DEBATE ON THE ADDRESS

§ Mr. Clement Davies (Montgomery)

Except for one paragraph, the Gracious Speech from the Throne does not cause us to look forward to a very exciting legislative Session. Possibly one ought not to complain about that, for this is a period when undoubtedly there should be an overhaul of administration and a period of retrenchment, instead of going forward all the time with fresh legislation, one Act piling upon another.

However, I must say that nowadays there seems to be a growing habit of placing in the Gracious Speech a number of what in themselves, I dare say, are quite important matters but which are really rather trivial for mention in the Gracious Speech. They are, in fact, a catalogue of small Acts which the Government propose to introduce during the Session and about which there will not be controversy. It is almost like window-dressing. I am not sure that it is in accordance with modern window-dressing for, as I understand it, nowadays shopkeepers find that they want to put one thing only in the window lest attention should be diverted by smaller things away from that main thing. It would perhaps have been better, therefore, had the Gracious Speech been confined to the one important paragraph which will undoubtedly lead to controversy.

In connection with one of those smaller Measures there seems to be some conflict of principle, namely, on the question of salmon and trout poaching, for it seems 311 that the Government are really recognising the sacredness of private property while, at the same time, following their principle of putting an end to private enterprise and initiative and a certain amount of risk that people are prepared to take.

Turning to the foreign situation, it is right this afternoon that we should all give our congratulations, not only to the United Nations Assembly, but to the Secretary-General himself, upon the reelection of Mr. Trygve Lie as Secretary-General. He has undoubtedly earned the respect of the entire world and has done extraordinarily good work. It may be that he has made mistakes. I hope he has, because it is human to err and we do not want a superman as Secretary-General in charge of such an important body.

The foreign situation continues to give us cause for anxiety. We are all delighted at the turn of events in Korea and we should like to congratulate all who took part, especially General MacArthur and the American Forces; and let us also pay a tribute to our own naval and other Forces for the splendid part which they, too, have played. I am always impressed by the language which is used about these actions—which many of us regard as marvellous and for which we do not know what adjectives to use—by way of recommendation to the Lords of the Admiralty. I can apply those words to the actions of our naval Forces around Korea and to our other Forces today. The words, as I understand them, are that "It is desired to call the attention of the Lords of the Admiralty to the correct conduct of these officers and men, following, as they have done, the tradition of the Forces of this country."

But there can be no letting up because of the turn of events in Korea. There is danger in many parts of the world. The present threat in Tibet and the position in Indo-China and Malaya call for renewed activity on the part of all the free nations to be prepared to play their part. Not only must we be strong in armaments; we ought to be following that up by being economically strong throughout the free nations of the world. Rightly we are prepared to help one another with armaments, so that the strong can come to the assistance of the weak; 312 but do not let us stop there, for armaments alone will not stop war. What we must also do is to come to the help of the weak in order to increase their strength economically.

On foreign affairs I want to say this: I wish that we were taking a stronger lead in world affairs. We are in a better position to do this today than we have been for a very long time. America, which is doing such great work on behalf of the free nations, is now occupying much the same position as we occupied throughout the 19th century and at the beginning of the present century. She is the strong partner among the free nations, and, as with ourselves, suggestions made by her, as they were made by us during the 19th century, are very often suspected merely because of the strength of the nation or the Government making the suggestions.

Today, the material strength has passed away from us and is now across the Atlantic, but we have had far greater experience in dealing with foreign nations in all the five continents than has any other nation. Suggestions should be coming today from us; we should not wait for them to be made on the other side of the Atlantic and then merely nod our heads. I am sure that we could exercise a far greater moral influence upon the trend of affairs than we are doing. It is quite obvious that close co-operation is needed. I am grateful to that very kind man Mr. Dean Acheson, and to President Truman—and I am sure that everyone in the House and in the country will congratulate the President upon his escape yesterday—[Horn. MEMBERS: "Hear, hear."]—both of whom have shown wide vision and given a great lead, but I wish that every now and then we ourselves, with all our experience, would make the suggestion first and not wait for it to come from over there.

It was very rightly pointed out in the last Session that today not only must we co-operate in defence and, as I have said, also in economics; we must co-operate as much as we can politically, leaving each country to follow its own method of choosing its Government and its form of governing itself. To me, however, all these matters—defence, economics, and political co-operation among countries—must be interlinked. The foreign policy and the defence of this country are matters which should go together.

313 While on this subject I must refer to the incident which took place before the Motion which we are discussing was called. I wish that the Government were not so lukewarm and tepid about European affairs. I hope that they desire to work more closely with Europe, but from their very actions and speeches they seem to be tepid and trying to hold away. We had an instance just now. It is perfectly right that we ought to be discussing the resolutions which were passed at Strasbourg. Promises were made by those who were present—and they were present from every Parliament—that these matters would be brought before Parliament. Why, then, do the Government choose to make a tiny point about what the right hon. Gentleman the Leader of the Opposition said? They need not have waited for what he has said on anything. How much better it would have been had the Government come forward voluntarily and said, "This is such a vital matter concerning the freedom of Europe and its future work that we will ourselves readily bring this forward and do our best to have it discussed."

On the question of co-operation, I am surprised that there has been no mention in the Gracious Speech, nor any mention so far from the Government Front Bench, of the Torquay Conference. I am to be followed later, I understand, by the Chancellor of the Exchequer—and, by the way, I congratulate him most sincerely on succeeding to his high office. I hope that the right hon. Gentleman will explain what policy the Government intend to pursue at that conference and will give some account of how it is proceeding.

We are now face to face with further burdens, namely, the very heavy cost of re-armament, which is falling upon us at a time when we were hoping that we had now turned the corner and would be better able to meet our obligations. Having fought, as has this country, through two world wars and made such sacrifices as we have made, and having made the tremendous effort which we have put forward since 1945, it is sad that once again this country has to face re-armament on behalf of the freedom of the world. The question uppermost in our minds is: How is that cost to be met? It was admitted from the Treasury Bench in the last Session that we have been taxed almost to super-saturation point 314 and that there are really no reserves upon which the Government can still call.

How, therefore, are we to meet this increased burden upon the National Exchequer? It seems to me that what is happening, and what we are all really suffering from, is that the Government are trying to do too much and are doing it all at once. Consider the tremendous capital expenditure. There is huge capital expenditure on new buildings of all kinds. Of course, a great number of them are necessary—do not let the House think that I say they are unnecessary. All I am pointing out is that they are all coming at one and the same time. Buildings, factories, houses—I see the Minister of Education is present—huge new school building programmes—[HON. MEMBERS: "Hear, hear."] I am not criticising or saying that any one of them is not necessary, not a bit. All I am pointing out is that they are all coming at the same time. [HON. MEMBERS: "We want them."] Maybe we do, but at the same time, having taxed ourselves to the extent of more than £3,500 million in time of peace, now we are called upon to incur almost war expenditure on armaments. Some priority has to be arranged and what I want to know is whether the major items are kept continually under review by the Government.

§ Mr. Shurmer (Birmingham, Sparkbrook)

Of course they are.

§ Mr. Davies

The hon. Member has not yet had the honour of sitting on the Government Front Bench. What we have to do is to see what has to be done, what we cannot do without, what must be given real priority and postpone those matters which have to be postponed.

The two most striking developments during the last six months are, first, the continued marked improvement in industrial output. It has been quite amazing. Second, there is, in spite of the threats still made in regard to it, the continued stabilisation of wages. Those are two really striking events and the combined effect of those two events is that there has been an increase in the sterling export prices we have received and a general increase of output throughout the country. But all this, working together with the wage stability, has produced a considerable increase in profits. A large 315 part of those profits has been put into reserve or, as one only has to look at the Government returns for each week to discover, set aside as reserves for taxation.

