asked the Secretary of State for Foreign Affairs what discussions he has had with the British Council on the teaching of English in the Trusteeship Territory of Somalia.

asked the Secretary of State for Foreign Affairs what action is being taken to provide technical and cultural assistance to the Trusteeship Territory of Somalia.

As a result of inquiries which I caused to be made into the teaching of English in the Trusteeship Territory of Somalia, the British Council was invited on 1st April to prepare plans for the teaching of English there so that urgent consideration might be given to their financial implications. I understand that the plans will be available very shortly. The teaching of English is the first requirement. If this can be met, the provision of technical and cultural assistance can be considered too.

I am sure that the House will welcome that reply, but is the Foreign Secretary aware of the urgency of the matter? At the present time, English is being taught in the Egyptian schools as a method of attracting students into them.

I am aware of the urgency of this matter.

Can my right hon. and learned Friend say whether it is envisaged that a mobile cinema van will be made available shortly? There is a demand for it. Also, can anything be done to remedy the acute shortage of English books?

I will certainly consider both those matters. Of course, the difficulty is finance. We make a very considerable financial contribution to the Somalis by way of the British Protectorate. The problem is shortage of money.

Do I understand the Secretary of State's last reply to imply that we are in favour of the unification of Somalia with the British Protectorate when the British Protectorate becomes independent?

That question goes a very long way beyond the Question on the Order Paper.

asked the Secretary of State for Foreign Affairs if he is aware of the influence of the Press in promoting international understanding and moulding public opinion against war; and if he will take steps to devise a reciprocal plan whereby, before both the Prime Minister's forthcoming visit to the United States of America and the Summit Conference, the libraries of the Parliaments of Great Britain, the United States of America, and the Union of Soviet Socialist Republics shall each receive daily copies of the three leading daily newspapers circulating in Great Britain, the United States of America, and the Union of Soviet Socialist Republics, respectively.

The answer to the first part of the Question is "Yes, Sir."

So far as the second part is concerned, United States and Soviet newspapers are available in the Library of the House. I have every reason to believe that the principal British and Soviet newspapers are also available in the Library of Congress. I have no information about the newspapers available to the Soviet Parliament, but I will inquire.

Does not the Foreign Secretary realise that this is so important a matter that he should not suppose about it, but should do something definite? Is he aware that the cost of this proposal would be negligible compared with the enormous prospects of peace; that world peace depends upon understanding, and that it is his duty to do everything possible to promote it in the way that I suggest?

I thought that I had made a very forthcoming Answer.

asked the Secretary of State for Foreign Affairs to what extent the proposal of the Western Governments, dated 29th August, 1957, for the cut-off in future production of fissionable materials for weapons, would prohibit the production of all nuclear weapons from the agreed date.

As the proposals make clear, they would prevent production of nuclear weapons from any fissionable material produced after the date of cut-off.

Can the Foreign Secretary say what the position would be with regard to existing stockpiles of nuclear weapons? Would any such agreement cover the elimination of existing stockpiles?

In our proposals, which were put forward in August last year, we sought to make a modest beginning towards the diminution of existing stockpiles.

asked the Secretary of State for Foreign Affairs what evidence he has received of the withdrawal of Soviet troops from Eastern Germany; how many troops have been withdrawn and how many now remain in Eastern Germany; and whether he will make a statement.

On 6th January the Soviet authorities announced that 41,000 Soviet troops would be withdrawn from East Germany. Members of the British Military Mission to the Soviet forces in Germany have, by invitation, attended ten farewell parades in which some 6,000 Soviet troops were involved The Mission has been informed that other farewell parades are taking place to which it would not be invited. It is estimated that there are about twenty-two Soviet line divisions in East Germany and that the total strength of their forces there is about 350,000.

May I take it from that reply that the Minister is not in a position to say how many troops were withdrawn? Do I understand him to say that a farewell ceremony took place for only about 6,000? What is the total number of which he knows? Has he no definite information on this matter?

We know definitely of 6,000, but we also know that there have been other farewell parades. We therefore draw the conclusion that other troops have also gone.

Does the Foreign Secretary realise that it would be a most popular thing if this Government were to have a farewell parade?

asked the Minister of Transport and Civil Aviation when the British Overseas Airways Corporation intends to dispose of its D7C aircraft.

In consultation with British Overseas Airways Corporation, the Government are at present considering the future of these aircraft. As soon as a decision is reached, my right hon. Friend will inform the House.

Will my hon. Friend bear in mind that my right hon. Friend who is now Minister of Pensions and National Insurance gave an assurance to this House when these aircraft were ordered and paid for in gold and dollars that they would be sold back again for dollars when the Britannias were able to fill the bill? Will he give the House an assurance that very soon additional orders will be placed for Britannias, that the D7C aircraft will be sold and British aircraft put on the route?

I appreciate what my hon. Friend says, but, of course, since 1955, when this arrangement was made, the circumstances have somewhat changed, in that so far B.O.A.C. has had ten Britannia 312s delivered and eight are still to come. I will certainly bear in mind what my hon. Friend says.

asked the Prime Minister if he will give instructions to all Government departments, including the Post Office, that the City of Newcastle upon Tyne should be so designated in all documents, forms, and letters sent out by their local offices in that city.

I have been asked to reply.

It appears that the correct designation of the city which the hon. Gentleman represents is Newcastle upon Tyne. My right hon. Friend understands that requests have been made to successive Postmasters General to rectify their use of the name Newcastle-on-Tyne. The matter does of course concern other Departments also. However, my right hon. Friend is informed that the expense of rectification would be very considerable—more than would at first sight appear. While my right hon. Friend has every sympathy with the hon. Gentleman's desire that the proper designation should be used as fully as possible, he regrets that he cannot undertake to give the direction for which the hon. Gentleman asks.

While thanking the right hon. Gentleman for making clear what the name of the city is, may I ask him to appreciate that I am disappointed with the second part of the Answer? Could not he at least make a start by providing that when forms are used up, the new ones carry the correct name of the city?

It would, of course, be easier to make a start than to make a completion, because there are a great many complications, into which I myself have delved. Perhaps the hon. Gentleman would care for my right hon. Friend to write to him about some of the difficulties and to consider the suggestions made.

On a point of order. This Motion appears on the Order Paper in the name of the hon. Member for Lewisham, West (Mr. H. A. Price). We had hoped—and I hope that we are not to be disappointed—that there had been a reconstruction of the Government which, in any form, even by stealth, would be regarded on this side of the House as an improvement.

I very much regret that there was a misprint in an early edition of the Order Paper in which this Motion was put down in the name of the hon. Member for Lewisham, West (Mr. H. A. Price). A second edition has been issued. I can only express my regret to the House for the printer's error on this occasion.

I join with my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) in congratulating the Chancellor—perhaps this message will be passed to him—on the clarity with which he introduced his Budget yesterday. Indeed, his manner was such that at times he made even a flat and dull Budget such as this appear quite interesting.

It is the fourth Budget which we have had in two-and-a-half years and the fourth Chancellor we have had in two-and-a-half years, and the economic position is worse now than when the Lord Privy Seal introduced his autumn Budget two-and-a-half years ago. I notice that the Chancellor has now arrived. I make it clear that any reference I make in my remarks to the "late" Chancellor are a reference to the right hon. Member for Monmouth (Mr. P. Thorneycroft).

Yesterday's Budget presented the Chancellor with a challenging opportunity, and in our view he muffed it. He has produced this pathetic little mouse of a Budget. As the Financial Times said this morning,

"This is a Budget which will not be long remembered."

Even the Daily Sketch, which usually supports hon. Members opposite, refers to it as

"Crumbs! Daredevil Derick has a go!"

I do not intend to weary the House with comments on all the fiscal minutia which the Chancellor introduced into his speech, because there will be plenty of time for them on the Finance Bill. If I say nothing about irrevocable settlements, or the quick succession duty, or the enlargement of life interests, or methyl alcohol, or tithe redemption annuities or the Treasury Chest Fund, I hope that I shall not be taken as failing to show a proper appreciation of the painstaking way in which the Chancellor has been burrowing in the dusty pigeonholes of the Boards of Inland Revenue and Customs and Excise.

I should like to welcome the right hon. Gentleman's belated recognition of the needs of the cinemas and, in particular, his acceptance of the principle of the Amendment which we have moved year by year indicating that the cinemas with the lowest-priced seats were most in need of relief. On building societies, too, although he has not gone the whole way, he has accepted the argument put forward in the Amendment moved in Committee by the hon. Member for Hudders-field, West (Mr. Wade) and by ourselves on Report last year. This is welcome.

On dividend stripping, I see from the right hon. Gentleman's speech that, as we feared, the moles of the tax avoidance industry have burrowed underneath the barricades erected by the Lord Privy Seal in his autumn Budget, two-and-a-half years ago. We told him they would. At that time I asked the then Financial Secretary, now Minister of Housing and Local Government—although there seems to be some doubt about that this afternoon—for an assurance that the Government would deal retrospectively with any new and devious means that were discovered.

I am glad that the Chancellor has had the courage to introduce these retrospective provisions into his proposals, but if he thinks that he has now dealt with all the problems of dividend stripping and bond washing and everything else which we once put under the generic heading of "scrip teasing", he under-rates the intelligence and devotion of the members of the tax avoidance profession.

The Stamp Duty changes, the relief for older taxpayers, and the dependent relative allowance are things which, of course, we welcome and the right hon. Gentleman can be sure that we shall be ready to make constructive proposals to add to and improve what he is doing about Purchase Tax He has streamlined and simplified the chaotic Purchase Tax tangle which he inherited from his predecessors and has reduced the seven rates of tax to four rates. In 1951, when the Lord Privy Seal took over, there were only three rates and I should say that my right hon. Friends managed to achieve that without any help from Kidderminster.

While the Chancellor has carried out one or two suggestions which we have made, for instance, about domestic heaters and about wool cloth, he has failed to take the most important step of all, a step which we have been urging upon him, to remove from the tax schedules the household essentials which were exempt in 1951 and which were made taxable by the Lord Privy Seal. Now the right hon. Gentleman is imposing a tax even on housewives' baskets and I should warn him that he can certainly expect strong opposition from this side of the Committee to his proposal to tax miners' protective clothing. Perhaps I may leave my comments on his proposals about the initial allowance and about Profits Tax until I come to the question of industrial investment later in my speech.

It has been my painful duty year by year in these debates to give the Committee an objective and factual appraisal of the previous year's economic achievements. Not since the Prime Minister's brutal epitaph on the Lord Privy Seal has this been done from the Treasury Bench, so I will endeavour, once again, to repair the Chancellor's omission.

First, our gold reserves. Recent figures have been good, although they provide no ground for complacency, much less for self-satisfaction. It was obvious that this improvement would take place. In the crisis debate last autumn, we forecast that it would take place because, we said, we were moving into a seasonally favourable period for sterling and because of the inevitable reversal of the speculative tide once the International Monetary Fund meetings were over, and it was clear that there was to be no alteration in exchange rates.

The improvement has been due, in the main, to those two factors as well as to an influx of hot money taking advantage of high interest rates, and funds for the Shell Oil Company issue. Indeed, the Banker, in its March issue, attributed sterling strength primarily to favourable seasonal influence, the covering of short accounts and a notable foreign demand for United Kingdom securities including not only the new Shell Company issue, but the new Government loans, because funding stock has the attraction of being tax-free to non-residents.

Our gold reserves are 560 million dollars higher than a year ago, but 250 million dollars was the Export-Import Bank loan and if we take account of the other external aid—sterling area I.M.F borrowings, the American loan waiver, and the special German advance debt payment—we have had, over the year, special subventions of 809 million dollars; so that the net position is about 250 million down over the year

While this is a great deal better than the disastrous loss which we suffered in the year which followed the Prime Minister's one and—thank heaven—only Budget, there is certainly no ground for any complacency. I put it to the Committee that if we look at the gold and dollar position over the past three years, since the last General Election, allowing for all the borrowings, Adenauer aid and all the rest, there has been a net loss since the Election of 1,650 million dollars. If it had not been for all the borrowings and aid, our reserves today, thirteen years after the war, even with the recent improvement, would be barely 1,000 million dollars, very much lower than the level at which they stood when Sir Stafford Cripps was forced to devalue the £ just four years after the end of the war.

Our export figures, too, give no ground for complacency. Last year's Economic Survey took a very rosy view of the prospects. Referring to the increase in industrial capacity, it said:

…our equipment for a further export drive has been considerably strengthened. With good prospects for world trade, and with a record of rising exports, the external conditions for a successful year are already present. Internally, high savings and all possible restraint in Government expenditure should create a situation favourable to the export effort.…"

Those are the words of the right hon. Gentleman the Member for Monmouth.

What of the event? The Economic Survey this year tells the export story tucked away in an appendix. This is what it says:

"The increase in volume was just over 2 per cent., the lowest since 1953. There was a marked change of trend in the fourth quarter of 1957 when, even after allowing for disturbances to shipping movements in 1956, United Kingdom exports were no higher in volume than at, the fourth quarter of 1956; without this allowance they were 2 per cent. lower than a year earlier."

All the Government's policies, deflation, stagnation, 7 per cent. Bank Rate, wages squeeze and all the rest, were directed to increasing exports, and what happened? They fell and they are still falling.

It is not that the markets were not there. Taking the figures for Western Europe and comparing 1957 with 1956, when we were already lagging behind the rest of Europe, as we did in 1955, in 1954 and 1953, the exports of Greece were up by 24 per cent., Ireland, 23 per cent.; Austria, 15 per cent.; West Germany, 13 per cent.; France, 10 per cent.; Denmark, 9 per cent.; Finland, 8 per cent.; Italy, Sweden and Switzerland, 7 per cent.; the Netherlands, 5 per cent.; Portugal and Britain, 2 per cent. Only Spain, Norway and Belgium did worse. If we were to take the figures over the whole of the six years, we should see an even more dismal record of achievement in this country, but I will spare hon. Members the embarrassment.

The improvement in our balance of payments was, therefore, not due to our efforts in the export markets. It was due to the collapse in import prices. Over the year as a whole, from January to January, import prices fell by 10 per cent. and the latest figures are now 12 per cent. below the level for last April. If everything else remained the same, this would represent a windfall of nearly £500 million a year to our balance of payments this year, but, of course, things do not remain the same.

The very factor which has cheapened our imports, the collapse in commodity prices, has greatly reduced the ability of our principal customers to buy our exports. This, again, could have been foreseen many months ago. In the economic debate last October, I said that we must expect three stages. The first would be an improvement in our paper surplus on the balance of payments accounts, and I said that Ministers would no doubt get very complacent because of that and so they have. I said, secondly, that we must expect a falling off in our sterling area dollar earnings and, thirdly, growing difficulties in our export trade. All three stages are now at work.

A few days ago we had the Balance of Payments White Paper, which is a very revealing document. We all remember that two or three years ago the Prime Minister said that he intended to improve the speed and efficiency of our economic statistics. He said that we could not continue to look up trains in last year's Bradshaw and we all thought how amusing that was. We have Bradshaw now and it shows that the Government were entirely wrong in their assessment of the crisis last autumn. They told us that it was all a question of confidence in sterling because of inflation and expected wage claims, the economic consequences of Mr. Cousins. So we had the 7 per cent. Bank Rate and deflation and the decision to force a showdown with the unions and all the rest of it.

Now we have been able to look up the White Paper we can see what really happened. The whole of the non-sterling drain over the second half of the year was explained by the running down of Commonwealth countries' sterling balances, partly for development and partly through the loss of earnings through the commodity recession. So it was not Mr. Cousins, after all. I am sure, however, that the Committee will agree that even at this late stage it is useful to have last year's Bradshaw in order to see which train we missed.

It is when we turn to the production figures that we see how costly have been the Government's misdirected policies. Two years ago the Prime Minister set out to hold down production—and he succeeded. We then had the right hon. Member for Monmouth who, in a moment of clear-sightedness last July, suddenly discovered that the right way of dealing with inflation was to increase production. Unfortunately, he panicked in September and embarked upon a policy of deflation. Production today is exactly where it was in the autumn of 1955—four Budgets and four Chancellors ago.

Time and time again in these debates we have exposed this basic Tory fallacy that the right way to get prices down is to hold down production. Any factory manager will tell us that restricted production is the way to higher and not lower unit costs, as well as being a direct incentive to restrictive practices on both sides of industry. The Committee has had proof of this in the figures of international comparisons that we have given year by year in these debates. We have just had the latest figures from the United Nations publications. Taking 1953 as the base, out of 17 countries Britain comes sixteenth in the rate of economic growth, only Ireland being below us—for what comfort that is to the Treasury Bench.

But if we consider the cost-of-living index, taking the same 17 countries we find that we are third highest, only Greece and Denmark being above us. Do hon. Members opposite seriously maintain that this is a coincidence—especially when they bear in mind that from 1946 to 1951 we led Europe in industrial production and recorded almost the lowest increase in prices?

Ministers today are very complacent about the price level, though last year, from January to January, it rose by 31 per cent., despite a fall in import prices of 10 per cent. and in food prices of 9 per cent. Falling import prices should mean a lower and not higher cost of living. The public should be told where the difference is going, just as figures should be produced to explain the enormous widening, over the past two years, in the gap between farm prices in this country and the prices which the housewife has to pay in the shops. This year, in the easiest world price conditions that we have known for twenty years—as the Survey makes clear—the Government will be guilty of the most grotesque mismanagement if they fail to stabilise and, indeed, reduce, the cost of living.

Turning from this somewhat dismal record of 1957 to the present position, we see that the main crisis that we are facing is the stagnation of production. I have given the figures, and I have given the humiliating international comparisons. I wonder whether hon. Members opposite realise what they mean in terms of the great problems that we are facing. Under the Labour Government, production rose by 6·8 per cent. per annum. In the last six years it has risen, on the average, by only 3 per cent.—and over the past two-and-a-half to three years there has been no increase. and production is now falling. If, in the past six years, production had risen as much each year as it did when we were responsible for the nation's affairs, our total industrial production last year would have been £3,700 million more than the £19,000 million actually recorded.

I wonder whether hon. Members realise what could be done with an additional £3,700 million of real production. It would be enough to solve all our problems of exports and investment, to make a major contribution to world development, and to conquer inflation. If hon. Members opposite are having any difficulty about this kind of concept let me put it in terms which they will understand. The loss of this £3,700 million potential output in a year is about equal to the total cost of 100 groundnut schemes every year; that is about two a week.

How many Suezes?

I would say about 70 Suez operations.

If it be said—as it might fairly be said—that in the 1950s we could not hope to maintain the immediate post-war rate of economic growth, let us take a more modest figure. If production had risen by the 5 per cent. average for the rest of Western Europe we should still have £2,000 million a year more in real resources. There we have the high cost of Toryism, with its outmoded economic dogmas.

I wonder where the Treasury Bench think that this policy of restriction is leading us. To a doubling of the standard of living in twenty-five years? Are they still so preoccupied with the attitudes of the cold war that they do not realise that victory in this vial contest of competitive co-existence depends upon production? When they took over responsibility for governing this nation we were the second industrial and trading power in the world, but the Soviet Union has been expanding at a rate of 8 per cent. per annum, and at the present rate it not only far exceeds our absolute industrial output, but will surpass our output per head in seven or eight years. Germany has already replaced us as the second largest exporter of manufactured goods, Japan is closing the gap, and already leads us in shipbuilding, and when I was in China recently I saw in the factories that I visited huge slogans saying, "Work for our goal of equality with Britain in fifteen years."

The Chinese Government have set themselves the task of equalling our expected level of output in the basic industries by 1972, and I am not sure that in their calculation of our estimated rate of expansion they have not flattered us. I hope that we shall be under no illusions in this matter; the Chinese will achieve their objective, and they will do so in spite of the outdated and ineffective strategic controls which seem to be the West's only answer to the formidable challenge of the East.

When the Prime Minister achieved his present office, in the period of national humiliation that followed Suez, he dramatically announced that he would make Britain "Great Britain." Under the Government which he leads Britain is being left behind. We are becoming a second rank industrial Power, and we shall not disguise our real status either by being able to claim associate membership of the nuclear club or by any postures inherited from an imperial age.

This is the challenge that faces all of us, and it can be met. It is not that we lack the skill, science, technology, or brilliance of inventiveness and scientific adventure to enable us to lead the world in the new age into which we have moved. The Treasury performed a useful service when it recently published the bulletin entitled, Some Myths Exploded", and told the world of our scientific and industrial achievements. The tragedy was its failure to explode the biggest myth of them all—the myth that right hon. Gentlemen opposite have fostered—that a nation can achieve either material or moral greatness by a policy of economic stagnation.

This brings me to the general strategy of the Chancellor's approach, and to what we all recognise as the cruel dilemma facing him. He has examined the auguries, and listened to the soothsayers. I hope that his outside soothsayers are a little more up-to-date than those his predecessor was wont to consult. He has been pulled in this direction and that. He had this decision to make: to expand, or to continue to restrict. The brake or the throttle—those are the words that he kept using on radio and television last night. He never mentions the steering wheel.

The right hon. Gentleman rejects controls, so he has this choice. On the one hand, he fears inflation and, on the other, scorning controls, he faces the problem that killed the Lord Privy Seal when he was Chancellor three years ago. Without controls a policy of expansion—as the Lord Privy Seal found—is likely to lead to rising prices and an import crisis. The Chancellor said as much last night. He has to bear in mind the warnings of his predecessor and, obviously, from what he said yesterday, he accepts the flyblown economics of the Cohen Report. This seems to be the advice, as well, of the Government, and the Prime Minister, in his recent speech at Halifax, seemed to be giving the same warning.

Let us face this. We all recognise the personal difficulty of the right hon. Gentleman in following a Chancellor who, however misguided his policy, had earned a reputation for toughness and who resigned from his office because he felt that his Cabinet colleagues were constituted of somewhat flabbier fibre. The present Chancellor has this very great difficulty about reversing engines so far as disinflation is concerned. He also realises, as he showed yesterday, the opposite danger of what I referred to recently as the endearing War Office habit of always fighting the last war but one.

The signs are that we are facing not inflation, but deflation. Despite the scribes, we have, in fact, had no problem of demand inflation in this country for two years. Our problem has been one of under-employed industrial capacity. The Economic Survey makes clear how much capacity has expanded, yet production is held back. Unemployment is spreading, despite some hoarding of labour—we have just had the latest figures. Short-time working is growing, and there is a sharp diminution in overtime on which, as we all know, so many families have to rely to make ends meet. Some ominous words from the Chancellor yesterday suggests that he expects these conditions to get worse. I would remind the Committee, on investment, one of the main elements in a situation of this kind, of the serious and drastic cuts in the Board of Trade factory approval figures for the first quarter of this year, which were the lowest since 1953.

Dominating the economic scene, of course, is the American recession, about which the right hon. Gentleman said surprisingly little yesterday. The Committee is familiar with the portents: industrial production down by 12 per cent. compared with a year ago; the highest unemployment figure for twenty years; steel production at 50 per cent. of capacity and an utter collapse in the demand for capital goods. A few weeks ago I had the opportunity of discussing this position with top Administration officials in Washington, with the Federal Reserve Board, with senators and congressmen of both parties and with bankers and industrialists.

The position is undoubtedly serious and is very different from the inventory recession of 1949 and 1953 which, as the Chancellor fairly said yesterday, occurred against a background of a booming and not a stagnating Europe. But in the concentration of the depression on the capital goods industries and on the commodity and the freight markets we have all the signs of a classical pre-war slump.

We hope—we must hope—that more modern techniques and the clear and competitive determination of the two major parties in America, one in charge of the Administration and the other in charge of Congress, will lead to reflationary measures which will stop the situation from becoming a slump of prewar dimensions. There are few now who share the optimism which spoke of an early and sharp up-turn in the American economy. If it is reversed towards the end of the year, or early next year, it will still present us with formidable problems both as regards the sterling area dollar earnings and the maintenance of full employment in this country, quite apart from the cumulative effects on us of what is already happening in the primary producing countries.

