I agree is technically superb—allows financial considerations to
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predominate over industrial considerations. I think that we over-estimate the value of the City to this country. One value of the change that has been made is that we will now switch from a preoccupation with financial concern to a pre-occupation with industrial concern. Not that the Government have not done a great deal of that already. My hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) said a good deal about regional policies, and I could add to what he has said. The work done by the Ministry of Technology and the work of the Ministry of Labour in retraining has been excellent.
The difficulty is that that policy was essentially long term, for a restructuring of industry, and by holding on to the old exchange rate we were fighting a monthly battle against a possible run on the £. What we needed was more margin. We could not carry out an industrial restructuring on the kind of margin on which we were operating.
Mr. John Smith: The hon. Member for Birmingham, All Saints (Mr. Walden) has said that he does not consider that the City of London contributes very much towards a solution of these problems. Does he know how much of our export earnings are earned by the City?
Mr. Walden: I never said anything of the sort. What I said—and I will repeat it for the hon. Member—was that we have a technically superb market in the City—the only significant money market in Europe. But one of the problems in life is that we tend to raise up what is good to the status of something that is infallible. I say this again to the hon. Member; finance should be totally subservient to the requirements of industry; it should not be the master of industry. That is the difference between us.
Too many people have a feeling that somehow industrial development is less significant than the earnings which we achieve from City brokerage operations—and I agree that we do earn a good deal from them. The City is not the producer of wealth in the way that the motor car industry is. The City, by its expertise, provides us with money which, in the balance, is just as good as money earned in the export of motor cars, but we must remember where the real wealth

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lies. We must remember that City expertise is wholly useless if we are going to apply the kind of deflationary policies which destroy the morale of the people who have to work in the factories and cripple the initiative of the industrialists.
I want now to talk about devaluation because, palpably, hon. Members opposite believe, or say that they believe—I think that there are more secret devaluationists on the benches opposite than will be apparent in the Lobby—that the old exchange rate should have been maintained and that the Government have gone in for what some of them have called a gamble, others have called a disastrous policy, and still others have discussed in largely moral terms.
I will not say anything about the policy of devaluing by 30 per cent. because my right hon. Friend the President of the Board of Trade disposed of that point. Undoubtedly it would have caused reciprocal devaluation. There are those who think—and this is a week for unorthodox thoughts—that to pull other countries into a devaluation with us would, from some long-term points of view, have been a very good thing for the world monetary structure, because it would have taught many countries a valuable lesson about the need for establishing an artificial currency which the world could use to support its trade.
I do not share that view. I believe that the consequences would have been so incalculable that we could not have contemplated that step. The real argument lies between a devaluation of 14·3 per cent. and a big loan—in other words, adopting the policy which hon. Members opposite presumably support. Let it not be thought that taking a loan would not have involved a gamble. In my view it would have involved a vastly greater gamble than devaluation.
Let us remember all the things upon which we would have been gambling. We would have taken the loan with strings—and I shall not go too deeply into what that means. Certainly it would have cut out completely the opportunity to devalue. There would have been no question of a devaluation. We could not have negotiated a loan of that size if we had been contemplating devaluation.
Almost certainly it would have meant that a very close scrutiny would be kept
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on the employment rate in this country, the amount of unused capacity, and certainly a very careful watch would have been kept on Government expenditure. It would have meant that we would have been expected, whilst maintaining the old exchange rate, to get ourselves into balance of payments surplus and take whatever measures were needed, no matter what they did to the level of employment and the prospect of growth in order to achieve that aim.
Some may say that that would have been the right course, but it would have been a blind gamble nonetheless. Even if it had worked, it would have done us great harm.
But think of all the things that have to go right for the policy to have worked. There would have had to be a revival of trade in the United States of America and Germany. Not only that, but we would have had to be assured of getting more than our fair share of the export increase involved. We would have had to gamble that the growing wave of protectionism, very apparent at the moment in the United States Congress and over which we have no control, would not in fact shut us out from the opportunity of exploiting those markets. That would have been the first gamble.
The second gamble would have been that the inflation in this country which is building up, and is consumer-led, could have been contained by some mechanism with the use of the regulator—possibly or by sharply increased taxation. I wonder how much hon. Members opposite will advocate that in public—the damping-down of inflation by sharply increased taxation to stop it sucking in more imports. If we had gone ahead and allowed inflation to grow and suck in more imports and inevitably in the long run increase export costs, we would have been operating against ourselves on both sides of the account. Moreover, as has been apparent in all recent crises, we would be gambling on there being no major industrial dispute that would, in the now oft-used phrase, blow us off course.
For instance, no rail strike in February. I am not for a moment predicting one, and I assure my colleagues in the N.U.R. and A.S.L.E.F. that I am suggesting nothing of the kind. But we are men, not

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gods. We cannot predict exactly what will happen. There might be a rail strike. If that had happened it would have sunk us out of hand. That would mean that we had taken the loan to no purpose. That would have been another gamble, another option that we thought we had, but in fact gambling on something wholly beyond our powers to control. That is what the loan would have meant.
I agree with my hon. Friend the Member for Ebbw Vale that we would have had the bankers on our backs. They are not such terrible people. I concede to hon. Members opposite that they are men of great expertise who have helped this country in crises in recent years. The worst that I can say about them is that they have conceptions about our economy and, for that matter, the world's economy, which I do not share. Between the financiers and the economists, I will take the economists every time. There is a peculiarly restricted series of obsessions which financiers have. Not only would they have been on our backs, not only would they have been able to exert influence against a policy that we wanted to carry out, but the policy itself would have depended upon sheer blind chance.
We could have sat and prayed that trade revived and that the inflation was not too sharp or that we could control it or would not have great labour disputes. When I am told that the option that the Government have taken represents a gamble, I am forced to ask what are the alternatives. Is what we have done really a bigger gamble than that? What the Government have done in fact is, at great cost—and I want to say something about that in a moment—to give themselves margin. It may be called buying time, and I will say something about that in a moment, too, but nonetheless they have given themselves margin. They now have the power to effect a whole range of policies.
My hon. Friend the Member for Ebbw Vale mentioned some of the things that he is interested in. I could—I will not now—give a list of some of the things that I am interested in and would like to see the Government act upon. However, they now have the chance to act. [HON. MEMBERS: "Only for a time."] Hon. Members opposite say, "Only for a time." But of course. As between the alternative of buying some time and
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simply relying upon luck to pull us through, I have not the slightest doubt as to which is the more sensible policy.
What is the price of devaluation? It is, first, that countries abroad who have held money with us—indeed, anybody abroad who has held money with us have had its value reduced. That is a point of which hon. Members opposite make much. I wonder whether they are prepared to make as much of this point. How on earth is it supposed that we held a lot of that money in the first place? By having interest rates over the last decade which have been nearly 2 per cent. above the New York rate. [An HON. MEMBER: "What are they now?"]
That is how we held the money in. What does it mean? It means that if we are to continue discussing these issues in these absurd moral terms, a lot of the cost of devaluation has been discounted in advance by the fact that they have been taking it out in interest payments already.
The Chancellor and the right hon. Gentleman the Member for Barnet (Mr. Maudling)—who is not here; he will be soon; he is coming back shocked and anguished from New Zealand to condemn this unprecedented step—both these gentlemen have said the same thing. They have said that people do not put money with us because they like us; learn the facts of life, boys; they put money with us because they are getting something out of it. Exactly. As far as I am concerned, the motto is caveat emptor: they put it with us because they thought they could get something out of it. They have made a commercial judgment. That commercial judgment, like all commercial judgments in life, is subject to problems and difficulties and loss and they have now sustained some loss.
Sir Frederic Bennett Sir Frederic Bennett (Torquay) rose—
Mr. John Tilney Mr. John Tilney (Liverpool, Wavertree) rose—
Mr. Walden: I will not give way at this point. That is the first cost of devaluation.
The second cost of devaluation is the cost in the domestic price level. Prices will rise—and I have something to say to the Government on this point—and

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my own guess is that they will rise about 3 per cent. I notice that figures have been quoted varying between 21½ and 31½ per cent. for the rise. It is foolish to think—I hope the Government will not think it and will not say too often—that we can, by exhortation—I trust no other methods are being considered—hold costs, including labour costs. We cannot. They will rise. Prices will rise and wages will follow. That is an automatic consequence of devaluation. I do not think that any hon. Member can tell me of a devaluation, other than the French one of 1958 where decree was used, where this has not happened.
Devaluation releases economic forces which tend to force up costs to cancel out the effect. The issue is one of time. Everything that we can do to inhibit the rise is something well done. Every month that we can stall off a further spiral in costs is a month longer for us to take advantage of devaluation. There are varying estimates about the time we can win and the time we need. I think that we can certainly get three years out of this. We shall be gradually blunting the edge all the time. The competitive advantage that we now have in world markets will start moving against us from next month onwards. We are not the only industrial country which will face inflation in the next few months, and that has to be taken into account, too. Some of the others will also inflate, and necessarily one has to take account of that. We shall slowly lose the edge. What we have to do is to make sure that while we have it we cash in on it.
I do not go along with the argument that the main gain, at least in the short run, will be on exports. That certainly was not so in 1949. There was some gain in exports, but by far the greatest gain was in terms of imports. Admittedly in those days it was a question of dollar imports. I do not see any reason on the figures, especially on our import figures and when we look at the content of our imports, to suppose that the greatest saving in the short term will not be made that way this time as well. The greatest chance for industry will not be in exports, but in terms of imports substitution. I do not mean by that there are not great export opportunities now—
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there are. I do not mean that industrialists should not switch towards exports, but the immediate gains are likely to be on the import side of the trading account.
What matters desperately to my hon. Friends, and indeed to the whole House, is unemployment. We are bound as a result of some of the measures taken complementary to the devaluation to destroy some jobs. I do not see how we can effectively prevent the destruction of jobs by the natural running-down of older industries. Some more men will come out by that process, but on the other side I do not see how it is possible to have a situation where there will not be a sufficient demand for import substitution which will more than suck up the amount we shall lose on the other side.
I agree with my right hon. Friend the Prime Minister that we shall see a sharp drop in unemployment, certainly after the second quarter of next year. This is a policy markedly different from the policy we have had to date. It involves sacrifice, but it at least carries the benefit of using the spare resources of labour which in broadly human terms makes no sense to create in the first place. We shall now be able to use all our productive capacity both in men and resources.
This Government are not the only Government since the 2 dollar 80 cent rate was fixed which has looked at the prospect of devaluation. I think the Government should have devalued in April, but I know that the position must have been very difficult, as indeed it was in 1964. Although the arguments were clearer, the economy was over-heated at that time. In 1966 it was massively over-heated.
This is not the first Government that has looked at devaluation, although from the way in which hon. Members opposite talk one would never guess that the Conservative Government of 1951–55 very seriously considered it. The Conservative Cabinet—I am open to correction on this—discussed the possibility of putting the rate down to 2 dollars 40 cents, oddly enough, the rate which has now been selected. This matters when we consider the way in which hon. Members opposite have chosen to talk about this action. It is not so appallingly immoral that one

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cannot talk about it, and not such a breach of patriotism that a Tory Cabinet could not discuss it. Let us have less humbug about this.
We have now taken the decision and it is irrevocable. I know and hon. Members opposite know—this is why they adopt the, stance they do adopt—that this measure is absolutely crucial to my party, not simply in terms of the next Election, but for a generation. It is crucial for the radical forces in this country. The argument which hon. Members opposite enjoy using most and resort to most frequently is that radicals do not know how to run the economy. Of course to them this seems a magnificent justification for all that they have ever said.
But to me the policy that has been discarded was a policy of sacrifice without hope. This is a policy which involves sacrifice and a heavy price, but which gives us margin, which gives us hope, which uses our spare resources, which gives us an economic and financial strategy that is in line with the other Departments of the Government and in harmony with the long-term activities of the Government. It is in harmony with the ideological convictions of my colleagues and myself. I do not have the slightest doubt that it is a policy which will work and deserves to work.
5.55 p.m.
Mr. Selwyn Lloyd: I agree with the hon. Member for Birmingham, All Saints (Mr. Walden) that it is quite wrong to talk about these matters in emotional terms. I am not quite certain how emotional he himself was towards the end of his speech. I do not talk about this as a moral issue. The reason why it is unwise for a Government to talk about these things is that if it is known they are doing so it weakens sterling.
Having dealt with the speech of the hon. Member and emotion, I come to the Chancellor's decision. He is not present now, but to me this is a sad occasion, and I express personal sympathy with the Chancellor. I know something of the strain involved in a situation like this. The Chancellor is in a very lonely position and cannot talk much, even to his colleagues. His is a very exacting job. In the nature of things, he cannot talk to anyone much about a matter of this sort. I am very sorry indeed that
1190
his fight to preserve the 2·80 rate ended as it has.
I believe that the £ was not overvalued and the Government were right to make every endeavour to save the 2·80 rate. This is a defeat, not only for the Chancellor and for the Government, but for the country. Even now in this debate the choice has not been put in realistic terms. The choice was not either to support the 2·80 rate with more deflation and disagreeable things for all of us, or devaluation which would avoid that deflation and those disagreable consequences. We have got the devaluation, but if it is to be successful it means worse deflation and more disagreeable consequences. We still have a situation in which we have to make our living in the world.
I return to the Chancellor's speech of 24th July. I think he was absolutely sincere when he made it. That is why he must have a heavy heart today. He began by saying that devaluation is no way out, and said:
"It is a flight from reality"
He said:
"we reject the notion that our economic strategy should include a change in the exchange rate of the £."
He went on to say:
"The fundamental fact about devaluation as a deliberate act is that it consists in making the product of the labour of our people cheaper while making the product of foreign labour dearer. For every hour's working at home we command less of world resources."
He also said:
"Let there be no dodging about this. Those who advocate devaluation are calling for a reduction in the wage levels and the real wage standards of every member of the working class of this country. They are doing this, and the economists know it."
And later he said:
"If there were devaluation in this country, any effort on the part of the organised workers to counteract it by securing higher wages should be ruthlessly resisted."
He also said:
"This is a nostrum among economists who are quite clear-sighted and cold-hearted about its purpose. Unfortunately it has been picked up by a number of people who clamour for devaluation because they believe that it is a way of avoiding other harsh measures. They are deluding themselves. The logical purpose of devaluation is a reduction in the standard of life at home."

1191
He went on to talk about breaking faith with Governments and private citizens overseas. He used some wise closing words with which I almost wholly agree; and then ended
"Devaluation is not a way out of Britain's difficulties."
I believe that to be absolutely true. These passages in the Chancellor's speech should be read again and again. It contains the reasons why some of us have fought so hard against devaluation. It has not been through sympathy with the speculators or out of respect for the bankers in Zurich. It is because we knew the consequences it could have for the people of this country. In such a situation it is the poorest and the weakest who suffer most.
So much for the Chancellor's approach to these matters. What about the Prime Minister's? I thought that his approach on Sunday night was very different. He mentioned several times the deficit of 1964, three years ago. He did not mention that in 1964 our overseas investment went up by £350 million. He did not mention that our imports of industrial raw materials in the year increased by £385 million. He did not mention the fact that stocks in this country were in that year £590 million, £370 million more than the year before. He did not say that the value of our dollar portfolio investments between 1962 and 1964 rose by no less than £600 million. The Conservatives' failure to check expansion in 1964, whether it was right or wrong, was in accordance with the advice and lectures persistently given us by the Prime Minister and other occupants of the then Labour Opposition Front Bench.
The Prime Minister spoke in his broadcast about speculation against sterling—those bogey men the speculators. A businessman covering his forward commitments is not a speculator. That is prudence. I wonder how much speculators, in the true sense of the word, came into it, at any rate before that very odd performance on Thursday afternoon.
The Prime Minister went on to say this in his broadcast:
"The decision to devalue attacks our problem at the root."
If so, why was it not done before? The truth is that, if accompanied by measures
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of appropriate severity, it will not be disastrous. If it is not accompanied by measures of appropriate severity, it is as likely to tackle our problem at the roots as paying Danegelt was an economical defence policy.
The Prime Minister went on to say:
"It does not mean that the pound in your pocket or purse or in your bank has been devalued."
It is very difficult to think of a more misleading way of putting it. The Chancellor of the Exchequer, in the speech to which I have referred, said,
"The logical purpose of devaluation is a reduction in the standard of life at home."—[OFFICIAL REPORT, 24th July, 1967; Vol. 750, c. 99–101.]
Then came the soft sell in the Prime Minister's speech, to the effect that it will mean more jobs. Then there was some political dirt about council house rents, although it is the Government's policy, to quote the circular they issued to local authorities on 30th June, that
"subsidies should not be used wholly or even mainly to keep general rent levels low."
Nevertheless the Prime Minister had to bring that in as a piece of dirt. Then he said this:
"We are out on our own now."
Again, that is an utterly false picture to paint, because we have to sell £6,000 million worth of exports to the world in order to be solvent. We have to repay our debts.
Then there was all that talk about making it so easy to export. Here I rather agree with the hon. Member for Birmingham, All Saints. Those in the export business are in the position of having their imported raw materials 14 per cent. up; Bank Rate is at 8 per cent., even if they do get the credit; the 2½ per cent. export rebate has gone; the S.E.T. premium has been withdrawn if they are not in a development area; and there has been an increase in Profits Tax. After all that, they have to sell 14 per cent. more to stay where they are—in other words, between £800 million and £900 million worth of additional exports to stay where they are. Therefore, we must all have profound misgivings about the future.
Entering a little into what the hon. Member for All Saints hinted at, one thing which is becoming obvious even to

1193
supporters of the Government in the country is that a Labour Government are incapable of running Britain's economy. Between 1945 and 1951, an average of £400 million of loans and gifts were received each year. They left a deficit of £400 million behind them when they left office in 1951. Now we wonder what the figures will be for 1964 onwards.
The Prime Minister always used to accuse us of manipulating the economy with our eyes on the General Election. He said that he makes a close study of these matters. I bet he does. His behaviour between 1964 and March, 1966 showed a determination to win that Election whatever happened to the economy. So we can expect some manipulation and the attempt to create a little boom before he makes a dive for the country. Then there will be the propaganda.
The hon. Member for Ebbw Vale (Mr. Michael Foot) said this at the Labour Party Conference at Scarborough:
"When we get out of recession, the Prime Minister will hail it as the greatest economic miracle since the loaves and fishes."
We shall hear more of that—purposive, meaningful, technological revolutions, structural changes—almost all of them for the worse, incidentally.
The only structural difference the Prime Minister seemed once to understand comes from the swimming pool, that passage quoted in the Sunday Mirror, I think. The only thing he got right in his comments about what happened in July, 1961 was when he said that devaluation, to quote his words, was not a springboard but a slide. That, I think, is the whole problem. When the speech of the hon. Member for Birmingham, All Saints is analysed, it is quite clear that that is what he thinks may be the problem in three years' time. It may be sooner.
I was disappointed in the speech made by the President of the Board of Trade. In the debate on the Loyal Address, I asked the right hon. Gentleman some questions with regard to the position in the North-West. One of the misfortunes about this debate is that we have had to give up our debate on the problems of the North-West which was to have taken place tomorrow. I asked the right hon. Gentleman certain questions. The Leader of the House, in winding up, said that
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he would answer them if he had time. However, he did not answer them.
I put it to the President of the Board of Trade that this is yet another way in which those parts of the North-West which are not in development areas will be threatened. I think that many hon. Members opposite feel exactly the same. The whole problem is that there is much too wide a differential between the areas in Lancashire which are in development areas and the areas which are not. These measures will increase that differential. The S.E.T. premium is withdrawn from industries which are not in a development area. The President of the Board of Trade is reported to have said in Burnley on Friday that we are moving into a period of rapid expansion. That was how he gave some hope to the people in the north-east of Lancashire. It will be very interesting to hear how he proposes to get those areas moving again and to get new industry to go there with the present distinctions between them and development areas.
Mr. Joel Barnett: Is the right hon. and learned Gentleman suggesting that it is the policy of his right hon. and hon. Friends that areas like the grey areas should all be treated like development areas? Would he care to say what the effect of this would be on the country as a whole?
Mr. Selwyn Lloyd: I said in the debate on the Address that I hoped that the Hunt Committee would report soon. I said, speaking for myself, that I thought that the Government should take the immediate step of withdrawing the regional employment premium from some people who do not need it and using some of that money to help special areas like north-east Lancashire. The Vauxhall works in my constituency will get £¾ million a year out of the regional employment premium. Vauxhalls have done nothing, in my view, to merit this. They had inducements to go there. It is a waste of public money. I am quite willing to sacrifice that money and see it used to help areas like north-east Lancashire out of their present difficulties.
Having disposed of that, the question is: how do we break out of this situation? I think it is clear that hon. Members on both sides believe that there is

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not a short-term answer. In the longer term, I think that what we have got to do is to recreate the confidence of the wealth producers—the men and women who work overtime, the people who save either small sums or large sums, the people who try to build a small family business into a big business. Any fool can destroy wealth. It is comparatively easy to distribute it. We have death duties, Surtax, penal rates of taxation, and so on. The job is to create it.
I should like the Chancellor, even in this situation, to look again at the levels of direct taxation, not just at the top, but all along the line. I would like him to consider—this was referred to at Question Time today—the tax position of small family businesses and the close company rules. The Capital Gains Tax as it is framed at present—I am not arguing about the merits of the tax—is an encouragement to a man to run down his business or farm before transferring it either by sale or by gift. I do not think that the present system of encouragements to investment is right. I was always suspicious about it when I was told that it would cost the Treasury £100 million a year less. The old test of profitability, although I admit that there were some technical flaws in it, was much better than the present system of grants.
With regard to overseas investments, the restrictions in this situation should be looked at. The Chancellor of the Exchequer was good enough to come to open the London headquarters of Rank Xerox, a company with which I am connected, as he knows, and he described it as
"the most fantastically successful enterprise of this decade."
I thank the right hon. Gentleman very much for saying that. But under the present rules the original investment by the Rank Organisation which led to all this success would not have been allowed—the investment which has brought to this country one way or another tens of millions of pounds. We are being deprived of opportunities of sharing in the great wealth of Canada, Australia and, to a lesser extent, New Zealand. I hope that he will see that the expansion of our British companies overseas, on which we rely quite largely for our exports, is not hampered by these tax rules.
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I was talking to a Manchester ship-owner a few days ago and he said that in a certain period the ships of his line had carried shipments to Canada, 25 per cent. of which were for British companies in Canada. I do not think it is realised how the export trade is buttressed by what we have got overseas by way of companies and subsidiary companies.
Finally, I come to the question of productivity, a difficult matter. The Government will have a hard time indeed on the salaries and wages front. They must concentrate upon productivity deals. They may seem to mean unequal treatment, but unless this approach is adopted there will be another reduction in the standard of living like this one. It is in the interests of all that we should get a move on on the productivity front.
Devaluation has been described as similar to the process whereby a man seeks to recruit his flagging energies by two large Martini cocktails. There is a temporary exhilaration. One saw it on the benches opposite yesterday and today. But it will wear off and they will feel worse. This is defeat, and it will need a strength of purpose which I do not think the Government possess to prevent it being a disaster.
6.12 p.m.
Mr. Desmond Donnelly: The right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) said that this was a defeat. I absolutely agree with what he said on that point and, indeed, with some of the other points that he made earlier and on which I hope to comment.
In the year 1708 Mr. Secretary St. John, by a calculated Ministerial indiscretion, disclosed to this House that Britain had lost the battle of Almansa because there were only 8,000 British troops in Spain when this House had voted to ensure that there should be 29,000 there. When the Government, a month later, confirmed this news, the House was so shocked that it adjourned and sat in silence for half an hour, no Member caring to rise or comment on the situation. The defeat that we have suffered in this respect in our economic policy is infinitely worse than that minor engagement in Spain.
Mr. Eric S. Heffer: I suggest my hon. Friend the Member for

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Pembroke (Mr. Donnelly) sits silent for half an hour.
Mr. Donnelly: There is a great sense of unreality amongst some of my hon. Friends in assessing this situation.
It was Sir Winston Churchill who said that the value of recrimination about the past was that it enabled one to ensure effective action in the future. I want to say only a word about the past. It is that when the Prime Minister took the decision in October, 1964, not to devalue, a fateful decision was made. It was a brave one, if not necessarily a very wise one, as was subsequently proved. But by taking that decision we inevitably pegged our economic growth rate, and when we pegged our economic growth rate at that point it became inevitable that the social programmes on which we had been elected to this House in the 1964 election were not capable of being financed out of the then rate of expansion of the economy. It was at that point that the battle for the £ was lost.
If we had halted the simultaneous programme of expansion in the social services there would have been a very different situation. If we had taken a different course about sterling, there could have been a very different situation. But it was at that point that we began the chain of events that inevitably led to the happenings of this weekend.
The importance of that assessment of the situation is to ask ourselves whether we have yet learned that lesson, as my hon. Friend the Member for Birmingham, All Saints (Mr. Walden) said earlier. What is the situation with which we are confronted today? We have not been paying our way in the world. We are having to divert a large proportion of our resources from home consumption to export sales. In this situation our exports must come from either home consumption, or from Government spending, or from investment. There is no other way. It must come from one of those three things.
The grave danger is that the easiest course is to take our exports out of investment. It is easy to do that, in the same way as it is to eat the seed corn. Yet it is the most dangerous and damaging of all. It is possible in certain circumstances, if action is not taken, if there is
1198
not a governmental resolution to ensure that there is a curtailment of home demand, to have in a very short time a considerable expansion in the economic growth rate of this country. We can do it out of surplus capacity in the first instance. But the moment we have an extensive expansion—up to even 8 per cent., as we could have in a year, instead of the 3 per cent. or 4 per cent. in conditions of normal stability—we immediately find ourselves in a situation where wages and prices begin to take off once more and we are back again in this present situation.
What should we do? Let me begin by making observations about things that we should not do. Reference has been made by the right hon. Member for Devon, North (Mr. Thorpe), by the right hon. and learned Member for Wirral and others about the 42½ per cent. Corporation Tax, the S.E.T. rebate and the doing away with the export rebates. I know the reason for some of these, but the Corporation Tax seems to me to be the most indefensible of all. It is to take a swipe at industry in order to take a swipe at the workers. It is sadly irrelevant to the problem at hand.
Then we need much more confidence to encourage our industrial management. The changes in S.E.T. and in the export rebates, as has been pointed out, show how difficult it is for any responsible management in this country to continue to take its decisions with the fluctuating changes of Government policy.
Then there are the various items that we read in the newspapers from time to time about the proposed expansion of public ownership. I sadly recall saying in this House on other occasions that one of the surest ways to devaluation of the £ was to spend £582 million on the nationalisation of the steel industry. We did not spend all that in the end, but we had to print more money and that had an inflationary effect on the economy. It was totally irrelevant to the whole situation. It is even more so now. We are on the same wretched road again, pursuing policies such as planning for the National Hydrocarbon Corporation to take over North Sea gas or pursuing the policies of my right hon. Friend the Minister of Technology and nationalising the atomic energy industry.

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There are various other things that we should not do. One of these—and the most important—is that we should not create extra charges for industry. This national bandwagon will be pushed out of the mire only by giving the opportunity to the industrialists of the country to do it. The industrialists include the workers, because these charges are charges upon the workers as well, and upon their capacity to compete. The specific charge I have in mind is the proposal to increase the charges on road transport. This has very grave implications. If we pursue that sort of thing, we shall be back once more on the same road.
What should we do? First, in my judgment, we must develop a totally new pattern of labour relations. There are about 650 trade unions in Britain. We could do with about 16. If we put half the trade union officials in Britain in villas in the Caribbean for the rest of their lives, it would be cheap at the price. There is a subtle and difficult human problem in considering how to amalgamate the unions. We must be generous and reasonable, but it must be done. It is no good waiting for the recommendations of the Royal Commission on the Trade Unions and Employers' Associations. I have a poor opinion of that Royal Commission, anyway. We cannot wait. We shall be ruined.
We must have a totally new system governing labour relations so that both management and workers have confidence in the machinery for the redress of grievances, without resort to unofficial strikes.
Mr. Raphael Tuck: Does my hon. Friend envisage a return to the Trade Disputes Act of 1927?
Mr. Donnelly: No. Let my hon. Friend go abroad and study the achievements of the Socialist Governments of Scandinavia. The pattern is all there.
Mr. Paget: Is my hon. Friend aware that the Socialist trade unions in Scandinavia have more than three times our numbers per head of officials?
Mr. Donnelly: I am not at all sure about that. They are certainly far more efficient. There are situations which should never be possible in this country.
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To illustrate what I mean, I remember the occasion of a strike at the Ford factory, at Halewood. One of the delivery drivers was dismissed because of a motoring offence of which he had been convicted. He was dismissed pending an appeal in the courts. It should have been impossible for the Ford management to dismiss him pending the appeal. Equally, it should have been impossible for the workers to go on strike without proper recourse to the industrial courts to settle their dispute. Unless we are prepared to face the need to create machinery in which both sides have confidence for the redress of grievances which are there, again, the country will be ruined.
It is no good dodging the issue and saying that we must wait for the Royal Commission. We cannot wait. Only in this way shall be apply the order of the boot to the likes of Mr. Jack Dash and make them redundant. If ever there was a devaluation which could well be named after one man, this is Mr. Dash's devaluation.
There are other measures which we must undertake. We must look again at the whole tax structure. We must cease to penalise the front runners in industry. We should accept that there ought to be a maximum of a man's income payable in tax and that, beyond a certain point, he has the right to retain what he earns. For example, in Western Germany the maximum tax that any man pays on his income is 56 per cent.
There are other forms of taxation. The right hon. Gentleman the Member for 'Devon, North spoke about the added value tax. The sooner we get back to a situation in which people have their money, having the right to spend it or to save it, and in which we take money from the spending side of the arrangement, the sooner we shall get back to some form of reality and incentive in our industrial society.
We must have a far clearer look at the whole question of Government spending. Our national Welfare State bill at present runs at something over £6,500 million a year. At the present rate of progress, and at current prices, it will be about £8,000 million in the early 1980s. It is not possible to sustain this out of further taxation. How are the

1201
problems to be met? In certain sections, the Welfare State is extremely bad. There is only one practical way, and that is by resort to a method of selectivity—from each according to his ability and to each according to his needs. That was not a bad Socialist principle.
Mrs. Lena Jeger: My hon. Friend is now contradicting himself. A few moments ago, he seemed to disapprove of a system of Income Tax which does relate contributions to means.
Mr. Donnelly: I was not saying that at all. What I said earlier was that I disapproved of a system of Income Tax which, at the top end of the scale, destroyed all initiative. That is quite different.
We must get back to the principle of selectivity, because this is the only way by which we shall provide the social services needed by the poorer people. [HON. MEMBERS: "Oh."] If some of my hon. Friends are not prepared to see the inevitability of the truth that one cannot get more resources from taxation under the present system, they must appreciate that the consequence of what they say is that they will never be able to provide better social services.
The plans are already there. They are in the Cabinet files, prepared by my right hon. Friend the Member for Sowerby (Mr. Houghton) before he found himself in the street. Many of the plans are for the sort of thing which was supported by my right hon. Friend the Member for Lanarkshire, North (Miss Herbison), the previous Minister of Social Security. Only if we are prepared to break the cycle of the mounting costs of the Welfare State and provide the means to meet the needs of the poorer sections of the community by a method of selectivity shall we ever be able to get out of our difficulty.
I began by saying that I sensed that there was an air of unreality in some of the remarks made by my hon. Friends. In my view, there is a wide gulf between their hopes, their aspirations and their prejudices and the realities of the situation. If this democratic institution is to survive, if the House of Commons is to express the views of the working class, and if this party is to express its views, it is essential t hat there be a much closer rela-
1202
tionship between my hon. Friend's views and theirs. If they doubt what I am saying, let them look at the by-election results. [HON. MEMBERS: "Hear, hear."] Many of my hon. Friends do not represent anyone at all. It is all a charade.
Mr. J. J. Mendelson: Go and sit over there.
Mr. Donnelly: I am not making my speech from over there—
Mr. Speaker: Order. It will help if the hon. Gentleman addresses the Chair.
Mr. Donnelly: I am not making my speech from those benches, because I was a member of this party a long time before my hon. Friend, the Member for Penistone (Mr. Mendelson) and I shall be a member of it after him.
Mr. Mendelson: Will my hon. Friend give way? [HON. MEMBERS: "Hear, hear."] What has it got to do with you Tories?
Mr. Speaker: Order. We are getting a little too familiar.
Mr. Mendelson: I was not addressing you, Mr. Speaker, and I apologise at once. I made my interjection because, after the cheers coming from the Tories, I thought that my hon. Friend might be more comfortable to have the cheers around him, particularly if he wishes to urge selectivity in the social services, pushing that idea on us. What my hon. Friend says is no different from what the Leader of the Opposition put to the Tory conference a few weeks ago.
Mr. Donnelly: I wrote it long ago. There is no copyright in good ideas.
I conclude in this way. I believe that this country can be pushed out of the morass in which it now is, and that it will be pushed out of it provided that we have leadership which is associated with those two old-fashioned characteristics, courage and integrity.
6.30 p.m.
Mr. Sandys: We have listened to a very courageous speech by the hon. Member for Pembroke (Mr. Donnelly). I very much hope that the good sense he has spoken will make some impression on his hon. Friends.
The devaluation of the £ is a grim and humiliating event. Nobody will criticise

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the Government for the decision they took last Saturday. Having allowed the ship to drift on to the rocks, they had no option but to take to the boats. What is so objectionable is the way in which they are now congratulating themselves on what they have done.
In his highly disingenuous broadcast, the Prime Minister told us that we are a proud nation. If we are, it is certainly not thanks to him. Does he expect us to be proud that our Government have betrayed the trust of those who relied on his assurances and kept their reserves in sterling? Who is the right hon. Gentleman to talk about pride? The only pride he knows is false pride. He is too proud ever to admit that he could be wrong. He told us, as my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) pointed out, that everyone was to blame except himself—the previous Tory Government, the Arabs and the Jews in the Middle East, the dockers, and, of course, the bankers. He has looked around for every scapegoat he could find.
It is noticeable that the right hon. Gentleman has made no attempt to take upon himself any of the criticism which has been unfairly concentrated on the Chancellor of the Exchequer. This is not the failure of one Minister. It is the failure of the whole Government, for which the Prime Minister, above all others, must accept responsibility.
In making his difficult decision, the Chancellor of the Exchequer will, I am sure, be guided by what is in the best interests of the country. There are rumours that he might be replaced by the Foreign Secretary. That is certainly a sobering thought.
Mr. Mendelson: Who are the people who give the right hon. Gentleman these rumours?
Mr. Sandys: When the Prime Minister spoke with emotion about the great break-through and the dazzling new opportunities, one would have thought that he was announcing a glorious victory and not an ignominious defeat, that he was proclaiming the achievement of a noble objective for which the Government had been striving, instead of the total collapse of their whole economic policy. The Prime Minister talked about escaping from a straitjacket. He can speak
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as an expert. There is no promise, however solemn, no pledge, however categorical, from which he fails to extricate himself. Houdini would have had nothing to teach him. The right hon. Gentleman is the greatest political escapologist of all time.
Not only did the Prime Minister repeatedly promise to uphold the strength of the £, but he told us that devaluation would do nothing but harm and provide no solution to our economic problems. Now that the Government have been compelled to adopt the policy they so recently condemned, they tell us that it will be the answer to all our prayers.
Devaluation by itself will only win us a breathing space. We must use it to do something more than just breathing. In his broadcast, the Prime Minister said that the Government would now be able to attack the root of the problem. They should, of course, have been doing that all along. It remains to be seen whether now at last they will face up to the needs of the situation.
One of the main causes of our trouble is overspending by the Government, which diverts an undue proportion of our resources away from the productive industries. The cuts proposed are not nearly big enough. They should certainly have included the introduction of what is called "selectivity" in the financing of the social services and, in particular, the reintroduction of prescription charges.
There is also the question of economic growth. People must be given much more positive encouragement to put all they have into the job of increasing output; and that means removing the disincentives of over-taxation. Immediate action must also be taken to prevent the country being held to ransom by a small minority of industrial saboteurs. Legislation is urgently needed to restore authority and responsibility to the trade unions, and to put a stop to the legalised intimidation of those who want to work.
But that is not all. There is one other essential requirement about which little has been said. If the Government are to achieve the economic upsurge which they expect, they will have to secure the whole-hearted co-operation of the British people in rebuilding our shattered economy. We need a united national effort and a new sense of national

1205
purpose. In times of crisis our people have always responded to leadership—the leadership of men whom they respect. Our present Prime Minister must recognise that he can never again hope to lead and inspire this nation. Discredited and distrusted at home and abroad, he no longer possesses the moral authority to call on others for sacrifice.
For three years the British people have been asked to endure the wage freeze, increased taxation, credit restrictions and unemployment, with the specific objective of avoiding devaluation. Now they are told that all this has been for nothing; and they are asked to accept further hardships in order to make a success of the very thing which their former sacrifices were intended to prevent.
The man who misled them before cannot make the same appeal again. By an endless succession of dishonoured promises and the total reversal of almost every major policy on which his party was elected, the right hon. Gentleman has lost the confidence of the nation. He has forfeited his mandate to govern. If he has any regard for democratic principles and constitutional propriety, he will hold an immediate General Election so that the people may choose a new Government whom they can trust.
6.39 p.m.
Mr. Austen Albu: I am sure that my right hon. Friend the Prime Minister will be quite capable of defending himself against the accusations of the right hon. Member for Streatham (Mr. Sandys). I cannot say that the right hon. Gentleman added very much to our knowledge of Conservative Party policy on the matter which we are debating. He demanded cuts in Government expenditure, which comes strangely from the right hon. Gentleman, who would have had us go on pouring out our money in Aden and other parts of the Middle East. Perhaps on another occasion he will assist the House by telling us where he thinks the cuts in Government expenditure should be made, particularly to counter-balance the expenditure he would maintain overseas.
Mr. Sandys: If our arrangements had gone on, we should have been making British aeroplanes, instead of spending a vast number of dollars on American aircraft of questionable quality.
Mr. Albu: The right hon. Gentleman knows perfectly well that the cost of the British aircraft was rocketing. They would have cost the economy a completely unknown sum. But we are buying aircraft at, at any rate, fixed prices. The right hon. Gentleman referred to our "shattered" economy. That is typical of much of the economic discussions in this country, particularly at a time when the value of the £ is under discussion.
I have had grave doubts about the way the economy has been going since the end of the war and, at least, for the last 18 months I have been in favour of the policy of devaluation. But we must not start to discuss these matters as matters of great drama. One cannot describe as "shattered" an economy which is doing about £14,000 million of trade a year, taking both sides of the account. It is nonsense. We have always been, and we remain, one of the largest trading nations of the world. What we have been struggling to do since the war is to transfer a miserable few hundred million pounds from one side of the account to the other. The Conservative Party failed to do it. It is true that so far we have also failed to do it.
The manner of the discussion which takes place about the exchange rate is the most frightful nonsense. One might think that we were fighting a gallant battle in defence of a maiden's honour and that we had now lost it. But in fact it is a simple act of economic policy. I remember that in November, 1964, and in 1965 many Conservative Members of Parliament asked, "Why did you not devalue at once and blame it all on us?"
Mr. Iain Macleod: Name them.
Mr. Albu: The right hon. Gentleman knows who they were. I am certain that if the Conservative Party came into power tomorrow they would have devalued at once and blamed it on us.
I would point out that the right hon. Member for Barnet (Mr. Maudling) has on more than one occasion referred to the fact that his mind was moving in the direction of a floating rate. So there should be no more of this melodramatic form of discussion.
No one can put his hand on his heart and say that this decision or any other decision of economic policy will solve all our problems. The science of economics

1207
has not yet reached that state of perfection.
One can have doubts about the level to which the rate of exchange has been lowered. Nevertheless, I think that probably when every account has been taken of all the other changes there will be an advantage in our export prices of between 5 and 9 per cent. As for imports, the change will be very much more effective. This should lead to a very substantial improvement in the import-export balance.
None of us who have advocated devaluation has ever pretended that it was a soft option. But the argument used in this House—and, I am afraid, used by the Chancellor in his speech on 24th July—that only devaluation must lead to a reduction in the standard of living, is nonsense. If the country has been spending more than it has been earning any policy would have to reduce the standard of living or have its effect on employment. The policy of deflation, of more deflation without a reflation through exports, which this policy is intended to achieve, would have led to very much more and severer unemployment.
For those who say that the policy of devaluation is a policy of buying time, I would say that of all the policies which could be adopted it is the least true of this one. The policy of the right hon. Member for Barnet of trying to burst through while borrowing vast sums abroad did not work because the changes in the import-export balance did not improve sufficiently to eradicate the deficit. That was a policy of buying time. The policy that some of my hon. Friends have advocated, that of compulsorily acquiring our overseas investments, would have the same effect. It is, in effect, the same policy, although instead of borrowing abroad one pinches the overseas investments. It is a "borrowing time" policy. I believe that it is the same with import controls, which, as the President of the Board of Trade, in his admirable speech, said would not stick, could not be held for ever and would make British industry less competitive.
The real question is whether we can or cannot keep our level of inflation down to that of our competitors. That
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is what matters. If we can keep it in line with that of our competitors—not keep it down completely, which is impossible in any industrial country today—the costs of our competitors are rising also—devaluation will stick. It is then once for all and the advantage is permanent. So the argument that devaluation is only a way of buying time is completely untrue. There is no reason why over the years ahead this advantage should be whittled away unless our costs rise faster than those of our competitors. The Government's problem is to ensure that they do not.
Some people believe—I know that the Chancellor believes it very strongly—that the problem would be solved if we could in some way increase world liquidity—find a new reserve system. I do not doubt that this is an extremely important problem and that there are serious dangers of holding back the growth of world trade because of inadequate liquidity. But, however important the problem is for world trade as a whole, it will not solve the problem of basic imbalance between the rates of exchange of one country and of another—in this case our rate of exchange compared with the rates of exchange of our competitors.
Looking at what has been happening during recent years, we see that our share of world trade has been falling, which must indicate that there has been an imbalance. It has been going on for a long time, since before the war. This makes it clear that there was an over-pricing of our exports and an under-pricing of our imports. If, among the international arrangements, many of which are so admirable for supporting nations' currencies, there was an international agreement to help correct imbalances in the rates of exchange between countries in order to help the deficit countries, the problem would be different.
If countries with very large annual surpluses and large liquid reserves had the responsibility to inflate, and possibly revalue their currencies, countries in deficit would not be forced to take action on their own. For instance, if Germany, which is in this position and has been over the last few years, were to do it, and other countries as well, perhaps we should not have required to devalue our currency. But as there is no such responsibility on other countries, and there are

1209
no international arrangements for adjusting rates of exchange, countries like Britain, with chronic deficits, must take their own steps.
I believe that the Chancellor made the task of holding inflation rather harder by his speech in July, when I think he exaggerated the effects on prices and on working-class standards. The effect on prices should be moderate, and the full effect will take several months to come into being. It is important that this should be understood. I entirely agree that a rapid rise in wages or prices, perhaps anticipating a comparable rise in the prices of foodstuffs and domestic materials and so on, would be extremely harmful
Mr. W. R. Rees-Davies: The hon. Gentleman says that the effect of prices will be moderate. Does he recollect that when devaluation worked through the economy in 1950 and 1951 we had a rise in prices in one year, 1951, of 3s. in the £? That was certainly not wholly the effect of the Korean War. It was due largely to devaluation.
Mr. Albu: The hon. Gentleman is wrong. What happened was a most violent change in the terms of trade so that the cost of our imports went up enormously, almost entirely due to the boom created by the Korean War. Thank goodness, we are not in that situation today. This is a completely different situation. There is no reason why there should be more than a moderate rise in prices over a very long period.
As several hon. Members have said, on this side at least—it is extraordinary how reluctant hon. Members opposite are to admit the fact—the operation has been carried out remarkably successfully if one considers what has not happened to other exchange rates and the acceptance of the situation by the central bankers throughout the world. So far, there has been no chain reaction and there is not likely to be. No doubt this is because the devaluation has been moderate. Nevertheless, it must also owe a great deal to the collaboration between the central banks and the care taken by the Government and the Bank of England in mounting the operation.
But industry at home is still doubtful. I hope that it will seize the opportunity
1210
it now has in the export markets or in import substitution. But the Government have to regain the confidence of industry, which has undoubtedly been lost over the last few years. I believe that to increase Corporation Tax by 2½ per cent. is a mistake. It will have no effect on the current attitude of the unions and will only irritate industry. I do not believe that vast profits will be made, except by a very small number of firms, out of devaluation. Some firms will make some profits where they were making very little. Other firms will be able to reduce their prices, and if they are able to operate at higher capacity in order to sell more overseas, their profits will still increase. Over the last year or so these profits have not been very high, anyway. There is no great advantage in increasing Corporation Tax by 2½ per cent. It takes away some of the incentive to invest and advocates of devaluation have always hoped that an export-led boom would follow which would also lead to investment because of the demand created.
I think, also, that Ministers should stop making naive speeches about what they are going to do by intervening in industry. I personally am an interventionist, but I believe in intervening for concrete and useful purposes. I believe that vague statements of general intention supported by no concrete proposals raise the expectations of the Left wing of our party and anxieties in industry, neither of which are justified. This is not the smack of firm government, but a sort of industrial slap and tickle which excites and irritates but satisfies no one.
However, I believe that the change in policy the Government have now made, and which so many of us hoped for for so long, provides hope where little existed before and can, therefore, provide confidence for both sides of industry who can now see a future which, before, they could not. Provided that the Government use the new policy to regain the confidence of both sides of industry, the change will enable us at last to get that economic growth on which, in the end, everything else depends.
6.53 p.m.
Mr. Hugh Fraser: Many of us will find ourselves in some accord with some of the more academic

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aspects of the speech of the hon. Member for Edmonton (Mr. Albu). I remember that only last July the hon. and learned Member for Northampton (Mr. Paget) and I raised the then forbidden word "devaluation" in the House. It is nice to see that the Government have been converted, but I must say that today they look not so much like converts but escaped convicts. Undoubtedly, they suddenly changed their minds on the issue.
To the hon. Member for Edmonton, I would say that the academic aspects of the devaluation debate are now water under the bridge. The main problem, rightly set out in a leader in The Times the other day, is the political problem which ensues from devaluation. I am sure that hon. Members, whether they have been of the hon. Gentleman's view or whether they are new converts to the glories of devaluation, must realise that the key matter before the Government, this House and the country is to see that the new exchange rate is maintained. Frankly, I think that this will not be an easy task, and the fact should be faced. There is a danger, in my view, that the rate of devaluation may well prove too low.
First, devaluation to the new rate does not imprison those who have money here—and I am talking here of ruthless fact. There is always the danger of a "better 'ole" where the develauation has only been 13 or 14 per cent.
Secondly, there is the danger that the new advantage for exports has already been diminished to a large extent, as the hon. Gentleman pointed out, by the S.E.T. disadvantage now imposed, by the extremely high rates of interest and by the disappearance of the export rebate. Thus, to the exporter, the true advantage he gains is not 14·3 per cent. but much nearer 9 per cent. overall. Various countries are not devaluing, contrary to what they did in 1949 and 1931. This means, for example, in the wool trade, that the cost to exporters of woollen goods will rise. They will pay for their raw materials an increase of 14·3 per cent., while losing the export rebate and the S.E.T. advantage.
Mr. Crosland: I want to take up this point of the effect of the withdrawal of the export rebate and the S.E.T. pre-
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mium in some cases. Our calculations do not suggest that this will reduce the price advantages of devaluation by anything like the amount the right hon. Gentleman suggests—namely, from 14·3 per cent. to 9 per cent. I will, if it is convenient to the House, try and get for the Government's reply tonight a more precise figure. The true figure is much nearer a reduction of 2 to 3 per cent. than the 5 per cent. the right hon. Gentleman suggests.
Mr. Fraser: It would be useful if we did know precisely when the rebate is to end. We would certainly welcome a full statement tonight. We also have to take into consideration the increase in Corporation Tax in this context. I still stick to my belief that the actual advantage to exporters is nearer 10 per cent. than 14 per cent.
In considering the timing of this exercise, the problem now is to try to swing a consumer-directed boom into an export-led boom. To think that this will be easy is the height of folly. To use one of the Chancellor's nautical expressions, the ship is being told to go fast astern and hard-a-starboard, which will lead to much creaking in the engine room and to the shaking of the passengers amidships. The timing of this exercise therefore undoubtedly creates dangerous inflationary pressures.
If this step had been taken in April, or when we last discussed this subject, we would have been in a much easier position for what have been called the complicated negotiations with other countries. It is quite clear that there was not a loan and, because there was not a loan, there were no strings; but what is also clear now is that the bankers, especially the United States and the countries of other vital international currencies, were not prepared to accept rate of devaluation higher than 14·3 per cent. If the Government had acted with more perspicacity when they determined on this course, they could have moved in a more powerful direction. What is more, they would have had the chance of having a floating rate for the £, for which there was an overwhelming argument, rather than the fixed rate which we are now to have.
I have said enough about the difficulties which the country will face in maintaining the rate at 2·40 dollars, and there