What that shows is that the Government, and the Chancellor of the Exchequer in particular, are increasingly dependent upon the extra profits to provide revenue for the Government and, of course, it is the one and only source for financing private capital creation. But the stability of the whole situation still depends upon what I would call the wage freeze, the continued stability of the present wage level. If wages rise, then prices rise and, when that happens, wages rise again and we have the inflationary spiral. There will be a fall in profits, leading to a fall in savings and then a fall in the Government revenue upon which the Chancellor today depends.

The rise in output undoubtedly has given us a fresh hope, but unfortunately, we have had to use much of that output in increased exports, first, because of devaluation and, second, because of rising world prices. Therefore, there are worsening terms of trade with which we have to contend. It is estimated that today we have to export £250 million worth more a year to pay for the same volume of imports we had before devaluation.

Therefore, I do not see how we can meet both our home programme and rearmament without something being done, especially now that Marshall Aid is to come under reconsideration. I wish to throw out a word of warning. Because of the increase in the gold reserve and the improvement in our external trade, there is too optimistic a view held, certainly in America, of what our position is. I am sure the Chancellor will agree with me that the position is a really dangerous one. There is only one answer to inflationary pressure over a long period. It is increased productivity, but that is bound to take time. In the meantime the matter which is worrying everyone, all classes, but especially the lower income groups and particularly old age pensioners—there is not one of us in the House who does not get letters almost daily about this matter, pathetic letters—is the increasing rise in the cost of living.

316 I thought the most realistic speech made in the Debate so far was that by the hon. Member for East Ham, North (Mr. Daines). He brought to the House a sense of reality as to what is really happening in ordinary households throughout the country. He was quite right in criticising the index of the cost of living. It does not really reflect what is the true position in regard to retail prices. It is sheer nonsense to tell people that there is only a rise of 2 per cent., or of two points. They know better what the pound is purchasing. I also agree with what he said about the failure of the Monopolies and Restrictive Practices (Inquiry and Control) Act. I warned the House at the time it was introduced that it was really almost a fake Measure, which did not get down to the real questions with which we have still to deal. I would have preferred it, if the Government had brought in a really sound Bill dealing with all these matters.

Rising prices are affected by the amazing rise in world prices—wool, tin, copper, rubber—rubber 400 per cent., I understand—and zinc. The question of housing in this country is important and vital and, again, I am quite sure that there is not an hon. Member who does not get letters, pathetic letters, which cause real anxiety, from people wanting proper, decent, comfortable, homes. What amazes me is that people, in spite of all these difficulties, are able to keep up their spirits—and the high moral attitude of the country is something we ought to commend.

But, more important than the housing question is the question of the cost of living. Controls will not stem the rising tide in themselves. The pound is being devalued in this country; it is purchasing less. Articles are the same but we have to give more money for them, which means that the value of the pound is going down. [An HON. MEMBER: "What is the remedy of the right hon. and learned Gentleman?"] I thought I was carrying the House with me. There is overspending today; far more than we can possibly afford. That leads to higher and higher taxation and further calls, which means there is a call from the people themselves for higher wages or salaries to meet those higher demands. So we go on with these continual rises in the cost of living and the call for more and more money, which really depreciates the money itself.

317 I have already mentioned my hope, to which the right hon. Gentleman's predecessor so often paid at least lip service, of an increase in world trade. That is why I am so anxious to know what part we are playing in the Torquay Conference, and for there to be a closer co-operation about materials such as wool and tin between the allied countries of the free world.

I wish to turn for a few moments to the most important paragraph in the Gracious Speech from the Throne. It says: In order to defend full employment,"— I shall come back to that— to ensure that the resources of the community are used to best advantage and to avoid inflation, legislation will be introduced to make available to my Ministers, on a permanent basis but subject to appropriate Parliamentary safeguards, powers to regulate production, distribution and consumption and to control prices. Can the right hon. Gentleman tell me which of these controls has secured full employment? I should have thought that the course of events—the war and the fact that we have had to do without so many things for six years, the need to rebuild the whole economic system of this country—made it obvious that there were more jobs waiting for people than people for jobs.

If controls can stop inflation what have the Government done to stop the inflationary pressure that is now and has been going on? It seems to me that these words have been put in in the way they have been because they are "time honoured," like Lancaster. They have a familiar ring about them—"to regulate production, distribution and exchange." I thought that had been dropped out of the programme, but it seems to have returned in this form, and to have been brought back to satisfy some Government supporters who still believe in that slogan.

In the last Session, I objected to the form of legislation which was still in existence. I objected to it when it was brought in by the Government, in 1945. I objected again in 1947, and my objection still remained the same at the end of the last Session. One realises that at a time like this there has to be a certain amount of control; neither I nor my party have ever denied it. There has to be a certain exercise of economic 318 planning; we have no doubt about that. But what is happening is that the Government are mixing up the control with the form which it should take, and it is to the form I am objecting. I do not like control being imposed upon the country by decree.

As I say, I stated my objection at the end of last Session. I do not know what the Government now propose to do, but what they did in 1945 and 1947 was to introduce or re-introduce, in time of peace, a form of legislation which was meant for time of war and only for time of war, and to continue that for six years after the end of the war. Do they now intend to re-introduce it in this form, giving them, as the right hon. Gentleman the Member for Woodford (Mr. Churchill) said, a "complete blank cheque." Or do they intend to deal with the matters which they feel must be controlled for the sake of the country measure by measure, so that the House as a whole can take part in the discussion and see the extent to which the Government can go? Or do they mean, as I am afraid they do, to bring in one comprehensive measure, as was done during the war, allowing every Government Department to issue such regulations as they choose?

The Government say that this is to be subject to appropriate Parliamentary safeguards, … What is the meaning of "appropriate"? Appropriate to whom? Appropriate to the Government using the powers or appropriate to the Members of this House? I called attention last week to the great difference there is between these regulations and an Act of Parliament, that the regulation is made by the Department only and that we cannot amend it. All that happens is that it is brought before the House, which can express either agreement with it or throw it out because the House disagrees with it. The House cannot change it.

Compare that with an Act of Parliament, which is far more carefully prepared by the Department than is a regulation, and takes a long time to prepare before it is brought here. Has any Member ever seen a Bill, however, carefully prepared, which has not been amended? Amendments can be moved from any part of the House. I object to giving full power to the Government to do as they like. I do not believe in the sovereignty of any 319 Government, however powerful they may be. I much prefer the sovereignty of the people as expressed in and by this House, and if the Government intend to introduce legislation of a war character it will be met with the most fierce opposition.

§ Mr. Oliver Lyttelton (Aldershot)

I do not intend to follow over quite so wide a field the accomplished and cogent speech which has just been made by my right hon. and learned Friend the Member for Montgomery (Mr. C. Davies). He used one phrase, in particular, which struck me; he said that it was a sad occasion that we should have to discuss these matters of rearmament and so forth today. I, too, feel that it is a sad occasion. It is always sad to stand amidst the wreckage of human hopes, even if they were not hopes which one entertained oneself.

Five and a half years ago, when the Socialist Government were first elected, their supporters believed in a new world. According to many hon. Members opposite, history began in 1945. Five and a half years ago a world of peace, prosperity and stability was to be the lot of the common man and the common woman. Left alone could speak to Left; peace with Russia was just round the corner; the golden age was about to dawn, except, of course, for certain naughty people. These illusions have been shattered by events. As the right hon. and learned Gentleman said, it is indeed sad that we should have today to examine, as I must do, the subject of the economics of defence and rearmament, the rising cost of living and inflationary pressure. It is to those three subjects that I wish to confine my remarks this afternoon.