The Chancellor's difficulty is the greater in that he has to think all the time of the gold and dollar position. Our reserves are still too low. Although, as the right hon. Gentleman said, our own dollar earnings are well maintained, especially by our car exports, they are very vulnerable. It is not only on our wool that we have to face the dangers of protectionism. As Time said last week:

"With the slow-down in the U.S. economy, U.S. high tariff advocates are creeping out of the Washington woodwork like termites swarming in spring "

In one way we are helped, in that the Chancellor will agree that last year the leakage of sterling via Kuwait and other devious routes lost us hundreds of millions; but this year there is no desire on the part of British investors to get out of sterling into Wall Street securities.

In taking his decision on broad strategy the Chancellor must, as we all must, put the position of the reserves first. So he decided his dilemma with what is, in effect, a standstill Budget, presenting his posture in terms of a masterly policy of decisively waiting upon events. There is, of course, always the autumn Budget. But just as I described last year's Budget as an assignment with inflation—which, by July, few would deny—I am not sure whether I ought not to describe this Budget as an assignment with deflation.

The right hon. Gentleman expresses his personal faith and his abhorrence of unemployment, and we accept his sincerity. But we fear that he and the Government are walking backwards into unemployment with that pledge still on their lips. The right hon. Gentleman should be warned that if the economy does turn downwards it may not be quite so easy as he suggests to restore confidence and check the dangerous spiral. This year the Americans are learning the truth of the old Washington saying that you can pull a piece of string, but you cannot push it. It has not been as easy to reverse things as they thought. While it is true that we cannot afford to become an island of rising prices in a deflating world, it is equally the duty of the Chancellor to see that we are not carried down by a tide of world deflation into deflation and unemployment here.

I referred just now to the reserves of sterling and I should like to welcome some of the Chancellor's words yesterday about the sterling area. I hope that soon we shall have an opportunity to debate these questions. There are important issues to be discussed about the future of the sterling area. But let me say this now. Like the right hon. Gentleman, we reject the notion that Britain can pull out of the sterling area. I say that for three reasons. If our liabilities because of the war do exceed our reserves, that is no reason for repudiating them. It is a reason for giving still higher priority to building up our reserves.

Secondly, as the right hon. Gentleman said, the sterling area and sterling are an integral part of world trade. If we abdicate our position as world bankers, there is no one to take our place—certainly not the Americans. Nor are the Swiss or the Germans sufficiently internationally organised to fill the gap, and the only result will be a sharp reduction in the volume of world trade. Thirdly, we believe—I do not know whether I carry the Chancellor with me here—that the sterling area, strengthened as a trading as well as a financial unit and not weakened as it has been recently, is vital to Commonwealth economic unity. But as I say, I hope that shortly we shall be able to debate this vital issue in more detail.

Now I turn to the wider problems of the world economic crisis, and the steps which we should take in partnership with our trading associates and friends, as well as measures which we must take internally. Whether the American recession deepens or not, we are facing a crisis of international liquidity. This can be more dangerous for us than anyone else because of the ease with which third countries can turn sterling into dollars. That was one of the great achievements of the Lord Privy Seal. Once again, we may see country after country close their markets to our goods so that they can use the proceeds of their sales to us to convert into dollars. Obviously, the more competitive our exports, and the speedier and more certain our delivery dates, the less this will happen, but the danger is always there, as I am sure the Chancellor realises.

That is why we press again, as we did last October, for Britain to take the lead in calling for an international conference. It might cover the O.E.E.C. countries, or it might be confined, shall we say to Britain, France—if they have a Government at the time—Canada, the United States and Germany. However constituted, it should clearly be directed at three problems: world liquidity, world development, and commodity price stabilisation.

On the first of these three problems, help would be given if the world gold price could be raised. The United States has always had a psychological inhibition about this gold-price question, and now the thought that it would help the Soviet Union, not to mention South Africa, might be decisive. Failing this, the reserves of the Monetary Fund need to be greatly strengthened as do the resources of world development organisations. We would emphasise that the case, both politically and economically, is stronger now than ever for taking action on the S.U.N.F.E.D. proposals put forward by the United Nations.

On commodity prices, the events of the past six months have underlined the arguments we put forward last October and which were then turned down flat by the President of the Board of Trade. It was a little more encouraging to hear the sympathetic reply given by the Prime Minister to the hon. Member for Aberdeenshire, East (Sir R. Boothby), who was reviving this proposal at Question Time, but the situation is desperately urgent and we must emphasise that it is action, and not sympathetic replies at Question Time, that we need.

While I am referring to international action, let me add that it is time that the Government threw off these rusty shackles on East-West trade. It is now no longer an exaggeration to say that full employment in this country may depend upon expanding this trade for which there are ready markets. As for the so-called strategic argument, I recall that three years ago Britain refused to allow the Soviet Union to place orders here for ships. Mr. Mikoyan, the first Deputy-Premier, told me last year that, in consequence, the Soviet Union doubled its shipbuilding capacity. So the Russians got the ships, we lost the market, permanently, and they enlarged an important strategic industry. Again, in China, I was told that there are in operation already 61 factories built and equipped by the Russians and another 33 built by other East European countries. There are many more in course of construction. Is it good sense economically for us to cut ourselves off from this vast potential market? Is it good sense politically to drive China into still greater dependence upon the Soviet Union?

I turn to the internal economic situation, including certain of the Chancellor's detailed fiscal proposals. For nearly three years now we have had the sterilities and frustrations of the credit squeeze, and for two years we have had these ineffective high interest rates. I am glad that the new Chancellor appears impressed with what we have so frequently urged about the high cost of a high Bank Rate. When he spoke on 21st March, at Bideford—we all know what he was doing there, and I sympathise with his lack of success—he said that an extremely high Bank Rate placed unnecessary burdens both on the balance of payments and on the Budget.

We are glad that he said that. I hope that means that, unlike his right hon. predecessor, he has come to realise that the Bank Rate has no economic significance apart from its psychological effects, and, of course, its power to attract hot money, which is, in any case, a dangerous form of currency on which to rely. I hope that he is coming to realise, and not waiting for Lord Radcliffe, that we can carry out an effective monetary control policy without these high interest rates if we are prepared to get tough with the joint stock banks' reserve and liquidity position.

The credit squeeze, as we have repeatedly warned, is only partially effective and perversely effective, in that it holds back essential public industry, colonial development, and the work of local authorities as well as crippling them with high loan charges. There is plenty of money to be found, at a price, when there is a quick profit to be made. In regard to hire purchase, the Board of Trade has told us that there are more than 1,200 businesses acting as finance houses, mainly in the hire-purchase field, unregistered and uncontrolled. Hot money has been coming in from the Continent at 12 per cent. or even 15 per cent. for hire-purchase financing, and we have to meet the cost across the exchanges.

I would draw the attention of the Committee to an article in the Manchester Guardian's annual survey of industry, published last month, in which these words appear:

"If you want to finance property deals or if you have, say, a rubber company (without any rubber, of course) and a handy private business which is in need of a Stock Exchange quotation, it is perfectly easy to raise the wind. The fact that finance may cost 20 per cent. is no deterrent in an operation which may net a capital profit, tax-free, of several hundred per cent. This sort of business is by no means rare. Many a well-founded stockbroking business is making more money out of its 'special situations' (as the City term goes) than from its regular stockbroking."

Then there is all this business about the shells of moribund companies both to get round the capital issues control and to avoid company taxation. This is a booming business; there has been nothing like it since the nineteenth century Russian traffic in dead serfs, which was described by Gogol in his book "Dead Souls".

What is even more disturbing is the whole approach by the Government to the bogy of inflation and, above all, their obsession about wages. They have been fighting demand, inflation and boom conditions long after the boom has ended, for the one reason of ensuring that in this unplanned, free-for-all economy, the one sector, wages and organised labour will be under strict control.

The Government's dominant theme is that all our problems are due to wages. Let me give the Treasury Bench, and the rapidly dwindling number of hon. Gentlemen who have not yet been Chancellor of the Exchequer, the facts. The International Monetary Fund recently published international figures covering the period 1951–57 for the 11 leading industrial countries outside the Soviet bloc. The figures show that wages in Britain, from 1951 to 1957 had risen by 39 per cent., exactly the same as in Germany. We are not often told that. We were, in fact, the fifth equal, out of the 11 countries, about half way up the list. But the cost of living rose a great deal more in Britain than in any of the other 10 countries. Why? Because, in production, we were bottom of the list and in productivity, next to the bottom of the list. The fault lies not in our wages, but in our production and in our inadequate investment.

At this critical time in the industrial sphere, I think that we would all agree that the greatest possible restraint must be used in what is said in the House of Commons, but the Government should at least, in determining their course of action at this critical time, study the warnings that they were given last autumn by my right hon. Friend the Leader of the Opposition and others from this side of the House. Last October, I said to the then Chancellor of the Exchequer, referring to outbursts from the noble Lord, Lord Hailsham:

"This is the Suez mind all over again. This demand for a showdown can be just as dangerous, just as costly and just as ineffective a policy as was the other Suez policy.…If this is what is in their minds—and we have all heard Lord Hailsham—…then I have to say that this is not the way to lower prices and to raise productivity. It is the way to the most bitter industrial strife that we have known for a generation, and the road to industrial and economic disaster."— [OFFICIAL REPORT. 29th October. 1957: Vol. 575, c. 75.]

That was last October. Another warning came in a newspaper article by Sir Thomas Williamson, one of the most statesmanlike of the country's industrial leaders and one who has played a great part in co-operating with successive Governments, of both parties, in the fight for economic recovery and the battle against inflation. This is what he said.

"Not since 1926 has this country been confronted with such a dangerous situation as that now developing."

He went on to say:

"unless something is done to steady matters there is all the possibility of a head-on clash, not simply between employers and employed—serious enough though that would be in all conscience—but between Government and organised labour."

The Government paid no heed to those warnings and Lord Hailsham pursued his vendetta and accused us of fomenting trouble among extremists in the trade union leadership. When challenged, he failed to produce a single piece of evidence to support what he has said.

Some idea of the state of mind of some, at any rate, hon. Members opposite was given last Thursday in a speech by that primaeval survival, the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). Although the Government Front Bench cannot currently take responsibility for him, I understand that he was actually addressing an official Conservative Party county council election meeting. He was reported by The Times as saying:

"the trade unions were on trial. They must mend their ways, or there would be an end to them."

He went on to refer to their

"selfishness, ignorance and brutish neglect of the welfare of others"

finally forecasting a General Election which would

"return Conservatives in overwhelming numbers—devoted to the single task of replacing collective bargaining with a more up-to-date system of wage graduation."

Of course, the noble Lord was wrong in that. It will return Labour Members in overwhelming numbers, devoted to the single task of strengthening our economy and replacing selfishness and greed by social justice and a national sense of purpose.

Where does the Chancellor stand in all this? What has the Chancellor to offer by the way of internal measures to solve the country's crisis? Industrially, and in his Budget, he makes two proposals. The first is to increase initial allowances and the second is a change in the Profits Tax. Instead of initial allowances, we believe that he should have restored the investment allowance, which was suspended by the Prime Minister more than two years ago. Last year I suggested to the then Chancellor, in the Budget debate, that to meet the impending fall in investment, which we could all foresee, and to stabilise the economic position, he should have announced the restoration of investment allowance then to take effect this April and to take up the slack which might develop in 1958. I wish that he had done that. Do these initial allowances which the Chancellor has increased still apply to private cars owned by business firms? He could reinforce the Revenue and export trade if he would exclude them from the concession.

As to the change in Profits Tax, that, in our view, is a retrograde step. It rewards the firm which pays high dividends; it penalises the firm which ploughs back profits into productive investment, or even investment in gilt-edged. There is no doubt about this. I quote the Chancellor's own words yesterday:

"Some that make lower distributions will pay rather more Profits Tax than hitherto. Some that make higher distributions will pay less."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 65.]

The ticker tape shows that on the Stock Exchange this morning the list of companies is being picked over to see which are the ones which have been paying high dividends—against the appeal of the former Chancellor—and marking up their shares, while those who followed a cautious and conservative policy are now being penalised by this Budget. Is this really what the Chancellor wants? Does he want to remove the incentive to invest money? Does he want to encourage firms to dissipate their reserves? Above all, at this time, after all that he and his colleagues are doing and saying about wage restraint and calling for a wages freeze, how can he justify using the tax system to give a positive encouragement to increased dividends? He must be aware that over the past two years dividends have been increasing much more sharply than wages.

As my right hon. Friend the Leader of the Opposition said, the case for unifying the rates might have been stronger if we had had a capital gains tax. Even then I feel that the economic requirements of this country for as long ahead as we can see will justify a sharp differential between profits ploughed back and those distributed as dividends.

With the exception of Profits Tax what must be said about the Chancellor's Budget proposals in relation to the major economic problems we are facing is that, in total, they are trivial and irrelevant. There is nothing in them sufficiently vicious to warrant voting against the outstanding Budget Resolution. This is a rare occurrence. A vote on a Budget Resolution can only register disagreement with what has been done and, quite frankly, this Budget leaves us cold, as I believe it will leave the country cold. We are concerned, not with what the Budget does, but with what it fails to do. Because we cannot, by a vote on Monday, register our profound belief that this Budget and the general economic policy of the Government are holding back production, creating unemployment and failing to produce the necessary increase in investment, we give notice this afternoon that we propose to table a Motion of censure on the Government's overall economic policy with a view to an early debate.

Hon. Members opposite may fairly ask, besides the international measures I have outlined, what Labour would do. I will repeat what we have said. First, we would take the brakes off production. There is no solution to our economic problems except on the basis of expand- ing national output. Next, and second only to exports, investment must be given a clear priority over all other calls on our economic resources. This means investment allowances and we shall need to maintain an effective Budget surplus of public saving to finance essential investment. Before 1951 we had such a surplus, big enough to finance the massive developments of the public sector and to spill over into the private sector. Today, the rôles are reversed and the private sector has to finance public development.

We insist that if, by public action, including fiscal action, investment is to be encouraged, controls will be needed to hold back less essential investment and to give priority to the essentials. I press on the Government, as we did fifteen months ago when defence cuts were first in the air, that we cannot afford the waste of resources involved in closing the Royal Ordnance factories and the dockyards. Those that are not needed for Government work should be redeployed on investment and exports under public ownership.

Thirdly, we say that there is no solution to the nation's problems unless we return to social justice in our fiscal and social policies. The Government's conception was shown last year when, after imposing the prescription charge for each item—the meanest thing that even they have done—and increasing the National Health contribution, they handed out £35 million to Surtaxpayers. Even the concessions made this year have only been made possible because the Budget has been reinforced by extra budgetary taxation imposed in the form of excessive increases in social insurance contributions on a very large scale.

The Government are now resorting more and more to the poll tax, which is the most primitive tax device known to fiscal science and one usually associated with communities at a very low level of civilisation. We say, as in our superannuation proposals, that contributions should be proportionate to earnings and not deliberately devised in such a way that the lowest-paid worker pays the highest proportion of his earnings.

Above all, a socially just Budget means widening the tax base by bringing all, or nearly all, forms of spendable income within the revenue net. The wider the base, the less high the tax rates need to be.

This means dealing with capital gains, as we propose. It means a determined legislative drive against all the manifold forms of legal tax avoidance. The Chancellor is doing a little in this direction, but he has missed a great opportunity.

I will not weary the Committee by quoting again the wide range of examples of tax avoidance which I quoted in the Budget debate two years ago, when I read out the blandishments of one of the leading firms of tax avoidance practitioners. I cannot, however, forbear from referring to an advertisement received at this House by many hon. Members and emanating from the gentleman who, until last autumn, was the Conservative Member, or Suez Group Member, for Garston, Sir Victor Raikes.

It is headed "Avoidance of United Kingdom Death Duties" and it proceeds to tout for investments in Rhodesian property companies, saying:

"By the wise investment of funds in overseas property the saving on estate duties can, therefore, be very great indeed."

It gives examples. That is not to say that the gentleman in question needed to offer his help, because for a very high proportion of rich people death duties now are largely a voluntary tax levied mainly on the unlucky and on distrustful parents. Stamp Duty, as we have shown, is also largely voluntary and for many people Surtax is a voluntary tax as well. I say to the Chancellor of the Exchequer: between now and the Finance Bill, clean up this stable and the fiscal system of the country will be a great deal more defensible, equitable and economically viable.

Social justice in economic policy is not merely a desirable end in itself. It is an essential condition of the understanding that we shall need with both sides of industry if we are to achieve once again full employment and to achieve it this time without inflation. I have indicated to the House more than once the conditions which, in our view, must underlie any Government approach for such an undertaking. Even at this eleventh hour. with all sincerity I urge this approach upon the Government as an alternative to the Chancellor's sterile and even threatening words of yesterday and as an alternative to the pitched battle which the Government's policies seem to be designed to force. A nation divided against itself cannot survive. Hon. Members must recognise the grave responsibility that the Government bear, through their recent economic policies, for the division that they have forced on unwilling employers and unwilling trade unions.

What is at stake, not only in the immediate crisis, but as a continuing challenge to all of us, goes far beyond the prosperity and the welfare of the British people. Our ability to achieve full employment without inflation and to maximise production with stable costs will determine in the months immediately ahead the future of sterling, perhaps for a generation. The strength of our currency must be our first and primary consideration. Whatever Government are in power, the strength of sterling and all that depends on it must take priority over all other considerations.

I believe sincerely that that is what was in the mind of the former Chancellor of the Exchequer, the right hon. Member for Monmouth, last September, however much we may—and, indeed, do—disagree with his approach and method. Hon. Members opposite may disagree equally fundamentally with our approach, but I hope that they will not doubt our sincerity or determination to make sterling the first priority in all our calculations and actions. I trust that when the time comes, as soon it will, whatever disagreements there may be on methods, when the strength of sterling is at stake hon. Members opposite will give the same national support to sterling that we have given, even at the moments of acutest party controversy on other issues. [Laughter.] If hon. Members opposite regard that as a matter for laughter, I challenge them to say when, at any time, even during Suez, we failed to give the fullest support to the Government in the methods needed to save sterling.

Last September, had we followed the practice of 1948 and 1949, right hon. Friends of mine would have been cashing in on the weakness of sterling. My right hon. Friend the Leader of the Opposition, at a most difficult time for the country, came right out against devaluation in the speech he made at the American Chamber of Commerce. [Interruption.] I know that we can never expect a national approach from the hon. Member for Ship- ley (Mr. Hirst). We disagree fundamentally with the Budget not so much for what it does as for what it fails to do, but I hope that this message will go out from this debate to all those concerned with world trade and payments, including the bankers and speculators in the financial centres of the world. Our differences here, deep and fundamental as they are, are differences about methods, about ideologies and about approaches. They are not differences about the objective of defending and strengthening sterling.

We believe that Conservative methods have failed. We believe that before long we shall be called upon to shoulder the heavy responsibilities which are inescapable for those called upon to guide the economic destinies of the country and of the wider economic groupings in which we have to play a leading part. Let no one, in any part of the world be in any doubt about our determination and our resolve to shoulder those responsibilities in a way which will strengthen sterling and promote the economic security of the country and of all who depend upon us.

We have listened with great interest, as usual, to the annual indictment of the Government by the right hon. Member for Huyton (Mr. H. Wilson). The most serious charge that he has brought against us is that we have deliberately and wrongly held down production—that we had created stagnation in the economy was the expression used by the Leader of the Opposition last night—and created stagnation for no good purpose and without justification. If that were true, certainly our Administration ought to be condemned. I shall try to answer that point.

We believe in the right hon. Gentleman's sincerity when he says that the strength of sterling is a prime object of himself and his right hon. Friends. Our difficulty is that we do not think that the policy he advocates would lead to the strength of sterling. One has to ask which ought to be put first: the volume of production or the balance of payments and the gold reserves. We in the Government have had no doubt about that. Last autumn, we took measures to safeguard the reserves by stopping the inflation. That is not the same thing as stopping production. On the contrary, it was one of the declared objects of our policy that production should increase for exports; and some of our important industries—the motor industry, important parts of the chemical industry and the instrument industry—have made remarkable increases.

One must, however, say, as the right hon. Gentleman himself said, that in spite of the fact that the credit squeeze shortened our delivery dates, we did not increase the total volume of our exports. We have not yet earned enough. How can it be thought that if the inflation continued our exports would not have fallen? That being so, both the Government's measures and the alternative policies—and very different they are—which the right hon. Gentleman has just outlined must be judged by the test of their effect upon the balance of payments. Any other test such as the volume of production has to be applied after we are sure that the £ is safe. Even if production could be raised for a time, it would certainly collapse if the reserves were to fall.

We can claim this for the measures which we took: they have succeeded in reversing the outflow of gold and the £ is now strong on the exchanges. But what would have been the effect of the right hon. Gentleman's policy? He says that had he been in power he would have stimulated a much larger volume of production, presumably by cheaper money and by forcing still higher the rising volume of investment in the public sector. Such a policy of higher output would have required larger imports of materials. There is no doubt about that. Such a policy would have been a check upon exports, because the pull of the home market would have been greater. How could confidence in sterling have been maintained if the pressure upon labour, materials and capital had been allowed to continue to grow?

The right hon. Gentleman recognised that, and last year he gave us a clear answer—this year not so clear—that he would use controls. Last year, he specified two main controls as import controls and foreign exchange controls, and I now understand that he adds price control. That is still the logic of the Opposition's policy.

Some imports would have had to be cut if production had risen further. We do not know which imports, and we should like to have a list of the main items which would be cut, because in our view there is no substantial saving to be made by cutting imports without leading to allocation of materials, black markets and, in some cases, consumer rationing.

The right hon. Gentleman is misrepresenting what I said. All we have said about controls is about differential import controls of American imports, which, in any case, is the policy of the present Government. I said nothing this afternoon about prices.

The right hon. Gentleman said import controls, last year. If he wants a substantially higher volume of production—and some of his right hon. Friends have been talking about a loss of £1,500 million of production in the last few years—one has only to think of what the imports would have been to sustain that extra production in this country to see that it would have been necessary to have severe import control if production were to rise in that way.

I say that controls of one kind and another, which would have been a return to Socialism, would merely have reminded holders of sterling what a failure Socialism had been last time. It is equally certain that if a British Government had put on import restrictions, as the Opposition would have had to do, our example would immediately have been followed by many other countries who are now nervous about their own balance of payments, and some would have hit back at us in retaliation for the damage done to their trade.

What about the result of tighter exchange control? Would the sterling balances be blocked? Would the flow of capital to the Commonwealth be checked? If not, how could exchange control prevent a flight from a Socialist £? Right hon. Gentlemen opposite must face the fact that their policy of forcing up production in conditions of already full employment would have been a signal for the world to get out of sterling by any means in their power.

We say, therefore, that the alternative measures proposed by the Labour Party would have aided and abetted a recession, they would have caused a run on the £ and they would have risked the break-up of the sterling area.

I am glad that the right hon. Gentleman paid tribute to the sterling system. He says that, but then he proposes measures which would have put the whole system in the gravest danger. I shall have more to say about the sterling system when I come to the prospects for the Commonwealth Trade and Economic Conference.

I should like to take up another point which has been made by the party opposite. It has been saying that production could safely have been increased, since there is unused capacity in this country, and that the larger volume of output would not have raised the unit cost of production. In a few particular cases this now may be true in April, 1958, but it could not have been true when the economy was so fully employed that the inflation was recognised by everybody. In those circumstances, we can get higher production only if we do not mind increasing costs. In other words, more old plant has to be pressed into service, there has to be more overtime, there has to be bidding for labour between firms and industries. In this country so dependent are we on foreign trade that extra production is not worth having if it means pricing ourselves out of world markets.