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are many more, but the key problem, as I have said, is not the economic niceties of the matter, but the political will to force this exercise through and to keep it up. It is here that I have grave doubts about the Government Front Bench. I have grave doubts about their technical ability. I shall not belabour the Chancellor of the Exchequer again about why from Thursday onwards he allowed the central bank in this country to support sterling forward. That is technically a total mystery, but it must have cost the country literally scores, if not hundreds, of millions of pounds which cannot be recovered—we shall be buying back pounds at 23s. and one can not make money out of that.
But I am concerned not with the Government's technical skill, but with the attitude of easy optimism and lack of judgment which the Prime Minister has displayed over the last three years. That is what alarms me. If the Government continue as before, always saying that all will be well and headed by a Prime Minister who, on television, can say that the Government will stop prices from rising, then devaluation cannot possibly work. The only way in which devaluation can be effective is to make full and free use of the market mechanism. This is a market solution and we have to face it, and if the market is interfered with, if there is this slap and tickle with industry to which the hon. Member for Edmonton referred, directions to industry and bossing about with industry and an attempt to stop prices rising, then I am certain that this exercise will fail.
It is in the interests not just of the Government but of the whole country that the exercise should succeed. Devaluation rates cannot be changed and once a standard has been fixed, we have to stick to it for the next 20 or 30 years. This means that the Government must seriously consider the whole of their programme and make changes in it. That is hard enough for any Government to do. They will not just have to make the cuts of the "Healey hundreds", but a real cut in Government expenditure, not only abroad, but at home.
One parameter of the problem is that over the last year we have lost a vast sum of money in the foreign exchanges. It will now be sucked back by high in-
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terest rates, but it will be hot money and we do not want hot money to swell municipal expenditure and other things which we cannot afford. Another parameter is the fact that the forward position of the balance of payments had these new steps not been taken would have been running next year at a deficit of about £300 million. I hope that the Foreign Secretary will confirm that figure this evening.
I therefore say to the Government, without much respect but with absolute certainty, that unless there is a change in policy, unless the Government do some of the things suggested by the hon. Member for Pembroke (Mr. Donnelly) and some of the things which we have suggested, unless, over the next year or 18 months, there is a cut of Government expenditure at home of more than £1,000 million, then this exercise will fail.
This is a matter of erosion. Having decided on devaluation, the time factor is not on our side. It is not on our side because of this small devaluation factor, because it will take a long time to get exports moving and because these effects could be destroyed in a short time by inflation.
We have no faith in the man who leads the present Government. I hope that the Chancellor, for whom I have respect, will tell him of the story which comes from South America—and the Chancellor has only just returned from Rio: "When you have a Government which is in financial troubles—es major an ladron que en boofo"—it is better to have a thief in charge than a buffoon.
7.7 p.m.
Mr. Eric S. Heffer: I am sure that I shall not be expected to comment too much on what the right hon. Member for Stafford and Stone (Mr. Hugh Fraser) has been saying. He said that he supported devaluation and spoke of my right hon. Friends as a bunch of convicts who had apparently just been converted to the idea. His own efforts of conversion of his own Front Bench have not been particularly successful, to judge by the fury which his right hon. Friends have shown this afternoon in their opposition to the Government's decision to devalue the £. If, for some time, we have been marching towards a precipice

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and the enemy has been cheering us on, there must have been something basically wrong with the policy which we have been pursuing.
During the last 18 months, despite the voices from these benches and elsewhere, my party has been marching steadily towards the precipice. At the last hour, thank heavens, it has stopped short. We are now about to reverse from the precipice and carry through the policies upon which we were elected. Of course, there will be exceedingly great difficulties, as everyone understands. We know that in the immediate future there will be a slight rise in unemployment. I am not happy about that and over the last 15 months I have spoken strongly and vigorously against any increase in unemployment. But if the choice was between accepting a loan with all sorts of conditions which would have meant a continuation of, and perhaps extra, savage deflationary measures and devaluation, then I am in favour of devaluation. This was the choice presented to us.
We know that when loans are discussed the international bankers do not come forward with a series of strings attached to them, but suggestions are made that perhaps we should hold back on our social services, that perhaps we should not build quite as many houses as we did in the last period, and so on. We in the Labour Party are not prepared to accept that position. I fully support the Government in their action. It was a bold and courageous action, and if I have any criticism of it at all it is that it ought to have come a bit earlier than it did. That is the only criticism that I would make.
Mr. Peter Emerys: While he is propounding his arguments about the alternative between devaluation and a loan, may I remind the hon. Member that the Minister stated at the Dispatch Box this afternoon that no alternative loan was offered and, therefore, the question of an alternative does not arise?
Mr. Heffer: I listened very carefully to what my right hon. Friend said, and it was quite clear that we were faced with certain alternatives. The Government refused to accept one of those, and they were right to refuse to accept a loan which could have had unacceptable strings.
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The other reason why I am delighted with the decision to devalue is this. When I first entered the House of Commons I went to a meeting of my Parliamentary Economic Committee. We were discussing the economic problems at that time. I was rather naive, and I said, "Why don't we devalue?" It was like speaking in church. There was a deathly, horrible, silence and I walked out of that meeting feeling a bit of a criminal for actually raising the matter, because I was told, "One does not talk about such things."
Of course, I did not know then that everything said in private meetings here gets into the Press the next day. I understand now, but I did not then. We have now reached the position where the £ is no longer a sacred cow. The interests of our people are being placed before the sacred cow of maintaining the £. If devaluing the £ will mean no increase in unemployment in Liverpool, Merseyside and other areas, then I am with the Government all the way.
I accept that one of the difficult problems is the point made by my right hon. Friend on the Front Bench, about the danger of the advantages of devaluation being frittered away by prices and wage increases. I am delighted that my right hon. Friends have made it clear that no further wage restraint legislation will be introduced.
I have five points that I want to put to my right hon. Friend, which could deal with the prices and wages problem. I am quite certain that they will not commend themselves to hon. Gentlemen opposite, so I ask them not to interrupt while I am giving them. We cannot do what was done in France when the Government, by decree, were able to freeze all prices. There has to be a certain amount of price increase; one understands this.
First, I suggest that we introduce, throughout the country, price control officers, attached to every local authority in the same way as rent officers are attached to local authorities, so that if retailers are tempted to put an additional 1d. on to the increased price which the manufacturer is legitimately charging, the local housewife can refer the matter to him. [Interruption.] I do not expect hon. Gentlemen opposite to accept or to understand this, but if we

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are to make a success of this devaluation, and obtain the support of the trade unions, then the workers in industry have to see that this is operating fairly and that there is a move being made by my party to make certain that there are no unnecessary and unjustified price increases.
I also believe that every manufacturer who wishes to put forward a price increase must justify that increase before the Prices and Incomes Board before it can be made. My third point is that there should be no percentage increases in dividends, unless it can be proved that there has been a genuine investment in new machinery and modernisation.
Fourthly, there should be a minimum wage to meet the needs of those workers who are receiving well below what is necessary for them and their families to live. If we do this, we will find that the trade unions and the workers will be much more prepared to accept the voluntary wage vetting system which the T.U.C. is now operating. It is important that my hon. Friends should not ignore this and say that it is nothing but another gimmick and cannot work. The success of our policy is very much dependent upon the workers being absolutely convinced that the operation of this will be fair to all sections of the community.
Mr. J. Bruce-Gardyne Mr. J. Bruce-Gardyne (South Angus) rose—
Mr. Heffer: For some reason or other, whenever I speak in the House hon. Members want to get up and ask me questions about the points that I am making. I appeal to them, on this occasion, to let me finish my speech very quickly, so that other hon. Members may speak, too.
I am an interventionist in industry. I do not mean that we should interfere with the capitalist employers. I would prefer the Government to set up their own industries. My hon. Friend the Member for Pembroke (Mr. Donnelly) referred to the whole House sitting down for half an hour in silence. If he had done the same at that particular moment the House would have been delighted—this side of the House, anyway, but not the other side. Hon. Members opposite were delighted with his points.
We should see an extension of new forms—I emphasise "new form"—of
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publicly-owned industries, particularly in the under-developed areas. I cannot see any reason why the Government should not channel new industries into Merseyside, Scotland, Wales and all the other areas in which there is the problem of a sustained level of unemployment much higher than is necessary and healthy for the economy. Having taken the first step in a bit of revolutionary thinking on economic matters, the second step would be a little easier and the third step would be easier than that.
This is a road on which I am delighted we have begun to travel. I shall ensure that my voice, together with that of most of my hon. Friends, is constantly raised so that we keep on moving along this road. If we pursue this policy, not only will we win the next General Election, because the people will understand that we are implementing the policies on which we were elected, but we shall ensure that the country is transformed, and we shall build a Socialist society and Britain will be economically and politically strong for all time to come.
7.21 p.m.
Sir Henry d'Avigdor-Goldsmid: I hope that the hon. Member for Liverpool, Walton (Mr. Heffer) will acquit me of discourtesy if I do not take up all the stimulating points which he made and with nearly all of which I totally disagree. I bear in mind your suggestion, Mr. Speaker, about the number of hon. Members who wish to speak. Therefore, I intend to be very brief.
Earlier, I intervened in the argument between my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) and the Government Front Bench about the events of last Friday. I do not want to say more about that regrettable day other than that tragedies are not well organised; and it was a day of tragedy. I was, however, upset by the Chancellor of the Exchequer delighting in the tribute to his skill expressed in the views of gentlemen abroad whose institutions have undoubtedly profited by that day of tragedy. This is not an unsolicited testimonial.
Yesterday, the hon. Member for Willesden, West (Mr. Pavitt) referred to the
"ill-gotten gains of British speculators who have been gambling on the £ in the last few months."—[OFFICIAL REPORT, 20th November, 1967; Vol. 754, c. 949.]

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Last Friday morning, the discount market, as is its duty, tendered for and was allotted no less than £180 million worth of Treasury bills on the basis of a Bank Rate of 6½ per cent. At the time they were allotted, the monetary authorities knew very well that Bank Rate would be 8 per cent. by the time they came to pay for them. Therefore, as the President of the Board of Trade will appreciate, they suffered a loss of 1½ per cent. on £180 million for three months, which is roughly £1 million. I wish to make that point so that what I may call the ill-informed remarks of the hon. Member for Willesden, West do not go entirely unchallenged.
During the debate, I have been a little shocked by the gusto with which this decision, which was forced on the Government—it was not voluntary, and nothing will persuade me that it was—has been received. The best analogy which I can give is this. If one's friend has the misfortune to fall into a muddy pond, he naturally deserves one's sympathy. If he says, "I will be dry in a minute", one admires his optimism. But if he says, "It is a perfectly clean pond", then I think that his sense of cleanliness is a little deficient. This is the impression which I have had during the debate—that those who welcome this enforced devaluation are, in moral and financial terms, a little deficient in their sense of cleanliness.
Devaluation has solved certain problems. The first problem which it has solved completely is that of the reserve currency. This is something which need no longer worry right hon. Members on the Treasury Bench, because sterling is no longer a reserve currency. People who deposited sterling here and who have suffered as a result of devaluation will seek to get it away as soon as they conveniently can.
Sterling lost its status as a reserve currency two or three years ago, when we started making restrictions on the investment of British funds in sterling area countries, particularly Australia. When restrictions were placed on investment in Australia, the Australians had to look for other sources of supply, which they found in the United States. The weaker members of the sterling club have stayed in it, but the stronger members from whom we benefited have left. The fact that they have not followed us by de-
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valuing is a clear example of how independent of us they are, particularly South Africa, which, as a gold-producing country, would have every reason to devalue or would be under pressure to devalue but has not done so. All this suggests to me that sterling is no longer a reserve currency and that we need not have that worry any more.
One cannot help but be affected by one's upbringing. I spent some of the formative years of my life between the wars in the City at a time of continuous currency devaluation. I saw it happen in this country. I saw it happen to the United State's dollar. I saw it happen particularly to the French franc. These are experiences which I have lived with at close quarters and which I cannot dissociate from my mind.
The French devaluations were a series. Originally the franc was defended with great vigour. Then they got the habit of devaluation. Some of the considerations which prompted the remarks of the hon. Member for Walton were uppermost in the minds of French politicians at the time. They found devaluation a very easy way out of their immediate troubles, and they resorted to it year after year. The net result was that, whereas in 1931, 1,000 francs cost £14, by last week 1,000 francs, or 10 new francs, were worth 14s. There was a 95 per cent. devaluation in terms of sterling which is not a strong currency.
This is very much the danger which we are in at the moment. My right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) made a valid point when he said that we should forget about the past and that the question is whether we can defend the current rate. As I am in the happy position of not having any responsibility whatsoever for policy, I propose to make a few suggestions about how it can be defended. It can be defended primarily by a change of thinking on the Government Front Bench. I shall give them a few hints about a change of feeling.
The first thing which I put to them is that they should defer the raising of the school-leaving age. [HON. MEMBERS: "Shame."] That meets with cries of "Shame", but it is something which I am willing to advocate. Everyone knows of the cost involved in that great education programme. I have no responsibility for

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it, but I suggest that at this moment a deferment of the raising of the school-leaving age would be one of the best ways of meeting some of the expense to which devaluation has put us.
I do not set out to be an agricultural expert—
Mr. Mendelson: Nor educational.
Sir H. d'Avigdor-Goldsmid: We can argue about that later—but I see no sign whatever around the Ministry of Agriculture that it has any ideas about the import saving that could be done by increased food production.
I am told on every side, for example, that there is likely to be a surplus of barley in 1968. A surplus of barley in this country is of no help to us. As most of it has not yet been sown, it would be very simple to increase the guaranteed price of wheat so that farmers were induced instead to sow wheat, which would be consumed in this country. I have no doubt that such a suggestion could be shot down, but it is something which should be considered. We have heard of nothing like this in the debate, although we are told that we are to have a £200 million saving of imports as a result of increased food production.
My next suggestion will not be very popular. In present conditions, when we are fighting for our lives industrially, what good is our great regional policy? My constituency in the West Midlands is an active producer, but if any of my constituents or their neighbours wish to increase their productive power they are ordered not to do so; they are not granted an industrial development certificate. Instead, they are invited, at considerable expense to the taxpayer, to transfer their activities elsewhere, to somewhat less convenient, less economic and more expensive. Not only that, but they probably have to transfer their activity to a place where they do not have access to all the accessories which they require. That is a policy which needs to be looked at again.
I suggest to the President of the Board of Trade that next time his enthusiastic office turns down an application for an industrial development certificate, he should carefully examine the reasons for doing so. At a time when an increase in useful production for export or in import
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saving is so valuable, slightly more consideration should be given to manufacturers who want to do these things by expanding their own works instead of being sent miles away.
There is another point on which I should like to speak to the President of the Board of Trade. I think that there should be an overhaul of the credit arrangements for our exports. All the people living abroad who have bought our goods on deferred payment terms are now enjoying an uncovenanted 15 per cent. benefit. Unless they have much more confidence in the new parity of the £ sterling than they ever had in the last one, they will be in a hurry to seek to enjoy the same benefits in the case of a future devaluation, which would certainly be on the books if the policy advocated by the hon. Member for Walton were adopted by the Government.
People abroad will be seeking to increase their purchases from this country, but not for cash. I believe that we should consider to what extent the people who will be queueing up for our goods because they will be cheap are prepared to pay cash for them and that if they are not prepared to pay cash we should be extremely discriminatory in the people to whom we grant credit. I offer that thought to the Government Front Bench. We have got to the position that, like the Red Queen in Alice in Wonderland, we have to move very fast indeed to stand still. It is not beyond our power to do this, but I am quite sure that we cannot do it unless there is some new thinking.
Hon. Members opposite scoffed at the suggestion by my right hon. Friend that devaluations only take place under Socialist Prime Ministers. The reason we have not had more frequent devaluations is that devaluation has usually been followed by a Conservative Government. I believe that if a Conservative Government do not shortly follow this latest devaluation will be one of a series, in which the hon. Member for Walton may be satisfied but no one else in the country will be.
7.37 p.m.
Mr. Jack Ashley: I have listened with great interest to the debate and to many of the suggestions which have been put forward

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from the benches opposite. I rather regret, however, that instead of concentrating upon attacking the policy of the Government many hon. Members opposite have tended to attack individuals such as my right hon. Friends the Prime Minister and the Chancellor of the Exchequer. I regret that very much. I was particularly sorry to hear the right hon. Member for Enfield, West (Mr. Iain Macleod) call for the resignation of my right hon. Friend the Chancellor of the Exchequer. That dramatic gesture was not at all in keeping with the kind of standards we have come to expect from the right hon. Gentleman. I can only say that we regard that as a kind of political gimmick, which caused some resentment on this side of the House.
We on this side are tempted to reply in kind, because if anyone knows anything about resignations it is hon. Members opposite. When Mr. Harold Macmillan was Prime Minister and was having a difficult time hon. Members opposite were demanding his resignation. When the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home) was Prime Minister they demanded his resignation, and recently there has been a demand from right hon. and hon. Gentleman opposite for the resignation of the Leader of the Opposition. It is, therefore, hon. Members opposite who, continually demand resignations by men who are having a difficult time. I do not regard this as one of the better displays by hon. Members opposite.
We on this side appreciate that the Chancellor has had a difficult time and calls for his resignation such as we have had from the right hon. Member for Enfield, West serve only to strengthen our determination to urge him not to resign. If the right hon. Member for Enfield, West, who in my view is one of the few hon. Members on the Opposition Front Bench with real talent and is a man whom I admire, continues in that vein he will only devalue himself.
Sir F. Bennett Sir F. Bennett rose—
Mr. Ashley: I have heard hon. Members opposite criticise the Government and, at the same time I have heard great praise of the French economy, the strength of which has been related to the weakness of our economy. In doing so what they
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have failed to recognise is that one of the reasons for the strength of the French economy was that as the right time and in the right manner they devalued.
So I can only assume that this opposition to devaluation by hon. Gentlemen opposite is not an active principle. They do not object to devaluation in principle, but, by many of the speeches I have heard this afternoon and by the television performance I saw from the Leader of the Opposition last night, the impression has been conveyed, wittingly or unwittingly, that hon. and right hon. Gentlemen opposite are objecting in principle to devaluation. The fact of their praise for France, with the fact already mentioned on this side of the House in the debate that devaluation was at least considered by hon. and right hon. Gentleman opposite some time ago, seem to indicate that it is devaluation carried out by the Labour Government rather than devaluation itself which is of concern to hon. and right hon. Members opposite, and so their outraged protests are rather unconvincing.
What interests me very much is this ploy by the party opposite that the debts upon the economy today are due to Socialist profligates. I want to remind hon. and right hon. Members opposite that they had been slipping in and out of international pawnshops long before we did. I do not blame them for this. All I say is that when they were in office they were incurring debts and borrowing massive sums of money, and that it ill becomes them now to condemn this Government for incurring debts. The only point I want to make is that hon. and right hon. Members opposite should not condemn this Government on principle for the kind of thing which they themselves were responsible for when they were in office.
Now we have made a clear departure—and thank goodness we have—from borrowing in that way, and I am only too delighted that we have, because I regard this as a major step forward, and it gives hope for the economy.
The Opposition tend too easily to brush aside some of the reasons which have been advanced for the difficulties we have encountered in trying to carry out the policy which we have undertaken for the last three years. It is all too easy to brush aside the cost of Suez, to brush aside the cost of the dock strike, to brush

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aside the difficulties of the international recession, to brush aside the rise in interest rates. These have all been major factors, and for hon. and right hon. Members opposite to attack the Government for mismanagement and to take no account of those difficulties, though it may sound fairly clever and though it may convince some sections of the public, is not the right kind of attack and is an unfair criticism of the Government. If it is the tactic they propose to pursue throughout this debate, all I can say is that I do not regard it as at all convincing.
It has been suggested by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) that something should be done about the docks. I do not think anyone regards the Government as responsible for the trouble between the Israelis and the Arabs, or for the world recession, but there are murmurings today about the responsibility of the Government for the trouble in the docks, and there are suggestions flying around, not put quite clearly on the Floor of the House, though I am sure they are in the minds of hon. and right hon. Members opposite, that the Government should take a firm line with the men in the docks, that the Government should stand no nonsense and should get tough. The Government are right to be cautious, because the dockers are causing this country a great deal of hardship at the moment, but they are doing what they regard as right; in other words, in terms which hon. and right hon. Members understand, they are pursuing private profit. The suggestion that action should be taken against the dockers by sending in troops, for example, or by legal sanctions, is not made because they are pursuing private profit but because hon. and right hon. Members opposite regard this as against the national interest. That is their point of view, but I disagree.
From now on, since devaluation, it is the manufacturers of this nation who, if they do not take advantage of export markets, are failing the nation by failing to export. I would like to know where hon. Members opposite stand when these manufacturers do fail the nation. What sort of sanctions will they suggest for the manufacturers, equivalent with the sanctions against the dockers, because a flip behind the ear for the goose is a kick
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up the backside for the gander. They cannot attack one side and not the other.
Mr. Ian Lloyd: Is the hon. Member seriously suggesting that the creation of profit as a result of the creation of wealth is in the same category as "profit"—which has not been created—as a result of the destruction of wealth, which is what is taking place in the docks?
Mr. Ashley: I thought hon. Members opposite would confuse this issue and I am afraid that the hon. Member has fallen into that trap. He did not listen to what I was saying. I did not say that. What I was saying—and I am sorry if I did not make myself clear—was that the dockers are pursuing their private profit and the employers are pursuing their private profit, and I do not condemn that, but if dockers are to be condemned for failing the national interest, then hon. Members opposite ought in fairness to suggest sanctions against employers for failing the national interest as well. I suggest that in all fairness.
Sir Tatton Brinton: Would the hon. Member please specify what manufacturers he is at present attacking for failing the nation? He has made a lot of vague accusations. As a manufacturer, I personally resent them.
Mr. Ashley: I am not making any vague accusations at all. [HON. MEMBERS: "The hon. Member is."] What I specifically said was that if since devaluation manufacturers fail to increase their exports, which the nation needs, then they would be letting down the country, and if they do so I think it is the responsibility of hon. and right hon. Members opposite to do something about it; if they are going to attack the dockers, let them equally attack employers. That was all I was suggesting.
The Opposition have made great play with the fact that we did not devalue before. They say, if we can devalue now, if that is a good policy now, why was it not a good policy before? I did not publicly advocate devaluation. I told my Governmental colleagues my own opinion, and they knew my opinion, and, rightly or wrongly, I did not join my hon. Friends in a public demand for

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it. This was a question of personal judgment. They may have been right, I may have been right; I just do not know. As it happens, we have now devalued. The reason why the Government did not do it before, and, in my view, very rightly did not do it before, was that if they had devalued before 1966 the situation would have been entirely different, because there were not spare resources to go into the export industries, and we would simply have made the economic difficulties the greater in an over-heated economy. So we move with the times. There is a time when devaluation is a wrong thing to do, and there is a time when it is a right thing to do. I suggest that they have devalued at the right time. It might have been a little earlier, but most certainly not a lot earlier.
As for the Chancellor's denying that there was to be a devaluation, I honestly do not believe that hon. Members opposite would expect the Chancellor to tell the House that we were going to devalue in a week's time. This was obviously not in the minds of hon. Members opposite, so they ought not to be hypocritical about it. The Chancellor had to face the classical dilemma of any Chancellor. It is a fair political game if one is going to play it on that level, but I am sorry that the Opposition chose to do so.
If this new strategy or policy is to succeed, two things are of crucial importance. First, the Government must press on with their policy of regional regeneration. If they do not they will not have much hope of solving the basic economic problem which confronts us. I hope that my right hon. Friend the President of the Board of Trade, in whom I have the greatest confidence, will go much further in the regional policy that he has been pursuing recently and will carry much further the regional proposals which have already been enunciated by the Government.
Welcome as was the appointment of the Chancellor of the Duchy of Lancaster as Minister for the North of England, I suggest that my right hon. Friend should appoint a full-time Minister with responsibility for the regions. This issue cannot be dealt with on a part-time basis by a Minister with other responsibilities. I hope that my right hon. Friends will consider my suggestion that a full-time
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senior Minister should be appointed to ensure that advance factories are built and occupied, and that a really dynamic approach is made to industrialists to fill the factories. We must induce them to go to these factories.
Secondly, an effective prices and incomes policy is now more vital than ever. Given the increase in the cost of imports, there will inevitably be pressure for higher wages. Already in the pipeline there is a claim by 3 million engineers, and we have a claim by 1½ million building trade workers which involves even more people. Millions of other workers have claims averaging 14 per cent. in the pipeline. These claims must be kept in line with productivity.
I agree with the voluntary prices and incomes policy now endorsed by the Government, because I am confident that the T.U.C. vetting system will be effective. Much energy is being put into making a success of this policy. The responsibility today lies clearly on the backs of the T.U.C. and the individual unions to play their part, on their side of the bargain, in restraining demand in line with productivity. On the other side of the bargain, responsibility lies plainly on the backs of the employers to see that productivity is increased and also to ensure that prices are not raised unjustifiably. We know that some prices must rise, and it is very difficulty—as every economist and shopkeeper knows—to disentangle legitimate price rises from those which are unjustified.
I warmly endorse the suggestion of my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) that people throughout the country should be authorised to examine price increases which may be unjustified. I go no further. In my view, this is a good idea and is well worth examining. I agree with it because we have somehow to prevent unjustifiable price increases in the next 12 months or two years.
Given these conditions, with incomes and prices kept in line with increased productivity, I believe that we shall see a revival of the British economy, which will move forward within the next year or two to an enormous success.
7.55 p.m.
Sir Arthur Vere Harvey: The last part of the speech of the hon.

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Member for Stoke-on-Trent, South (Mr. Ashley) was the most valid part. Unfortunately, he also tried to defend the Chancellor's action in denying that there would be devaluation. Those of us who heard Lord Chalfont's statement in the middle of last week, in Paris, when he aid there would be no devaluation, made up their minds that it was bound to happen. Whenever Lord Chalfont is involved one can take the opposite view from that which he expresses. One does not have to be very clever to reason it out.
The hon. Member for Stoke-on-Trent, South seemed to resent criticism from the Opposition. All I can say is that before he came into the House his right hon. Friend the Prime Minister used to sit on the Opposition Front Bench, regardless of the situation, haranguing the Government. He must get used to criticism, because there will be much more to come in the months ahead. What I do not understand about the whole business is that the Prime Minister and many of his right hon. and hon. Friends are turning what is a national disaster into an achievement. It is a most extraordinary situation.
We have had endless quotations from what the Chancellor has said and what the Prime Minister has said. To listen to the Prime Minister broadcasting on Sunday night was nauseating. It was a contemptible performance. Here was the man who has always said that he would be frank, who has always said that victory was round the corner. We have heard it so often. The Prime Minister has built up an image of himself from the word go as a man of action. We had the first 100 days. We had him flitting about the world in his aircraft, wearing his Gannex. I heard of one shopkeeper who had a Gannex in his shop for six weeks and could not sell it.
Nearly three years ago the Government put on an import surcharge of 15 per cent. and brought down upon themselves the wrath of their E.F.T.A. partners. They showed some courage in doing this, although they carried out the operation in a very clumsy fashion. I could see some reason for reducing it to 10 per cent. but in April of last year the Government told their E.F.T.A. partners that they would take the 10 per cent. off at the end
1230
of the year. Of all the crazy things to do—to give eight months' notice! Having put on the surcharge, the Government should have kept it on.
Some of my friends on the Continent said, at the end of the summer, that one of the biggest mistakes the Government made was to give eight months' notice of the fact that they were taking off the surcharge. It would have made a vast difference to our import situation if we had retained the surcharge. I can appreciate that pressures were put on the Government to give way and to relax the surcharge, but it was the wrong thing to do.
The Prime Minister must accept responsibility for the present situation. Recently, he said that he was now in charge of our economy. Having built up an image of himself, the Prime Minister must now live with it. We have never got the facts from him. He dodges and wriggles about everything that is put to him. Every Tuesday and Thursday he is asked Questions to which he never gives direct answers. The country is in the same position. To tell the poor, wretched pensioners on Sunday night that the £ in their pockets was still worth 20s. takes some beating.
I will quote one thing that the Prime Minister said in October, 1964:
"I do not believe we are facing any danger to sterling, any run on the pound because the loan facilities available to us have been increased."
The Government maintain the bogey of the £800 million. Although we were told at the last election by the Prime Minister and other members of the government that there were now no alibis left, they are trotting it out every day in almost every speech. In that £800 million there were vast investments overseas and if the election had not been put off until October, 1964, most firms would not have built up their stocks of raw materials at vast cost which was a bonus to the Government when they took over. I should like to know what is the present position of stocks in this country. My own suspicion is that they have been run down a great deal. There is very little fat on which to live.
I am sorry that the hon. Member for Ashton-under-Lyne (Mr. Sheldon) has left the Chamber. He was quite within his rights last Thursday in asking a

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Private Notice Question of the Chancellor about the exchange rate of the £. It was equally tempting to my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) to put a similar Private Notice Question. But he did not, and quite rightly so, because to put a Private Notice Question to the Chancellor when he was in the middle of negotiations about the exchange rate could have shaken the £, and that is what happened when the hon. Member for Ashton-under-Lyne put his Question.
The Chancellor answered the question in a hamfisted way. It was a great embarrassment to him and the Government and it really speeded up the run on the £. The Question put by the hon. Member for Ashton-under-Lyne last Thursday is probably the most expensive Question in the history of this Parliament.
Mr. David Marquand: Has the hon. Gentleman given notice to my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) that he was to make this unpleasant attack upon him?
Sir A. V. Harvey: The hon. Gentleman has to take the rough and tumble of debate. I have sat here through the whole debate and I have said nothing unpleasant or unfair. He was perfectly justified in putting his Question. I am merely expressing a view on the cost of that Question and I am prepared to base it on that.
We are always being asked by the Government to pull up our socks and show the Dunkirk spirit. That is the one thing that I fear in the present situation. One can make one or two appeals to the people, but the Prime Minister and his colleagues have made so many appeals and that is the real risk that we run.
Having gone with devaluation, it can work if a number of other things are done with it. If one does not do those things devaluation is bound to fail. The main thing is that prices, salaries and wages have to be paid. It is essential somehow or another. However, having had 18 months of restraint and freeze, are the people today in the mood to follow the Prime Minister's lead? I hope that they will for the sake of our country and our economy, but I have grave doubts whether they will do so—very grave doubts indeed.
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There is nothing wrong with the people, who work hard. We have small elements which bring about some of the strikes, but in the main the people are working pretty well. What they are suffering from is constant interference from Government administrators. Who would have thought that in the middle of the negotiations to fix the exchange rate of the £, the right hon. Lady the Minister of Transport would be wrecking the road haulage system? I know that she does not think so, but that is what she is doing, and it can only lead to increased cost of transport of exports and home goods. It is inevitable.
The Government relaxed hire-purchase rates in August and the banks were instructed to be more lenient with customers in granting overdrafts. Yet within three months this policy is reversed. How do people know where they stand in running their businesses or private affairs? It is an impossible situation. We have had a small consumer's boom in the home market in the last three months. That has to change, or we have to try and change it.
I believe that the seriousness of the situation has not yet been brought home to the people. The Prime Minister certainly failed on Sunday night. One cannot hoodwink the people. They are very politically minded. If the Prime Minister had gone on television on Sunday and said, "We are in a desperate situation economically. I myself am prepared to halve the expenses that I get as Prime Minister and I am asking every Member of Parliament to take a 10 per cent. cut in salary"—there will be some groans, yes, from all of us, but a modest gesture at this level would have a tremendous effect on the country.
However, one has to go much further than that. I think that a fine comb should be applied through every department in the Civil Service and local government. Why is it that industry is always being asked to be more efficient, to bring in consultants, McKinseys and others, but we never hear of the Government doing it? All we know is that there have been 45,000 additional civil servants in the last three years, with 6 million square feet of extra office space, costing about £10 million a year. The Government have to get to the root of the problem. They have not begun to do

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it and that is why I am fearful for the future.
Are the Government trying to tackle the problem of bringing about cuts in Government expenditure? We are told that there is to be £100 million saved on defence. The hon. Member for Woolwich, East (Mr. Mayhew) said that he was told in March this year by the Minister of Defence that not one penny more could be cut. But, suddenly, they have been able to cut £100 million. However, they have not told us how much extra we shall have to pay for the F111A and the Phantom aircraft being ordered. It certainly makes the TSR2 proposition look very cheap today using British labour and materials, and a great number of the men involved on that project would still be in Britain today instead of North America.
Why is it, in tackling the whole issue, that the Government have to have a set at industry, the one body which can save the situation? The hon. Member for Stoke-on-Trent, South talked about exports. Exporting is no fun today. In the olden days merchantmen would get on a ship and go off to Australia for five weeks, or a week on one of the "Queens" to America, and that was all right. But that has all changed. Firms do not allow that now. One has to get into a jet, get there in six hours, and get stuck into the job of selling. I do not know how many hon. Members opposite have tried to sell British goods abroad. I would say very few. I have spent many years trying to sell British aircraft in foreign countries. It is a difficult task and not very enjoyable—[Interruption.] I sold 100 in the Far East long before the hon. Member for Smethwick (Mr. Faulds) was a Member of the House.
Why make a set at industry by raising Corporation Tax another 2½ per cent.? I should like to see the Government abolish the Selective Employment Tax and not withdraw it except in development areas. It will cost I.C.I. and Courtaulds £1 million each on the withdrawal of the S.E.T. premium, and B.M.H. £1·8 million All this money should have been for new plant and machinery to produce more efficiently. It is one thing to lose the export rebates and for the Bank Rate to go up to 8 per cent., which I hope will be for a temporary period. We have to give incentives to people in industry
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and the people working in industry. That is not what we have had from this Government. They hit with the hammer every time they make an announcement.
We have been told that agriculture needs to produce more. I would have thought that in recent weeks the Minister of Agriculture and the economists in the Government would have been working on this problem. We have been told that 150 million or 200 million tons of additional food is to be grown on this island. However, the Government only think of agriculture during a General Election, or during a crisis, when they trot out the word "agriculture". The matter has not been thought out. I should like to know before the debate finishes—if I may have the attention of the right hon. Gentleman the Secretary of State for Economic Affairs—the figures for the increase in agricultural production. The agricultural industry in Britain has had a rough time over the last three or four years. The outbreak of foot and mouth disease in the North-West recently has had disastrous effects for many farms and has limited output. That must be taken into consideration in settling the affairs of the agricultural industry for the future.
I have never been a great pro-South African; in fact, I have been rather critical of South Africa, but I have detected recently a rather more enlightened policy on the part of the new Prime Minister of South Africa. He has not gone all the way, but he has gone some way in this respect and I have found that quite encouraging. South Africa is our second best customer. We have a favourable balance with South Africa of £70 or £80 million. Every British ship going to the Far East has to go round the Cape and it may call at a South African port on the way. Yet we are not prepared to provide even elementary armaments to South Africa.
This is a monstrous situation. The Government are prepared to operate sanctions against Rhodesia, but not against South Africa, because they know that we cannot afford that. It is an extraordinary situation that British ships calling at Durban and Capetown are supplied there with Rhodesian foodstuffs. When I hear of other countries trading with Rhodesia from all over the world, and trading very well, I am amazed that we should go on trying to

1235
keep our so-called pride. This situation will deteriorate more, and we cannot afford it.
What a situation it is when we have to devalue and Mr. Ian Smith keeps his currency at par! I ask the Government to look at the whole matter objectively. The people I feel really sorry for are those in the poorer countries within the Commonwealth. There are very poor countries, in the West Indies and elsewhere, which have trusted this country for over 100 years and have kept funds in Great Britain which they will now find are worth 14·3 per cent. less than they were. They believed the Prime Minister, the Chancellor and the Government, but what is to happen in future? Will they believe a Labour Government? That would be very surprising.
The Government are incapable of leading the people. They have made too many mistakes in the last three years. Of course they have had bad luck over Suez and the docks strike, but they have had good luck as well. The terms of trade have been in their favour, and they had more good will than any Government has ever had before when they came into power. They frittered the whole of it away.
The one man I feel especially sorry for is the Labour candidate in Derbyshire, South-West, who has not even got the Foreign Secretary up there to support him. We shall see the result of that by-election on Thursday or Friday. If the Government are to tackle these problems, I ask them to take the matter more seriously, to stop nationalisation, to consolidate what they have done so far, to make a success of steel but to stop there. They should give the facts to the people. They are entitled to know them.
8.14 p.m.
Mr. David Marquand: There was one point in his speech on which I agreed with the hon. Member for Macclesfield (Sir A. V. Harvey), so perhaps I may offer him one small olive branch to compensate for our exchange across the Floor. I thought he had a point when he spoke of the need for greater efficiency in the Civil Service, but that was the one element of truth in his otherwise nonsensical farago.
One hon. Member opposite compared my hon. and right hon. Friends with con-
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victs who had recently escaped from prison. I feel like one who had been sitting in a condemned cell and who has now been reprieved. In the last nine months at least, and in a way in the last 15 months, I have had to support a policy which seemed to be sinking deeper and deeper into the sands. At last we have managed to escape from a policy which by the end was bankrupt, and I am very glad that we have done so.
My hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) complained about the unfairness of attacks from Members on the Opposition benches. I am very glad that hon. Members opposite are attacking the Government so furiously and to frenetically because it indicates that at last we have made a clean break from the kind of policies which hon. Members opposite support. I am delighted and thankful that that has happened.
We have had a number of criticisms from the party opposite about devaluation. Some of the critics have spoken in the neanderthal terms of pre-Keynesian economics as if any change in the exchange rate was immoral, but most of the criticisms have concentrated largely on the timing of the operation. If that is the essence of their criticism and if they think the timing was wrong, I ask members of the Conservative Party when it would have been the right time to devalue? What would have been a better time? The Leader of the Opposition said on television last night that this was the wrong time; when would he have done it? Presumably he would not have done it in the past but he thinks that the right time would be in the future. If so, we have to examine clearly the alternatives to devaluation.
We are discussing economic policy and choices. It is not sensible simply to rule out one choice without saying what alternative choice hon. Members opposite would have taken. If a country finds itself in balance of payments problems, it is of course arguable and may on occasion be true that those balance of payments problems are caused by over-heating in the economy. It is possible, it could arise. The measures of July 1966 were taken on the assumption that the balance of payments difficulty in which we found ourselves then was due to over-heating and

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over-heating in the economy alone. That was the logic of the July, 1966 measures.
At that time I thought that on balance this was right. Since then, however, it has become abundantly clear that that assumption was false and that it was not solely over-heating which was responsible for balance of payments problems. It became clear before the closure of the Suez Canal that the July, 1966, measures had not shifted resources sufficiently into exports and had not damped down imports sufficiently. It was quite clear from the trade returns then that those policies had not worked and, therefore, it could not have been simply over-heating in the economy which had caused the balance of payments problems which led to those measures.
If that were so, there could be only one other explanation. The other explanation could only be that this country's balance of payments was in a state of fundamental disequilibrium. I came to that conclusion last April. My right hon. Friend the Chancellor had come to it apparently 10 days ago. I do not think there is any point in arguing now whether or not he should have come to that conclusion before. The point is that this conclusion has been staring us in the face more and more over the past few months. This conclusion is not simply held by members of this party but it is held by every responsible foreign observer who has looked at the British economy.
What does the party opposite say about the Report of the E.E.C. on Britain's application for entry to the Common Market? If ever there were a call for devaluation of a country's currency, that can be read between the lines, and sometimes actually in the lines of that document. Do hon. Members opposite think that those people after a hardheaded examination of this country's position, came to that conclusion that the economy was in a state of disequilibrium because they are Socialist fanatics? They came to that conclusion because they are hard-hearted economists and politicians who could plainly see the logic of the facts.
For a country which is in a state of fundamental disequilibrium devaluation is the only reasonable course. The idea that it is somehow buying time, that it is somehow an escape, is nonsense. The alternatives are buying time. The alter-
1238
natives are an escape. To impose import controls in a situation of fundamental disequilibrium could by definition only make the disease worse than it was before, because inefficient industry would be protected and Britain would be announcing to the world that it could not stand on the existing exchange rate and had to adopt an artificial crutch.
Would a loan be any better in a state of fundamental disequilibrium? A loan would simply have ensured that when it ran out the state of disequilibrium would be even worse than it was before. Obviously the only reasonable, realistic course, the only course which is accepted as being responsible and realistic by the International Monetary Fund, is that which my right hon. and hon. Friends have had the courage and the wisdom to take.
It is often said that devaluation is not a panacea. It is often said that it is a risky course. Of course it is not a panacea. Of course it is a risky option to take. But the alternative of a loan with the deflationary strings which would necessarily have been attached to it would have been a far greater risk. What would a continued deflationary policy in this situation have meant? It would have meant, first, that the regional policy of my right hon. Friends would have been destroyed. We cannot hope to get regeneration of the less prosperous parts of this country in conditions of general deflation. We cannot hope to encourage manufacturers to go to development areas when they know full well that there is not adequate demand for their goods. The one and only time when we can hope that the sort of regional policies my right hon. Friends have been pursuing for the past three years can work effectively is when they are applied in conditions of full employment and when the economy is working at full capacity.
The same applies to the structural reforms of industry for which my right hon. Friend the Secretary of State for Economic Affairs is particularly responsible. These structural reforms work only if those in industry are prepared to take risks. People cannot be asked to take risks in a stagnant economy, facing high unemployment and low demand.
A continued deflationary policy would have meant, thirdly, that the incomes

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policy would have been a total failure. Working people cannot be asked to accept an incomes policy in conditions of unemployment, in a situation where social programmes and social expenditure cannot be properly expanded. In contrast to some of my hon. Friends, I have supported the incomes policy as one of the Government's most important long-term measures and as one of the most valuable things the Government have done, but I have been bitterly distressed to see how the policy has gradually been whittled away over the last nine months because it has had to be operated in a deflationary situation.
Above all, the deflationary alternative would have meant that there would have been no hope of the Government's being able to carry out the social programmes which they were elected to carry out and which everyone on these benches believes to be necessary and right. We could argue—some of us have argued—that, even in conditions of very low growth, even in conditions of unemployment, even in conditions of unnecessary spare capacity, it was still necessary to fight the battle against poverty and to shift more resources to social expenditure than we had done up to now. Obviously, it will be far easier to do these things if we can have an expanding economy. I believe that we can now look forward to that.
I do not believe that because we have devalued we have turned the key to Utopia. Of course we have not. There will be a price to pay. There must be a price to pay. No one in the Labour Party will do the Government, the party, the country, or the long-term aims of democratic Socialism, a service if he attempts to pretend that there is no price to be paid. If we make that pretence, we shall only ensure that the benefits of devaluation are eroded away and that we find ourselves in a similar situation in a few years' time.
It is necessary, therefore, to point out that some measures of disinflation have to be carried out by the Government. Before this step was taken—this is one of the reasons why a few weeks ago I felt so depressed about the whole situation—it was clear that next year the economy would go ahead too rapidly for the balance of payments to stand it at the existing exchange rate. There was
1240
in the economy already too much steam for the balance of payments to hold unless we changed the exchange rate. By devaluing we have given an extra stimulus to the economy of tremendous proportions. We have added an extra element of reflation vastly greater than we added before, because of the new incentive which has been given to the export industries.
If this devaluation works, we shall have even more steam in the economy. It is therefore common sense that the Government must take out some of the steam out and accompany devaluation with measures of disinflation. I do not think that there can be any denying this. There is no point in pretending otherwise. Those who complain about the mixture of deflation and devaluation are simply burying their heads in the sands. They are not doing themselves, the Party or the policy any service.
I agree with my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) and disagree with the otherwise superb speech of my hon. Friend the Member for Birmingham, All Saints (Mr. Walden) in that in this situation an incomes policy will be even more necessary than it was before. Clearly there will be price rises. There have got to be price rises. There can be no dispute about that. I agree with what my hon. Friend the Member for All Saints said, that wages will follow suit, but we have got to make sure that there is no explosion of income increases in the months to come, or once again we shall have torpedoed the ship on which we have now set sail.
I believe that an incomes policy will be vitally necessary. I do not think that we can go back to the statutory policy of nine months ago. In a way I wish we could. From a purely economic point of view I wish we could, but from a psychological and political point of view I recognise that we cannot. This is a battle which my side has lost. I admit this. My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) has won, and may he enjoy his victory. I think that some of the other policies that he supports would be more likely to work if he had not had that victory—
Mr. Michael Shaw: Does the hon. Gentleman not recall that, having received an assurance from his leader in

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1966 that statutory enforcement would not come upon us for a wages policy, within 10 days or so it came upon us? Does he not find it an ominous sign now that he has been given this reassurance?
Mr. Marquand: I am sorry the hon. Gentleman has not understood my point. I have just said that I accept that we cannot have a statutory policy. I accept that the political situation in the Labour movement is such that we cannot do this. This is a pity in a way, but I accept facts.
Even if we cannot go back to a statutory policy, we have got to be very firm about the need for an effective voluntary policy. Because of all the battles over the statutory policy, because of the struggles that went on during the last year and a half, I think there is far greater hope now for an effective voluntary policy that acre ever was in the history of this country before. But I accept that this is one of the big question marks which we have got to face if we support this policy honestly and with clear sight.
This means that we have got to ask for sacrifices from our own people if the policy is going to work. It is dishonest and stupid to attempt to deny it. The difference is that we are now asking for sacrifices with some light at the end of the acme], whereas two weeks ago the Government were asking for sacrifices in conditions of total darkness. This is why I support this decision wholeheartedly and why I shall be able to vote for the Government in the Division Lobbies tomorrow with more enthusiasm and more confidence than I have felt for some few months past.
8.32 p.m.
Sir Tatton Brinton: I have listened with great interest to many of the speeches from the benches opposite, including that of the hon. Member for Birmingham, All Saints (Mr. Walden), whom I wish to quote and who I see is now leaving the Chamber. The point which I find is common to all of those speeches is, on the one hand, that they seem to be suggesting that what has happened to us, which in anybody's book must he a major disaster, is in some way a good thing—this has been the tenor of nearly every speech I have heard, and I have heard all except one—or, alterna-
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tively, that if it is not absolutely a good thing in itself, devaluation is a good thing because it has become the inevitable course to take in this country.
I do not accept either of those propositions. It may be that this is now the only thing that the Government could have done, but that does not make it a good thing; nor is it a credit to the Administration who have produced this dire result in the short time of three years.
There has been a great deal of reference to speeches by my right hon. and hon. Friends. It is suggested that we have in some way made this into a moral issue. I do not attempt to make it into a moral issue, or an immoral one, but I am a little shocked at the attitude of certain hon. Members opposite. For instance, I should like to quote the hon. Member for All Saints, although I have not given him notice that I had intended to do so and he has now left the Chamber. He said—I am paraphrasing him—that we did not really owe any moral obligation to those who have deposited their money with us if, as a result of our action, that money becomes devalued, because—and this certainly is true—the investor takes risks. He takes risks in the hope of profit, and sometimes he gets caught. I believe in the capitalist system, with the risks inherent in it, and, as an investor, I accept that there is always a risk in any investment which may ultimately turn out to be profitable. But, if I were a banker, I should feel ashamed to be the cause of loss to the people who had invested with me, and to suggest otherwise is, in my view, to burke what is certainly a moral issue.
It may be inevitable that, at times, one has to let one's friends down. I suppose that all of us have had regrettable moments in our lives when, perhaps, in some minor way, we have let down those who have trusted in us or have relied upon us. It can happen to anyone, and sometimes it is inevitable. But let us never suggest in anything we say—I have heard it suggested quite frequently today—that it is morally excusable or almost a good and virtuous thing to do. Let us be ashamed that it has happened. Let us be ashamed before those whom we have let down that this country has been so ill-administered and ill run that this

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has happened to people who had faith in us.
Mr. Tilney: Have we not also acted as trustee for certain colonial territories which have funds in this country, and have we not been a dishonest trustee?
Sir T. Brinton: Yes, I entirely agree. The hon. Gentleman the Member for Ashfield (Mr. Marquand), in a speech of considerable frankness, for which I give him due honour, told us openly that he has for a long time been supporting a policy which he considered to be bankrupt, and he is now relieved no longer to have to support that policy. For the first time for some period now, he tells us, he will go into the Lobby to support a policy in which he believes instead of one in which he does not believe. It is a rank confession of the bankruptcy of the whipping system if hon. Members can admit that they thought that their Government were wrecking the country by their previous policy but they did nothing to demonstrate that view.
I give the hon. Gentleman credit for one thing. He is the only hon. Member I have heard to manage to torpedo his own ship. I believe that it can be done—I was not in the Navy myself—the occasion being when the torpedo one has fired oneself is "blown off course".
Mr. Robert Maclennan: Perhaps the hon. Gentleman does not follow the speeches of my hon. Friend the Member for Ashfield (Mr. Marquand) with the close attention which we on this side give to them. Otherwise, he would have recognised that my hon. Friend has been advocating the present policy for many months and has made his opinions quite clear. There is no question of a change of mind on his part.
Sir T. Brinton: It used to be the custom in the House that the vote followed the voice. [Laughter.] I know that it is not now, and more is the pity.
Mr. Maxwell: Physician, heal thyself.
Sir T. Brinton: I trust that we shall not have too many interruptions from the buoyant hon. Gentleman below the Gangway.
I was saying that it used to be an honourable tradition that the vote followed
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the voice, though it is not so now. Equally, apparently, Ministers who have let the country down and have to admit to it do not feel themselves bound to resign.
Mr. Marquand: I think it was Lord Butler who once said that this House is about power, about a struggle for power between two organised political parties. The alternative to supporting my right hon. and hon. Friends would be to support that bunch over there. That is why I did not turn against my Government in the Division Lobbies.
Sir T. Brinton: I think that we need go no further into the rather strange motives which seem to move hon. Members opposite.
We have heard some beautiful theoretical speeches from hon. Members opposite, many of them from hon. Members highly qualified in academic subjects and some of them extremely good and learned speeches. I am not a theoretician. I am one of the chaps a great deal of the talk is about. I am a director of a manufacturing company which exports a good deal. I shall, therefore, talk a little about the practical effects of what has happened.
I am prepared to accept that in the position at which we had arrived devaluation may well have been the only answer. I have already criticised what led to it, but let us accept the situation as it is. We have a Government of a sort, and they have devalued. What flows from that from the point of view of those who are being asked to do the job? It is generally agreed that the salvation of the country and the way by which we shall get out of our balance of payments difficulties must depend largely on our exporting efforts. A contrary opinion was suggested by the hon. Member for All Saints, who said that saving through the substitution of imports by domestically-produced goods would possibly be greater than earnings from exports.
Although there may be quite a lot in what the hon. Gentleman says, most Ministerial announcements, speeches and representations seem to assume that the main burden of solving the burden must fall on the exporter, who, it is suggested, now has a 14·3 per cent. advantage in selling his goods. But I want to follow up something said by my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser), with which I

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entirely agree. I, too, have been doing my sums, both for the benefit of my speech and for the benefit of my business.
The withdrawal of the S.E.T. premium will mean a perceptible difference to every manufacturer in the country. Some of them are not necessarily exporters, but if one is an exporter one must reckon with this. The estimate for my own business is that it will cost us upwards of ½ per cent. on the sales value of our goods. The withdrawal of that and the effect of Corporation Tax on our present budgeted level of profit which we hope to make this year, although we have not yet made it, is equivalent to 10s. a week for each of our employees, male or female. That is not an enormous figure, but it is part of a cumulative effect.
The withdrawal of the 2 per cent. export rebate is another. In the carpet industry, in which I work, raw materials represent a substantial amount of the sales value of a square yard of carpet, and the best estimate we can now make—this must be "guesstimate"—is that the increased prices of foreign-bought raw materials for carpets—wool, cotton and jute—plus a certain element in the synthetics we use, are likely to amount to 2½ per cent. on the sales value of our goods. Altogether, that is 5 per cent., so that our 14·3 per cent. advantage is already reduced to little over 9 per cent.
I have made no estimate for various overheads, such as transport in particular, which is bound to go up, nor for the fact that if we succeed in increasing our ex ports, as we shall try to do, we shall probably have to incur extra bank finance at the not inconsiderable rate of about 9 per cent. The banks usually charge ¾ per cent. or 1 per cent. over the current Bank Rate.
All those costs must be covered. When exporters are asked to do this job, let us not assume that by this wonderful Government decision they have been given an immediate advantage of 14·3 per cent.
Mr. Maxwell Mr. Maxwell rose—
Sir T. Brinton: I am sorry. I shall not give way.
Mr. Maxwell: May I ask the hon. Gentleman a very brief question?
Sir T. Brinton: I shall not give way to the hon. Gentleman, because I have
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seen him so often interrupt hon. Members in the middle of their speeches with purely flippant comments. I know that he is a very distinguished businessman who would have something to contribute if he cared to do so.
I should like to say a few words about Corporation Tax. When it was imposed in 1965 it was suggested that the rate, which was not fixed until 1966, would be 35 to 37½ per cent. At that time, being cynics and having had some knowledge of Socialism in action, we assumed that the rate would be 37½ per cent., not 35 per cent. But it was calculated, and admitted by Ministers, that the rate required to produce at that time the same revenue for the Exchequer as under the old system of Profits Tax and Income Tax on corporations would have been 36½ per cent. Now it is to be raised to 42½ per cent. This is 6 per cent. higher than would have produced in the same conditions the same revenue as the old system, remembering that the old system already included Income Tax at 8s. 3d. in the £ and not at 7s. 9d. This represents an enormously increased burden since 1965—not even two years—on corporations. About one-sixth extra is to be milked out of them in Corporation Tax.
The 40 per cent. was already an excessively high rate, and higher than was by implication suggested by the Chancellor of the Exchequer at the time of the imposition of the tax. With the increase from 40 per cent. to 42½ per cent., one gets what appears to be the following possible sum in the case of a manufacturing firm. Let us suppose that before Corporation Tax it was accustomed to paying out about one-third of its gross income in the form of dividends—a reasonable proportion, rather lower than in many industries—and let us suppose that today it intends to maintain its rate of dividend in relation to profit, and let us take the figure of 35 per cent. for simplicity. Let us say that the firm wants to pay this out of the profit. Under the new rate, the profit is subject to 40 per cent. Corporation Tax. So out of every £100 that the firm makes it first has to pay 40 per cent. Corporation Tax, and then it takes £35 out of the remaining £60 to pay the dividend, and it is left with £25 to plough back.