First of all, I think it most necessary to try to put the rearmament programme, as far as we know it, into perspective. I have not found it at all easy to do so, because the figures available to a private individual are somewhat incomplete. My own calculations would seem to show that the output of munitions, which I think the right hon. Gentleman put at a value of £850 million extra during the next three years when he was speaking in September, could be fitted into our present economy without the general consequences—and I emphasise the word "general"—being such as to rock the whole structure of our economy.

320 No doubt very serious local difficulties will quickly make themselves felt. There will be bottlenecks, the most serious of which will probably be that caused by the shortage of labour. We have not yet been vouchsafed the information as to whether the Government intend to direct labour into the munitions industries. Once, however, the country is supposed to be run upon a planned economy, once there are wage freezes, and once we take into account the tragic shortage of houses, the labour problem will locally be the most difficult to overcome.

The dilemma with which right hon. Gentlemen opposite are faced arises from the fundamental fallacy of trying to combine a planned economy with a free society. I often used to put this question to the previous Chancellor of the Exchequer—and may I say that his absence and the cause of his absence are as greatly deplored on this side of the House as they are on the other?—I used to put this question, genuinely seeking an answer. What is the good of a planned economy if it does not also plan the lives of every man and woman "gainfully employed"—because that is the horrible phrase by which we describe the working population—what is the good of an elaborate system of priorities, controls, allocation of materials, import and export restrictions and stimulations, if men and women cannot be found to turn the raw materials into those things which we need first?

§ Mr. Lyttelton

if the hon. Gentleman will let me complete my argument, I shall be very willing to give way, but I hope that the hon. Gentleman will have the opportunity of catching your eye, Mr. Speaker, and will let me make my own speech. It seems to me that here is a fundamental issue. What is the good of assembling the bricks and mortar, the pipes and the timber, the steel and the licences and the whole apparatus on the site if the men and women to turn those materials into a house are not also, under a planned economy, to be directed there?

§ Mr. S. Silverman

I wanted to ask the right hon. Gentleman a very short question. Is he seriously arguing, on behalf of his party, that a planned economy is not possible in a free society?

§ Mr. Lyttelton

Certainly I am arguing that, and if the hon. Member has listened with his usual attention, he would have found that is precisely my argument.

Sir Stafford Cripps always answered the question by saying that the present Government were attempting to do something which had never been done before, and this, of course, is a graceful circumlocution for saying that they were trying to do something which cannot be done. [HON. MEMBERS: "No."] We can, of course, have a planned economy, and secure the emergence from the production line of those things which our rulers judge to be first necessary, if we are at the same time prepared to tell every man and woman in the country where to work, what to work at and what to work for, in other words, the place, the nature of their work, and the wages they are to be paid. Then a planned economy will work. But a planned economy depends upon planned human beings, and the sooner right hon. Gentlemen opposite face that stark fact, the better.

No hon. Member, whatever his political complexion, would dissent from the very obvious statement that the human side of industry is what counts. It is human hands and brains which turn the inert materials into the finished goods, whether they be guns, houses or roads, or what we will. So this is the first dilemma. We cannot have a planned economy and a free society. The two things are mutually destructive.

Be that as it may, one thing is quite sure, and that is that the people of Great Britain are not going to permit society to be other than free. We have fought too long in the defence of our liberties, both against the foreigner and among ourselves, to let any Government, even one commanding a majority of six or seven, to attack the fundamental liberties of the subject, and unless they do so, I wish to emphasise that a planned economy will plan everything except that which matters. On this side of the House we believe that it is possible to have a policy under which there is a great deal of freedom of choice and that it is possible to secure it without disorder. Liberty without licence is a possibility, but where everything is licensed, or subject to licence, there cannot be any liberty. It is useless to discuss the 322 economics of rearmament without recognising at the outset this fundamental dilemma, on which there has never been as yet any satisfactory answer—and extremely little interruption from below the Gangway. That is the fundamental dilemma with which the Socialist policy is faced.

Having said that, I turn back from that introduction to try, so far as I can, to put the rearmament programme into perspective. I should be genuinely interested and grateful if the figures which I give can be subjected to some criticism and examination by the right hon. Gentleman in his reply. I do not claim that my figures are accurate individually, but I do believe that they give a fair general presentation. I calculate that the money value of the output of the industries particularly affected by rearmament, namely, engineering, shipbuilding, iron and steel, traction—in which I include both motor cars and lorries—chemicals and aircraft, is well over £2,000 million a year, something near £7,000 million in three years. Out of the £1,200 million of extra money which the Government are to spend on rearmament, somewhere about £200 million is to be spent on pay and allowances for the Armed Forces; and I think the right hon. Gentleman put £850 million over three years as the bill for munitions. That is about £280 million a year, so that these figures seem to me to be an increase over the next three years—and the order will progressively rise—of about 12 per cent. overall in the output of those industries, if we are to fulfil the present munitions programme.

I frankly do not regard it as impossible, although, as I have said, very severe local effects will no doubt be produced. Perhaps some of the most serious will come in what the Americans call the "automotive" industry, but if there is to be a continuance of the increased productivity—and although I regard the figure given as extremely suspect, I am sure there is more than the characteristic annual increase—a target of £280 million a year over three years is not unattainable while at the same time maintaining the general economic activity at its present level.

In fact, I am suspicious enough to think that the rearmament programme has been got at the wrong way round. I 323 think that the Government have probably asked the planners what the largest rearmament programme could be to enable them to do it without serious dislocation. They probably sent for Sir Edwin Plowden and said, "Tell us what a munition programme could be without our having to face the population with any of the consequence. Do not put it too low or the Americans will find out it is not enough. For Heaven's sake do not use the phrase 'Business as usual,' but that is really what we mean. We would like to get away with it without having to make an unpopular Budget because, Sir Edwin, it may not have escaped your attention that the political parties are nearly in equilibrium and there might be electoral effects if we had to place too many restrictions upon the consumer." I must say that with those terms of reference, which I admit are products of my imagination—[HON. MEMBERS: "Hear, hear."]—we shall see—I believe Sir Edwin has done his job fairly well. The scale of arms and re-armament, I think, was being approached with the cart before the horse, and it is being worked back from the answer.

We all agree, or nearly all of us, that our re-armament and the need to become strong is dominant and imperative. Defence needs should be approached from the point of view of defence. I want to make the first point that the armament programme has, either by design or by chance, been pitched at a figure where the Government could follow a policy of "business as usual" with all the emollient electoral effects that that would have, and could continue to encourage exports and so look to no general interference with the present emphasis on industrial output.

Now I turn to a subject with which the right hon. and learned Gentleman the Leader of the Liberal Party has already dealt, namely, the cost of living. The Lord President of the Council, in a recent broadcast, attributed, or tried to attribute, the rise in the cost of living to the effects of the North Korean campaign, and presumably—I imagine that he was speaking seriously—he referred to the increased cost of raw materials which the American re-equipment programme has undoubtedly caused. I have his words here. He said: 324 The cost of living has, of course, gone up. Earlier this year there was a tendency for prices to ease, but the Korean war put a stop to that. Here, again, we see the value politically of the right hon. Gentleman. His fertile imagination can flit across the economic field and manage to find the only factor for which His Majesty's Government cannot be held directly responsible, whilst at the same time suppressing all those factors for which they are directly responsible. I admire that, as a young Parliamentarian. "The Times" leading article on the following day said: Mr. Morrison's piece left out not only the Prince of Denmark but the King as well. Neither inflation nor devaluation—which has wrought a striking transformation scene of which the final, and perhaps the least comfortable, details are not yet seen—found a place in his skilfully simple discourse. And, of course, our own armament programme, however much the Lord President may suggest it, has so far made no effect upon the cost of living—or a negligible effect—because there is no armament programme in effect yet. As far as I have been able to find out, very few orders have been placed for extra munitions of war in any of the industries concerned. No instructions have been received that this or that production is to give way in favour of the production of arms. I hope that during the course of the Debate we shall find out whether the Government have any plans and, if so, what they are.