The situation is much healthier today, partly because of the measures which we have taken and partly because the terms of trade have moved in our favour. In his speech yesterday my right hon. Friend the Chancellor showed that he is ready to take selective action to stimulate investment and exports as soon as the situation justifies such measures. But, first, we must be quite certain that our prices will not rise again.

On the subject of prices, I should draw attention to the fact that some people are saying that our manufacturers ought to have reduced prices more than they have. There was a good article in the City columns of The Times on that. The truth is that some have done so—steel, tyres, cables and lamps. We hope that more will do so. But the scope is not as great as is sometimes said. The average fall in the prices of imported materials over the last year has been about 11 per cent., and, on average, imported materials account for about 20 per cent. or rather less of the ex-works cost of finished goods. The reduction in costs due to lower import prices is, therefore, about 2 per cent. Over the same period, rises in other costs—fuel lighting, transport, wages and salaries—have pushed the total cost of manufactures up by about 4 per cent. To have kept wholesale prices steady is, therefore, not at all a bad achievement. It has been done because competition has been keener and profits somewhat more difficult to make.

Before turning to external trade, I want to say a word about local unemployment and about the cinema industry. Yesterday, the Chancellor announced that we intended to bring forward a Bill which will amend Section 4 of the Distribution of Industry Act. The areas in the country which are at present scheduled and, therefore, can benefit by the powers under that Act, cover about 18 per cent. of the insured population. The right hon. Member for Bishop Auckland (Mr. Dalton) is in his place and he will agree with me that the original purpose of that Act, which was to bring special help to large areas where there was heavy and persistent unemployment, has to a very large extent been fulfilled.

The heavy industries which were then in trouble are now prosperous and much new industry, heavy and light, has been established. The problems with which we have to deal today are, therefore, different. They are quite local and they are due to such things as technical change or the reduction in defence orders and not to a lack of demand in the economy as a whole. They can occur inside or outside a Development Area, that is, at Greenock or in North-West Wales. Last night, the hon. Member for Leith (Mr. Hoy) was very right, I think, in saying that there was a number of special situations in Scotland of this kind, both inside and outside development areas.

The most sensible thing to have done would have been to scrap the scheduled areas and start again with new and flexible powers to deal with the conditions of our own times; but once an area has been given special privileges, it does not like to lose them, however prosperous it may be. Having observed the strength of local feelings, we have given up the idea of formal descheduling. In future, we shall confine assistance to places inside the Development Areas where it is really necessary. Further, we have decided to ask for wider powers for the Treasury to give financial assistance to places outside as well as inside the Development Areas when they are identified by my right hon. Friend the Minister of Labour and myself as places where a high rate of unemployment is likely to persist.

I think that one hon. Member who spoke last night suggested that we ought to put a figure of unemployment in the Bill as a test for this assistance. I hope that that will not commend itself to the Committee, because a figure does not mean the same thing in different places or, indeed, in the same place at different times. A rather wider discretion would seem to us to be more sensible. I am sure that we can make very good use of the powers, and I hope that, when the House sees the Bill, it will give it a favourable reception and a swift passage, because there are one or two places where we are anxious to get on with the job without delay.

As my right hon. Friend said yesterday, the cinemas are suffering from competition with television. Matters can be put shortly in this way. In 1950, cinema attendances worked out at 28 per head of the whole population per year. Last year, that figure had fallen to 18. Of course, the consequences for exhibitors have been very serious, and we have had great sympathy with them. The relief in the tax of just over 50 per cent., especially because it is concentrated upon the lower-priced seats, will, I am sure, save a great many cinemas which are on the brink of shutting.

I want to say something now about the production side of the film industry. So far, the output of British pictures has been very well maintained. The quota has been held at 30 per cent., and we have every reason to think that enough pictures are being produced to fill the quota. But, of course, in the end, the net takings at the box office will determine the production policy of the industry. There is, however, always the levy, which is collected compulsorily from the exhibitors. That levy ought to yield £.3¾ million in this, its first year, but because cinema attendances are much lower than we expected, I shall have to raise the rate of levy, and I shall consult the Film Council upon the details.

I have it in mind to go somewhat further and fix the levy to produce rather more than £3¾ million in a full year.

I hope that the Committee will think that that is right. The reason I shall propose it is that the film production industry is going through a few critical years. It happens that, at the moment, there are exceptionally good opportunities for selling British pictures overseas. It happens, also, that we do not yet know exactly what kind of material the television industry will require in a few years' time. I hope, therefore, that the Committee will support us in somewhat strengthening the levy so that we may help the industry through the lean years.

I come now to world trade. The expansion which has gone on for several years has now halted, but the volume of goods entering and leaving the United Kingdom has not fallen. It is still keeping up, and is the same. However, it is probable that later in the year we shall feel the effects of the reduced earnings of the primary producers. With that in mind, the Board of Trade is putting an exceptional effort into the export drive. We believe that, if British prices and delivery dates are competitive, it will very often be possible to make good the reductions in sales in some markets by increases in others. One thinks at once of the markets of North America. It is a remarkable fact that, in the first three months of this year, British exports to North America were 8 per cent. up on the corresponding period last year, despite the effect of the recession in America. The trend is very strong, and I think that it will continue.

In a few days' time, I shall be in Montreal, meeting Mr. Gordon Churchill, the Canadian Minister of Trade and Commerce. We shall discuss the follow-up of the Canadian Trade Mission which Mr. Churchill led very successfully to this country last December, and both he and I feel that there are great opportunities for a sustained expansion in Anglo-Canadian trade. A trade mission from the Dollar Export Council, led by Sir William Rootes, to whom we owe a very great deal, is about to travel right across Canada. The purpose of that mission is to consult with our Canadian friends on the machinery for promoting British sales in the Canadian market. I have good reason to think that something very effective will come out of it.

No doubt, Mr. Churchill will want also to speak about the Commonwealth Trade and Economic Conference to be held in Montreal in September. Her Majesty's Government attach the greatest importance to this conference. A full-scale Commonwealth Economic Conference was held twenty-six years ago in Ottawa, and, since then, the Commonwealth has grown in strength and in diversity. The balance and pattern of our economic interests have greatly changed. In 1932, among the debris of the slump, the old Commonwealth nations knew very clearly what they ought to do. The United Kingdom, which was predominantly industrial, had just gone protectionist. All the other members were predominantly producers of primary commodities. Thus, ideal conditions existed for a departure in tariff policy.

The Ottawa Conference had a single constructive theme—Imperial Preference. The preferential system has served us all well, and it would be very unwise for the Commonwealth to give it up—as I understand the Liberal Party wants us to do—or to bargain it away, as has been suggested by some in Europe. We intend to keep it. In the changed circumstances of 1958, the problem is to find new forms of co-operation which can be added to the tariff preferences.

We shall find, at the Montreal Conference, 11 Commonwealth nations in very different stages of development. Canada and Australia remain great exporters of food and materials, but they now rank among the world's industrial Powers. Indeed, all the members of the Commonwealth are industrialising themselves and diversifying their production as fast as finance will allow.

Looking at all this progress in diversity, it appears, at first sight, that there is no common theme for Montreal as there was for Ottawa, or as there would be if all the members of the Commonwealth were mature, industrial economies, and, like the old economies in Europe, could contemplate free trade in manufactured goods. But on closer inspection we see that the very growth and increasing variety of the economies of the Commonwealth have created a common interest so urgent as to be almost new, and that is their joint responsibility for the strength of sterling. Before the war, what the United Kingdom did was enough, in normal circumstances, to keep sterling strong. But it is not today. Forty per cent. of the world's trade is done in sterling, but we hold only 4 per cent. or 5 per cent. of the world's reserves.

Last October, at the Mont Tremblant Conference, my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) greatly impressed the Finance Ministers of the Commonwealth with his description of the kind of common action that we ought to take to keep sterling strong having regard to the inadequacy of the reserves. As a result, it is likely that policies to that end will be a major theme of the Montreal Conference. Here, Canada is an exception which proves the Commonwealth rule. Canada is in the dollar area, but Mr. Diefenbaker has just won a great electoral victory under a banner inscribed with a wholehearted belief in the Commonwealth. We know that we can count on his Government to support policies which fortify the trade and finance of the sterling area.

There are two other topics which will certainly be high on the agenda of the Montreal Conference—commodity prices, which the right hon. Gentleman the Member for Huyton mentioned, and investment. Although commodity prices have fallen steeply, they have not fallen evenly. In most cases they are still three or four times pre-war level. None the less, some Commonwealth Governments are seriously perturbed because they have geared their development programmes to a level of overseas earnings based on higher prices than are ruling today.

It is attractive to consider whether the Commonwealth, by itself, could devise means which would bring greater stability into commodity markets. We have had a good look at this question. Each commodity shows very distinct differences in the conditions of demand and supply.

There is one conclusion that conies out of all these separate studies, and that is that commodity stabilisation schemes are generally impracticable—I think it would be almost true to say, always—without the participation of the United States. They are usually impracticable without the participation of Western Europe and, perhaps, sometimes without the participation of Soviet Russia. In any case, the negotiations for each separate commodity would be very long, very difficult and would usually call for very large sums of money with which to hold surplus stocks.

Therefore, it is hard to see any quick solutions to price fluctuations by means of international commodity arrangements. I am stressing the time factor. Even the Tin Agreement, where the technical problems were comparatively easy, took over five years to negotiate. We are, of course, always ready to discuss commodity schemes with any countries who bring them forward, but we have come to the conclusion that the interest of producers would now best be served by concentrating our efforts on reinforcing world demand and replenishing the world's liquid reserves.

I hope, therefore, that, while the Commonwealth Conference would be ready to propose salvage operations in any very difficult situation, most of our thinking should be on how demand for all forms of goods and services can be sustained at all times. Clearly, at this moment, the most important element in the situation is the American recession. The right hon. Gentleman said that when he was in America he heard a number of people say that it might last a considerable time. I think that none of us knows. But what is certain is that nothing could do the causes for which the free nations stand more good than a fresh expansion in the United States economy. That expansion is bound to come, and I think it is not improbable that it might come quicker than perhaps at present seems likely. But that is only my personal opinion.

In the meantime, there are certain things which the Commonwealth can do for itself, and we should do them. First, we have to see that imports into the sterling area do not exceed the total which the balance of payments of the area with the rest of the world will permit—in other words, we have to guard the area's reserves. But it is also just as true that we have to see that activity in the sterling area does not fall below the level which can be financed without endangering reserves. This is a very delicate balancing operation and it requires the closest understanding with our partners.

That is one reason why it is such a good thing that the Canadian Government called a Commonwealth Conference this year. I have heard it said that the date ought to be advanced, but, as I think right hon. Gentlemen opposite know, it is exceedingly difficult to find a date which suits all the members of the Commonwealth, and the end of September was the only date which suited all. Secondly, a conference of this kind requires the most careful preparation. It is not easy for Commonwealth Governments to release senior officials to come to London to make those preparations. We have had one meeting and are now about to have another. I am convinced that careful work beforehand will pay us. All the time the ordinary consultations are, of course, going on in the search for the right level of activity in the Commonwealth.

The sterling balances, as my right hon. Friend the Chancellor said yesterday, will be a great help, since they will enable some of their holders to maintain their imports in a year when their current earnings are falling off. We here can look at the volume of credit that we can give for exports. My right hon. Friend spoke of our own plans in this sphere, and I will not weary the Committee except to mention one particular step that we are taking at once. At present, the Export Credits Guarantee Department gives direct bank guarantees in respect of sums of not less than £250,000 advanced to exporters of major capital goods. We are reducing that limit to £100,000 and increasing the amount covered from 85 per cent. to 90 per cent. Other conditions remain the same. I am advised that this change is likely to produce a very useful increase in that kind of finance for exports.

This brings me to investment in the Commonwealth. The trouble here is always the same. There are not enough savings to match, if I may exaggerate a little, even a fraction of the development programmes which all the members of the Commonwealth, including the United Kingdom, have ready and which they are anxious to execute. We shall be disappointed if the Montreal Conference cannot think of new ways in which to mobilise more finance for development in the Commonwealth. There may be ways —for example, by encouraging borrowers to give private capital guarantees against nationalisation and discrimination—in which, by concerted action, more investment could be financed and more could be borrowed from outside the Common- wealth than we are borrowing at present.

I should like to say a word now about two particular problems of Commonwealth trade, that is, imports of cotton textiles from India, Pakistan and Hong Kong, and trade with New Zealand. If we desire the Commonwealth to grow in strength and unity, we must be prepared to buy each other's goods, and we in this country must give the lead in keeping our market open. Nevertheless, situations can arise where the imports of goods from one Commonwealth country to another can increase so fast, and do so much harm to an established industry, that it is in the interests of all of us to bring some order into that trade.

That is the situation with imports into the United Kingdom of cotton cloth from India, Pakistan and Hong Kong. The Government do not think it right to impose restrictions on those imports. We take this view because there is a difference between Commonwealth countries and foreign countries—a very real difference, which means a great deal to both sides of the Committee, and which is recognised by the world as the foundation of the Imperial Preference system. We must not tamper with that foundation. For this reason, we are sponsoring voluntary agreements between the textile industries concerned.

An essential step has been to explain to the Hong Kong industry the case for this approach, and this has now been done. As the Committee knows, we, in Parliament, are responsible for the commercial policy of a Colony. A Colony cannot retaliate. Therefore, we must stick to the voluntary principle. Negotiations have not yet been concluded, but I am hopeful. Next month representatives of the Lancashire industry will be meeting here, in London, representatives of the Indian and Pakistan industries. It might well help those talks if our friends in Asia heard from this Committee what very real and heavy sacrifices our cotton industry has had to make, and how, in keeping with the spirit of the Commonwealth, we desire that stability should be brought into this most important trade through voluntary agreements.

I come now to an example of difficulties arising in the field of foodstuffs. Mr. Clarence Skinner, the Deputy Prime Minister of New Zealand, is, I am glad to say, in London. He has come here for talks with my right hon. Friend the Minister of Agriculture and myself about trade with New Zealand. There is no Commonwealth country with whom we have closer ties, and no major trading country in the world which buys from us or sells to us more per head of its population than does New Zealand. We very much look forward to the talks, in the course of which we shall have to examine the market for butter, which is a very slippery subject.

Obviously, from the producers' point of view, there is far too much butter in the world, in the sense that almost every ton that is exported is being sold well below the cost of production. The United Kingdom is the largest open market for butter; therefore, these surpluses find their way here. And we have our own butter production, which is rising. This would be a very complicated situation even if there were no substitute for butter but, in fact, as any housewife will tell us, there is strong competition from margarine, and experience has shown that if the price of butter moves up by even a few pence the housewife transfers her purchases to margarine. That makes the problem particularly difficult.

Two facts at least are clear: one is that New Zealand is a most efficient producer of butter, and the other is that we want to find a way to give her producers a square deal in our market, if only for the reason that we very much value our trade with her. There it is. This is a problem that I shall talk over with my right hon. Friend and with Mr. Skinner, and we must try to find some way.

I apologise for keeping the Committee so long, but, in conclusion——

Before the right hon. Gentleman concludes his speech, does he propose to say anything about the possibility of expanding East-West trade, a matter to which my right hon. Friend referred?

I feared that I was keeping the Committee too long, but perhaps I may say a word in reply to the right hon. Gentleman.

Of course we should like to expand this trade, but the fact is that the Communists could do a very great deal more trade with us now if they wanted to. Our exports to the Soviets are pretty good, running at a rate of about £57 million a year, and, without entering into what is on the strategic lists, I believe that they could buy a great deal more. The hon. Member for Leek (Mr. Harold Davies) yesterday interrupted my right hon. Friend the Chancellor of the Exchequer to ask why we did not sell more motor cars to China. Motor cars, of course, are not on the list. If the Chinese want to buy a Rolls-Royce, or a Bentley, they can; and that goes for a very large list of goods.

At the same time, having said that, I should add that, as I believe the right hon. Gentleman knows, a review is going on of the strategic list. It is the view of Her Majesty's Government that we could make a substantial reduction, but it takes a long time. I believe that there are 13 members of Cocom, or some such number, and with a lot of complicated items it takes a long time to go through them one by one. We have to be patient, but I hope that the result, when it comes, may be a reduction in the list. I do not myself think that it will lead to a very large increase in trade. That, I think, is propaganda on the part of the East, but I think that there could be a large increase in trade in items that are not on the list, and never have been on the list——

Can the right hon. Gentleman at least assure us that the Government are pressing for such a reduction in the list?

Yes, we are, because we think that there are quite a number of items on the list that ought to come off.

In conclusion, I would submit to the Committee that, provided we keep sterling strong and keep our market open to Commonwealth goods, we shall be in a position to go to Montreal and there propose policies for expansion of Commonwealth trade and investment. But if, on the contrary, we adopted the insular policies of the party opposite, implemented by import and exchange controls, we could only give a lead in the other direction, that is, restriction.

That is the essential difference, really, between the economic policies of the two sides of the Committee. The Opposition want to take action in the domestic field which would provoke resentment and retaliation overseas, and expose us, almost certainly, to the danger and incalculable consequences of another devaluation. On this side, we believe in expanding and freer trade on the safe basis of sound money. There can be no one who cares for the Commonwealth who would hesitate about the choice.

The speech of my right hon. Friend the Member for Huyton (Mr. H. Wilson) covered so well so wide a field and was so very penetrating, and also so pleasantly ironical at certain points, that I need not seek to cover anything like his scope. I shall rather concentrate on one or two points arising out of the Chancellor's Budget speech yesterday, and one point—not of cheap polemics, but a serious point—arising out of the speech we have just heard from the President of the Board of Trade.

The first point that I wish to raise, about which there has already been a Question today, concerns German support costs. In his Budget speech yesterday, the Chancellor told us that the support costs were still being discussed. Today, my hon. Friend the Member for Brixton (Mr. Lipton) had a Question on this subject on the Order Paper, and the Financial Secretary to the Treasury repeated that they were still being discussed. It is high time that we had from the Chancellor, as the Minister responsible for our finances, an answer about them.

Dr. Adenauer is on the point of arriving here—perhaps has already arrived—and I venture to say that it would be quite indecent, and everyone would feel the indecency and difficulty of the situation, for Dr. Adenauer to be here as the guest of Her Majesty's Government, and, indeed, as the guest of Her Majesty Herself, until this vexacious matter had been definitely settled. The sands really have run right out of the glass, and it is time a proper statement was made.

So far as the issue itself is concerned, I have recently made some observations about it in a widely circulated evening newspaper, and I will not therefore repeat what I there said, except to recall why this German support costs problem is with us at all. It is because in 1952 Her Majesty's advisers, in concluding what they called "Contractual arrangements with the Federal German Republic", made no provision whatever regarding the payments to be made by the Germans in later years.

Sir Anthony Eden and the Chancellor of the Exchequer of that time, who is now the Lord Privy Seal—though I think that in this matter he was dragged reluctantly behind Sir Anthony's chariot, when the Treasury was out-smarted and outpaced by the Foreign Office, as very occasionally does happen—these two Ministers were in such a hurry to re-arm the Germans that they forgot all about the British taxpayer and his interests. No provision whatever was made for contributions in the following years by the West Germans, contributions which it was reasonable to request from them to the cost of common defence under the N.A.T.O. shield. Every year since then, there has been argument and prevarication. It has been a humiliating story, and it is high time it was ended.

I take the very simple view that the Germans should make an honest and straightforward payment in gold for what they are getting from us in troops. Let this not be confused by any complexities about German money deposited in a London Bank on the basis that some time or other the Germans will use this money to buy from us certain arms. That is really beside the point. If they buy arms from us, we shall expect to be paid by them. I only hope that they will not be nuclear arms, because nuclear arms for West Germans would lead us straight, in my judgment, to a Third World War. I cannot go further into that because it would be outside the subject of this debate. I merely state my opinion.

But I do say that the West Germans have amassed very substantial gold reserves. How they have amassed them is a story for another day, because it does not relate to our Budget. They have had very great advantages in some respects. They have had no defence payments to make for thirteen years. That is the prize of defeat in war; they have had nothing to pay for defence. There are other advantages which they have had. In particular, certain bad trading practices which have been generally condemned in O.E.E.C. and in E.P.U. Instead of buying other people's goods, they have run huge export surpluses and used these to build gold and dollar reserves now amounting to more than 4,100 million, gold and dollars. They hold that reserve for West Germany alone, whereas our own reserves are below 2,800 million gold and dollars and are held, not for ourselves alone, but for the whole sterling area.

That they should now boggle, quibble and resist making the payment of £47 million which the right hon. Gentleman is asking them for out of this very substantial gold and dollar reserve seems to me to be indecent, particularly, I repeat, at the moment when we are playing host to the West German Chancellor. I hope that he will feel the same. I shall be very glad, and I think the whole Committee will be, if, as soon as he can, the Chancellor of the Exchequer will make a definite statement on this matter.

Now I turn to the question of unemployment. I welcomed very much, as I am sure we all did, the spirit in which the Chancellor yesterday spoke of unemployment. The general tone was perfect and could not have been bettered, but, of course, the statement was only in general terms and we still await the further specific policy proposals which have been promised. A little light was thrown on these today by the President of the Board of Trade. Some of us who have studied these matters were delighted to hear him say that he has lately become aware of the strong feeling which would arise locally against any de-scheduling under the Distribution of Industry Act of any Development Area. I was delighted to hear him say that. A number of my hon. Friends from County Durham called upon the right hon. Gentleman the other day and were courteously received and apparently made some intellectual impact. We are delighted that he has now definitely given up the crude and, as I think, mistaken notion of de-scheduling any of the Development Areas.

Who knows how far this recession will go? It may well be true that in some of the Development areas there is still reasonably full employment, but all these areas are, by the very nature of their industrial pattern, vulnerable. We do not change, even in ten years, the essential industrial pattern of an area, and although much has been done under the Distribution of Industry Act and in other ways, these areas still remain very vulnerable if unemployment should continue creeping up on us, as it has been creeping up for some time now.

We are very glad that the President of the Board of Trade is now thinking along another and, as we think, more hopeful line; namely, that of taking powers to perform certain operations that will be helpful to employment outside the Development Areas as well as inside them. I think he should study closely the danger from these patches of unemployment which there are inside the Development Areas. We should not let the story get round that, inside the Development Areas, all is sunshine and that these patches of unemployment are all outside. That would not be true. There are areas such as North Wales and West South-Wales where unemployment is very serious, and there are also places in Scotland where this is true. There are also a few places in the North-East, although I admit that this area has fared better than either Scotland or North or South Wales. There are patches of unemployment in a number of small areas, affecting a comparatively small number of people, outside the Development Areas altogether. There is no need to enumerate them; it would take too long, and in any case they are known.

s I say to the President of the Board of Trade that we shall look forward very eagerly to this new Bill, and we hope it will be a Bill conferring very wide powers. I do not think that, in face of the present threat to employment in this country, any Minister need be afraid of coming to the House and asking for wide powers. He will get full support, I am sure, from this side of the Committee for any measure which will strengthen his hand in maintaining full employment as fully as it can be maintained having regard to the American recession and other external factors. I hope that he will ask for wide new powers, and that when he gets them he will use them vigorously.

May I now say a word or two about the Purchase Tax? I applaud warmly the Chancellor's most admirable statement of the case against a general sales tax. This is a piece of reactionary rubbish, which has had a good deal of publicity, this notion of a general sales tax, which would fall heavily upon all necessities in order to relieve from higher taxation the luxuries only afforded by a small minority of the people. I have never heard the case against it put better than by the Chancellor yesterday, and, if I may say so, I think it was a perfect piece of exposition and argument. I hope he has killed that idea stone-dead and that we shall hear no more about it.