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With the Corporation Tax going up by 2½ per cent., in order to maintain the dividends at the same level—dividends have been heavily penalised already by the imposition of Corporation Tax—the firm then has to take an extra 2½ per cent. out. What is it left with? It can plough back not 25 per cent. but 22½ per cent. I suggest that in practice corporations, which are finding difficulty in any case in maintaining dividends, will be forced to take the 2½ per cent. out of the sum ploughed back. In other words, it will be one-tenth of the possible amount to be ploughed back, and so that amount is being milked out of them by this addition to the Corporation Tax. It is a very serious matter.
The President of the Board of Trade said, among other things, that the Government were determined to get growth and that a rise in manufacturing investment was needed. I agree with him that this is required. It is the foundation of any future prosperity and the foundation of the solution to our long-term balance of payments difficulties. Of course we must have capital investment. But what happens? The first thing that is done immediately we are faced with balance of payments difficulties is to clobber the very people who can get the Government out of their trouble. I was going to say that it is absurd to kill the goose that lays the golden eggs, but I feel that this is such a hackneyed phrase that one must no longer use it.
Hon. Members: Give us the eggs.
Sir T. Brinton: I am interested to hear that interjection. Hon. Gentlemen opposite are always saying that industry makes far too high profits and must be controlled. We had some blood-curdling remarks from the hon. Member for Liverpool, Walton (Mr. Heffer) about ensuring that the profits and dividends of industry were held down. Yet hon. Gentlemen opposite are now implying that industry is not making the profits. Hon. Gentlement opposite must make up their minds what they mean. Let us assume that industry is capable of making profits provided that it is given any incentive to do so.
I want to deal with the sort of burdens which are being envisaged for the people the Government are asking to export more. Various vague statements have
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been made. The Prime Minister's speech on television was an unsavoury performance. [HON. MEMBERS: "Cheap."] Of course it was a cheap speech, because in the circumstances of a major national tragedy it was a cheap party political speech.
Among the things the speech did contain that it should not have contained was, of course, the usual bit of flummery that this was not going to hurt, that the Government would cushion the effect on the lower paid workers, protect people against council house rents being raised and be ruthless in the application of regional policies. Whether those objectives are desirable in themselves or not, the fact is that they will cost someone some money. Who? If we are to cushion the lower paid workers, then, of course, the burdens, which will fall on all of us anyway, will be doubled on some. If we are to protect council house tenants against rises in rents, who will pay the difference? Presumably, the ratepayers. If we are to be ruthless in the application of regional policies, what is meant by "ruthless"?
Does this mean, for example, intensification of the I.D.C. system? As my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) pointed out—and this is a genuine criticism in the West Midlands and elsewhere—the system is administered in such a way that it frequently tends to inhibit growth by existing companies, even where, quite often, it is growth of only a marginal nature.
It is a sad complaint in the prosperous areas that, because the North-West, Scotland and Wales and other areas are short of industry, industries in the prosperous areas are prevented from growing. I do not quarrel with the system in that if a new factory for separate operations is to be built it should be set up in a development area. But the working of the system in practice is far more intensive and detailed than that.
It can happen—and has happened in the West Midlands, but I shall not name the place—that a relatively small development in a sizeable, established firm, which would employ an extra handful of people, say 20 or 25, has been refused on the ground that the development should take place, for example, at Newcastle. I wish hon. Members opposite,

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before branching out into theories about what should be done for social reasons, would appreciate that in detail these things become nonsense. They discourage and agonise the wretched man on the ground trying to do a job.
For example, let us take the case of a large established firm in the West Midlands which wants to put up a shed which will employ an extra 30 people. This would not upset the balance of employment in the West Midlands, but it is told that it cannot go ahead unless the building is put up elsewhere. It may, therefore, have to carry out the operation in another place, with the result that highly paid and very important key personnel, both technical and managerial, are going to have to spend much time motoring to and fro to the branch factory, wasting their time, hardening their arteries and bringing on incipient coronary trouble. [Laughter.] It is all very well to laugh, but hon. Members opposite do not have to do it. They only get coronary trouble from running up and down here. I speak from experience. My own firm set up a factory before the war 110 miles away, and I know what I am talking about. Hon. Members opposite, who could not even run a whelk stall, should try to understand what they are asking us to do.
Mr. Maxwell Mr. Maxwell rose—
Sir T. Brinton: The hon. Gentleman cannot walk into the Chamber at about a quarter to nine and expect to be allowed to interrupt. He is always doing it; I have watched him frequently.
Let us remember that the Prime Minister is very keen on military metaphors; one was quoted to-night—something about Waterloo. Let us give him another to take home to-night. He is throwing his troops into battle to redress the balance of payments, but by measures taken against industry he is denying his tanks ammunition, and his spearhead is led by the ambulances.
8.55 p.m.
Dr. M. S. Miller: Although I am conscious of the seriousness of the decision to devalue, I am also aware for the first time for many months of an entirely different atmosphere in the House, an atmosphere in which
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the struggle for the views which many of us on this side of the House express, the Socialist ideology, comes slap up against the policies of the Tories.
I find the exchange of views refreshing. It does a lot to renew my faith. We might now be getting somewhere, and perhaps that is what is worrying the Leader of the Opposition. Unfortunately, most of the Tories stick to their old, out-dated views. That is one of the faults which I find with the Tory Party. The Tories do not believe that people can and often do respond to higher stimuli. It is difficult, but it is possible, and it is rewarding in terms of human benefit, and I advise hon. Members opposite sometimes to try it.
I should like to comment on what was said by my hon. Friend the Member for Pembroke (Mr. Donnelly). I might be more inclined to give credence to his views if our competitors, such as France and Germany, provided social services inferior to ours, but they do not. Nor do I believe that social services should be a fall-out, the crumbs from the rich men's table.
It is usually inadvisable to make a virtue out of expediency, but I do not regard devaluation as an expediency. It is a positive action which, when weighed against other possibilities, has the best chance of striking at the roots of what has been known as the English disease. In spite of contrary contentions, I believe that devaluation should have been carried out some time ago, perhaps as soon as the mess which was left by the Tories in 1964 had been fully assessed and evaluated.
However, that is looking at it with the benefit of hindsight and once the decision not to devalue had been taken, it was right to defend that decision and to try to solve our problems by other methods. Not to have succeeded completely in solving those problems is not a disgrace on the part of the Government. It is rather, perhaps, an indication of the deep-rooted and stubborn nature of our difficulties, and we shall probably not know for some considerable time how near we came to success, success of a kind, because, although the Government had shown a realisation of the nature of our sickness, their novel policies, such as the prices and incomes policy and the redeployment of labour, had not been given sufficient time to produce the desired effect. The

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effects were beginning to show, but, unfortunately, our margin was insufficient to withstand the consequences of several disasters which befell us. The Middle East crisis, the docks strike and, we must admit, our correct moral stand on Rhodesia affected the position.
It was churlish of the right hon. Gentleman the Leader of the Opposition to brush aside these matters in so cavalier a fashion in his broadcast. As everyone says, devaluation is not an end in itself. To quote from one newspaper:
"For the first time since Ministers took office, it now looks as though there is a framework of financial policy compatible with economic expansion. The internal position of sterling and that of our domestic economy, instead of pulling against each other, are now such that they can be reconciled with growth."
Devaluation is perhaps in the nature of a rather crude anaesthetic—crude because the patients must feel some pain—which will permit the surgeon to get on with his curative work. I contend that it was the Tories who frittered away the benefits handed to them by the 1949 devaluation. If they had taken a leaf out of the German book, they would have used the breathing space to ensure that the business community pushed like mad into the export market instead of waxing fat on a home consumer boom. During a visit to Germany in 1954 it was quite obvious that the German boom had not then begun because the Germans, for at least 10 years after the war, were engaged in doing what hon. Gentlemen opposite should have been doing.
I regret that towards the end of the period of the second Labour Government after the war that Government also lost their nerve and began the removal of controls which, had they continued for another three or four years, might have made all the difference. What devaluation must do, and has an excellent chance of doing, is to produce an export-lead boom. It might be wonderful for our inward- looking business community to make money by dealing among themselves, but Britain must export and we must encourage our industrialists to get out and about. Trade weeks and commercial attaches are not sufficient.
We should employ experts who know all about the areas to which we wish to export, who know thoroughly where and
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how our products can be sold. I would like to make a plea that when an export-led boom begins, as I believe it will, the benefits should be channelled into the development areas, and that Scotland should not be left out. It will be a tragedy if recovery took place but left the previous wide discrepancies in the regions.
We could accelerate our recovery by import controls. Even the United States is not averse to this sort of action. In my opinion, we should be buying nothing from abroad that we cannot manufacture at home. I know that it is contended that import controls safeguard the weak, but we should buy nothing that we cannot manufacture in this country, except by a process of very hard bargaining.
I have been asked to conclude now because the two Front Bench speakers are ready to speak, so I will only add that devaluation by itself is not enough. We should have price control which really works. We should have an incomes policy which is not merely a wage freeze, but which takes into account profits and dividends. The Government would be well advised to make sure that the burden of difficulty is shared as equally as possible by everyone. Only then will the people respond.
9.5 p.m.
Sir Keith Joseph: Although we on this side of the House will listen with the greatest interest to the Secretary of State for Economic Affairs, there is a certain sadness on these benches that we have been deprived of the Foreign Secretary, whom we had hoped would wind up the first day's debate.
The debate has been notable. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) summed up the point of view of the Opposition when he said that the Government's main job was to revive confidence in wealth creators at all levels. We have heard a number of experienced speakers from this side of the House. We heard my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), whose knowledge of finance made his speech particularly worth listening to. The knowledge of business and exporting made the remarks of my hon. Friend the Member for Kidderminster (Sir T. Brinton) especially relevant. The shrewd

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comments of my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) were very cogent indeed. I shall refer to a number of other speeches later.
It would be wrong, however, to ignore the outstanding contribution made to the debate by the brave, trenchant and realistic speech of the hon. Member for Pembroke (Mr. Donnelly). He has a firmer grip on the realities of life than all hon. Members opposite and probably than most members of the Civil Service who advise Governments, despite their sincere diligence.
We on this side want the balance of payments to be put right, but we have no confidence whatsoever that it will be achieved under the present Government and the present Prime Minister.
I should meet straight away the challenge inherent in the speeches of the hon. Members for Ashfield (Mr. Marquand) and Birmingham, All Saints (Mr. Walden). They stated that, in their "expert" view, the price structure of this country had been in fundamental disequilibrium and for that reason, they said, devaluation was the right course for the Government to take. We believe, not that there is any fundamental disequilibrium in our price structure, but that our price structure and costs have been loaded by excessive and wrong-headed taxes; that our business efficiency has been impeded by excessive Government expenditure, by an excessive and inefficient public sector, and by the obstruction of business energies by bad, naïve, centralising, subsidising, government.
We believe that if the Government had been prepared to control demand more sensitively—and I well recognise how difficult that is—and to stimulate industry by tax reform and competition and to cut public expenditure, devaluation would not have been necessary. Furthermore, we believe that if they do not do these things, devaluation will not work.
We condemn the policies and incompetence of the Government and the continuous crisis to which this incompetence and these policies have led and of which devaluation is the outcome.
My right hon. Friend the Leader of the Opposition warned the country clearly enough. In July, 1966, he said:
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"'Unless we take action to avert it, we are faced with the threat of national bankruptcy'."—[OFFICIAL REPORT, 26th July, 1967; Vol. 732, c. 1452.]
The answer to that from the Prime Minister was, as usual, complacent, evasive and reassuring. The Government have now devalued against all the arguments of their own Front Bench spokesmen. The responsibility must be pinned firmly on the Chancellor but, above all, on the Prime Minister.
I am sorry that the Prime Minister is not present, since I shall concentrate for a few minutes on his own contribution. This is the first time in 300 years of the office of Prime Minister that the country has had a graduate economist in No. 10, Downing Street, yet that graduate economist has allowed his Government to be taken continuously by surprise by economic events. His Government, and he in charge of it, ignored the danger signals at the end of 1964. They ignored the danger signals in 1965. They ignored the danger signals in 1966, and again they ignored the danger signals just now in 1967. As a result, they have on each occasion had to act more severely than they would have had to act had they acted earlier.
All this comes from the Prime Minister, who is a graduate economist, who has been in charge of the Government throughout, who is First Lord of the Treasury and who has recently taken over as economic overlord. The economic failure of the Prime Minister and of his Government is absolutely complete. He has never seen or foreseen what would happen, he has never had a contingency plan, he has led the party of expansion into contraction and he has failed in the last three years, even now, to bring help to those who are most needy in our society.
We have had three years that the locusts have eaten, and the locust-in-chief is the Prime Minister. Let me add up the national resources that the locusts have consumed under the Prime Minister. First, £370 million has been switched from the dollar portfolio into our reserves. Then, £905 million—I take the new post-devaluation figures—of loans has been taken from foreign countries and bankers and used. The American loan, already increased in value by the first Socialist devaluation, has now been

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increased in value by the second Socialist devaluation so that despite 12 repayments of instalments by Tory Governments, it now stands at a higher figure than when it was originally borrowed after the war. [HON. MEMBERS: "Shame."]
I have not finished the catalogue yet. Today, the stocks of this country, built up as part of the 1964 expenditure, which has been so much criticised—because expenditure on stocks accounted for a great deal of the current account deficit in 1964—are £400 million less in value than when the Socialists took over—more consumption by the locusts. [An HON. MEMBER: "How much is the dollar portfolio worth now?"] I have mentioned the £370 million which has been put into the reserves. That the dollar portfolio has grown in value is no credit to the Government.
Now, I come to the most damning figure of all in the catalogue. It is that the Government have exploited the increasing impoverishment of the countries which supply us with raw materials, because the terms of trade have gone in favour of this country by no less in aggregate than £255 million in the last three years. The catalogue, therefore, of the resources which the locusts, under the locust-in-chief the Prime Minister, have consumed is a formidable indictment of Government policies.
The strategy of any Government, who are intent on improving the standard of living of the people, including the poorest, must surely be, as my right hon. and learned Friend the Member for Wirral said, to release productive energies. Yet the Prime Minister has led his Government to do precisely the opposite. He has excelled in consulting industry, no doubt, but he has paid small heed to the lessons of such consultation.
The Government, as my hon. Friends one by one have emphasised, have hammered industry at every turn, and even in this package there is a gratuitous addition of £80 million of tax burden to industry through increased Corporation Tax. The Government misunderstand the needs of private enterprise. They have distracted it by precipitate, confused tax changes; they have weakened it by spreading an inefficient public sector which has added astronomically to public expenditure. Despite the terrible les-
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sons which any Government should have learned from the disaster of the last weeks, we look like having the mixture as before. There seems to be no sense of humility, no idea of a change in strategy. All that has happened is they have devalued.
Now let us analyse tonight the package which goes whith that. The Prime Minister, as my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said earlier this afternoon, has become an expert in double-speak. He uses tough words to one audience and whispered assurances and reassurances to another audience. If he goes on like that, then the benefits of devaluation will quickly be lost.
The Government should, in our view, put the most powerful pressures on industry to be efficient. That is the Government's job. But let it be by enforcing competition, by enforcing disclosure by tax reform, and by trade union law reform. Once they have done these things, they should cease to obstruct industry, and should let industry get on with the job, and for this purpose they should cut public expenditure and cut interference and cut centralisation, which are all the enemies of efficient industry. Precisely the opposite seems to be occurring—precisely the opposite—as I have explained, because of increasing Government expenditure, taxes, centralisation and interference.
Now we ask ourselves in this debate, is this devaluation to be the start of remedy, or merely a respite? Is it to be, in the Prime Minister's 1961 words, a springboard or a slide? It depends entirely on the Government's performance. Let there be no mistake, the Government are fighting now not just to reverse the balance of payments but to recover the confidence on which business at home and this country's treatment abroad depend. It is not just the balance of payments which is at stake, vital though that is. Confidence is even more important.
Now on the benches opposite hon. Members, with one or two exceptions, are solid at the moment behind the Government. The hon. Members for All Saints and Ashfield have rejoiced that the agony of recent months, when they have had to support what they quite wrongly misdescribed as Tory policies, is over, but I would like to say

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to them that the agony has yet to come. My right hon. Friend the Member for Stafford and Stone was absolutely right when he said that the essence of the question we are debating is whether the Government will make devaluation stick. All may seem approving now, but, as usual, hon. Members opposite have not read the small print, or they have not understood it. If devaluation is to be effective, then it is bound to hurt. If it is not effective, then we shall not make the progress forecast by the Prime Minister.
Of course, the President of the Board of Trade, in his opening speech, made a good debating point. He said the Tories were simultaneously alleging on the one hand that the Government would squander the opportunity and, on the other hand, that they would lower the standard of living. But these things are not all black or white. It is a question of degree. No one on this side of the House imagines that the Government would totally squander the opportunity, nor are we saying that everyone is to suffer to the full limit. We on this side believe that some people, the vulnerable sections of the community, should be protected, so far as is compatible with gaining the benefits for the country from devaluation. But we want to have confidence that the Government are going to make the devaluation stick.
I want to ask the Secretary of State a number of questions of which I have given him prior notice. First, will he give us a firm date when the export rebate will come to an end? We regret that it is coming to an end, but we want to know the date. Secondly, although we rejoice in the diminution of the obnoxious Selective Employment Tax, we can have no pleasure in the partial removal of the manufacturers' rebate in this case, since that simply adds to manufacturers' costs. We want to know when the S.E.T. rebate will come to an end because businessmen need to know in order to quote at home and abroad.
We want to know a little more about Government expenditure cuts. The hon. Member for Ebbw Vale (Mr. Michael Foot) was very just in describing the alleged defence cut of £100 million as a constant refrain in all Chancellors' packages. When shall we be given more details of the defence cuts? Wh hall
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we know more about nationalised industry investment cuts? Is that the limit of public expenditure cuts? My hon. Friend the Member for Macclesfield (Sir A. V. Harvey) was right to say that the Government cannot limit themselves to demanding efficiency from industry. Let them look at their own vast and growing empire. Will the right hon. Gentleman tell us whether the Government are expecting a rise in private investment next year and, if so, whether the calculations allow room for such a rise?
I now turn to the infrastructure. The Prime Minister has told the country that, whatever else happens, housing, hospitals and educational buildings will not be damaged. The right hon. Gentleman must explain this to us in a little more detail. I must state my interest in the subject. I am a builder. I am involved in building some of these objects. Are we to understand that if these buildings cost more—and they inevitably will because of their import content, apart from anything else—the entire building programme for hospitals, schools, technical colleges, universities and public housing will go ahead unaffected, or will the quantity of these programmes be cut in order to keep the financial expenditure as it is planned now? Will the Minister give us a firm reply?
As for social services, we agree with the Prime Minister that in this situation it is right that the most vulnerable sections of the community should be protected, but we want to know who these will be and how they will be protected. We presume that among them will be the poorest of the elderly; those who, for shorthand purposes, are termed as living in family poverty; the disabled; the chronic sick; widows; and fatherless families. Are all those people to be protected? If so, how? Will there be discriminating or indiscriminate expenditure to protect them? May we have some assurance this evening, or be told when we shall be given details?
I ask the right hon. Gentleman to accept that we on this side of the House recognise and deplore the fact that, despite the large increase in overall expenditure on the social services, financed by the increases in the weekly stamp, there are still, after three years of Socialist

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Government, deep pools of poverty which the Government have done nothing to reduce.
We want to know who is to pay for the help to be given to these vulnerable sectors. Is it to be the taxpayer? If so, it is easy to predict that the emigration queues will increase. Or are the Government, for the first time, contemplating taking money from wasteful uses within the social services? Let me give an example. Are they going to remedy the indiscriminate increase in both family allowances and housing subsidies? Are they going to try to switch some resources from where they are not needed to where they are needed?
I now turn to the important matter of costs. As hon. Members on both sides of the House have recognised, if costs rise the competitive edge of this devaluation is blunted. Costs are going to rise—for tax reasons, transport reasons, because of the increase in import prices, and because of the consequentials—in all manner of services and products. One of the main components of costs is earnings. A wage freeze is abhorrent to this side of the House. We for our part believe in a high earning low-cost economy brought about by competition, by lower public expenditure, and by tax reform, all leading in themselves and together to better management. We believe in a high earning low-cost economy, but the Government are getting dangerously near to standing for a low earnings high-cost economy because of their controls and taxes and because of the subsidies that keep men in ill-paid work.
The question I put to the right hon. Gentleman is: as export-led growth comes—and we hope it will—does he accept that the Government must be intensely careful not to let too much steam build up so that earnings drift gets dangerously high? Does the right hon. Gentlemen really think that the T.U.C. Vetting Committee and the Prices and Incomes Board would be able to have any control over earnings drift? These bodies have not been put to the test at all in the relative recession which this country has been going through in the last year—[Interruption.] I will tell those on the benches opposite what we want.
We believe that the main barrier to higher earnings unaccompanied by lower
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costs is the subjection of employers to really tough competition coupled with lower Government expenditure, trade union law reform and tax reform.—[Interruption.] We believe that is the barrier. [An HON. MEMBER: "Put a fresh record on."]
Mr. Maxwell: Will the right hon. Gentleman give way?
Sir K. Joseph: No, I will not. [HON. MEMBERS: "Give way."] The hon. Member for Glasgow, Kelvingrove (Dr. Miller), who was within his rights, took five minutes beyond nine o'clock, and I want to share the five minutes so lost with the right hon. Gentleman opposite if I can.
I want to know whether the Government's view is that dangerous earnings drift is likely and, if so, whether they are contemplating any return to a freeze by law. If they fail to keep costs low because they allow earnings drift to increase, much of the competitive value of devaluation will go. The Government have to set an example. I have here a long list of wage claims in the public sector which will shortly be before the Government. It will be idle for the Government to call upon private enterprise to stand up to wage demands which are not justified if they do not set their own example.
We also want to know what the attitude of the Government is to prices. In our view it is absolutely right to squeeze prices by competition, but if costs rise, including earnings as an important component in costs, and the extra import costs of raw materials, we want to know what the policy of the Government will be about prices.
We want to know how the Government propose to protect the outlying areas of this country where prices tend to be high, where earnings tend to be low, and where transport costs are heavy. In Scotland, Wales, South-Western England and in Northern Ireland there are extra export opportunities in the medium term, but in the short term there are difficulties facing them and we want the Government's reassurance about what they intend to do.
I hope that no one on the Government bench thinks that this devaluation will give a 14 per cent. benefit just like that

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to all our exporters. First, there is the withdrawal of the export rebate; secondly, many exporters will want to increase their profit margins and will not, therefore, be ready to reduce their prices; and, thirdly, any such view as I have expressed would be too static. Are we really to expect that the Germans, the Japanese and all our other formidable competitors, will sit by and do nothing about their costs and prices? Of course they will react, and quite rightly. Nor should we be sanguine about import reduction, because, after all, two-thirds of our imports are of food and raw materials. Indeed, these will have to increase if we are to have growth, rather than decrease. It is only in one-third of our imports that the extra price will be a factor.
I should have liked, if there were time, to develop what was said by my hon. Friend the Member for Macclesfield about the bitter damage which the whole Government package will inflict on the poorer countries. Those which have not devalued, including some African countries, will have lost on any deposits they have left here. We hope they will make up slightly for this—this is the only good part of the package—by earning a little more on their exports to us.
We should ask ourselves, where does the wealth of this country come from? Some would say that it comes from the workers, and they would be partly right. Some would say that it comes from the savers and investors, and they would be partly right. Some would say that it comes from managers, and they would be partly right. Some would say that it comes from the Government. The Government have a part to play, not least in getting out of the way of industry. I believe with my right hon. and learned Friend the Member for Wirral that the wealth of this country comes above all from entrepreneurs and from private enterprise. That is where the jobs come from, where the taxes come from. Those are the people who do the investing and who do the exporting.
I am not claiming that all private enterprise is perfectly efficient. That is why we on this side of the House believe in cutting Government expenditure, in tax reform, in disclosure and in trade union law reform, but if the Government fail to recognise this basic truth and if
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instead of freeing the forces of growth they move towards a siege economy, this country will go even more rapidly downhill than it has in the last three years.
The mistakes that have led to devaluation have not, so far as we can see, led the Government to any humility or to any change of strategy. They remain interventionists, they remain centralisers and subsidisers. The hon. Member for Edmonton (Mr. Albu) had some wise things to say about the damage of intervention. They are failing to stimulate industry by tax reform; they are failing to curb Government expenditure. They are expending the inefficient subsidised public sector and adding to industry's costs.
The Government, I say again, are fighting now not just to solve the balance of payments problem, vital and indispensable though that is—the Government are fighting for the country to recover confidence. This devaluation could be a springboard or it could be a slide, to use again the Prime Minister's graphic alternatives of 1961. It could be a springboard, but we on this side of the House fear that under this Government and under this Prime Minister it will not be a springboard.
9.33 p.m.
The Secretary of State for Economic Affairs (Mr. Peter Shore): I have rather less than 30 minutes in which to reply to a number of questions that were put to me and they have come so fast and furious during the last 10 or 15 minutes that I would need an hour and a half to deal with them adequately. I have also to answer the quite important questions put by the right hon. Member for Devon, North (Mr. Thorpe), and, of course, the right hon. Member for Enfield, West (Mr. Iain Macleod).
I start with a number of quick replies before returning to the central theme of this debate. I was asked when the export rebate would be abolished. My right hon. Friend the Chancellor of the Exchequer has authorised me to say that he intends to abolish the rebate on 1st April, 1968. That is to say, it will be paid on exports which qualify on or before 31st March, but not thereafter. Claims for the first quarter of 1968 will be accepted and paid as usual, but after that the rebate will disappear.

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My right hon. Friend will make his statement about the Selective Employment Premium as soon as he possibly can.
Mr. Tilney Mr. Tilney rose—
Mr. Shore: I will not be—
Mr. Speaker: Order. The right hon. Gentleman is not giving way.
Mr. Shore: I must get through these questions before turning to the debate.
I was also asked a questiton about public expenditure and about what part of the package announced by my right hon. Friend yesterday was to be set against the 3 per cent. public expenditure on average growth from 1968 onwards. It is the defence expenditure that comes under that particular definition of public expenditure. It is the defence expenditure cuts which were announced and also a certain part of the civil expenditure cuts, again more details of which the House will hear shortly.
On the question of the defence cuts, there will be a further statement tomorrow. Those are three of the more important questions which were put to me. [HON. MEMBERS: "Answer."] I would like to help the House as best I can. I understand the sort of mood that Members are in, but it is a great mistake to waste time by asking for further and further elucidations of minor points which can be dealt with, and which will be dealt with, either tomorrow or later, when I think that what the House really wants is to get on with the substance of the debate.
Mr. Iain Macleod Mr. Iain Macleod rose—
Mr. Shore: Before—
Hon. Member: Give way.
Mr. Shore: In a moment, I will.
Before finishing this brief answer to questions, I would like to assure the right hon. Member for Devon, North, in a direct answer to his question, that we have no intentions of introducing a wage or price freeze.
Mr. Iain Macleod: Would the Secretary of State answer this question? It is not a question of mood. It is a question of fact. The Chancellor of the Exchequer
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has already—the difference between 7·8 and 3—promised reductions of £600 million. Are the £400 million extra or not?
Mr. Shore: Public expenditure definition is the main problem here. The nationalised industry expenditures, as I am sure the right hon. Gentleman knows, are not included in those figures which my right hon. Friend gave. Therefore, they cannot be set against that. As I have said, what is set against the public expenditure figures as defined by my right hon. Friend are the defence expenditure and a part of the civil expenditure, of which we shall have more details soon. That, I hope, is enough for that particular question.
I would now like to take up some of the points—[Interruption.]
Mr. Speaker: Order, order. We have listened to one Front Bench quietly. We might do the same now.
Mr. Shore: I would like now to turn to some of the points made in the speeches which we have heard from the Opposition Front Bench during the course of the day. The right hon. Member for Enfield, West is wrong on quite a number of things. I think that he is quite wrong on the facts, as he put it, of three Socialist devaluations. He knows perfectly well that the devaluation which took place in 1949 was a devaluation in this country by which, like virtually every other combatant country in the world which fought in the Second World War—we were forced to readjust our exchange rate in an entirely different situation. [HON. MEMBERS: "Oh."] If I was addressing people in a more sober frame of mind, the point would be well taken. It surely is unanswerable.
The second point I would make on this—it is, again, a very simple point—is that, as in so many things, we Socialists are merely pupils of the Tory Party, because the Tories devalued, as they know perfectly well, in 1931, when they were in charge of the National Government and they devalued again in 1940 on the outbreak of war. They devalued because they felt that in those circumstances—I am not quarrelling about the circumstances—it was the right thing to do.
I make this point to get straight away in view of what I consider to be an

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enormous amount of humbug about the moral issues involved in devaluation. There certainly are consequences from devaluation, and it is true that certain people who hold balances are likely to be affected. This is clearly something that we should have wished to avoid. It was among the factors that weighed with my right hon. Friends, and, in fact, they would have liked very much not to have inflicted what is admittedly a hardship upon such people. But I leave that point on the moral issue now, and I turn to what, in many ways, I think, is a rather more important point.
It was clear to me from the speeches I heard that, in the view of the right hon. Member for Enfield, West, this devaluation should have been avoided, ought not to have happened and could have been avoided. I am not sure whether hon. Members opposite would say "yes" to all three points. This, I think is very interesting, because the plain fact of the matter is that this year, and for the reasons that have already been given to the House, we were continuing to accumulate a deficit on the balance of payments of over £200 million and, as has already been explained, the outlook for next year was in no sense encouraging.
I think, therefore, that the question for policy was: what new act of policy ought to be introduced in this situation? [HON. MEMBERS: "Resign."] Hon. Members say "Resign". Well, I would like to be clear what they would have asked the Government to do and what they would have done, as a Government, to close that balance of payments deficit. After all, they know perfectly well that they began it. They handed on an enormous debt to us and this debt has continued. The question is: what would they have done to put this deficit right?
We heard a little about their policies during the debate—encouraging producers of wealth, removing taxation, cutting down on expenditure. I should like to read a very serious comment upon the policies of right hon. Members opposite, written by somebody whose comments they might take very seriously. The writer sums up the position by saying this:
"In spite of the pre-eminent place of economic affairs in the political debate the Conservative Party is without an economic policy. It is this which makes the Tories appear in the present political context little more than an irritating irrelevance."
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I suspect that hon. Members opposite will recognise the style. It is one of a series of articles written earlier this year by Mr. Nigel Lawson, the editor of the Spectator, and who, I think, at one time played quite a considerable part in advising their political leaders.
I should like to read one further extract, though I shall not labour the point. It is well worth reading. After quite a long piece, the writer states:
"The conclusion is inescapable, the Conservative Party at the present time has no answer, or at least no answer that it can call its own, to the really big economic problems with which economists and civil servants grapple and on which Governments spend so much of their time these days."
I think that the policies that have been suggested—these broad generalities about dealing with restrictive practices and giving incentives—are really quite inadequate for dealing with the problems that all Governments—the present Government certainly—have had to face. I cannot help putting to myself, therefore, and, I hope, to them, the question which forms in my mind about what they would have done had they been in this situation now. What policy would they have pursued had the nation been so unwise as to elect them in 1964?
The answer is clear. Right hon. and hon. Gentlemen opposite would have chosen deflation. This is the whole point. This is what the debate is about. This is the real issue. After three years, trying many different policy approaches, we are forced to choose between a strategy of deflation and unemployment and a strategy of devaluation. That has been the issue, and we are certain, from what has been said today, that right hon. Gentlemen opposite stand for deflation. They will always choose unemployment, and that is their policy. I am sure that the right hon. Member for Enfield, West, before the year is out, will regret the attitude which he has taken in this matter.
Yesterday, the Leader of the Opposition argued that we would need to produce 15 per cent. more in exports even to keep in our present position. This, he said, was the real cost of devaluation. That is a remarkable calculation. It would be true only if there were no change in the prices of British exports. But it is an absurd argument. I have no

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doubt that the prices of British exporters will vary—I hope that they will be flexible about it and take advantage of different markets according to circumstances—but they will, I am sure, rise by a least 4 to 5 per cent., and to that extent they will detract from the volume of extra exports which, in his television broadcast, the right hon. Gentleman the Leader of the Opposition suggested would be needed. The other factor which the right hon. Gentleman left out of account was the effect of higher import prices on reducing the volume of imports. We are not, therefore, faced with the fantastic picture of an immediate need to increase exports by 15 per cent. in volume.
The same point applies to prices. In his broadcast last night, the Leader of the Opposition said that prices would go up about by 2s. 10d. or 2s. 11d. in the £. This figure has been used loosely and in a damaging way by a number of people who ought to know better.
Mr. Maxwell: And do know better.
Mr. Shore: Yes, and do know better. I thank my hon. Friend for that. This is to refer simply to the change in the exchange rate. Our calculations are quite clear. The increase in the cost of living due to devaluation will be about 2½ to 3 per cent., and that, far from being 2s. 10d. in the £, works out at about 7½d. in the £, which is very different.
I shall not deal now with the case for devaluation as such, because it was argued so cogently this afternoon by my right hon. Friend the President of the Board of Trade and there will be a further development of the case tomorrow. I shall turn to the accompanying measures and the implications for the prices and incomes policy, which, I am sure, will be of interest to the House. Now that we have devalued, whatever the arguments may be on that, we have an immense opportunity for a prolonged period of faster and steadier growth than we have had since the war, and combined with full employment. This will involve restraint over the next year if we are not to throw the opportunity away.
The balance of payments will remain difficult for some time. We still have the problem that the Suez Canal is closed, and devaluation may aggravate the deficit for a time, because the rise
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in import prices will not be immediately offset by an equivalent rise in export sales.
Therefore, we must maintain confidence in the difficult months ahead. We must avoid an upward spiral in incomes and prices, which could quickly fritter away the competitive advantage we have gained. We must see that there are plenty of resources available for extra exports and import-saving production.
This means, first, a package of measures to restrain home demand. It would be quite wrong to call this a deflationary package. It is not, because it is coupled with devaluation and will simply mean restraining the growth of demand at home to make room for the growing demand of exports and import-saving. That is our calculation, and that is our strategy in the package which we have produced. In other words, to achieve a genuine transfer of resources we expect that production in total will expand next year and that unemployment will fall.
Moreover, the increase in output will be concentrated directly on production for exports and import-saving, and on investment for export and import-saving. Here, I may reply to the right hon. Gentleman by saying, "Yes. We do expect investment in private industry to rise during next year."
I now turn directly to the prices and incomes policy. Clearly, we must restrain increases in costs. We must not undo the effects of devaluation by seeking to boost incomes without increasing production. Therefore, we cannot allow money incomes to increase simply to compensate for the rise in the cost of living. I have already explained that we expect this to be 2½ to 3 per cent. as a result of higher import prices.
Sir K. Joseph: The right hon. Gentleman said, "We cannot allow". Is he talking of a law or not?
Mr. Shore: This will become perfectly plain if I may continue my statement.
The rise in import prices does not mean that the standard of living of work-people as a whole will be reduced. There may be a very small temporary reduction for some of those in full-time work. But this will be accompanied by the increased standard of living of those now unemployed who will be drawn into employment in the course of next year by the

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reduction in short-time working and the increase in overtime working.
In addition, although this is not the occasion to reveal what is in Ministers' minds—[Laughter.] If I may finish—[Interruption.]
Mr. Speaker: Order.
Mr. Shore: I should have said "In Ministers' minds on this particular point."
Mr. Heath Mr. Heath rose—
Mr. Shore: Will the right hon. Gentleman wait one moment? The Government are pledged to protect from hardship the most vulnerable sections of the community.
Mr. Heath: Could the right hon. Gentleman say whether he made that last statement on an unattributable basis?
Mr. Shore: Any small temporary reduction in the standard of living of those now employed is worth while if it enables many more to be employed, whereas with alternative policies we should have had many more out of work than at present. Now, therefore, more than ever we need an effective policy on productivity, prices and incomes. It requires intensification of the drive for more productivity and efficiency; determination to avoid inflationary income increases; restriction of price increases to the minimum justified by import price rises and other unavoidable cost increases; and the prevention of unfair exploitation of the situation by profits and dividends.
The Government, as I have already assured the right hon. Member for Devon, North, are not asking for a freeze. It would be nonsense on prices anyway, because, as I have already pointed out, there will be this increase in prices as a result of devaluation itself. It would create the strongest disincentive to productivity bargaining at a time when productivity is needed more and more and impose severe and unnecessary hardship on the lowest paid.
Nor should new statutory powers be required. Management and unions are not being asked to do something against their best interests. Management have a great deal to gain from the new export and import-saving opportunities. I do not accept the calculations that some hon. Members opposite have made about the
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net effect of the loss of the rebates and the premium against the gain of devaluation itself. So managements have much to gain here. Unions have a great deal to gain from the increased employment and earnings opportunities as production expands.
I have asked the C.B.I. and T.U.C. for their co-operation in maintaining and strengthening the policy set out in the White Paper on Prices and Incomes Policy of 30th June, 1967, under which there is no entitlement to a "norm" or standard increase in income and increases in incomes and prices have to be justified against strict criteria, including of course the lower paid, of the national interest which are equally relevant to the new situation. The firm application of these criteria in a situation in which devaluation will be directly affecting the cost of living will call for a major effort from the two sides of industry. But it is essential that only unavoidable price increases are made; and that these do not lead to consequential wage increases.
I well understand that this is to expect a great deal from management and unions. They made great efforts in the standstill and in the severe restraint period to put the national interest first. In this new situation they are still being asked to sacrifice immediate personal benefit in the interests of the whole community. But the difference now is that we start out with a competitive advantage, whereas previously we were struggling to secure one. The task now is to maintain that position and take full advantage of it. This is a task that should not be beyond a voluntary prices and incomes policy.
I must now sum up. The time has been eroded by my efforts to answer the questions that were put to me. I return to the basic problem that we have faced from 1964 onwards. Our aim has been to get the economy out of the red. In July last year we were forced into a "stop" phase. We did many things in that "stop" phase to try to make it a much more creative one in very many different ways than we experienced in the 1961–62 and 1957–58 periods. Although in a number of important fields we enjoyed considerable success, it was becoming clear in the autumn of this year that these measures would not prove sufficient and that the controlled reflation which

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we then initiated would be endangered by further balance of payments difficulties.
So this was the choice: we could either deflate once again—with all that that means to the plans and hopes of tens of thousands of our fellow-citizens and in the waste of economic and human resources, or we could devalue.
I am certain that we have made the right choice. For years the British economy has been imprisoned by the balance of payments restraint. We have broken out, and if we now have the will and the self-discipline to make the best use of our new freedom we can transform our economic prospects and regain our national self-confidence and look forward to a better future for our people. That is the policy which the Government are pursuing and on which we shall be voting tomorrow night.
It being Ten o'clock, the debate stood adjourned.
Debate to be resumed Tomorrow.

ORDERS OF THE DAY

  TEACHERS SUPERANNUATION (SCOTLAND) BILL
  Order for Second Reading read.
  Motion made, and Question put (pursuant to Standing Order No. 62 (Public Bills relating exclusively to Scotland)), That the Bill be committed to the Scottish Standing Committee.—[Mr. Millan.]
  Question agreed to.
  Bill (deemed to have been read a Second time) committed to the Scottish Standing Committee.

  TEACHERS SUPERANNUATION (SCOTLAND) [MONEY]
  [Queen's Recommendation having been signified]
  Resolved,
  That, for the purposes of any Act of the present Session to amend the law in Scotland relating to the superannuation and other benefits payable to or in respect of teachers and certain other persons employed in connection with the provision of educational services, it is expedient to authorize—

  (1) the payment out of moneys provided by Parliament of any expenses incurred by the Secretary of State, so far as they are not met under section 1(2) of the Reorganisation of Offices (Scotland) Act 1939, in consequence of any provision of this Act or of regulations made there-under;

  (2) the payment into the Exchequer of any sums received by the Secretary of State by virtue of any provision of this Act or of regulations made thereunder.—[Mr. Millan.]

