HL Deb 27 September 1949 vol 164 cc709-87

2.37 p.m.

THE LORD PRIVY SEAL (VISCOUNT ADDISON) rose to move to resolve, That this House approves the action taken by His Majesty's Government in relation to the exchange value of the pound sterling. supports the measures agreed upon at Washington by the Ministers of the United States, Canada and the United Kingdom which are designed to assist in restoring equilibrium in the sterling-dollar balance of trade for the purpose of enabling, the economy of the sterling area to maintain stability independent of external aid; and calls upon the people for their full co-operation with the Government in achieving this aim, whilst maintaining full employment and safeguarding the social services. The noble Viscount said: My Lords, I am conscious that I have a difficult task which—if I may make this personal observation at the start—may perhaps be made a little more difficult by reason of the fact that one of my colleagues upon whom I had relied to help me, the noble Lord, Lord Pakenham, is unfortunately, and to his own great regret, laid up and not able to take part in our discussion.

Your Lordships have had before you the Paper that was issued on the tripartite economic discussions at Washington. I shall make some reference to different parts of it in the course of my speech but, as your Lordships are aware, it has already been announced that, before the Chancellor of the Exchequer and the Foreign Secretary left for Washington, His Majesty's Government had decided upon a revaluation of the pound sterling. I am sure it is not necessary to say more than that a decision of that character and importance had been arrived at only after long and anxious consideration of the issues involved. It was clear, particularly in the second quarter of the year, that our sales in the dollar area were falling off, notwithstanding the great increase that had previously taken place. Moreover, of course, there was a corresponding fall in our reserves, because the commitments for purchases were still in existence. In addition to this, there was a widespread and considerable measure of uncertainty which was increasing, and not discouraged in some quarters, as to what would happen. This naturally had an inhibiting effect upon, business transactions. I will not enlarge upon it further.

It was manifestly vital that two things should be done. We must restore confidence in sterling and we must greatly increase our exports to dollar countries. A decision of that kind at that time necessarily involved a considerable amount of technical preparation and, from the character of it, there was obviously the greatest need for secrecy and, considering the time that elapsed and the fact that my colleagues told their colleagues the Ministers in Washington and in Canada, of our decision at the outset of their deliberations, I think we can congratulate ourselves that on the whole the secret was exceedingly well kept. While this decision undoubtedly brings a great and new opportunity for British traders to extend their sales in the dollar areas, and even to open up new avenues for sales, it brings with it, as we are all deeply conscious, some serious risks and some immediate disadvantages, and it calls for the recognition of certain governing necessities.

The first and obvious disadvantage of an action of this kind is that our imports from these areas cost more. That means that before we can realise by the activity of our industries the results of greater receipts from dollar areas there is an immediate effect upon the prices of imports. The outstanding import from those areas with which we are immediately concerned is wheat. It was on that account that we decided forthwith to make that necessity clearly obvious by at once increasing the price of the loaf. Happily, owing to the action taken by Canada, it was not necessary to go quite so far as was at first estimated, and the price of the loaf, as your Lordships know, was increased by one penny. That is a very considerable burden on those households in which young adolescents are particularly prominent, because they are the section of the community who eat the most bread.

There is, however, another very obvious necessity. If, owing to the revaluation of sterling in regard to the dollar, we are to increase sales in the dollar areas, clearly we must have access to the dollar markets. It is impossible to increase our sales in the dollar areas unless there are arrangements in regard to prices and other adjustments which make it possible to do so. I shall return to that in a minute or two in respect of the recent action of the President of the United States. Before I come to that, however, I would like to say a word about what is to me, speaking as an ordinary Englishman, the rather objectionable practice which sometimes we have noticed a good deal—namely, our habit of national disparagement. There are some people, and from time to time they find their place in the Press, who seem to take an unholy enjoyment in running themselves down—a practice which, without a doubt, has a decidedly adverse effect.

I was very interested the other day to see a table in the Economist, a paper which is by no means always friendly to His Majesty's Government, which dealt with this particular aspect of our activities. As we shall see in a minute, the disparity between the sterling and dollar areas is not a new fact at all. According to the table in the Economist of the 13th August, I see that before the war—that is to say, in 1938—we paid for only 27 per cent. of our imports from the dollar areas by our own exports to those areas. This table, which I hope some of your Lordships will take the opportunity of studying, reveals a very remarkable fact as affecting British production, which is so often disparaged. There is a list of the Marshall Aid countries and the table shows the proportion of their own imports from the dollar areas paid for by their exports to those areas before the war and during last year. In the case of France these figures are given: In 1938 she paid for 39 per cent. of her imports from those areas; last year she paid for only 14 per cent. Denmark formerly paid for 55 per cent. by her exports; last year she paid for only 39 per cent. And so I could go through the list of countries, though I will not burden your Lordships with it in detail. It is a remarkable fact, however, that whilst in 1938 Great Britain paid for only 27 per cent. of her own exports by imports she had from the dollar areas, last year she paid for 36 per cent. This is the only country in the Marshall Aid area which has increased the proportion of payment for purchases made by her own exports to that area. As the Economist rather appropriately says: There could hardly be a more triumphant statistical vindication of the commercial efforts that Britain has been making. So far from 'dragging its feet.' Britain is the only one of the Marshall countries that is earning a higher proportion of its dollar requirements than before the war. I think that is something to be very proud of. Therefore do not let us take too much notice of these Jeremiahs who, as I say, seem to take an unholy joy in running down their own country. However, that does not affect the fact that it was only 36 per cent., that there is a very big gap, and that during the second quarter of this year that gap was increased.

It is not simply a question of costs, although that clearly is a most important item. Before I say anything on what happened at Washington, may I refer to a criticism about which I can well believe, having had the advantage of seeing the list of speakers, that I shall hear something to-day and to-morrow—namely, that part of high cost is caused by high Government expenditure? Nobody will seek to deny that high taxation and high charges necessarily have to be incorporated by manufacturers and industrialists generally in their costs. That is clear; and it is, and must be, an element to he reckoned with. So it behoves us to do what we can, within limits which I will mention in a minute or two, to reduce that share of the charge. Prodigious capital expenditure has been incurred by this country, during the last four years, quite properly, in view of the enormous amount of reconstruction which has taken place, and it may be that there will have to be some abatement of the pace. But we have to remember that the capital expenditure which has been incurred in the last four years has been a very important element in enabling us to export more than we have ever done before. Therefore do not let us lose sight of the fact that this expenditure on capital equipment, great and heavy a burden as it is, is an essential ingredient in our economy.

I will avoid introducing any more polemical a note than I can help, but when I hear critical statements about our high Government expenditure I often ask myself: what expenses would our critics reduce? I have had the advantage of studying the important brochure which has been issued in the name of the noble Lord opposite. I was very disappointed, and I make no secret about that. It did not give me the guidance for which I had hoped. Apparently there is no disposition to reduce expenditure on defence, which amounts to a prodigious figure, especially as we have had to increase the amount by more than £100,000,000 over what was anticipated. Would our critics reduce food subsidies? That, again, is a terrific burden. Those two items together amount, in the aggregate, to not far short of £1,200,000,000. Then there are pensions, health services, education and so forth. It is no use talking vaguely. If the Government are challenged to reduce their expenditure in order to enable industry to have lower costs, I think it is not unfair that we should invite suggestions from our critics as to what they would do without. So far singularly little has been heard from them except denunciation. That is all I say on that subject.

Let me now come to the Washington discussions. Whatever other differences there may be between us, I think we shall all agree that those discussions represent one of the most fruitful and friendly international conferences which have ever been held. The decisions arrived at will be of long effect. Some of the action which was taken there will, of course, give a substantial measure of temporary help, while some of it will be of a more permanent character. I would like to remind your Lordships of one or two items that are concerned, and in doing so I shall refer to certain paragraphs in the Joint Communiqué on the discussions. As I said a few minutes ago, it is hopeless to expect that we shall be able to sell more in that market unless it is made possible for us to do so, by tariff adjustment or otherwise. That is a matter which is referred to in both paragraph 6 and in paragraph 11 of the Paper. Yesterday the President of the United States gave practical effect to what is referred to in those paragraphs by signing the Reciprocal Trade Agreements Act, I am sure your Lordships will all have noticed with great relief that he said: We must reduce our own barriers wherever possible to permit our people freest access to foreign goods they may want to buy. That is one of the fruits of the discussions at Washington, and I am sure that it is a matter of long-standing and great importance.