It is already many months since the North Korean campaign first awakened the Government to the impending dangers, and yet there is neither any industrial plan for fitting in this production—which I think can be done—nor have any orders on a large scale yet been placed. Why is this? Is it because we are still waiting to know what American aid will alleviate the problem for us? Or is it due to the wish to leave things as they are until after the next General Election? Perhaps we can have some enlightenment on these points.

I turn to the earlier causes, far earlier than those which the Lord President mentioned, to which we can attribute the rise in the cost of living. I should attribute the ever-rising cost of living in the main to two causes other than the one I have mentioned; first, devaluation; secondly, excessive Government expenditure. I said that the bad effects of devaluation are 325 slow to make themselves felt. This is because there are stocks of goods in the warehouses and raw materials in the pipe-line of considerable extent bought when the pound was worth four dollars, and bought at lower prices than those which now obtain. [Interruption.] I hope I am not interrupting the hon. Gentleman.

§ Mr. S. Silverman

No.

§ Mr. Lyttelton

I have already given way to him, and I hope that he will give me the opportunity to continue my speech. Whereas the stimulus to exports is felt first, the bad effects of devaluation on internal prices are much longer delayed. I must produce figures, if the House will suffer me, to prove my point. The Retail Price Index has remained remarkably steady. I attribute this to the causes which I have mentioned—stocks in the shops and the warehouses and raw materials in the pipeline. From June, 1947, when the new Index was introduced, the cost of living indices followed this course: 1947, 100; 1948, 110; 1949, 111; 1950, 114 for as far as we have gone this year.

On the other hand, wholesale prices, which respond to devalued currency much more quickly than retail prices, have shown remarkably steep increases. Adjusting the wholesale index to correspond with the figures I have given, we reach these figures: wholesale prices, 1947, 100; 1948, 114; 1949, 120; and 1950, 142. Even this does not disclose the whole story, because import prices have risen by 25 per cent., and it would seem to show that wholesale prices have not yet fully reflected the rise in import prices. But retail prices must follow the rise in wholesale prices—and soon.

Thus, those who are now distressed, as I think we all are, by the high cost of living have little cause for comfort. It will continue inevitably to rise sharply. Devaluation was not, as it is now often represented to be, an act of policy. It was the surrender to the inexorable facts of the exchange and economic position of our country under Socialist management. It is true to say that devaluation stimulated exports more than any of us hoped and, as exports are the lifeblood of the country, this is a source of great satisfaction as well as of surprise to hon. Members in every part of the House. I was surprised that the stimulation was 326 so great, but this is the good part of devaluation. This volume of exports must be maintained, and that in a world where raw material prices are rising steeply.

On the one hand, these increased prices for commodities like wool, rubber and cocoa, and other sterling area commodities of that kind, have a favourable effect upon our balance of payments, judged as a sterling area, and are perhaps the principal causes of the increases in our gold and dollar reserves, which are so comforting to us all. On the other hand, the rise in raw material prices, which has helped our balance of payments, is one of the causes, and will in the future be a much greater cause, of decreased real wages or the increase in the cost of living, however hon. Membrs prefer to express it.

Our competitive position in the export market is to be maintained, if I judge Government policy aright, at the expense of real wages. The wage freeze, for example, is simply a confession that we are having to devalue the work of the wage earners in order to make it fit in with Government policy and our balance of payments. The Colonial Secretary, when he was Minister of National Insurance, in a moment of eloquence or exuberance, said on 19th September, 1949, when defending the policy of devaluing the pound: In the inter-war years the Tories tried to solve the problem by devaluing the worker. Unfortunately, what right hon. Gentlemen opposite have done is to devalue both the worker and the pound.

Many of the favourable effects of devaluation have already been felt, whereas the bad counterparts are only now beginning to appear. We have had a pretty good time, because we have been living on stocks bought at much cheaper prices, and are now beginning to pay the bill. It is even worse than this, because the heaviest burdens of the ever-increasing rise in the cost of living will fall upon those least able to bear them. It is the pensioners, the old people, those living on fixed incomes, the self-employed, those who do not have the advantage of belonging to trade unions which can press for higher wages, who are going to feel it worst. All these people are going to feel the worst effects.

Again, as the right hon. and learned Gentleman said, the terms of trade have 327 been moving against us. Taking import prices in 1947 as 100, they are now 137, whereas export prices, taking 1947 as 100, have only risen to 121. I do not apologise for detaining the House with these figures and statistics, because, after housing, or perhaps equally with housing, the greatest pre-occupation of our fellow-citizens, and their wives in particular, is concerned with the cost of living. How can this rise be halted and ultimately reversed? It would be quite dishonest to claim that, after the mismanagement of our affairs during the last five years, an immediate stop can be put to rising prices. It certainly cannot, but the rise can be halted before very long, and this is perhaps one of the principal national tasks, or if hon. Members opposite prefer it, one of the three national priorities, about which we have got to bestir ourselves. I say that, if the remedies are unpleasant, they will at least be more bearable than the disease.

What are the remedies? They are well known. The first one concerns Government expenditure and the making of economies, which is always an extremely unpopular course. I am not a great admirer of all the things done under the so-called "Geddes Axe," although some of them were very necessary, and some great sources of waste were cut out; but these things will become more imperative when we have to spend another £400 million a year on armaments. The subject of Government expenditure must also be taken to include the nationalised industries, the new sinks down which our money is poured.

We have already had a Debate on the subject, in which we pointed out that the ratio of the costs of administration was rising continually in relation to productive labour. It is one of the well-known effects of bureaucracy and over-centralised production. All the common services are increasing in cost, partly as a result, and they act and react on the primary costs. When the price of coal is increased, it entails an increase in freight charges, which again increases the cost of the coal in parts of the country distant from the collieries. The increased cost of coal, again, increases the costs of industry, and the whole thing is a spiral.

Hon. Members would be quite wrong in imagining that we could make only small economies at the best. It is a question 328 of having to cut down, and it will be very unpleasant to do so.

§ Mrs. Braddock (Liverpool, Exchange)

Where?

§ Mr. Lyttelton

The hon. Lady has been reading the "Speaker's Handbook." There are a great many things which we shall have to do without. We shall have to do without the Ministry of Civil Aviation. Another one is a large portion of the Ministry of Supply. Others are the large number of Government agencies now engaged in paying too much in bulk buying of materials overseas. Then, there are all those engaged in not getting what we want by putting their feet into these buying missions. We shall have to do without the Central Office of Information. We must allow the taxpayer to find out how the Government are getting on without spending his money to tell him so. I would deplore having to do that, because these are very nice frills, but they belong to rich countries and not to poor ones.

I believe that there is great waste going on in the administration of the Health Service. I do not say that there is lavish expenditure on benefits; I say waste in the Health Service, and also in the nationalised industries. The first task must be to eliminate waste, and, in a Budget of £4,000 million, no experienced administrator would deny that we can make savings of a massive kind that would have a major effect upon the cost of living and upon the national life.

May I now turn to another slightly more technical aspect of the subject? Because of rises in sterling area commodities, sterling has become a comparatively strong currency, and it is necessary to proceed more rapidly towards the convertibility of the pound sterling than we are now doing. Such a step towards convertibility cannot, in my opinion, take place until there has been a political change in the country. For example, every time the Minister of Health and the more violent Members of the party opposite indulge in hysterical attacks on profits and capital—the things with which they are financing the nationalised industries—and in attacks on savings, the day of convertibility recedes.