  DISABLED POLICEMEN (SUPERANNUATION)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Gourlay.]
  10.1 p.m.
  Mr. Ron Lewis: After the excitement of the economic debate, I wish to raise a matter which has caused great concern in many parts of the country. Many hon. Members will readily realise that my reason for drawing the attention of Parliament to the very vexed question of disabled policemen and their inadequate superannuation

  1273
  arises from the dismissal of P.C. Archibald, a constituent of mine, from the Cumbria Police Force.
  The police service in this respect had a rather bad Press, largely, I would say, due to the failure of the police authority to explain its own position as well as to the rather precipitate action in retiring P.C. Archibald now instead of in a few months' time. In saying that, I would not wish to infer that the members of the Cumbria Police Committee are not capable of exercising their duty. Most of them have given a lifetime of service to the public and I know that their decision was not made in a light vein.
  As a result of the adverse publicity, I have received a large volume of correspondence from all over the United Kingdom, and, in particular, from ex-policemen who, like P.C. Archibald, have been compulsorily retired from the police as a result of injuries sustained in the course of duty in trying to restore order or to arrest criminals.
  Many of these men, with perhaps ten years or more service, some with less, now find themselves living on a few pounds per week. Some have been unfortunate in getting fixed up in housing, but in the case of P.C. Archibald I am glad to say that Carlisle City Council quite rightly has already made it clear that when he leaves the force he will be rehoused in a corporation house if he so desires.
  I emphasise that members of the police forces, particularly in the ranks of constable, sergeant and inspector, who are compulsorily retired as a result of injury on duty and who have ten years' service or more, as a general rule receive no more from the police pension fund than would be paid in cases of ill health retirement quite unconnected with injury on duty. This anomally or incongruity is highlighted in those all too frequent cases of medical retirement through injury sustained in acts of conspicuous gallantry.
  The pensionable pay of a provincial police constable is £1,095 a year at five years' service, £1,135 from six to 13 years' service, £1,170 from 14 to 18 years' service, and a maximum of £1,205 after 19 years' service, with an additional £50 a year for male constables in the Metropolitan and City of London Police Forces.
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  At the outset, it must be conceded that retirement due to injury on duty when a constable has less than ten years' service results in a police pension instead of the gratuity payable for ill health retirement unconnected with police duties. It would be utterly wrong at this late hour to go into the details of the income of my constituent, about whom so much has been said and written, when he leaves the force. It is sufficient to say that the regulations themselves need revising so that any policeman, or policewoman, who is seriously injured in the pursuit of his duty receives an adequate remuneration if he has to leave the force, particularly if his injuries are such that he will not work again.
  I could give many examples of correspondence which I have received. There was the case of the police constable in the Lincolnshire Constabulary, about whom my hon. and learned Friend may know something, who received injuries in the execution of his duty and who up to that time had received two commendations from the previous chief constable. His disability pension is classified at 20 per cent. and, after successive increases, he now receives only approximately £3 a week. That is not sufficient. There is also the case of a police constable in the constituency of my hon. Friend the Member for Sedgefield (Mr. Joseph Slater) who received publicity, as has the Archibald case.
  My complaint is about the painfully inadequate recompense given by way of pension to those unfortunate policemen who are injured in the course of their duty and who seek to maintain a family alongside able bodied men. Another important point in the majority of these cases is that there is no public fund to augment the pension. Fortunately, there is in the case of my constituent.
  Unlike those employed in industry, if a policeman is injured he cannot go to court and seek damages for negligence.
  Many who have been forced to retire from the force, had they been injured in a factory job, would have received very good compensation. Not so in the case of the policeman. Up till March of this year I was a member of a police committee, and have been for about 15 years. I understand that there is a very grave shortage of policemen in certain areas and, at the same time, crime appears to

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  be on the increase. Such treatment as is meted out to those policemen who have been compulsorily retired is hardly encouragement for the right personnel to join the force, bearing in mind that their duties are unenviable, even at the best of times.
  Our policemen and police force are the best in the world, and I would like to pay my tribute to them. In my young days when we saw a "Bobby" we were frightened and very often ran away from them. In my later years I realised that the policemen are our best friends. In the main they are always friendly, always ready and helpful with advice and information, and at the same time ready to carry out their duty by protecting us from the small minority who are out to break or dodge the laws and to cause trouble.
  Surely it is the duty of the nation to protect them should they have the misfortune to lose their job as a result of injury and I trust that the Home Secretary will give an undertaking to review the police superannuation schemes to ensure that in future justice will be done.
  10.12 p.m.
  The Under-Secretary of State for the Home Department (Mr. Dick Taverne): My hon. Friend has put before the House a matter which deserves the most earnest and sympathetic consideration, and I am glad that he has raised this matter. Like all of us he is concerned with fair and adequate financial provision for police officers who are retired because of disablement as a result of injuries received in the performance of their duties.
  I very much agree with my hon. Friend's general approach and, having had some experience in the course of the last year and a half, I cannot speak too highly in praise of the police service and the way in which its members help us, ensuring that we can lead our normal lives. When a policeman is injured in the course of his duties the least that we can do is to ensure that he and his dependants are treated fairly and sympathetically.
  The hon. Member raised the case of P.C. Archibald, and when the first details of this case came out in the Press the Home Secretary immediately expressed his concern and made inquiries about
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  his treatment by the Cumbria Police authority. Apart from the hon. Member, several other hon. Members have written about this case. As a result a reply was on its way but my right hon. Friend decided to delay the reply until this debate had taken place.
  Before I come to this case, perhaps I should say something about the pension regulations and the way in which police officers who are disabled in the course of their duties are dealt with. There are two separate questions which arise. The first is the general framework and whether this general framework is adequate. The second is whether the Cumbria authority acted properly within this general framework in dealing with the case of Police Constable Archibald.
  First, I should like to give an assurance to my hon. Friend on a matter which has caused some concern. Police officers who are disabled in the course of their duty are not retired from the service until careful, individual and sympathetic consideration has been given to their case. Of course, the decision is not for the Home Secretary; it is for the police authority. But I am assured that if it is possible to employ police officers on light duties either in the uniformed service or in civilian duties, this is done.
  It sometimes happens that police officers prefer to retire so as to take other work, but no decision is taken that an officer should be retired without full consideration of medical advice, and usually a decision is not reached until a long period has elapsed after the injury was received. This may sometimes be a matter of two years, and during the whole of this period the officer is on full pay and allowances.
  If, in the event, the officer is retired, he is then granted a pension under the provisions of the Police Pensions Regulations, which my hon. Friend has questioned. These Regulations are prepared after consultation with the Police Council on which both the official and staff sides are represented. They are subject to affirmative Resolutions of this House, and hon. Members may recall that a consolidated set of Regulations was introduced by me and approved at the end of last year.
  In these unfortunate disablement cases, the Regulations set out to ensure that an

  1277
  officer should receive from public funds—and by "public funds" I mean either by way of police pension alone or a combination of police pension or pensions and social security benefits—not less than specified proportions of pay which are found to be appropriate to his circumstances. The proportions vary according to his years of service and the degree of his disablement. The highest proportion laid down in the Regulations is five-sixths of pay, but in some circumstances the officer's combined benefits can substantially exceed that proportion.
  As I have implied, police officers and their families are entitled to social security benefits in the same way as everyone else, and benefits under social security legislation are usually payable in respect of injury. To some extent, these benefits are taken into account in the calculation of the police pension. Coming to the somewhat complicated details, in the first place, the officer is entitled under the Regulations to a basic pension which is the accrued pension he has earned over his years of service. This pension is payable in all circumstances and is unaffected by any social security benefits which he may be receiving.
  In addition, the Regulations provide for the payment of a supplemental pension which represents the difference between the basic pensions and the specified proportion of pay which take account of the degree of disablement. But the amount of the supplemental pension which is payable depends on the social security benefits which he receives.
  I come to particular examples, including Police Constable Archibald's case. A police constable like Mr. Archibald who retired after nine years' service with the degree of disablement of 40 per cent..—that is, when his earning capacity has been affected to that extent—would receive a basic police pension of £149 a year, which represents nine-sixtieths of his pensionable pay. If he were not receiving any social security benefits, he would receive in addition a tax-free supplemental pension, which would bring his total police pension to £265 a year. However, it could be that he would receive a tax-free industrial injuries disablement pension of about £198 a year, in which case, although the police supplemental pension would not be payable, his total benefit would be
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  £149 plus £198, or a total of £347 a year, and he would continue to receive this while the degree of disablement persisted, whatever work he took up. if he were unable to take employment, he would receive in addition—assuming that he satisfied the usual conditions—social security benefits which, if he were married with two children, would bring his total income to £835 a year.
  To summarise Police Constable Archibald's case, in addition to his police disability pension of £12 a month, which is all that was mentioned in the Press, he is also eligible for social security benefits which, if he satisfies the relevant conditions, may bring his income to about £835 a year. Not all of this payment, of course, would continue if he were to take on other employment. In addition, however, he became eligible for certain other benefits, to which I shall come presently.
  This is a case where the officer's degree of disability has been assessed at 40 per cent., but had he been exceptionally severely disabled the benefits by way of police pension and social security benefits which he and his family might receive could be as much as £1,500 a year.
  One other set of circumstances which I should like to mention by way of illustration is that of a married constable, without children, who is retired with exceptionally severe disability after completing 30 years' service. His basic pension would be £752 a year. His police supplemental pension would bring up the total police pension which could be paid to £940 a year, but the benefits which he might receive from both police pension and social security sources could be, in total, £1,995 a year. I emphasise that this would be an extreme case or exceptionally severe disability.
  I realise that this is a rather complex matter to explain, but the examples which I have given draw particular attention to two points. The first is that the amount of a police pension depends to some extent on the degree of disablement. That degree is assessed by a police medical officer, but if the police officer thinks that the degree of disablement which he has suffered is more severe than the assessment, he can, of course, appeal to an independent medical referee. The second point is that in addition to any police pension actually payable, considerable benefits can be paid

  1279
  in respect of the injury under social security legislation.
  I should mention one further benefit which is avilable to police officers. If an officer's disablement is attributable to a criminal offence or to certain other circumstances, such as injury received in the course of effecting an arrest or attempting an arrest of an offender, compensation may be paid by way of lump sum under the Scheme of Compensation for Victims of Crimes of Violence.
  Again, I come back to Constable Archibald's case because it is important to note that in addition to the benefits that he would be receiving by way of income, which would be in the region of £835 a year, he has so far received over £2,000 from this scheme and from other sources and it seems possible that he may receive further sums.
  Lastly, I should mention the circumstances in which his employment in the police service came to an end. Since he returned to duty in September, 1965, he has been employed in administrative work in the C.I.D. in the Cumbria Police Force. The job was specially made for him because his injuries made it quite impossible for him to carry out normal outside duties of a beat constable.
  Even so, he has had long periods of sickness, during which he received full pay, and an operation on his foot which was undertaken to restore some degree of
  1280
  mobility has, unfortunately, been unsuccessful. The police authority then came to the conclusion that he was unlikely to be fit for normal police duties again and discharged him from the service with effect from 1st December.
  I have no doubt that the police authority would have been prepared to offer him employment with the police force as a civilian, but he himself has made it clear on several occasions, as he recently did on television, that he was simply not interested in a desk job and that he wanted to go into the licensed trade. I understand that that is what he wants to do now.
  From all this, I hope that my hon. Friend will agree, first, that the general framework is not unreasonable and, indeed, compares favourably with many other forms of employment. I think that it is right, in considering the adequacy of the benefits to policemen disabled in the course of their duties, to look at the total benefits payable from public sources and not only the amounts from police funds.
  I hope that the House will agree that the Cumbria authority has acted properly within the general framework. This is not, I would have thought, a case in which one could say that an officer who has acted with very great gallantry has simply been thrown on the scrap heap.
  Question put and agreed to.
  Adjourned accordingly at twenty-four minutes past Ten o'clock.

NATIONAL FINANCE
  Close Companies
  Close Companies
  United States Securities
  United States Securities
  Selective Employment Tax
  Selective Employment Tax
  Public Expenditure
  Public Expenditure
  Customs and Excise Officers (Scotland)
  Customs and Excise Officers (Scotland)
  Computer Centre (Scotland)
  Computer Centre (Scotland)
  Direct Investment (Australia)
  Direct Investment (Australia)
  Devaluation (Prices)
  Devaluation (Prices)
  Crown Estate Foreshore
  Crown Estate Foreshore
  Income Tax
  Income Tax
  Government Departments (Property Purchases)
  Government Departments (Property Purchases)
  Charities (Sterling Payments to Rhodesia)
  Charities (Sterling Payments to Rhodesia)
  Travel Allowance
  Travel Allowance
  Cabinet Office (Scientific Civil Servants)
  Cabinet Office (Scientific Civil Servants)
  Standard Industrial Classification
  Standard Industrial Classification
  Civil Service Pensioners (Road Safety Act)
  Civil Service Pensioners (Road Safety Act)
  Bank Rate
  Bank Rate
  Direct Investment (New Zealand)
  Direct Investment (New Zealand)
  Civil Servants (Numbers)
  Civil Servants (Numbers)
  Civil Service (Wages and Salaries)
  Civil Service (Wages and Salaries)
  Bank of International Settlements (Loan)
  Bank of International Settlements (Loan)
  Value-Added Tax
  Value-Added Tax
  Government Contracts (C.B.I. Negotiations)
  Government Contracts (C.B.I. Negotiations)
  Nationalised Boards (Chairmen's Salaries)
  Nationalised Boards (Chairmen's Salaries)
  Post-War Credits
  Post-War Credits
  Foreign Loans
  Foreign Loans
  Swiss Bank Loans
  Swiss Bank Loans
  Parliamentary Commissioner's Office (Staff)
  Parliamentary Commissioner's Office (Staff)
  American and Canadian Loans
  American and Canadian Loans
  Public Service Pensions
  Public Service Pensions
  Inland Revenue (Staff)
  Inland Revenue (Staff)
  Finance Act, 1965 (Companies)
  Finance Act, 1965 (Companies)
  Sterling
  Sterling
  Tobacco Duty
  Tobacco Duty
  Companies (Capital Investment Abroad)
  Companies (Capital Investment Abroad)
HOUSING
  Mortgage Quota (Market Harborough)
  Mortgage Quota (Market Harborough)
  Council Houses (Birmingham Overspill)
  Council Houses (Birmingham Overspill)
  100 Per Cent. Mortgages
  100 Per Cent. Mortgages
  Older Houses (Review)
  Older Houses (Review)
  Expensive Site Subsidy
  Expensive Site Subsidy
  Disabled Persons
  Disabled Persons
  New Houses, Dorset, (Applications)
  New Houses, Dorset, (Applications)
  Housing Subsidy (England and Wales)
  Housing Subsidy (England and Wales)
LOCAL GOVERNMENT
  Tower Hill
  Tower Hill
  New Towns (Industry)
  New Towns (Industry)
  Land Commission
  Land Commission
  Rate Rebate (Blyth, Bedlington and Seaton Valley)
  Rate Rebate (Blyth, Bedlington and Seaton Valley)
  Oil Pollution
  Oil Pollution
  Planning Permission
  Planning Permission
  Flood Barrier (Purfleet)
  Flood Barrier (Purfleet)
  Dawley New Town (Schemes)
  Dawley New Town (Schemes)
  Town Centre Redevelopment Schemes (North-West Region)
  Town Centre Redevelopment Schemes (North-West Region)
  Derelict Land, Northumberland (Reclamation)
  Derelict Land, Northumberland (Reclamation)
  Building Regulations
  Building Regulations
  Industrial Development Grant (North-West Region)
  Industrial Development Grant (North-West Region)
COMMONWEALTH AFFAIRS
  Aldabra Atoll
  Aldabra Atoll
  Rhodesia
  Rhodesia
  Anglo-Australian Relations
  Anglo-Australian Relations
ELECTRICITY
  Thorpe Marsh Power Station (Breakdown)
  Thorpe Marsh Power Station (Breakdown)
COAL
  Mining Manpower, South Wales (Decline)
  Mining Manpower, South Wales (Decline)
  National Coal Board (Surplus and Deficit Per Head of Population)
  National Coal Board (Surplus and Deficit Per Head of Population)
MINISTRY OF POWER
  Fuel Requirements (North-West)
  Fuel Requirements (North-West)
  Shipbuilding Industry (Steel Prices)
  Shipbuilding Industry (Steel Prices)
TECHNOLOGY
  Electro-Chemical Machinery Projects (Government Support)
  Electro-Chemical Machinery Projects (Government Support)
  Concord Aircraft
  Concord Aircraft
  Atomic Weapons Research Establishment (Civil Expenditure)
  Atomic Weapons Research Establishment (Civil Expenditure)
  Departmental Contracts (Electronics Association, North East)
  Departmental Contracts (Electronics Association, North East)
  Dounreay Experimental Reactor Establishment (Brain Drain)
  Dounreay Experimental Reactor Establishment (Brain Drain)
  British Ship Research Association
  British Ship Research Association
HOME DEPARTMENT
  Police Officers (Deaf Persons)
  Police Officers (Deaf Persons)
  Indictable Offences (Cambridge)
  Indictable Offences (Cambridge)
  Commonwealth Immigrants
  Commonwealth Immigrants
  SOUTH AFRICA (DEFENCE EQUIPMENT)
  SOUTH AFRICA (DEFENCE EQUIPMENT)
  ALGERIA (BRITISH AIRCRAFT)
  ALGERIA (BRITISH AIRCRAFT)
  RHODESIA
  RHODESIA
  NORWAY (FOREIGN SECRETARY'S VISIT)
  NORWAY (FOREIGN SECRETARY'S VISIT)
  REFUGEES (UNITED NATIONS PROTOCOL)
  REFUGEES (UNITED NATIONS PROTOCOL)
  MIDDLE EAST
  MIDDLE EAST
  VIETNAM
  VIETNAM
  YEMEN
  YEMEN
  SOUTH ARABIA
  SOUTH ARABIA
  TERRITORIAL INTEGRITY AND POLITICAL INDEPENDENCE
  TERRITORIAL INTEGRITY AND POLITICAL INDEPENDENCE
  GIBRALTAR
  GIBRALTAR
  SUEZ CANAL
  SUEZ CANAL
ECONOMIC AFFAIRS
  Unemployment (Development Areas)
  Unemployment (Development Areas)
  National Institute of Economic and Social Research (Immigration Report)
  National Institute of Economic and Social Research (Immigration Report)
DUCHY OF LANCASTER
  Wages and Salaries (Standstill)
  Wages and Salaries (Standstill)
MINISTRY OF DEFENCE
  Scots Greys Regiment
  Scots Greys Regiment
  Aldabra Atoll
  Aldabra Atoll
  Recruitment (Expenditure)
  Recruitment (Expenditure)
  Research and Development Establishments (Civil Projects)
  Research and Development Establishments (Civil Projects)
  Sea Cadet Corps
  Sea Cadet Corps
SCOTLAND
  Electricity Charges (Aluminium Smelting Companies)
  Electricity Charges (Aluminium Smelting Companies)
  Car Treasure Hunts (Regulations)
  Car Treasure Hunts (Regulations)
  Intensive Livestock Units (Rates)
  Intensive Livestock Units (Rates)
  Young Offenders (Convictions)
  Young Offenders (Convictions)
  M8 (Signposting)
  M8 (Signposting)
AGRICULTURE, FISHERIES AND FOOD
  Flood Protection (Richmond)
  Flood Protection (Richmond)
  Coracle Netting (Licences)
  Coracle Netting (Licences)
  PRIME MINISTER'S PRESS SECRETARY (ARTICLE)
  PRIME MINISTER'S PRESS SECRETARY (ARTICLE)
  ATOMIC ENERGY (STATE PAPERS ON ANGLO-AMERICAN CO-OPERATION)
  ATOMIC ENERGY (STATE PAPERS ON ANGLO-AMERICAN CO-OPERATION)
  GIBRALTAR (MINISTERIAL RESPONSIBILITY)
  GIBRALTAR (MINISTERIAL RESPONSIBILITY)
  DEVELOPMENT AREAS (EMPLOYMENT)
  DEVELOPMENT AREAS (EMPLOYMENT)
  UNEMPLOYMENT (MINISTERIAL CO-ORDINATION)
  UNEMPLOYMENT (MINISTERIAL CO-ORDINATION)
  LEGAL AID (RULES OF THE SUPREME COURT)
  LEGAL AID (RULES OF THE SUPREME COURT)
EDUCATION AND SCIENCE
  Computer Programme
  Computer Programme
  Arts Centres
  Arts Centres
  Late School Leavers
  Late School Leavers
  Local Authority Running Tracks (Grants)
  Local Authority Running Tracks (Grants)
  University of Wales and Rennes University (Exchange Scholarships)
  University of Wales and Rennes University (Exchange Scholarships)
MINISTRY OF LABOUR
  Low Paid Workers
  Low Paid Workers
  Government Training Centres
  Government Training Centres
  Plessey Telecommunications Company (Dispute)
  Plessey Telecommunications Company (Dispute)
  Coal Industry, South Ayrshire (Unemployment)
  Coal Industry, South Ayrshire (Unemployment)
  U.K.A.E.A. Establishments (Industrial Action)
  U.K.A.E.A. Establishments (Industrial Action)
  Employment (North-West Region)
  Employment (North-West Region)
  Unemployment (Barrow, Ulverston, Morecambe and Lancaster)
  Unemployment (Barrow, Ulverston, Morecambe and Lancaster)
  Redeployment (North West)
  Redeployment (North West)
OVERSEAS DEVELOPMENT
  Ghana (Assistance)
  Ghana (Assistance)
  South Vietnam (Technical Assistance)
  South Vietnam (Technical Assistance)
TELEPHONE SERVICE
  Waiting List (Hertford)
  Waiting List (Hertford)
WIRELESS AND TELEVISION
  B.B.C. (Breton News Programme)
  B.B.C. (Breton News Programme)
POST OFFICE
  Postal Order Service
  Postal Order Service
  Postal and Money Orders (Amounts Under 5s.)
  Postal and Money Orders (Amounts Under 5s.)
SOCIAL SECURITY
  Retirement Pensions (Means Test)
  Retirement Pensions (Means Test)
PUBLIC BUILDING AND WORKS
  Government Office Projects (North West)
  Government Office Projects (North West)
BOARD OF TRADE
  Industrial Development Certificates (Floor Space)
  Industrial Development Certificates (Floor Space)
  Empty Factories (G.L.C. Area)
  Empty Factories (G.L.C. Area)
  Investment Expenditure (North-West Region)
  Investment Expenditure (North-West Region)
  Departmental Acquisition of Land (North-West Region)
  Departmental Acquisition of Land (North-West Region)
AVIATION
  British European Airways (Belfast-London Service)
  British European Airways (Belfast-London Service)
RAILWAYS
  Aberdeen—Ballater Line
  Aberdeen—Ballater Line

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

MESSAGE FROM THE QUEEN
LORD COBBOLD: My Lords, I have the honour to present to your Lordships a Message from Her Majesty the Queen signed with her own hand. The message is as follows:
"I have received with great satisfaction the loyal and dutiful expression of your thanks for the Speech with which I opened the present Session of Parliament."

PHYSIOTHERAPISTS IN N.H.S. HOSPITALS
2.36 p.m.
LORD FRASER OF LONSDALE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they will state how many physiotherapists are employed in National Health Service hospitals and how far this number is short of establishment.]
THE PARLIAMENTARY SECRETARY, MINISTRY OF HOUSING AND LOCAL GOVERNMENT (LORD KENNET): My Lords, the latest figures available show that on September 30 last year the equivalent of 4,229 whole-time physiotherapists were employed in National Health Service hospitals in England and Wales, an increase of over 3 per cent. on the preceding year. Because the prescribing of physiotherapy by doctors varies so widely no generally accepted staffing standards have been devised and there is no national establishment figure that would enable a meaningful estimate of shortage to be
900
made. More physiotherapists are needed, however, and measures have been taken to expand training facilities, to encourage the employment of physiotherapists who are only able to work part-time, and to promote the more effective deployment of available staff.
LORD FRASER OF LONSDALE: My Lords, are there not a number of well-qualified and well-equipped physiotherapists in private practice all over the country? While waiting for the establishment to be filled, might not their services be used by recommending that patients should go to them, thereby encouraging fuller employment, avoiding waste and avoiding waiting lists?
LORD KENNET: My Lords, I will draw to the attention of my right honourable friend what the noble Lord has said. However, not all patients would be able to pay for the services of private physiotherapists. That might be a difficulty.
BARONESS SUMMERSKILL: My Lords, could the noble Lord say what is the commencing salary of a physiotherapist under the National Health Service?
LORD KENNET: My Lords, it is £700 per annum.
BARONESS SUMMERSKILL: Is the noble Lord aware that in industry the commencing wage for unskilled men is much higher than that?
LORD KENNET: Yes, my Lords.

SUNDAY TRADING LAWS
2.38 p.m.
LORD DERWENT: 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 when it is their intention to introduce legislation to amend the law as regards Sunday trading.]
THE MINISTER OF STATE, HOME OFFICE (LORD STONHAM): My Lords, the Government consider that the recommendations of the Departmental Committee on Sunday Observance afford a reasonable basis for eliminating the worst anomalies of the present law on Sunday

901
trading in England and Wales; but they can hold out no prospect of Government legislation on this subject in the present Session.
LORD DERWENT: My Lords, can the noble Lord say whether, if a Private Member's Bill were introduced on this subject, the Government would be able to give any help either as regards drafting or as regards Parliamentary time?
LORD STONHAM: My Lords, the Government would support Private Member's legislation to amend the law on Sunday trading if it followed the lines of the recommendations of the Crathorne Report; but the Government cannot enter into any commitment to provide legislative time; nor, for the present, at any rate, can the Government undertake to afford drafting assistance.
LORD DERWENT: My Lords, I note the noble Lord's words "for the present", for which I thank him. I shall take steps to see that a Private Member's Bill is introduced, and I hope that when the time comes the "present" will have ceased and that the drafting help will be available from the Government.
LORD INGLEWOOD: My Lords, would the noble Lord say whether we are more likely to get this legislation after a statement that they have no immediate intention as against giving twenty assurances to Parliament and then tearing them up?

TRANSPORT OF INFLAMMABLE SUBSTANCES
2.40 p.m.
LORD FARINGDON: 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, in view of the repeated questions which he has asked them con-concerning the marketing of vehicles transporting dangerous substances, they can now make a statement.]
LORD STONHAM: My Lords, in reply to my noble friend's last Question on this subject on December 20, 1966, it was stated that my right hon-
902
ourable friend the Home Secretary expected draft Orders dealing with the conveyance by road of dangerous inflammable liquids to come into force early in 1967. Unfortunately, negotiations with industry and other interested bodies on the draft regulations have taken much longer than expected. But final proposals for amendments to the original draft Orders were approved by the Standing Advisory Committee on Dangerous Substances at their meeting last month, subject to consideration of a few outstanding points of detail. Revision of the original draft Orders is being put in hand and will be completed as soon as possible. The Advisory Committee will now turn their attention to similar regulations dealing with other classes of dangerous substances.
LORD FARINGDON: My Lords, I thank the noble Lord for his reply. Like every other reply that I have received on this subject it is a promise of immediate or early action. Can the noble Lord tell me what further delay is likely before the necessary Order is placed?
LORD STONHAM: My Lords, I think my noble friend is aware that I share his sense of frustration at these inordinate delays on this particular question; but there have been many difficulties. Over 200 highly inflammable liquids are concerned, and there have necessarily had to be many long discussions with a great many interested firms and bodies. My information now is that any further delay before the laying of the Order should be very short.
LORD FARINGDON: My Lords, could the noble Lord define "very short"?

ELECTRICITY BILL [H.L.]
LORD ROYLE: My Lords, I beg leave to introduce a Bill to make further provision with regard to the resale of electricity supply by Electricity Boards; and for purposes connected with the matter aforesaid. I beg to move.
Moved, That the Bill be now read 1a. —(Lord Royle.)
On Question, Bill read 1a, and to be printed.

FORTH HARBOUR REORGANISATION SCHEME CONFIRMATION (SPECIAL PROCEDURE) BILL
Considered on Report.

HOUSE OF LORDS OFFICES
THE CHAIRMAN OF COMMITTEES (THE EARL OF LISTOWEL): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Committee on the House of Lords Offices be appointed; and that the Lords following, with the Lord Chancellor and the Chairman of Committees, be named of the Committee:

M. Cholmondeley,

M. Salisbury,

M. Willingdon,

E. Dundee,

E. Dundonald,

E. Jellicoe,

E. Longford,

E. St. Aldwyn,

E. Scarbrough,

E. Swinton,

V. Dilhorne,

V. Goschen,

V. Simonds,

L. Ailwyn,

L. Airedale,

L. Amulree,

L. Beswick,

L. Bowles,

L. Bridges,

Bs. Brooke of Ystradfellte,

L. Burden,

L. Carrington,

L. Champion,

L. Chorley,

L. Conesford,

L. Denham,

L. Hawke,

L. Henderson,

L. Henley,

L. Hunt,

L. Inchyra,

L. Ironside,

L. Jessel,

L. Kennet,

L. Mancroft,

L. Morton of Henryton,

L. Newton,

L. Ogmore,

L. Rea,

L. Reid,

904

L. Robertson of Oakridge,

L. Sainsbury,

L. Saltoun,

L. Shackleton,

L. Silkin,

L. Strang,

Bs. Summerskill,

Bs. Swanborough,

L. Wade,

L. Wise,

Bs. Wootton of Abinger.

—(The Earl of Listowel.)
On Question, Motion agreed to.

DEVALUATION OF THE POUND STERLING
2.44 p.m.
LORD BESWICK LORD BESWICK rose to move, That this House takes note of the actions of Her Majesty's Government in relation to the exchange value of the pound sterling. The noble Lord said: My Lords, I beg to move the Motion standing in the name of my noble friend the Lord Privy Seal. I believe that in this House we shall all share the same general economic objectives. We want a stable currency, an expanding economy and the material means to improve our social services, to help those less fortunate than ourselves, and to afford a higher individual standard of life. Her Majesty's Government still hold to those objectives and believe that in the present circumstances they can more certainly be achieved after taking the measures that were announced this week-end.
It would be idle to ignore the disadvantages of this change in the parity of the pound sterling, but it would be useful, and is indeed essential, to assess the circumstances in which the step was taken, what its effects will mean, and how we as a nation can use to the full the undoubted opportunities which it presents. No place, if I may humbly say so, is better fitted to discuss the causes and consequences of this action more constructively than this House, and I offer my tribute to the noble Lord the Leader of the Opposition for so readily agreeing to a Motion which encourages a constructive discussion.
Much has been made, outside of this House, of the fact that the two post-war devaluations have been brought about by

905
Labour Governments. That is true, but it is not the whole truth. It is also part of the same truth that twice in the postwar world this country has turned to the Labour Party in times of extreme economic difficulty in which the possibility of devaluation was inherent, if not inevitable. Looking back now, objectively, it was not surprising that the Government which inherited the awful burden of problems in 1945, should, despite that American loan, have found it necessary to devalue. But what was more surprising, frustrating and disappointing is that in the years which followed those post-war Labour Governments we did not build on the economic foundations which were laid. The fact is, as we all know, that by 1964, after a succession of booms and slumps, and the "never had it so good" mentality, we were faced with the biggest ever peacetime deficit; and again in that situation the country turned to a Labour Government.
In October, 1964, when they first came to office, the new Government could have devalued. There were some who urged this course. It would have been an easy option for us, but it would have been at a considerable cost to others. Moreover, there appeared a reasonable chance of winning through with other measures: by the reduction of inflationary pressure; by the better control of incomes and prices, and by energetic and longer-term action to re-shape our industry, to improve productivity, and thus improve our export position.
The Prime Minister and the Chancellor of the Exchequer are said to be open to criticism because they spoke forcefully and consistently against devaluation. No doubt there are noble Lords in this Chamber this afternoon who have their quotations ready. But, given the decision to make the attempt to keep the old rate, all common sense surely dictates that the decision should be forcefully defended. A half-hearted attempt would have been worse than no attempt at all. Moreover, the attempt very nearly succeeded. We were winning. The deficit was being cut. It was halved between 1964 and 1965, and further reduced in 1966. This year, unfortunately, progress has been set back, and by events not under the control of a Government in this country.
Our import bill has been increased by the Middle East crisis, and our exports
906
have suffered as a result of the slackening this year in some of our most important markets overseas. And superimposed on these factors has been the self-inflicted injury of the shipping, and now the dock, strikes. At a time when every pound of exports was vital we have had the terrible spectacle of goods sold to overseas customers, but wasting on the dockside. The anticipated surplus of 1967 is now gone. Instead we may have a deficit in 1967 as much as in 1966. It was this prospect, together with the weakness of the pound in the foreign exchange markets that made it plain that further action was necessary to speed up the urgently needed improvement in our position.
It may be asked whether this decision to devalue was precipitated by the run on the pound on Friday, the 17th. The answer is, No. The Government's decision was based on the actual and prospective balance-of-payments situation and not on movements of short-term capital. Of course the two are linked, and confidence in the markets was affected by the underlying weakness in the balance of payments. But our decision was effectively taken before the happenings in the markets during the few days before Saturday, the 18th.
I might reasonably be asked why the action, once decided, was delayed until the Saturday night. One answer is that the steps which were taken, in great secrecy, to sound out the position of other Governments, together with a very carefully selected new rate, has meant that this serious step, which could have aroused great hostility overseas, has in fact been accorded a remarkable measure of good will. As the Chancellor indicated in another place, had we not secured this co-operation it would have cost us far more than the losses over the exchange in the last days of last week. In the event the step was approved by the International Monetary Fund. They are giving urgent consideration to the application for a standby loan of 1·4 billion dollars, and further credit arrangements for around 1·6 billion dollars have been made with a number of overseas central banks. It was not possible to have extensive consultations with other countries, but advance warning of several hours was given to countries in the Group of Ten, EFTA, and the sterling area.
I know that the devaluation decision is unwelcome to sterling area countries. It will reduce the value of their sterling holdings in terms of foreign exchange. This is a very strong reason indeed for not devaluing. But the purchasing power of these sterling holdings will not significantly be impaired in terms of what they can buy in this country. Most large sterling holders draw a large part of their imports from the United Kingdom. It is also relevant to remember that sterling holdings have earned high rates of interest in recent years. When all these factors are weighed together we believe that the countries concerned will have less reason to regret having held their balances in sterling, as a long-term policy.
How do Her Majesty's Government expect this decision to influence the course of our balance of payments and to affect the home economy? The combination of devaluation and the stiff accompanying measures to reduce home demand will bring about a fundamental orientation of the economy in favour of the balance of payments. A basic point which cannot be over emphasised is that the purpose of these measures is not to reduce total demand and activity but to alter the pattern. They are not deflationary measures. They are designed to enable us to expand output more strongly and steadily than in the past, and to achieve an export-led growth in place of the consumption-led expansion that we have had hitherto.
It will be for the individual exporter to decide how to change his sterling export price quotations. In some cases it may be that the best advantage will be obtained by maintaining the pre-devaluation price in foreign exchange terms which would mean a rise of nearly 17 per cent. in the price of sterling. This would give a very big advantage to unit profits. At the other end of the scale his best course might be to maintain the pre-devaluation sterling price, or raise it only to the extent of any rise in production costs and reduce the foreign exchange price by the full amount of the devaluation. In this case unit profits in terms of sterling would not be changed but the exporter would aim at a big increase in the volume of sales. It seems reasonable to suppose that over the whole range of exports there will be on average
908
some increase in the sterling price quotations combined with a still larger reduction in quotations in foreign exchange terms and thus a big relative price advantage over non-devaluing countries.
Devaluation should also increase the net value of invisible earnings in sterling terms. It will increase the attraction of services provided by the United Kingdom and discourage the use of foreign services which in sterling terms will become more expensive. For example, more tourists will be attracted to holidays in Britain. The exports of the United Kingdom retailer, to which the noble Lord, Lord Redmayne, called attention in our debate of November 7 will be of even greater significance. The sterling value of earnings of overseas investment in non-devaluation countries will rise. The long-term capital account should benefit from factors such as the relative cheapness of portfolio investment in the United Kingdom.
Devaluation will tend to reduce the volume of United Kingdom demand for imports. It will involve an increase in sterling prices for imported goods. It is unlikely that import prices in general will rise by the full extent of the devaluation; foreign suppliers may absorb some of the effect on their own profit margins in an attempt to maintain sales. It will be reasonable to suppose that import prices on average will rise by the greater part of the amount of the devaluation. On the whole, United Kingdom demand for imports is not sensitive to changes in price, because much of what we import is essential food and raw materials for which there is no adequate home substitute. But some fall in volume is to be expected, though perhaps not so much as to offset the increase in sterling price. The fall is likely to be most marked in imports of finished manufactures where home output competes. I should only add that whilst we want and expect imports to be restricted we are a trading nation and we cannot expect to trade only one way.
Devaluation will of itself impose a heavy additional load on our productive resources, partly to supply extra exports, partly to replace imports and partly to invest in extra facilities to meet the changed pattern of demand. Moreover, this extra demand will be superimposed

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on the expansion that will be taking place in any case partly as the result of the Government's reflationary measures in recent months. Part, but only part of this prospective rise in demand, will be offset automatically by the rise in import prices consequent upon devaluation. Therefore, we have these additional measures of the increased bank rate, the credit restrictions, the hire-purchase restrictions, and reduction of Government expenditure. The prices and incomes policy, which is critical to our success, will be continued and reinforced, and discussions with the Councils of the C.B.I. and the T.U.C. will be of immense importance in this context. There is likely to be an initial small increase in unemployment, but thereafter we expect a continuing but gradual fall at a rate which will depend on the improvement of the balance-of-payments situation.
There will be an increase in the sterling cost of our imports, and consequently some increase in the cost of living, but the rise in the cost of living will not be anything like as large as the change in the exchange rate. First and foremost import costs are only part of the total cost of the goods and services we buy. Secondly, import prices are unlikely to rise on average by the full extent of the devaluation. We estimate that the increase will in fact be something like 3 per cent. As I have said, the great expected advantage is an increase in our exports. Of course, the improvement cannot come overnight. The effect on orders won by our manufacturers will come soon, but the effect on goods actually despatched from our ports will inevitably be slower. During 1968 we expect a surge in exports and a massive improvement in our balance-of-payments position.
I can well imagine, looking at the list of speakers to follow, that some may ask why, if increased exports is the aim of the exercise, do we withdraw the export rebate and why do we need such an exceptionally high bank rate. On the first point, the fact is that the export rebate scheme has been unpopular with our friends abroad. In our view it has in fact been consistent with our international obligations, but it was becoming increasingly difficult to convince our friends of this. The object of the rebate, of course, was to make our exports more
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competitive. This is what devaluation will now achieve. In these new circumstances we believe it would not be right to continue the rebate scheme against the overseas criticism which it encounters.
As for the increased bank rate, it is justified by three reasons: first, to help establish confidence in our ability to sustain the new parity of exchange; second, to help retain and attract overseas funds by the offer of an exceptional rate of return during the immediate post-devaluation period; third, to reinforce the other measures of domestic credit restraint. These other credit restrictions are designed to prevent home demand from diverting goods which ought to be exported. Clearly it would be wrong to keep back a car from the export market so that a British citizen could buy it on easy terms.
I must add that these accompanying measures designed to reduce home demand are not being applied without discrimination. For example, the banks are being asked to continue to make bridging finance for house purchase. Nor will the farmers be hit by a new credit squeeze when they need finance for promoting import-saving operations. In another respect, too, the Government are, being, rightly I hope we shall all agree, selective. A rise in prices will hit hardest those least able to bear it, and at the appropriate time the Minister of Social Security will announce our proposals to redistribute purchasing power for the benefit of those who would otherwise suffer.
A fortnight ago my noble friend and I put to the House our faith in the economic policies then pursued by Her Majesty's Government. Some may hasten to say that events since that debate have proven those policies wrong. I do not agree. We still need the same fundamentals: the prices and incomes policy, the reshaping of industry, the partnership of State and industry in the creation of new growth areas, the extra help in development areas, and, of course, the emphasis on exports. And we still need, more than ever, a sense of fair play and a society based on social justice. My Lords, sacrifices will still be needed. There is still no substitute for hard work. Unselfishness is still the quality which this country needs. But

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my claim this afternoon is that the measures we are now discussing will give this country of ours the time and opportunity to show that we still have the qualities called for, and that we can win through to the objectives which we all share. I beg to move.
Moved, That this House takes note of the actions of Her Majesty's Government in relation to the exchange value of the pound sterling.—(Lord Beswick.)
3.5 p.m.
LORD CARRINGTON: My Lords, there cannot be anyone in this House to-day who does not deplore the reason for the debate this afternoon and who is not deeply distressed by the events of the last few days, not made any the less by the deliberately low-keyed speech of the noble Lord, Lord Beswick, to which we have just listened. I said in a speech in this House about a fortnight ago that in my opinion the standing of this country abroad, at any rate in my lifetime, had never been lower and that the basic reason was economic. Little did I guess at that time that we should so soon see the catastrophic confession of failure announced by the Government on Saturday, the consequences of which are going to be with us for very many years to come. It is right that blame should be placed on those who have brought us to this pass. It is our duty as an Opposition to bring home to the electorate the magnitude of the failure of the Socialist Party. I trust that no one on the Benches opposite will accuse any of us being unpatriotic if we make plain our distaste at what has happened, for it is essential, in my view, that the people of this country should understand the reasons for what has happened.
But, of course, the economy does not belong just to the Labour Party. The consequences of their actions affect all of us. Our standard of life, our position in the world, our influence, are all called into question, and so all of us, to whatever Party we belong, wish to see the steps which the Government have been forced to take successful. I have no wish to say anything which will make the new policies of the Government more difficult than they undoubtedly will be. For, make no mistake, it will need a good deal more courage than the Government have yet
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shown to take advantage, if advantage it be, of devaluation.
Your Lordships will have observed that the Motion before the House is to take note of the decisions which the Government have made, and you have not been asked to approve them. If that had been so, it would have been the duty of the Opposition to move a reasoned Amendment. And, indeed, I did wonder whether, on behalf of the Opposition, I should not move an Amendment to this Motion making it clear what our position is. There are strong arguments for doing so, but I think there is one argument of great importance against it. In the nature of things, the Opposition in this House would have been able to carry that Amendment, and in so far as debates in your Lordships' House are reported overseas there would have been a possibility that a defeat of the Government in this House would have been taken to mean something rather more than condemnation of their policies. However remote it might have been, it would have been wrong for any of us to cause, even marginally, a lack of confidence in the new value of the pound and in the rigorous measures which, if we are to believe the Government, they intend to put into action. I do not know whether your Lordships will agree with this reason; but whether or not we vote, I intend to speak very plainly this afternoon about the events which have led to the present situation.
My Lords, I do not know whether any of you watched the television appearance of the Prime Minister on Sunday evening. I did, and I came away with a feeling of dismay. It may have been a good television performance, but it was not one that commended itself to me. The Prime Minister ignored the policies which he has initiated and followed for the last three years. He announced a complete reversal of those policies, without explanation. He threw in a few thinly disguised Party political points, and then told us that we are on our own now—it means Britain first.
To take the last point first, I find it baffling to speculate as to whom the Prime Minister had so far been putting first in the three years of Labour Government. For the last three years both the Prime Minister and the Chancellor of the

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Exchequer have been deeply committed to maintaining the parity of the pound. I do not intend to quote any of the speeches which have been made by either of those two right honourable gentlemen in the last three years, though goodness knows! some of them are quotable enough in the present situation. But it is in the recollection of everyone in the House what the attitude of the Government was; indeed, on numerous occasions the Prime Minister and the Chancellor have told us that the alternative of devaluation was not satisfactory and that it was therefore necessary, in order to put our economy right, that the British people should be asked to make sacrifices in wages and in their standard of living so that, in the end, our economy would be strong and the value of the pound would remain unchanged. We were always told that this was just about to happen, that it was just around the corner—until Saturday. All these sacrifices seem to have been in vain; and the Prime Minister has ordered an about-turn.
If the solution of devaluation was unacceptable four months ago, or a year ago, or three years ago; if devaluation was not considered to be a proper solution to our problems at any time in the last three years, why then has it suddenly become a panacea presented by the Prime Minister on the television? Why is it an opportunity of getting out of our straitjacket?—a phrase which he himself used. What has now changed to make devaluation acceptable?
My Lords, without entering into the argument of whether or not we should or should not have devalued, one thing emerges without contradiction; namely, that the Government cannot have been right in 1964, 1965 and 1966 and also be right in 1967. Even the most dedicated of their supporters must see a contradiction in the complete reversal of policy announced last Saturday. No word of explanation came from Mr. Wilson. He did not even say that he was blown off course, though I think he mentioned the Suez crisis and the dock strike. Bad luck, I agree, from the point of view of the economy; but not sufficient in themselves to cause this catastrophic loss of confidence.
Of course we had the old "inherited deficit" story trotted out in different disguises three times during the Prime
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Minister's short "non-political" broadcast. And we had it again, rather more delicately put, this afternoon from the noble Lord, Lord Beswick. I do not intend to discuss that. We have had it many times before, and I suggest that before noble Lords laugh they might care to read the leading article in the Daily Telegraph, which seems to me to dispose entirely of that scare. But I would only say this to noble Lords opposite: the action taken by them immediately after winning the Election in 1964, when they used that deficit for Party political purposes, did more to undermine the confidence of our European neighbours in sterling than any single action that I can recall. As an excuse, it simply will not do any more.
I would remind them that immediately after the result of the Election in 1966 was announced, Mr. Brown said—and I would ask noble Lords opposite to note these words:
"There can be no alibis for us. We are carrying on where we left off. This time we cannot claim to have inherited a Tory mess."
The Government really must stop blaming other people. The noble Lord, Lord Beswick, in his speech, blamed everybody except the Government. I believe that a major share of the blame lies with them. I think it is right to comment on the sequence of events which led up to devaluation on Saturday night.
If we are to believe the guidance which has apparently been given to journalists, the Chancellor and his closest colleagues made up their minds to devalue over a fortnight ago. Yet during that fortnight we had two increases in the Bank Rate of a half per cent.—not, I should have thought, the sort of steps that one would expect from a Chancellor who knew the gravity of the crisis through which sterling was passing. Why the half-hearted measures which did nothing to restore confidence?
We also had a speech by the Chancellor in the House of Commons which, in the light of the decision taken, makes curious reading; and, if I may say so, a pretty odd one from the noble Earl the Leader of the House on the debate on the Address, whose optimism (though admittedly it seemed to be based more on the Financial Times than on any particular conviction of his own) makes even odder reading to-day.