Another paragraph in the Paper which contains something that I think is also likely to be of long-standing importance is paragraph 12, which relates to what is called discrimination. As your Lordships are aware, Clause 9 of the Loan Agreement required that we should not discriminate in our purchases as between the United States and other sources of supply. But it depends what is meant by discrimination. If we have not the dollars to buy any particular class of goods in one place but have the sterling to enable us to buy goods of that class in another, clearly it is a recognition of necessity and not an act of discrimination to buy the goods where we are able to pay for them and refrain from buying them in a market in which we cannot pay for them. There is a very important sentence dealing with that, the effect of which, I am glad to say, is already beginning to be felt. In paragraph 12 we find this: It was the view of the United States and Canadian delegations that such liberalisation of United Kingdom import regulations should be considered since the United Kingdom shortage of dollars should not in itself force the United Kingdom to reduce its purchases from areas with which it does not have a shortage of means of payment. That is a very important statement indeed. It means that we shall have a great deal more liberty in respect of purchases from some areas than we had before.

Another highly important result of this conference is referred to in paragraph 10. It had been arranged that Marshall Aid dollars were to be expended, within certain limits, on United States goods, although it was a fact that certain dollars were available in our economy which it would have been to our better interest to spend elsewhere. Paragraph 10, a very important paragraph, states that: It has been agreed that, in order to carry out the basic purposes of the Economic Cooperation Act, it will be necessary for the United Kingdom to finance with its share of E.C.A. funds a wider range of dollar expenditures than has hitherto been eligible, both within and outside of the United States. What that means is that we are able to use Marshall Aid dollars to pay for a large quantity of Canadian wheat. That is an immense help.

Another important contribution to the alleviation of the present situation is the decision to increase United States purchases of certain commodities, which are referred to in paragraph 9. May I say a word about this matter? A part of the decline in our dollar receipts in the first and second quarters has been due to the diminution in the purchases of rubber, tin, wool and other primary materials usually supplied from their countries of origin on a basis for which dollars were paid. The temporary cessation of these purchases very much enlarges the gap, and steps are now in hand for their resumption.

May I now say a further word about some other difficulties that have often been discussed? I think we are all agreed that it is important in world recovery that there should be stability of prices for primary producers. That principle is embodied in the International Wheat Agreement, which puts a floor and a ceiling to wheat prices for the next four or five years. As one who has for a long time advocated stability of prices for primary producers, I regard this as a most beneficial arrangement—I am not criticising the particular figures; I am speaking of the principle. If that arrangement is desirable and right for primary producers of wheat, surely it is equally reasonable and right for primary producers of tin, rubber, wool and other commodities.

Another very important result of these discussions, which is referred to in paragraph 8, is the suggested increase in United States overseas investments. I will not quote the paragraph, but will merely refer your Lordships to it. We all know that in the last century, when this country was the greatest manufacturing country in the world, we did not always obtain a balance of international payments; indeed, we very seldom did, and the practice grew up of investing our excess abroad. For example, part of the excess was spent in building railways in South America. I do not know whether they have all turned out to be very remunerative so far as we, the investors, are concerned, but they were the means whereby current trade was kept going, and in this document that fact is recognised with regard to the immense surpluses held by the United States. That is a great comfort.

Some of the results of the Washington talks will, of course, be only of a temporary character; but others will be permanent and important. Notwithstanding all these adjustments, it remains a fact that the deficit between the dollar and sterling areas is of very long standing. There was a large deficit before the war. In fact, there has been a deficit since almost the end of the First World War, although it was to some extent made good by unseen receipts, such as shipping, investments and other services. These, of course, have gone. Speaking now entirely for myself, on the arithmetic put before me I have never been convinced that there is a near prospect of a balance between the sterling and dollar areas, if we all buy what we want. That is a very important qualification. We cannot accept, I think, that it should be past the wit of man to devise ways and means whereby there can be an exchange of goods and services wanted by both parties to the advantage of both parties, without that exchange being restricted by an artificial arrangement. Therefore, I regard paragraph 15 of this Paper as one of the most important of all, because it is there set out, I am glad to say, that there shall be between us a system of continuing consultation. A highly authoritative body has already been set up between ourselves, the United States and Canada to deal with the difficulties that arise out of this situation and to keep them continually under review. I hope and believe that before long that body will have made some workable suggestions for dealing with this deficit between the sterling and dollar areas. Do not regard this simply in terms of Great Britain. Of course, we are the banker for the whole of the sterling area, but it is impossible to exaggerate the promptitude and helpfulness with which the members of the Commonwealth have participated in this matter, as they will continue to do in all directions.

There is before us now. in this revaluation, a special effort to stimulate our exports to the dollar areas, but we shall not realise the benefits of this step unless exports to those areas can increase more than sufficiently to account for the fewer dollars we receive for the same number of goods. It calls for a prodigious effort. In view of the disabilities from which we have suffered during the last four years, when we had to begin from the immense destruction of the war, and in view of what we have accomplished, I am convinced that we can achieve this increase if we put our backs into it in our characteristic national way. But it means that there will have to be a combined effort and a determination not to increase wages, costs or profits so far as to inflate our prices in the overseas market. We shall also have to improve our selling methods.

Our major objective in this proposal is that matters shall be dealt with in such a way that we shall be able to maintain employment and the standard of living of the people. These are the governing objectives so far as we on this side of the House are concerned. I have painful and acute recollections of the crisis of 1931, in which I was concerned all through. I was one of the seven members of the Cabinet who dissented from the method which was then adopted. That was the opposite method to that adopted to-day. It was the method of, shall I say, forced deflation, where wages were forced down, with the idea, I suppose, that ultimately our prices would be so reduced that we could compete with anybody. We all remember the disastrous years of misery and unemployment that followed. I well remember that Mr. Snowden, who was then the Chancellor of the Exchequer, did his best to persuade some of us that we ought to go out and convince the unemployed that they would be helping the country by taking ninepence a week less. Their then receipts were 17s. 6d. a week. I was one of those who refused absolutely to have anything to do with that method.

The alternative, and the only alternative, is greater production, both from our land and our factories, at prices which will enable us to sell. As I said a few minutes ago, it is right that we should retrench as well as we can anything that adds to the costs; but it is vital, so far as it is possible, that there should be an obstinate refusal by both parties to increase wages costs and to increase profits, or to take advantage of the great manufacturing effort which will be called for by the demands of the dollar areas under this scheme. There is one exception with regard to wages: in view of the increased cost of living there may have to be special arrangements for the lowest paid class of workers. It is not to them that the appeal can mainly be made. Clearty there is an overwhelming necessity for everybody to refrain from increasing costs, as increased costs would defeat the whole purpose of the scheme.

There are other important steps which I think we must take. Our methods of sale are very good in some dollar areas, but they are not at all good in others. As we all know, there is room for great improvement in some directions. In some industries—and parts of the textile industry are involved—there is considerable room for improved management and for the economies that will flow from it. The increased production and sale of things that people want to buy is the only, way in which we shall be able to purchase the supplies necessary for our industries and to maintain employment. It is only thus, therefore, that we can secure continuity of employment and the ability to buy sufficient food to maintain the standard of life of the people. Finally, we are determined, with the co-operation of all the people, by this instrument to maintain those services for the children, the aged, the sick and the unfortunate for which this country is the pioneer amongst the nations. I beg to move.

Moved to resolve, That this House approves the action taken by His Majesty's Government in relation to the exchange value of the pound sterling, supports the measures agreed upon at Washington by the Ministers of the United States, Canada and the United Kingdom which are designed to assist in restoring equilibrium in the sterling-dollar balance of trade for the purpose of enabling the economy of the sterling area to maintain stability independent of external aid; and calls upon the people for their full co-operation with the Government in achieving this aim, whilst maintaining full employment and safeguarding the social services."—(Viscount Addison.)

3.14 p.m.

VISCOUNT SWINTON

My Lords, even if the noble Viscount the Leader of the House were not so personally popular with all of us as he is, I do not think there is anyone here to-day who would withhold from him the full measure of sympathy—for which, indeed, he asked—in the duty which he has been called upon to discharge. We regret the absence—I hope only for to-day—of the noble Lord, Lord Pakenham. We regret still more (it is not due to ill health) the absence of an even more distinguished member of the House—namely, our noble leader on this side. I think all your Lordships are aware that the noble Marquess, Lord Salisbury, is fulfilling a very longstanding engagement to lecture in Canada.