So far as the Purchase Tax itself is concerned, I have never accepted the view that it was either a bad tax in principle or a tax which should be regarded as temporary. That was a heresy which found some following in the earlier financial discussions in the post-war Parliament on the benches on the Government side, by people who thought that Purchase Tax was a war-time phenomenon which would soon pass away. I never believed that, and I said so from the start.

In principle, there is much to be said for this tax on expenditure, an easily administered tax compared with some other projects for taxes on expenditure. It should be a tax on expenditure falling differentially. There should not be too many rates. There should be at least two and perhaps three or four. The tax should fall most heavily on luxuries, less heavily on intermediate goods which are neither luxuries nor real necessities, and exempt necessities altogether. When we were in power that is what we sought gradually to make this tax, transforming the war-time instrument which we had inherited. The present tax brings in just on £500 million a year. What Chancellor is going to throw that away at this time, or even a large part of it?

It is a tax which is not at all bad in principle, but it is capable of improvement from time to time. As to the way to improve it—I am not committing myself here to the support of any of the detailed proposals which will be considered during the Committee stage of the Finance Bill—I am sure that the Chancellor's general approach is right, to simplify the tax within reason and to reduce the rates from seven to four. As my right hon. Friend the Member for Huyton pointed out, there were only three rates when the Labour Government left office. All this complication of seven rates is Conservative thought at work in successive Conservative Budgets. We are all in favour of a return to the simplicities of the days of Labour rule.

with a few rates properly adjusted, as between the commodities to be taxed, and no unnecessary complication.

Streamlining.

"Streamlining" is a word often used in this context.

The Chancellor has arranged for us, I am sure, a series of lengthy and interesting sittings if his proposals on Purchase Tax are to be carried through in a democratic manner and not a dictatorial manner with excessive use of the Closure. We shall look forward to this. I have always had a certain weakness for a few all-night sittings on the Finance Bill.

I have applauded the Chancellor's rejection of the general sales tax and up to a point, reserving judgment on details, his Purchase Tax proposals. But I do not applaud him at all on the unification of the two rates of Profits Tax. Here I declare an interest. It is a paternal interest. But for me this differential would perhaps never have been introduced into our law. There was opposition to it in various quarters when I was preparing my 1947 Spring Budget, but I thought that it was best to do it this way, in which it has continued for ten years.

I am astonished at the large number of normally thoughtful and intelligent people who are in favour of this most reactionary change. It can all be put most simply. My right hon. Friend the Member for Huyton put it very well today, and I will not repeat what he said. But, in its City column this morning, The Times, explaining it all, said simply this:

"The introduction of a 10 per cent. flat rate profits tax means that companies paying out a high proportion of earnings will have a smaller tax bill. Correspondingly, companies whose dividend policies have been unusually conservative will have to pay more."

Who really wants that, except the people who have investments in companies which have been paying dividends that are too high and which will now be allowed to pay dividends higher still, the companies which have inadequately ploughed back, and have, therefore, not really deserved well of the Chancellor, or of the nation?

I should have preferred the Chancellor to follow the lead given by at least one of his predecessors and perhaps two of them. If my memory does not play me false, the present Prime Minister and the present Lord Privy Seal when holding the office of Chancellor of the Exchequer both moved in what I would regard as a much more enlightened direction. They extended the degree of differentiation. They raised a little extra revenue by putting up the tax on distributed profits while leaving alone the much lower, rightly much lower, rate on undistributed. I am sorry that the present Chancellor has been reactionary not only in relation to the merits of the thing but in relation to the relatively enlightened conduct of his predecessors. I think I am right in saying that the right hon. Member for Monmouth (Mr. P. Thorneycroft) did not modify the tax at all. However, the two other distinguished conservative financiers did. [Laughter.]

Yes, we Chancellors of the Exchequer are all financiers. We have admirable staffs at the Treasury, and they tell us all sorts of things we should never have thought of. I am sure that the present Chancellor would not have thought up all these tricks about abolishing the Treasury Chest, and so forth, unless he had been very well served departmentally. So much for the Profits Tax. I reserve all my more violent observations—I have been very restrained so far—for the Committee stage, but I am very glad that my right hon. and hon. Friends yesterday accorded an emphatic vote against this, the worst proposal in the Budget.

I have only one final proposal to make and I am not sure how popular it will be on either side of the Committee. However, as we say in another context, I will have a go. This is a very cautious Budget. It is perhaps none the worse for that. The Chancellor can be reckless later, in the autumn, if he feels like it then. The tax remissions are relatively small The surplus above the line is handsome, more than £360 million I will assume for the purpose of the argument that I am about to address to the Committee that that is all absolutely right, that the Chancellor has a large surplus and that he is right to be cautious.

But let us think for a moment of the multitude of desirable tax remissions that he has had to set on one side. All sorts of possibilities were canvassed in the Press, which would have been very help- ful in all sorts of ways to all sorts of people. It was suggested that there should be a cut in the tax on petrol and diesel oil. That would have been helpful for all sorts of reasons. It would be out of order to make the case for it now, but a great case was made in the Press. It was said that the cut would bring down the cost of living and ease the tiresome problems in regard to transport of which the right hon. Gentleman and the Minister of Labour are well aware. It was said that it would have been splendid to make a cut there.

The Entertainments Duty relief is rather stingy and poor. The industry was looking for something more. It would not have cost much more to exempt cinemas altogether. However, the Chancellor has travelled only part of the way. The reductions in Purchase Tax are rather half-hearted. The Chancellor could have gone a lot further. Income Tax is still paid by many millions of very poor people. A rise in the allowances, freeing millions of people from paying tax, would have been very attractive and a very kindly action by a very kindly Chancellor.

With regard to Schedule A, people were saying "The Government say we ought to own our own homes." The Labour Party said "We have no objection to a man owning his own home, none at all, but what we are doubtful about is a man owning somebody else's home." There could have been a real bipartisan agreement on something a little more generous in regard to Schedule A. Many people do not pay it at all, because they claim it back for having had the house painted and so on. It does not bring in much money.

Then, turning from revenue to expenditure, he could have increased pensions for old people still further. Surely, we are not at the end of that road yet. He could have given bigger family allowances for large families. I always feel that that is just as important as bigger pensions, because the recipients will live longer and do more in the world later on. So we could go on. I want the Chancellor to feel how many things he might do, while keeping his surplus as it is, if only he could have one slightly ambitious new revenue resource. He could then put himself in a position to meet a number of these strong claims while retaining his large surplus.

In what I am about to propose, I am speaking for no one but myself. I am not committing any of the younger statesmen on the Opposition Front Bench, nor any of the older statesmen who sometimes post themselves elsewhere. I recall that in that spring Budget of 1947—a very spring-like time—another thing I did was to increase the tax on tobacco. I increased it by nearly 50 per cent. It was quite a stiff jump, and it was meant to be. I did it both to rake in revenue and save dollars. I emphasise on this occasion that those were the only two reasons for which I did it.

It was not wholly unsuccessful. I got £118 million more from tobacco the following year. If the Chancellor would do something like that and make a comparably stiff increase in the Tobacco Duty now, he would—and I make this estimate without any official assistance and the Chancellor will no doubt find that I have modestly under-estimated it—get an extra £150 million and perhaps nearer £200 million. I would almost wager that he would get at least £150 million by repeating my gesture of the 1947 Budget.

Then he would have money which he could use for a number of those other good causes. Can there be any doubt that it is better that he should do all, or any of, the things which I was trying to dangle before his eyes than just let people continue to run the risk of dying too young, a risk which has now been conclusively established? In a moment, I will quote what the Government themselves have said about the fantastically excessive over-smoking among considerable sections of the population.

I will give two precedents for this action—my suggestion appears to have caught some people very much off balance. It was not only I who thought that tobacco could bear a heavier tax. Sir Stafford Cripps in the Budget of 1948 increased the tobacco duty further, because, he said, people were still smoking too much, in spite of what I had done the year before. He gave another turn to the screw. The whole idea is most respectably bipartisan, because the present Prime Minister in his Budget of 1956 made a further increase. The Chancellor, therefore, cannot argue that there is anything wrong in principle. It it not only my party but his party which has done this sort of thing, and I hope that that will encourage him.

Some people say that the increase in the tobacco tax has made no difference to consumption. That is completely untrue. It made a great deal of difference. The total consumption of cigarettes, which are the most harmfully poisonous of all forms of tobacco smoking, last year rose to the record figure of slightly over 102,000 million cigarettes—that was in The Times of yesterday, and so it must be right. The Times either gets things right the first time, or it gets things right the second time when it is corrected, as happened today when I had to correct it about the contents of my first Budget in a letter it published today.

That record figure of 102,000 million cigarettes is only just higher than the previous record, which was that of 1946, the last year before I made that stiff increase. It is therefore clear that the increase which I made, backed up by the increases made by Sir Stafford Cripps and the present Prime Minister, definitely reduced cigarette consumption to below the 1946 level for a period of ten years. Now that the new record has been created, that is a new and admirable reason for the Chancellor to say that it has gone too far.

Why have I stressed all this without quoting authority? I can quote the authority of the present Government only a year ago for the background argument of what I have been saying. There is a new element which has entered into the argument about the taxation of tobacco which was wholly absent from my mind when I put on the increase in 1947, from the mind of Sir Stafford Cripps when he made the further increase, and from the mind of the Prime Minister, even in 1956. It was mentioned by only one hon. Member speaking from a back bench and apparently trying to be funny. His was the only reference to lung cancer in the whole of these debates. That is therefore an entirely new and additional argument to what I have been urging.

If the tax were sharply increased, the Chancellor would not only rake in more Revenue to enable him to do the admirable things which I have been suggesting, and would not only save dollars—not as much as before, because more tobacco comes from the Commonwealth now, but still a large sum in dollars—but he would save lives, which is more important than either getting revenue or saving dollars.

The proof that lives would be saved is contained in the statement of the Parliamentary Secretary to the Ministry of Health on 27th June, 1957, a statement made with the full authority of the Government. He said:

"…the Medical Research Council has advised the Government that the most reasonable interpretation of the very great increase in deaths from lung cancer in males during the past twenty-five years is that a major part of it is caused by smoking tobacco, particularly heavy cigarette smoking."— [OFFICIAL REPORT, 27th June, 1957; Vol. 572. c. 426.]

That statement has made a terribly poor impact. The Government said that they would make sure that everybody was made aware of the risks. However, their propaganda machine has not been working at all well in that respect. I hope that the Government are not frightened of the tobacco manufacturers.

It is worth putting on record the following figures, which are taken from the statement of the Medical Research Council to which reference was made by the Parliamentary Secretary to the Ministry of Health. The Council said:

"In their Annual Report for 1948–50 the Council drew attention to the very great increase that had taken place in the death rate from lung cancer in Britain over the previous 25 years."

This was no new issue although newly brought to the public view.

"Since that time the death rate has continued to rise so that in 1955 it reached a level more than double that recorded only 10 years previously…Among males the disease is now responsible for approximately 1 in 18 of all deaths."

If the Council is right in its diagnosis, a large number of people, many of whom die near to the prime of life or slightly beyond it, would continue to live for a number of years and make their contribution to their own happiness and the welfare of the community if cigarette smoking decreased.

"In the last ten years"

so says the Council,

"lung cancer death rates among both men and women have risen at all ages from early middle-life onwards."

The Medical Research Council is the body that advises the Prime Minister, as he repeatedly tells us at that Box, in connection with all matters relating to atomic explosions, poisons and so on; it is still regarded as the highest available advisory authority, and it would be possible to prove the case without going outside its official statements. I do not wish to appear priggish, but I am rather shocked to see how little has been done to get these facts across.

I do not expect the Chancellor immediately to bring in a new Clause imposing an extra tobacco duty this year, although I should be delighted if he were to do so. But he may think it worth while to have further consultations with the Medical Research Council before deciding upon the matter, which I regard as a very serious one. It lies mainly outside finance, although it is one of the matters in which the Chancellor can give a lead. The expression "give a lead" is very often humbug and false rhetoric, because people are often asked to give a lead in conditions in which nobody else is likely to follow that lead. But in this case the Chancellor can give a fiscal lead.

The aggregate figures show a disappointingly small decline in the total amount of cigarette smoking, but within that aggregate a number of admirable things have been taking place. I know people who have given up smoking recently although they had got badly into the way of it, and I know of others, chiefly young people, who have never started and who say that it is too damned expensive and that there are many other better and more amusing ways to spend the money. That attitude should be encouraged. The Chancellor can give a lead by making it much more expensive still, to incur the risk of early death in the prime of life.

I remember when British miners were trying to educate the ignorant British public as to the conditions in which those who lived in small mining villages had to exist, and as to the risks of death or disablement run by the men working in the bowels of the earth. They continually proclaimed the slogan "There is blood on the coal". In due course the public came to realise much more clearly, and prize much more highly, the efforts and sacrifices of the coal miners. We should now proclaim continually the slogan, "There is death in the smoke", for that is true from all the official evidence. We who are Members of Parliament are all in some degree leaders, or potential leaders, of opinion—most of all in our constituencies. I hope that the Chancellor will back us up. We should do our best to fulfil our civic duty by trying to prevent people from killing themselves needlessly, by what can shortly be described as a rather dirty habit.

): I should like to follow the right hon. Member for Bishop Auckland (Mr. Dalton) in continuing the debate, at least at first, upon a more narrowly budgetary level rather than, as did the initial speech, enter at once into higher economic spheres. It is certainly un usual—and welcome—that proposals for increasing as well as reducing taxation should be made from the Opposition benches in the course of a Budget debate. Of the right hon. Gentleman's comments and suggestions, however, I would refer only to what he said about the reduced tax on distributed profits and say that we must look, not at the initial act of the distribution of the profits, but must follow those sums beyond that initial act and see them entering again for the most part, whether directly or indirectly, into new and probably more fruitful forms of investment.

This Budget and this debate are still inevitably under the shadow of the critical events of last autumn and late summer. It may therefore not be without use to compare the contemporary background of this Budget with that of the Budget of 1957, which preluded the last financial year and the events which we witnessed during it.

Last year, one of the constituent elements in that background was that Government expenditure was expected to be lower than the out-turn of the previous year. It was expected to be lower both above the line and below the line—lower in total by between £70 million and £80 million. Even if we make allowance for the exit and entry of the American and Canadian interest payments, it still remains a fact that Government expenditure was expected to be somewhat lower than had been the experience in the financial year preceding it. The floating debt had recently fallen very sharply, by about £600 million. Funding had been proceeding apace. For four months the retail price index had been unchanged.

In such circumstances, it seemed reasonable to assume that by purely non-inflationary forms of borrowing it would be possible for the Chancellor to cover the maturing debt of the financial year, to finance the Exchange Equalisation Account, and to cover the relatively small gap, or overall deficit, of £125 million left by his tax remissions of £100 million in the Budget.

That seemed a reasonable prospect a year ago. We now know, however, that in the event there was a further turn to the inflationary screw and a dramatic loss of confidence in the £ abroad and at home, with the inevitable consequences of that loss of confidence for our reserves and for the Government's power to cover their internal expenditure by genuine borrowing from the public.

Such, in very brief detail, is the budgetary experience of the last twelve months.

Now let me look at the similarities and differences of the background of the Budget which my right hon. Friend introduced yesterday. There are similarities. The cost-of-living index once again has been steady for several months; funding, in recent months, has been proceeding at a very satisfactory rate. The reserves have been rising equally satisfactorily.

But there are differences. The floating debt is at this time nearly £400 million up on last year, rather than £600 million down; and there are other differences, which I would sum up under one heading by saying that our commitments are higher than they looked to be at this time last year. Government expenditure in the Budget, as compared with the out-turn for the year just completed, is not down but up. It is up, overall, by £120 million —actually, it is up £155 million above the line, offset by an anticipated reduction of £35 million below the line—as compared with the actual expenditure in the year just completed. As the right hon. Gentleman has just reminded us, there may be some addition to that—although we hope that there will not be—as a result of the agreement upon support costs. Secondly, the amount of maturing debt in the year which we have now entered is more than one-third greater than the amount which matured in the last year. Finally, we all hope that my right hon. Friend will this year find the financing of the Exchange Equalisation Account very expensive indeed, for that will mean that we shall be gaining in our gold and dollar reserves throughout the period.

s This, then, is the background against which my right hon. Friend faces an overall deficit of about £236 million on the Budget, to be filled by borrowing, compared with an intended figure last year of £125 million and an actual figure of £212 million. I submit that in those circumstances it would have been criminal for my right hon. Friend to have gambled upon covering yet more of the Government's outlay above and below the line by borrowing; in other words, that he was thoroughly right to restrict his tax remissions to the amount that he did. My right hon. Friend has done a great service by refusing to take that gamble.

Though I have ventured to compare the background of last year's Budget with this year's Budget—indeed, such comparison must be in the mind of any Chancellor of the Exchequer, and very largely condition our judgment—one year is not the same as another year. Events do not repeat themselves—it is not made as easy for us as all that. It is legitimate and necessary to try to look forward and see whether we can discern changes in events which would justify or demand a different budgetary attitude.

I would say at once that I can see nothing in prospect, I can see nothing in possibility, in the coming months, which would justify a deliberate resumption of inflation, If what is to come is a trade recession, inflation is the wrong prescription for meeting it; for it means that we put up British prices and that we damage confidence in the£ only now just convalescent. If, on the other hand, there is in the event to be no trade recession, if world trade is to go ahead again, then a return to inflation is still the wrong prescription; for it means that we go back to those internal injustices and maladjustments and those recurrent external stresses and anxieties which we know only too well. So I feel that there can be nothing in the alternative prospects for the future which would have justified my right hon. Friend in taking any step that would to any degree mark a return to the possibility of inflation.

Of course, it is true that in the coming months, or in a year or two, it may be possible for the Government to borrow from the public, that is to say, to borrow in a non-inflationary form, in much greater volume and with much greater freedom than has been possible in recent months and years. But, quite apart from the question whether we ought to be increasing the total volume of our indebtedness still further rather than holding or reducing it, there is another essential aim of our policy, and my right hon. Friend referred to it yesterday when he mentioned "vigorous funding": the reduction of the dangerously high amount of the floating debt within the total of our national debt. If we are to fund, if we are to reduce the total of the floating debt, and so get a greater control over the monetary system, it must mean that we borrow more from the public in total than is necessary to cover our current requirements. It must mean that we borrow not only to cover the overall deficit on the Budget, but also in order to fund.

I do not say this in order to deny the need for further tax remissions, for a further reduction in the burden of taxation upon our people and our economy. Indeed, I believe that we need such further reduction and relief speedily and drastically. But I do assert that in the foreseeable future such relief must be earned; we must earn the right to it by reducing our commitments both absolutely and, what is, of course, more important, relatively to our total national wealth. We shall ill serve the nation if we flinch from the harsh reappraisals which such a reduction of our commitments demands, and if we suggest to others or to ourselves that there is some soft option, some easy trick or some excuse to be found in changing economic conditions for not doing this difficult duty.

It has been a paradox of recent years —a paradox more easy, I hope, to recognise than I find it to describe—that in the midst of virtually full employment, with standards of almost every kind steadily rising—by whatever test we apply to them—still there has been over these years a deep-seated public malaise, an anxiety, a sense of insecurity, a sense of uncertainty—even of discontent—which contrasts so paradoxically with the progressive and prospering economic environment in which we have lived.

I do not think there is any one cause which can be assigned for this phenomenon, but I believe that the main cause is that we seem never as a nation, or as a Government of either complexion to have pursued any one objective long enough or with sufficient determination or firmness. We seem to have operated in these years always on too narrow margins and too subtly to have readjusted and changed our course; never following a policy through to massive success in the achievement of a known and predetermined aim. I think that people have sensed and felt that, and this malaise to which I refer is largely the result. For that reason, it was so good yesterday to hear my right hon. Friend's stubborn reaffirmation of the stability of the value of our money as his primary object.

There were other things in his speech which, taken out of their context, could he subject to misconstruction. He said, and this was in a very definite context,

"We shall not, therefore, keep the brakes on one day longer than we must. We dislike restrictions intensely, and we are eager to resume expansion."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586. c. 55.]

In the context of those words it is quite clear that my right hon. Friend is not contrasting the stability of the value of our money with economic expansion. But it is above all important that the idea should not get abroad that these two things are somehow opposed; that we have the one or the other; that we can have stable money or expansion, but cannot have both; that they are alternatives. They are not alternatives. The one, in the long run, is the precondition of the other. In the long run this country —whatever may be true of any other country—cannot have prosperity and progress unless the value of its currency can be relied upon. In an important contribution to this month's Lloyds Bank Review, Professor Robbins wrote:

"…I know no reason which would lead to the conclusion that smart rates of growth and high levels of employment are impossible on a steady price level. In the recent history of Germany, for instance, there is ample evidence disproving this view."

He went on to say a little more about the experience of Germany, and he ended in this way:

"What is so different in the condition of Germany and ourselves, that while on balance, our reserve has not increased at all since the summer of 1950, in the same period the German reserve has mounted from 260 million dollars to some 4,000 million dollars? Doubtless "—

and here he had in mind some of the points which were mentioned by the right hon. Member for Bishop Auckland—

"there are many inessential differences which can be cited one way or the other. But the main difference, I submit, is that the Germans have had the will to do this thing and we have not. And let no one say that this has been accomplished at the price of poverty and stagnation. Between 1950 and 1957, while our real output per head has increased by about 15 per cent. the German has risen by nearly 60 per cent."

He ends:

"Is it not the bankruptcy of statesmanship and national morale to argue that this sort of thing is impossible for us?"

It is for that leadership and statesmanship that the country looks to this party and to my right hon. Friends.

The whole Committee welcomed the opportunity to listen to a speech by the hon. Member for Wolverhampton, South-West (Mr. Powell). It is the second time that he has addressed us since his resignation. I infer from his speech that he wanted to go on doing something to the bitter end and that his right hon. Friend would not allow it. It is not very clear from what he has said what precisely he wanted to do and what the bitter end might have been.

It would help if we had a more explicit account of the differences upon which the hon. Member felt it necessary to leave Her Majesty's Government. We have not had it from his right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft), but I am sure that the House of Commons and the country have been in some doubt for some time as to what that was really about.

We are now faced with a situation in which the economy of the country is rapidly deteriorating and is creating a greater sense of insecurity and fear among the people. My interpretation of the public mood differed from that of the hon. Member for Wolverhampton, South-West a little while ago. Far from believing that, notwithstanding a sense of security, there was some fear and malaise, I believed that there never was a time when there was such a feeling of personal security in conditions of national insecurity. What I believed to be wrong with the public mood some time ago was the belief that the Welfare State was a sure shield against economic, social and industrial changes and that, somehow or other, our debates on the national economy were remote from the day-to-day interests of the ordinary people.

Today, the changes in the general situation and the feeling of insecurity of employment has led to a much more acute sense of national danger, and that is why there is an increasing desire to see action on the part of the Government where it is needed, and a clear statement of their intention to meet the dangers which might lie ahead.

The President of the Board of Trade mentioned two matters which are of such close interest to my constituency that I feel I must mention them before going on to other things which I want to say. A part of my constituency felt very aggrieved at being excluded from the East Lancashire Development Area when that was created. The case for excluding it was that its trade and industry were not fully and completely associated with that of east Lancashire and the fear of unemployment was not so great as to justify enlarging an area which was intended to relate to the dangers of a particular industrial belt.

What the President of the Board of Trade said this afternoon, and the Chancellor of the Exchequer said yesterday, about taking powers to act in areas where unemployment might be high and appeared likely to continue, will be of interest to parts of the country like my own, where unemployment may rise and persist, and which are outside the Development Areas. Since the President of the Board of Trade said this afternoon that he was anxious for a favourable response to, and a quick passage for, the Bill of which he spoke, because the Government desired to take action quickly in certain cases, I am sure that the Committee will wish to see that action taken and to observe its nature and effectiveness in the areas in which the President of the Board of Trade said he was anxious to begin.