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We then had the evasiveness of the Chancellor when questioned about whether or not a loan was being negotiated, and I imagine that as a result of the uncertainty which the inconclusiveness of that answer must have generated, we lost many hundreds of millions of pounds from the reserves between then and the actual moment of devaluation. This, to say the least of it, is an unhappy chain of events which did nothing to make easier the eventual devalution. Even when the decision to devalue had been taken the Government managed to muddle its execution.
Well, the decision has been taken, and the pound has been devalued. All your Lordships will have read over the past few months and years the different assessments and solutions to the problem which have been canvassed by our leading journalists and economists. Some said that devaluation was the answer, but no more loans and no more deflation. Some said that deflation was the answer, but no devaluation and no more loans. Some said that a loan was the answer, but no devaluation and less deflation. We have now got the lot. We have got deflation, we have got devaluation and we have got a loan. I suppose all of us ought to be happy. At any rate, it appears to have united the Labour Party behind the Prime Minister, though for how long I am sure I do not know.
But there are several question marks as to how the Government intend to operate the economy and take economic advantage of devaluation. The Chancellor said, as I understand it—the noble Lord, Lord Beswick, will correct me if I am wrong—that wages should be strictly controlled if we are to take advantage of the opportunity to increase exports; that that opportunity will soon disappear if wages rise and our prices become less advantageous than we now hope they will be. But we have heard nothing from the noble Lord, or from the Government, as to how they intend to keep wages down, or indeed if they do intend to keep wages comparatively static. With all the paraphernalia of the wages freeze and the legislation introduced to maintain it, they have had the greatest difficulty hitherto in doing so.
I saw on B.B.C. the other night a programme in which Mr. Cousins and, to
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a lesser extent, Mr. Woodcock, made it perfectly clear that they did not intend to operate in that sort of climate. How, then, are the Government going to maintain the control of wages? If they do, they would seem to be in trouble with the unions. If they do not, they say themselves that most of the advantages of devaluation will disappear. There is no doubt that prices will rise. The food that we import, the petrol we import, the consumer goods which we import, all will rise in price as a result of devaluation. The noble Lord, Lord Beswick, says that he estimates that the rise will be 3 per cent. I remember that it was calculated some years ago that the rise in the cost of living as a result of Britain's entry into the Common Market would be 3 per cent., and that was considered by noble Lords opposite as absolutely unacceptable. But apparently this is completely acceptable. The cost of living will rise, and there will be great pressure for an increase in wages from those whose standard of life will undoubtedly be affected and undoubtedly be lowered.
I should be grateful to hear from the noble Earl the Leader of the House, who is to reply to this debate, what proposals the Government have, not only for wages, but how they intend to alleviate the hardship which will certainly fall on some sections of the community least able to look after themselves.
LORD BESWICK: My Lords, would the noble Lord allow me to interrupt? He says, quite rightly, that I did not give any details as to how we propose to control wages. Would he care to tell the House whether he is in favour of a compulsory control?
LORD CARRINGTON: My Lords, we are debating the Government's economic policy. We are not debating the Conservative economic policy. Everything that has happened to-day is the result of what the Government have done. It is up to noble Lords opposite to tell us what they intend to do.
LORD BESWICK: My Lords, if the noble Lord is afraid to say that he is in favour of compulsion or whether he is in favour of a voluntary agreement, surely it is unreasonable to expect me, in the course of the discussions which are now taking place with the trade unions, to say what measures we are proposing.
LORD CARRINGTON: My Lords, the noble Lord has only to look at the record of the Conservative Party to know what our attitude is about compulsion.
SEVERAL NOBLE LORDS: Oh!
LORD CARRINGTON: I am glad that noble Lords know that, at any rate. The Government have made very important decisions and it is up to the Government to tell us how they are to carry them out. The Prime Minister was absolutely wrong when he maintained in his broadcast that though the pound abroad will be worth less the pound in your pocket will be worth the same. It will not, and he knows it will not. The pound will buy less, and it is the deliberate policy of Mr. Wilson and his Ministers that it should buy less.
If we are to be sucessful in pulling ourselves out of this dreadful situation there will, alas! have to be some very unpleasant consequences. The measures which the Government have announced must have unpleasant consequences. It really is no use the Prime Minister trying to write-off his political difficulties by pretending that it is otherwise. For it is just precisely that double-talk which has led to the undermining of confidence in the pound and which has contributed to the need to devalue. These are disagreeable facts, but they are the realities of our situation, and to take advantage of the brief respite which devaluation brings we must make quite sure and clear that the urgency of the situation is realised by us, and also the consequences.
I do not believe that if you tell people the truth, the whole truth and nothing but the truth they will flinch from accepting either the consequences or the facts. May I urge the Government and noble Lords opposite to remember that in all that they do, in the speeches which they make in Parliament, in the propaganda which they necessarily make for their own Party, all this is observed abroad. All is read by those abroad whose confidence in sterling is of the utmost importance to us. Though some of us may discount, or hope we may discount, some of the things they say—and I hope I still carry with me the noble Lord, Lord Mitchison; it is not always very easy—
LORD MITCHISON: My Lords, what I am waiting to hear is whether in present circumstances the Opposition disapproves
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of devaluation, and, if it does, what it would have done.
LORD CARRINGTON: My Lords, perhaps I can keep the noble Lord on tenterhooks for a little longer. It is not always understood or easy for those abroad to appreciate the niceties of Party politics. And if the Prime Minister or the Chancellor of the Exchequer or whoever it may be tries to placate or to underplay, or in any way to underestimate the gravity of the situation and the problems which face us, that in itself is going to lead to a loss of confidence. There must clearly be no rise in expenditure by the Government—indeed, the reverse. And there must be no suggestion that things are all right now because we have a large loan at our disposal and we have devalued. The Government must be seen to be really determined in their efforts to take advantage of the very few months we have as a result of this devaluation, for by itself it will solve nothing; it will only be with the cooperation of every one of us that we can make good this opportunity.
I do not know—and here I am going to answer the noble Lord, Lord Mitchison—but I should imagine that by Saturday evening there was no alternative left to the Chancellor of the Exchequer but to devalue. But, as Mr. Heath said last night, by making the pound worth 17s. 2d. you are not tackling the root of the problem. What you are really doing is to make it necessary for us to export 15 per cent. more before we are back to where we started. We in the Conservative Party have said for a long time that in order to put the economy right there must be encouragement and not restriction—encouragement in personal incentives. People should be allowed to keep more money in their pockets and have more say in how they spend it. And for that purpose, our taxation system must be rearranged and penalties on high wages and overtime must be removed. Our scientists, "back-roam boys" and managers and chairmen must be rewarded for what they dc—properly rewarded and not blackmailed by appeals to their patriotism. There has to be encouragement in pratical terms as well as exhortations.
LORD MITCHISON: My Lords, what I am waiting to hear is whether in present international honour and standing has

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been shaken. Those who banked with us, including some of those who can least afford it, have lost 15 per cent. of their money. This is a bad day for Britain. Three times we have had a Labour Government and three times we have had devaluation. Time is running out for the Labour Party and we must see to it that time does not run out for the country.
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): My Lords, before the noble Lord sits down, will he recall that the devaluation of 1931 did not come under a Labour Government?
LORD CARRINGTON: It was as a result of their policies.
3.27 p.m.
LORD BYERS: My Lords, I will refrain from indulging as a third party in the private fight which has just been concluded, though I must say that it is a temptation to do so. On the other hand, I think it only right to echo the sentiments expressed by the noble Lord, Lord Beswick, and, indeed, those of the noble Lord, Lord Carrington. This is a time for serious concern, but a time at which, for the reasons already given, we have to exercise great responsibility.
I do not yet really understand the Conservative policy which would have been pursued. I should have said that, whatever one believes about the policies of the Labour Party which have brought about devaluation—and we have been one of the first to criticise them in the past—it was crystal clear that the alternative to devaluation would have been massive unemployment on a totally unacceptable scale. Therefore, whatever one believes about the causes, I do not think that the Government had any alternative last week.
There have been many people, some of them in my own Party, who have advocated devaluation as a positive policy going as far back as 1964. But I believe that the Party as a whole was right not to accept this policy, because we felt that political pressure for devaluation might well weaken the pound and embarrass the country. What we have said, and we stand by this, is that if the nation continues to spend far more than it can afford, the currency is bound to weaken, and that, if devaluation is to take place,
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it should be properly planned instead of being forced upon the country in a hurry and in an emergency. In the result, I am sorry to say, the Government by their policies have produced the worst of both worlds. They have been defending, to no avail and at excessive cost, the pound sterling; and then suddenly, with little or no planning, devaluation was sprung on the world at the end of last week.
We have said one other thing about devaluation which I believe is generally accepted; that is, that it is quite useless unless it is accompanied by other measures of the comprehensive kind which will give us some advantage in the breathing space we now have before us. I believe that this has to be registered at all levels of our society; namely, that devaluation without vigorous and largely unpleasant measures is the beginning of a very slippery slope indeed. It is not the sort of thing you can do every two years. That is why I believe we should spend less time on recrimination and a good deal more time on examining what are the essential other measures that will enable us to make the best of this opportunity which presents itself.
I think we must look at measures which will help in certain definite ways; measures which will help us to get more rapid growth, which will restrain consumer demand and which will encourage exports and the saving of imports. We must see that we do not backslide in the gains we have made on productivity, and we must get more productivity and greater efficiency. We must check imports without control, and we must in every way strengthen the balance of payments. It is against this sort of background that I think we ought to examine critically some of the proposals of the Government. First of all, there is the £100 million cut in defence expenditure. May I ask what form this is going to take? Will it be mostly overseas, or will it be aimed at releasing some of our domestic engineering resources for other uses? Could the noble Earl who is going to reply tell us what is the total of Government expenditure overseas at the present moment, so that we can get some idea as to whether we could save a little more?
I really do not understand the decision regarding car hire purchase. I would ask how often this regulator has been used by

921
this Government. Why is it that this seems to be the Government's main regulator? It certainly has a most disruptive effect on industry. If one wants evidence of the lack of planning of this devaluation, one has only to realise that we had reflation using this regulator in June or July, and then suddenly we put the whole thing into reverse with devaluation in November. This has a disruptive effect, not only on the motor car industry but on all the other industries which are harnessed to that very important industry of ours.
Next, I should like to ask about the bank rate. I understand the reason for putting in a figure as high as this immediately, as an emergency measure, but I cannot believe that it can be sustained. If it is, it will quite likely make sterling so much more attractive than the dollar that it will weaken the dollar itself. It would be a fantastic side-effect of British devaluation if we weakened the dollar to the point where it had to be devalued itself. This is something which needs very careful looking at, for not only does it have international repercussions: we have to realise that a great deal of loan money and working capital has to be found for exports and for the import-saving industries, and borrowing at 9 per cent. to 10 per cent. for export is no fun at all. This rate is going to have a self-cancelling reaction, unless the Government watch the position very carefully indeed. And it is not just in exports and import savings. General industrial development may well be retarded by a bank rate of this sort. I am sure that the noble Earl, Lord Cromer, will have more to say on this subject when he comes to speak.
Then there is the 42½ per cent. corporation tax. I understand it if it is put in to placate the trade union movement; but is it not going to be an irritant? Is is not going to be an irritant to the export industries to have this little bit extra added on to their present taxation? Is it necessary always to do something like this, when you are asking other people in the country to pull in their belts?
I listened with interest to what the noble Lord, Lord Beswick, said about the export rebates, but surely we are not immediately going to bring the curtain down on the export rebate system. It is something which, presumably, has been
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taken into consideration in making contracts. It has been added in or perhaps subtracted from tenders which are still outstanding, and if we are not careful this step is going to have the effect of disrupting once again some part of our ex port drive. I hope the Government realise that exporting is not something which can be tampered with on the basis of doing one thing to-day and another to-morrow. There is a great deal of continuity when one is engaged in this sort of activity. It is a very sensitive thing, and I believe we must be extremely careful how we tackle it. I would therefore ask the noble Earl who is to reply: what are the intentions so far as export rebates are concerned, and can they not, if they are to be ended, at least be phased out intelligently?
I find that there is very little indication that the measures which the Government have suggested, together with devaluation, form the coherent economic policy for which I asked when we had our debate on the gracious Speech. I doubt very much whether they are adequate. I doubt very much whether they are radical enough. At the expense of being told by the Leader of the House that I am producing another string of platitudes, I should like to put to the Government some proposals which I believe should be considered. These are only a few and I do not pretend that they form a comprehensive policy, but I do say that there should be a comprehensive, co-ordinated policy, and a policy which can be understood, to go along with devalution.
First of all, would it not be an opportune moment, and would it not be a good thing, to try to arouse the comprehension of the country by instituting, inaugurating, a tremendous "Buy British" campaign? Can we not consider this? I am sure that many people are still not considering whether, given the choice of two or three different cars, wireless sets or other things, they should not, at least for the next few months, think about buying British in order to give the country the benefit of selling on the home market, instead of going in for imports from abroad.
Secondly, I would echo what the noble Lord, Lord Carrington, said. How are we going to plan to deal with incomes? Another straight wage freeze will merely

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invite more trouble than it is worth, and I put forward proposals some time ago for an alternative, which was to freeze the pay-roll rather than the individual wage. I think that this suggestion merits reconsideration as a policy, so that the total paid out in wages and salaries is not increased, and higher individual wages can be achieved only by cutting—
LORD PEDDIE: My Lords, may I ask the noble Lord how he would deal with such a proposal in an expanding industry?
LORD BYERS: My Lords, the noble Lord has missed my next point, if he will allow me to make it for myself. But if he will look up the speech which I made before, he will realise that I made the proposal then. What I am saying is that all you can do in such a situation if you freeze the pay-roll, is either reduce your manpower in the firm or cut the salaries of the higher executives—and I know which choice would be made. This would be a very interesting way of reducing the manpower in a number of industries.
Of course, exemptions would be needed for expanding firms and industries, and these would have to be given by the Board of Trade or the Ministry of Labour or somebody else. But if we find this too difficult for private enterprise, why not make it a principle in dealing with the Civil Service, the nationalised industries and local government? Why should we not say, "Not another penny on the pay-roll, and if anybody wants higher wages then you must show us a way of reducing manpower". This would be a very good example which the Government could start to-day, and I believe it is worth considering.
Coupled with this, could we not consider a scheme for private enterprise which would channel increases in wages and salaries, preferably those achieved through higher efficiency and greater productivity, into something like employee investment schemes? There are many ways of doing this, but could we not look at the principle of giving people incentives in such a form that they are not encouraged to use them for immediate spending? This, I believe, would be a
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real incentive, and this is one of the reasons why I very much regret the attitude which the Government have taken on such things as stock options. I believe that stock options ought to be given right the way down, so that people have something to work for and can improve the wealth of the company and share in it, but share in it in such a way that the cash does not get into the supermarket the next day, or does not go on H.P. the next day. There must be ways of doing this. The Government have at their beck and call experts on these matters. Surely the principle must be right, to give incentives which do not turn into immediate cash. In any event. I hope that there will not be too many across-the-floor wage increases, except possibly where it is necessary in the case of the lower-paid worker. But even there it is probably done better, as I think the Government intend to do it, through family allowances.
Could we not take this opportunity to try to improve the organisation of our unemployed manpower? I do not believe that the statistics mean much at the moment. I believe that the unemployed are being wasted and frustrated. Surely, the Ministry of Labour ought to know at any given moment of all vacancies which exist, instead of those which the private companies have merely put into the Ministry of Labour, usually for the lower-grade jobs. I believe that we have to face up to the need for a Notification of Vacancies Order. We have to make much more progress on standardisation of job descriptions. I know that some work has been done on that; but we have to get a system, perhaps like the Swedish labour market boards, where, on a regional basis, real efforts are made to match the man to the job. I am sure that a great deal will have to be done in this direction particularly if we are going to expand, as I believe we are.
We must be able to foresee the vacancies which will come forward, and I believe that we must link this up with our training system. We have got to identify the jobs that are going to be wanted, and we have got to take the unemployed and do a deal with private enterprise—and get them now. The Industrial Training Boards cannot handle this, but private enterprise could do a great deal of training in anticipation of the expansion which we hope to see.

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This is what I mean by part of a comprehensive, co-ordinated policy to have a manpower programme which really is looking forward and anticipating our needs. I believe there is also need for further measures to shake out the labour-intensive industries. Although it may seem an odd thing to say at a moment of devaluation, I think we ought to look at selective tariff cuts, which will shake out the manpower in some of our declining and slow-moving industries, so that the manpower, properly trained, will be available for the expanding industries when the time comes. It is things like this that I believe will have to be done to show that we understand the opportunity this fleeting moment gives us. And, as I say, there are many others.
But, having said that, my Lords, may I ask this question? Is there no way in which we could get the International Monetary Fund, or some European institution, to share with us the burdens of being a world banker? Many of these nations, I should have thought, ought to be prepared to play their part in taking some of this burden, instead of always leaving it to sterling to be under pressure. I believe that the Chancellor of the Exchequer has this point well in mind, but surely this is the moment when we should have a new initiative to see whether something can-not be extracted. I repeat, all the measures that we adopt in the economic field must answer the tests: are they making for growth at a rapid rate? Are they helping the growth of exports? Are they helping to build up the reserves? Do they make for a strong balance of payments? In this connection, I ask: what proposals have the Government to deal with the dock strike? It makes no sense at all to get everybody geared up to a tremendous export drive if we cannot get the goods into the ships.
Finally, on the social side, I would say that we must now recognise that we have to satisfy ourselves that not one penny goes out on our social services to people who do not genuinely need that help, and that no one who genuinely needs help is deprived of it. I believe that within these brackets a new policy of social justice can and should be worked out—a policy which would in no way jeopardise the growth of the economy. Indeed, I believe that if that sort of social justice could be obtained
926
it would improve the growth of the economy.
The Government and the country must look at our post-devaluation future as something which needs a coherent, coordinated domestic policy. I believe that we have a chance. We have a chance to go somewhere now, and we must not miss it. We are all in this mess together, and it is only by working together that we shall get out of it. In the process, some unforeseen fortunes are going to be made. I would rather see some fortunes made, if it helps the country to be prosperous, than for the nation to sink beneath the waves because the Government have been so busy watching profits and private enterprise that they have not noticed that the ship was sinking. I believe that the country has to be shown that there is a comprehensive and coordinated plan to make the most of the present situation. If it is shown a coherent scheme which is businesslike and competent, then, my Lords, the country will respond.
3.45 p.m.
THE EARL OF CROMER: My Lords, it is with a heavy heart that I rise to take part in this debate to-day on the humiliation that both the pound sterling and our country have been brought to suffer. I feel, however, that it is my duty as a Peer, and as a Member of your Lordships' House, to speak to-day, particularly having had the privilege of serving as Governor of the Bank of England during part of the background period leading up to this crisis, and having had the honour of working there with what is certainly the finest team in the field of central banking that exists anywhere in the world. It is appropriate, too, I think, that I rise to address the House from these Cross-Benches, because it is not my design, having served half my working life in Crown service, to try to pick upon Party points as such. But that does not mean that I am not critical.
Let us first of all be absolutely clear from the start that this devaluation, this default of 2s. 10d. in the pound, need never have occurred if determination to put the integrity of the country—surely the first responsibility of Government—had been given credence by appropriate policies as well as by fine words. As the fine words became more tarnished with wear and repetition, and as it became

927
more apparent that the Government either could not or would not face up to taking the actions necessary to fulfil the fine words, so confidence continued to decline; borrowing became more difficult, and in the end, like the noble Lord, Lord Carrington, I am surprised that last Saturday there was any choice in front of the Prime Minister. That there should have been an alternative at all at that time surprises me.
The final act—that of devaluation and default—has come, of course, as the culmination of a series of crises of confidence in the Government's intention, and even their ability, to create a climate in which the vast potential of skills and resources that we are fortunate enough to possess in this country could develop to the nation's benefit. It is true that when the Labour Government came into power in October, 1964, there was a substantial but not unmanageable financing problem to be faced. Within about six weeks of that time, through failure of the Government to accept the consequences of various Government decisions and indecisions, we had a major financial crisis on our hands. This was accompanied by the impression created by the Government, rightly or wrongly, fairly or unfairly, that they were determined to give first priority to Party political dogma.
The Bank of England was able at that time to rally sufficient international support to save the pound. This support—and, indeed, all subsequent support of which I have any knowledge—was given without any ties, strings or conditions, relying solely, so far as the central bank credits were concerned, on the integrity of the Bank of England, in the knowledge that it was not a political institution. But the lesson of that crisis was very clear for all to see, all who were not blinkered by preconceived political prejudices or wholly unjustified optimism. It was clear—and I certainly cannot now be accused of having been too secretive about my opinions—that unless we took steps to reduce our expenditure and consumption as a nation, both at home and abroad, we should find ourselves with a day of reckoning, as we did last Saturday. The International Monetary Fund, composed as it is of those representing Governments and not of international bankers, was more specific in making
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clear to the British Government the essential need to get our house in order.
But, my Lords, Government expenditure, both at home and abroad, due to insufficiently considered policies, continued to increase while various palliative measures were intermittently resorted to in an effort to offset the inevitable consequences of this rake's progress. As successive crises of various dimensions, and scurries in between, occured in May, 1965, in July, 1965, in May, 1966, and in July, 1966, confidence burgeoned feebly from time to time as the recollection of each crisis dimmed, only to wilt away again as the next crisis loomed up. It has been a period during which events were allowed to dictate policies, with the inevitable result that the measures tended to be too little and too late. Had these self-same measures been introduced earlier, had the initiative been seized with foresight—and there were some who were looking ahead—it is likely that more permanent confidence could have been created and the need to devalue last Saturday would never have come about.
There is one bogey that I should like to lay at this point. At no time has it ever been the advice of any bankers I have met, at home or abroad, that any solution to our problem was to be found in the creation of vast unemployment. To start with, it is absolutely no solution to our problem, and as a social and economic concept it is wholly and completely unacceptable.
As if being buffeted from pillar to post through failure to take the initiative were not sufficient, the more positive elements of Government policy contributed massively to the disillusionment, confusion and waning confidence of the financial and business world. The corporation tax, a measure to which, in itself, I take no exception whatsoever, was an immensely complicated piece of legislation, attracting, I believe, a record number of Amendments—not only from the Opposition but from the Government itself. It was scarcely well considered. There were the selective employment tax, again, scarcely the best considered of fiscal measures, and the capital gains tax, with its all-embracing stranglehold. All these, as I mentioned the other day in my speech on the humble Address, distracted to a fantastic degree the energies of those who would have been better employed in

929
building businesses and earning wealth for themselves and the nation. It has been a serious failure of judgment to introduce such measures and other abrasive measures, in the midst of continuing crises. There has in my belief been a tragic conflict of purpose between promotion of Party political dogma, generally most untimely, and insufficient policies calculated to make the country prosperous, standing in her own right, confident in her own resources and wealth in the world.
It is scarcely to be wondered at, my Lords, that there should have been these series of crises—crises of confidence. Without the changes in policy which were so very clearly called for, it has come as little surprise that we have now had to face the reckoning. But now that we have faced the reckoning, are there more grounds than existed last week for an increase in confidence to-day? Is there more likelihood now that the Government will proclaim policies that will justify confidence rather than consume the price advantage that has been obtained? Is it any easier for the Government now to follow the even more drastic courses called for to take advantage of devaluation than it was to pursue less onerous policies before? Is it more likely actually to happen?
Is it more likely now that the Government will proclaim policies that will justify confidence rather than consume the price advantage we have taken to ourselves—taken to ourselves at the expense to a considerable degree of those overseas who trusted us and our currency? We cannot afford another failure such as we are suffering from now. Integrity and confidence are something that we like to think is close to the heart of every Englishman. To a banker it is essential in those with whom he deals. Are those abroad who have seen their sterling balances devalued by 2s. 10d. in the pound, or those who have seen this happen to others, likely to have great confidence in a nation whose Government bring this about?
The compulsory sacrifice of the small saver and investor in Government bonds at home similarly, I think, gives food for serious thought. It was the destruction of savings in Germany in the interwar years, in the later 'twenties that brought into power Nazism and Hitler. This devaluation is quite different, as I
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think the noble Lord, Lord Beswick, said, from that of 1931, and quite different from that of 1949. This devaluation is the outcome solely of this Government's policies. Before October, 1964, no one in any responsible position had in mind the possibility of the need to devalue. There were certain Left-Wing academic thinkers; but no-one in a position of responsibility thought that this was likely to be imposed upon us. How can those responsible for this default, and those who condone a default, command respect as worthy leaders of this nation?
THE EARL OF LONGFORD: My Lords, may I put one point to the noble Earl who is making what is certainly, for an ex-Governor, a very unusual speech? Since he must share a considerable responsibility for the financial policies of the first eighteen months or so, would it not have been more appropriate for him to resign?
THE EARL OF CROMER: My Lords, I do not think it inappropriate to report to the House my feelings of the situation which has now arisen.
SEVERAL NOBLE LORDS: Hear, hear!
THE EARL OF CROMER: I think it proper that the House, in these very general terms in which I am speaking, should be aware of the situation.
My Lords, we have a hard task ahead of us to re-create confidence and to obliterate by our future efforts and performance our past indulgences. None of these indulgences, we are now told, are to be interfered with. It is our friends abroad, those who have helped us most, who are most disillusioned over what has now occurred.
Having involuntarily passed out of the fool's paradise in which we have been li%ing, let us hope, for all our sakes, that we take stock of our affairs and plan our future from now on in reality. The vast debts that we have incurred, both as part of our financial arrangements and as part of our purchase of foreign arms and aircraft, will of course become much more onerous in sterling terms as they have to be paid for in foreign exchange subject to devaluation; as also does the interest on these loans and the continuing interest and repayment of the 1947 loan. Against these figures, this is a very sobering thought. None of us outside Government really knows what these figures

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are; but against this background the proposed reduction of some L200 million per annum in Government expenditure next year seems to me to be wholly inadequate to give credence to the belief that the Government have even now taken the measure of our problems. It is barely a token figure when compared with the total of central and local government expenditure in 1966 of £14,491 million. Two hundred million pounds off that sum is not going to make a great difference to confidence. It appears that all the sacred cows are to be allowed to continue to deprive others of their seed-corn.
My Lords, we have to live in the world of reality—the world in which we as a nation have to earn our living. The Government have chosen a new parity for the pound. We have to act with conviction to justify this new parity. We have to make sure that this price advantage is not dissipated; we have to throw away both the crutches and the shackles and put ourselves and our money to work in the most profitable way that we can. And the best safeguard against dissipation and the greatest opportunity for judgment on earnings—as soon as the smoke clears and the dust settles—lies in taking, an entirely new look at the elimination of Exchange Control paraphernalia. With this new parity there should be no justification for it. Whether or not it has served a beneficial purpose in the past is a matter of opinion. I am well aware of the opinions of the practical businessmen who used to come to see me when I had to administer Exchange Control.
But be that as it may, with the new parity of sterling, continuing deprivation of freedom comparable with that in other industrial countries can serve no purpose other than an indication of lack of confidence in ourselves or hankering after some form of authoritarian rule which has been rightly rejected by all the other industrial countries of the Free World. Indeed, I would go so far as to suggest that it is a necessary endorsement by the Government of their belief in the new parity.
My Lords, another issue, which has been touched on by the noble Lords, Lord Carrington and Lord Byers, is the
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urgency now created for a revision of the tax system in order to ensure that those who want to earn more by their own efforts can enjoy the benefits, and a move towards a greater use of indirect rather than direct taxation seems called for. I should also like to endorse the suggestion put forward by the noble Lord, Lord Byers, that at this time we should take an urgent look at our tariffs. They are very diverse, but we do have very high tariffs in a number of fields, and if ever there was an opportunity to create competition, this is it.
My Lords, I have the greatest confidence in this country and its potentialities; but only by honesty with ourselves shall we rebuild confidence in ourselves, and only by honesty with others shall we rebuild their confidence in us—a confidence which has been so rudely brought to its nadir by this devaluation.
4.0 p.m.
LORD PEDDIE: My Lords, it would be idle to deny that devaluation has been a great shock to the people of this country, regardless of their political opinions. It has indeed been a shock to their sense of pride. But I think it is generally accepted that devaluation has been forced upon this Government because of circumstances which, I should have thought, deserved the serious consideration of this House. Listening to the speeches, both political and non-political, I must say that the non-political speeches intrigued me even more than the political. I recognise that one of the necessary attributes of an Opposition Front Bench speaker is the possession of a short memory. In that regard the noble Lord, Lord Carrington, has given a fair indication that he has not been deprived of that attribute. He intended, I am sure, to have something of a field day to-day, and to some extent the noble Lord had it. But I am sorry that he had to write his speech before he had had an opportunity to hear the speech of my noble friend Lord Beswick, otherwise he would not have asked the question: What are the circumstances which have caused devaluation? The noble Lord would have known the answer.
It is perfectly true that Government policy and Government efforts over the past three years have not succeeded in

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solving the recurring balance-of-payments problem, but it is false to suggest, regardless of where the suggestion comes from, or to say, that Government policy and the measures which have been taken have created the problem. The problem was there long before the Labour Government came to office. The noble Earl, Lord Cromer, stated in a most categorical way that this was solely the responsibility of this Government, and that the circumstances which have created the crisis were due to this Government giving first priority to political dogma. What did the noble Earl mean by "political dogma"? He did not go on to indicate precisely what political dogma means. If by political dogma the noble Earl means many of the social developments and social expenditures upon which this Government have been engaged, we do not deny it. Indeed, we would claim that had there been more social expenditure of this kind in the past, the general productivity and the standard of education of the people of this country would have been higher than it is to-day.
This Government have pursued policies which meant that some burden would be placed upon the community. That is true, and in dealing with this situation I would ask the noble Earl, Lord Cromer, how far his conscience is clear. What was his first real contribution towards the settlement of these problems during the period when he held high office? It is very easy for him to claim to be making a non-political speech but to give vent to statements which are political in every aspect. This is no time for recriminations, but I think that it is necessary to say that much of the malaise which has plagued industrial life for a long time springs from an attitude of mind that fails to reconcile itself to the grim fact that effort and reward, productivity and pay, are inevitable corollaries. That is the fundamental lesson which has to be learned to-day, and tomorrow, and which was not learned during the period when noble Lords opposite were in office. During the last Administration the problem was present, but there was a phoney sense of lush security which lulled people into a false sense of security. They were the days, as has already been stated, when "You never had it so good". That made a contribution to a mental attitude which
934
has contributed towards current problems.
The noble Lord, Lord Carrington, gave an indication to the House about how noble Lords opposite would deal with this problem. "Allow the people to keep more money in their pockets" was his statement. Noble Lords opposite certainly did that during their period of office, because in 1960–61 (and I draw the attention of the noble Earl, Lord Cromer, to these figures) income in this country, nominal income, increased by £1,200 million. Production in the same year increased by £630 million—a clear and visible indication which must have been recognised by the noble Earl, Lord Cromer, and by the noble Lord, Lord Carrington. But I fail to recollect one single word in any speech by either of those two noble Lords in that significant year which drew attention to that basic defect in our economy—a defect which mast inevitably have created economic difficulties and, in the long run, brought about a series of events leading to devaluation. Therefore it ill becomes people who held high office in those days to come along with a smooth and easy condemnation of this Government, which, with all their defects, have had the courage, persistently and consistently, to draw attention to the serious problems which confront us.
The Government have not been afraid to introduce measures which nobody would claim were likely to win votes. No one would claim that, and therefore they showed courage and honesty in embarking upon those measures. I challenge the two noble Lords to say whether they made reference, in the year I mentioned, to the basic problems of our economy. Not a word! If they had indicated to me that they had done so, my reply would have been that it was a pity that the Government of that time did not take account of such warnings.
LORD POOLE: My Lords, may I ask the noble Lord, Lord Peddie, a question? Surely the whole of Mr. Selwyn Lloyd's pay pause at that time was directed exactly to what the noble Lord is talking about.
LORD PEDDIE: Exactly, my Lords. There was a pay pause, and they tackled the problem by concentrating solely upon

935
limitation of pay, and gave a clear indication at that time of their reluctance, if not their inability, to deal also with profits and prices.
LORD POOLE: My Lords, in fact it was a squeeze on exactly the same basis as the one we have recently had.
LORD PEDDIE: It was a selective squeeze. I know that nurses might be more attractive to squeeze than a squeeze in other directions, but that was the sort of squeeze undertaken at that time. I repeat that this is no time to bring forward the slogans which we have heard from the Benches opposite to-day.
This country has carried a lot of old burdens and has incurred new ones, and believed that we could afford them; but as a nation we have failed to produce the growth of wealth to match those burdens. For years that go far beyond the Labour Government, home demand has been rising too fast in relation to output. Inadequate exports have created a recurring balance-of-trade problem which has necessitated restrictions which checked growth. Therefore we have had the grim dilemma of a balance-of-payments problem which checked growth and which in turn could not be solved without faster growth. The devaluation will, at least for a temporary period, break this vicious circle. Devaluation of the pound and loans from the Central Bank and I.M.F. will give a breathing space, but all noble Lords who have spoken recognise that it is no more than a breathing space. If that breathing space is used as a pleasant lull between storms, the next storm will be far more devastating than the present one.
It is true that devaluation has been a shock, but we must admit that at least it has been determined at a level which will not cause instability in world currencies generally. It also means that while we are given a new opportunity, the room for manœuvre is not very great and we cannot afford to waste any part of it. The effect of import costs will be felt earlier than will be the export advantages. That is something which has to be made clear, because it would be disastrous if the public believed that the act of devaluation in itself provided the means of getting us out of this economic impasse. It provides only a breathing space, and it
936
is necessary not only for the Government but also for the people of this country to recognise that.
The amount of room we shall have for manœuvre is determined by two factors. The first is the obvious one that the devaluation gives industry a clear but temporary advantage to increase exports and will facilitate a major shift of national resources to exporting industries. But I would utter a serious word of caution. While there will be this price advantage, it is essential to remember that price is not the only factor in determining the competitive strength of our export trade. This involves delivery dates, after-service and so on, most of which are the responsibility of management. I know that unofficial strikes and restrictive practices by the workers can, and have, created difficulties, but by and large management is mainly responsible for providing those facilities which can be, in addition to price, determining factors in selling our goods abroad.
The second factor is the longer-term advantage, the strength of which will be determined in the short term—namely, by the extent to which this brief period of relief from recurring balance-of-payments crises is used to expedite the changes and development in technology, expertise and industrial attitudes necessary to ensure that we shall avoid being faced again with this situation.
In my association with the Prices and Incomes Board I have seen for some time now many of these factors which, in combination, have contributed towards weakening our economy. I cannot point to one particular sector and blame it, either labour or management. All have made their contribution. But all too often the emphasis and the blame are placed on the shoulders of labour. I think it is right, in this House particularly, to draw attention to many of the defects in management which over past years have made their contribution towards causing this economic shortfall we have had for so long. There has been inadequacy in management in the use of both capital and labour. There are restrictive practices of many kinds totally out of keeping with the practice of modern industry. These are bad and should go. Frequently restrictive practices have been tolerated simply because there was a measure of complacency and

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it was recognised that the additional cost could be passed on in the form of higher prices. It is clear that this Government have made some contribution in their firm resolve to make their prices and incomes policy work. And to-day it is becoming a little less easy to pass on additional costs than it was a few years ago. We also see antiquated wage structures, involving permanent differentials, the foundation of which belonged to the 'thirties and not to the 'sixties.
I have indicated some of the fundamental structural changes that have to be made, not only in industry itself but also in our thinking and attitudes of mind. I repeat the criticism and challenge that I made at the beginning of my speech. The Party opposite, during the period when they were in power, made a considerable contribution towards developing and encouraging those attitudes of mind that we find such a serious restriction upon our development to-day.
I would end by stating that the long-term solution of our problems does not lie exclusively with the Government. The Prime Minister made that clear in his admirable speech a few days ago. Even with all the regulations and decisions of Government, in matters economic in the long run the future prosperity and progress of this country depend upon the people themselves. The claims made upon us to-day can never be met out of the small change of Party political recrimination. Even financial manipulation on an international plane can never provide a permanent solution. This rests entirely on our ability as a nation not only to produce more but to produce more efficiently, so as to ensure the better use of existing assets. I believe that although this devaluation has been forced upon the Government, the Government have had the courage to face the situation and to provide a breathing space that will give the opportunity for the people at large to recognise that in the long run the real destiny of this nation relies on their efforts; and I believe we have a Government to-day conscious of their responsibilities in that direction, who will not flinch from facing them.
4.20 p.m.
LORD ALDINGTON: My Lords, the noble Lord who has just sat down has
938
done his best to make a good job out of a difficult case. During the course of what he had to say he made some observations on which in my industrial capacity I should agree with him. But he made some observations about my noble friend Lord Cromer, who spoke before him, which surprised me. However, they did not surprise me anything like as much as the intervention by the noble Earl the Leader of the House. The extraordinary idea that a former Governor of the Bank of England, much respected, greatly thanked by the colleagues of the noble Earl the Leader of the House at the end of his period in office, should not be able to come to this House and give us his frank advice and tell us what his feelings were at the time when he was in office, is a proposition that I cannot understand the noble Earl the Leader of the House in putting before us.
Perhaps I may add this, in case the noble Earl was indicating to us that there Was something improper about what my noble friend said. I did not hear anything from his lips to-day which I have not heard in one way or another from him in public announcements during the time when he was Governor of the Bank of England. During all that time he—as, indeed, has his successor—took every opportunity to remind the Government and the public of this country of the dangers of excessive Government expenditure and wrongful Government measures.
THE EARL OF LONGFORD: My Lords, I do not want to interrupt the noble Lord, but if I heard the noble Earl, Load Cromer, aright, he said that the Prime Minister put politics first. I am not aware that he said this when he was a Government servant.
THE EARL OF CROMER: My Lords, I never put any words whatever into the Prime Minister's mouth.
LORD ALDINGTON: My Lords, I think we can leave it there, and perhaps on reconsideration the noble Earl the Leader of the House will wish later on this evening to withdraw his intervention against my noble friend.
It is a great comfort to me, after certain events that have lasted six or seven weeks,

939
to be speaking after my noble friend Lord Cromer and taking the same course as he has taken. Though it is a comfort, I must say that he has said, in words far better than I can use, many of the things that I should have liked to say. So I am going to make my speech in my own words, with my own experience—part industrialist, part banking and part, I am not ashamed to say, political—behind me.
I want to talk about what was done on this humiliating Saturday and how it was explained. I think, first, I should like to refer to the explanation. In the Prime Minister's remarkable television broadcast, I was stupefied, not just with some of the things that he said but with his manner, when he was talking to us as if he had found, as my noble Leader has said, some panacea for our problems. I listened this afternoon to the noble Lord who started this debate, speaking in much quieter vein. He could not, of course, omit to remind us of the deficit of 1964. But, as has been said—and I say it again—we were told then by the Government—and we have been told now by an ex-Governor of the Bank of England—that the problems then were quite manageable. It was because they were thought to be manageable that the Government acted as they did.
This figure of £800 million which is bandied about is, of course, a combination of a much smaller amount of deficit on current account—only, I think, £375 million; and what is seldom added in explanation is that on private sector account, on trade and invisible, there was, even in 1964, a surplus. It was only because of Government expenditure that there was this great deficit. In fact, if I may put the point here, I think it is true to say that in recent years there has been only one year (I think it was 1955) in which on what I might call private account, trade plus invisible, excluding Government expenditure, there has not been a sizeable surplus. It was perhaps with that in mind that people believed that that was a manageable situation in 1964. I imagine that in 1965, and again last year, the Government still took the view that it was a manageable situation; and they still took the view in July of this year that it was a manageable situation.
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Now let us see why it is that the decision announced on Saturday was taken. If one listened to the Prime Minister, one might have thought that there was some positive advantage, as a policy, in devaluation. I think that the noble Lord, Lord Byers, and many of his friends think there is, and have thought so for some years.
LORD BYERS: My Lords, may I correct that? We have thought there could be an advantage only if certain other comprehensive policies were put into effect at the same time. Without those, it is the worst thing you can do.
LORD ALDINGTON: I do not wish to misquote the noble Lord. I think I know his point of view. But he takes the view that there can be positive advantages in devaluation as a policy, as opposed to just doing it because your costs structure and the state of confidence forces you to do it. I think that is the difference between him and me.
I should have thought that the Government would take the view that the reason for devaluing was that they were forced into it: confidence had gone and costs had risen, or were expected to rise, so much. But when I listened to the Prime Minister it seemed far otherwise. It seemed that he had forgotten all the things that he and the Chancellor of the Exchequer had been saying: right things, that were applauded and supported from this side of the House in debate after debate. It seemed that he was now saying: "Ah! we have found some way out of our straitjacket in which we have been"—for the famous 13 years and since—" and we now have a springboard." He may have been making the best of a bad job. However, I should like to know from the noble Earl the Leader of the House this evening whether it is the view of the Government that, as a positive act of policy, devaluation can sometimes be a good thing, and not just the view, which I thought they would put to us, that when confidence has gone, when costs for one reason or another either have risen too much or are threatening to rise too much, you are then forced to devalue.
I can understand the second reason; in fact, it is difficult to understand anybody who can object to it. But it is important to be clear on the point, because if we really have a Government

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that is saying to the world: "From time to time in the future the British Government, when they get into difficulties about expanding their exports, when they get into difficulties in keeping in balance at home and overseas, may well resort to devaluation"—which was one inference that could be drawn from what the Prime Minister said—if that is the policy, then God help anyone who leaves sterling in this country for long! I make the point, and I have made it quite deliberately, because I hope that the Government will give the firm answer that they devalued this time because they were forced to do it by a combination of facts and loss of confidence.
There were several other things in the Prime Minister's speech which upset me. One was his reference to speculators, as if it had been speculators who had caused this crisis. I do not know whether noble Lords remember the authoritative analysis given about so-called speculation when we had the July crisis. Perhaps I can read some words:
"Before I come to the basic balance-of-payments questions, I think that we should perhaps eliminate from our thoughts the somewhat naïve caricature that what has been going on "—
this was in July, 1966—
"is a machination of some bearded troglodytes deep below ground speculating in foreign currencies for private gain. Of course, there is a speculative element"—
these are, of course, the words of the Prime Minister; your Lordships can gather that from the "troglodytes"—
"based on the hope of private gain.
"But in fact—and our detailed analysis which we carried out of what happened a year ago bears this out—one does not need to look for sinister interpretations. I would distinguish two main elements in the monetary movements. In the first place, we have the large international companies with substantial trade in and with this country which, in periods of doubt, are tempted to reduce their holdings of sterling for purely precautionary reasons—precautionary, not speculative".
I did not hear the word "precautionary" in the Prime Minister's broadcast to the nation.
He then went on to refer to some American companies, and said this:
"But even more important than the dispositions of some of the big international companies is another feature—the rapid intensification of a problem with which right hon. Gentlemen opposite were painfully familiar, arising from the way in which our trade is financed. The external trade of the United
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Kingdom alone—quite apart from the rest of the sterling area—is on a massive scale. Our imports in the past year were just under £6,000 million and our exports were just over £5,000 million. But we have to take account of the transactions of the sterling area as well.
"If payment for all sterling area imports from the rest of the world for just one week were made one week early this could cost our reserves over £150 million immediately. Of course, there can be an element of speculation in this, but to be realistic I think that the precautionary motive rather than the hope of speculative gain must be the motive we have got to attribute to these transactions."—[OFFICIAL REPORT, Commons, 27/7/66, cols. 1716–27]
What has happened to turn precautionary motives into speculative motives? I think noble Lords can give their own reasons for that. The other thing that disturbed me greatly—
LORD RHODES: My Lords, before the noble Lord leaves that point, may I ask whether he is trying to say that there have been no speculative actions on the part of interested people in the City since last Wednesday?
LORD ALDINGTON: My Lords, I am trying to say exactly what the Prime Minister was trying to say in July, 1966: and I would guess that his analysis of what happens—and I have read word for word what he said—in these situations is a correct analysis of what happens in each of these situations Of course there are movements, and we call them, and the Prime Minister called them, precautionary. He called them precautionary at a time when he was defending the pound. He does not call them precautionary any more; and I think it was an error. They remain precautionary.
Incidentally, if I may add this, I happen to be, as the noble Lord knows, a banker throughout the sterling area, and I seem to recollect words from the Prime Minister and the Chancellor of the Exchequer saying that speculators would burn their fingers. I am not conscious of any so-called speculator having burnt his fingers. I am conscious of the fact that sterling area countries, Commonwealth countries, developing Commonwealth countries, which have confidence in this country and kept their pounds here, have burnt their fingers. And when we come to talk about planning of devaluation, which the noble Lord, Lord Byers, talked about, I must say that I find it very hard to see how one can

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plan a devaluation. But at least here nothing seems to have been done to keep the Commonwealth together. We have had remarkable differences. My noble Leader has experience of one country; I have experience of a number of others. I hope that the problems caused to the Commonwealth will be sorted out at discussions over the next few weeks and months, but certainly nobody can say that this was a Commonwealth unifying exercise.
The last point I want to take in regard to the Prime Minister's speech is this—and I think that all these points are important, because of what my noble friend Lord Cromer said. Confidence in this country is a vital factor, and confidence in its Prime Minister is a vital factor; and for the Prime Minister to say to the people that the pound in their pockets and the pound in their bank will still have the same value after devaluation as before is "double-talk". I cannot think of any way of better expressing what the truth is than that in the cartoon heading the front page of the Daily Mirror of Monday, November 20, with a picture of a bulldog, who had a curiously familiar face, having bitten a chunk out of a pound. Underneath appear the words: "Every dog is allowed one bite".
My Lords, why is it that our costs either had got out of hand or were expected to get out of hand?—and I would guess that it is the latter. My guess is that it was the clear certainty in the Government's mind that, for one reason or another, the balance of payments in 1968 or 1969 would not be favourable, or sufficiently favourable, that forced them, and through them, through this fact, forced international confidence into the position which resulted in devaluation. Now why is that? Surely it is this question to which we have to find an answer; otherwise this is going to happen again.
I shall have some words to say in a moment about the future, but before I come to that I should like to deal with one or two of the so-called advantages of devaluation. Nobody will deny that opportunities are created for exporters; also, to be fair, for those who help to earn invisible income. Let me take the latter first. At last we have found some incentive to overseas investment. Over-
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seas investment, which has been cried down, has suddenly proved to be highly profitable. That runs rather counter to some of the opinions that we were told before.
But let me look at the visible trade, at exports. Of course I share the desire—everybody in industry shares the desire—of the Government to stoke up those exports. But it is not going to be easy even to earn as much foreign currency as we earned last year from exports, because we shall have to export in volume something between, say, 6 per cent. and 14 per cent. more than we did last year in order to record the same earnings of foreign exchange. It is difficult to quantify exactly what the increase must be: it depends upon the countries to which the exports go; on the ability of industry to keep up their prices, and on a number of other things. But we start a few handicapped lanes back in the race, before we even catch up with what has been done before. I do not think that it is going to be very difficult to do that. But I must warn the Government—and they know this; they must do—that it is not easy sharply and quickly to increase the whole range of Britain's exports just on price grounds. There are other problems—delivery, the making of the goods, getting them through the ports, and so on. I am sure that everyone will try to do this, and the Government can legitimately say on their side that at least it will be more profitable to the average company to export than it has been before. That is the one advantage that can be claimed, and the one certain boost that there should be to export effort in the country.
I am sorry that the noble Lord, Lord Berwick, repeated what has been said in the newspapers and in another place about the export rebate system that we have had in the past. I myself saw nothing contrary to GATT, contrary to international understanding, in a different taxation system from that in Germany or in France. We tried to bring about the same effect as the rebate on the added value tax, or value tax added. It seems to me wrong to indicate to the international community that there was anything illegal or unfriendly in that. Perhaps I may express the hope that we shall move to an added value tax here as quickly as possible, and then we shall get

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the same advantages as we had from the export rebate. In addition, we must remember that industry will not have the advantage over the whole range of its activities of the selective employment tax. All those things together show that there is some difficulty in industry achieving the results that are expected of it, but I have no doubt that big companies and small companies will do everything they can to that end.
May I turn now, just for a moment or two, to the big problem—what of the future? How can we be certain that we shall not have this situation again? All sorts of points are taken by noble Lords and by experts outside this House about what is wrong with Britain. There is supposed to be something wrong with the structure of industry. The noble Earl, Lord Cromer, and I have had an argument in one respect as to how the structure of industry might be improved. That argument is going on. There are arguments about the importance of automation, of "computery", of business schools, of industrial training, and so on.
All these things are important, but what has always seemed to me to be important, from my experience in industry and in banking, is to get good managers and good management, and this means straight thinking and straight talking. In fact, it is my experience that British managers are nothing like as had as they have been painted by people who write in newspapers, and by enthusiastic Members of Parliament of all Parties. Of course they have shortcomings, but they have become—and so has the City and the workpeople in industry—somewhat of a whipping boy, and I think it would be a good thing if they could get a little confidence in themselves. I want to suggest to the Government that they should accept the responsibility of trying to manage this nation's economy as well as they ask, in attractive ways, industrial leaders to manage industry.
There are all sorts of things that we could say about the economic policy: there is the taxation system and incentive and reward, mentioned by the noble Lord, Lord Peddle. I am going to leave that and concentrate on one item. This can be summed up in the phrase "Government expenditure". First, overseas expenditure. It really is astounding how overseas expenditure has increased
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in the last 12 years. When I had the honour to be in office I think the net Government overseas expenditure was something like £70 million; last year it was £480 million. It has continually crept up, not only under this Government, for what seemed to be very good reasons. But it is far too large, and it is overseas Government expenditure that is directly responsible for our deficits.
But that is not the only thing. There is also Government expenditure at home. The full figure was given by my noble friend earlier on—£14 billion, or thereabouts. That is an enormous amount in itself, but the important thing is that as a proportion of the gross national product it has been increasing sharply over the last few years, and indeed under the National Plan was expected to increase by 4½ per cent., at a time when our gross national product was expected to increase by 4 per cent. That might have been maintainable, but the Government have cone on with this increase and in fact have increased it, when the gross national product was not increasing by anything like that.
What is wrong in Government expenditure? I am not a hard-hearted person and I am not against welfare. I have spent a large part of my political life trying, with my colleagues, to improve the social services of this country but, after all, basically they depend upon a sound currency and a well-managed economy. But in that large lump of public authority and Government expenditure there is an enormous amount which is expended for purposes which are not immediately productive. Some of it has an immediately productive effect, but much is not immediately productive and of that expenditure a great part—in fact the vast majority—is for purposes which we all applaud. But, my Lords, surely we have learned by now that there must be some limit to what a nation can expend for purposes which are not immediately productive. It is certainly my experience in industry that if you allow your overhead expenditure—for whatever good purpose, even if it is vital research or important buildings, and so on—to rise too fast you get into trouble.
I would say the main reason why we have got into trouble and why we have not been able to show the growth in recent years that we wanted to show, is that