It was undoubtedly right to recall Parliament as soon as possible. We are faced with a situation of unprecedented gravity. One member of the Government, a junior Minister, has said that Britain is on the brink of a terrifying chasm. I do not think that is an overstatement. The situation was serious enough when we separated, and since then it has deteriorated further to such an extent that the Government have felt obliged to devalue, a step which the Chancellor of the Exchequer had repeatedly said they were determined not to take. I can well understand the point which has been made, that no Chancellor of the Exchequer can announce in advance that he is going to devalue. The noble Viscount the Leader of the House rather prided himself and preened the Government on the success with which the secret had been kept. But that really is not the point. The point is this. If I followed the noble Viscount's speech aright, he seemed to be representing to us that devaluation is, if not a triumph of policy, at least a very good thing. I must say that I was surprised to hear that. The Chancellor of the Exchequer and all his colleagues and supporters have vehemently opposed devaluation on its merits. No one has pointed out more cogently than the Chancellor of the Exchequer the dangers and the disadvantages of devaluation. Now that it has been done, and done more drastically than any advocate of devaluation had anticipated, Parliament and the country are entitled to the fullest information.

The noble Viscount who opened this debate has spoken—he devoted a large part of his speech to it—of the success of the Washington Conference. Let me say at once that I think our representatives there were met in the most friendly and helpful way by the representatives of the United States and Canada. Substantial concessions were made in the present arrangements which will be of considerable temporary benefit—namely, the right to use Marshall Aid dollars for Canadian wheat and the increased stock-piling. These concessions are certainly valuable. But I think most valuable of all, provided that we can create the conditions in which it will bear fruit, is the creditor nation attitude which the United States Government adopted throughout the discussions. Customs administration and high tariffs inconsistent with the position of a creditor country, are to be reviewed, and there is a readiness to encourage American investment in the United Kingdom and the Empire. The noble Viscount quoted President Truman's further words when he gave his assent to the continuation of the Reciprocal Trade Agreements Act. All that is of real advantage and a solid manifestation of good will. But, helpful as all this is, and much as we appreciate their co-operation, nothing that happened at Washington has really changed the stark facts of the situation. All depends on ourselves, and the time is short.

The Government have now tabled a long Resolution which has not been read to the House, although all your Lordships will have read it. Surely, what Parliament and the country need is a great deal more information than they have had, and I submit that we should have that information under three heads. First of all, the circumstances in which devaluation has taken place; secondly, the probable results of devaluation and, thirdly—and most important of all, and upon which the Leader of the House was conspicuously silent—what is to be the Government policy in the future. On all these we need much more information than was in the Chancellor's rather strange broadcast or, if I may respectfully say so, in the speech to-day of the noble Viscount the Leader of the House.

Let me take first the circumstances of devaluation. In effect, what the Government say is this: We thought devaluation most dangerous and to be avoided at all costs if possible. It was our policy to hold the pound. We found we could not do so; the gap was widening; the gold reserves were slipping nearer and nearer to exhaustion; we could not restore confidence, and so we had to devalue. But does not that show a terrible lack of foresight and judgment —a sort of Micawber-like attitude of hoping that something will turn up? I hesitate to revive old memories, but there is something unpleasantly reminiscent of Mr. Shinwell and the coal crisis. Everyone in the country, as Mr. Shinwell said, knew that there was going to be a coal crisis—everyone, that is, except the Minister—and the coal crisis came. I hardly like to complete the syllogism. Surely all the facts that made devaluation inevitable in the middle of September were apparent in July, and if we had to devalue, surely that should have been done in July, if not earlier, thereby saving another two months' drain on our gold reserves and dollars.

The Resolution before your Lordships is: That this House approves the action taken by His Majesty's Government in relation to the exchange value of the pound … I should have thought that even the Government themselves would have chosen the word "accept" rather than the word "approve." May I take a parallel, which I think the Leader of the House will appreciate? If a doctor, by faulty diagnosis and wrong treatment, reduces his patient to a state in which the latter has to undergo a serious operation to save his life, the patient accepts that as a painful necessity; but he can hardly be asked to approve. He usually changes his doctor—I am not referring to the noble Viscount in his professional capacity. I am sure that he never found himself in such a situation, except possibly as a beneficiary by an exchange of physicians. I do not think my analogy is at all far-drawn or inapt.

Now I come to the consequences of devaluation. Of course, it is an accomplished fact, and we must to the fullest extent possible avoid or minimise the disadvantages arising and must exploit to the, greatest possible extent any countervailing advantages. Wise policy, hard work and united effort can do this. Nothing else can. But surely it would be misleading not to face the facts and appraise the resulting situation frankly and fairly. A false optimism, underestimating the consequences, would be wrong and dangerous, and in his broadcast the Chancellor of the Exchequer did not err on the side of frankness. We all l now that one of the attributes of a skilful and successful advocate is the art which conceals art. Listening to the Chancellor of the Exchequer that Sunday night, and re-reading the speech afterwards, I was driven to the conclusion that there is another attribute of a skilful advocate; that is, the truth which conceals truth. After all, it was a most extraordinary speech for one who has repeatedly emphasised the disadvantages of devaluation and the higher prices that we should have to pay. The general impression created must have been that the only increase would be an increase in the price of bread.

I want to be perfectly fair, and I will read the Chancellor's words: Apart from this increase in the price of bread, there should not be any noticeable increase in other retail prices, at any rate for the time being. Over the next few months there may be some justifiable reason for an increase in the price of a few articles which are made mainly from imported dollar raw materials. But if we look beyond retail sales from stocks, prices must depend upon the cost of production and the proportion and price of raw material in production costs. I am quite certain that it will be the aim of industry to keep production costs as low as possible, but raw material prices are outside the control of any manufacturer; and the raw materials affected enter not only into a few articles—they enter into a great many articles. The day after the Chancellor broadcast the Government raised the prices of nonferrous metals. Copper went up from £107 10s. to £140 a ton; lead from £87 5s. to £122; zinc from £63 10s. to £87 10s. and aluminium from £93 to £112. Those are raw materials which are used not in a few articles; but in a very great number. And in some cases their cost represents a material part of the cost of manufacture. They go not only into great engineering products, capital goods, but also into masses of consumer goods.

Then there are other materials which are paid for in dollars—for instance, cotton, which has already gone up in price (there was no mention of that) and timber. I do not know w hat the price of timber will be. And it does not rest there. I want to ask: What is the expectation or the intention with regard to other raw materials coming from sterling sources—for example, rubber, vegetable oils and oilseeds, cocoa, tin and wool? According to the Chancellor's broadcast, these ought not to be affected at all. But is that reasonable? It is so important that we must not gloze over these things. We all want to make the necessary efforts on this, but we shall make a much better effort if we base ourselves on reality and face facts.

Take tin. I understand that in the last day or two the Ministry of Supply have raised the price of tin (I am not saying that it was wrong to do so) from £569 to £739 per ton—that is to say, about two-thirds of the mathematical increase of the equivalent dollar price. But if the prices of these commodities are held at the old sterling level—and it does not look as if they will be—then so much less will be earned in dollars and the gap will widen further. On the other hand, if the price is raised in whole or in part to the present dollar equivalent, as has already been done by the Government in the case of tin, the sterling costs of these commodities to the using industries in the United Kingdom will increase accordingly. And, of course, it is not just a question of a few articles but of a great many articles which in a greater or less degree will be affected. Moreover, the effect would be felt not only in home sales but in export sales as well.

In 1931 a good many of these prices did not rise, at any rate for some time; we were successful or fortunate, or both, in holding prices. But there was then a wholly different situation existing in the world. In the case of a great many raw materials there was a surplus, amounting in many cases to a great glut: it was so with sugar, tin, rubber, vegetable oil and oil seeds, and even tea. That is not the position to-day. Except in rubber, and possibly in tin, I doubt whether there can be any surplus. We have been told that we must develop other resources because the world is short of these things. So the position is quite different.

Then there is meat. Nothing has been said about meat. I want to know about it, and I want to ask a special question with regard to Argentine meat. What are the terms of the Government's contract for current supplies of Argentine meat and for the future? Similar questions arise as regards feeding stuffs, which should come from the Argentine and which are very important to our farmers. I read yesterday in The Times, as "from our Argentine Correspondent" that the Argentine Finance Minister had said that his Government had presented a Note claiming an increase in the price of meat and other commodities, the prices of which were fixed last June. I think we ought to have a statement from the Government as to what the position is.

It looks to me as if here once again we were up against the disadvantages of Government contracts and bulk purchases. We have repeatedly pointed out the disadvantages, and how in these transactions it always seems that, if the contract happens to run in our favour (and that does not often happen), we find ourselves faced with a claim to reopen the contract on political grounds. I hope that it will be part of new Government policy in the future to get back to the normal channels of trade. I am going to show how important that is, not only from the point of view of the cost of living but of increased business and of increased confidence in our currency. I am glad to see that the Metal Market is to be allowed to operate again in tin—but I hope that will not be all. Why not reopen the Liverpool Cotton Exchange? These markets know the business. They could not have existed unless they had in the past met business requirements; and they met the business requirements not only of this country but of all the world. They would meet the needs of our manufacturers and earn invisible exports; so their restoration would do a great deal to restore our trading position. Foreigners would do their business here and do it in sterling, and that would help to restore confidence in the pound I think we are entitled to a much fuller Government statement, and I hope that we shall have it to-day or to-morrow, on the probable effect of devaluation on commodity prices, dollar and non-dollar.