My second point relates to the cotton textile industry. Contrary to a general belief, not all cotton textiles are manu- factured in Lancashire. Some are made in the West Riding of Yorkshire. That explains my particular interest. Those of us who were at the Commonwealth Parliamentary Association Conference in India, in December, had the pleasure of the Chancellor of the Exchequer being with us on that occasion. No one who went out to that Conference could have come away without feeling the new Commonwealth spirit, and the earnest desire of the people of India and Pakistan especially to see their emerging industrialisation given a place in our trade relations with them.

Pakistanis and Indians say, "If we cannot earn sterling where sterling can be earned, we shall have to draw on our sterling balances to meet our current need for expansion. When they are exhausted we shall have to go elsewhere to borrow on the most favourable terms we can. Otherwise, any prospect of lifting a standard of life which we all know is appallingly low will be postponed for a generation or longer."

The President of the Board of Trade explained the difficulties from our point of view very clearly. Where the industrialisation of an underdeveloped country takes the particular form that it has taken in India and Pakistan, and when the damage resulting to us from the export of their goods is concentrated on a particular industry in a particular area, conditions of gravity are obviously created for the workers and employers in the part of the country where that industry has been developed over the years.

I have been very reluctant indeed to join in the demand for import restrictions or tariffs directed against the import of cotton textiles from Commonwealth countries. Hong Kong occupies a somewhat different position because a lot of the industrial development in Hong Kong is probably not healthy and not a permanent part of Commonwealth development anyway, but one must have the deepest desire to assist India and Pakistan to develop their industries out of their own raw materials and to take their place among the trading nations of the world.

I sincerely hope that efforts are now being made to persuade cotton textile interests in Pakistan and India that the damage now being done must be eased in our mutual interest. I hope that the right hon. Gentleman will succeed in doing something on those lines. Otherwise, he will force some parts of the textile area into taking an extreme view, which would be very bad for Commonwealth relations.

I pass on to deal with an aspect of tax administration which I think has a bearing on some of the remarks made by the hon. Member for Wolverhampton, South-West. There are a few things about the tax structure and the revelations now being made in the reports by the Commissioners of Inland Revenue regarding the income bands and profits of particular industries and areas which deserve the closest study. I refer to one, I think, quite extraordinary fact which emerges from the 100th Report of the Commissioners.

There were, in 1955–56, 1,878,000 assessments made on profits under Schedule D. In just over 1 million of those, 56 per cent., the net true income assessed was not more than £500. In 1,607,000 of the 1,878,000, that is, over 80 per cent., the net true income assessed for 1955–56 was not more than £1,000. I find those figures extremely difficult to believe. We should bear in mind that in the case of individuals and partnerships, to which most of these Schedule D assessments relate, the remuneration and personal drawings of the proprietors are included in the assessment on profits, so that what they took out of the business themselves is included in the amounts I have quoted.

A second interesting fact is that between 1951–52 and 1955–56 the profits from retail distributive businesses increased by 47 per cent. Yet in 1955–56 more than 80 per cent. of the assessments under Schedule D were on amounts of not more than £1,000 in the year of assessment. I just cannot believe those figures. Incidentally —this is a question probably to the President of the Board of Trade—is it not rather surprising that in a period when the profits on retail distribution increased by 47 per cent., profits from wholesale distribution increased by only 15 per cent.? What is the explanation of the contrast between the rise in the total of retail profits and the rise in the total of wholesale profits, both in the distributive industries?

I assert that there is substantial and widespread under-assessment in the field of Schedule D to which I have referred The total net income assessed is more than £1,100 million. No one need question the belief that that is under-assessed by at least 10 per cent. We all know with what ease the Schedule D taxpayer can claim expenses against his taxable profits in contrast to the greater difficulty of the Schedule E taxpayer in getting an allowance for expenses, "wholly, necessarily and exclusively incurred in the performance of his business."

We had an example in the concession the Chancellor announced yesterday of the difficulty, up to now, of getting expenses allowed against the Schedule E assessment in the case of a professional man paying a contribution to a learned or professional body. He could not get an allowance unless he were a member of that professional institution or learned body as a condition of his employment. The Committee has repeatedly appealed to the Chancellor to make a concession of that kind.

I mention that to show the contrast between the tightness of the rule under Schedule E and the greater relaxation in the application of the rule under Schedule D, which does not contain the word "necessarily" but says: "wholly and exclusively laid out in the course of trade." Reference was made this afternoon by my right hon. Friend the Member for Huyton (Mr. H. Wilson) to the inclusion of the private motor car within the proposed increase for initial allowances. There is no greater source of unreasonable charge on trading profits than the use of a motor car by people in business. From my knowledge of affairs inside the Inland Revenue, I have no hesitation in saying that there is now urgent need for strengthening the administration to enable a tightening up of the whole tax code in this particular field.

As circumstantial evidence in support of my view that this substantial range of income of individuals and partnerships is not fully assessed, I mention the difference in the percentage increase of company profits compared with the rate of increase in profits of individuals and partnerships. Between 1948 and 1956, company profits rose by 76 per cent. In the same period profits of individuals and partnerships rose by only 30 per cent.

Again, I ask the question: what is the explanation of this wide difference between the increase in profits of companies and the increase in profits of individuals and partnerships, many of them in the same kind of business? As far as I know, there is not any obvious explanation, although it must be admitted that the number of companies increased in that period but only by 20,000, which, in my judgment, was not enough to account for the wide difference.

Another thing I want to refer to in this connection is Schedule E expenses. The total amount allowed against taxable income under Schedule E for interest and expenses is £440 million a year. That, it may be said, is only 4 per cent. of the total gross income assessed, but to describe it as an average or a percentage like that would be very misleading.

A very large number of Schedule E taxpayers can claim nothing at all, and many more only trivial amounts for tools and overalls. My belief is that this rather big total of necessary expenses allowed against Schedule E assessments covers a comparatively narrow range of Schedule E taxpayers. It seems to me that here is room for closer scrutiny of all the claims of taxpayers. I estimate the tax on expenses allowed against Schedule E assessments to amount to £150 million a year. We are dealing with very large amounts. Even a marginal improvement in the correctness of assessments, whether on the gross amount or on expenses claimed against tax, can add up to very substantial totals of revenue.

I wish to make a further point about the method and time of collection of tax. Reference has been made to the large total of floating debt. One of our difficulties is that Government expenditure has to go on when the revenue coming in is not enough to meet it. Under our present system, tax on profits and gains is due on 1st January after the commencement of the Income Tax year, and the assessment for that year is based on the profits of the preceding year. Thus, the tax is payable eight months after the beginning of the Income Tax year and a year or more after the profits have been earned. Whereas the Schedule E taxpayer is paying tax from the first pay day in the financial year, the Schedule D taxpayer does not have to pay until eight months after the beginning of the financial year.

Why should we not change this system of delayed payment of tax on profits previously earned? I see no reason why taxpayers under Schedule D should not be required to take up tax reserve certificates in the early part of the Income Tax year based on their assessable profits for the previous year of assessment. Reliefs might be due in some cases where profits fell substantially, but there is no doubt in my mind that there would be nothing unreasonable in requiring taxpayers to pay something on account of their liability long before eight months after the beginning of the Income Tax year.

I should be very interested to know what has been the experience in relation to tax payment this spring. The weapons in the hands of the tax gatherer for recovery of unpaid tax are, in my judgment, inadequate to a tendency which I am convinced is now discernable, which is the use of Income Tax money to finance business operations. At present, interest on tax due on 1st January cannot be levied until after the end of March. Thus, there is three months' grace after the due date before the interest arrangements introduced by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) come into operation.

That is three months' use of very substantial amounts of tax, money which in times of credit squeeze can be very valuable indeed. It seems to me that if we were to bring forward the collection of these substantial amounts of tax—I see no reason why it should not be brought forward—borrowing in some measure now to cover Government expenditure during the slack revenue period could be substantially reduced.

I throw out these suggestions. I believe that with tax at its present level the conventions of the past should be reviewed in respect of the method of payment. At present, there is practically no alternative for the recovery of tax except distraint in some cases or application to the High Court in others. We all recognise the limits of distraint as a method of recovery of very large sums of tax, and we all see the difficulties of legal process in order to get recovery. The United States does not stand for this sort of thing. The collector there can serve a notice on the taxpayer's bank to transfer the overdue tax to the Inland Revenue without any fuss or palaver. That is a salutary method of collecting debts.

It is small wonder that in the 100th Report of the Inland Revenue Commissioners we find that the amount of collectible tax due and payable stood at £71½million, the highest figure since 1953. The estimated total arrears ultimately collectible was £200 million. They are very big amounts of money. They are more than the Chancellor has given in tax concession in his Budget. I am convinced that we shall not get fiscal or social health until much of this slackness in the administration of our tax system is removed. I have repeatedly said that the attitude of those who pay week in week out, month in month out, under P.A.Y.E. is bound to be unfavourable towards the greater freedom which is given to those who are in business, and who pay under Schedule D, to arrange their affairs and pay their tax when it suits them.

I now want to deal with a different matter in relation to the nationalised industries, which have such a close interest in the right hon. Gentleman's provision for below the line expenditure for capital development. It is about time that on both sides of the House we removed present confusions and uncertainties in our attitude towards the nationalised industries. It is idle to pretend that a nationalised industry must conduct its affairs according to commercial principles if we do not allow it to do so. If curbs are to be put on it or if, owing to the nature of its business, it is impossible for it to be conducted according to commercial principles—that may be likely—the sooner we recognise the nationalised industries as part of an enlarged public service and deal with the workers in them as if they were public servants, the better.

After all, what are people in the nationalised industries claiming now? They are claiming fair comparisons, which is what the Post Office worker and the civil servant have got. The principle which has been adopted by the Government is to give the public servant a rate of pay which compares favourably with that being paid outside for comparable work—no more and no less. He enjoys no privileged place in the community, nor does he suffer a degraded place in it. That is the attitude which we shall have to have about workers in the nationalised industries.

The Postmaster-General, when he brought before this House proposals for higher postal charges, based their need upon a substantial adjustment of Post Office pay by reference to the application of the principle of fair comparisons. When there were signs of challenge, he said, "I challenge anyone. Do you wish Post Office servants to be paid less for their work than outside employers pay their workers for comparable work?" Of course not. Yet, in the railway industry, at present at all events, that is almost precisely what we are saying to the workers.

Indirectly, we are saying to them, "You cannot have fair comparisons, because the industry cannot afford to pay." but we are not addressing ourselves to the conditions in which we have disabled that industry from being able to pay a fair wage by comparison with outside industry. We are curbing its capital development and postponing its ability to pay out of its own resources wages that can be fairly compared with those in outside industry. This is a confusion of thought, and it should be rapidly cleared up. Then, I think, the trade unions would be able to see their position much more clearly in relation to their own industries than they can at present.

Not until this House recognises the nationalised industries as part of the public service, and trade unions accept it, shall we get a clear understanding of their position in the wage structure, their obligations to the country, and the methods by which their pay and conditions should be decided. Little has so far been said, though more will probably be said before the debate ends, about the grave industrial crisis now confronting us. It seems rather futile to discuss academic aspects of the budgetary and financial situation on the eve of what may be a disastrous setback if we have widespread industrial unrest.

I believe that it is an urgent necessity that we should more clearly define our attitude to the nationalised industries. At the moment there is confusion between regarding them as under Government control, their finances under Government direction, and, at the same time, regarding them as commercial enterprises that, somehow or other, must sink or swim by their own resources. That is very bad for a large number of workers now doing yeoman service to the community, and asking no more than that they shall have a fair place in the economic relationship between their industries and those outside.

): Many of my hon. Friends will agree that we always like to hear the hon. Member for Sowerby (Mr. Houghton) because, however much we may disagree with his views—and we generally do—they are always supported by substantial arguments. I can never remember him trying to make a purely debating point. I cannot say quite the same for his right hon. Friend the Member for Huyton (Mr. H. Wilson), who told us today that he thought that our economy under this Government had been stagnating for many years. I think he said for four years. [An HON. MEMBER: "Two and a half."] He compared the present investment record with that of other countries, and with that of the Socialist Government.

Figures can be a good guide, or they can be very misleading. A clever statistician—and I think that we all recognise that the right hon. Gentleman is a very clever statistician—can often produce figures to support the most unlikely arguments. I will give another set of figures that do not support the right hon. Gentleman's views, and leave it to the Committee to decide which set is the truest indication. I have taken the gross domestic production figure in the National Income Blue Book. That, after all, is the figure of total production in the country and, therefore, I should have thought that it was the truest indication of how the economy was faring.

At 1948 prices and taking 1948 as 100, the figure, to the nearest decimal, was 104 in 1949, and the figures for the succeeding years were, 107, 112, 112, 117, 122, 126, 128, and, last year, 130. That may not show the expansion that we would like to see, but it certainly does not seem like stagnation to me. If we take the record for investment during the last year of the Labour Government, the gross capital formation, at 1948 prices—according to the National Income Blue Book—was £1,647 million. Last year, it was £2,323 million, so that it would appear that we are about 50 per cent. up on their last year.

If we compare investment in manufacturing industries with that in other coun- tries, though I have not got official figures, those given by Mr. Barna in the Banker of April last year show that the increase in manufacturing investment in the United. Kingdom between 1952 and 1956 was 720 million dollars, or nearly as much as that in West Germany, and, proportionately, enormously more than in the United States of America. Finally, there are the employment figures. At the end of February last there were 23,057,000 people employed. That is, I think, the highest employment figure ever known, and nearly 900,000 more than in the last year of the Socialist Government.

Of course, in any healthy economy there must sometimes be a slowing down in expansion. It is bound to go up in leaps and then to stop for a bit, and there can, on occasion, be the necessity to have an actual reduction. One Chancellor of the Exchequer said in this House not very many years ago:

"…we have to recognise that there must be some reduction in our standard of living."—[OFFICIAL REPORT. 10th April, 1951: Vol. 486. c. 827.]

That was said by the right hon. Gentleman the Leader of the Opposition in his 1951 Budget speech.

A fact that would be very widely agreed is that if there is a greater increase in money incomes than in national resources, prices will go up. I am on fairly strong ground there, because I can, again, quote the right hon. Gentleman the Leader of the Opposition, who said:

"If incomes go up more than production goes up then prices will rise. The truth is as simple as that"

He added:

"I would like to see it hanging as a text on the wall of every office inhabited by any employee or trade unionist concerned in negotiations about any increase in income."

I hope that those wise words of his are widely read.

A second fact that, I hope, will be generally agreed, is that when there is a condition of very high demand, as has certainly been the case—and may still be, though there may be differences of opinion about that—an expansionist policy pushes up incomes more than it pushes up production. I suppose there is nearly always enough slack in the economy, however great the expenditure is, to be able to push up production just a little bit more. But it cannot be in the national interest to push up production if we are able to push it up only very little while pushing up incomes by a great deal. That would be far too expensive particularly for a country that depends so absolutely on being able to export to live.

Before the war, Conservative and Labour Governments failed to speed up the economy so as to maintain full employment. Since the war, Labour and Conservative Governments, at any rate until lately, have failed to slow down the economy so as to prevent rising prices. Both tasks appeared to be too difficult for the Governments concerned. These Governments, at any rate, had the advantage that they had only one opponent to go for. My right hon. Friend has, or may soon have, the much more difficult problem of having two ugly twins to face, the possibility of deflation or inflation. Which is the uglier is a matter of opinion. It is a still more difficult judgment for him to make and more depends upon it, because of the slowing down in world trade. If he relaxes too soon, the consequences would be very dangerous. It is bad enough to have an inflation when other countries are booming; at any rate, we can sell our goods abroad. But it is a very serious business when other countries are not. On the other hand, if the Chancellor is too late in relaxing, then he not only creates difficulties here but he adds to world difficulties.

In an uncertain world, two things seem to be quite clear. One is that we in this country cannot initiate a world revival on our own resources. It is very foolish to think that we can. If only we had piled up our resources, we might have been in a very different position, and, at the rate, our reserves are improving now, and if that were to go on for four or five years, we might be in a position then to act independently. Today, quite clearly we cannot initiate any world recovery.

The second proposition which is quite clear is that the policy for a recession, a mild recession such as we know the world is going through today, and the policy for a major slump are entirely different. The sort of policy which would be all right in a mild recession would be no good at all in a slump. The policy in a slump would be disastrous if it were employed in a mild recession. If there is in the United States, as I think is most likely, just a mild recession which may go on a little longer but will not go much deeper, then, it seems to me, the Government's job will be to produce a balance between money incomes and the nation's resources and to choose the moment to expand preferably directly after the American expansion has started.

The fact that my right hon. Friend has not relaxed his fiscal measures in this Budget does not, of course, in any way debar him from relaxing the monetary weapon; he can do that at any time. As the relaxation of the monetary weapon is more likely to help exports than relaxation of the fiscal weapon, which would increase home consumption, there is a great deal to be said for concentrating at this time on monetary relaxations and trying to give the first priority to our exports, however much we may want reductions in taxation. If, on the other hand, the worst happens and there is not just a mild setback but a really serious slump, then this country will be faced with two choices, one to deflate to such an extent as to enable us to maintain the exchange, which, of course, would mean unemployment on a vast scale, and the other to let the exchange go.

Of the choices open to us, faced with these two evils, I have no doubt at all that the second is the right one, and we should hope, I think, that the rest of the sterling area would cluster around us and we should come out all right. I think that that is the correct choice, the lesser evil of the two, but I realise very well that it is a very difficult operation to carry out. It would be most unwise to start on it until a slump had really shown that it was coming. To my mind it would be like a doctor looking at a patient's leg, seeing a sore on it and, before ascertaining whether it was serious or whether he could cure it with some ointment, chopping the leg off. If freeing. the exchange were done prematurely, not only would it be more difficult, but it would be much more dangerous because the rest of the sterling area would be much less likely to come with us. We should be left on our own.

I think I am right in saying that, in 1955, in the discussions about nothing so drastic as freeing the exchange but just making it more flexible, many members of the sterling area were so alarmed that they at once started piling up their own reserves instead of putting them into the common pool. So for us to make a premature move towards freeing the exchange would be catastrophic.

As to whether a really serious slump is likely, I know well the unwisdom of trying to be a financial prophet, and I shall, therefore, very hesitatingly make my guess. I should have thought it unlikely that things were going to develop much further. Those in charge in the United States have shown themselves to be very wise administrators of their economic affairs since the war, and very generous. No doubt in their own self-interest, but a very enlightened self-interest, they have provided the world with vast sums of money. These able people must remember very well that, in the early thirties, when they had the beginning of a slump, and they began to find things rather more difficult at home, they chose to withdraw some of their foreign credits and to contract on their foreign positions, thereby, so they hoped, saving a few hundred million dollars. But, of course, it was done at the cost of losing several thousand million dollars in the slump which could have been avoided if they had taken another course. It is certainly not for us to criticise them, because, of course, we in this country did very much the same.

The Americans have shown, by the wisdom of their handling of their economic affairs in recent years, that they are very unlikely to fall into that error again. Indeed, Vice-President Nixon, in a speech a few weeks ago, said that he would like to see a spectacular outflow of American funds into the developing countries. In fact, he advocated that American investment abroad should be doubled or trebled within ten years. Only the United States and, I suppose, to a lesser extent, Germany, can find these resources, but in other ways it would be easier for us because, at any rate inside the sterling area, we have experience, knowledge and contacts which the United States has not. They might find it very much more difficult. We perhaps have the knowledge how to do it: they have the resources with which to do it.

I suggest very diffidently indeed to my right hon. Friend the Chancellor that he should consider the possibility of asking for a very large loan, not on condition that we do not pass any of it on. as in the case of the other loan, but on the condition that the whole of it is passed on. It may be that that is a very impracticable proposition, and certainly with our present reserves it would be a great risk for us to take to incur those obligations and to incur the guaranteeing of that loan, but if it were boldly done, why should not it succeed? If it did succeed it would put the whole of world trade on a far sounder basis than ever before. The reward for us and for the Commonwealth, and, indeed, for the whole Western world, would be very great indeed.

This is the second time in two economic debates that I have followed the hon. Member for Scarborough and Whitby (Sir A. Spearman). It is the first occasion on which I have found that there is a large part of his speech with which I agree. I hope to make reference to some of the things that he said in my remarks. I could not, however, agree with his statistics, which seem to me to suffer from the accusation of being more politically inspired than accurate. [An HON. MEMBER: "They were accurate."] They may be, but they do not take into account changes in population which very much affect the figures. However, I do not want to cross swords with the hon. Member on that point.

What I liked particularly about the hon. Member's speech was that he seriously faced economic possibilities without imparting into them moral undertones. In particular, I was glad that he was willing to face the ultimate possibility of the freeing of the sterling exchange rate, with the implication of its possible reduction. I hope to say more about that in my speech. All of us support what has been said on both sides about the importance of maintaining the exchange rate, the value of sterling.

But it is no good discussing this matter as if there were some moral virtue in maintaining the value of sterling. I thought that I detected this attitude in the speech of the hon. Member for Wolverhampton, South-West (Mr. Powell), who seemed to imply that there was some moral virtue in keeping down the standard of living and maintaining the value of the £. Of course, there is a moral virtue in paying our debts and meeting our obligations, but the question of what is or is not the correct value of the £ is an economic matter, and must be considered only in that light.

There is rather too much of the attitude, particularly by those who do not need a rise in their standard of living, that an expansion in the economy with a continued rise in the standard of living is in some way immoral. This may be due to the puritanical tradition of the country, which looks upon a rising material standard of living as something not quite right. If one reads economic debates or listens to them, time and time again one comes upon this undertone, that there is something not quite moral, not quite ethical, that the moral fibre of the nation is weakened, if we have a continued expansionist policy.

Completely irresponsible.

The noble Lord may not agree with what I am saying, but if he listens to the debates he will frequently hear this undertone.

The hon. Gentleman has been misquoting my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), who did not mention halting the standard of living or reducing it from the start to the end of his speech. He merely referred to the perpetual rise in the cost of living. The whole implication of his speech was that we should continue to try to hold the rise in the cost of living, but he never implied that that would lead to a reduction in the standard of living.

I am sorry that I cannot agree with the noble Lord. If he looks at the speech of his hon. Friend and many other speeches of a similar character he will find that there is a subconscious undertone implying that there is something wrong about the standard of living continually rising and the economy continually expanding.

I want to underline what has been said by hon. Members on this side about the impossible position that the Government have got themselves into by maintaining this pressure by every possible means against any wage advance without an increase in productivity while, at the same time, maintaining the restriction on investment. Undoubtedly, in spite of the increase in the initial allowances, financial restrictions have been maintained on investment in the private sector. The financal Press has referred to the increase in the initial allowance as being quite inadequate. In the public sector the Government continue the policy of reducing the programmes of the nationalised industries. This is particularly important in the case of the railway modernisation programme. After half a century when nothing was done at all, the railways, with a long tradition of technical backwardness and old-fashioned methods, are at last getting new plant, new equipment and possibly even new ideas. Now that development is to be held back, I do not think that it is possible to maintain that the railwaymen should not have an increase in wages until the modernisation plan is complete, while the Government continue to slow down the modernisation programme.

I want to refer chiefly to two very important and, perhaps, related parts of the Chancellor's speech and to some of the things said by the President of the Board of Trade about the sterling area and assistance to exporters by the use of the Export Guarantees Act. I was interested and pleased to note that the Chancellor defended the sterling area system on the grounds of the use of sterling as a reserve currency and particularly its value in a period when commodity producers are suffering from adverse terms of trade, and not on the very much more doubtful ground of the value of the earnings of the City of London. From a strictly United Kingdom point of view, the sterling area must be judged by the extent to which it enables our customers to buy from us and by the extent to which it enables us to sell manufactured goods. The future of this country overwhelmingly lies in the physical export of goods. That is by far the greatest component on the credit side of our balance of payments account.