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we have been putting too large a part of our resources into projects which are not immediately productive. I can only say that it seems to me we have gone over the limit. I am no economist, and I cannot give the right figure. All sorts of figures have been bandied about recently—
LORD BESWICK: My Lords, the noble Lord mentions "projects" in general terms: would he care to specify one or two of these projects that he has in mind?
LORD ALDINGTON: My Lords, I know this game—we play it in politics. I was subjected to it (if I may detain the House for a moment) when I did the mammoth television broadcast with the Prime Minister for two hours and fifty minutes. We talked about Government expenditure, and I asked the Prime Minister whether he agreed that Government expenditure ought not to rise more quickly than the gross national product. He thought I had asked quite another question, so he made exactly the same sort of reply that the noble Lord, Lord Beswick, made. Fortunately, the broadcasting authorities cut the whole thing! We have all done this. I have done it with difficult supporters of the Conservative Party when I was in Government. I am not going to be drawn on that, any more than I am drawn by a manager in any industry with which I am connected who says to me, "You have told me that I have to cut my overheads—which am I to cut?" I tell him that it is his job to decide that.
I am not saying that the Government ought to have a major slash at all their social services. Of course I am not saying that. I have tried to play a part—in fact for more years than the noble Lord—in building them up. I do not want to see them slashed. What I am saying is that the amount of our increased resources that we put each year into that part of our life must be limited. This is really common ground, and I am saying to the Government that they are now over the limit. They must re-examine it, and they must answer the questions which have been put to them about how these advertised reductions in Government expenditure are going to work.
We are told that there is to be a cut of £100 million in Government expendi-
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ture planned for next year. But what figure was planned for next year in the first place—£100 million off what? If it is off £14,000 million it is very little indeed and will not have any effect at all. Then we were told by the Chancellor yesterday that there is to be a reduction of £400 million from the expected rate of growth of Government expenditure. But what was that expected rate of growth? I have no idea. Was it the figure of 4½ per cent. that the Chancellor might have allowed, or that much larger figure that we all know Departments put into the Treasury at the beginning of the annual exercise? What do these figures mean?
What I think we all want to know, and what the world wants to know if it is to regain confidence in noble Lords and their right honourable friends, is that there are going to be sensible limitations on Government expenditure, so that at last we get back to some sensible management of our country's affairs in which we here can have confidence—and we here having confidence, that confidence can spread overseas.
4.50 p.m.
LORD DOUGLASS OF CLEVELAND: My Lords, I was struck by the opening speech of the noble Lord, Lord Carrington, when he spoke about the Government's prospective efforts to pull the economy round and to deal with labour problems. In that discussion he posed the question: what are you going to do to keep wages down? I think I can answer that—I do not think it is too difficult. The Trades Union Congress has had not only its national Congresses but special meetings of the executive councils of all the unions in this country; and we have had long debates as to whether there should be restraint in wages. They were not easy debates to participate in, because the argument always ran, "Why should the trade unions be the only ones to exercise restraint?" But after a couple of years discussions of this character the trade unions have been able to show that they have kept wages down in this country. It is not a matter of opinion: it is a matter of fact.
I want to pose a question to the noble Lord, Lord Carrington. How would his Government keep wages down? I would remind him of the history of the method

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that has always been used to keep wages down—and effectively; and that method is to have unemployment. I know because I suffered that. And the answer to the noble Lord's question is that the Labour Government's assurances to the T.U.C. have been sufficient to enable us to apply a measure of restraint on wages.
It can well be argued, I think, that we had to have a certain amount of legislation in order to get a six months freeze, when wages stood still. The noble Lord may well argue that dividends did not rise during that period, and I think he would be right. But I seem to remember (I have not had time to look it up) that in the Financial Times there was a graph showing the extent to which incomes had risen during the six months freeze. For incomes below the £1,000 per annum level there was a dead straight line, and above the £1,000 per annum level there was not a dead straight line: it went up. These things are noticed by trade unionists. Can you blame them if they say, "Why should we be selected to carry these particular burdens?"
If the noble Lord wants a further illustration of what has happened in respect of wages, let him have a look at what has happened to wages on the Continent. They used all, without exception, to be lower than in the United Kingdom. To-day, without exception, the wages in Europe are higher. We have done this to help the economy of this country—and not only the country, because nobody works for the country just in an unselfish attitude; he hopes to get something from it. What we hoped for was some export, some growth.
Who have been the recipients of the benefits of low wages, and, indeed—do not forget this—low security? The very private enterprise the noble Lord, Lord Carrington adulated when he spoke. I have an admiration for private enterprise, and it is not just a word-of-mouth form, because my record, my speeches and statements, show a genuine admiration for private enterprise when it is enterprising. But if private enterprise, with low wages, low security benefits, cannot compete with outside countries, cannot get the exports, and then tries to lay the blame on the Government for the loss of that achievement I am left in astonishment. What does private enterprise blame? It blames
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taxation. If we take the gross taxation in this country on industry (I am speaking particularly of industry), it is not more than the gross taxation in any country in Europe. So we are left eventually with a situation where the trade union movement of this country has placed itself in a position where its sacrifice ought to yield some dividends by way of growth and higher standards of living and has been thwarted. And thwarted by whom? By the Government? I do not think that is true. I think it is private enterprise that has not been sufficiently enterprising.
The noble Lord, Lord Aldington spoke as a banker. Let me put to him one of the problems we in the trade union world have. We are told that many industries are overmanned. I have faced it across the negotiating table and argued the case. And then I am asked by my own members, who can do simple arithmetic: "Why does the bank rate fluctuate as it does at the moment?" If the bank rate fluctuates from 3 per cent. to 7 per cent.— or, let us be more realistic, from 5 per cent. to 8 per cent., as it has done now; if you take an industry in this country where there is £100 million investment it is self-evident that 3 per cent.— the difference between 5 per cent. and 8 per cent.—is £3 million; and if that sum is equated with the cost of labour, it will pay 3,000 men £20 a week. So the fluctuation of the bank rate by 3 per cent. can provide almost the total manpower required by a modern capital intensive plant. And then you expect me to go to my members and say, "We want you to take a man off here and a man off there to save the situation". My Lords, the idea is so ludicrous to them that they tell you to go back to the people who own the money, the people who arrange these things, the international bankers, and tell them that if British industry is to succeed it cannot have fluctuation of the bank rate as at the present time. You will not get the working people of this country to respond in the future as they have in the past unless some attention is given to matters of this particular character.
The noble Lord, Lord Aldington, spoke of the structure of industry. When we talk about overmanning, we compare it with America, where almost every unit of plant is bigger than ours; and very often each unit is bigger than the whole

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of the industry in this country. In those circumstances one would expect to get a lower manning per ton than in this country, with its smaller plants. I am not at all sure that in this country we can compare ourselves with a country like America. If we could, I should advocate trade unions on the American style, where Walther Reuther had a six weeks' strike and, as a consequence, raised his members' wages to £3,000 a year, with a year's guaranteed income. That is the sort of security I should be looking for. But we do not live in that atmosphere. We live in a country where our industrial inheritance leaves us with mediocre plant—not obsolete because if you talk about "obsolete" plant you have to say what you compare it with; and if you compare it with Europe our plant is pretty comparable. So we are talking now about how we live in Europe, with the type of plant we have, the type of private enterprise we have, the amount of money that we have, and the type of labour that we have. I should have thought that at a time like this we would have done with condemnation, because this is a political pleasure in which everybody is entitled to indulge, and would have got down to an argument about finding a way out of the particular difficulties that we are in, of which I have instanced one.
The next question I want to ask the Opposition is this. Is it the trade unions' job to keep down wages? What do you think our members say to us when they do not even have to argue the case with the employer? The trade union vetting committee sits. I have sat in the chair of that vetting committee, and claims which are legitimate by any standard except compared with growth are stemmed at the source. Can you imagine the resentment that would arise through the country if those claims were taken before the employers? I have seen them taken before the employers. The employers now argue the demerits of the scheme quite off-handedly, but quickly come to the point where they say, "There is a wage restraint on in this country and you have no right to put forward a claim". The employer uses the argument of the trade union, instead of the argument which should be used in order to deal with those claims. You will never succeed in getting productivity claims
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through so long as that attitude exists on the part of management in this country.
They themselves want productivity claims. I should like to bring some of the atmosphere of the negotiating room into this Chamber. I argued a productivity claim in Wales. It cost the management nothing. My members got an increase; it was well worth while. I went to another part of the country with precisely the same claim, but there was not room for a productivity argument there as there was in Wales, because already the manning was tight. In that part of the country they had negotiated tight manning, because they appreciated the difficulty that existed in the industry of the country. In one part of the country where they negotiated rather heavy manning they got an increase in wages under productivity agreements. Where in another part of the country they had a conscience and had not done that, they were not entitled to a productivity agreement although they were doing the same work. I am not blaming the Opposition for this. I am not blaming the employers for it. I am talking of some of the problems of trade unions in negotiations. That is all I want to bring out. I think my record is good enough to stand examination so far as productivity in this country is concerned.
Now a word on strikes. I represented a union as its chief executive officer for 14 years; I was a negotiator for 30 years, and a member for over 50 years. We never had one official strike in all that period. While I was the chief executive officer we had four men who decided that they were going to have an unofficial strike. On behalf of the executive I sent a telegram to them, telling them that if they struck they would be crossed off the list of officers of my union. They were laymen; they were not full-time officers, but part-time men. They threw the telegram on the fire. My executive council discharged those four men from office.
That had a sequel. This was a large works, and most of the branch officials in that works resigned in sympathy with the four rebels. Everybody said that my future was behind me. But I was convinced, and I am still convinced, that no organisation can be successful unless it has discipline within it. I said this openly and freely. For a month we had

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virtually no officers in that works—just a few loyal officers—and we did not collect one halfpenny in contributions. We collect our money through shop stewards on the shop floor. For a month we collected nothing. Then those men decided that this had gone on long enough and asked to be reinstated. I told them they had to be re-elected because they had resigned, and only the branch could put them back. But the four men who had stopped because they said they would go on with the unofficial strike were not allowed to come back.
The important point is that in the first month we collected no contributions; in the second month we collected the contributions and arrears; but in the two months together we collected more money than we ever collected before. In my opinion, that justified a trade union in standing out for the agreement it had, and in having discipline—self-imposed discipline—within the union itself.
Did you read all this in the papers? Did you see it on television? Has it happened in other unions? Do you know? No. But, by God!, if there is a dock strike the whole place knows about it. The trouble in this country and in this world is that where you have responsible trade unions, as the majority of them are, you never hear anything about them. But let there be one rebel union, even one individual rebel within the union, and they stick him on television, and the impression and image given of British trade unionism is completely false in that respect.
The British trade union movement is responsible. I state that most emphatically and I think I have proved the effect of responsible trade unionism on the economy of this country over the past two years. If any blame rests with any section of this community, it is not with the trade union movement and it is not with the workers—that, despite the dreadful things that have happened and have interfered with imports.
Where did we go wrong? We got out a National Plan. I would remind noble Lords opposite that the National Plan was evolved in "Neddy". We had employers there, and praised them; we had trade unions, and we had the Government. We had two Governments, because the Conservative Government had set it up. Together we hammered out
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how we could have some sort of planned economy and not the distorted private enterprise activities that we had previously.
As I said earlier, I praised private enterprise. But I sat on the Iron and Steel Board for many years. The trouble with the Iron and Steel Board, which had to assess how much capacity we in this country were to have, was that they never knew what the motor-car industry was going to do; they never knew what the engineering industry was going to do; they never knew what any of their consuming industries were going to do. They had to guess. Often they guessed wrongly. Often they were told wrongly. If anybody says that that is the way to run a country I will sit down and let the country go on in that way. But, of course, you have to plan the investment in this country. You have to see what the capacity is going to be and you have to assess the market to the full.
For that reason we got out a plan. We assessed the growth at something like 4 per cent. I remember that it was assessed by a previous Government at something higher than 4 per cent., but at that time there was no plan. What happened? Everybody sat down and everybody did what this Chamber seems to be doing at present. They said, "The Government have now decided what we are going to do in the country, we can sit back and we'll be O.K." That is what happened. Well, if you make a plan, can everybody sit back? Surely the basis of a plan is the assumption that everybody will work to achieve its objectives, that everybody will work for exports. We can pull away from the idea that we are going to be protected by tariffs. When the noble Lord, Lord Aldington, spoke about the export rebate he said he did not know that there was any objection to it. I can tell your Lordships that there was. I sat on the Consultative Committee for EFTA, and there was considerable opposition to it and of course, to the surcharge on imports into this country—there was a great outcry about that surcharge.
The noble Lord, Lord Aldington, also mentioned the different methods of taxation which can be used—the added value tax, and so on. These ideas are worth a lot of study and will help, but they will not cure the situation. There is only

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one thing that will cure the malaise from which this country is suffering at present, and that is better use of the money we have (and that will not be achieved with an 8 per cent. bank rate) and a better use of our manpower. The manpower which is situated in Scotland, on the North-East Coast and in Wales must be left there if it is at all possible to do so. We must divert industry there, but not if it will not pay in the years to come. There must be no charity about this; it must be a common sense movement.
I do not want to go over all that this Government have done, but they have done a considerable amount in diverting industry to these parts of the country, so sharing out the prosperity we are going to have, rather than to have 10 per cent. unemployment in one part of the country and 1 per cent. in another. Ten per cent. unemployment in one part of the country is not only a matter of manpower; it also means that 10 per cent. of one's money, one's capacity, is unemployed. This is as vital to the employer as it is to the trade unions. My Lords, I dislike this devaluation as much as anybody does. I hoped that we should never come to it—but we have. I suggest that, having got off our chest all the fine eloquence about whose fault it is, we should then come down to decide who can put it right. If we can have the C.B.I. controlling dividends, as the trade union movement has controlled wages, we shall get out of this situation.
5.14 p.m.
VISCOUNT ECCLES: My Lords, the speech we have just heard is very relevant to our debate to-day. One heard the noble Lord, Lord Douglass of Cleveland, with all his experience in the trade union movement, with all his knowledge of the difficulty of getting industries efficiently manned-up, saying, "We have done all we could do in the trade union movement. We are not to blame." If the result of all the efforts which have been put in on that side of industry, as well as on the other side, is devaluation, we really have a very hard problem indeed.
Why are our wages in certain industries in some cases lower than those on the Continent? Because we have to use more men for the same process. If we used fewer men—and maybe fewer managers, too—we could pay them more.
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The noble Lord, Lord Byers, said rightly that he had some idea that we ought to limit the total payroll. I do not know how practical that proposal is, but I know that if you are in an international business and you employ three men where two men will do, your wages have to be lower than those of the manufacturer who has succeeded in employing only two. These are the facts of life.
I do not think we shall ever forget this day of exposure of weaknesses and the bad faith which confronts us. I wonder how much further downhill we are going before people cry "Halt", and pull them-selves together and show what Britain can do by her own exertions. I am quite sure that a turning point will come, but after what has happened this weekend I cannot believe that it will come while Her Majesty's present Ministers are still in office. We have had three years of a Government which, whatever may be their majority in the other House, have not had the authority in the country to do what was necessary to put our economy right.
The present Government came into office with the good wishes of a very large part of the people, including a great many who did not vote for them. I myself was one of those. We had confidence—I did, at any rate—that Mr. Wilson and his friends knew how to manage the economy in a different way and how to manage sterling better. They had told us that they could do that, and after 19 years—covering the period of the Attlee Government and then a succession of Conservative Governments, when we had had one major devaluation and several bouts of deflation, all of which had failed—it was very reasonable to give a second chance to the Labour Party. I hoped that when they came in they would at least be able to do two things we had not been able to do.
In the first place, I thought they would be able to control incomes in relation to production better than we had been able to control them. I do not mean by compulsion: I mean by consensus. I mean that for which the noble Lord, Lord Douglass of Cleveland, appealed in the last lines of his speech; that is to say, a partnership between the Government and both sides of industry. Well, they swiftly threw away their chances of that consensus by doing things which, clearly, were the opposite of what they said they

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wished to achieve: an efficient economy. I will come to that in a moment.
The second thing I hoped was that Labour economists, whether they were Ministers or Back-Benchers in another place, or experts brought in from outside, would between them have some new constructive ideas to deal with our chronic troubles in regard to the balance of payments. I do not know whether I may remind your Lordships, but in one of the earlier debates on the subject I ventured to say that those constructive ideas would have to cover both the mechanism of the sterling area and the structure of our import programme. I will say something more about that a little later.
But all these hopes were quickly dashed. The Government threw away the confidence with which they had been greeted on their arrival in office. They threw it away in the classical manner—that is to say, Ministers were always contradicting each other; or they were saying one thing and then doing the opposite. There is no more sure way of losing the confidence of the country than to cause people to doubt both your brains and your word. They praised expansion in words (the noble Lord, Lord Douglass of Cleveland, referred to the National Plan), but all the time they were doing things which made it quite impossible to carry out that National Plan. It was this sense of contradiction between words and deeds which so undermined the consensus which I hoped they would establish between themselves and those of us in industry.
Since they had no new ideas for dealing with the balance of payments, they had to choose between the two old remedies, both of which had failed before—devaluation and deflation. They rejected devaluation (which I personally think would have been quite a good gamble) the moment they came into office, and they chose deflation. Now deflation does a lot of nasty things, and one of the things it does, which is quite contrary to the whole of the rest of the policy, is that it hits the growing industries hardest. They are exactly the people who want cheaper money, as the noble Lord, Lord Douglass of Cleveland, said, and they are exactly the people who need an expanding market in which to push their way through. They have a
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very hard time under conditions of deflation.
Of course, output was held back, and we had unemployment. But we were told that if we endured these things we should get a respectable surplus on the balance of payments. But what happened? In spite of the enormous investment in plant and machinery that went on during the very active last two years of the Conservative Government, and which came on stream only in 1964, 1965 and 1966, production has stood still. We have more unemployment now than ever we had under the Conservative deflations; we have put a serious check on private investment abroad, which is a good way of helping overseas countries; we have endured a savage cut in our travel allowances; interest rates have been kept very high—and here may I remind the noble Lord opposite of who it is who puts up the bank rate to 8 per cent.? It is not the wicked bankers, but his own Chancellor of the Exchequer. It is to him that the noble Lord should address complaints about the present level of interest rates.
LORD DOUGLASS OF CLEVELAND: My Lords, may I ask the noble Viscount a question? Is it always the Chancellor of the Exchequer of a country, independent of any outside influence, who deals with bank rates? I do not know; I am simply asking the question.
VISCOUNT ECCLES: My Lords, no one is wholly independent in this country, but if you are in a position of authority you must act and you must take the responsibility. And, indeed, that is precisely what Mr. Callaghan very bravely said yesterday in the House of Commons.
What have we for all those things which we have suffered? First of all, we have no improvement in our visible reserves. Secondly, we have sold some of oar dollar assets. Thirdly, we have built up new fresh debts abroad; and, fourthly, we have devaluation. If so much damage has been done in the first three years of the Labour Government's term of office, what can we expect in the next three?
That brings me to the central trouble, which is this Government's lack of authority in the country. As I said before, you cannot successfully run any business when your managers doubt both your

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brains and your word, and the present package of devaluation is a further support for those who are sceptical about both. The Government are saying, as loudly and as confidently as they can, that the 143 per cent. devaluation will lead to such an increase in exports that in a year's time we shall be earning a handsome surplus of foreign exchange, with which we can repay some debts and start to replenish our reserves. That is what they are telling the ordinary people will happen as a result of this package. I wonder how many of the managers in the export industries are saying to themselves, "This is just one more pretence which has been put up, like Mr. Brown's National Plan."
Of course, my noble friend Lord Aldington is perfectly right. All of us who are in businesses which have an export trade are going to do our very best—as, indeed, we have been doing, and particularly over the last two years—in really looking for new markets. But consider what this 14·3 per cent. means. First of all, we have the abolition of the export rebate. Personally, I think £100 million could never have been more foolishly spent on stimulating exports. The use of £100 million in a selective manner might have made a very great difference to our exports, but the butter has been spread so thin—1¼ per cent. or 1½ per cent. on export turnover for most big companies—that it has made little or no difference to whether they went out for additional orders. Then there is the S.E.T. refund, of, I think, another £100 million, to manufacturing companies in the Midlands and the other big production districts.
If those two losses to industry are added together they come to anything between 2¼ per cent. and 2½ per cent., and therefore that 14·3 per cent. is reduced to 12 per cent. From that 12 per cent. you have to take off the automatic increases in costs. I know very well that different firms have a different proportion of imported materials in their processes. I have asked one or two sizeable firms, and it is rather interesting that their first rapid calculations differ only as to ½ per cent. below and ½ per cent. above 4 per cent. Of course, there will be extra fuel costs, raw material costs, and all the rest of it. The firms
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say that there is nothing they can do about that. So 4 per cent. will be added automatically on to their costs. That reduces the 12 per cent. to 8 per cent.
So 8 per cent. is the export incentive which we have, and I must now say that in reducing this to 8 per cent. I allow nothing for any rises in wages that may come as a result of a rise in the cost of living. I am assuming that the noble Lord, Lord Douglass of Cleveland, and his friends, together with the employers, will hold wages where they would have been if there had been no devaluation. Of course if they cannot, then the 8 per cent. will be immediately frittered away. Anyway, let us suppose that we have 8 per cent. What sort of expansion in exports are we going to get? In the first place, we will not get a straight 8 per cent., because our competitors are not going to take it all lying down.
Noble Lords will remember that when we had the 10 per cent. import surcharge, most of our suppliers overseas adjusted their prices in one way or another and the import figures showed that, though the Treasury made a nice killing out of the 10 per cent. import surcharge, it did not stop the imports coming in. This is the nature of international trade, I think I may say; that people are—
LORD BESWICK: My Lords, I wonder whether, in the course of the inquiries which the noble Viscount made, he inquired of the Leyland Motor Company. Would he care to remind the House of the amount of reduction in the price of their export products, which they have given us this last week?
VISCOUNT ECCLES: My Lords, I am afraid that I do not know the answer. I have not asked the Leyland Motor Company. But whatever it is, it will be out of stock which has been made before. Wait till these additional fuel charges and the rest really come in. They have not come yet. I am afraid the noble Lord will have to excuse me for not giving an exact figure, but I have a big stock of something in one of my companies. This is a very good opportunity to "flog" it, and I shall try to do so. But when it is gone it will be replaced with the same material having cost us more.

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I must also point out that I do not know exactly what the expansion of exports must be in order to pay the higher prices for our imports, but it must be of the order of some hundreds of millions extra exports in order to stand where we are. I think noble Lords will probably agree that in a situation such as we are in now it is probable that the terms of trade will turn against us; that is to say, we shall have to pay even more because of the inelasticity of quite a number of the prices of goods we buy. We are not the same market as we used to be. There was a time when Great Britain bought such a high proportion of the total of many international commodities that we had a great influence on the prices, but I do not think we have that influence now. I should think that Australia has not followed us precisely for that reason.
There is more hope really if one looks on the other side of the balance sheet. One of my noble friends mentioned that Government expenditure overseas is running at the rate of (I think he said) £480 million a year. Let us take it that that is £400 million in terms of non-devalued currencies. That means another £60 million exports a year just to stay where we are with our present overseas commitments. The bill is enormous that will be presented to us.
If we look at the import side of the balance sheet, I myself think that there is there more hope; but only if the Government will get rid of the out-of-date structure of the United Kingdom import programme. I have mentioned this before to your Lordships, but I do not apologise for doing so again. When the Labour Party came into office they said that to substitute goods which could be made at home for imports was one of their economic policies. But, of course, they never did anything about it—one more example of saying something and then not doing it. They had, as I pointed out, a very large opportunity in agriculture and in textiles; but they have done nothing in either to substitute home-produced goods for imports.
My Lords, the import programme that we have is constructed in the manner of a rich country which can afford the luxury of subsidising quite a number of its most important suppliers. I want to make it quite clear to your Lordships
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that I am 100 per cent. in favour of helping the underdeveloped countries as much as we can. Nevertheless, we have to consider the way in which we do it, as well as our own people. Let me first start with the way. Consider three cornmodifies—first, sugar. We have a Commonwealth Sugar Agreement, and we pay millions of pounds a year for sugar over and above the world price. We are rr embers of the Wheat Agreement—we are, I think, the largest importers of wheat—and we pay for our wheat a price well above what it would be in the world if there were no such agreement. Who gets the benefit of that? North America and Australia. I wonder whether we are really in a position to subsidise the farmers of North America and Australia.
Then take textiles. Is it fair that the United Kingdom should have a so much greater burden put on her textile industry by the import of low-cost textiles from the East than all her other trading partners in the industrial world? Why do your Lordships think Hong Kong devalued so swiftly after we did? It was because they wished to maintain their power of penetration into Lancashire, where they are very rapidly smashing up the smaller textile firms. That we should, so out of line with other countries, weaken our own economy, is not sense.
Then we must consider the volume of aid—because otherwise I shall not get into focus the argument to which I am coming. I wonder whether it has been sound sense to stop the investment of private capital in developing countries and yet to continue inter-Governmental aid. My impression is that a given sum of private capital is better spent and strengthens the economy more than do inter-Governmental loans. I know that such loans are much liked by Ministers, but I doubt whether we are in a position to provide them. Because, my Lords, look what has happened. We are like a father who has gone on giving large presents and making allowances to his children when all the time he has been running up an overdraft. Suddenly, one day, the banker comes, and the father has to cut the children off. That is not the way to be kind to your children.
How does it all add up—our aid? We give all these pounds to these overseas countries, and as a result of that we have to devalue all their sterling balances.

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I wonder on which side the benefit really comes out. I was always brought up to believe that one should give away as much as one could afford, but that one must give it out of a solvent budget; out of something that one had; and that it was not at all wise—and, indeed, hypocritical—to pretend that one was so much richer than one was. I think the Government must look again at the whole structure of our import programme, which has for so long been out of date.
Moreover, the overseas countries to whom we have been giving this aid, the members of the sterling area—or a good many of them—have not been slow to notice that the very operation in their favour of all the subsidies we have given them has been weakening our pound. And what have they done? They have broken their side of the sterling area mechanism. They are under a commitment to put into our pool here their non-sterling earnings. That was part of the bargain. As their non-sterling earnings came into our pool, so we were able to let them draw their sterling balances and convert them into whatever currencies they liked. But over the last five years, I think it is, they have broken away, and no less than £800 million in gold and foreign exchange has been accumulated by members of the sterling area in their own private reserves. All of that money should have come into our pool. Why did it not come in? It was because they were already losing confidence in sterling and they said, "We have got to insure a little bit by creating our own reserves".
My Lords, we cannot carry on with a sterling area mechanism in which both sides do not play the game. I ask your Lordships: after what happened last Saturday, is it likely that confidence will be restored and that the overseas sterling countries will now put all their earnings into our pool? Of course not. Their desire to have something of their own in New York or Basle, or wherever they want it, will increase. We must therefore overhaul the sterling area mechanism. It would be perfectly possible to earn £500 million credit on trading account and not get one penny into our reserves, so creaking is the sterling area mechanism now. Unless we have larger reserves, this cannot be operated; and it
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is no good our trying to do other things if the drain upon our own exiguous reserves means that the pound is once again indefensible.
I therefore hope that, in the realm of policy, the Government will re-think the import programme, will re-think the sterling area mechanism and will (and here, of course, I come back to what some of my noble friends have said) spend less money themselves. It is the fact that in Budget after Budget in which they talked about efficiency and expansion they have brought forward measures for the spending of public money which did nothing to help efficiency and expansion. Indeed, in many ways these measures made it harder for us. They must get rid of that contradiction. If they believe in efficiency and expansion, then what they do in the Budget must back it up. But, of course, more important than anything else is again to get a Government who have authority in the country. That means a Government who trust men and women and are trusted by men and women. We have not such a Government to-day, and I reckon it impossible to consider myself the citizen of a proud country until we do get such a Government.
5.39 p.m.
LORD HIRSHFIELD: My Lords, earlier to-day it was suggested to me that I should acquaint your Lordships of the fact that I am an accountant. I suppose that was in case it was thought that, on a day like this, on seeing me stand up for the first time your Lordships might think I was the bailiff. A little later, by coincidence, it happened that I was lunching with the President of my professional institute and with members of his council. I asked him what he thought about the way I should introduce myself. He said, "Of course, you must not mention that you are an accountant; it is unethical". Therefore I have not done so.
I have to recognise that I am addressing the House at a time when there is an atmosphere of tenseness. Outside this House, the whole country is similarly charged. In many countries of the wider world people who still respect our country, and want to see it endure as a bastion of freedom and justice, are watching, wondering, questioning and hoping. The

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last days through which we have passed were grave ones for Britain's future, when, above all else, courage in making the inevitable decision was needed, even though it involved deep disappointment and shock. But there are widely divergent views, not only among politicians and economists but also among the British people, as to what the ailing patient's medicine ought to have been.
I have chosen to speak in this hour of intense controversy following devaluation of the pound; and it is my understanding that, so far as possible, a maiden speech should be non-controversial and brief. In that respect, taking account of earlier speeches this afternoon, I found the average time taken was 21·43 minutes. I will try to devalue that down to 14·3 minutes, or even less; and to the utmost of my ability I shall conform to that basis of non-controversiality. But I hope that I can anticipate your Lordships' tolerance and understanding if I am a little off course at times.
My Lords, for some thirty years I have had an intimate connection with many kinds of businesses, for I belong to that often maligned profession which views firms like an X-ray, sometimes reconstructing or rehabilitating and at other times winding them up. But throughout that same long period I have also been intimately involved with the trade union movement, here and abroad, and therefore I am in the perhaps unusual position of having come to this House with a background of working concurrently on both sides of industry, labour and management. That situation brought splendid opportunities for trying to understand the often opposing attitudes to various industrial problems of management and labour; and there grew up inside me the desire to stimulate opportunities for bringing together the heads of business and of the unions to talk with one another in a relaxed mood and in utter openness, instead of their merely meeting together over the trials and stresses of the bargaining table.
So, my Lords, when I promoted the Trades Union Unit Trust some seven years ago as a vehicle to channel for the first time a portion of union reserves into industrial ordinary shares, it was not only because I believed fervently in the long-term future of the prosperity of British industry (and may I emphasise that I
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still look forward to the future of British industry?), and considered equity investment anywhere along the line as a sound hedge against inflation, but because I knew the trust would lead to better understanding among union leaders and negotiators of the function of capital in industry, of the meaning of risk capital and of the reasoning behind dividend policy. It would also be the means of bringing trade unions and the City a little nearer towards an understanding of one another and help to remove at least some of the outmoded prejudices.
These considerations apply also to the Foundation on Automation and Employment—of which the noble Lords, Lord Carron and Lord Robens of Woldingham, are respectively Chairman and Deputy Chairman—which studies the human impact of advanced technological change. The Council comprises men of great eminence from the automation industry, from the unions whose members are directly affected by automation and from the users of sophisticated electronic or similar equipment. These men discuss together frankly the problems involved in a more rapid introduction of automation, organise meetings to consider them and search out ways of eliminating human hardship. Management bears the responsibility for taking decisions to introduce automation or data processing and must recognise the need for boldness and for educating middle-management to be receptive of change. Responsible trade union leadership knows—and the T.U.C. itself has said—that more automation is needed urgently in Britain; because without it there would most likely be greater unemployment due to greater foreign productivity and competition.
My Lords, I have occupied your time in connection with these two bodies (which prima facie are unconnected with the devaluaton debate) only because I feel strongly that this is also an issue where we must pull together for a common purpose in bringing Britain quickly back to economic good health. Now is not the moment in our political and economic history to conduct a serious inquest into the immediate past. Indeed, the origin and history of our economic ills goes back to long before the period of this Government. I submit respectfully to your Lordships, and to right honourable and honourable Members of another

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place, that this is not the occasion for "shouting the odds" about what has gone before. When the ship of State is ploughing through very rough seas to calmer and brighter weather beyond, you do not distract the captain and the crew by arguing about the route along which the ship has voyaged. Without having been on the bridge before the oncoming storm you do not know in detail the conditions under which those in charge have made their calculations and set their compass.
This is an hour in the economic history of Britain when Party political in-fighting ought to be temporarily halted; when harmful debate over devaluation should be cast aside and searching after scapegoats called off—while everybody in this Realm unite to win the battle for exports, to speed the advance towards greater productivity and to stride rapidly forward through this great new age of technology.
My Lords, during the majority of postwar years, Britain's exports increased by a smaller percentage than those of Western Europe as a whole; while in 1952 and 1958 our exports, in volume, actually declined. That dismal record must be halted at once if we are to be saved the ignominy and suffering of national bankruptcy. In those last few hours before the announcement of devaluation, some City financial experts publicly observed that devaluation meant disaster. Now, I understand and hope—in spite of what I heard this afternoon from some noble Lords—that most of them have modified their thinking to a belief that if we do pull together we can ensure a successful ultimate outcome from the decision to devalue.
But the Government will need to concentrate on the underlying economic ills and to tackle them ruthlessly if devaluation is to succeed. It is said that devaluation must certainly cause some food prices to rise by from 2 per cent. to 3 per cent. within a short period, due to the high proportion of our food which is at present imported from countries which have decided not to devalue. In that respect, one must be glad of the assurances already given of measures to remedy the adverse effects on the less-well-off people in the community.
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But there is already one important indication of management co-operation which has come to my notice. Last night the chairman of one of Britain's supermarkets (he has allowed me to indicate that it is Tesco) assured me that his organisation would immediately review all its buying arrangements—even if that meant changing suppliers or buying from different foreign sources—to ensure that there need be no price increases over a wide range of imported foods, and only the very minimum increases where it was absolutely unavoidable For many years another great multiple chain store, Marks and Spencer, has been well known for the quality and value of its merchandise. I believe that standard was achieved, and is being maintained, largely by the organisation's rigid internal policy of quality and price control within its purchasing departments. And let us remember that that organisation, which has a reputation extending well beyond our shores, has built it up on the certain fact that 99 per cent. of the merchandise offered in its stores is made in Great Britain. These two examples show what can be done where there is a will, and neither of these famed British retail organisations is, I believe, considered to be unprofitable. I can tell your Lordships that the Trades Union Unit Trust is interested in both of them.
Any fairminded person has to admit that mistakes have been made by this Government. I happen to feel that people have heard, perhaps, a little too often about the legacy of the £800 million balance-of-payments deficit which the present Government inherited from their predecessors. I feel that there is some justification for the claim that the over-publication of this position helped to reduce foreign confidence initially. It is also my view that too much was attempted at once in the sphere of taxation. I consider that the corporation tax and the capital gains tax, both very desirable, would have been best introduced with, say, a gap of a year between them, especially as the commencing date for the corporation tax was delayed, as we all know. I am sure, too, from my practical experience that the selective employment tax hardly succeeded in its declared intention. It also contains anomalies which need early rectification.
I think, too, that there is an urgent need to re-examine the entire tax system.

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But, as the leading article in yesterday's Financial Times honestly stated,
"The present Government is not the only one to blame for what has happened. The country has been living beyond its means for years past: one crisis has succeeded another with monotonous regularity, each more severe than the last."
The Financial Times went on to say that the final outcome
"has been delayed for so long only because other countries, fearful of the effect on themselves of a sterling devaluation, have been prepared to grant us one large loan after another. But the sand has at last run out. The risk of lending has come to seem greater to them than the risk of a devaluation and they have let the pound go. We should be grateful to them— "
to our foreign creditors.
"Another loan would merely have postponed the day of reckoning. The Financial Times is not opposed to devaluation in itself. And there are undoubtedly advantages to be gained from the fact that it has taken place as part of an international operation."
My Lords, I believe our duty at this time is to put into the background the events of the past, for nothing can change them now, except the course of immediate future progress. I am confident that my right honourable friend, the Prime Minister, and his colleagues, struggled hard and sincerely, and against heavy odds, to steer us through the economic crisis without devaluing sterling, in the hope that the expected improvement in the balance of payments would sufficiently materialise before international monetary support was exercised. But that was not to be, and devaluation became inevitable. There have been several oft-repeated causes which need not be catalogued for the final failure to ward off devaluation. Some of them were wholly unforseeable and others tragic. Certain sectors of industry have totally failed to promote exports successfully, or have preferred to concentrate on the easier home market; and it is notorious abroad that British after-sales service needs an urgent overhaul even now.
There has also been undue reliance placed on traditional design, without regard to changing tastes or local or national needs. We have tried too much to push on to people a design or a model because it happened to have been made in the Victorian era and some of us still think it is good. Management and labour
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share responsibility for the painfully slow rate of rising productivity, so vital under modern competitive conditions. I derived encouragement from the noble Lord, Lord Cooper of Stockton Heath, when during the debate on the gracious Speech he admitted that:
"There is need for modernisation in the trade union movement. We have to recognise the priority of the national interest over our sectional interests, and that in industrial bargaining the strike should be only a weapon of last resort."—[OFFICIAL, REPORT, col. 8; 31/10/67.]
I believe that the views of this experienced leader of a very large and important union are shared by a growing number of his colleagues on the General Council of the T.U.C.
My Lords, there must be an urgent transfer of productivity and resources from home demand to exports. I believe the new measures can achieve that, but there must be energetic support from all who work in industry. I agree with my right honourable friend, the Chancellor of the Exchequer, that there is a realistic probability of unemployment starting to decline early in the new year, since the obvious aim is not to deflate total demand, but rather to move on at once towards an export boom, followed closely by an investment boom and coming back only then to a revitalised home demand. What is wanted now, more than ever, is a sign of industrial discipline on the part both of management and of labour. Let us go to it and make the new measures work as quickly as possible for the sake of Britain, and that means all of us. As the Chairman of the T.U.C. said in his Broadcast last night:
"It is un to us to make the best of the job. The new situation offers great opportunities."
6.0 p.m.
LORD ROBBINS: My Lords, it is a very happy tradition of this House that he who follows a maiden speech has the privilege, on behalf of your Lordships, of offering congratulations to the speaker, and I am sure that noble Lords on both sides of the House would wish me to do so on this occasion. I felicitate the noble Lord, Lord Hirshfield, for his thought-provoking and temperate speech.
The hour is getting late and I shall not detain your Lordships with a lengthy inquest into our misfortunes. First, I should like to align myself very strongly

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with those who hold that this is no occasion for rejoicing. We can surely all agree that we have suffered a great setback. We have incurred a deep humiliation. It may be that one has some sense of relief that the claims of one's creditors are reduced to 17s. 2d. in the pound, but a man must be very insensitive morally who does not feel ashamed that their confidence has been thus misplaced and to that extent we have let them down.
Moreover, when we express pleasure at the increased scope for our exports, let us always remember that, contrary to the increase claimed by a recent broadcast, the real value of our money incomes has been reduced and is likely to be reduced. We shall certainly find this when we travel abroad, if we attempt to go tomorrow. We shall certainly find it when the inevitable rises in the cost of living at home have begun to take place. Nor do I think that there is any reason to expect diplomatic benefit from what has happened. I suggest that we fool ourselves if we think that what has happened will make any impression on those abroad who are implacably resolved to extract the last ounce of humiliation from their late comrades in war.
Having said that, I must confess that I cannot associate myself with those who put all the blame on the present Government. In spite of what has been said this afternoon, I myself believe that the claim is true that in 1964 they inherited a bad situation. It is possible, I agree, that this situation might have been handled with more firmness by an alternative Government, but those who argue that such a Government could have ridden out that crisis, with an overheated and over-extended economy, without an abrupt change of policy, fail to convince me. I think that they cherish a most dangerous delusion.
I also think it is true that after a period of (how shall I put it tactfully?) some infirmity of purpose, the present Government, in July, 1966, imposed restraints which no former Government had succeeded in imposing. I hasten to say that I do not think that the present Government's general economic policy has in other ways been such as to reassure business and promote enterprise—quite the contrary. But I am inclined to believe
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that there is at least something in the claim that on this occasion there has been particularly bad luck. It was not long after the imposition of the July measures that demand in continental Europe began to undergo some recession, and the economy of the United States went into a condition which is described over there as a "pause". Nor, surely, should we underestimate the effect on confidence in the pound of the troubles in the Middle East, the closing of the Suez Canal and the dock strike, for which, after all, the Government cannot be held to be responsible. I also think it is only right to say that the present Chancellor of the Exchequer has defended an unpopular policy with great courage and has argued his case like a man. Therefore, although I am opposed root and branch to many of his policies, I feel very sorry for him in his present position, and I personally hope that he will not feel obliged to resign until the rest of his companions resign, too.
Be that as it may, I am bound to say that in the circumstances that had developed by last week, last Saturday's decision seems to me to have been unavoidable. I confess I could wish that it had been taken some days earlier, especially since we have heard from the Government Front Bench this afternoon that the decision took place more than a week before the decision was announced last Saturday.
THE EARL OF LONGFORD: My Lords, on a point of historical fact, that is not quite correct.
LORD ROBBINS: I understood the noble Lord, Lord Beswick, to say so.
LORD CARRINGTON: My Lords, I think it was I who said so. I said that guidance had been given by the Press that the Chancellor had taken the decision a fortnight previously.
LORD ROBBINS: My Lords, it is not for me to refine on these minutiæ of history. I stick to the point I made, that if a decision was impending some time ago, it is a pity that effect was not given to it until last Saturday. But I go on to say that I think that in those circumstances it would have been wrong to run still further into debt in what would probably have been a vain attempt to cope with a loss of confidence in sterling which had piled up. It would have been

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wrong to have burdened our future for a chance which was intrinsically so precarious. In those circumstances, I think that we had to devalue. But I do not rejoice in the decision and, contrary to some authorities, I do not regard it as a prelude to an easy time.
The great question is: will it work? And the answer, I suggest, is that it all depends: it all depends on policy. In spite of the slight doubts which have been insinuated by the noble Viscount, Lord Eccles, I know no serious reason to suppose that in the present circumstances of the world, with our present prices what they are compared with prices in the rest of the world at the new exchange rate, this degree of devaluation should not do the trick and bring our balance of payments into equilibrium again, always provided that it is not offset by inflation of prices and incomes at home. I am equally sure that if it is so offset, it will not work; still more, if ham-handed financial measures blunt the incentives of the new exchange rate—for example, an increase in corporation profits tax. If that is so, then we shall soon be where we were before. We shall be in the position in which France was before the advent of de Gaulle. We shall be like some Latin American Republic, staggering on from one humiliating crisis to another and destroying civic virtue and self-respect in the process. So that in the last analysis the question is a question of nerve and clarity of purpose.
In conclusion, may I utter a word of warning? We shall not solve our troubles by mere exhortation, by phrase-making on television like "modernisation of the economy", of which no one really knows the concrete significance, and which sounds hollower and hollower every time it is uttered. Nor should we rely on vague talk about incomes policy. Of course there must be an incomes policy in the public sector. If there is not, there is chaos. Of course we must hope that responsible trade union leaders will bear in mind the national interest in putting forward their claims. But—and this surely is all-important—they are not likely to be able to restrain their followers if there is a general inflationary tendency abroad. The trade unions would have to be staffed by archangels to exercise self-restraint in such circumstances, and neither Mr. Cousins nor anyone else in that area is an archangel.
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The more one thinks about the present situation, the more one is forced to the conclusion that there is no excuse for the Government to shuffle off responsibility on to anybody else. There will be no excuse if the Government stifle export incentives by unwise tax measures. There will be no excuse if they do not reduce expenditure. There will be no excuse if they do not keep firm control of the credit base. I am not clear that this is as generally appreciated as it should be. Public finance and the volume of money are the instruments which are ultimately at the Government's disposal. The nation will watch very anxiously to see how they are used. And all of us should examine our heads and hearts to see whether our criteria and our aims are clear. We must surely all beware at this time lest we fall into the frame of mind described in Arnold's famous poem Empedocles on Etna:
"Ye would have all things well, yet will use no harsh means."
6.12 p.m.
LORD MCCORQUODALE OF NEWTON: My Lords, I have been given the privilege of saying just a few words before the noble Lord, Lord Francis-Williams, and I am grateful to him for allowing me to do so. I should like to say from these Benches how much we enjoyed the maiden intervention of the noble Lord, Lord Hirshfield. Although one could not agree with everything he said, I think that everyone in this House, with the possible exception of the Government Front Bench, agreed with his comments on the selective employment tax; and for those we thank him: inch ed, I think that most of the Government Front Bench themselves, in their heart of hearts, agree with his comments on that atrocious tax. We hope to listen to the noble Lord many times in the future.
So far as the noble Lord, Lord Robbins, is concerned, I do not propose to go into the slight difference between him and the noble Lord, Lord Aldington, about the events of 1964; but, leaving that aside, there was not a single thing which he said with which I could not wholeheartedly agree, and especially his comments about the Chancellor of the Exchequer. I think that everyone in this country, irrespective of politics, has a high and affectionate regard for the present

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Chancellor of the Exchequer and, in spite of events, a trust in him. The tragedy is that it fell to the present Chancellor of the Exchequer and his two predecessors who had to devalue before him, Sir Stafford Cripps and Philip Snowden, also men of the highest integrity, upright, selfless servants of the public, to undertake acts which we know they themselves deplored, which in the case of Sir Stafford Cripps hastened his early demise, and which we are all sad about to-day.
I should like to say in regard to the speech that we heard from the noble Lord, Lord Douglass of Cleveland, how much I was in agreement with what he said. He is not in the House at the moment, so I will say what I should not like to say to his face: that if we had had in industry more men of the fibre of Harry Douglass, both on the management and on the trade union side, our position in this country would be much better than it is.
There has been a tremendous spate of words in the Press, on television and in Parliament on devaluation, and it is difficult to think of anything new to say. I want to make only one or two remarks on the general question as it seems to me as an ordinary individual who has spent his whole life in industry and is now more or less on the retirement list. The necessity for devaluation of any national currency is a public confession of failure of its national policy. I believe that this cannot be contradicted. It is proof positive that people all over the world have lost confidence in that nation's economic policies and in the Government of that nation. I am not disputing that, in the circumstances in which we found ourselves this last month and the desperate state to which we have been reduced, devaluation was almost inevitable. I am not going to be one to argue that in these circumstances the wrong decision was made.
But do not let us delude ourselves as to the immediate consequences. Mr. Callaghan, of whom I have just spoken, made quite clear in the famous speeches that he made during the summer the disastrous consequences to the ordinary wage earner in this country if we had to devalue. The words which he uttered then are, of course, true to-day. The House will remember that he went on to
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say that if we were going to reap such benefits as there were in devaluation there must be a wage freeze, even when prices went up.
It was said on television the other night, I think by the Prime Minister, that we are a proud people. We can certainly be proud of the exploits of our nation and of all the great things that our country has done, both in the remote past and in the immediate past. But can we be proud to-day of our present action? I think not. We have broken faith with those who trusted our word that we would stand by the value of the pound sterling. Trusting, they gave us their money to keep for them. We have broken faith with those people, and that is certainly not something of which any of us in any quarter of the country can be proud.
My Lords, can we claim ourselves to be a proud nation when we find ourselves in a position where we have to go, cap in hand, to Germany, whom 18 years before we defeated in the greatest war in history, to beg and borrow a few dollars to keep us going? Can we be a proud nation, whatever we think of the main question, when a small country, which for one reason or another we have been by sanctions endeavouring to bring to its knees, finds itself strong enough to maintain its currency, while we have to devalue? I would suggest that, rather than claim we are a proud nation, we should be to-day a very humble nation, and the Government a very humble Government. With the Government and the nation there should be determination to correct our position and to do everything we can to win back the confidence of the world by every means in our power, for until we have done that we are by no means out of the wood.
What makes me so anxious is that it would appear that the Government, from what they have said up to now, are determined to pursue, and indeed to intensify, the same policies which they have been following for the last three years and which have largely contributed to this sorry pass. If my memory is not at fault, when I was first interested in politics many, many years ago one of the first speeches I ever heard, while sitting in the Gallery of the House of Commons as a young man, a student of politics, was that of the late Sir Alfred Mond, who said roundly, "Socialism