I come to the third aspect on which we are entitled to more information, and in our grave situation I think it is the most important. What is to be the policy of the Government? I listened with the keenest attention to the speech of the noble Viscount the Leader of the House and I could not find even an indication of what is going to be Government policy in the future. I listened with a desire to help and support if there was anything I could support, but there was nothing at all: there was only a void. There was no information—except about the fact of devaluation. But devaluation is not a policy, and the Government certainly have never pretended hitherto that it was. Devaluation by itself, and particularly in the circumstances in which it has been forced upon us, is not a policy; it is a confession of weakness and of failure. I observe that one member of the Government, Mr. Griffiths, the Minister of National Insurance, in seeking to commend or excuse the Government to the Socialist Young Guard in Butlin's Camp —who seem to have been austerely treated by British Railways—said: We devalued the pound rather than devalue men. I do not know whether Mr. Griffiths attached any meaning to that rather odd pronouncement, which is presumably a variant of the curious and unfounded claim that the Government should have credit for full employment since the war.

Even the Chancellor of the Exchequer, who is much more cautious that some of his colleagues, in a rather tendentious passage in his broadcast, yielded to the same temptation. For greater accuracy I have procured a copy of his statement. He said: We"— that is, the Government— have so far since the end of the Second World War prevented the heavy unemployment that threw a deep shadow over so many of our homes in the years between the two wars. I wonder how many of you realise what a hard and difficult struggle it has been to maintain that full employment. There was some echo of that same theme in the speech of the noble Viscount today. In Lord Balfour's words, that is "in no near relation to the truth."

Surely, full employment in the last four years has been due to two things: first a sellers' market in a world starved for seven years of everything in the nature of capital goods and consumer goods. The world was ready to buy anything there was for sale. That position is ending—if it has not already ended. Secondly, there was the generous aid from the United States and Canada, without which, as Ministers themselves have said, there would have been 1,500,000 unemployed to-day. I stress this matter because it is very important from every point of view that we should all appreciate what American aid has meant to us. Of course, we on all sides of the House realise it, but I doubt whether there is yet a nation-wide realisation of the great debt we owe to the United States and to Canada for their help. Economics is an abstruse subject and many have still not realised that. but for this help, freely voted by the American and Canadian peoples at their own expense, they would be out of work. In addition, there is a small but vocal minority who have not hesitated to charge the Americans with ulterior motives, not even giving them credit for enlightened self-interest, and to attribute to them misfortunes of our own creation. That is indeed biting the hand that feeds us. I am sorry to say that these people enjoy a publicity here and, unfortunately, in America too. out of all proportion to their influence. I hope that our American friends will appreciate how small and unrepresentative that minority is.

To appreciate what we owe to America and to Canada is essential to an understanding of our own position and the efforts that we must ourselves make. It is also important from the point of view of our selling campaign in those countries. Good will counts for a great deal in business, and we shall certainly be more successful in gaining customers if those customers know our gratitude as well as our need. Nor is it without its effect on the inflow of tourist traffic, the willingness of people to come here and the spirit in which they come and in which they leave. These things are really important. This is a very human world—at any rate, outside the Iron Curtain—and these human things count for a great deal in every walk of life.

I am quite sure that there is a great potential market in the United States but—and here for once I find myself in agreement with the Leader of the House—our goods will not sell themselves. Salesmanship in America is efficient and also expensive. Not only have we to understand the varied requirements of that market, but we must have sales organisations which in publicity and service will sell our goods. In this regard not only must industry combine in study and action, as I am sure it will—some good and increasingly good work is being done by the Dollar Board—but the Government should be ready to give a generous measure of initial help in these selling campaigns. That expenditure could be recovered out of subsequent sales, and I think it would be, because, after all, expanding our dollar sales is not a temporary expedient. It is necessary to do so as quickly as we can, but it is and always will be a long-term policy. So it is doubly important that the foundations should be well and truly laid.

I want to throw out one other suggestion. It is very important that stocks should be available whenever they are wanted in America. To carry stocks is expensive. During the war we in the U.K.C.C. devised a scheme for the Argentine which was complete. Sir Percy Lister was responsible for it. The effect was that warehouses were provided on special terms and stocks could be carried in bond until the mercantile houses wanted them, and the whole was carried on as an insurance policy by the Export Credits Department. It did not work for long because everything had to go into the war effort and there was little to export—everything had to be turned on to the making of munitions—but if the Government will look at it I think they will find it a very useful precedent. It was worked out in its entirety—not only in theory but also in practice. Something of the same kind might be useful in the dollar markets.

In view of what the Leader of the House said, I must say something else about the past, because he gave us an extraordinary account of what happened in 1931. There were a good many present who were in this business in 1931. To listen to the Leader of the House, one would suppose that under the Labour Government from 1929 to 1931 everybody was in full employment and that then there came a crash, a crisis, and the choice lay between continuing people in full employment or putting them all out of work. Really that again is "in no near relation to the truth." What happened was that from the moment the world slump started in 1929—it was unfortunate for the Labour Government that the world slump and their advent to power more or less coincided; I do not say that it was a case of cause and effect or even of contributory cause—they were completely impotent of any ideas of how to deal with the slump during the two years they were in office. Unemployment rose and rose, and it was because they would not face up to it that the Government split. Really the noble Viscount opposite must re-read his history and perhaps his diaries—for he has full access to the Cabinet papers. I beg him to go and consult the Cabinet records of the day. I should think he would find them interesting reading. If I also am allowed to see the records of the days before I became a Minister in that first National Government, I would like to read some of them, but perhaps I would not be allowed to see them!

But what was the real truth? Drastic steps were taken, not to put people out of work but to try to get people back into work. It is quite true that, after the National Government came in, employment rose a little in the few succeeding months. But to complete the story, as a result of the policy followed and the measures taken, 2,500,000 more people were in work in 1939 than when the Labour Government went out of office, confidence in the pound was completely restored and the pound could look any currency in the face. We had greatly increased our trade both within the Empire and with the outside world. I am not saying that we could not have done it better, though I think we did it a great deal better than the Labour Government did. I thought it was common ground that we all had a great deal to learn. During the last war we, in the Coalition Government, did our best to learn those lessons and to apply them in the White Paper on Employment Policy which owed so much to my noble friend Lord Woolton, who did much to prepare it and to present it to his colleagues.

Then there is the false accusation that we have decried the British effort. I am not sure whether the noble Viscount opposite wanted to apply that to us here or to somebody else—

VISCOUNT ADDISON

I did not wish to apply it to you.

VISCOUNT SWINTON

I am obliged. We have never decried or depreciated, here or outside, the British effort. On the contrary, we have consistently praised it. It is and has been a great effort, but it has got to be greater. It has been a great effort. To whom is that honour due? It is not due to the Government. It is due to the direction, to the management and workers in the industries who have produced the output and increased the exports. Where great progress has been made, and where exports have gone up is not in the industries with which the Government have tampered or controlled, but the non-nationalised and relatively free industries, of which steel is an outstanding example. I freely admit that we have attacked the Government where we considered that their policy was harmful and hindering, and have made what I hope has not only been destructive but constructive criticism. Surely events have shown how right we have been. So let the Government draw some distinction between criticism of the Government and criticism of the nation, and between criticism of the Government effort and criticism of the national effort.

I would ask: Since when has it become an offence on this side of the Iron Curtain to criticise government? More and more this Government adopt the attitude that any criticism of them is a form of lèse-majesté. This attitude of L'état c'est moi is not wholly democratic. So far as the Government are concerned I think the Chancellor of the Exchequer was much nearer the truth when he said this—again I quote from his broadcast We have sought to counter difficulties by a series of temporary expedients, which have led to a series of crises. The temporary expedients have failed. I ask the Government to-day, what is their permanent policy? We have been chided in the past for criticising extravagant Government expenditure and high taxation. But it is the Chancellor of the Exchequer himself who now says that Government expenditure must be reduced. In face of that it is idle now for the noble Viscount to get up and say" Where would you make a reduction?" We are not the Government. I hope we shall soon be, and then we shall have our answer. But I am asking the Government now: Where, and in what direction and to what amount, do you propose to carry out the policy which your own Chancellor of the Exchequer has said is necessary to-day?