It is true that the sterling area system makes it easier for the member countries to find capital for their development in this country. I believe I am right in saying that this country is the only exporter of capital within the sterling area to other sterling area countries. Unfortunately, owing to Government policies in recent years, much of the capital which has been available from this country has gone to purchase non-sterling currencies, often for investment in non-sterling countries.

This has contributed to the endemic failure to increase our gold and dollar reserves on which the system depends. Nobody can deny that, since the war, we have singularly failed to make a substantial increase in our gold and dollar reserves, taking one year with another, in any way commensurate with the requirements of the sterling area system. It is not so much the inflationary situation at home, as many hon. Members opposite frequently claim, that has prevented us doing this as the extent to which uncontrolled investment abroad has grown up in recent years. It is this factor that has prevented our reserves from rising to an adequate level.

Investment in the sterling area is made not only by direct overseas investment by British companies or by loans raised in the City of London. When these involve new capital they are subject to the control of the Capital Issues Committee, although the investment of British companies is not subject to control by the Committee if they make it out of their own reserves. There has. in addition, been a substantial running down of the sterling balances which are frequently used for the purchase of dollar equipment and there are various leaks in the system which have also contributed to our difficulties.

We are now increasingly facing a situation in which some of our former Colonies which, in the past, have been the main contributors to the reserves—more particularly, perhaps, Ghana and Malaya—are becoming independent and so are likely in future to make drains on the reserves greater than they make contributions to them. This is especially so if tendencies which are already growing up in some of them, for instance, in Ghana, to buy from non-British sources, continue for very long. At the moment, I believe, Ghana is increasingly purchasing its requirements from outside the sterling area.

I agree with the Chancellor that, while our economy is not fully employed, it is a good time to encourage sterling area countries to use their reserves for their own economic development. I regard it as surprising that I should find myself in agreement with a proposal first put forward by Mr. Harold Wincott; nevertheless, I thought it was a good one. This method will help these countries in their own development and, at the same time, reduce our own liabilities at a time when our own economy is not under severe economic strain and when there are some unemployed resources.

I hope that the powers under the Export Guarantees Act will be used for this purpose, but we must recognise that extended credit is a form of investment. It is another form of investment in the sterling area. The great advantages of the sterling area to its members should, however, make them much more willing than they appear to be at present to accept a greater control over the use of the funds of the area.

My right hon. Friend the Member for Huyton (Mr. H. Wilson) has frequently spoken of the need for a greater liberalisation of economic institutions such as the International Monetary Fund and the Chancellor and other hon. Members have spoken on this matter. The hon. Member for Scarborough and Whitby has made an even more startling proposal, for which. I am afraid, I see little future. In fact, I do not see much future in international liberalisation at all. At least, there has been little sign that the main country which could contribute towards it—the United States is moving in that direction. Presidents make speeches, but they do not necessarily always make financial policies. I am also afraid that, however important commodity agreements would be—I entirely agree that they would be of outstanding importance in ironing out the fluctuations in world trade, and, in particular, assisting underdeveloped countries—I do not envisage the United States, which is so important in this matter, agreeing to international commodity agreements.

If all that is true, the only answer for the sterling area is that it must itself become more discriminatory. We must be prepared ourselves to make long-term agreements to purchase sterling area commodities, and the other sterling area countries must be willing to discriminate, when necessary, in the common interest against non-sterling goods.

I think also, particularly in view of the political importance of assisting the development of underdeveloped countries, which frequently are our Colonies or former Colonies, that agreement is essential between the members of the sterling area on investment priorities. This would help to avoid the too rapid development of, for instance, the motor car manufacturing industry in Australia or the fantastic building boom which is taking place in East and Central Africa, some of it with very peculiar finance indeed. Some greater agreement to control both the use of the resources of the sterling area and its investment programmes would help to avoid the sort of nonsense which I discovered a month or two ago when I was in Addis Ababa. Indian manufacturers are offering to supply for sterling textile machinery on four or five years' credit terms at 5 per cent., which, I was informed, were much better terms than British manufacturers were allowed to, or could, offer under the export guarantees agreement. If this is so, it is frightful nonsense.

At a time when India is running down its sterling balances and getting itself into severe financial difficulties to develop its own industries and is going round the world for investment funds, for Indian manufacturers to undercut British manufacturers by offering longer credit terms is, I suggest, rubbish. What it means is that India is investing overseas at the expense of her own development. That is the sort of thing which needs serious discussion with the Governments concerned.

In addition, for ourselves, we might have to reduce some of what in recent years have been our major forms of investment overseas. The time may be ripe for looking again at our investment in commodity production. The panic that we had a few years ago about the shortage of many raw materials and energy resources no longer exists. We might certainly look again at the substantial investment which has taken place in recent years, and is continuing, in oil exploration and production.

To sum up, there are, it seems to me, three things that we need to do if the sterling area system is to be preserved. First, we must restore the restrictions on convertibility of sterling. Secondly, there must be agreement among the member countries on the matter of restraint in the use of dollars and on investment priorities. In return, we must give trade guarantees for commodity producers in the sterling area. These ideas, no doubt, are tasks for the Commonwealth Economic Conference in September and I hope that the Chancellor of the Exchequer will take them there.

If the other members of the sterling area do not agree to changes in the operation of the system to some extent along these lines, we may ourselves have to impose further unilateral control over the exports of capital, even to the sterling area itself: for instance, by British companies out of their own funds. I am well aware that this might mean the end of the sterling area itself, but if we are to get away from moral imperatives and face the economic necessities we must face the other members of the sterling area with the real facts. The alternative —and it may, in any case, be necessary—is the ultimate suggestion made by the hon. Member for Scarborough and Whitby of a freely-moving exchange rate for the £, involving probably a fall in its value, which would, I imagine, mean for those countries which continue to remain in the sterling area that their exchange rates would move in a parallel direction.

The sooner we face the fact that we shall not in our lifetime see any substantial increase in the gold and dollar reserves—and by "substantial" I mean to a level adequate for us to act as banker to half the world—the better it will be for us. The only way in which I can see that this could happen would be by a policy of severe restriction, both internal and external. Certainly, as long as we continue overseas investment, in all its forms, using the word to cover all the ways in which money leaves this country for long-term purposes, at anything like the present level, it will not be possible for us to build up the gold and dollar reserves to the level which we require for the present degree of trade liberalisation and convertibility. Only if we face this situation, and only if the other members of the sterling area face it with us, can we escape from the extraordinary situation in which we have been placed since the end of the war.

During all that time, however well the economy has done and however much we have been able to earn as a surplus on our balance of payments, whenever there has been a puff of speculation in sterling, we have found ourselves in a desperate crisis. As a result, the world believes that we are an industrially decadent nation, overlooking, as my right hon. Friend pointed out and as the Treasury rightly pointed out in its bulletin a month or two ago, the enormous achievements which the industries of this country have made since the end of the war—or, rather, did make until the standstill occurred two-and-a-half years ago.

If it is true that we must adjust our internal expenditure to our own resources, and no one on either side of the Committee would deny that, because the only argument is whether we can or cannot expand those resources, it is even more true that we should not attempt overseas a large number of incompatible tasks, however desirable they may be on political grounds.

I am grateful for the opportunity to add to the coincidence to which the hon. Member for Edmonton (Mr. Albu) referred, because I believe this is the second occasion over the years on which I also have followed him in these debates. If I do not follow in great detail what the hon. Gentleman said, I hope he will understand, because it seems to me that most of the debate so far—and I have listened to it all—has been very much in the realms of the economic situation, and I personally would like to discuss a little more the proposals in the Budget itself.

I will take, somewhat out of place, one comment which the hon. Gentleman made, because I think there is great substance in it, and that is in reference to credits for the export trade. I am not sure what was the type of machinery or the goods in question in the case of Addis Ababa to which the hon. Gentleman referred, but I was a little worried by the speech of my right hon. Friend the Chancellor yesterday on this subject, when he referred to the fact that, on present advice, it was not necessary, he assumed, to make any alterations in the terms or period of insurance. My right hon. Friend went on:

"I emphasise in present circumstances.' We do not want to start a race in credit-giving, but if our competitors were to push the credit terms for a particular type of export beyond those normally insurable and our exporters found themselves excluded for this reason from business, we would be bound to consider extending our cover, too, in the field of trade affected."—[OFFICIAL REPORT, 15th April, 1958 Vol. 586, c. 56.]

I happen to know a considerable number of instances where that applies at present, and I must support the hon. Member for Edmonton in saying that there is some need—though I do not suggest that my right hon. Friend is at all complacent—to look at the question, particularly in the field of capital goods rather more anxiously than those words would appear to suggest, if I have read them correctly.

There are several things in the Budget proposals in which I am most interested, and upon which I have addressed both the House and this Committee of Ways and Means on almost too many occasions. The first one is the question of Purchase Tax on wool cloth, on which, I regret to say, I have made eight or nine speeches, and have certainly made fifteen efforts, both in the House and in Committee in one form or another, to get the discrimination against wool cloth removed, because it was taxed as piece goods, whereas every other form of textile has been free for years. I should like to say, not only on my own behalf but on behalf of the whole textile trade, how appreciative the trade itself is to the Chancellor of the Exchequer for removing that discrimination.

I should make it clear, in case everybody rushes into the Stock Exchange, that this is a matter very largely of principle, and not indeed of finance, because it has been the point of my argument many times that there was not a great sum of money involved, but there was a matter of principle. It will be an encouragement to the trade, especially coming at this time when the trade has had to face not a few difficulties and disappointments, some of which have been referred to today, such as the difficulty of expanding markets in the United States of America, in spite of the strong demand for wool textiles there, and to a certain measure in Canada, though there, possibly, I have reason to hope that there may be some relief, in view of the policy of the present Prime Minister of Canada.

I am grateful for that concession, and I am afraid I cannot join with the right hon. Member for Huyton (Mr. H. Wilson) and shed a large number of crocodile tears which he manufactured because a miner will now have to pay 5 per cent. Purchase Tax on his protective clothing. I think that the miners can carry that on their wages, and that there are a number of advantages for them in the Budget.

I am grateful because there is again a nearby constituency interest in the field of Purchase Tax on greeting cards, about which I am afraid the Conservative Party is in rather bad odour, because it indicated certain degrees of policy rather more strongly when in opposition.

There is one point which I should like my right hon. Friend to note, because have been in touch with the trade about it. The trade is very appreciative of the reduction which is to take place as my right hon. Friend said yesterday, but the date has not been mentioned, and I assume that it is to be negotiated. This is putting the industry in a very difficult position. Nobody will take delivery of goods because the change in the Purchase Tax from 90 or 60 per cent. down to 30 per cent. overall is a very big change. This is a difficulty which must be resolved quickly if the trade is to flow in a normal way.

I should like to say a word or two on another matter which I have discussed so often here, and that is the Entertainments Duty on cinemas, on which again I am afraid I have spoken so often, and occasionally rather passionately and strongly. A great step has been taken here. I know that the industry wanted more, but the amount of the reduction that has taken place brings down the level of the remaining tax to precisely the amount suggested in the case which the industry represented to the Chancellor and to both parties in this House last year. It is a very great step forward.

I am a little doubtful about what my right hon. Friend the President of the Board of Trade meant today when he said that he hoped to carry the Committee in some additional legislation with regard to the production levy. I can only say that, if my mathematics are right—and they are certainly capable, like everybody else's, I suppose, of being wrong, and perhaps more wrong than some—the effect of the reduction in Entertainments Duty will automatically, by reason of the increased percentage takings on films in the theatres, increase the levy by £¼ million, which is exactly the same amount as the prospective decline in takings by reason of the fall in attendances and smaller takings at the box office.

I suppose there is some limit to which the smaller cinemas can, in spite of the relief in the Entertainments Duty, stand a greater levy, unless, of course, it is required in their joint interest, since they themselves can live prosperously only if good films are produced. It is the attraction of good films in the cinemas which in the last analysis will retain the trade for the cinemas, and not merely deviations from Entertainments Duty, whatever the reduced level may be.

I am also grateful for the help given by way of depreciation allowances, though I have spoken about this matter before. I appreciate the fact that my right hon. Friend could not go any further in the context of this more or less standstill Budget which I think is the right kind of Budget for the economy today. I say once again what I have often said before, that in trade British manufacturers cannot really seriously hope as a long-term policy to be able to compete with their competitors abroad unless British industry is placed in at least as favourable a position as its competitors in the matter of the depreciation of plant and machinery, and that is not so at present. I hope that other hon. Members, particularly those with experience of accounting matters, like my hon. Friend the Member for Langstone (Mr. Stevens), will develop this point, and I know that my hon. Friend in particular knows quite a lot about it. We should be placed in a position in which no British industrialist could lose any advantage from getting up-to-date machinery and plant in order to be able to compete more successfully, even under a tax disadvantage, however small that may be.

I am also extremely grateful to my right hon. Friend for the adjustment he has made in regard to the old people, who, like Oliver Twist, want more, but who, unlike Oliver, have had something. I hope that further steps can be taken as soon as possible to help them. They will certainly get advantages from the changes in indirect taxation, and that is exceedingly important to them.

I am grateful for the reductions in Stamp Duty to aid house ownership, another request of mine on occasions. I should like to see that principle continued, with certain other steps, into the matter of small purchases of shares. I am keen for the Government to devise a scheme to help to bring about the ownership of shares in industrial companies by those who work in them. I do not refer to the unit trusts, which I do not think are a satisfactory medium. They are what I would call "the stable". I want the men and women employed in our factories to be able to back the horse of their choice. At present there is, first, the Stamp Duty, and, secondly, what to them is a very difficult palaver, that of transfer forms and walking into rather gloomy stockbrokers' offices. That frightens many a person off. The problem has been solved very substantially in the United States, to the great benefit of the country. It gives the workers an appreciation of the profit motive and what it can achieve for industry. It is a stabilising factor. If any hon. Member does not want those conditions, he is not thinking of the nation as a whole.

I have previously declared an interest, and I must declare it again. It is a very modest one in the brewing industry. I appreciate that it is unlikely that the matter of licence duty can be dealt with in the framework of this year's Finance Bill, but there is an injustice here to innkeepers. They are mostly tenants in our public houses; very few are managed houses. Therefore, it is not a matter which is directly of interest, although it is indirectly of interest, to the brewers. It is of direct interest to the tenants of the houses.

The present basis for licence duty was imposed in the Finance Acts of 1908 and 1910. It is interesting to note that my right hon. Friend the Member for Woodford (Sir W. Churchill) when Chancellor of the Exchequer in 1929 foreshadowed a 25 per cent. reduction in the duty because of the growth of registered clubs. The licence duty was fixed at its present rate as a sort of compensation for monopoly, which was much more in those days than now an attribute of the tenant of the public house. It is illuminating to find that between 1908 and 1929 the number of registered clubs rose from 7,000 to 13,000, which suggested the reform which the then Chancellor had in mind. I believe a General Election prevented it from taking place. Between 1929 and 1956 the number of registered clubs rose from 13,000 to nearly 22,000. Over the whole period that I have mentioned they have grown threefold in number.

The 25 per cent. reduction which was asked for in 1929 is still the modest suggestion of the licensed victuallers of today. It would cost relatively a small amount— under £750,000. In view of the astonishing amount of taxation collected through this industry—including the duty on wines and spirits, it amounts to about £400 million—it might at an early date be a gesture and a help to make this concession to the institution of British pubs, which in conduct, nature and record cannot be found in any other country and are admired and respected by all.

The Chancellor referred yesterday to dividend stripping. I know nothing about dividend stripping, which is perhaps a good thing. The interest which I declared a moment ago does not extend to this subject. My only interest in the matter is a serious one, because of the statement made by my right hon. Friend that dealing with this matter would involve retrospective legislation. Dividend stripping, or whatever it may be, in my opinion absolutely begs the question. I agree absolutely with the leader in The Times today which says:

"The penalisation of dividend-strippers as such is something that may be regarded with equanimity, even pleasure. But they share with other citizens the right to know that something which they do with perfect legality at the time will not be made illegal by something enacted two and a half years afterwards. And it is proposed that legislation to stop this avoidance shall be retrospective to October, 1955. The fact that Mr. Brooke "—

the Minister of Housing and Local Government, then Financial Secretary to the Treasury—

"threatened this at the time is beside the point; the threat itself was improper."

For myself, that is mild language. I go further and say that the earlier suggestion was quite diabolical and the present Chancellor's proposal is rather a dirty deed. I have many times made this protest. Back in 1950, when we were meeting in another place, I remember the Conservative Party lining up with the Labour Party, then in power, in the matter of the Lord and Black deal. I held no brief for that deal then, nor do I now. I well remember when I and some other hon. Members insisted on a Division and went into the Lobby against the combined forces of the Conservative and Labour Parties. I would do the same thing again as a matter of principle, though I do not think there will be an opportunity. I see that the Chancellor has now returned to the Chamber. I have been paying him compliments at enormous length but now I am being a little rude and saying that I could not support the Government in something which to me is morally reprehensible, which is retrospective legislation.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) referred to Government expenditure. The House will know the rather strong views that I held on this matter some months ago. I pay tribute to the Chancellor and my other right hon. Friend in the Government for carrying out a strong policy in regard to inflation. I was promised that some problems would be solved, and I pay tribute to the fact that the promise which was given me has been fulfilled. That does not alter the fact that expenditure has grown a little in this Budget.

I feel that it is to the lowering of commitments that we have to look for some slack in the economy for the reduction in taxation which we desire as soon as conditions permit. Some things have to be examined a little more than they have been. However, I am grateful for what has been done. There is no doubt that the expenditure figures are enormously high, but as a measurement against the national product the figures represent a reduction of between 4 per cent. and 5 per cent. on some years ago. That is a move in the right driection. There has been a reduction of about 50,000 in the Civil Service; that is in the right direction.

I have always argued that more must be done. I know the little time that Ministers have for this matter, but I have always felt that some special machinery within the Government is required to examine this question. I have made suggestions, such as having a Cabinet Committee to deal with only this matter. Something is absolutely essential.

For instance, something should be done about the Ministry of Supply. I have not always agreed with the right hon. Gentleman the Member for Easington (Mr. Shinwell), but at least I join with him in thinking that the more essential departments of the Ministry of Supply could be sorted out into other Ministries so that that enormous affair of the Ministry of Supply, which I occasionally visit —it is like visiting the old British Empire Fairs, taking at least a week to find one's way about—could be abolished. Major tasks like that must be tackled if we are to find the hole in the economy which must be found if we are to cut expenditure.

I conclude by saying that I am immensely grateful to my right hon. Friend for the things he has done which suit me very well—his proposals about the abolishment of tax on wool and the adjustments in Entertainments Duty which have gone as far as could be expected. I am grateful for those and I feel that my right hon. Friend is right in his overall policies. As the Yorkshire Post said today:

"If the Chancellor is necessarily marking time at the moment, he is looking steadfastly ahead."

That is the spirit which he expressed in his speech yesterday and which I believe is felt sincerely in his heart.

I do not begrudge the Chancellor the bouquets which his hon. Friends behind him have offered, but I am glad that the right hon. Gentleman entered the Chamber just in time to receive a brickbat about retrospective legislation. It is a most curious lapse on the part of the present Chancellor of all people that he should not only make this quite legitimate change in the law retrospective, bur should quote in defence of that the fact that an Under-Secretary warned people two or three years ago about this practice. If we have reached a position where we are governed by what Under-Secretaries say at the Box and not by law, it is a very sad day, and a doubly sad day when that is associated with anyone of a standing as high as that of the present Chancellor.

The whole of the Budget debate seems to have had a dream-like quality. I sometimes wonder whether it can be true that we have gone through all that we have gone through in the last year and have come back to precisely where we started. Leaving aside the fact that we are faced with the possibility of a massive export drive from Russia, we have had a major crisis which, even by our standards which are fairly high, was very serious. We have had a change from boom to the verge of depression, and we have lost all the Treasury Ministers. At the end of the day, the Chancellor has been unable to make any major changes in his Budget and we appear to be frozen in the same economic attitudes which we have been trying to support since the war.

We had a Budget speech which was extremely clear and extremely comprehensive, but full of the same exhortations and phrases which have become all too familiar over the past years. There were admirable jokes in it, and I suppose that if he were not too modest the Chancellor could legitimately say that while the sermon was his officials' the jokes were his own. It gave me the feeling that if the sky fell on the day before the Budget, we should still have the Chancellor of the day saying, "We must pause, but expansion is still our aim."

Unless we find some way out of the dilemma into which we continually run —on the one hand inflation and on the other having to pull back into a state of the under-use of our resources, people will begin to become extremely suspicious and dissatisfied with our whole economic system. There are resources and machines idle which should not be idle. It should not be beyond our powers to develop some sort of economic system to run the economy full out and with expansion but without raging inflation at the same time.

Historically, it has been done. It is untrue to say that expansion has always been coupled with inflation. What has happened lately to make the problem so much more difficult has been the enormous increase in the amount of Government expenditure and the method of financing it, and, candidly, the position of the nationalised industries, both as regards raising their capital and as regards the whole question of the assessment of what wages should be paid in them.

If we are to face this question seriously, we probably have to do it by some form of international consultation. I doubt very much whether a Radcliffe Committee in this country alone will enable us to develop economic and financial techniques which can give us at the same time full use of our resources and expansion, without inflation.

But there are certain things at home which ought to be studied again. I am a critic of the credit squeeze. I believe that what the bankers have said is wholly justified, that the credit squeeze is haphazard, removes competition among the bankers, and in general hits at the very foundations of their skill.

There have been other suggestions—a fixed cash ratio and variable quantity of Treasury deposit receipts. I do not know whether that is something which appeals to the Treasury, but if those things are not being very closely examined by the Radcliffe Committee, then certainly they ought to be so examined. The level of Government expenditure and the financing of the nationalised industries are at the very root of our problems, and we shall not be able to solve those problems until we have given these matters far more consideration.

I have no particular quarrel with a great deal of what is proposed in the Budget. It is the omissions which have caused anxiety. It is apparent that no effort is to be made in the near future to unscramble the appalling chaos of taxation in which we are tied. When I listened to the lion of the Inland Revenue, the hon. Member for Sowerby (Mr. Houghton), for whom I have the greatest admiration and to whom I always listen with pleasure, and heard the gusto with which he pursued escaping taxpayers, my blood sports instincts were indeed roused. I have heard nothing like it outside accounts of stag-hunting on Exmoor. His is a very admirable sport in the sense that tax evasion is reprehensible, but the trouble is that the taxpayer first of all has the sheer weight of taxation to contend with and, secondly, cannot always understand what it is all about or what he is liable to pay.

For the time being, apparently, we are to give up any attempt to cut Government expenditure. The Chancellor has legitimately said that in real terms Government expenditure has not increased as fast as national income. Nevertheless, in the same real terms it is going up by £120 million or so. Whether it is in defence or administrative economies, or in some alteration of the social services —and all of these are possible—some reduction in Government expenditure has to be made if we are to have expansion and the proper use of resources without inflation.

So we come to the situation in which the Chancellor appears determined that he must frame his Budget within the existing level of Government expenditure and roughly within the existing extraordinary mesh of taxation, and in the way that Chancellors do, decides, in this curious economic phraseology, that he can "give away" £50 million. That has a most generous ring about it, but, of course, it is only leaving £50 million or so of his own money in the pockets of the taxpayer.

Within the frame work which he has set himself, many of the right hon. Gentleman's decisions are right. It is right to concentrate on investment, the small reliefs which he has been able to give. I make no complaint about initial allowances. They are justified, although it is perhaps somewhat illogical to continue the physical control of the Capital Issues Committee, and if it is true that our existing investments are not being sufficiently used, it may be asked what is the point of encouraging more investment? However, on the argument for keeping the investment programme going, the initial allowances are justified.