The outside world, and especially the United States, has been much shocked by the Government's decision, in this time of international crisis, to put into effect 329 the nationalisation of iron and steel at the earliest date permitted by the Act instead of the latest. This weakens confidence in sterling, so that, concurrently with cutting down Government expenditure, and partly as a result of it, we have to try to restore the confidence of the foreigner in the pound sterling. It is not nearly so difficult to do as it was because sterling is a comparatively strong currency. This would be of direct benefit to the cost of living, although it would take a correspondingly long time to make itself felt. I say "correspondingly" because the effects of devaluation have taken months to make themselves felt in industry.

I now turn to other effects of the inflationary pressure. Again, this is rising, and it will rise still further; but the full effects have not yet been felt. American re-armament and the North Korean campaign are going to increase this pressure, and they will add their part to inflation. The rising cost of living leads to increased demands for wages and personal incomes, and these demands cannot always be resisted. As a result of rising wages, costs go up, and the well-known spiral of inflation soon gets into full swing. The competition of the Government and Government agencies for raw materials and services again increases the pressure on the supply of goods, and all this adds up to a very crucial problem. The new Chancellor of the Exchequer, I am quite sure, is not to be envied in the heritage to which he has succeeded.

I want particularly to refer to another difficult subject for the right hon. Gentleman. Taxation is already so high that his difficulty in financing the new programme will be very great. The right hon. and learned Gentleman the Leader of the Liberal Party referred to it, and I have particularly drummed it into hon. Members' ears until they must be tired of hearing it, but the fact is that one of the weaknesses of our economy is that we have no reserves of taxable resources. When I challenged Sir Stafford Cripps on this point, during the Debate on the last Finance Bill, he made the reply that we had saved £650 million in Income Tax, and that if this was not a reserve of taxable resources, he did not know what was.

Let us examine what he meant. This £650 million of taxable reserves represents concessions made to the lower income groups over five years. The answer, though I have no doubt not intended to 330 be misleading is, in fact, highly so. If it were to mean anything at all, it would mean that the only way to have reserves of taxable resources would be by cancelling those concessions to the lower income groups which we have given in the last five years. But even if they were all cancelled the annual advantage would only be £130 million a year as against the £400 million extra that the Government programme involves. Therefore, not only has the Chancellor of the Exchequer inherited a very difficult situation, but also a very misleading statement from his predecessor. I can hardly imagine that he would regard the cancellation of these allowances to the lower income groups as in the true sense of the word a taxable reserve.

The right hon. Gentleman the present Chancellor of the Exchequer was, and I expect still is, very clear in his mind that there is nothing more to be raised out of the so-called rich. He said: Unfortunately, we cannot look much more towards redistribution of income. The plain fact must be faced by all with a sense of reality that there is not enough money to take away from the rich to raise standards of living any further. That being so, it would be interesting to know how this theory and this reserve of taxable resources are to form part of the right hon. Gentleman's policy.

I want to say one word about the Purchase Tax. It was originally conceived as a tax to prevent people buying things they could do without. It has now become quite definitely one of the major sources of raising revenue, and economic arguments, whether they had any validity in the past or not, have long since given way to the demand for revenue.

Before sitting down I wish to say a few sentences, and not more, about housing, because we are to have a Debate on it next week. I would draw the attention of hon. Members opposite to the fact that since the Korean campaign began we have been committed to an extra programme of £1,200 million over the next three years for re-armament. If it was impossible to pitch the programme for houses at 300,000 instead of 200,000, and if it was impossible to contemplate for the three years 1948, 1949 and 1950 an expenditure of £150 million for an extra 100,000 houses, why is it now considered quite possible to add £400 million 331 a year to our industrial production for armaments? The reason is that the Government did not think that the needs of the country for housing were anything to be compared with what they now think are the needs of the country for armaments. We did not have the guns, and we were told that we could not have the butter.

Of course, one of the truths about a planned economy now emerges from the subject of housing. It would have been quite easy for an economist to say that the best economic course for the country to pursue in, say, 1946 was to build no houses at all. Homo sapiens might have found it easy to subscribe to such a theory. Even the White Paper on Full Employment brings out the not very startling axiom that if one can prevent people from buying when there is a boom and persuade them to buy in a slump, the incidence of boom and slump would be much less severe. But those things have a habit of not happening. Unfortunately, the world is not inhabited by homo sapiens, and even they might find it difficult to go about without houses and without coats and trousers. But we are not made up of homo sapiens; we have got to have these things, and, economic theory or not, we have got to build the houses. The Government are concerned with human beings and not with economic man.

Once again, planned economy has got this thing all wrong. It has no relation to the human needs and has placed economic theories far in front of them. Of course, if we are to have another 100,000 houses when this party is in charge then—and do not let us make any mistake about it—something else will have to wait. [HON. MEMBERS: "What?"] We cannot do everything at once. We may have to do with fewer technical colleges; we may have to postpone the educational programme. But the point I am making is that we must realise that housing, after defence, is the first priority. What does priority mean? It means something which comes in front of something else. By saying that the educational programme has to be postponed does not mean that we do not believe in education. We shall do it by policy, but not by trying to do everybody else's business for them.

332 What are we to think of a Government which has pitched the programme for housing so far below human needs and then finds £400 million a year not difficult to produce for armaments? Hon. Members will no doubt retort that one of the effects of rearmament and stepping up the housing programme will be a reduction in other forms of capital investment. No doubt that is true, but, in a free economy, capital investment is kept down to the things which are really necessary by the examination of profits and partially, no doubt, by the operation of interest rates and the sentiment which interest rates have upon the business community.

The only way to find out what industrial production is likely to be profitable is to find out if people are willing to pay the price for putting up the plants which make the products. If the industrialist thinks that a 5 per cent. interest rate for borrowing his money will still leave him with a profit, the plants will be built, but the marginal capital investments will be discarded. Once we have a supreme body which professes to project its mind into the future and professes to know that the output of mackintoshes is socially more desirable in 1953 than the output of motor bicycles in 1953, then no wonder that the national priorities get into a muddle. The only people who could be good judges of this are the manufacturers of mackintoshes and motor bicycles, and the rate at which they can borrow money—[HON. MEMBERS: "Why?"] I will tell hon. Members why. The gentleman in Whitehall will always get it wrong, and one of the reasons why he will get it wrong is that he does not have to pay for the mistakes he makes.

§ Mr. Lyttelton

As a Cantab I think I must be insulated from a mass attack by Oxford University.

§ Mr. Crossman

I want to be quite clear about what the right hon. Gentleman is saying. He says that only businessmen can judge priorities, but he previously stated that the Tory Party had laid down two absolute priorities, which were rearmament and housing. He is a gentleman speaking from Whitehall. If he can 333 lay down priorities, why cannot the Labour Government?

§ Mr. Lyttelton

I did not know the hon. Gentleman was going to make a speech; I thought he was going to ask a question. He seems to be quite unaware of the difference between a priority like rearmament and a priority concerning mackintoshes and motor bicycles. The hon. Gentleman fails entirely to appreciate this matter. To put housing or rearmament in front of the national programme is a policy, but what we have is a planned economy which tries to teach every industrialist exactly what his business is. The hon. Gentleman has entirely missed the point of the argument, and no doubt it was my fault. What I was talking about was the lower part of the capital investment which the imposition of national priorities will inevitably affect. He had better think this out before he interrupts me again, and remember that he is not speaking to undergraduates.