Surely the overriding necessity is to restore confidence in the pound and to produce and export more. Economy and strict control of expenditure will do something. Dr. Dalton's squandering of the American Loan, his lavish expenditure, his reckless advance into convertibility and his even more precipitate retreat from it, undermined confidence in the pound and did damage from which we have never recovered. Indeed, while devaluing so drastically, the present Chancellor has not felt able to leave the pound free to find its own level. Surely that is proof that a changed policy is needed to restore confidence. Confidence can be rapidly restored and progressively maintained by sound policy and united effort. Our industry and trade are so varied that they need the skill and experience and the risk-taking initiative of everyone engaged in the complex network which links the purchase and supply of raw materials with every manufacturing process—the sale and distribution through the markets of the world, the merchanting, banking, broking, insurance and shipping. That combination made us the greatest exporters and the hub of the world's trade, and made the pound a universal currency. That combination can do it again.

We have workers whose skill and thoroughness are second to none; and we have unique experience. But there must be united effort and individual initiative. Both must be encouraged and given full play, and the Government have the chief responsibility. The Government to-day can make or mar by what they do, and perhaps more by what they refrain from doing. The Government's Resolution calls for co-operation with the Government. But what is the policy we are asked to co-operate in? Are we asked to co-operate in the policy which, in the words of the Government's own Minister, has brought us to "the brink of the chasm"? Are we asked to support the nationalisation of our most efficient industries? All industry and commerce will welcome the chance to improve and increase production, and will be anxious to expand their dollar sales and to find new outlets. Only the knowledge and varied experience of industry and commerce can do that. Give them their chance. But the Government must give them security and encouragement. How can the Government expect industries to concentrate on this great task, to take great risks, if at any moment they may be stabbed in the back?

Then there is the question of foreign investment. The noble Viscount rightly commended to us the passage in the record of the Washington discussions—the encouragement of American investment here and in the Colonial Empire. But what chance is there if the policy is to be more and more nationalisation? It will not be easy for America to play the part of a creditor nation in this respect. But the will is there. Surely it is for us to create the conditions in which that will can become the deed. Those conditions are security, an adequate return, and incentives that make risks worth while. The threat of nationalisation kills all that. I have no doubt what our aims shall be—that there should be one value for the pound the world over; and that an appreciating value. That can be produced only by confidence, confidence in ourselves and confidence of the world in us. That confidence must be founded on wise policy and resolute action.

My Lords, surely to-day there can be only these tests, by which any policy should be tried. Will it make our industry more efficient? Will it encourage incentive and risk-taking in industry and commerce? Will it make us all concentrate harder on our jobs? Will it unite us in teamwork and individual effort? Will it inspire confidence in the world? To any measures which stand those tests we will give our full support. But a policy which will not answer those tests and runs counter to those principles we must resolutely oppose, for our whole future is at stake. We cannot support this Government Motion. We cannot approve their conduct of our affairs in the past. We cannot express our confidence in their future policy, which so far as it has been disclosed to us would defeat the very aim we should all have in view. Confidence in our country, yes. Wisely and courageously led on sound lines, we shall certainly win through. This Resolution, on anything that has been said to us, we cannot accept. We shall therefore table an Amendment on the lines I have indicated, which will make our position clear and which, I believe, will commend itself to the House.

3.58 p.m.

VISCOUNT SAMUEL

My Lords, I do not propose to trouble your Lordships with any of the technicalities of this question of devaluation or with any statistical examples. I have not the competence to do so and, besides, my noble friend Lord Rennell, who deals as part of his daily avocations with the actual working and mechanism of the pound and dollar exchange, will be able to address your Lordships from this Bench to-morrow. He much regrets that a public engagement prevents his being present here today. Indeed, those technicalities are so many, the factors are so complicated and the outcome so uncertain, that even the experts are sometimes chary of forming an opinion. I remember reading some time ago, when the cotton market was fluctuating and anxious, that a group of Lancashire cotton manufacturing firms sent one of their buyers as their representative to New York to study the market, and to send them a report. After a few days, so it is alleged, they received this cable: Some think that cotton will go down, and some think it will go up. I do too. Whatever you do it will be wrong. Act at once. I fear that our best experts—at least I suspect that it is so—sometimes feel themselves to be somewhat in that position. For my own part, I propose to eschew any prophecies or appreciations and to deal only, in compact form, with the essential facts of the situation.

I think we must all agree that in the situation that had arisen devaluation of the pound was inevitable, and that the Government were right to take that step. At the same time, I for one regard that situation and that devaluation as a disaster, a disaster to the world at large and to this country in particular. I regard it as a disaster to the world at large because the stability of currencies, year after year, and, se far as possible, decade after decade, is a matter of very great importance to manufacturers and mechants. If they are constantly subjected to unforeseen and unforeseeable sudden changes in currencies, with the result that they may incur sudden losses, the risks of business, already great. are increased. That has to be insured against by higher profits and reserves; and that again is reflected in higher prices to the consumers everywhere.

To ensure the stability of currencies was the whole, or at least the main, object of the Bretton Woods Conference and of the establishment of the International Bank and Monetary Fund. Yet, so soon after their establishment, we see this sudden and drastic devaluation of one of the world's principal currencies. That is not only an evil to the world at large but also this country, for it must greatly shock confidence now and for the future in sterling. In our younger days we were all proud of the fact that London was the financial centre of the world. that the pound sterling was a standard medium of exchange and that it was so accepted universally. And this country gained immense economic and financial advantages, both direct and indirect, from that fact. Then came the first shock to the world, the shock which occurred in 1931, to which the noble Viscount the Leader of the House and the noble Viscount who has just spoken, have both referred. As it happens, by a coincidence, I am the third speaker and I was also somewhat in the centre of events at that time.

I was surprised to hear the noble Viscount the Leader of the House say in solemn tones to-day: "All your Lordships will have remembered the events of 1931 and the misery and unemployment that followed." The misery and unemployment that followed! What about the greater misery and greater unemployment that preceded that year? However that may be, the events of 1931 greatly added to the deterioration in the international position of Great Britain. And now, in 1949, comes this second shock. It is, of course, the duty of all Parties and of all good citizens to make the best of the present situation as it is, and to do their utmost to support the Government of the day—because, whatever its political character, it represents the whole nation—in any measures that are useful and necessary, as numbers of these are, to gain the greatest advantage that can be gained from the relief which comes from devaluation and to lessen, so far as possible, the detriment which must also come from devaluation.

The Chancellor of the Exchequer, Sir Stafford Cripps, has said that this is a step that we cannot and shall not repeat. But while a Government may say that, and may intend and wish it, and may resolve that it shall be so, if the economic factors remain the same as they have been the consequences will be the same as they have been. We have seen the pound depreciate from five dollars, which was its value for decades and decades, with only trifling fluctuations, down to four dollars after the last war, and now to well below three dollars. We have seen what has happened in countries which are near neighbours of ours—of which Frame is an unhappy example. There, having been compelled once, twice and three times to devalue, and finding that there if no adequate confidence in the future or the franc, they have been obliged, whenever difficulties of a serious nature have arisen, to devalue again until, step by stet, the franc, which used to be worth 10½., as we all remember, has come down it it worth only ¼d. in even our own depreciated currency. I believe that one of the ways in which this House can best assist or try to assist the Government is not to gloss over the seriousness of the situation and to say: "Now we are out o the wood and this great country can be relied upon to do in the future as it has done in the past, et cetera, et cetera, et cerera.." The best course is for us to try to guide public opinion by bringing home to the nation the stark facts of the situation. So what I have to say to your Lordships will be neither optimistic nor pessimistic, but strictly factual.

Let me first, in briefest outline, remind your Lordships of the main facts. They are all familiar, but often something which is familiar is for that reason easily forgotten. We came out of the war triumphant militarily, but exhausted economically. Most of our foreign investments had been sold, and so they were no longer bringing us any income; we found ourselves with an immense National Debt which requires nearly £500,000,000 a year td pay the interest charges—£485,000.000 to be accurate. In industry, equipment had to a large extent run down and a considerable part of our buildings were destroyed, while new normal building was from six or eight years in arrears. And while at the end of the war we hoped that we should be free from the immense burden of armaments, that we should be able rapidly not only to demobilise our Forces but to reduce them to a low level, the German Army and Navy having been entirely destroyed, we find, on the contrary, that we have to maintain again enormous Armed Forces. Great economic loss and a great drain upon our man-power has been caused owing to the uncertain conditions created by the unco-operative attitude of Russia. The situation in the Far East, in the Middle East and in Europe, obliges us now to spend no less than £760,000,000 a year upon our armaments. Lastly, there has been an entirely new item in our national budget of expenditure—food subsidies amounting to £465,000,000 a year.