We have to face the situation that under Conservative Governments nationalised industries will be financed permanently out of the Treasury from below the line.

No.

I have great faith in the noble Lord. I am not sure whether he is still a member of the Conservative Party.

Yes.

Good. The party will be the better for that. But I am afraid he is wrong about these industries. He has assured us on previous occasions that they were to be put on the market. But they are not. This temporary arrangement for finance from the Exchequer is becoming permanent.

I have said before that this habit of financing nationalised industries out of the Exchequer should stop, and the noble Lord has taken the same view. However, it does not stop, and it is to be continued for at least another 18 months. Like many other things which are continued for 18 months, I fear that it is unlikely that it will stop after that.

I am interested in the hon. Member's idea of financing the nationalised industries. I have spoken upon this subject in the House previously. Can he expand his ideas and say how it could be done in the next two or three years?

I have not put forward any ideas in this debate, but I have often done so previously and at some length. I should have thought that the gas and electricity industries, for example, could be made to raise their money on the market, as was suggested by the committee which investigated these industries. If the hon. Member looks up what was said by a Member of the Government in regard to local authorities having to go into the market for their money, he will see that the argument could easily be applied to the nationalised industries.

I welcome the change in Profits Tax. It is not true to say that it will lead to a great spree of dividends and a tremendous blueing of money on consumer goods. The main ramp in companies today arises not from the undue declaration of dividends but from companies building up immense reserves and then selling themselves or being subject to take-over bids, with large untaxed profits being made in the process. The present structure of the Profits Tax leads to a sort of ossification of our industry, and means that new industry is not financed as easily as it should be, while old industries accumulate reserves which they do not always put to the best use.

Nothing has yet been said about the effect of the alteration in Profits Tax upon building societies. They have no ordinary shareholders, and I believe that there is a case for relieving them from any liability to Profits Tax. By statute, they have to invest their surpluses in Government securities. The Chancellor claims to have made a concession to them, but that concession is not nearly as great as may appear at first sight. At the moment, they pay a 2 per cent. tax, and that will be put up to a 10 per cent. tax. He claims to have made a concession in that they will be able to deduct the interest which they pay to depositors before Profits Tax is computed, but I want him to make it clear whether they will be able to add to that interest the tax which they now pay, under special arrangements, direct to the Treasury, after which they declare their interest tax-free. I should be grateful if he would clear this point up. Presumably they can add the tax to that interest and deduct the total from their income before they are liable to Profits Tax.

I welcome the changes in Purchase Tax, but I hope that when we discuss the Finance Bill we shall be told how some of the items, such as wallpaper and garden furniture, came to be included where they are. These seem to be rather curious items to include. But I welcome the alteration on the whole.

I now come to the omissions from the Budget. In the light of the past year and the present situation the crying need of the country at the moment is, first, to obtain some international agreement about a common economic policy for the West, and upon common measures to be taken if a slump develops. I was interested in what the hon. Member for Scarborough and Whitby (Sir A. Spearman) said about possible American help in these circumstances. Secondly, we must hold costs at home while trying to encourage production. I regret that there has been no reduction in the petrol or diesel oil tax. That would have been a very useful reduction. It would have helped to reduce costs in a variety of fields.

As a Liberal I am naturally sorry that we have had no encouragement for profit-sharing or the distribution of shares by companies to their workers. Here again, I hope that the Chancellor's personal conscience—apart from his official one—pricks him in this matter. This is something which might have been tied to the alteration in Profits Tax. That alteration will give some assistance to companies who want their workmen to share their profits, but it will not remove the disability arising in the case of companies which give shares to their workers at a favourable price and therefore liability for tax may be incurred on them.

The strangest feature of Budget day was that on this greatest of all financial and economic days we spent so long industriously pottering about our own back garden. We talk as though we can control demand in this country and as though we can control its whole economic climate, although we know that we are very largely at the mercy of world affairs and that it is impossible to discuss our economic situation without taking them into account. The Chancellor said that the country could not buy itself out of a depression. He quoted with approval the words of the Prime Minister, that the worst possible solution would be for this country to find itself an island of inflation in a sea of deflation. It certainly would be. But the corollary is that we should try to stop the sea of deflation flooding. If every country takes the view that it must prevent itself becoming an island of inflation in a sea of deflation, then every country will deflate. We may work ourselves into the very slump that we are trying to avoid.

It may be argued that the Budget debate is not the right place to deal with this matter. It is true to say that this debate is really three debates in one. There is the debate upon the changes in taxation, and so forth; there is the debate about the whole structure of taxation, tax avoidance and tax machinery, and there is the debate on economic planning. It is the custom to devote a very large part of the Budget speech debate to that wider subject of planning, I maintain that we cannot discuss this subject purely within the national framework. We must go outside and consider what is happening in the rest of the world. The Government should take this opportunity of explaining not only their view of the world but what efforts they are making to influence events, at any rate in the Western world. We know that they cannot themselves determine the climate of the Western world, but we also know that our great fault, for years and years, has been that we have been dragged at the tail of events and have been unable to plan sufficiently well or to see a little ahead. We are always behind events.

The hon. Member for Scarborough and Whitby said that if a person had a sore on his leg it would be unwise to cut his leg off. Indeed, it would. The hon. Member is very often right, and he is certainly right about that. But it would not be unwise to get a doctor to look at the leg and to provide a little ointment to rub on it, rather than not to do anything about it and allow it to develop into a boil, which is what the Western world appears to be doing. I have often said that I do not have a great deal of faith in the type of summit meeting which is popularly talked about at the moment, but there is one sort of summit meeting which would be useful, and that is a meeting between the leaders of the West.

I am interested and glad to see that the right hon. Member for Monmouth (Mr. P. Thorneycroft) has also been advocating this. At this meeting not only the diplomatic and foreign policies of the West but their economic future should be discussed. We should try to get the leaders of the West together, so that they can set their own house in order. We can do this regardless of what the Russians are prepared to do.

At some point later on it may be possible to get even the Russians to come to some sort of economic meeting. It is widely assumed that the Russians have only one interest, that being the total economic breakdown of the West. Perhaps they have, and perhaps they would not come to a meeting. But we are apt to forget that in the first place Marshall Aid was offered to Communist countries and some of them showed a considerable desire to accept it. We should not assume that the Russians are not interested in having an export market for some of their products. At some later stage it might be worth putting forward proposals to them. But whether or not they come we can at least have a meeting among the leaders of the West.

It would also be useful to hold such a conference whether or not there is a depression. If there is no depression there is likely to be inflation, and both depression and inflation require international decisions and international co-operation among the Western Governments. It would certainly be a very good thing to put on the agenda the question of a loan, which the hon. Member for Scarborough and Whitby mentioned. I think we should suggest that the International Monetary Fund quotas should be increased. Steps should be taken to consider what will happen if commodity prices go lower and arrangements made for giving loans to the countries which will be affected. If the Vice-President of the United States made serious proposals for substantial American aid, it would be better to channel that through some sort of international organisation rather than give it direct. We must have agreement among the treasuries of the West about what they are going to do to prevent the strong currencies from sucking up all the reserves, which has happened in the past. We must take steps to free international trade from tariffs, quotas and other restrictions now tying it up. The easiest way to get consumption going again after a recession is to develop outlets for goods and assist people to trade. It is worth bearing in mind that currencies can change their nature quite quickly, and that what today is a soft currency may become a hard currency tomorrow and vice versa. We are apt to forget that the Americans have an enormous debt, far bigger than our own. It is not outside the bounds of possibility that some soft currencies may become hard and that the dollar may become a relatively soft currency, with serious results for the whole of the West.

As a long-term policy would it not be worth while to set up a study group on currency management. I am attracted to the idea of a commodity standard. If we are to have that, it is apparent that it has to be by some sort of international agreement. If that can be achieved, I believe it would get us out of this situation where there is an appalling lack of reserves.

We in the West are trying to operate on a gold standard and most of the gold is in Fort Knox. Despite what has been done over the last 20 or 30 years to improve the whole financial arrangements we are still short of reserves and very much tied to the one commodity, gold. As a long-term project there is something to be said for seeing whether we can get international agreement on something like a commodity standard—though it is by no means the only solution.

It is believed, I think rightly, that the Government have made some such approach to the United States. I should like to see an approach made at a higher level, but it would be interesting, if that is possible, to be told something of what has been done along these lines. Three distinguished officials went to Washington, I believe they are sometimes referred to as the "three knights". I should like to know the moves they made when they got there. It may be that the Americans have indicated that they are too involved in their own affairs and do not wish these matters brought up in public. But I think that the public of this country and Parliament have a right to be given some indication by the Government about what is their thinking on these international problems; what did happen when these gentlemen went to America, and what proposals they may have for some international action.

It is my belief that the root of our troubles are not so much a question of temporary financial manipulation but that they are largely political and due to political pressures and long-term economic trends. I believe that the techniques of science and production have far outstripped the techniques of financial management and political institutions. I do not think that we can put things right country by country, each trying to do up our own bootlaces. It requires international action and a great deal of effort and thought which has not yet been accorded to the development of new political and economic methods.

I am certain that ultimately the West will stand or fall not by its armaments but by showing to the world a satisfactory economy without continual crises, whether those crises are caused through labour strife or inflation or whatever it may be. People want reasonable expansion, not helter-skelter and mad expansion, but a reasonable, steady expansion and the feeling that they are not to be plunged into some crisis or other. We cannot give that assurance yet, but I am certain that the long-term lesson of this Budget is that we should give far more thought to these sort of problems and tackle them on an international basis.

I have a very clear recollection of the day on which I made my maiden speech in this House, not in this Chamber, but, rather surprisingly, in the Chamber of another place—which is the reverse of the usual procedure in political careers. While I asked for and, indeed, generously secured the indulgence of the House on that occasion, I am aware that I have neither the right to ask nor the right to expect a similar indulgence on what is for me the melancholy occasion of making my farewell speech in this Chamber.

While I was in nostalgic mood already I was rendered even more so by hearing the hon. Member for Orkney and Shetland (Mr. Grimond) producing a proposal for currency based on an international commodity standard. I recall 'that twenty-six years ago, in 1942, I moved a motion at a Conservative Party conference—which was carried with acclamation and only one dissentient—proposing precisely that thing. It is, of course, gratifying that twenty-six years later the Liberal Party should have caught up with me.

It may be purely coincidental that the hon. Member and I were educated at the same university at the same time and perhaps fell under the influence of the late Professor Irwin Fisher at much the same time. While I cannot in the least recollect what were the arguments I deployed twenty-six years ago, I have a feeling that they are not so strong now as I thought they were then.

I very much dislike the practice, in debates in this House, of hon. Members apologising because they are not going to follow the points made by the hon. Member who spoke just before them. I am not going to follow the hon. Member for Orkney and Shetland in detail, though I think he will find that in the few observations I wish to make I shall cover very much the same ground as he did. I shall say only three things about the Budget of my right hon. Friend. I find very little in it to which I can actively object, with the single exception of the retrospective provision relating to dividend stripping, which I regard with the most extreme aversion. I have no hesitation in saying that were I to be in the House at the appropriate time I should certainly vote against it, as I always have done whenever a similar provision was introduced into any financial Measure since the day when the late Sir Stafford Cripps introduced it in the celebrated case of Messrs. Black and Lord.

It is extremely difficult to fault the taxation provisions in the Budget on any positive grounds. I am quite sure that the Chancellor is right in his assessment of the relative merits of Purchase Tax and a general sales tax, and I am equally sure that my hon. Friend the Member for Kidderminster (Mr. Nabarro) is wrong. I have no doubt whatever that anybody who has studied the sales and purchase tax systems of other countries must be driven to the conclusion that m present economic circumstances, and in this country, a tax which yields the amount that the Purchase Tax does is incomparably the most satisfactory and useful fiscal measure of its kind, and that any flat-rate sales tax which is not to be intolerably regressive would be based on such a proliferation of exceptions to the general rule that it would become impossible to administer; even if it were the case that retail establishments were, from an accounting point of view, capable of running the system—which I am quite sure they are not. Nor have I any objection to the provision about Profits Tax. This had to come. I know there are objections to it; they were stated by the right hon. Member for Huyton (Mr. H. Wilson).

I found the objections of the right hon. Member a little artificially contrived. They seemed to stem from the same attitude of mind of which the hon. Member for Orkney and Shetland complained in relation to the speech of the hon. Member for Sowerby (Mr. Houghton). This is the conviction, which is so strongly held on the Opposition benches, that all money earned by anybody is. ab initio, the property of the Inland Revenue, and that if anybody is, by any chance, allowed to keep some of it that is a generous concession. If any relaxation of the system of taxation is made to anyone, either to the generality of the public or to a section of it, that is either an act of unparalleled generosity, if the recipient happens to be sitting on the Government side of the Chamber, or an act of sheer discrimination if it happens to be given to people of whom Opposition Members disapprove.

It is really not the case that deliberate interference by the Government in the distribution of profits by companies is, in the long run, a satisfactory method of improving the economic condition of the country. In the long run, profits earned by companies will go back for the most part into investment in industry. I do not believe that a deliberate attempt to force companies to plough back rather than to distribute an enormous proportion of those profits will have anything like the effect that the right hon. Member for Huyton believes.

The situation which has arisen in respect of the Profits Tax has resulted in a number of subterfuges. In the case of some companies, shareholders who are also directors have taken out very much more in salaries and expenses, rather than in dividends, than they would otherwise have done. There has been a very considerable increase in inessential expenditure by companies. One has only to go into offices and look at the furniture and carpets to see that that statement is true. The present proposals will produce a shake-out in the distribution of company profits which may, in the long run, be extremely healthy.

I would conclude with a few words about our general economic situation and prospects. Listening yesterday to my right hon. Friend the Chancellor of the Exchequer, I was particularly struck by the words he used in describing his own feelings about unemployment and the level of employment. One could not fail to realise that those words were the expression of sincere feeling tinged with the apprehension which anyone who is human must have as to whether he would guess right or guess wrong. We all know that it is extremely difficult, if not impossible, to forecast with certainty the level of world trade, American business activity and, consequently, the economic prospects of this country.

As my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) said in his speech today, one has to make up one's list of priorities to decide whether to devote all our energies and the greater part of our resources to maintaining the stability of sterling and ensuring that it will remain one of the leading trading currencies of the world. On the other hand, having heard these arguments and read them expressed with increasing force, I do not doubt that they are right, but I am, nevertheless, forced to doubt our own chances of forecasting with accuracy the moment at which these policies might need to be changed.

It is all very well to say that the stability of sterling is the most important thing because the jobs of our people depend upon it. That is, of course, true, but we all know, however much the classical economists may try to argue about it, that no Government of any political complexion could hope, in the event of the threat of serious unemployment, to carry the burden of the slump on the unemployment figures rather than on the external value of sterling. The days when that was possible are past.

While I do not doubt that deliberately to relax the dam which is holding the flood of inflation in check at the moment would be wrong, I believe that we are at risk in the next few years. Ever since the end of the First World War there has been a persistent tendency for political economists and Treasury officials to be many years late and out-of-date in the prescriptions which they produce. I fear that the same may be true in the future. We are all right at present, or I think we are. There is still very much more slack to be taken up in the economy than many people believe. For example, the level of consumption is still very high. Viewed, as anybody who goes to the shops must view it, at the counter level, it is not only high but, in the case of a large majority of consumers, it is so indiscriminately high that manufacturers and retailers are having a far easier time than they deserve.

The real danger of the future is not in what will happen during the next six months, nine months or a year, as the result of the American recession or the decline in world trade. I do not often stick my neck out as a prophet. However, as I shall leave the country in a week's time, I feel I can do so. When forced to make prophecies in the last eight years about the course of business activity, I have not often been wrong. In fact, I think I may say that I have never been wrong. I have no doubt at all that the American recession will be, if not over, at least well past its worst in nine months from now and that the effects on this country will not be serious. The danger that I see over the next five years is from the restrictionism which has secured a grip of industry and finance, and even in politics, in this country. It is that which I believe both sides of this Committee must make up their minds to fight.

Politically, one can see reflected what is going on in industry, what is going on and is likely to go on in the political treatment of the social services and the Welfare State. The Labour Party has become, and I see every likelihood of this situation being intensified, a wholly con- servative party. I am not blaming it for this it seems to me the natural way, in the light of history, in which the Labour Party would have developed. It is becoming a party, and I think will become even more so, dedicated to the conservation of the social service changes which have been made during the last ten years, dedicated to the conservation of the restrictive practices which the trade unions have succeeded in fastening on industry.

There is a serious danger that the party on this side of the Committee may similarly become a party dedicated to restrictions in something like the same sense, a party dedicated to the maintenance of a welfare service system which, before long, in its present form may have outlived the purpose for which it was created, a purpose which was to palliate evils which 150 years of perhaps over-rapid industrialism had created in this country, but evils which it should be the duty of Government now to destroy at their source rather than to seek to continue to palliate.

There is also a danger that the political cleavage will become more apparent than real. Whereas, on one side, hon. Members will be seeking to conserve the advances gained by Labour and to implant them permanently on the economy in the form of restrictive practices, the Conservative Party will feel it is obliged to conserve the restrictionism which has been built up on the employers' side of industry. We shall thus have an almost overt political conspiracy to prevent expansion, to preserve restrictions and to encourage a conspiracy between labour on the one hand and employers on the other to exploit the consumer, for whom nobody will stand up and speak.

I am glad to see my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) in his place, because over the years I have not only admired the policies which he has pursued but I have particularly admired the line which he has taken on this subject. I remember sitting behind him on these benches in Committee when he was carrying through the Restrictive Trade Practices Act. I can remember the efforts which were made on both sides of the House to weaken the Clauses of that Bill, as it then was, at every point.

I did my best to prevent them being weakened and, in certain cases, to strengthen them even more because I am sure his policy was the right one. Whereas, from the other side, there had been continual uproar against monopolies and continual demand that monopolies should be abolished and their operation prevented, when it came actually to dealing with restrictive practices in individual industries and areas, nobody was more determined than hon. Members opposite to oppose those measures. This, of course, is what happens throughout industry.

Sitting here during the debate today and listening to the hon. Member for Sowerby, who said that he was a passionate and convinced Free Trader but does not really approve of cotton goods from Hong Kong coming in and competing with things made in his constituency, I remembered listening to hon. Members on this side of the Committee speaking passionately in support of the line taken by trade associations on the Monopolies Bill. They were immensely in favour, in theory, of the abolition of monopolies, so long as it was someone else who was affected and not themselves. There is nobody in this Committee who can lay his hand on his heart and say that he is guiltless of partial thinking of that kind at some time, but surely we all, on both sides, must realise that it is partial exceptions of that kind which, in total, add up to something which will strangle the economy of this country perhaps in ten years' time.

Since I say that I think the logic of history makes it inevitable that the Labour Party will become increasingly conservative in this respect, and since I cannot find that the logic of history makes it probable that the Liberal Party will be called upon to form a Government within the immediate future, it seems to me imperative that the Conservative Party should dedicate itself, and dedicate itself with determination, to carry this thing through to the loosening up of restrictions, to the freeing of trade, the abolition of monopolies and restrictive practices, because the time is short. If, by any chance, the present level of world trade continues to fall, if by any chance I am wrong and the American recession gets worse, there will be such a rush back to the restrictionist coverts in this country as has never been seen. I can smell it in the air already wherever I go in this country.

It is true that there are manufacturers who are to an astonishing extent retaining their confidence and continuing to invest in new plant and machinery and expansions, but, my goodness, there are plenty who have cancelled every projected improvement it was their intention to make. There are dozens of them. One can see it coming, one can feel it in the air everywhere one goes. Once this thing becomes a panic rush it will be almost impossible to stem it.

I remember saying during debates on the Restrictive Trade Practices Bill that it was senseless to try to introduce into that Bill escape clauses to permit something to continue which one thought was right at the time and where restriction should not operate in an individual case in the event of a slump, because if one got a slump there would be such a pressure to tear up the whole of that Act, to destroy all the good work in the liberalisation of trade which has gone on in the last ten years, that it would be extremely difficult to withstand it. I therefore deduce from this, if I am right, that it is essential that the work of liberalisation, the work of attacking restrictive practices and monopolies where-ever they are to be found, should be pressed on with now at a continuing and accelerating rate, because unless, somehow, one has a momentum behind this operation before there is serious fear of mass unemployment it will be impossible to do it at all.

I believe, perhaps more strongly than I believe anything else at this moment, that there is no salvation for the country in a reversion to restrictionism and that, so far from it being possible to ride out a slump by restrictionism, it could do nothing but intensify the depression which we should see. It would not merely lower the total level of activity and demand in the country, but it would have an effect on individual areas which would be far worse than if we were to pursue the policy which I believe to be right.

One can always make a case for protecting an industry which appears to be temporarily embarrassed. One can always make a case for doing this for one town and that for another area. It looks all right. But if one is interfering with an inevitable, long-term change in the pattern of demand, then the effects of this interference are likely to be disastrous in the long run, because any interference with the expansion and the changing pattern which technical progress imposes upon the industry of a country so dependent as we are on manufactures and on foreign trade is bound. I believe, to have unhappy effects.

I think that this is a task which must fall on the Conservative Party. I know that it is perhaps within two years of a General Election and I know that taking measures of this kind, which are bound to annoy some people and to hurt others, is something from which politicians must inevitably shrink, but I do not believe that to recoil from such measures would in any way help the Conservative Party to win a General Election. On the other hand, I think that if the Government were to allow themselves to be pushed into panic measures of further protection and restriction, the economic situation at the time of the next General Election would be disastrous, and the effect of that would be felt in the number of votes cast for the Conservative Party.

I believe that if the Conservative Party is genuinely convinced of the necessity for doing this, and the necessity, what is more, for taking a lead in measures of this kind not only in this country but in Western Europe and the Commonwealth, too, then not merely its courage but the results of its actions will lead it to another electoral victory. I regret that I shall not be here to see it.

In conclusion, I should like very sincerely to say not merely how grateful I am to the Committee for listening to me in patience for so long, but how grateful I am to all hon. Members and to the officials and servants of the House for giving me some very happy and, I hope, not totally useless years.

If one has to congratulate an hon. Member on his maiden speech, one must on this occasion commiserate with the hon. Member for Ealing, South (Mr. Maude) on his valedictory address. At the same time, we all offer him our very best wishes for success in his new career. With some of his most eloquent pleas for throwing aside restrictions on both sides of industry most of us on this side of the Committee are in accord, and I will return to that subject later, but first I want to say something on a subject in which I have taken special interest—the Entertainments Duty on the cinema industry.

As the Chancellor knows, and as the Financial Secretary perhaps knows better, because he received the representatives of the industry, the keen hope of the industry was that this duty, which is levied exclusively on cinemas, would be entirely abolished. That hope was perhaps a little over-optimistic in present economic circumstances, and I am inclined to think that the Chancellor has perhaps gone as far as could reasonably be expected this year, but he will understand that the industry will naturally expect some further relief in the future.

As far as I can gather from my inquiries between yesterday and today, lie is lifting tax entirely from about 25 per cent. of the seats which up to now have been taxable, and that is no inconsiderable contribution. The fact that he has placed his limit at 1s. 6d. per seat means that to a very large extent the cinemas with which we were most particularly concerned in our constituencies, the smaller cinemas, are likely to benefit, and I therefore think that one of the social concerns which we have about this industry may be met to at least some degree.

On the other hand, what the President of the Board of Trade said this afternoon about raising the rate of the levy will cause a certain perturbation among exhibitors in the industry. It is most regrettable that the Government should not have made up their mind precisely what they intend to do, because there is a good deal of uneasiness in the industry at present and, having yesterday made a reasonably generous gesture, it seemed a very great pity to bring in a fresh element of uncertainty today. Presumably from what the President of the Board of Trade said, the exhibitors will have to wait some time before they know exactly what is expected of them in the way of levy.