The effect of all these arguments adds up to a very critical problem which cannot be faced with complacency, and which cannot be faced by people who believe that all these desirable things can be done at once. The stark reality is that either we have to have further inflation, with all the serious consequences that that entails, or that we have to cut down and defer some of the things we should all like to do now. Only in this way can the true value of our social services be maintained; and in order to achieve that true value we have to dispense with some of our less essential spending. I see no signs of the Government facing this problem at all. I believe they hope to carry on without any change of policy until there is a new appeal to the country. They hope that retail prices will not go up too much before then, and they hope, by delaying the placing of munition orders, to subject our present economy to the least possible, and least conspicuous, strain. They hope that if economic facts make it necessary to cut expenditure, they will not have to do it.

All this may be good tactics, but it is not good management; it is not good finance or even straightforward politics. The economy of the Socialist Government has been bolstered up by American aid. It is one of the major factors, and I know how very distasteful it is to hon. Members opposite to be reminded of it. If that 334 aid is to be cut down the incidence of the problem we are discussing will be still heavier. There is nothing in the Gracious Speech to show that the Government have any policy in these matters. They may have ideas about a planned economy, but it is no solution to the problems we have now to face.

§ The Chancellor of the Exchequer (Mr. Gaitskell)

Like the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton), I do not intend this afternoon to roam at large over the whole field of the Gracious Speech or to give a general survey of our economic position, which is sometimes done by the Chancellor of the Exchequer. My purpose in intervening in the Debate, after I have dealt with one or two of the more remarkable statements made by the right hon. Gentleman, is to concentrate on one major issue, and that is the cost of living.

However, before I turn to that. I must reply to some of the things which the right hon. Gentleman has just said. He asked me a question about the implications of the rearmament programme for the engineering industries. I can tell him that, broadly, the figures he gave us are not in dispute. As far as we can see, for the engineering industry overall, the increase will be of the order of 10 or 15 per cent. of its output, but he will appreciate that the proportionate effect will be different in different parts of the engineering industry.

The right hon. Gentleman made some allegations about our attitude to the rearmament programme which were entirely unjustified, and he must have known they were unjustified if he listened to my speech in September or read the statement of the Government early in August. He suggested that a programme of £3,600 million was deliberately put forward by the Government as something which it would be possible to carry without too much trouble; that we had, as it were, evaded our responsibilities in this matter. But he knows perfectly well that when the Americans approached us at the end of July they asked us what we could do on the assumption that our economic recovery would be maintained. We made it perfectly plain, at the time, that the figure of £3,600 million was what we believed to be the maximum possible, given two conditions in particular—that 335 we should not direct labour and that there should be no requisitioning of premises. I do not know whether the Opposition are now saying that we ought to start directing labour and to start requisitioning premises. If not, I fail to see the purpose of the intervention at all.

The right hon. Gentleman also implied that we wished to give the impression that despite the rearmament programme, business as usual was possible. Here again, I fail to understand exactly what he means. He said a little earlier in his speech that he thought the engineering industry could very easily take care of the necessary 15 per cent.

§ Mr. Lyttelton

I did not say "very easily."

§ Mr. Gaitskell

Very well; the tight hon. Gentleman thought it was quite possible within their capacity. Is he suggesting that we ought to go beyond that figure? If not, what is the purpose of the intervention? He must not be allowed to make bad blood once again between this country and the United States.

§ Mr. Churchill (Woodford)

Perhaps the Chancellor of the Exchequer will remember the description of the United States which his hon. Friend the Member for Nelson and Colne (Mr. S. Silverman) once gave?

§ Mr. Gaitskell

I have heard some peculiar descriptions of foreign countries from various sides of the House, at different times, but I personally deplore the introduction into our Debate of matters which are, surely, above party controversy.

I must say that the position as far as "business as usual" is concerned, is perfectly clear. We take exactly the line as expressed very clearly by President Truman. It is not a case of "business as usual" and it is not, on the other hand, a case as yet—and we hope it never will be—of converting ourselves to a complete war economy.

The right hon. Gentleman also made some extraordinary statements about the housing programme and investments. He seemed to suggest that an extra 100,000 houses could be obtained by giving up a few things—technical schools, I think it was. How many more houses does he 336 think we would get if we stopped building any technical colleges whatever?

§ Mr. Lyftelton

I am sure the Chancellor would not wish to mislead the House. I made it perfectly clear that there were some of the lower parts of the capital investment programme which would have to give way to housing. Hon. Members opposite know what capital investments mean. There are some industrial capital investments which will have to be deferred.

§ Mr. Gaitskell

I am very interested to hear the right hon. Gentleman say that. He has not said how he will identify those parts or how to prevent those investments taking place. Perhaps he will consider whether it is necessary to use certain controls in order to do it.

If these extra houses are to be obtained it is not a matter of stopping the building of a few technical colleges or a few schools, though, heaven knows, there is a shortage of school accommodation, with which, I should have thought, hon. Members opposite would have been familiar from their own constituencies. It is a matter of stopping power station construction, of stopping the building of oil refineries—[An HON. MEMBER: "Government offices."] Do hon. Members really suppose that, if we stop the power station programme and stop the building of our oil refineries, we shall really have the economic potential which is obviously essential as a basis for our defence programme? The whole approach of the right hon. Gentleman on this subject is totally unworthy of him in particular, because I have always understood that at least he was a staunch supporter of the need for pressing on with industrial investment. It is no use talking about the top part and the bottom part. He has not told us exactly how he would weed out what he alleges to be unnecessary industrial development, and until he does that nobody will take him seriously.

I want to refer to one thing which was said by the right hon. and learned Member for Montgomery (Mr. C. Davies). He asked me if I would deal with the Torquay Conference. I cannot do that, but my right hon. Friend the President of the Board of Trade hopes to catch your eye later, Mr. Speaker, and he will no doubt touch on that matter. I would, however, remind the right hon. and learned Gentle- 337 man that, so far as the development in world trade is concerned, the figures published recently in our balance of payments White Paper show the remarkable extent to which trade has developed, particularly between this country and other European countries, a point to which he referred.

The first thing that I should like to say about the cost of living is this. It is not necessarily true that if prices go up we are all worse off, or that if prices go down we are all better off. What matters in determining whether we are better or worse off is how much we can actually buy, and that, in turn, depends not only on the prices of the things we want but also on how much money we have to spend. I can think of no clearer example of this than the period, still familiar to millions of men and women, of the great depression in the early '30's. Between 1929 and 1932 the cost-of-living index in this country fell by about 18 per cent. Those with fixed incomes undoubtedly benefited, but no sane person could possibly say that the country as a whole was better off. There was, of course, heavy unemployment and a sharp decline in the total national income, and if some people did better, as they certainly did, many others, indeed far more, were worse off.

§ Mr. Churchill

We had no help from the United States then.

§ Mr. Gaitskell

I do not think that has any relevance whatever to the economic situation of 1930.

§ Mr. Churchill

1930?

§ Mr. Gaitskell

I am talking about the years 1929–32. The acoustics are surely good enough today, are they not?

Perhaps I may now turn to the present situation. The first thing is to get the facts right. We cannot have any sensible discussion on this problem until we have the facts before us. There is a lot of talk about an increase in the cost of living, about the rise in prices, but it is obviously impossible to deal seriously with this subject unless some attempt is made to measure more or less precisely what has, in fact, been happening. The plain fact is that the only way to do this at all scientifically is through the use of some measuring rod which reflects the price changes in an accurate manner. I think nobody will dispute that.

338 The index used for this purpose is the so-called interim index of retail prices. It has come in for a good deal of criticism lately. I see the right hon. Member for Woodford (Mr. Churchill) laughing, and no doubt he has in mind some criticisms himself on that score. He had better wait and hear what the answer is. Some people, indeed, have implied that this index is a completely useless affair. I make no apology, therefore, for devoting some part of my speech to explaining to the House just what the index attempts to measure and how the measurement is done. It is important, first of all, to understand what it purports to be.