All these are burdens upon the people that have been consequent upon the war. In addition, we have had the rapid effort to develop the welfare State, the purpose of which we must all approve. Many of the measures which have been carried I, for one, have been advocating for years past, as have my friends in the Liberal Party, and we cannot, for a moment, object to them in principle. We had the Coalition Government bringing in family allowances, and the raising of the school-leaving age. The education budget is now £225,000,000. The new National Health Service is absolutely right in principle. the old inadequate Health Service was a disgrace to the country, and there was an insufficiency of hospital accommodation, maintained only by begging around for voluntary subscriptions. But the cost of the National Health Service has proved to be far greater than even its authors expected. and now involves a charge of £260,000,000. Housing, again, involves an immense expenditure, largely owing to the extremely inadequate production of labour in the building trades and the excessive cost of the individual house. Housing costs £66,000,000. National insurance, national assistance and family allowances cost £380,000,000. Then there is the swollen cost of the administration of all these services. It is not only costly financially, but it is costly industrially, in that it withdraws from productive employments hundreds of thousands of persons.

There is no doubt that this Government, the first Labour Government with a majority—and with a large majority— keen, eager, inspired by a fine humanitarianism, were most anxious at once to carry out as many as possible of the objects for which they have been striving for years and of which they had been dreaming for years before that. Looking back, we can now see that that expenditure, in view of the economic circumstances of the time, was too lavish. It almost looks as if they felt they had money to burn. The enormous revenues piled up to pay for the German war remained on the credit side, and instead of reducing the immense burden of taxation by massive reductions, taxation has remained very much as it was, with the addition of levies of various kinds, like the capital levy of last year. All that might have been borne by the nation, were it not that at the same time the trade unions were active—naturally, perhaps, from their point of view—in improving the conditions of labour for their members. The coal miners established a five day week, and elsewhere that example has been followed. Shorter hours have been established in many industries, but that has not necessarily meant more rest and leisure for the workers and more vigour at their work, because it has frequently been followed by more overtime at higher rates of pay. which has increased the costs of production still further. Longer holidays with wages, have been established. All this has not been recompensed by any increase in the development of efficiency in industry and of output per worker such as has followed in America. The whole of this has been reflected in higher costs.

Higher costs seem to me to be the clue to the whole situation. If we fix our minds upon this question of costs, we shall be able to understand just what has been happening, is happening now and may continue to happen in the future. Last year, on February 24, I had the privilege of opening a debate in your Londships' House on the economic situation. I then addressed your Lordships almost solely on the question of high costs and on heavy taxation as a factor in keeping costs high. High costs for products raise the cost of living, increasing the economic costs of production and the prices of our exports, and that is the central factor in all our difficulties. The causes of these high costs are sometimes world prices, which cannot be laid to the blame of His Majesty's Government. Prices in America soared when the American Congress removed certain of the price controls, and the immense advantages which we have received from America in the form of the Loan and afterwards Marshall Aid have been in a considerable measure cancelled out by the rise in prices of American products for which we have had to pay.

Among the national causes there is, first and foremost, the immense burden of taxation—£3,000,000,000 a year. I think some of our economists are to blame for this. They have been advocating continually that taxes should be kept high, so that the people would have less money to spend and consequently inflation would be stopped; but I feel convinced, although it may be an impertinence for a layman to say so, that there is a considerable degree of fallacy in that. To keep the people poor is not the way to keep costs down, because, as a matter of fact, they have other resources. We may take away money in taxation, but people during the war years saved enormous sums. These savings are very liquid, and if the people want these commodities—wireless sets, or whatever it may be—they can withdraw their funds; and, as we see, there is a very large market in these commodities. We may take away a half of the income of the wealthier classes hut their capital has greatly appreciated. They do not of necessity alter their standard of living very much, but they draw upon some part of that capital appreciation. In various ways high taxation is not a successful means of preventing inflation. It may apply in certain directions, but it cannot be fully effective. At the same time the direct effect of high taxes is to raise costs, because firms which are heavily taxed put up their prices as much as they can to recoup the higher costs. Everyone, employer and workman, tries to keep up the standard of living to which he has been accustomed throughout his life, by charging rr101e for his services or for the goods he sells, in order to recoup himself.

The Chancellor of the Exchequer has recognised that, and I quoted in the debate last year a statement which he made. The Chancellor of the Exchequer said: There is always a tendency for expendable incomes to rise whenever possible to counter the taxation effect. There is no doubt that very high taxes have tended to keep up prices, and since that affects everybody in equal circumstances equally, competition does not come in; everybody joins in the rise of prices. It may be said, however, that most of it comes back to the Government. The immense taxation upon income means that often half of the individual merchant's or financier's income is taken away in taxes, and therefore it cannot make a great difference in the long run. But it does. Although half the income is taken away, the other half is not, and that income he receives and spends. All these are elements which, enter into the fixing of prices of goods in general. And so high taxes are reflected in high costs.

We are all actors and audience in a grim drama, and the villain of the piece in this economic drama is, to my mind, the high prices. If we learnt that the general prices of commodities at home and abroad were gradually falling and had fallen 10 per cent. within a year, it would be an immense relief to everyone: we could lower the food subsidies and the costs of production without debasing the standard of living of the workpeople. On the other hand, if prices were to rise 10 per cent. all round, it would be a colossal burden on the economy of lids country and of the whole world. I agree that devaluation at the moment is unavoidable, but I say it is a great disaster, because its effect must he in a great degree to raise prices still higher and to prevent their falling. The noble Viscount, Lord Swinton, who has just spoken and who speaks with the knowledge and experience of one who was President of the Board of Trade for many years, has given a number of examples of the ways in which the devaluation of sterling must have a most detrimental effect. While the Government say: "We shall never cut the social services; those must be maintained at all costs," they may in effect do so if they raise prices. They may raise the price of grain and they may raise the price of meat, and the financial effect upon those who are beneficiaries from the social services will be precisely the same as if the services themselves were cut. If the price of bread, meat and other things goes up, the effect in a family with a number of children is the same as if the allowances themselves were cut, say, by one shilling a child, or whatever the figure may be.

Then we have the question of wage claims. When the cost of living goes up, what will be the consequence in the working community? There was an able article in the Economist on September 24 which gave examples of the number of wage claims of importance which were actually pending before devaluation. The Confederation of Shipbuilding and Engineering Unions were demanding an all round increase of £1 per week per man, the cost of which would amount in total to up to £130,000,000 per annum. That is for one industry alone. The railwaymen put forward a claim, which has been rejected by the Board of Conciliation, for a fiat increase of 10s. per week per man and time and a quarter for Saturday afternoons. The building trade operatives are also making a claim to meet the high cost of living. Then a number of industries—among them iron and steel, boot and shoe, hosiery and building—with 1,500,000 workers, have their wage scales tied to the cost of living index. The moment that goes up their wages go up proportionately. Similarly with regard to the miners, who are claiming a revision of their cost of living allowances. Moreover, the nationalised industries are pressing for pension schemes. The Government have in fact resisted this pressure, and in doing so I am sure they will have the support of public opinion at the present time. The Trades Union Congress have been adopting a responsible and statesmanlike position. They have been endeavouring to resist these claims, being fully aware of the gravity of the situation and the impossibility of maintaining such advantage as there is from devaluation if the immediate consequence is a corresponding rise in production costs.

That concludes my survey. The fact is that our ship is trying to carry too much cargo and spreading too much sail. We cannot do all these things at once: we cannot make good the arrears of national equipment caused by six years of war; forgo our income from foreign investments; pay interest on the National Debt amounting to £10 a year for every man, woman and child in the country; endure the heavy drain on man-power and the vast sums of money that we spend on armaments in order to maintain our military position; pay nearly £500,000,000 a ear to subsidise the food of the people; pay for a large and rapid development of health, education and other social services, and at the same time shorten the hours of labour and lengthen holidays and, I must add, immensely increase profits on commodities. Profits on commodities are much too high, and they are the consequence very largely of the trading rings or price-fixing associations, which fix prices to give a reasonable profit to the less efficient firms, with the result that the more efficient firms cannot help themselves and make enormous and excessive profits.

All this might possibly be borne if we had harder work throughout the nation. more production, better machinery and equipment and efficient salesmanship. If, at the same time, we could only get freer trade throughout the world, and commerce on a multilateral basis such as it used to be, then indeed we might look forward to an increase in the total of national wealth. And conceivably one might even carry all that cargo and all that spread of canvas if we were sailing in calm seas and sunny weather. But that is far from being the case: there are gusts and storms and lowering skies which may threaten worse. Therefore, unless our production is increased, and unless our prices and costs are lowered, then exactly the same causes which produced this crisis will certainly produce another.