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will not work in this country". My Lords, forty years later, I would suggest to you, the electorate is having to learn that lesson all over again.
This devaluation, as has been said in the House many times, does give us, at a price, a little time, if we use it. Are we going to use it well to restore confidence—the one key to the situation? I am frankly appalled at the amount of propaganda which presumably has come from Government sources and which endeavours to portray devaluation as a splendid thing, as a type of victory, as a good thing in itself, when of course it is nothing but a resounding defeat. I think Mr. Douglas Jay went very far on that line when I was looking at television last night. He was fortunately punctured by the questioner very sharply. The Chancellor of the Exchequer himself told us exactly the opposite only in July last. I think it is dangerous to have all this talk about boom next year, or boom in 1969, or a surge for exports early next year, as I think the noble Lord, Lord Beswick, remarked to-day. This is entirely the wrong impression to give to the nation when we are up against it, when we are not on the threshold of a boom or upsurge, unless we make it so. Surely what we have to tell the nation is of the necessity for hard work and new policies, if we are to claim to win through to the end.
To those who are optimistic that once we have devalued all is going to be well, I would say that it is early days to say yet. My information was gathered only at lunch time, and things may have changed this afternoon, but we put the bank rate up to 8 per cent., which in normal times would bring an immediate surge of foreign money into this country, and there was no sign this morning in the City, I am informed, of any foreign money coming in. More sinister than that, the dollar premium, which should have gone down to 17½ per cent. because of devaluation, had surged up again by lunch time to something like 22 or 23 per cent., showing that even to-day with our devaluation there are people all over the world who are still anxious to change even devalued pounds for dollars.
There seems to be a belief in many circles that devaluation of 15 per cent. means in itself an automatic 15 per cent. advantage for exports. I am very glad
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that my noble friend Lord Eccles in his speech showed that this is far from the case. There are some countries which are following our lead in devaluing. Most important from that point of view is Hong Kong. There are some countries in the Commonwealth which are not devaluing: Canada, Australia. New Zealand is devaluing only in order to bring itself into line with Australia, and not into line with us.
If we take two of our great exporting textile industries, cotton and wool, where the raw material content is very large, we see that wool has to come in from countries which have not devalued. We have to pay the full extra price for our wool imports. But a great proportion of our wool exports go to the less developed countries, and they will not be able to get the advantage of the 15 per cent.
In cotton, as Lord Eccles said, we have to compete mainly with Hong Kong. We shall have to buy our cotton at the full price from America or from Egypt, and we have to compete, just as we have had to compete before, with Hong Kong, with no advantage to the cotton industry. Yet the cotton industry and the textile industry are being penalised, in that the Government are removing from those industries help they have been giving in S.E.T. provisions and export bonuses, and are putting up the tax against them. The textile industry, especially cotton, in my opinion (and I had a considerable amount to do with the cotton industry for many years), may well be worse off in its export markets and home competition than it is to-day.
We heard in the television programme "Panorama", I believe last night, some speakers from the motor industry in the Midlands. We heard how the export manager had worked out the position closely, and he reckoned that the only advantage he would get was 6½ per cent., which was close to what Lord Eccles said. So do not let us run away with the idea that we are in for a surge and boom in exports whatever we do. It is going to be a very hard row. There will be advantages, but to nothing like the extent that has been suggested.
LORD BESWICK: My Lords, the noble Lord is just coming on to a point, and I was going to ask him this question. If I agree with him that it is dangerous

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to talk about boom—and I certainly did not mention the word "boom"—does he not think there is also a danger in having too much gloom?
LORD McCORQUODALE OF NEWTON: My Lords, I am not so sure about that just at the moment. I think that gloom, possibly, will strengthen determination to get out of the difficulty, while too much talk of boom—the noble Lord did not use that expression; it was used in another place, I think—engenders complacency, and complacency is the worst possible thing at the present time.
Enough has been said this evening about the main reason for the difficulties we are in which relate to excess Government expenditure. I would make only one remark to the noble Lord, Lord Beswick, who wished to know how we thought we might reduce Government expenditure. I do not know whether this is true, because I have not been able to check it, but I was told to-day that the new count of all the civil servants in this country connected with the national Government (not local government), including all the periphery of economists, training establishments and so on, is now approaching no fewer than 700,000 people. That is Parkinson's Law, and I believe the number could be very much reduced. If that were tackled, it would be one of the fertile fields for finding people for industry.
I have one further comment which I should like to make before I come to my peroration. I apologise for keeping your Lordships so long. If the 8 per cent. bank rate continues for more than a very few weeks it will cause the utmost hardship to a most deserving section of the community—the small trader, and especially the small shopkeeper. This is the time of the year when the small shopkeeper—the backbone of our life in many ways—is stocking up for the Christmas trade. He has to go to his bank for money to pay for his stock, and if he has to pay 10 per cent.—because the bank rate is 8 per cent. and he is probably paying 2 per cent. above that—it will make life very hard for him. I hope the Government will regard this excessive bank rate, which may be absolutely necessary to tide us over the two, three or four weeks of the upheaval and upset, as being purely temporary, and that it will be re-
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duced at the first possible moment, because I believe it will do a great deal of harm to many people who cannot do anything about it.
In conclusion, may I say this? I believe there is only one way in which we can win through this really serious crisis. We have heard that we must cut expenditure abroad and expenditure at home, but, even more, I think we must do everything we can to encourage, to sustain and to reinforce the initiative of the individual in this country, who built this country and who has been frustrated during these last few years to an extent possibly never known before. To inspire the people of this country to accept sacrifices in income and the standard of life, and to a determination to work, and to continue to work, to the best of their ability, is the task of our Government. The community needs encouragement, it needs an incentive for its endeavours. I urge this Government to see to it that the community gets this encouragement, or this Government should make way for another.
6.34 p.m.
LORD FRANCIS-WILLIAMS: My Lords, may I say at once that I find myself a little out of step with many Members of this House. I confess that I feel neither humiliated nor depressed. If I have any feelings, they are rather like those which might affect a man who had found himself engaged to a girl with very expensive tastes, whose upkeep was draining his purse dry and who was wondering how he could honourably get out of the engagement when, by good luck, she came along and gave him back the ring. We have been jilted by the pound sterling, and I think that is a very good thing, for reasons that I will endeavour to explain a little later on.
LORD ROBBINS: My Lords, may I ask the noble Lord whether, in his flight of fancy, he had borrowed large sums of money from the girl before the engagement was broken off?
LORD FRANCIS-WILLIAMS: No, my Lords; I had to borrow them from my friends in order to pay her restaurant bills, and that was what made me want to get out of it.
The noble Lord, Lord Carrington, told us, I thought with a certain sort of

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pleasure of a prophet proved to be right, that in an earlier debate he had told your Lordships that the standing of this country abroad was lower than it had ever been, largely due to economic circumstances; and that now this event had come along to prove the case even more. I must say that I travel about the world quite a bit, and I do not find the standing of the people of this country lower than it has ever been, at any rate not within my experience. But then, of course, I perhaps have the advantage of mixing, on the whole, with intelligent people.
I was a little surprised when I heard repeated over and over again by noble Lords how bitter a blow this had been to our reputation. The Times, in its report, said that there were few capitals in the world where devaluation came as a surprise, and few where it had been greeted with disapproval. On the whole, the decision has had a good Press abroad. It has more than once been called "courageous". Is it not about time that we stopped explaining and telling ourselves—and everybody else—how wrong and humiliated we are, when everybody who understands anything of the financial and foreign exchange system knows that, rightly or wrongly—and in many cases I think wrongly—since this Government came into power they have been fighting an honourable if, perhaps, misguided battle to keep up the exchange value of the pound against all odds? They have done that because they realise that the pound is an international currency and they felt (again I say rightly or wrongly) that they had an obligation—an obligation which inflicted very heavy penalties on the people of this country—to try to retain that balance, and they kept it up almost beyond the point of no return. To have fought such a fight, even if in the end it proves that they have been trying to hold an indefensible position, cannot be regarded by anyone with any fairness as "humiliating". And I am glad to see that, so far as one can gather from the reports, the major capitals of the world do not take that view.
We have been told by various noble Lords that the Labour Party has been governed by dogma. "Dogma", of course, is a word for a philosophy that you do not happen to like. I think if there is to be a charge made against the present Labour Government it should be
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that they have not been dogmatic enough; that they have, on occasion, abandoned their Socialist philosophy in order to fight a battle imposed upon them by external situations—a battle which it might have been better if they had refused to regard themselves as properly engaged in. I will give Lord Carrington the. Wilson television broadcast. I admit that I did not think it was one of his best, It was almost, but not quite, as bad as Ted Heath's the next day.
The noble Lord, Lord Carrington, even when one does not agree with him, is a pleasant and civilised debater. I must say that I find it difficult to express the same feelings towards the noble Earl, Lord Cromer. The only thing I can thank him for is that he took 37 years off my age. I closed my eyes and thought I was back in the Governor's Parlour of the Bank of England in the days when I was a financial editor listening to Montagu Norman. But at least Montagu Norman had this great merit: that he did not believe in speaking in public; he kept quiet. And I could not help, as I listened to Lord Cromer, feeling that if this was the advice that this Government depended upon in their first period then it is an amazing thing that we are not in a much bigger mess than we are.
What were his ideas? All the old tired clichés that one can hear coming out from every third-rate, fourth-rate financial or would-be financial thinker anywhere. Government expenditure must be cut; no indication of what kind of Government expenditure is to be cut. Income tax must be cut; no indication at all that income tax is a means of financing, as anybody knows, the necessary and desirable activities of Government, and that it is impossible to cut income tax without cutting what may be essential and desirable expenditure. But income tax must be cut in order that those who, in the eyes of Lord Cromer, deserve it, shall be able to keep more money in their pockets and have more money to spend. Who are these people? I did not hear Lord Cromer objecting to Lord Carrington when he asked who is going to keep wages down. I assume that the noble Lord is in favour of that—indeed, we are all intelligent people, in favour of keeping wages and all in-conies under some control until we have got out of this difficult situation. But not

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Lord Cromer, Lord Cromer wants the wages and incomes of those at the top scale to be increased: they must have more money in their pockets to spend as they like.
And we have this philosophy (I could call it a dogma) which one often hears from some noble Lords—not all—on the Opposition Benches; and some, though certainly not all, on the Cross-Benches: that the only incentive that will make people, particularly top people, work is if they are going to get more and more money out of it. Perhaps I have been fortunate. I have managed most of my life to earn what would seem to me a reasonable income, though I do not for one moment imagine that it would seem so to the noble Earl, Lord Cromer. And I think I can honestly say that I have never consciously done anything simply because of the money that it would bring in. I have done it because I found interest and satisfaction in doing it. I may be very fortunate, but I am glad to say that most of the friends I have, friends of all sorts of income levels, and all kinds of classes, are in my experience motivated by something higher than just the insistence that they shall have the maximum amount of money in their pocket to spend as they like. They are moved by all sorts of wishes and desires to express themselves and their talents; and they are also moved (though it seems to be increasingly unfashionable to say so) by a desire to return to the society to which they belong as much as they can out of their talents. If that seems to the noble Earl, Lord Cromer, and those who agree with him (I am sorry he does not seem to be here at the moment) a strange attitude, then I can only say that I am very sorry for him.
LORD SALTOUN: My Lords, I beg the noble Lord's pardon. Did he tell Lord Cromer that he proposed to attack him, because if he did not it is hardly fair to comment on his absence.
LORD FRANCIS-WILLIAMS: My Lords, I always endeavour, when I am myself taking part in a debate, to stay so that people taking part can answer points I have made. I do not assume I must first of all send notes round to every Member of the House saying, "It
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is just possible, because you have taken part, that I may refer to you".
VISCOUNT ECCLES: My Lords, I think if the noble Earl, Lord Cromer, were here, he would probably ask the noble Lord how he accounts for the brain-drain.
LORD FRANCIS-WILLIAMS: My Lords, I would say to a large extent—and I say this having looked at the other side, having seen a number of people from this country who have taken part in the so-called "brain-drain" and gone to America—that in most cases the major reason for their going has not been money or dogmas, but the belief that they were not being given a full opportunity for the exercise of their talents in British industry and British management, and would get more there. So far from diminishing my argument, as the noble Viscount would seem to wish, my own experience suggests that the brain-drain reinforces it.
I said earlier that I felt a certain relief in our departure from this old exchange rate because I think that for years, long before the Labour Government came in, we have been fighting an old-fashioned kind of trench warfare, digging in to surround and defend the pound, occasionally moving forward a few yards and then going back, when we were, in fact, engaged in the wrong war altogether. I personally hope that one outcome of this present situation will be that we shall speed up enormously the requests we have put before the International Monetary Fund for consideration of a new international currency. Money has become a great commodity, a commodity to be dealt in and to have profit made out of; and it is no longer feasible or possible for this country to finance the whole world with sterling, as one of the two now major currencies, any more than it is any longer possible or feasible for us to go on policing the world with an immense Navy. We have to abandon the old Victorian concepts and come down to reality.
That this is so, many in the City will agree—because there are a certain number of highly intelligent pockets in the City. One of them, as I am sure the noble Lord, Lord Robbins, will agree, is in Cannon Street. You turn your back

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on the Bank of England and walk smartly away in the opposite direction for about five minutes. I was most interested in a series of articles in the "Lombard" column of the Financial Times dealing with the purely monetary situation, the purely monetary aspects, in which he said, what I think is quite true:
"The United Kingdom will have to consider making a frontal attack on the whole question of how far sterling is to be used for international settlements if we are really going to get a lasting solution to the reserves nightmare. Britain will be well advised never again to be caught up in the system in the way she has done during the past few years, whatever sacred cows of economic and financial orthodoxy have to be sacrificed to this end."
My Lords, I think it is high time that a few of those "sacred cows" of the City were sacrificed. A foot-and-mouth outbreak is nothing to what they do. I think we have to press with infinitely greater force and vigour for a new international currency which will release these pressures on sterling.
In the meantime, I suggest that the City ought to be required to be a little more careful with the "hot" money it constantly handles: for it burns not only its own fingers but all of ours as well. It is possible to borrow money in London on a day's rate or a fourteen days' rate and so on. The "Gnomes" of Zurich, abort whom we have at times heard a greet deal—the Swiss bankers who, whatever one may think about them, are wise "Gnomes"—do not handle this kind of money. Not only do they require money to be loaned for a longer period, but they actually charge a penalty rate if it is withdrawn too soon according to the original lending proposal. I think that we might well learn from this and consider whether this immense amount of "hot" money which flows into and out of London, almost at the drop of a hat, placing immense strains on our exchange position and our whole economic position, is any longer to be regarded as worth the perils and the costs it brings with it.
My Lords, I have spoken long enough. All I want to say now is that although the exchange and monetary side of our crisis is not the only difficulty, and of course there are things that need doing badly on the industrial side, the main thing we need to do is to have confidence in ourselves and to stop being quite
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so humiliated about something we have no reason to be humiliated about.
6.56 p.m.
LORD POOLE: My Lords, at this late hour I intervene in this debate with considerable humility because I am well aware that my attendance is fairly infrequent. Indeed I shall considerably cut short the remarks that I had intended to make, and I hope that the noble Lord, Lord Francis-Williams, will forgive me if I do not follow him in all the remarks that he made. I see that my noble friend Lord Cromer is now in his place, and therefore needs no assistance in defence from me, either in your Lordships' House or in the City. I will content myself merely by saying that I found myself in as complete disagreement with almost all the noble Lord, Lord Francis-Williams said—and I disliked the rather sneering tone in which he saw fit to deliver his speech—as he found himself in disagreement with the speech of the noble Earl, Lord Cromer. I hope, therefore, that he will allow me to pass on from there. I wish in all seriousness to make that position quite clear, to save my noble friend whom, although he was sitting on the Cross-Benches, we all on this side of the House completely support in what he said and the way he said it.
Today, we have had a considerable amount of discussion on the actual fact of devaluation. Like the noble Lord, Lord Beswick, in his opening speech, I think it right that it should be a serious and sombre debate. I do not propose to spend any time discussing how this situation arose, or the reasons for it. This has been debated from both sides of the House. I must, however, say just one thing which is most important for the future. We have a new catchphrase in journalism and politics to-day. We talk of the "credulity gap". As your Lordships know, the "credulity gap", of which I first heard in the United States during the early part of the Vietnamese war, is the gap between what politicians say and what it is tolerable for people to believe. This gap is getting wider and wider. This has been found to be nothing new in the last few days. During the last few days it seems to have been stretched to its absolute limit. To be asked by the Prime Minister to believe that devaluation was a carefully thought out act of great statesmanship,

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and was the design of the Government's policy, is really going too far. We cannot be asked to believe that. It is not really different from the case of a man who, having gone bankrupt, files his petition in bankruptcy. That is exactly what happened.
Perhaps I may clear up one point that has arisen in the debate, a point mentioned by my noble friend Lord Robbins—and I trust that noble Lords will not think two speakers from the board-room of the Financial Times is more than they can tolerate. When we are asked by the Chancellor to believe that the really serious events on Thursday and Friday of last week were really necessary in order that he should have the appropriate discussions, it is too hard to believe, and I must say that from inquiries I have made it is hardly strictly accurate. As I understand it, the Press were led to believe by the Prime Minister and the Chancellor that the decision was taken by them to devalue on Wednesday, November 10. I understand that it was not approved by the Cabinet—this is known, I think, to everybody in the City, and in journalism—until the morning of Thursday last week; and then it is reported that the decision could not be made until the I.M.F. meeting that night. The I.M.F. was expecting this; it was ready for the discussion, and it seems incredible to me that it should have taken ten days—particularly as the rate of 2.40 dollars has long been agreed in the circles which discuss these affairs as a rate which was likely to be tolerable to central banks throughout the world. There was nothing peculiar about the rate of 2.40 dollars. Everybody knew that if there was going to be devaluation at all the rate would be 2.40 dollars, so one did not suddenly spring it as a great surprise. I would say to the noble Lord, Lord Francis-Williams—and in view of his remarks I am astonished that he is not in his place: I am not very sorry; I am just astonished—that everybody knew the rate was 2.40 dollars, and the truth is that this whole operation was extremely badly handled.
Having said that, I must agree with my noble friend Lord Robbins that it has always been my view that no country, and in particular Great Britain as the centre of the sterling area, can afford
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indefinitely to maintain an uneconomic exchange rate for its currency. I entirely accept from the Government that, faced as they were with what was a total failure of their economic policies, there was no alternative but devaluation. For myself, I wish that it had been done in February, when the freeze and the squeeze were still on and Part IV of the Prices and Incomes Act was still in force. I believe we should have got a great deal more value out of devaluation at that time than the rather botched-up affair last week.
Turning to the future, I think that it is unwise and certainly unprofitable to speculate too much on the outcome of this devaluation, since too much that is unexpected may happen. My experience is that it is extremely difficult to assess time factors. When all is said and done, it does not matter much what is said now. What matters is what the economic condition of this country will be like in 12 months' time. But what must be realised—and I am concerned even now as to whether the Government realise this—is the extent to which this country has suffered a crisis of confidence both at home and abroad. Anybody who has travelled recently in Europe and in the United States, and who in the course of his daily business is in touch with the financial centres of the world, knows that in recent months there has been an intense deterioration of confidence in this country, and it is going to take a long time to build it up.
The question has been asked: will devaluation work? My Lords, it has got to work, and we have all got to make it work. The fact is we cannot go through this again. This is almost an academic question and goes far beyond the realms of Party politics. This position we are in, for better or for worse, has got to work, and people abroad—I say this in the most uncontroversial way I can—have got to be persuaded that a British Labour Government, elected in a properly democratic way, by a large majority, to carry out Labour policies, can conduct the affairs of this country in a way which will not inevitably end up in financial crisis. This is the confidence that must be built up abroad. I do not wish to refer too much to 1931, 1949, or 1967, because I accept that in each case the circumstances were quite

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different. But the Government must now show that they can govern the country in a way that is going to make it economically viable. Do not let us forget that yesterday, in another place, the Chancellor of the Exchequer paid tribute to the other central bankers for what he called their understanding of this country's position. Surely the Chancellor does not need to be told by me that the central bankers of Europe understand the financial position of this country extremely well, and are extremely well-informed as to what is happening.
What are we going to face at home? A great many points have been raised today, particularly by the noble Viscount, Lord Eccles, and I should like to touch on a few of them. I do not believe the Government appreciate the time spent and the frustration caused both to management and to labour by the introduction of new methods of taxation—I refer to the introduction of corporation tax and S.E.T. I myself would be much more inclined to support the principle of corporation tax, whereas I feel that the principle of S.E.T. is wrong. The Acts were produced in great haste, one on top of the other, along with capital gains tax, and this has caused great confusion. There are many minor matters in this category, such as Section 65 of the 1965 Act and the way in which Section 28 of the 1960 Act is now being applied. The effect of much which was contained in the 1963 Budget is still not understood and is still being debated by lawyers, accountants and Government departments—one almost gets as many opinions as one asks questions. There is almost always conflicting advice as to what these things really mean. I can assure the Government that to my knowledge many re-organisations and reconstructions are held up while these matters are being investigated by people who do not really understand what the wording of the Act means. I believe that it would be extremely helpful if the Government would consider very carefully bringing in amendments in the 1968 Finance Bill in order to clear up many of these anomalies which are not properly understood.
The second point I should like to mention—and I am glad that it was raised by the noble Earl, Lord Cromer—is that I am amazed that it had never been realised what devastating effects on the
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prosperity of this country arise from the exchange controls. Curiously enough, these are the most readily accepted by the public at large, yet in my opinion they are the most harmful of all Government regulations. They were bad enough when they were statutory; they were bad enough when they had to be to some extent liberalised. But now, when they are being tightened and, even worse, when many of them are semi-voluntary, such as over capital movements to Australia, they bring nothing but frustration and restriction of legitimate business. If this devaluation does anything, one of the things it should lead to is a liberation of our economy over the world exchanges.
In looking to the future, one must ask these questions. Can the Government, having allowed Part IV of the Act to lapse, deal with prices and incomes without statutory machinery at their disposal? We cannot at this date afford a rate of inflation in this country faster than that of other countries abroad. Secondly, can the Government deal with unofficial strikes? I am fully aware of the difficulties here, but constant reference has been made in your Lordships' House this afternoon to the disastrous dock strike. So I ask: can unofficial strikes really be dealt with without legal powers to do so? I must say, frankly, that it is my belief that the Government do not request these powers from Parliament simply from fear of splitting their own Party. I should be very surprised if I could be given any categorical assurance that these strikes can be dealt with without powers, and it is on this aspect that the whole of the economy is going to depend. The Government must know that to depend on voluntary restraint, when they have lost the confidence of employers and unions alike, is to take a terrible risk with this country's economy.
But the tragedy—and to me it is a tragedy—is that in fact the internal position of this country is not nearly so bad as it is made out to be. Is it realised that we have in England to-day one of the lowest-cost countries in the Free World? Perhaps I may be excused if it, together with my noble friend Lord Robbins, direct the attention of noble Lords to the middle page of the Financial Times to-day, where there is a very good table which makes very clearly the point

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that we are a low-cost country. We have not taken full advantage of this fact. We have to accept (and here I am entirely in agreement with the noble Lord, Lord Peddie) that it is not only price that affects our exports: we have to consider also dates of delivery, poor service and sometimes faulty quality. There is no doubt that management and labour must both apply themselves to these matters. But they must not be diverted from these main occupations by all the irrelevancies and examinations of taxes and controls which take up a tremendous amount of time.
I wonder how widely it is realised that in the City of London we have a huge capital market, far larger than any in Europe, and, I believe, far more efficient. I should be surprised if anybody noticed in the Financial Times on Saturday, at the end of the week when there had been all that convulsion, that a company named William Morrison Supermarkets went to the market to raise just over £500,000 capital. That is a company with a good background, and is more than entitled to make use of the market to raise the rather modest amount of capital required for its development. At the end of last week that issue, was over-subscribed 170 times. Over £100 million was applied for. I imagine that people put in for more than they expected, because they realised that it was going to be oversubscribed. But there are vast resources of capital available in the City of London—amounts comparable even to what can be raised in New York—for industry, both public and private, if they are required. This is something which no other country has; and the proper use of these vast resources is being frustrated.
I believe that at the present time industry is being disrupted and taken off its main objectve by threats of reorganisation schemes on a sort of voluntary basis, with no one quite knowing what part the Government are playing. Sometimes they deny involving themselves at all, and at other times they boast that they are turning industry inside-out. I think that a very much clearer definition of the Government's intentions in this direction, and a greater clarification of which agency is responsible, would help people to get on with their job.
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The Government and other people have talked about devaluation as being a great opportunity. I am not sure whether or not it is a great opportunity. It is certainly a very great challenge. I learned many years ago, as indeed all of us in the Services learned, that you had to defeat your own side before you won the war. I believe, and I think it is the view of many people in industry and commerce on all levels, that one of the real enemies we are fighting to-day is the restrictions and controls and policies of the present Labour Government. I believe that if the Government can take a completely fresh look at their policies, without in any way abandoning their social aspirations; if they conduct a sound economic policy, and if the people of this country are allowed to have the opportunity of doing the job, they will succeed. It is only on those conditions that this devaluation will have proved to be anything except a total disaster.
7.16 P.m.
LORD CHAMPION: My Lords, my noble friend Lord Hirshfield made a maiden speech which seemed to me to be quiet and knowledgeable, and that is particularly to be welcomed in an atmosphere in which recriminations were inevitable. Of course, we have had many of them, and I can quite understand that. I must admit that if I were sitting on the other side and the position were reversed, I should probably be doing very much the same as the Opposition are doing at the present time. But I am bound to say, like my noble friend, that I am not sure that this is doing the country any good, particularly in the circumstances. There are times when, clearly, we must drop the Party dog-fight and get down to the task of trying to get out of any difficulties which we might be in.
As I say, recriminations are perhaps inevitable, and the more so because this House divides, in the main, between two opposing sides. But I value enormously the Cross-Benches in this House, and we have had the pleasure of listening this afternoon to the speech of the noble Lord, Lord Robbins. That is a speech which deserves careful study by the Government and, certainly, by every Member of this House. It is one of the essential values of this House that we

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have the Cross-Benches, and I sincerely hope that in any reform which we may have we shall not entirely eliminate the noble Lord, Lord Robbins, and those who can contribute so much from the Cross-Benches to our debates.
The noble Lord, Lord Poole, admitted that his attendances are infrequent, and we know it, but I listened to him with a respect which stems from a period in the other place when I grew to appreciate something of his qualities. I agree with him, particularly, that there is much to be proud of in Britain to-day, and we must not spend too much of our time denigrating this country of ours; that we must spend some of cur time, perhaps, engaging in the dog-fight which is going on, but also in trying to make it clear to the people of Britain that here is an opportunity, and there always has existed an opportunity, if we use it right, to place Britain in an unassailable economic position. I believe this is absolutely true.
Clearly, I cannot agree with the noble Lord on some of the things that he said, particularly on the point of the delay in the date of announcement of devaluation. I agree more with The Times, which said to-day that the machinery of consultation has worked in so far as there has been no chain reaction as might have been feared when Britain devalued. I should have thought there was something to be said for that; that, first of ail, you enter into consultation and then try to ensure that when you actually take the decision the other countries will not start the chain reaction which The Times mentioned.
The noble Lord, Lord Poole, also mentioned unofficial strikes. He probably knows that my background is wholly trade union, if he has ever thought anything at all about me. My Lords, it is extremely difficult to find a solution to unofficial strikes. I wish I knew; I wish the noble Lord, Lord Douglass of Cleveland, knew. Despite what he said about trade union discipline within a particular union, my knowledge is that you can do it in certain unions fairly easily, but in other unions it is practically impossible. It has to do with the powers that the trade union itself has over the livelihood of the man, and trade unions have not always got this. The idea that
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all you have to do to solve the problem of unofficial strikes is to pass a law forbidding them is much too glib, much too easy. It simply will not work so easily as that.
Those who saw what happened during the war years, when some people tried to use legal powers (which were perhaps justifiable then) on others who were behaving in a recalcitrant and quite wrong manner, saw that if these people had not been very careful they would not merely have acted against a small bunch of members of a particular union but would have caused a strike of the whole of the trade union members of this country, for they would have come out in solidarity, perhaps in mistaken solidarity, with those who were in fact being proceeded against legally. I make this point because, whatever we do in this connection, for heaven's sake! do not let us make the mistake of thinking that there is an easy solution to this problem, which I am sure—and here I agree with the noble Lord—is a blot on the sort of organisation of industrial relations that we so badly need in this country at this time.
When I spoke in the Economic debate a fortnight ago, without attempting to range over the whole field I said it seemed to me that we were trying to do much too much about policing the whole world, and that we simply could not afford it. I believe that still is the case. By our defence commitments we are trying to do something which we did very well in the last century but which we cannot do in the post-Second World War period. I am hoping that the Government are making a careful examination of this defence expenditure, which I would regard as wholly unjustifiable in the present circumstances of Great Britain. The other thing I said a fortnight ago—and I am sure I must have upset my noble friend the Leader of the House when I said it—was that I thought that the Government were embarking on reflationary measures much too early. I felt then—and I still feel it—that by letting the hire-purchase possibilities extend we were making a big mistake. But, my Lords, I suppose I must not rub it in.
I make no pretence of any inside knowledge or any special prescience in the matter of a possible early devaluation. I

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certainly did not when I spoke a fortnight ago; but anyone having any knowledge of or interest in economic affairs must have felt that unless we could cure the chronic and continuing imbalance of our international payments the pressures on sterling would continue to build up, and that however much we struggled to avoid it devaluation would sooner or later become inevitable. Devaluation has come. The decision to devalue was undoubtedly an unpleasant decision for the Government to have to take after struggling for three years to avoid it. But the decision has now been taken, the die has been cast, and I suppose that we must now make as much of a virtue of the necessity as we can.
Of course, the effects will not be wholly bad. Indeed, if, among the other effects, the shock effect is such as to make all of us aware of the cliff-hanging situation in which we have been living for so many years now, it may be wholly to our advantage. If it shakes people out of this sort of complacency, that will be all to the good. But will it? And what a problem it is, my Lords, to bring the economic facts home to each individual citizen, and to have him or her translate that knowledge into that trifling increase in effort which would be sufficient to make our country economically sound once more! It is only a trifle that is needed by each and every one of us, if somehow we could manage to feel that this is part of our job, that we belong here and that we must try to make this country work, and work in such a way that we ensure prosperity for all of us.
I felt this particularly when watching television last night. A number of noble Lords have referred to this programme. I saw workers in a car factory answering questions about the possible effects of devaluation. Almost without exception they blamed "they". Whether they were referring to this Government or to the situation left by the last Tory Administration, it was always "they". Not a single one of them said. "It is partly us, the workers, who have failed "—not one. I suppose one can really understand it in a way, but there it is; it is part of this climate of opinion which undoubtedly exists. Then I watched the microphone being thrust under the noses of people in the City. They were standing outside, in
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the street. They were not allowed in the Stock Exchange or those other places where normally they get together and conduct their business. Those men in the street equally blamed "they". There was never a thought that perhaps they themselves could have helped a bit more; never a thought that perhaps successive crises may not have been due so much to a withdrawal of foreign balances as to speculation by United Kingdom citizens, and that, out of consideration for the overall interests of the economy, they might have refrained from making money out of Britain's situation. I could not quite understand—I am sorry the noble Lord, Lord Aldington, is not here, but I am not going to attack him—why the noble Lord said that there was no speculation; that these things did not seem to happen. To-day I read an article in The Times Business News in which I saw this passage:
"Yesterday the Bank of England was taking stock and wisely decided not to issue the new sterling parity margins to dealers until just before trading is due to commence this morning. At last the Bank holds the trump card and everything points to a massive squeeze on all those who sold short".
Selling short is, I suppose, part of this whole business of speculation. It is the second part of what happens in relation to the foreign investors in this country.
LORD POOLE: My Lords, may I suggest to the noble Lord that the point is this. I believe that technically what the Bank of England can do can really affect only foreign speculators. I think the measures they took would in fact hardly apply to an English speculator who was short of pounds. I think it is the foreign speculator and not the English speculator who is affected.
LORD CHAMPION: My Lords, I sincerely hope that the foreign speculators, having, as they say, sold short, will be thoroughly well squeezed. As far as our own speculators are concerned, there is something called leads and lags which are not unknown as part of the operations in that part of economy known as the City.
The blaming of "they" is very largely the fault of us politicians ourselves, for the "Outs" always say of the "Ins", "If only 'they', the Government, would adopt the policies we recommend to them, all would be well." Or, much more often,

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"If you replace them by us, your problems will be solved." It is not surprising to me that many noble Lords opposite said that if we changed sides the whole problem would be solved—forgetting the 13 years in which these problems were not solved. The chronic imbalance of payments remained throughout that period. And it has not yet been solved. We must try to solve it.
There are a number of things which clearly we have to do. I rather liked the remarks of the noble Viscount, Lord Eccles, who must have read the Westminster Bank Review, as I did, in which there was an article written before devaluation by a Mr. Conan on the problem of sterling. In that article he turned upside down the phrase so often used, "The world does not owe us a living" into, "The United Kingdom does not owe a living to the rest of the world." It is something of a shock thought; and it is one which we must consider. Mr. Conan went on to outline some of the possible remedies. I will not go into all the remedies that he mentioned, but he did assert—and I think this is important:
"At present the United Kingdom gets the worst of both worlds: as a banker for the overseas sterling area it has to forgo all the proceeds earned by its surplus with that sector and it has also to forgo, substantial amounts of foreign exchange because of the failure of countries like Australia to honour pooling commitments. There is thus a twofold drain on the reserves which is unlikely to be remedied by either devaluation or deflation."
Mr. Conan was talking about the sterling area generally and the pooling arrangements which exist, the substance which, it seems, is being whittled away—and this is a great pity. Mr. Conan also questioned, as did the noble Viscount Lord Eccles, whether we can continue a Commonwealth preference system which, as he puts it,
"(inter alia) guarantees the free entry for virtually 100 per cent. of the exports from advanced countries like Canada, Australia and New Zealand, but not of course for United Kingdom exports to those countries."
Those countries are advanced industrial countries, and the time has come, I think, to make careful examination of the position in relation to the flow and exchange of goods between those countries. I hope the Government are studying the effects of the sterling pool and the Commonwealth preference system that Mr. Conan has mentioned, for it appears to me that there
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is a considerable measure of truth in his points.
My Lords, all that study can go on, but what the Government have to do—and what all of us without exception have to do—is to try to ensure that the shock of devaluation is not lost, and that our involvement in the nation's difficulties is clearly understood and firmly established. If this devaluation—which I regard as undesirable and which I do not welcome, though I recognise that it is inevitable—has this effect on all of us in this country, good will yet come of it.
7.35 p.m.
LORD ALPORT: My Lords, the noble Lord, Lord Champion, sits habitually so near the Cross-Benches that it seems to me, as I listen to him speaking, that the moderate and gentle method of argument which is normally used from those Benches has become an influence on his own manner of speaking. Indeed, I could have expected a speech like that to come from the Cross-Benches themselves—and, no doubt, one of these days he will find himself drawn to his spiritual home.
LORD CHAMPION: My Lords, I have left it a little late.
LORD ALPORT: The noble Lord spoke, as he said, as a politician. I am afraid that to-night I speak not as a financier, not as an expert in the City of London, but also as a politician.
Some months ago, at the time of the decision of the Government to apply to the country a severe form of deflation, I asked your Lordships to consider what would be the effect on world confidence in Britain, and on Britain's confidence in herself, if at the time of financial crisis there emerged in this country a "Government of National Reconstruction". In that context I invited your Lordships to consider what would happen politically in this country if, by the Christmas that lies a few weeks ahead of us, unemployment had risen to a total of something like 500,000. I suggested that a relatively high level of unemployment would inflict an intolerable strain on the morale of the Labour Party, who would crack, and that this, in turn, would inevitably lead to a new financial crisis in this country and to devaluation. I suggested, in fact, that we were not facing a financial crisis

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but a political crisis—and a crisis which could not be solved by a Government dependent on a Labour or a Conservative majority in the House of Commons.
In their winding-up speeches, the noble Earl the Leader of the House and my noble friend Lord Aldington (who happened to be replying for the Opposition) both pounced en the heresy of which I had been guilty. Divided in almost everything else, they were united in their repudiation of the idea that there could be any chance of the two great Parties in Britain coming together so that we might face the difficulties and dangers of Britain in peace time with the same resolution and concerted strength as we have in the past faced the perils of war. Subsequently, one noble Lord, of great political experience, warned me that I should choose the timing of my speeches on such subjects with great discretion. Such a theme, he said, might be appropriate two or three crises from then.
To put it in a simpler form, what that means is that before Britain can regain a sense of purpose and self-respect, before we can hope to cease to be the object of polite contempt to the Japanese, the Germans and the Swiss, before we can effectively counter the malice of the French Government, before we shall again be an effective force in Europe and in the world, we must experience at least one grim episode, and perhaps two or more episodes, of humiliation and defeat such as we observed last weekend. I agree with what was said by the noble Lord, Lord Peddie, earlier, that unless we take full advantage of the situation which devaluation provides for us, the next storm, when it comes, will be a violent one indeed.
In the process of going through this series of crises, political and financial, I think it very likely that the people of Britain may lose some of the freedoms which they have achieved so painfully over so many years, and lose some of the long-descended advantages which otherwise might have been preserved. I am well aware that at this moment there are very strong antipathies to any idea which smacks of a Coalition. A writer in the Evening News last night said that the idea was supported by only a few excitable Tories, and that no sensible Conservative would contemplate teaming-up
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with the "dead-beats" who form Her Majesty's present Administration.
My Lords, it is generally accepted that if devaluation is to provide an opportunity for national recovery, which alone would make the Government's decision justified, certain things must happen. In this country we have to face a period when prices are bound to rise, and incomes, and particularly wage levels in the export industries, must remain more or less static if we are not to lose our new competitive power. Wages must be kept static, the House will realise, at a time when full employment, which no doubt will be restored in a relatively short time, places in the hands of the trade unions the power to force wage increases; at a time when, to them and their members, such increases would seem amply justified by the rise in price levels. It is right for the noble Lord, Lord Peddie, to refer to the importance of associating such increases with productivity, but we know from the experience of the last twenty years, and more, that where there is an inflationary situation demands for wage increases to prevent a lowering of standards of living are inevitable and become increasingly powerful as prices rise.
The Government have said they are going to cut public spending, and £200 million, divided between the Civil and the Defence Votes, so to speak, is the target in mind. But they have also said that they intend to safeguard the interests of the most vulnerable sections of the community, and this must, and I assume does, involve an increase in pensions and welfare payments within the next twelve months, and probably a good deal sooner. Indeed, I see from the "tape" that the Prime Minister is reported, when speaking at the Parliamentary Labour Party's meeting this morning, as saying that the first run on sterling in 1964 was the direct result of the decision of the Government at that time to increase pensions, or the announcement that they intended to do so. I do not know whether that is true, but, from my own observations, I should think that is absolutely accurate.
My Lords, by next summer the shadow of the next General Election will begin to agitate the minds of Labour Members in the House of Commons. If the morale

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of the Parliamentary Labour Party collapses when the level of unemployment reaches 500,000 at the end of the first Session of a new Parliament, how can it stand up to the pressures likely to be directed against it in the third and fourth Sessions by those sections of the community whose support is most vital to its Parliamentary survival? The tragedy—and it is a tragedy, my Lords—of the Labour Party is that the things which must be done to get out of our troubles are precisely the things which make the greatest inroads on the emotional and moral resources of the Labour Party's Parliamentary Party and its leaders in Parliament.
We on the Conservative side know something of this from our own experience. We can take an example from recent history. Between 1956 and the Election of 1964 the Conservative Party was forced to take actions which ran directly counter to the basic tenets of its faith: in the Commonwealth, in overseas policy and, to some extent, in Britain. By 1962, the Party was under the severest possible pressure, both moral and emotional. Goaded by an exultant Opposition; afflicted by petty scandal; at daggers drawn with the Press, the Party suffered what can only be described as a breakdown.
Let me put it this way, in the case of the Labour Party. In these next two years if the policies of the Government following devaluation are to succeed, they must be framed in such a way that they will break the Labour Party. If the Labour Party do not follow those policies, which will involve action to control the trade unions; to limit effectively wage demands; to prevent unofficial strikes; to stop the rising cost of living from being fully compensated by increased benefits in the Welfare Services (quite apart from any action which they may take against profits and dividends) the financial crisis which will follow their failure to do so will bring a further devaluation and will break the Labour Government. I do not think, frankly—and I am speaking politically—that the Labour Government can lose politically by devaluation in the short run; and I do not think they can win politically by it in the long run.
To some extent the same problems face the Conservative Party at the present
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time. Do those who lead the Party seriously think that it will be easy to bring the trade unions under control, to reform them, or whatever it should be? A classic effort on the part of Labour to reform the longstanding anomaly of the dock labour system has contributed powerfully to the present crisis. As we have already heard this afternoon, a few thousand men, misled, perhaps exploited, by a handful of dedicated Communists, have, so it seems, been a major factor in shaking the financial structure of Britain and forcing a Labour Government with the greatest majority in the Party's history not only off course, but into a line of action which makes them electorally vulnerable, and, whatever may be the excuses and justification produced by Government spokesmen this afternoon, is one which is against the deepest political instincts of their leaders and their political judgment.
The fact is that the problems which face the Conservative and Labour Parties to-day, the things which divide people in this country, the decisions which have to be made in these next few years, are, in my view, completely different from those which divided us and created the differences of opinion in the past. Old attitudes, old divisions, and many old policies, no longer make sense. I say to you, my Lords, and I say it with conviction, that most of the things which I came into politics to pursue and forward, most of the problems with which I was familiar when I came into politics thirty years ago as a professional politician in the Conservative Party, and a servant of the organisation (so I have been right "died-in-the-wool"), no longer matter or make sense in the contemporary political scene.
I realise that no Coalition, no Government of National Reconstruction, will last long; nor is that the intention. But it would last long enough to give us a chance to do as a united nation some of the things which the Labour half of the nation and the Conservative half of the nation cannot, in my view, successfully accomplish on their own. It would enable a realignment in domestic politics to take place, so that the new divisions of opinion, for Europe or against, or whatever those divisions may be, might be properly and accurately reflected in

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the Party system, which remains of intrinsic importance to constitutional democracy in Britain.
I remember, as will your Lordships, that Mr. Disraeli once said that Coalitions were not popular with the British. But the expedient of Coalition, the expedient of a National Government, has time and time again been used by the British to mobilise themselves to cope with dangers abroad and to adjust the structure of national Government to new situations at home. I would say merely—and I speak only for myself—that I do not believe, as a politician, that a way out of our present troubles will be found until we have used that expedient again.
7.52 p.m.
LORD HANKEY: My Lords, nobody said "Hear, hear!" at this moment from either side of the House, but I should like to say with what interest and profit I listened to the penetrating analysis of the noble Lord, Lord Alport. I think there is a great deal of truth in what he said. Speaking for myself from the Cross-Benches, I must say that I am greatly saddened by the accusations and counteraccusations which are thrown across the House in these crises in our affairs—in particular in this one, because I do not believe that any of us have yet found the answer, although we have all an overwhelming interest in trying to find it.
I believe that devaluation was inevitable, given the situation which had been created by the policy pursued by the Government. I am extremely sorry for Mr. Callaghan; I think that he has been an enormously courageous Chancellor. He has taken action which was enormously unpopular with the members of his own Party, and he has received a good deal of support. But it is sad that he has not got away with it. I do not think that it is entirely his fault. I should like to say more about that presently.
I am not really interested in assigning blame for what has happened, but I should like to draw your Lordships' attention to the relatively smooth way in which this dangerous crash operation, affecting the trade of the whole of the sterling area, one-quarter of the population and trade of the world and one of the two principal reserve currencies, has been achieved. This is largely due to the
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close contact maintained by the people who make economic policies through the Economic Policy Committee and Working Party Three of O.E.C.D., through the Group of Ten, and especially through the International Monetary Fund. One must be grateful for the penetration and care with which the members of all these bodies study our affairs and each other's affairs, so that when action of this sort has to be taken no economic war or anything of that sort follows.
I want to look to the future. It is obvious that we must have more exports. We have a small advantage. The noble Viscount, Lord Eccles, told us that it was about 8½ per cent. I have calculated that it is about 9 per cent., but it is not very much. I am rather sorry that it is so late. I am very sorry that the export rebate has gone. I think that the Government have been foolish to give up this extra incentive to exports. In the debate in this House on November 7, I urged that we ought to think up some other system by which our exports could be encouraged, and as there is only a balance of advantage of about 9 per cent. now, I want to repeat the recommendation which I made then, that we again consider a value-added tax, which can be refunded to exporters and which is in accord with GATT and other international obligations, in a way which the export rebates were not. I was interested to hear the noble Lord, Lord Aldington, say that this might be a good idea; but I think it could only be recommended as part of a general reform of taxation. In this debate a number of noble Lords, some of them great experts on this question, have said that the burden of taxation should be shifted to some degree from direct to indirect taxation. A value-added tax would certainly serve to do that.
We shall only enjoy this export advantage, such as it is, if we keep our costs in order. I warmly support what has been said on this subject. We shall only secure the exports we need if we get our ports in order. It has been the practice in some London docks for a good many of the gangs to unload most of the goods from a ship and leave a few goods on board until the next morning or, if they were not given overtime pay, even until the next week. The next day, of

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course, these goods are moved in a few minutes. The gang sit down and, as they cannot be transferred to other work they are paid a whole day for doing nothing. This intolerable sort of abuse is one of the things that is at the bottom of the dock strike, and I think it is a good thing that a serious attempt has been made, as part of the radical improvement in the conditions of port employment, to break this sort of racket—because that is what it is. I earnestly trust that this will be carried through and that it will be seen to soon. A good many of the dockers have gone back and some of the docks are working again, but the Port of London has received a blow from which it will not recover for many years. I think the same applies to Merseyside, but about that I have less direct information.
I feel that the poor Chancellor is left to control the demand side of the economy. Whenever the economy gets a bit overheated, the Chancellor is expected to apply the brake, to have a stop, to impose a squeeze, to put up rates of interest and discourage almost everybody from doing anything. But there should be a balance between supply and demand, and more action ought to be taken to increase the supply side of the economy. As I see it, the Chancellor's colleagues have not given him adequate support in this field.
I am sure that there are a great many things that could be done. I mentioned a good many of them on November 7 and I will not repeat what I then said. To people abroad the British look rather like a cow standing in face of an oncoming train, wagging its tail and its jaws, chewing the cud—consuming its own assets. One wonders when the crunch will come. Now that we have had the crunch, one wonders when the next crunch will come—because it may not be so long delayed.
I am particularly anxious on this subject, because the pound and the dollar must to some degree stand together; and the dollar is not in a very good condition, any more than the pound was. I would call to your Lordships' attention that the French are obviously "gunning" for the whole lot of us. They have taken an extremely tough line in the last ten days. They really believe in changing the value of gold, and I think they might
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well cause a serious international crisis which would not be even in their own interests. Therefore it is most important that we should now put our house in order so that we are not "shot at" any more.
I believe that one of the principal duties facing the Government at the present time—and a number of noble Lords have already referred to this—is the problem of getting the British back to work. There are a considerable number of unofficial strikes, and so on, which have an influence quite out of proportion to the total number of people involved. Even so, the numbers are quite considerable. We have been losing something like 2½ million to 3 million workdays a year, by comparison with which the Germans in the same year—that is, 1965—lost 48,000, and the Swedes hardly any. It seems obvious that we are making a much less good show than our competitors. I do not want to exaggerate the influence of this situation, but it seems quite apparent that Mr. Jack Dash is out: to "bust" the Port of London. He has probably done nothing illegal, but it does not make sense to me that quite a few men can be allowed to ruin the greatest port in Europe—at least, it used to be the greatest port in Europe—and to reduce the earnings of their workmates up and down the country.
The fact is, I think, that the present stale of the law is wrong. This is where the trouble stems from. The Chancellor of the Exchequer has been cutting down demand, but the Ministry of Social Security are paying supplementary benefits to the families of the men who are ruining our trade and the earnings of their workmates. This, to me, does not make sense either. But what else can we expect when the law makes no distinction between a strike that is justified and one that is not? It is the law that is at the bottom of half of our troubles; and this explains why our admirable trade union leaders—and many of them are great men—cannot keep control of the situation. It really is out of hand.
I have not stood up to speak just to criticise, and I want to be creative on this subject. I believe that effective and strong trade unions are necessary for the proper functioning of our economy, and that it is the function of the present Government to have a trade union law reform which will set the trade unions up in a