It is a cost-of-living index, not for the whole community, but for the majority of the community with incomes below a certain level. Recently one of these Oxford economists with whom the right hon. Member for Aldershot (Mr. Lyttelton) was concerned just now—not one who is a Member of this House—Mr. Dudley Seers of the Oxford Institute of Statistics, estimated that from 1938 to 1949, for what he called the working class, the cost of living rose by 82 per cent., and for the lower middle class by 85 per cent. The rise in the upper middle class, those with incomes over £500 a year in 1938, was 113 per cent. I give that point as an illustration of the obvious fact that it is really irrelevant to criticise the present cost-of-living index as a measure of something which it does not try to measure at all.

The principle which the Ministry of Labour follow in constructing this index is to select a collection of things on which working class consumers spend their money—different kinds of food, rent and rates, clothing, fuel and light, household goods, drink and tobacco, fares, bicycles and so on. I may say that the index includes such individual items as tennis rackets, garden forks, perambulators, sewing machines, soft furnishings, brushes and brooms, soap and soda, saucepans and kettles. There are, in fact, 250 items altogether in the index.

The idea which is frequently spread about, that this index is only concerned with the bare necessities of life, is simply not true. Changes in any of these items will, of course, affect the index, but obviously they will not affect it to the same extent. The principle which one must adopt is to attach most importance to 339 those articles on which most money is spent, and it may interest the House to know that in this index the weight given to food, for example, is 35 per cent., to drink and tobacco 22 per cent., and to rent and rates 9 per cent. Hon. Members can compare that with the experience in their own constituencies and see whether they think that is very far out.

The weighting has been criticised on the ground that it does not really represent the way in which people spend their money, and it is true that it is based on a survey of consumption of working people in 1937–38. It is obviously desirable—surely nobody contests it—that the index should be brought up to date, and not, incidentally, left for over 30 years as the last one was. But we should be making a mistake if we assumed that the pattern of expenditure had changed very radically now as compared with prewar. It is true that it changed very substantially during the war, for the simple reason that there was not much to buy and consequently money was canalised in certain directions, but during the past year or two there is every sign that the tendency has been to return to the prewar consumption pattern.

For example, proportionately less is being spent on beer, entertainment and travel, and more on food, clothing, and household goods. We have made efforts to check up on this point because it is a matter of importance. These alternative methods suggest that the index is not very far out, so that without claiming perfection—we cannot get perfection in this matter—I am bound to say that despite all the criticism, and looking at it objectively, the index is not likely to be far wrong in its attempt to give us an accurate picture of changes in the trend of retail prices.

§ Mr. Churchill

Has any attempt been made to carry on the old index as well as to make the new one? It is a great shock in these matters to have a break in continuity. The right hon. Gentleman said that the last index had been left for 30 years. He also said that there had been little or no change, but, on the other hand, I gather that there was not so much need for a change. His argument was that there had not been a very great change as between pre-war consumption and consumption at the present time. 340 What I want to know is: Is there any means of checking the present index with what the figure would have been according to the principle of the old index?

§ Mr. Gaitskell

I think the right hon. Gentleman has slightly misunderstood me. What I said was that the present index which began in 1947 was based upon the expenditure in 1937 and 1938. It replaced the index which was based upon expenditure in, I think, 1909. Of course, it would be perfectly easy to extend the old index, but it obviously gives a far more imperfect picture of the position than the new one.

§ Mr. Churchill

It would be a very valuable check because continuity is so essential to a basis of comparison.

§ Mr. Gaitskell

It might give continuity in this matter but at the expense of accuracy, and it is rather more important to stick to the accuracy.

§ Mr. Gaitskell

I am afraid I must get on with my speech, if the hon. Member will forgive me. So much for the index. I hope the House will forgive me for having gone into the matter in some detail but I think these facts should be on record.

What of the movements of the index? What do these movements show? After devaluation, it was very generally assumed that prices would soon turn sharply upwards, and I am bound to say that the Government were much taken to task because of their alleged complacency on this matter. As one commentator has admitted, all the forecasts as to the trend of retail prices made a year ago, at the time of devaluation, have gone badly wrong—all, if I may say so, except those for which the Government were so freely and severely castigated.

Speaking over a year ago, my predecessor suggested that the retail price index might rise by a point or so between September and the end of the year, adding that next year the rise in prices of imported metals and materials will gradually have some further effect on the prices of goods in the shops, clothing, kitchen equipment and so on, and that some further rise in food prices might, during next year, add another few per cent. to household bills. What has happened? Exactly what my predecessor forecast. There was a one 341 point rise in the index between devaluation and the end of the year and, since then, another increase of one point has taken place. The rise in retail prices over the last 12 months has been two points and this, surprising as it may seem to all of us, contrasts with a rise of four points in the previous year and seven points in the year before that.

It is, therefore, quite clear that in these last 12 months the rise in prices has, in fact, slowed down substantially—[Laughter.] I suggest that when they have finished their laughter hon. Members should give some serious consideration to this problem and try to see whether they can deal with any of the arguments which I have been putting forward.

§ Mr. Gaitskell

I mean, in the course of the Debate—not now.

It is worth comparing the changes in prices in this country, as shown by the alternative method to which I have referred, with what has happened in other countries since the war. This method is based on post-war spending habits—that is, on the total amount of spending and the quantity of goods and services received in return. For example, whereas between 1945 and 1949 the increase in retail prices in the United Kingdom on this basis was 20 per cent., it was 32 per cent. in the United States of America, it was 35 per cent. in Canada, it was 26 per cent. in Australia and it was no less than 105 per cent. in Italy. I must say that, in the face of these figures, I find it difficult to take seriously those who solemnly argue that in a free economy one can keep prices down more easily.

If one takes the last 12 months, from June, 1949, to June, 1950, the rise in the United Kingdom of two per cent. has been the same as the rise in the United States of America, despite the increase in import prices here following devaluation, while in Australia the rise has been 9 per cent., in South Africa 6 per cent., in Denmark and New Zealand 5 per cent. and in Canada 4 per cent. If we take food prices, the comparison is even more striking. Between 1945 and 1949—[Interruption.]—I am afraid hon. Members opposite must stomach a little of this medicine——

§ Mr. Gaitskell

Between 1945 and 1949 food prices in France rose by 381 per cent., in Finland by 214 per cent., in Italy by 100 per cent., and in many other countries by more than 30 per cent.; and in the case of the United Kingdom the increase was 25 per cent. I freely concede, of course, that an important part in this was played by the maintenance and, indeed, the extension of food subsidies, and I understand that the Opposition, who argue that the policy of bulk purchase—a subject to which I shall return later—has been disadvantageous to us, will, perhaps, have some difficulty in explaining those figures away.

To return to the situation at home. It may well be asked whether the conclusion which I have drawn—that in the year after devaluation retail prices rose by only half as much as in the year before that—is borne out by any other evidence. I submit that it is. In fact, the picture in the last year or two has been broadly one of higher productivity accompanied by higher earnings and still higher consumption. Another suggestion that living costs have become so high as to prevent the mass of the people from taking advantage of the larger output of goods finds no support whatever in the available evidence.

Here is the evidence. I am talking about the total increase in consumption and I have here figures which are quantities, not values. In 1949 the total food consumption was 13 per cent. higher than in 1946, and 38 per cent. more durable household goods and 23 per cent. more other household goods were bought. An increase of 32 per cent. took place in clothing sales. Even in the first half of this year this trend has continued, with a 4 per cent. increase in food consumption and a rise of no less than 10 per cent. over a year earlier in purchases of household goods.