I quoted from the Chancellor of the Exchequer, who said that the Government "cannot and shall not repeat" this measure Of devaluation. But in July the Chancellor said that the Government had no intention of devaluing the pound. Yet now, in September, as Sir Stafford Cripps has said, they are taking a step which is contrary to what I stated on behalf of His Majesty's Government in July last. The Motion which is before your Lordships' House calls upon us to approve the action of the Government in relation to devaluation. What is meant by the words "in relation to"? Do they include the gradual development of the past situation, out of which devaluation has followed? And do they include the measures necessary immediately and in the future to prevent a recurrence? I do not think this House is ready to approve the handling of the financial and economic affairs of the nation during the last four years, which has undoubtedly contributed to create the present situation. If we are asked to give our approval to that, we must say "No." Then, again, is this House prepared to approve the measures which this Government are about to take, or are willing to take to redeem this situation? I listened with close attention, as did all your Lordships, to the speech of the Leader of the House, expecting that programme to be detailed; but all he mentioned were already published alleviations which had been arranged at the Washington conference, which are of great value, and for which we are extremely grateful to the United States, as we are also to Canada for her co-operation. We hope they may improve the conditions of trade with the dollar areas. In addition to that the noble Viscount said that the Government might have to restrict capital expenditure, as I understood him, on industrial equipment.

VISCOUNT ADDISON

I did not say that.

VISCOUNT SAMUEL

What was it?

VISCOUNT ADDISON

Restrict capital expenditure. I did not say on what.

VISCOUNT SAMUEL

Is industrial equipment excluded or included?

VISCOUNT ADDISON

You must wait and see.

VISCOUNT SAMUEL

We must wait and see! That is hardly a satisfactory undertaking. If it includes industrial equipment, then it may do much more harm than good. But the noble Viscount indicated that the Government contemplated no specific economies in expenditure.

VISCOUNT ADDISON

No, I did not. I said that we must exercise all the retrenchments that are possible—or words to that effect. I certainly emphasised that more than once. I agree that I did invite suggestions as to which of the major items should be reduced and, having listened carefully to the noble Viscount, I have received no assistance from him.

VISCOUNT SAMUEL

That is what I was coming to, because the main burden of—I will not say the noble Viscount's song, but of his dirge, was to invite the Opposition Parties to say what they would do if they Were in the place of the Government. But that is not our business.

VISCOUNT ADDISON

I do not want to be drawn into a controversy with the noble Viscount. I am only saying that when complaints are made about our expenditure—the noble Viscount is complaining—we are entitled to be told what it is in particular of which he is complaining.

VISCOUNT SAMUEL

We on these Benches think that there ought to be a complete overhaul of all items of expenditure. We do not suggest a particular cut in that commodity or this commodity. That is not the business of the Opposition Party; that is the business of the Government of tie day. Theirs is the responsibility of making suggestions. It is they who produce the Budget. It is not the business of the. Opposition to say: "If we were producing the Budget then we should do so and so." Put us in a position to produce the Budget and it will be done. As it is, the Government cannot escape their own responsibilities. Since we are asked to approve the measures the Government are going to take, while they do not tell us what those measures are—they merely reply, "What would you do?"—we can only say, when we come to deal with the Resolution now before the House, that it invites the House to express an approval of the past and a confidence of the future which we do not feel, and that therefore we on these Benches cannot support the Resolution.

4.32 p.m.

LORD PETHICK-LAWRENCE

My Lords, we have listened to polemic speeches from the two noble Viscounts who sit on different Benches on the opposite side of the House. Before I sit down, I propose to say something on the polemic aspect of their speeches, but I want to begin with a few words with regard to this question of devaluation, separated from the polemics which they have introduced into it. The speeches which I have heard to-day in this House —with the exception of one or two words which fell from the noble Viscount who is seated on the Front Opposition Bench, and the various comments that have been made in the Press and elsewhere have assumed that there were only two alternatives before the Chancellor of the Exchequer with regard to this matter of devaluation. They were either to resist devaluation altogether, or to devalue to some new fixed parity between the dollar and the pound. As a matter of fact, that is far from the truth. There were at least four courses which were open to the Chancellor of the Exchequer, and the noble Viscount on the Conservative Benches vaguely hinted at one of them.

The first of the other two courses which might have been adopted was to slip off the gold value of the pound and to allow sterling to find its own level. That, I think, might be described as purchasing power parity. It is not an academic idea, because that was in fact the method adopted in 1931; and it is an entirely different method from that adopted by the present Chancellor of the Exchequer. It is rather remarkable that no one has noticed that fact. The other method which might have been adopted was, instead of relating the pound sterling to the dollar or gold, that it should be related to the general price of articles. That is sometimes called the price index parity. That appears to be a more academic idea, but I may remind your Lordships that it was sponsored by the British representative (who was then Sir L. Worthington Evans) at the Genoa Conference in the 'twenties, and that it was carried by that Conference, I believe unanimously. Before I sit down I will deal with those two matters, and explain why I do not think they are suitable for the present time and why I support the action which Sir Stafford Cripps took in place of them.

I will now go into the first of the four courses which, as I have pointed out to your Lordships, were possible at the time —that is, the retention of the old exchange parity between the dollar and the pound. As I understand it, neither of the noble Lords who has spoken from the opposite side has really dissented from the decision to devalue the pound when the time came. What they said was that it became inevitable through the mistakes of the Labour Government, and I listened with great care to hear what those mistakes were. The noble Viscount on the Conservative Benches described them as faulty diagnosis and wrong remedy. But when I came to listen to what the faulty diagnosis was, and what was the wrong remedy which was adopted, I did not obtain such clear information as I had hoped. What I did get, after listening to the whole of his speech, was a tirade against the financial policy of Doctor Dalton. That was the only thing he said to justify his statement about faulty diagnosis and wrong remedy. It is a little late to go back to Doctor Dalton. He has been the target of the Opposition for a long time now. and I think we might let that subject drop.

VISCOUNT SWINTON

The evil which men do lives after them, alas!

LORD PETHICK-LAWRENCE

I still think it is a little late to raise that question, when we are discussing the causes which have led up to the present crisis. After all, two years have passed since that time, and for a year and a half of that period there seemed every prospect that we were getting even with the dollar-sterling, exchange. Up to the first quarter of 1949 the gap was being steadily reduced. It has been only in the last quarter that there was evidence that the gap was increasing. To allege that the whole of that was due to something which was done two years ago is distinctly farfetched and unrealistic.

The noble Viscount, Lord Samuel, took an entirely different view, and he went bald-headed for what the noble Viscount, Lord Swinton, rather skated over. He gave an account of all the expenses of the Labour Government, and though he told us that he was not going to specify any one item which ought to be reduced he thought there ought to be considerable reduction in the total. In saying this he seemed to me to be himself committing the precise ambiguity with which he twitted my noble friend the Leader of the House in the matter of a reduction in capital outlay. But though the noble Viscount was careful not to take and underline the precise items to be cut down, it was fairly clear from his speech upon what he thought we ought to spend less. He thought we ought to spend less on the social services; he thought we ought to spend less on the food subsidies, and he thought we ought to have resisted more strenuously, than has been done any suggestion of wage increases. I think it is perfectly clear from his speech that that was what he intended, though I entirely agree that he never specifically said so. We know, then, where the noble Viscount, Lord Samuel, stands, and we know broadly where the noble Viscount, Lord Swinton, stands, though he was a little more careful. He made some insinuations against my right honourable friend the Chancellor of the Exchequer, suggesting that he had economised a little with the truth, and perhaps made things too simple. I suggest that his speech was rather along those lines. So much for the attitude to this matter of these noble Lords. They attacked the Labour Government for the steps that led up to devaluation; they do not disagree with devaluation; and, as I understand it, they do not disagree with the amount of devaluation. Therefore, so far as the first few words of the Resolution are concerned, the noble Lords are, as I understand the matter, prepared to support it.

I said that I would say a word or two about other forms of devaluation which might have been adopted. I gathered that the noble Viscount above the gangway seemed to think that the method adopted in 1931 would have been better, but he suggested that the Chancellor of the Exchequer had not the courage to try that method. What was that method? It was, not to fix any value for the pound but to let it find its own level, its own purchasing power dictating its value—with the Treasury, perhaps as a rather careful nurse, pushing the perambulator from behind and preventing its going into the road. Now there are two things about that that need to be said. In 1931, sterling was the main currency, as opposed to the dollar; and when this method was adopted, practically the whole non-dollar world fell into line with sterling. The position to-day is different. All sorts of currencies are standing on their own feet. and it would have been too much of an act of faith to ask from all these other countries that they should accept the obiter dicta of the British Treasury and allow themselves to move with sterling with nothing more definite than the good intentions of the British Treasury. Therefore I do not think that the method adopted in 1931 would have been successful.