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position to control themselves and to contribute to the wellbeing of the community and the standard of living of the workers in a way in which they cannot now do. The trade unions must become an essential means of communication between the workers and management. At present, this means of communication does not seem to work properly, except in a few industries. I believe that the status of the trade unions must be raised, that they will have to be given specific functions, and that they should be made subject to the processes of law—I repeat, "processes of law"—like other responsible elements in the community.
One of the troubles is that we have too many trade unions. At present there are about 900. We ought to go over to a modern system of industrial union rather than craft union. We cannot abolish the craft unions, but I believe we could create industrial unions. I would suggest that some means like the following might well be adopted. The Ministry of Labour might designate a trade union—and it would use the great trade unions that we have already—to service the great industries, and that trade union, when designated as the official trade union for the industry would be officially responsible at any required level, shop, factory, firm or area, for representing the workers' interests both to the employers and to any relevant industrial organisations. It would also be assisted to organise training courses for shop stewards and union officials. I should like to emphasise the point about training courses. Some of our unions, like the E.T.U. and other big unions, do this, but many are too small to have training courses; and none of them, I believe, has research facilities. This is an astonishing contrast to what happens in Sweden and Germany.
I know that what I have said sounds appallingly revolutionary, but it is what the British themselves enabled the Germans to do after the war, and it is what the Swedes themselves did under their new Labour Government after it came into power in 1932. If the Germans and Swedes can do it, I do not believe it is impossible for us.
The next point in the programme which I venture to suggest is that agreements between employers and trade
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unions on conditions of work and pay would be negotiated always for a specific period, with appropriate periods of notice of termination of the agreement or of individual employment. Such agreements would, on taking official effect, have to be registered with the Ministry of Labour and with the labour courts which I shall mention in a moment. I think that we ought to adopt a system, which works so well in Sweden and Germany and in many other countries, by which no agreement can be altered by either side without the agreement of the other side. If the employers expect the men on the shop floor to go without a tea-break, that may be contrary to the agreement. Any decision would have to be taken by agreement. If new processes, and so on, had to be introduced, that would probably involve the making of extra agreements. The system must obviously allow for, and promote, progress and change; and I think there ought to be a standard clause in the agreements providing for such an eventuality.
Once agreements of this sort, which are valid for a period, have been made it is quite possible to have a system of courts to judge whether the agreements are being infringed or correctly interpreted. I think we should have a system of special labour courts, with specialised judges, assisted by assessors from both sides of industry, in order to do this. The agreements are very complicated. Practically every shop and every wharf has its own provisions and arrangements, and the court would have to take account of those. Obviously, in this way the processes of carrying out such agreements could be made subject to law.
In order that the body of case law, which would be built up by these courts, should correspond to the public interest, the labour courts should, I suggest, be entitled, and expected, to hear the views of the Ministry of Labour and, if necessary, of the national or regional planning authorities, as well as of the T.U.C., on any major disputes before the court. Nevertheless, one of the objects should be to have courts which could reach swift decisions.
The position would then be much the same as it is in Sweden and Germany. Strikes and lockouts could occur for periods when the agreements had ceased

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to be valid; but I would propose that they should be illegal and should be prevented by legal process during the validity of the agreement if they happened in such a way as to break the agreement. Breaking the agreement would be an offence, punishable by law, for which the parties concerned would have to answer to the courts.
I personally should like to see special arrangements made by which any stoppage or lockout or strike which happened in the sort of factory where it can put half of England out of action—for instance, in the power factories—would be subject to special delay dates before even an official strike could be declared.
The processes of conciliation, and if necessary of arbitration, ought to be made mandatory and obligatory before any stoppage, strike or lockout could be legally allowed. The noble Lord, Lord Cooper of Stockton Heath, in moving the Address, hinted at some such possibility. I suggest to your Lordships, with great temerity, that we are really working round to that.
It is clear that there must always be a contingent right to strike. You cannot abolish the right to strike unless you are prepared to force men to work, and that is a state of affairs into which I hope we shall never fall. But I believe that the right to strike ought now to be canalised, like the right to fight a duel or carry arms and shoot your fellow man. It does not make sense to me that we should continue to live in a sort of Wars of the Roses, and let matters decline to the point where quite a few people can damage the standard of living of the whole community and bring this great country into general disrepute.
At the risk of speaking for too long, I would say there is another interesting system in Germany. Every works has to have a works council democratically elected by secret ballot, and the works council elects a member to serve on the board of directors. The trade unionists do not like it, and as a matter of fact the directors do not like it either; but it happens that they are thereby obliged to inform each other of their point of view; and I am sure this is one of the reasons why Labour relations in Germany are a model for what might be done in other places.
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The general system which I have suggested would obviously require adaptation to take account of the conditions in different industries and different parts of the country, and I suggest that the T.U.C. and the C.B.I. would be invited to cooperate with the Ministry of Labour in promoting a smooth transference to the new system.
I have spoken at inordinate length on this subject because I believe that it is one of the principal duties of the Government now: to get working conditions in our great community put right. We have fallen into a state of disagreeable social and economic war in our internal affairs, and until and unless we can put that right I do not believe we can get the exports we ought to have, or get the productivity which the great genius of our workpeople and employers deserves. I believe that at the present time the threat of a strike is so often made and so damaging that it has demoralised management, especially middle management, in a great many firms, and that they do not apply the labour discipline which they could and should apply.
8.15 p.m.
LORD SALTOUN: My Lords, I have listened to a wealth of advice given to Her Majesty's Government in 16 not altogether short speeches, and one or another of Her Majesty's Government has also listened to those speeches. I do not propose to offer very much advice except on two points. I think it is time that your Lordships heard the squeak of a humble victim. But before I go further, I should like to congratulate the noble Lord, Lord Hirshfield, on his maiden speech. As a humble and unworthy member of his own profession, I would say it was very welcome to me, and I hope we shall hear him often on other occasions.
I have lived through three devaluations, and on the first two occasions, at any rate, the occasion was marked by a great deal of advice. We were told that it was a great opportunity provided that we observed certain conditions; and in the past, to a modified extent, some of those conditions have been observed. But there is one matter in connection with the first occasion on which I had strong opinions and strong feelings. I had them at that time, and will venture to repeat

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them, because they are entirely contrary to all that the noble Lord, Lord Alport, has just said.
I say that if Her Majesty's Government are in difficulty they should themselves take the proper way to get out of that difficulty, but, for heaven's sake!, do not let us have a Coalition. In those days I thought Mr. Baldwin's advice was utterly wrong. It was very wrong for Labour; it was very wrong for the Conservatives. The matter for the Labour Party was accentuated by the sudden and untimely death of Mr. Graham, whom we all lamented, and thank heavens Lord Attlee did not die at the same time! I implore Her Majesty's Government, if they are in difficulties, to take the measures they think, as a Government, will get them out of those difficulties, but do not have a Coalition, because in so doing you get the worst of both worlds.
It is sixty years since I took any interest in economics, and I have a sort of recollection that in those days we said that if there was a run on the pound there was one obvious policy for Her Majesty's Government. One policy was to reduce all taxation except what was absolutely necessary for the payment of debt, and to raise bank rate until it was worth the private citizen's while to invest the money left in his pocket. Unfortunately, that is not very feasible to-day, because we have capital gains tax, which makes a man very averse to investing in the future except on terms that are completely safe, and we have a great many other taxes which make it very difficult for taxation on the individual to be reduced. But that was the old plan. To-day, I recognise that that is probably impossible. But I speak as an ordinary, humble citizen, and the opinions I am giving your Lordships are those which I formed at the time. I am not jobbing back.
When this Government first came into power the Prime Minister made an announcement that the country's finances were in a dreadful state and the country in fact was bankrupt. If Sir Paul Chambers to-morrow were to make a similar announcement about I.C.I., I think that, in spite of the very strong position of that great organisation, it might find itself in difficulties in consequence of that announcement. Speaking as a citizen of
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this country, I am bound to say I was very much shocked by the Prime Minister's making an announcement of that kind. I should hesitate, if I were the chairman of any board of any company, to make an announcement like that. I should take a great many other steps first and save my assets in every possible way. I am not casting stones on the past; I am merely giving you the impression in my mind.
When the announcement of devaluation came, I and my household went to listen to the Prime Minister. I think I must tell Her Majesty's Government that the Prime Minister's announcement did not fill me with hope. It seemed to me that taxation was to be increased; that nothing, really, was to be modified. The people at large were told that they were going to have a glorious time, and no suggestion of sacrifice was properly made to the country. I am bound to say that my heart sank. It seems to me that in the past, at any rate, the necessary steps have been taken after devaluation, but on this occasion the Prime Minister was putting all that aside and simply telling people that they would have the same amount of money and the same amount of spending power as they had had in the past and that nothing was going to be done.
That caused me far more sorrow and despair and distrust for the future than the actual devaluation. And I am sorry to tell your Lordships that I was confirmed in that feeling by the attack made by the noble Earl, Lord Longford, this afternoon on the noble Earl, Lord Cromer: because it seems to me that what Lord Cromer was saying was sound sense and was true; and the attack seemed to indicate that Her Majesty's Government as a whole took the same line as the Prime Minister and that they were just going to carry on the same as usual.
I was very sorry to hear that, and as a citizen of this country it does not fill me with hope. I am reporting that to Her Majesty's Government quite frankly, because I honestly think it is urgently necessary for the Government to take hold of the reins and put their horse at the obstacles in a conscientious and sensible way, instead of riding slap-dash at their fences. If they do so, they will come through the crisis; otherwise, not only will they fail, but they will have lost

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the confidence of the country, which they need in order to do what is necessary to be done.
8.22 p.m.
EARL JELLICOE: My Lords, this has been a fairly long debate, and these last few days have been long and rather grim days for those of us—and that means all of us—who love this country. But this has been not only a rather grim debate; also I think (and indeed I hope) it has not been altogether too happy a debate for noble Lords opposite. Having said that, I should like, if I may, to congratulate the noble Lord, Lord Hirshfield, on his quiet, lucid and independent-minded maiden speech; and when I say from these Benches that we very much hope to hear him again frequently that is not a mere politesse on my part.
The sober and muted speech with which the noble Lord, Lord Beswick, opened this debate was a far remove from the complacent tranquilliser with which the noble Earl, Lord Longford, the Leader of the House, sought to lull us only two weeks ago. Seldom has complacency been so rudely and quickly confounded. I would hold from this debate that the Government stand condemned on three main counts. They stand condemned for bringing this country to its knees, to a position in which devaluation was probably inevitable; they stand condemned for the way in which they bungled the actual operation, and they stand condemned for the inadequate and hastily-assembled package of measures which, as yet, is all that they have been able to devise. I hold, my Lords, that the Government stand condemned on those three counts.
Listening to the noble Lord, Lord Beswick, no one could possibly have imagined that any possible blame could possibly attach to this best of all possible Governments in this unkindest of unkind worlds. He trotted out, semi-apologetically, I must admit, all the familiar old alibis of the shipping strike, the dock strike, the Arab-Israeli war and, of course, the Labour Government's stony inheritance from a Conservative Administration. Of all other favourable factors we heard nothing. For example, we heard nothing about the improved terms of trade (nothing, I assume, to do with
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the Government) worth at least £250 million a year in our balance of payments reckoning. We heard nothing of all those errors of omission and commission with which the last 37 months have rendered us all too familiar; those errors which have led to the erosion of confidence in, and the credibility of, the present Government; that erosion of its authority, both at home and abroad, to which my noble friend Lord Eccles rightly drew our attention. I should like to say that I do not think I have ever heard my noble friend Lord Eccles make other than a good speech in your Lordships' House, but I thought he made a particularly good one this afternoon.
We have heard a great deal this evening of the Labour Party's tired old alibi of the inheritance which they came into, that so-called deficit of some £800 million which seems now to have become firmly embedded in Socialist mythology. I do not wish particularly to job back over these last three wasted years. I am sick and tired of these Socialist alibis and I suspect, with the noble Lord, Lord Hirshfield, that the country is becoming rather sick and tired of them, too. However, I feel compelled to nail this particular myth.
The Government now take the line—it was implicit in every candid twist of the Prime Minister's political broadcast last Sunday—that it was this deficit which has hung like an albatross round the necks of this accident-prone Government and brought them to the present sorry pass. But, of course, three years ago the Prime Minister was piping rather a different tune. I should like to remind your Lordships of what he said on October 26 three years ago, after the General Election, and after he had opened the books. He then said:
"The Government have satisfied themselves that with the facilities available the strength of sterling can and will be maintained".
I am fortified in my view about this by what my noble friend Lord Cromer has told us this afternoon. For some reason the noble Earl the Leader of the House wishes to gag my noble friend Lord Cromer, who told us that the deficit which the present Administration inherited was substantial (we would all grant that) but not unmanageable. He went on to say that no one in any

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responsible position considered devaluation as in any way called for at that time by the position in October, 1964.
What was the nature of this deficit? This is something which the Government always take care to gloss over. It was a deficit composed of two almost equal parts. One was the current trading deficit and the other, almost half of the whole, a deficit of some £350 million-plus, on capital account, productive investment abroad—the investment to which so much importance is rightly attributed in the recent Report of the Committee on Invisible Exports. The largest single element in this half of the deficit is already coming back on the right side of the present Government's books through the Shell Company's sale of its half share in the giant Montecattini petro-chemical complex.
But this is not all. There is nothing unique about a Government inheriting a deficit on current account. It is not only the Labour Government which has inherited such a deficit. In 1951 the Conservative Government inherited a vast deficit on current account from the Attlee Government, and as my noble Leader Lord Carrington reminded us, in its leading article to-day the Daily Telegraph pointed out that at to-day's prices that deficit would have amounted to some £600 million. That was the deficit inherited by the 1951 Conservative Administration, 50 per cent. more than the 1964 deficit on current account. In the two succeeding years, 1952 and 1953, the Conservative Government secured a surplus of well over £400 million. Indeed, over the whole period of Conservative Administration, the 13 years which followed that, there was a net favourable current balance of payments of over £700 million. Over this whole period our trading account was therefore in favourable balance, and 2·80 was then, and demonstrably, the value of the pound.
Contrast that with the Labour record: three years of deficit and the admission by the Chancellor only yesterday that he could not see the balance of payments coming right in 1968. I think it is time we stopped playing this game of deficits. But if we are forced to play it by this constant Labour whining about the deficit of 1964, the comparisons are
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not odious for the Conservative post-war Administrations.
The Government also stand condemned for the way in which they actually carried out this humiliating operation. I should like only to touch on some of the events of these last few sad weeks. First there were the two little nibbles at bank rate, the two successive rises of ½ per cent. These nibbles, in my view inevitably, and I would hold predictably, served to diminish, not to augment, confidence. Then there was the handling of the 250-million dollar loan which was negotiated through the Bank of International Settlements. Reports of this loan began to leak out over the weekend before last. But the only immediate reaction from the Treasury was a rather sulky silence. Eventually, a day or two later, last Tuesday, the Government acknowledged the fact of this loan. It was in fact a purely technical loan, one making it easier to repay some of our drawing on the I.M.F., and I can see no reason whatsoever why the Treasury should not have immediately and promptly acknowledged our acceptance of this loan. Again their reaction, their shiftiness, inevitably, and I would hold predictably, diminished confidence.
Finally, there were the rather extraordinary events of last Thursday. First the Press leaks of a major loan being mounted to support sterling. I do not know how these leaks occurred, and I do not wish in any way to blame the Government for them. But inevitably there was a build-up of expectation. The build-up was enhanced by the report that the Prime Minister himself was to answer one of the two Questions addressed to him. And then came the anti-climax, that non-statement of the Chancellor. Again I would hold that the result was inevitable, and indeed predictable, namely, the catastrophic hæmorrhage, the flight from sterling which took place last Thursday afternoon and all through Friday. But from the Government there was only embarrassed silence. There was, of course, one exception, the even more embarrassing non-silence of the noble Lord, Lord Chalfont, in Paris.
THE MINISTER OF STATE FOR FOREIGN AFFAIRS (LORD CHALFONT): My Lords, may I ask the noble Earl whether he has read a transcript of what I said in Paris?
EARL JELLICOE: No, my Lords, I heard him speaking on television; I did not need to read a transcript. But if it was off the record and non-attributable I stand corrected. Perhaps the noble Lord was merely striving to "out-Cripps" Cripps. Perhaps—and I suspect this is the real explanation—he was just not in the know.
LORD CHALFONT: My Lords, may I ask the noble Earl what, in circumstances of this kind, he thinks a Minister of the Government should have said when questioned about the possibility of devaluation?
EARL JELLICOE: My Lords, I should have been inclined to keep my mouth shut had I been the noble Lord; but I admit that he was in a difficult and embarrassing situation. I certainly should not have said what he did say, if he was in the know.
THE MINISTER OF STATE FOR COMMONWEALTH AFFAIRS (LORD SHEPHERD): My Lords, the noble Earl was criticising my right honourable friend for his statement in the House of Commons on Thursday. He is now suggesting that my noble friend should have done the same thing.
EARL JELLICOE: My Lords, I was suggesting that he should have kept his mouth shut. In any event, the noble Lord said what he said, and I do not think that his remarks tended to restore confidence. But all the rest was silence, and one of the most expensive silences which any Government have ever held. I do not know what that "Black Friday" cost us. I have seen many estimates: there have been many reliable estimates. It may have cost us upwards of £300 million—some 1,000 million dollars. In another place to-day I think that an estimate of £500 million was given. If this is true, and if this money is now flowing back, then we must have lost, inevitably and irretrievably, as a direct result of the Government's inept handling of the situation, over £400 million in one day.
LORD SHEPHERD: My Lords, could the noble Lord tell us where he has seen these particular estimates? They are a good deal higher than I have seen in the newspapers.
EARL JELLICOE: I have seen them in the newspapers.
LORD SHEPHERD: Which newspapers?
EARL JELLICOE: The Times.
LORD SHEPHERD: The £500 million?
EARL JELLICOE: If the noble Lord had been attending and not interjecting so violently he would have heard me say that that figure was given in another place to-day, I understand.
LORD SHEPHERD: By whom?
EARL JELLICOE: By a Conservative Member of Parliament.
LORD POOLE: My Lords, is the noble Lord opposite suggesting that it is an exaggeration? Because it is intolerable to deny these things.
EARL JELLICOE: My Lords, can the noble Lord tell us what his estimate is? The Government of course defend themselves—any animal does. They argue that this hæmorrhage was justified by the need to secure international agreement to our devaluation. Although I must point out that this Government have not always been particularly scrupulous about their international obligations, I would not contest their need to carry our monetary partners with us in a devaluation. This was the point which the noble Lord, Lord Beswick, made in his opening remarks, and I would not for one moment seek to contest that. But if it is true, and and I have not seen it contradicted, that the Chancellor had decided on devaluation at least a fortnight ago, then it is really very hard to see why he was not in a position last Thursday to announce the act without delay and to staunch the hæmorrhage, and nothing in what the noble: Lord, Lord Beswick, said has cleared up this mystery to me. I hope that the noble Earl the Leader of the House when he replies can clarify it, and in particular if he could clarify that my understanding of what the Chancellor said in another place yesterday is correct. He was asked:
"Would the Chancellor confirm that he made this decision a fortnight ago?—"[OFFICIAL REPORT (Commons) 20/11/67, col. 941.]
There was another question following that, and the reply was:
"Yes, Sir."

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My question is a very simple one: whether that reply, "Yes, Sir", was referring to the first question.
I should now like to turn to the mix of measures which the Government have now announced. Like, I suspect, other Members of your Lordships' House, my eye was caught by a passage in the leading article in last week's Economist. I must apologise to the noble Lords who represent the Financial Times in your Lordships' House, but it happened to be in the Economist. What it said was this:
"When the foreign pumps are finally not available a new policy will be worked out, after purposive, thorough-going, detailed, deep probing analysis lasting for about one panic-striken week-end."
Foreign pumps were available, but not sufficient to pump out all the water which Captain Wilson and his first mate had let into Lord Hirshfield's ship of state. But the resulting policy package bears all too many signs of hasty and makeshift assembly. It bears all too few signs of being part of a carefully thought-out strategy, that longer-term strategy for which the noble Lord, Lord Byers, called this afternoon and called for two weeks ago, and on the necessity for which I find myself in entire agreement with him. I do not find a coherent strategy here.
But I should like to put three specific questions to the Government about the actual measures which they have announced. To some extent this follows ground already covered in your Lordships' debate this afternoon. My first question concerns the withdrawal of the selective employment tax premium to most manufacturers and the cancellation of those export rebates which the Chancellor extolled only a few months ago. I hold no brief whatever for S.E.T. as an instrument of fiscal policy, but I had always understood that the rationale behind it was to encourage a switch from our service industries to our manufacturing industries because of the contribution which the latter made to our exports.
Like my noble friend Lord Eccles, I hold no particular brief for the export rebate scheme. However, if these schemes were the success which the Government claimed, then this seems an odd moment to throw them overboard, at the very moment when our country depends, as
1020
it has never depended before, on hitting its export targets. The Government may claim—I think they have claimed—that our exporters will have an ample margin in the 14 per cent. which devaluation has won for them. I hope that this will prove to be the case. But that 14 per cent. is bound to be eroded by higher import costs—my noble friend Lord Eccles put a figure of some 4 per cent. for the margin of erosion—and it will vanish like snow in spring unless the Government can control wage pressures. I confess, therefore, that their action over S.E.T. and the export rebates somewhat surprises me, and I should like an explanation on this point if in replying the noble Earl has the time and willingness to give it. I hope that that explanation may include a willingness on the Government's part to have a proper look at the advantages of a value added tax. I share the feelings of my noble friend Lord Aldington about a value added tax.
My second question relates to the Government's curious decision, as part of their package, to increase corporation tax by 2½ per cent. to 42½ per cent. I find this increase virtually inexplicable. If there were ever a time when we needed to encourage productive investment in industry to keep up the pace of modernisation, surely this is the time. The increase in corporation tax can only be a disincentive to such modernisation, and I should like to ask the noble Earl how the Government can possibly justify this increase at this particular time. Is it just a sop to the Left? Is it a sort of union geld? I should like to know what are the reasons and the justification for that increase.
The third question relates to the Government's policy towards wages in the present situation. We all know that if the new policy is to be successful we shall certainly find ourselves back in this same mess in six months, twelve months or eighteen months time unless, somehow, this time the wage front can be held. The trouble here is that one doubts the ability of this Government, who have lost so much credibility, have lost so much confidence, have lost so much authority, to give the lead which is here required. I would hope that they may be able to do so, and I should like to ask in this connection what they are proposing, as a start, and by way of example,

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to do with the many wage claims with which they are now faced, or are shortly to be faced, in the public sector.
Now for the future, which I think is far more important than recriminations about the past. We all know that devaluation does not of itself go to the root of our problems. It can be a springboard to a successful recovery, or it can be a trapdoor through which we can fall further. Many of us in our time have witnessed the successive and futile devaluations of the Fourth French Republic. I think we all witnessed the successful devaluation of the Fifth Republic. I hope—and, given the Government's past record, I confess that I am hoping against hope—that they will not stand condemned on a fourth possible count. I hope that they will make a real success of what is bound to be an extraordinarily difficult operation. I do not think any of us would wish to minimise the difficulty of the operation on which they have now embarked.
I could wish that there were more signs (I hope that we may hear of them from the noble Earl the Leader of the House) that may reveal something more of a fresh approach, of new, fresh thinking on the Government's part towards our problems—because they are great; and everything which has been said in your Lordships' House this afternoon, in almost every speech, has urged the need for a fresh departure. In many ways this will mean new policies. I think those new policies are perfectly compatible with the maintenance by the Government of their major social objectives.
I have already granted that the failures of the Government may have made devaluation inevitable last Saturday. However, a forced devaluation, the sort of "shotgun" devaluation which we have just witnessed, is, as I think many of your Lordships will agree, the worst sort of devaluation. In any event, it is important to realise that we as a nation have not here bought a soft option for ourselves. We have not been give devaluation as an alternative to deflation. As my noble Leader pointed out, we have devaluation and deflation, and considerable foreign loans, too. We have in fact chosen a very hard option indeed, and I hope that we shall not "kid" ourselves about the hardness of that option, or allow the Prime Minister to "kid" us.
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This devaluation involves a substantial, a real, reduction in our standard of living.
There was much that I personally found distasteful in the Prime Minister's broadcast last Sunday, but I found nothing more distasteful than the glib assertion that the devaluation would not mean that the pound in our pockets has been devalued. We all know this to be untrue; and every housewife will soon learn the untruth of this statement. Devaluation involves a real reduction in our standard of living. But it involves much more. Devaluation involves a real measure of national humiliation. It involves breaking faith with Governments and private citizens overseas, those Governments and private citizens to whom my noble friend Lord Aldington referred. It involves the placing of additional strain on the Commonwealth. It involves further and savage cuts in our defence expenditure and involves the further erosion of our ability to play a major part in the affairs of this peculiarly troubled planet.
I have felt this sense of humiliation deeply this last few days. I have felt it because, like all other Members of your Lordships' House, I am proud of this country and I hate to see it humiliated. This is a proud people, so Mr. Wilson told us in his winning way last Sunday night. My Lords, so it is. It is too proud to suffer the humiliation of three more years of Labour misgovernment.
8.51 p.m.
THE EARL OF LONGFORD: My Lords, I cannot remember an occasion of this kind when my own supporters so completely outnumbered the Opposition. Except for the Front Bench and the ex-Ministers and one or two other of the faithful, there is practically nobody at all behind noble Lords opposite. This is at least suggestive of something. It implies that we at least believe in the policy of our Government, while the Opposition leaders—
LORD ST. OSWALD: Are sickened by it!
THE EARL OF LONGFORD: The Opposition leaders, as the noble Lord said, are sickened by the policy of the Opposition. So we start, at any rate for once, with a balance of advantage there. The noble Earl, Lord Jellicoe, said of the noble Viscount, Lord Eccles, that

1023
he cannot make a bad speech, and as far as I know that is true. The noble Earl, Lord Jellicoe, cannot help making an entertaining speech, and sometimes he strikes a note of real brilliance, because we know his massive intellect, but sometimes a note of pure farce, and to-night he was putting on a farcical turn. For years the Tories, with the best will in the world, have put up with the ineluctable fact that they left a record deficit. And now, after three years, they are beginning to try to explain it away. Frankly, it is extremely unconvincing. They are the men of the record deficit. I am not the one who dragged this in to-night, so noble Lords must put up with it.
We have had what in many ways has been a very constructive debate. I am grateful to the noble Earl, Lord Jellicoe, and to other speakers for the well-justified tributes paid to the noble Lord, Lord Hirshfield, who already, I see, is approaching the Front Bench after such a very short time here—and rightly so. He might take my place before I am much older! At any rate, that is a very welcome movement. We all applauded his speech heartily. He used one particular expression which I know represents the feeling of the House. He said that we must all pull together for the common purpose. That is certainly the message which I know goes out from the hearts of noble Lords. Those most closely concerned with industry were perhaps even more constructive than those who are more active in politics. The noble Viscount, Lord Eccles, and the noble Lord, Lord Aldington, are politicians of note and also industrialists; and wearing their industrialist hats they offered sage advice. From the other points of view, the noble Lord, Lord Douglas of Cleveland, made a very impressive contribution.
I should like to be able to say the same of a great public servant, the noble Earl, Lord Cromer. If I misinterpreted anything he said, and I believe I did misinterpret certain words, I apologise to him. I understood him to reflect on the integrity of the Prime Minister and the Chancellor of the Exchequer. He shakes his head, and I am glad he shares my view, which is a very high one, of the integrity of those gentlemen. He nods his head and I am glad to have that at any rate confirmed. But I am afraid that,
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having made that apology regarding the words used by the noble Earl, Lord Cromer, I must say a word or two about his message. He comes here and speaks very sharply, and clearly from the heart and with much sincerity, about the record of the Government. The policies to which he referred were embarked on during the period when he was Governor of the Bank of England. He referred to the capital gains tax and the corporation tax as among the major iniquities. Well, who was the Governor of the Bank?—he was. I do not want to be personal, but he has the special glory of having shared in the Conservative record, too. So he comes to us with that background. I can only point out to him, as I said earlier, that if he really took that view about these policies, I cannot think why he continued to serve the Government.
BARONESS HORSBRUGH: My Lords, may I ask this question of the noble Earl, for information? Does he think that it would have been for the stability of the pound in overseas countries if the Governor of the Bank of England resigned?
THE EARL OF LONGFORD: My Lords, I certainly do not, but if a Governor was thoroughly dissatisfied with a Government he could find ways of passing on quite quickly and quietly without a sensational resignation, so there was no need for the noble Earl to stay for 18 months if he disagreed as profoundly as that. I have no doubt that the noble Earl's remarks will be widely circulated to-morrow, and in some papers at least they will arouse a great deal more attention than the remarks of all the rest of us put together. I doubt whether these humble observations I am making will be printed in papers favourable to the noble Earl. So let it not be thought that we regard him as a kind of impartial oracle who has descended from above with a non-partisan background. We regard him as someone who has spoken sincerely, but who has made a speech which could do a great deal of damage.
Now let us pass to other subjects which are slightly less painful, in other words, the speech of the noble Lord, Lord Carrington.
THE EARL OF CROMER: My Lords, may I intervene for a moment? The noble Earl suggested that this afternoon

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I made a very unusual speech. Can your Lordships imagine circumstances more unusual than devaluation? What I said this afternoon is in essence what I have said many times in public before—so much so that when I went into the Guest Room of your Lordships' House after having made my speech I was greeted by one of my fellow Lords who said, "How nice to hear your speech again; you must have made it many times. "So I do not think I introduced anything very new. But I am disturbed by the suggestion made by the noble Earl the Leader of the House that such crumbs of wisdom as one may try to pick up in life, even in Crown Service, which is where I have picked up such few crumbs as I have, are not to be shared with your Lordships.
THE EARL OF LONGFORD: My Lords, let us be careful in view of the fact that the noble Earl, Lord Jellicoe, said that I was trying to gag the noble Earl. I am not speaking now as Leader of the House. I am simply offering an opinion as a Member of the House that it was a speech to which there has been no parallel in my now rather overlong experience in this House. I feel quite certain that though the noble Earl has often obtained well-deserved publicity in the past, it will be nothing to the publicity he obtains to-morrow. Therefore, in that way it was a very remarkable speech.
THE EARL OF CROMER: My Lords, if I may, I would apologise for usurping any space that my speech will take in the Press from any other speech to-day.
THE EARL OF LONGFORD: I am told that the plans are already well made to publicise his speech; that is my information.
Let us come on to the noble Lord, Lord Carrington, who again, like the noble Earl, Lord Jellicoe, cannot fail to entertain. I will not deal with the warmer parts of his oratory, because it is so long ago that the effect has somewhat worn off. I would deal with one or two serious questions he raised, as did the noble Lord, Lord Byers. The noble Lord, Lord Carrington, and the noble Lord, Lord Byers, both asked what we intended to do about prices and incomes, and the noble Earl, Lord Jellicoe, raised the same point. We would agree that this is a key question.
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There are people in the country who may believe that we think this is an easy way out. I hope noble Lords will finally disabuse themselves of that. A difficult task lies ahead of us. Anything like a price-wage spiral would erode the advantages of devaluing the pound. I cannot say that too often; it has been said by Ministers firmly in another place. That is why the Government have already begun talks with the T.U.C. and the C.B.I. to see how they can work together to ensure that there is the necessary restraint in incomes and prices. The C.B.I. are consulting their membership on the problem; the T.U.C. will be considering it at an early, meeting of their General Council.
I hope that when I have finished an air of harmony will prevail, but at this stage, in reply to many sharp things that have been said, may I put it on record that we in the Government do not consider that, up to now, we have had very full co-operation from our Conservative friends in regard to prices and incomes. We have tried desperately hard to tackle this problem, but the Opposition have not seen it as we have seen it, and I hope that there will be a closer understanding in future. But certainly it is essential that price increases should not be made unless they are necessitated by dearer imports. It is equally important that the small rise in prices which is inevitable should not set off a round of wage increases. These things have been said, and they will be said again; but I must say them this evening.
I shall not commit the impertinence this evening of referring to any noble Lord's platitudes. I certainly should not call a "payroll freeze" a platitude. If anything is wrong with the idea, it is over-ingenious; but let us hope that in time to come perhaps it will fructify. But at the moment all I can say is that we do not think it is a practical idea as presented by the noble Lord, Lord Byers. But let him stick to it and, like other good ideas, it may find some practical application.
LORD BYERS: My Lords, may I ask the noble Earl whether he would accept that the principle ought to be examined of not spending any more money on the Civil Service and on the nationalised industries' payrolls, but rather of saying

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to them that if they want to increase wages they must reduce manpower? That is the principle which I wish to introduce.
THE EARL OF LONGFORD: My Lords, I am afraid that I cannot say any more than I have said. I promise to have the matter looked into, and if the noble Lord and I, or others, can think of some adaptation of it, then so much the better.
Then the noble Lord, Lord Byers, asked how the reduction of £100 million on defence will be made. I believe that a statement will be made—I am under the impression that it will be to-morrow; but if not then, it will be very soon. But as has already been explained, the cuts will involve the cancellation of certain programmes, some reduction in research and development expenditure and certain building cuts and a reduction in stocks. That has already been stated, but I think—I am not certain—that there will be fuller information to-morrow.
The noble Lord, Lord Byers, also asked about the Government's intentions on the export rebate, and the same point was brought up by the noble Viscount, Lord Eccles, and the noble Earl, Lord Jellicoe. I can answer definitely the question which the noble Lord, Lord Byers, raised. The date of abolition has not yet been settled, but it will probably be next April. This move will save the Government just about £100 million a year, and I gathered from the great industrialist who spoke, and also from the noble Earl, Lord Jellicoe, who is a banker, that they have never been very keen on that rebate. I think that is so, and therefore I hope its abolition will be recognised as quite a small offset to the advantages of devaluation.
The noble Lord, Lord Byers, asked about the 8 per cent. bank rate. We quite agree that an 8 per cent. bank rate is unpleasantly high, but the present rate is needed to establish confidence as quickly as possible, to attract and retain funds and to support credit restraint. We do not, of course, intend to retain this rate longer than is strictly required. I hope the noble Lord, Lord Byers, will feel that I have given him a little more satisfaction than I gave him last time when we debated economics.
I do not want to keep the House for very long, but perhaps I may now come
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to the main themes. I am not going to involve myself in what might be called the reply to a general economic debate, though a great many very wise and important things have been said about general economics. I shall adhere rather closely to the question of devaluation. The first question which I thought might be posed rather more controversially to-night was: was it right to devalue? The noble Lord, Lord Robbins, has said that in the circumstances of Saturday it was unavoidable. I do not think that anybody has offered any other opinion. Certainly I have not heard any other opinion offered tonight. I have not heard anybody suggest that by Saturday there was some other device open to us; that we ought to have tried to borrow a lot of money, or to introduce import controls or anything of the kind. So I think we must take it that it was agreed that by Saturday this course was unavoidable.
Perhaps I can put it to noble Lords in an almost academic spririt, that it is quite interesting that this view should have been taken, whereas about a fortnight earlier the Government were still hoping that it might be avoided, and certainly this House was hoping it might be avoided, but by Saturday there was overwhelming agreement that this had to be done. Here I come to certain dates which the noble Earl Lord Jellicoe, put to me. I do not think there is any great mystery, and if there are textural points to clear up perhaps we can do that elsewhere.
LORD CARRINGTON: My Lords, perhaps I may just interrupt the noble Earl, because he seems to be extremely satisfied with the statement which he has made—that everybody is agreed that by Saturday devaluation was necessary. The point that we have all been trying to make on this side is that maybe it was necessary by Saturday, but it was because of the mismanagement of the economy by the Government.
THE EARL OF LONGFORD: My Lords, I am aware that the noble Lords think we are incompetent, and we think the same about them. But this gets us no further forward, if I may say that. It is just a difference of point of view—the working of the dialectic. But that does not help us. I am going to keep the House for only a few minutes.
LORD McCORQUODALE OF NEWTON: My Lords, would not the difference be that noble Lords opposite have been shown to be incompetent, while the noble Earl only thinks that noble Lords on this side are incompetent?
THE EARL OF LONGFORD: My Lords, on one side there are three years of alleged incompetence, and on the other side there are 13 years of actual incompetence.
LORD CONESFORD: My Lords, would the difference be, perhaps, that the incompetence of the Government invariably leads to a devaluation, and the alleged incompetence of the Opposition does not?
THE EARL OF LONGFORD: No, my Lords. I am not going on with this question of whose legacy was left, and all the rest of it. Let us return to these rather dry but edifying economic considerations. The noble Lord, Lord Robbins, has said, and it has not been contradicted, that by Saturday it was unavoidable. The noble Earl, Lord Jellicoe, has not disputed that, so far as I am aware, but he does say that the operation was bungled. I was taken to task mildly and in a friendly sprint by the noble Lord, Lord Carrington, for quoting the Financial Times on the last occasion, but with his permission I shall quote it again.
LORD CARRINGTON: My Lords, I hope the noble Earl will be luckier this time.
THE EARL OF LONGFORD: My Lords, it was not so bad then. I have nothing which I want to unsay from the last occasion. But the Financial Times to-day says this about the new rate.
"The present evidence is that the new exchange rate has been fixed at just the right level, the lowest possible without forcing other major countries into retaliation. A general upheaval has been avoided and we ourselves have gained a valuable competitive advantage."
The Financial Times goes on to say:
"The operation was"—
I should like the special attention of the noble Earl, Lord Jellicoe, who I know is already giving me all that might be expected. But may I call his attention to this?
"The operation was carried out after consultation and therefore with international goodwill and the help of sizeable support credits".
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So far this operation has, in face of all of the difficulties, been very successful. We must say this clearly, because for once the noble Earl has not been doing his homework. He does not seem to realise that it has gone well. This is the fact: that these other countries have accepted that it has been done in the best possible way. I therefore hope that the noble Earl, the next time we debate these things, will withdraw his remark that it could have been handled inner. I feel sure he would tell us that if only it could have been done 24 hours or 48 hours earlier we could have saved the flight of a certain amount of money; but, on balance, to have the goodwill of the whole financial world is of much mare importance to this country—and that, I think, is generally recognised.
If I may say so to the noble Lord, Lord Robbins, I was rather sorry that he followed the noble Earl, Lord Cromer, or that they combined in this talk of national humiliation. I regard all that as—I was going to use an unpleasant word, and I am just trying to think of one which is not unpleasant but which would convey my meaning. To feel national humiliation at this moment is unnecessary masochism. I think there is no need to feel this humiliation. We have tried extremely hard to behave correctly to those who trusted us; and, in fact, as The Times said,
"The decision has had a good Press abroad".
Why should we be humiliating ourselves about it? I should say that we ought to hold up our heads.
LORD SALTOUN: My Lords, I am trying to follow the noble Earl as well as I can. Does he suggest that when one files a petition in bankruptcy it is not a humiliating thing to do? I rather think it is.
THE EARL OF LONGFORD: I am afraid the noble Lord misunderstood me earlier, and I am afraid I may be misunderstanding him now. I cannot follow that argument. The point is that the countries of the world are satisfied that we have done everything possible in the circumstances.
LORD BYERS: My Lords, may I ask the noble Earl whether any date has been set for the national celebrations?
THE EARL OF LONGFORD: If the noble Lord is as pleased with that joke as he appears to be, I am really sorry for him. The awful thing is that he was my pupil, but I did not teach him that kind of humour. At any rate, perhaps I may now proceed.
LORD BYERS: if the noble Earl insists on misinterpreting what I have said, I should like to make it clear that I do not think this is an occasion for the complacency which he is displaying.
THE EARL OF LONGFORD: If I must reply, I do not think this is an occasion for the facetiousness that the noble Lord displayed just now. Perhaps I may now go back to the rather dry subject—
LORD CONESFORD: My Lords, may I—
THE EARL OF LONGFORD: Just one more, but I think the House will want me to get on.
LORD CONESFORD: It is on this question of a sense of humiliation. I should like to ask the noble Earl this question—and it is a genuine inquiry. He has told us that Her Majesty's Government had decided on this step quite a considerable time before they took it. Did they inform so friendly a Government as Australia of this fact?
THE EARL OF LONGFORD: I am afraid the noble Lord misheard me—I am sure that it is my fault. I did not say that the Government had decided it a considerable time before they took this step. In fact, as is well known, the decision was reached last Thursday, at the Cabinet meeting on that day. That is the fact, and the operation was carried out on Saturday night.
LORD POOLE: But, my Lords—
THE EARL OF LONGFORD: If the noble Lord will forgive me, I will continue now in order to release noble Lords before midnight. I think I must try to push on.
LORD POOLE: As this point has been raised, may I ask: if in fact no decision was taken until Thursday, why did the Prime Minister inform the Press that it had been taken the Wednesday before?
THE EARL OF LONGFORD: I am afraid that I have no cognisance of what the Prime Minister informed the Press. I think we can take it, if we are being completely candid, that the Prime Minister and the Chancellor of the Exchequer are likely to have made up their own minds before it came to the Cabinet. That stands to reason. May I finish?
LORD POOLE: But it was the week before.
THE EARL OF LONGFORD: Was the noble Lord there?
LORD POOLE: I am saying—and this is known to all the Press, because it was not made in private and it was reported in the Press—that the decision was made by the Prime Minister and the Chancellor on Wednesday, November 10.
THE EARL OF LONGFORD: I take leave to doubt that statement. The Prime Minister and the Chancellor are in a position (perhaps the noble Lord will allow me to finish, because I really think the House will want me to get on) to recommend something to the Cabinet, and obviously they make up their own minds before they do so. But they are not in a position to take the decision; and I would have thought that somebody of the noble Lord's great experience would understand that very elementary point.
LORD POOLE: I accept that.
THE EARL OF LONGFORD: I thank the noble Lord. My Lords, that will cut short some of the rather full answer that I had hoped to give to the noble Lord, Lord Aldington, whose attention has been lost in the meanwhile. I was going to give a very full answer to the noble Lord, Lord Aldington, but some of his colleagues have cut short the time that the House will think bearable, and I must therefore answer him rather briefly.
The noble Lord picked on a great many phrases in the Prime Minister's broadcast, but I am not going to follow him over that ground. He wanted to know why this had been done. I think the short answer is that the improvement in the balance of payments was not proving fast enough. The noble Lord is well aware of that—in fact, he himself quoted it from that angle. I need not go over the ground we covered here last time, but that was the situation: we

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had cut down this deficit. But I will not say much about that because it arouses the passions of the noble Earl so rapidly. The deficit had been halved between 1964 and 1965, and it was reduced again last year. Nevertheless, owing to the happenings of this year, with which we are fairly familiar, instead of a surplus in 1967 it looked as though we were going to have a deficit as large as that of the previous year.
The question may be raised—and I put this to the noble Lord, Lord Aldington, quite calmly: Were we competitive? It is argued that we were not competitive. I think the word "competitive" is an ambiguous one in this situation. We needed a very marked improvement in our relative competitive position in order to put the balance of payments position right. The prospects were that even in 1968 we should still have a deficit. In those circumstances it became inevitable that devaluation would take place. That is the short answer; and I do not know that, however many words I might expend on it, I should add to its effectiveness.
The noble Earl, Lord Jellicoe, asked about corporation tax. This point was dealt with in a fairly long Answer by the Chancellor of the Exchequer on November 20. He pointed out that in view of the very large increase of profitability in industry that is likely to take place over the next twelve months, and in view of the fact that we are asking the whole of the community for sacrifice, it seemed reasonable to expect some sacrifice from industrial profits. That is putting it shortly.
My Lords, there is another thing that I should like to say. It is a point which has bothered me, I can fairly say—I am speaking as an individual member of the Cabinet. How would this affect the holders of sterling? As a member of the Cabinet in the last three years, one has allowed oneself to wonder whether devaluation was the right course. What has not troubled me so much is the likely effect on Britain. I was always ready to take an optimistic view over that; but the question of the holders of sterling troubled me. I should never personally have agreed to devaluation unless every possible effort had been made to safeguard their position. Undoubtedly the
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interest of these holders has been one factor which has long made us reluctant to make the move. This should be understood in case the question is asked, "Why was this not done sooner?" The answer is that we were anxious to avoid it, if only to avoid any kind of damage to those who had trusted us.
In the event, the holders of sterling have shown great tolerance and understanding, and this has been a real help. There are considerable mitigating factors in the apparent damage to their interests. For example, countries such as Australia and New Zealand, and the developing African members of the sterling area, have drawn on their balances to trade extensively with Britain; or perhaps they have these balances available to meet outstanding sterling obligations. In neither respect do they face a loss. Some of these countries have chosen to devalue with us while others have yet to reach their decision. Devaluing countries, to the extent that they trade among each other in sterling, again face no loss, or at any rate, a much-reduced loss on their balances.
Finally—and this applies to all holders of sterling—they have for many years been earning a high rate of interest on their balances. This has meant some compensation for the present fall in the capital value of those balances. May I say, therefore, that while this was clearly a factor which would make some of us—and me personally—reluctant to agree to devalue, in the circumstances I think the least possible loss has been incurred.
LORD ALDINGTON: My Lords, the noble Earl has just qualified the "least possible loss". The noble Earl cannot really believe that. This sterling will very likely be used to buy things from this country; but those things will be, in sterling terms, more expensive because of the increased import costs and other things. To say, as the noble Lord, Lord Beswick, said and as the noble Earl has just repeated, that interest is a compensation is really the most remarkable statement. Are we to understand that all British holders of gilt-edged stocks are drawing the interest that they are because the Government know that the currency is going to be so inflated that they are going to lose the value of it? That is a terrible argument.
THE EARL OF LONGFORD: I have given the noble Lord an answer which means quite a lot to me. I cannot attempt to expand it.
There is one further point. It is something in which I know the noble Lord, Lord Chalfont, is much interested. May I say that I thought the remarks about Lord Chalfont were rather wretched. Everyone knows the position in which he was placed and everyone knows what a wonderful job he is doing for this country. To drag in this previous nonsense was below the level of the noble Earl who employed it. However, these things happen in these exchanges. I would say one thing about the E.E.C. Devaluation has not changed the Government's policy in regard to the European Community. Our application for full membership stands. One thing has already been made plain by the Commission; that is that their recommendation for negotiations to begin is unaffected. We welcome that. To conclude, devaluation does not lessen our determination to join the European Communities; and it will put beyond doubt our ability to accept the obligations of membership. We shall continue to pursue our application with vigour, and to look forward to an early and favourable response from the Governments of the Community as a whole.
My Lords, I will wind up in a moment or two. There was one question which I have not gone into, but I am afraid that everyone will know my answer in advance and the author of the proposal has left us. The noble Lord, Lord Alport, proposed once again a Coalition—and here I know that I am at one with the noble Lord, Lord Carrington, and perhaps, if I may say so, with the noble Earl, Lord Cromer. I hope that I can come into harmony with everybody in rejecting a Coalition—yes; we are back again on what I like to think are old friendships! Therefore we can all agree, particularly as the noble Lord, Lord Alport, is not here and cannot suffer any pain from the evident contumely which has been heaped on his proposal. The noble Lord, Lord Saltoun, disagreed with him, and although the noble Lord, Lord Alport, made a gallant and charming attempt to draw my noble friend Lord Champion on to his side, I did not think for a moment that he was likely to be successful.
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We have had a spirited debate. My noble friends, Lord Francis-Williams and Lord Peddie, spoke strongly from this side of the House, and strong speeches have been made from all parts of the House. The noble Lord, Lord Poole, did not doubt the challenge, but questioned whether it was right to call it an opportunity. My Lords, I feel sure that this is an opportunity, but only if we make it into one. Each one of us at this time of difficulty or—if one likes to call it so—of crisis, has to draw on his inner sources, his inner moral resources. But those inner moral resources, in a community such as this, are surely enhanced and strengthened by the life we live with each other. I feel that a debate of this kind has a positive value, not only to us but also, I hope, to much wider circles. Therefore, my Lords, I am grateful for the spirit which the House of Lords has shown this evening. I take an optimistic view, but only if we redouble our efforts to prove ourselves much better men and women than in the past. I beg leave to withdraw this Motion.
LORD SHEPHERD: Do not withdraw it.
THE EARL OF LONGFORD: Well, my Lords, I venture therefore to ask the House to accept this Motion.
LORD CARRINGTON: Typical indecision!
On Question, Motion agreed to.

  EDUCATION AND INTERNATIONAL RELATIONS: ROLE OF UNESCO
  EDUCATION AND INTERNATIONAL RELATIONS: ROLE OF UNESCO