I can well imagine that some hon. and right hon. Gentlemen, and very likely some newspapermen, too, who may read this speech, would, so far as it has gone, interpret it as an effort by the Chancellor of the Exchequer to prove that all the talk about the increase in the cost of living is illusory and that there is no need to worry at all. That is not so. That is not what I am trying to do. What I am 343 trying to do is simply to get the facts right, as far as things have gone up to now. Nevertheless, I must admit that there is a contrast between the facts as they are presented by a scientific study of what has actually been taking place and the widespread feeling that here is a very serious position—that prices have risen and that it is much more difficult to make the money go round. I venture to suggest to the House that there are several things by which this contrast can be explained.

In the first place, I would refer again to what I emphasised at the beginning; that what matters is not only prices but also wages and other forms of income. It is, of course, a fact that during the past year, while prices have also not been rising so quickly, wage rates have moved scarcely at all and earnings have not moved up as fast as they were moving two years ago. For example, the average weekly earnings over a wide range of industry increased by 11s. 6d. between April, 1947, and April, 1948, but, in the following two years, after the appeal for wage restraint, they increased by only 5s. 4d. and 4s. 9d. respectively. Of course, I must add that this slowing down was exactly what my predecessor asked for and it has played a major part in enabling us to achieve an utterly remarkable economic recovery.

To suggest that it has meant a decline in real income is, again, simply not borne out by the facts. The right hon. Gentleman talked about devaluing the worker. I am afraid that I shall now have to do a little devaluing of him. Here, again, are the facts. From 1947 to 1950 average weekly earnings increased by 20 per cent., while retail prices increased by 14 per cent. In other words, earnings were rising faster than prices.

§ Mr. Lyttelton

May I ask the Chancellor whether the object of this argument is to show that there has really been no increase at all?

§ Mr. Gaitskell

The object of the argument is perfectly clear; it is to give the truth about the cost of living and how far it has increased. It is quite true that the increase in weekly earnings was faster in the years 1947–49 than it has been in the later years. But it remains true that 344 in the last year it has, in fact, kept pace with the increase in prices. I must say that some of the present talk about the hardships of consumers is just one more example of that rather low form of irresponsibility which at one moment calls for strict economy in financial policies and in the next does not blush to make party capital out of its results. The list of examples of this kind of thing is quite a long one, and it has had some eminent and distinguished contributors.

Another reason, I believe, for the general attitude towards the cost of living is the very human and natural tendency to ignore any cases where prices fall, and to think only in terms of price increases. For example, certain newspapers ridiculed the report of a price fall between July and August this year; but the index was perfectly correct, I think, and accurately represented seasonal reductions in the prices of potatoes as well as——

§ Mr. Harold Macmillan (Bromley)

Apples and oranges.

§ Mr. Gaitskell

Yes, apples and oranges. It represented reductions in the prices of some kinds of vegetables other than potatoes which were also lower in July. The only price increases in that month happened to be very small and unimportant ones.

Another fallacy I must mention in trying to explain this contrast which I have mentioned, and one into which all of us in a sense tend to fall, is this. We attach exceptional importance, I suggest, to the prices of the things which, in absolute terms, when we buy them, cost us a lot of money. For example, if, when we buy some curtain material to replace, perhaps, what we have had probably from before the war and that has lasted us for 10 years, we find that it has gone up by two and a half times in price, well, naturally, it is a very striking thing to meet, and it makes a very big hole in our pockets. We say, "Look, this is a very good instance of the way the cost of living has gone up."

But the fact is, of course, that we only buy things of this sort every few years, and the change, regrettable as it is, is slight compared with what happens to the prices of the things which we buy every day and every week—of bread, of meat, of butter, of margarine, of coal, of clothing—[HON. MEMBERS: "Of coal?"] 345 Certainly. Apart from a seasonal decline in coal prices this summer and a winter seasonal increase there has been no recent change in coal prices. Of course, this is only another way of saying that in the index which measures price changes, curtains and curtain materials, although fully represented, would play a very small part.

Finally, I think there is another reason why nowadays people feel stringencies which they did not feel in earlier years. It is the simple fact, to which I think the right hon. Gentleman referred, that there happens to be more to buy. When there was nothing much to buy in the shops people had plenty of money in their pockets, and the complaints, as we all remember very well, were about shortages. When more things that we all want to buy come on the market—well, my experience, at any rate, is that my wife presses me for more money to replace things—for instance, clothing, and says we ought to spend a little more money on clothes; and we find the temptation, of course, to spend more ourselves very much greater; and this creates a feeling—a very natural feeling—of stringency, that money is tighter and that somehow or other the cost of living is going up.

My last point is this. One is inevitably bound to talk in aggregates and in averages. One cannot make speeches about the circumstances of each one of the 10 million or the 12 million families in the country. One can only show whether people on the whole or on the average are better or worse off. But, of course, concealed in that average there is a wide variety of personal circumstances, and we certainly ought not to overlook the fact that some people with small, fixed incomes are worse off, and it is only natural that complaints are heard from those quarters. But the fact is that many more have not suffered, and there are——

§ Mr. Gaitskell

May I just finish?—and there are people better off, though they say very little about it when they are better off.

§ Mr. Churchill

I am deeply interested—everyone is—in the argument of the Chancellor of the Exchequer. Would he, before he leaves it, come to the question of the purchasing power of the 346 pound sterling? [Laughter.] Hon. Members should not laugh. Is it a fact, for instance, that the pound sterling we have now is worth 16s., whereas it was worth 20s. in 1945? Or is it even smaller than 16s.? Surely that is one way of expressing it, in a way that is comprehensible? I hope the right hon. Gentleman will deal with it in those terms, as well as in these other terms in which he has been talking.

§ Mr. Gaitskell

I have already given the figures for the rise in the retail prices of this country, which one estimates roughly—there is the problem of continuity, to which the right hon. Gentleman referred—at 20 per cent., and, therefore, it is true that 16s. is the right figure. But I must repeat what I said earlier, that there has been certainly as large a rise in incomes since then—in wages and other incomes. The increase in the national income, I think I am right in saying, is about £1,600 million between 1945 and 1949.

The next question, of course, that comes to one's mind is, what we may expect from the future. But before I turn to that I must deal rather more fully with the underlying, casual influences which are at work. I do not think there is any doubt whatever that the inflationary tendencies which have been operating recently spring directly and wholly from the increase in the prices of raw materials we import, due partly, I agree, to devaluation, and partly to the general increase in the level of income and demand throughout the world, and especially in the United States, and finally, since the middle of this year, to the outbreak of hostilities in Korea and the speed up of defence expenditure which has followed.

The result has been, of course, rising prices and threatened shortages. In the three months from mid-June the price of rubber has risen by nearly 70 per cent.; of tin by 30 per cent.; United States cotton by 20 per cent.; merino wool by 50 per cent.; crossbred wool by 90 per cent.; aluminium and copper by nearly 10 per cent.; zinc by nearly 20 per cent.; lead by over 30 per cent. These changes have already begun to affect the general level of wholesale prices which in the case of the United Kingdom reached a new high level in September. But we may still record that the rise here has been mitigated by the fact that the prices of 347 home produced materials, and commodities made from those materials, which still constitute 60 per cent. of the index, were fairly steady.

What are the implications of these facts for the Retail Index, for the cost of living? All that can be said with certainty—I do not disagree here, I think, with what the right hon. Gentleman said—is that when wholesale prices continue to rise sharply retail prices will eventually move in the same direction, but there is no reason why they should move so fast, and the time lag will by no means be the same, obviously, for all articles. The Wholesale Price Index covers mostly materials, while the Retail Price Index is, of course, only concerned with finished articles, and it is obvious that only part of the cost of the finished articles is to be ascribed to raw material prices; and consequently from that increase one would naturally expect a much less proportionate increase in the cost of the