But there is another reason. It would have been too much to ask industry to have no definite ratio put before it from month to month. It is true that the single jolt that has been caused by devaluation is a very serious one, and presents some grave problems to industry. But it would have been much more serious if sterling had been left in the air and if the merchant never knew from day to day what would be the rate of sterling a month or two ahead. Therefore, I support quite definitely what the Chancellor of the Exchequer has done in this respect. It is interesting to notice that when we went off gold in 1931 I myself had been at the Treasury for a little while before, and my advisers told me in advance that if we went off gold in some such way as was actually done, they expected the pound to fall to 14s. in terms of its previous exchange parity with gold. In fact that was almost exactly what happened; the drop was almost exactly from 20s. to 14s.; and it is worth noticing that that is precisely the devaluation which the Chancellor of the Exchequer has chosen in the present instance.

The other scheme—that of the moving of the pound, not in terms of gold or of the dollar at all, hut in relation to an index of prices—a basketful of goods, as I once described it—is of a more academic character. It was, however, sponsored by a member of the British Government at the time and endorsed by the Genoa Conference. There are those in another place who take a strong view in favour of some such form of devaluation, but I do not think it could be carried through successfully. It depends upon a common agreement among the principal financial countries of the world; and that agreement is obviously lacking at present.

Let me go back to the proposal which was carried through by the Chancellor of the Exchequer. The circumstances being what they were, he had no option but to take the course he did. Of course devaluation is an evil. Nobody denies that devaluation is in the nature of a breach of contract. That is why a Chancellor of the Exchequer has to resist devaluation and submit to it only when sterling is forced off its parity. If I were asked what produced this position I should say that it was largely due to the difficulty of getting goods into the United States. It was due also to the disparagement, not of the Government—this Government have never complained of disparagement of itself—but of the efforts of the British people. I am not charging the noble Viscount with that, but he will not deny that there has been great disparagement of the British people and of the pound. And it is that which in the end has brought the matter to this critical situation. The noble Viscount, Lord Swinton, must realise, if he has read in United States papers the quotations that have appeared from British papers, interviews that American correspondents have had in this country with people who are opposed to the Labour Government, and so forth, the immense and continued campaign of disparagement of the efforts of the people of this country which has appeared in the United States as a result of what has been said in this country. That, I think, was the final step which rendered devaluation essential.

The noble Viscount asked what is the policy of the Labour Government in addition to devaluation. I should have thought the answer was perfectly clear. If the noble Viscount who leads the House, and who opened this debate, did not refer to it to-day it was because it has been said over and over again. The policy of the Labour Government is twofold. First, it is to ask all sections of the community who by withholding their labour, or by the misuse of the monopoly power which they possess, can hold the community to ransom, to hold their hand and not to pursue their claims at present. It is not a question of one class or one section. Doctors, lawyers, and many others of the professional classes, in addition to the workers, have the power to hold the community to ransom in order to gain additional advantage for themselves. The first thing which the Labour Government are doing is to ask all these sections not to press their claims, in view of the present financial position.

The second part of the Government's policy is this. They are asking the nation to recognise that if devaluation is to be a success there must be a great increase of production. There will, we hope, be doors which will be more open to British merchandise in the United States, partly owing to the splendid response made by the American Administration and partly owing to the devaluation. It means that if we want to close the dollar gap we have to send into the United States and Canada a vastly increased quantity of goods. The effect of the devaluation by itself means that in order to obtain the same number of dollars we have considerably to increase our production and exports. If we are to get more dollars, we have to increase them to an enormous extent. Therefore it behoves all those who are engaged in industry, from the top to the bottom, to put their backs to the wheel and help to push the coach forward as it has never been pushed before.

What is the incentive to that?—this is where I want to challenge the noble Viscount, Lord Swinton. What is going to be the incentive? The noble Viscount must know that there is a whispering campaign among large sections of his own Party—I do not say necessarily in this House or in another place, but up and down the country—which comes out in large portions of the daily and weekly Press and says" In order to get the means to compel the worker to work harder, you want the whip of unemployment."

VISCOUNT SWINTON

Who has said that?

LORD PETHICK-LAWRENCE

I said it was a whispering campaign.

VISCOUNT SWINTON

My Lords, I challenge the noble Lord. He is now accusing my Party and I presume myself. We are being accused. The noble Lord tells us that there is a whispering campaign. Let us have some evidence of it. He is slandering the Party which I represent in this House.

LORD WOOLTON

My Lords, may I go even further? We have deliberately and definitely denied it. On Saturday I said that it was a dastardly lie.

LORD PETHICK-LAWRENCE

My Lords, noble Lords opposite can wax excited about it, but it remains true that there has been a whispering campaign.

VISCOUNT SWINTON

I have not heard of it.

LORD PETHICK-LAWRENCE

I read the evening newspapers—for instance, the Evening Standard, and I read that very important paper The Economist, and in those papers the words have definitely been used.

LORD HAWKE

My Lords, can the noble Lord confirm that?

LORD FETHICK-LAWRENCE

My Lords, I cannot, give way to everyone. The words have been used, and it is a well-known fact that there is a whispering campaign. I am not charging the members of the Front Opposition Bench; I would not dream of doing so; but there has been a whispering campaign going on. Everybody knows that it is so. It is pure childishness to deny that there has been that whispering campaign.

VISCOUNT SWINTON

No.

LORD PETHICK-LAWRENCE

The noble Viscount may say that. He is perfectly entitled to put himself into a white sheet and say: "I have never countenanced such a thing." To deny that there has been this whispering campaign is to ignore what everyone knows to be the fact. Unemployment is not a solution to this problem. The way to get better work out of the British people is not to put into the driver's hand the whip which was used against them in the days gone by. It is true—and to this extent I find myself in agreement with the noble Viscount below the gangway and, I should say, with the noble Viscount above the gangway—that we have got to appeal to the people of this country for an even greater effort than has been made before to give us the increased output which is needed to solve the economic problems of the country. I have a tremendous respect for the good sense, the good judgment, and the willingness to respond of the people of our country. During the war the leader of the Conservative Party put his appeal into words which remain historic. He called on the people of our land to stand shoulder to shoulder. He said at the time that he offered no rewards; he offered no incentives; he demanded nothing but "blood and sweat." And why? My Lords, the reason was to preserve the political liberties of this country and the method of life of the British people. For that men gave their labour; they gave up wealth; they gave up fame; they gave their lives. Those of us who have survived owe them a debt which we can never repay.

To-day we are in a position of equally critical significance. We have to defend not the political liberty but the economic liberty of this country. We have to defend not the method of life but the standard of life of our people. Our social services, this welfare State, our full employment, are part of the things that we have to defend; and if we put it to the people of our country—the great, splendid, noble people—that they can defend them, not by dying but only by living and working for their country, I believe we shall obtain a ready response. The noble Lords who sit opposite, both below and above the gangway, cannot have it both ways. They cannot in one breath repudiate opposition to the great ideals of the present Government—full employment, the welfare State, a good standard of life—saying: "We are not against any of these things. We never had those things in our minds when we wanted to reduce the expenditure of the country," and at the same time take exception to this Resolution.

The noble Viscount said that the Resolution had not been read out to-day. I thought that he could not have read it himself, because he talked about being asked to support the nationalisation of industry and all the wicked things which he regards the Labour programme to be. There is nothing in this Resolution about supporting the nationalisation of industry. There is nothing about supporting the full policy of the Government. Let me read the salient parts of this Resolution —I do not think I need read the whole of it, but I will if necessary. It says that this House: … supports the measures agreed upon at Washington by the Ministers of the United States, Canada and the United Kingdom which are designed to assist in restoring equilibrium in the sterling-dollar balance of trade for the purpose of enabling the economy of the sterling area to maintain stability independent of external aid;"— that is the purpose. Then it goes on: and calls upon the people for their full co-operation with the Government"— in what? In nationalising industries? Nothing of the sort! in achieving this aim"— that is, restoring equilibrium in the sterling-dollar balance of trade— whilst maintaining full employment and safeguarding the social services. From what do the noble Lords dissent? They say emphatically, with their hands upon their hearts, that they do not dissent from maintaining full employment. They say that they do not believe in the social services exactly as they are to-day, but apparently they do believe —at least they say they believe, and I do not want to doubt their word—that they also would safeguard the social services. What is there to complain of in this Resolution? They are not asked to support the whole programme of the Labour Government. They are asked to unite in calling upon the people for their co-operation with the Government in achieving the aims that have been mentioned.

VISCOUNT SWINTON

My Lords, I will answer the noble Lord. I apologise to him, but I had to go out for a moment. How can we give support unless we know the policy? Of course nationalisation is relevant. The threats of nationalisation have done more to destroy incentive and to undermine confidence than anything else that has been done.