I am sorry that no representative of the Board of Trade is here, and I hope very much that they will treat this as a matter of urgency. The President of the Board of Trade said that he proposed to discuss the matter with the Cinematograph Films Council. That body meets next Monday. Not unnaturally, the subject has not been placed on the agenda, but I hope that we may have an opportunity of discussing it as soon as possible. I am certain that to leave the industry in uncertainty is extremely undesirable.

I was very glad that the Chancellor said yesterday that he believed that there is still keen demand for good cinema entertainment. In my opinion, he is right. The industry is going through a very difficult period, but I am by no means in despair over its future. The quality of the product is what will help the industry most. Equally, one hopes that the industry will realise that even if it ultimately obtains full exemption from tax, that will not solve all its problems and there are some which the industry itself must tackle.

On the production and distribution side, one is interested to find that a good deal is being done. Only today it was announced, for example, that two of the largest concerns in the industry—The Rank Organisation and British Lion Films Ltd.—are pooling their resources for dealing with prints, a technical change which may be of considerable use. It is unfortunate that on the exhibition side of the industry rationalisation of any kind, outside the larger circuits, seems to be very difficult to obtain. I regret this. I think that the industry is in a position where it would be very valuable if a certain measure of rationalisation could take place on the exhibition side, but I recognise that it is such an individualistic industry that perhaps it is too much to hope for this. I am afraid that there will still be a number of cinema exhibitors who will find it difficult to carry on, and if they cannot get together and make some scheme for dealing with redundancy and compensation they will go out one by one.

On the other hand, it is encouraging to find that there are some small exhibitors who are sufficiently enterprising to try new methods. Today, in a trade paper I read of one cinema at Newbury that has compiled a register of baby-sitters, with a large-scale map and a corresponding chart, and is prepared to recommend to any prospective customer a suitable baby-sitter in the neighbourhood who is willing to take charge of the family while parents attend the cinema.

That seems to be an admirable piece of private enterprise, and I hope that other exhibitors will try to adjust themselves to conditions which, in some parts of the country, are certainly difficult.

I should like now to turn for a moment to a matter which, although small, concerns an important minority. For once, I should like to disprove the contention of the hon. Member for Ealing, South that we on this side are always on the side of the Inland Revenue. In this case, I am very far from being on the side of the Inland Revenue. I notice that the Chancellor is now allowing as expenses contributions to professional associations, but I would ask him, when he has got over the stress of his first Budget, to consider a matter that was mentioned in a very interesting article the other day in the Manchester Guardian about the activities of the Inland Revenue in relation to learned societies. It seems that some people who might otherwise claim expenses may find that the society with which they are concerned is going out of existence and that there will be nothing to subscribe to.

It appears that the Inland Revenue is now taking a very strong line indeed on relief of tax by means of covenanted subscription to a number of learned societies. This is possibly a small matter, and may not have reached the Chancellor's own attention, but I would ask him to have it investigated. One case, that of the National Book League, was not, I think, a very good one. The League lost its case because, as far as I can judge, it supplied some sort of refreshment on its premises which was regarded as a quid pro quo for a covenanted subscription and made the League ineligible for exemption.

There are, however, the British Academy, the Society of Antiquaries, a very large number of small archaeological societies and so on that have all been placed in complete uncertainty as to their situation. This is particularly so as the Inland Revenue will not disclose the principles upon which it decides these matters. Curiously enough, I am told that the Peterhouse College Boat Club at Cambridge has been admitted as a fully charitable organisation——

Hear, hear.

Its members can, apparently, covenant their subscriptions, and the boat club can receive the full tax allowance on them. That seems a very curious situation, and I hope that at some time either the Chancellor or the Financial Secretary will look at it. It is important, after all, to a number of societies which, I should have thought, were considerably more cultural than the Peterhouse Boat Club.

I should also like the Chancellor to consider—not necessarily this year, but as soon as possible—one of the aspects of our life which, I know, appealed very strongly to his predecessors in Labour Governments, and that is the whole treatment of the arts. My right hon. Friend the Member for Bishop Auckland (Mr. Dalton) mentioned several things that the Chancellor would have been able to do had he taken a rather stronger line over Tobacco Duty. I would suggest that, as a civilised community, our treatment of the arts and our policy towards them really leaves a great deal to be desired.

In this connection, I would refer the Chancellor to an article that appeared about a fortnight ago in The Times on State patronage of the arts. It pointed out that the present niggardly and quite illogical method of dealing with State intervention in the arts—a situation which, after all, has arisen owing to the fairly high taxation policy of Governments of all complexions, which has made the private patron much less powerful than he used to be—has meant that we have made the worst of all possible worlds, by not giving such institutions as public galleries and so on enough with which to carry on, or the Arts Council, the intermediary body, sufficient to plan in the least intelligently the grants it makes. The method of grant to theatrical and operatic enterprises and the like which is on an annual basis is very unsatisfactory, and is one that we have long since abandoned for the universities. It seems that there is a strong case for reviewing entirely our policy in relation to State patronage of the arts.

As the article in The Times says:

"…the Arts Council, in its penury, will withhold the funds which may be essential to one body in order to give them to a rival claimant on the point of final collapse. The ultimate folly of such cheese-paring is not in doubt. With a capital fund behind them, and an assured budget worked out over a triennial period, the cost of the arts will always be less than wider the present system whereby a series of convulsive and unrelated efforts are set in motion at irregular intervals in order to stave off collapse."

I do not wish to weary the Committee by going into further details, hut those of us here who take some interest in these matters feel that the present situation is really unsatisfactory. We get a sudden convulsive motion when, perhaps, a particular picture may be going out of the country. In those circumstances, we usually have to pay from public funds a good deal more than would have been necessary had the Tate Gallery or the National Gallery, for instance, been in a position quietly to bargain with the vendor at an earlier stage.

They are not able to do so. The subvention to the Tate Gallery, which has been reduced, is really quite shameful. As one of the great countries of the world, and as one which attracts a very large tourist industry—to put it on a thoroughly material plane—we should regard these national collections and such institutions as opera and ballet as a national investment. We should regard it as a duty to keep them of the highest possible quality. As I say, our present method both as to the timing and the money available gives us a very inadequate return, and is something of which we, as a country, should be ashamed.

Quite frankly, I feel that, in very difficult circumstances, the Labour Chancellors of the Exchequer showed considerable regard for this aspect of our national life. I should have expected Conservative Chancellors, who, after all, come from a cultured background, to have been a good deal more concerned than they have shown themselves to be. Even the Lord Privy Seal, who has connections with a family whose name stands very high in the world of art, showed himself to be hardly less phillistine than any of the others. It is hardly fair to blame the present Chancellor in his first Budget, but I hope that he will show real concern for this matter when he comes to framing his next Budget, should he still be in that place.

All of us on this side of the Committee take the view that, with the one exception of the Profits Tax, on which we divided yesterday, the provisions of the Budget itself, as far as they go, are for the most part reasonable and sensible. We are, however, deeply concerned about the more general economic situation. We are concerned because, in our constituencies and among the members of trade unions with whom we are, naturally, closely associated, there is a very uneasy feeling about the present state of the economy. I have here a long letter which I received only yesterday from the secretary of one of the largest trade unions in North Wales, in which he urges me, if I have the good fortune to catch your eye, Sir Gordon, to convey to the Committee and to the Government the feelings of a number of our industrial workers.

I recognise that the Chancellor, in his Budget proposals, has made suggestions for dealing with some of the problems. In Wales, we are very glad, of course, to know that there is to be some extension of the principle of the Distribution of Industry Act. I trust that, if it is carried forward with vigour and enthusiasm, it will provide some alleviation in areas where we have considerable unemployment but which, for one reason or another, have hitherto not been scheduled. I do not quarrel with the rather flexible arrangements which the President of the Board of Trade suggested were likely to be embodied in legislation, although, naturally, we are anxious to know just how far such provisions are to extend. I say that because I represent a part of North Wales which is usually regarded as highly prosperous. Whereas in North-West Wales there have long been areas of unemployment, in my part of Flintshire we have certain industries which, even at present, are working very well. We have the de Havilland Company, which recently obtained some very good orders for its aircraft. We have one of the steel firms which is not yet suffering from contraction. Nevertheless, even in my relatively prosperous county, we have an unemployment percentage today above 4 per cent., which compares with a percentage over a number of years, until 12 months ago, of between 1·5 and 1·8 percent.

What worries us is that we have heard of short-time working in so many places within the last few months. One of the big rayon factories has entirely closed and another is closed one week out of five. We have Service Departments closing down establishments and either nothing taking their place or endless delay occurring in deciding what is to be done with the buildings and so on. Brickworks are closing or laying off people. We have had a new factory started in the area quite recently—exactly the sort of light industry for which everyone always asks —but it has already gone on short time. Naturally, these things affect the local shopkeepers, the level of local rates, and so on. There is, therefore, a general feeling of uneasiness.

The workers in my constituency are asking a great many questions. It is difficult to convince them by, for instance, anything that the President of the Board of Trade may have said this afternoon, that one cannot keep up the level of production without having such a vast amount of imports that we endanger our balance of payments position. This may be true of certain forms of industry, but it is not true of all, and we have had no satisfactory explanation from the Government as to how they would, with their kind of policy, differentiate between industries which need considerable imports and those which do not.

I can give one rather astonishing example of the sort of thing which is occurring. I am told that quarries in North Wales are closing. One has actually closed and another, I am told, is likely to close. Both produce road stone. If there was ever an industry in this country which, at a time of relatively slack employment in certain directions, should be encouraged, surely it is this. We badly need more and better roads. Here is a raw material available within our own shores, and the question of imports does not arise at all.

Then there are the very strong doubts among industrial workers, particularly the railwaymen, on the Government's wages' policy. I do not want to go into too much detail, but I know that the railwaymen in my constituency feel very strongly that if the Government continue to insist that wages must keep pace with productivity, then the utmost encouragement should be given to the British Transport Commission to complete its modernisation programme and not to slow it down. I noticed that even the Evening Standard, which is hardly a Socialist newspaper, only yesterday had an article on this point.

In those circumstances, it is very difficult indeed not to be apprehensive about the possible return to a restrictionist outlook on the trade union side of industry. It has not been easy, even in times of full employment, to overcome memories of past depressions. It is therefore extremely dangerous for the health of our economy that the feeling should exist that the Government are in any sense damping down production indiscriminately when the unions themselves need every encouragement to co-operate in increased productivity.

Finally, I should like to make one or two comments on the President of the Board of Trade's remarks about investment in the Commonwealth. He also made some really very unworthy political attacks upon this party. They were quite out of keeping with a great deal of his speech. Those of us who are concerned with Commonwealth affairs and the affairs of under-developed countries are particularly anxious that we should use our resources in the Commonwealth in the best possible way.

We are not happy about the state of affairs which the party opposite seems to accept with complete complacency, that any money which goes out of this country in any direction for any purpose to any part of the Commonwealth is in itself desirable. It is possible to have undesirable investment in the Commonwealth in purely speculative directions. For example, there has been investment by this country in Canada and Rhodesia in speculative building, speculations in land values and so forth, which is not particularly desirable, whereas investment in other parts of the Colonial Territories is more urgently required but is not forthcoming. There are places like Kenya, for instance, whose Finance Minister has been over here time and again to ask for money, not merely for emergency work but for the vital purposes of education. He has had to go back to his people, not empty-handed, but with much less than he could adequately use, because the people in Kenya have been told that they have to share our economic difficulties.

It seems to those on this side who believe in using our resources as intelligently as possible that it is not intelligent to say that because one cannot encourage certain kinds of investment owing to the credit squeeze in this country, the Colonial Territories, which are so far behind us in development, have to suffer in the same way. We believe that this policy does not make an intelligent use of our resources. I hope that when we have the economic discussions which are projected they will not be confined to what can be done among the self-governing territories of the Commonwealth, but that someone will speak up for the under-developed countries in the colonial world.

It is because we are unconvinced that the Government not only accept the aim of economic development but are prepared to adopt the necessary means which involve a certain channelling of investment and a certain interference, perhaps, with the complete freedom of investors, even in Commonwealth countries, that we are uneasy at their direction of the economic affairs of the Commonwealth. I hope very much that we shall have a reply to some of the points which have caused a great deal of concern to us on this side on matters which are not in the Budget rather than those which are.

The hon. Lady the Member for Flint, East (Mrs. White) will not expect me to take up the points she has made, because when one bats, as I do, in my conventional position in this Committee of last wicket down for the back benchers, one's time is somewhat restricted and the spirit of the game is, to say the least, not quite as lively as it was earlier in our deliberations. The more attractive balls which were bowled by some of the bowlers on the Opposition Front Bench, both present and emritus, are no longer available to be hit, because the bowlers have left a long time ago. Batting No. 11, one has to play a rather more humble and scrappy game.

I would, however, like to answer the hon. Lady's objections to boat clubs being classed as learned societies. I understand her feelings about Peter-house, but if she were referring to First and Third Trinity, she would realise, I think, that muscle and brain are, happily, combined and that we would come under the heading of a learned society, however one cares to define it.

The point that the hon. Lady might have made—I have great sympathy with her case—was the intolerable position in which my hon. and learned Friend the Financial Secretary to the Treasury is put in that the only aspect of his duty in which he acts as a spending Department is in relation to the matters that the hon. Lady raised. In everything else, I understand, his job is the scrutiny of the Estimates put up to him by his colleagues from the spending Ministries. I hope that the hon. Lady will join me in the view that these cultured duties be transferred from the Treasury to some other Department, possibly the Ministry of Works, so that at least we could have an advocate outside the Treasury who would be able to put the case for expenditure on the arts, and which my hon. and learned Friend the Financial Secretary would, no doubt, scrutinise with his normal vigour.

The Budget goes a great deal wider than merely the determination of Government revenue and expenditure. It is traditional that the Budget should help to guide the course of the economy over the next year. The Chancellor has to visualise the probable course of events at least a year ahead. I suggest that April, 1958, has been a particularly difficult time for my right hon. Friend and his colleagues to do their crystal gazing. He has had to make up his mind whether the problem that the nation will be facing six months hence will be the continuing problem of inflation, or whether we will have gone over the hump and be facing a recession.

My right hon. Friend's difficulty is increased by the inaccuracy of the statistical methods of forecasting. Hon. Members sometimes do not realise how inaccurate those statistical techniques are. That is true of whichever party provides the Government of the day. Therefore, I think we must all sympathise with, and hon. Members on this side of the Committee certainly support, my right hon. Friend in taking a cautious view of the events likely to face us during the next year. I think that it is likely to be a year in which even the 550 amateur Chancellors of the Exchequer who sit on the back benches must feel a little chastened by the darkness of the unknown ahead of us, and that this thought tempers the normal force and, with some of us.

the arrogance with which we back benchers present our ideas to whoever is the Chancellor of the day.

I think, too, that we must pay tribute to the considerable progress that has been made in strengthening our economy since last September. I am sorry that the right hon. Member for Huyton (Mr. H. Wilson) is not in his place, because I found his speech very provoking, and I should like to reply to him.

My right hon. Friend the Member for Huyton (Mr. H. Wilson) is absent only because he has to make a television appearance tonight.

I quite realise that. My remarks were not made in any spirit of personal criticism of the right hon. Gentleman, but merely to indicate that, going in No. 11, one finds that it is a pity that one does not find the Opposition fast bowler still on. Of course, that may be arrogance on my part.

The particular point made by the right hon. Gentleman that I wish to take up was the one in which he denied that wages had been inflationary. He also poured a great deal of scorn on the Cohen Report, and I should like to challenge him about the figures given in paragraphs 27 and 28 of the Report, of which the substance is, and I quote:

"…roughly half the extra money "—

the Report is talking about the increase in prices between 1946 and 1956

"went to wages and salaries; about a fifth to profit incomes; another fifth went to pay higher import prices; and about an eighth went to extra indirect taxes."

It seems to me that it is not necessary for the right hon. Gentleman, in defending the position of the trade unions, to deny that wages were inflationary. I suggest that he is doing a disservice to the trade union movement, because I am not one of those people on this side of the Committee who put the blame solely on the trade union movement. I put it simply on the market—the excess demand for labour over the supply. I think that 'Ai some districts employers must take a great measure of responsibility for having bid up the price of labour in competing with each other to obtain scarce labour.

I suggest to the Committee that since last autumn we have seen a substantial strengthening of sterling, a flourishing of the reserves and reasonable price stability. The correct measure for obtaining price stability is to balance supply and demand. I think both sides of the Committee would agree that that should be the aim of all Chancellors. I doubt whether most hon. Members of the Committee realise the difficulty that any Chancellor encounters in trying to get his sums right, because the figures upon which he works are so inadequate. He may get his sums 98 per cent. right, but a 2 per cent. error in estimating the balance of future supply and demand. when the gross national product is between £1,800 million and £1,900 million, means between £250 million and £350 million worth of inflation in the economy. Yet I think most Chancellors would be very pleased if normally they could get their sums within plus or minus 2 per cent. of their estimates.

Therefore, not believing, as I think some hon. Members do, in human perfectability by our own efforts, I take the view that Chancellors are going to err. I believe very strongly that all Chancellors should aim to err in their calculations by having an excess of demand over supply rather than the other way round. My reason for preferring to err on the demand side is simple. This is not merely a human problem of producing a higher degree of unemployment or under-employment, because, in spite of what the economic theoreticians teach us, we are not dealing with economic matters. Therefore, labour is not discharged proportionately with a fall in output following a slight reduction in demand, and we therefore find underemployment of labour. People are kept on because employers dislike discharging redundant labour and hence the unit cost of production goes up, with the result that the price of the product is more likely to rise than to fall.

The aim, in theory, must be to try to keep supply and demand in balance. I suggest to the Committee that the error, which I accept and ask Chancellors to prefer, would probably mean over a decade an annual rate of inflation of between I to 1½per cent. Compare this with the 5 per cent. a year inflation from which this country has suffered since the end of the war. Equally, we ought to be very clear in our minds that if we were to take the other course and to err marginally on the side of an excess of supply over demand, there would be no guarantee of price stability.

It is significant that in the United States last month, with a considerable excess of supply over demand and with 5½ million unemployed, the retail price index hit the highest point it has ever reached. We also need to look at what has gone on in recent years in Italy, where they have had an unemployment rate of around 10 per cent. of the working population. I am satisfied that the harsh school of thought which favours that the error should be on the side of an excess of supply over demand cannot guarantee price stability. One has to go a good deal further than having just a modest marginal degree of unemployment. One would have to go to a level of unemployment which all parties in this country would regard as intolerable. I return, then, to the aim which I am sure we all have in common, that the Chancellor must try to keep supply and demand in balance.

I was very pleased that my right hon. Friend discussed the problem of international liquidity during the course of his Budget speech. It tied up very much with the brilliant analysis that Sir Oliver Franks made in his annual report as Chairman of Lloyds Bank. I wish to read one extract from that report. Sir Oliver said:

"…the growth of international reserves (since 1937 little more than doubled) has lagged well behind the growth in the money value of world trade (since 1937 nearly quadrupled). Admittedly, this is only another way of saying that the existing reserves have sufficed hitherto to finance an almost continuous expansion in world trade on a rising price level. But the question is whether they are now spread so thinly over the system as a whole that the shortage of reserves might aggravate other deflationary tendencies, if these were to accumulate, and a minor recession be magnified into something more."

I believe that when one looks into the figures one sees a very real shortage of liquidity to carry the volume of trade which is flowing between the nations of the world. Let no Member of the Committee be stuffy about this and say that the buyer should pay cash on the nail. For centuries we have built up a credit system, and to become puritanical about it does not get us anywhere. There is a clear need for international action. There is also, I believe, an opportunity for action within the Commonwealth. I am hoping that the Commonwealth Economic Conference will produce new machinery for assisting the problems of liquidity within the sterling area.

Is believe the Government would do well to take as their aim for the Conference the institutionalisation of the best existing practices. I think particularly in terms of development funds, a Commonwealth secretariat, and so forth. I hope that when we go into Committee of Supply on the Civil Estimates we shall have an opportunity of discussing this matter, because my hon. Friend the Member for Maldon (Mr. B. Harrison) has tabled a Motion about the creation of new machinery for Commonwealth economic co-operation. He and I intend to suggest to the Committee some methods by which my proposal for institutionalisation could be followed.

I was very pleased that my right hon. Friend mentioned the problems of the distribution of industry and local unemployment. It has not so far come out in the debate that this problem is important not only in the social consequences of a higher degree of unemployment within a particular district, but in its wider, national significance. That is to say, where we have a heavily industrialised area which has an unemployment rate very much lower than the national average, there is a shortage of workpeople and, therefore, an inflationary pressure of more jobs than there are men.

The result is that employers bid against each other and wages are pushed up but such are our national agreements, that this local inflationary pressure on wages is felt throughout the country. If we were to succeed in getting a balance in the supply and demand for labour in the highly industrialised areas, it would mean that in the less well developed areas such as those about which we have been talking, the rate of unemployment would be such that we would all agree it to be socially undesirable.

I believe that heavy over-employment —if one can use that expression—in one or two districts plays an important part in the inflationary pressure on wages. I do not know whether the Committee recognises that at the height of last summer, on 17th June, the national average was 1·2 per cent. unemployment and in the East and West Ridings of Yorkshire and in London it was less than 0·8 per cent. At the same time, in Scotland it was 2·3 per cent. and in Ulster it was very much higher.

Because of the social consequences in a district where there is a high rate of unemployment, and because we are not able to take the type of action needed to try to keep the demand for labour in balance with the supply, we must aim at a more even distribution of industry throughout the country, there is a further consequence of the excessive concentration of industry in certain areas. Such concentration puts excessive pressure on social investment—that is to say, on housing, roads, drainage and so on, which increases the inflationary demand on the resources of local authorities and ultimately upon the central Government.

I was glad that my right hon. Friend was cautiously optimistic in looking ahead. He made suggestions of various measures which he might take should recession rear its ugly head more than it has done. There is one thing about which I am not happy and that is the speed with which these so-called built-in stabilisers can be brought to work. I remember that in America a few years ago I was told that they could cope with any form of recession, because of built-in stabilisers; yet they are not working very effectively at present. The problem facing anyone in authority over our economic affairs is to know when is the right moment to start to put them into action. If it is done too early, it will bring back the inflation, and if it is done too late a minor recession may develop into something worse.

I am very pleased that my right hon. Friend made a gesture towards a resolution of this problem of timing by raising initial allowances now. We had hoped that he might have done a little more for investment allowances for plant and machinery.

I am glad that he came out as a qualified expansionist. As the Committee knows, I am an unrepentant expansionist. My right hon. Friend said:

"Our strategic aim must always be steady expansion,"

he put in a cautionary note—

"though tactics may sometimes dictate a pause."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586. c. 37–8.]

That is an observation with which nobody can disagree.

Not only for economic reasons but for reasons of national purpose and to channelise the spirit of our people, economic expansion is essential. We—an old nation which has played a great part in the history of the world—are going through a difficult psychological period. We have to change the direction of our endeavours and national purpose in order to meet changed circumstances, but not abandon our character. I believe that our place in the world today is as a great scientific, commercial and industrial nation, not necessarily making all the goods we use but making what is required to meet the changed pattern of production in the primary producing areas.

Above all, we must be a great scientific nation. When some of my humanistic friends hold up their hands in horror and say that that is a terrible fate for Britain and that they would rather we went down as rural England clinging to the memory of former glories, I observe to them that the great mercantile nations of the world have usually also been the great patrons of the arts. The hon. Member for Flint, East will gain comfort from the reflection that some of the greatest painting was done by those great mercantile states of Florence and Venice, and that Athens, in its great days, was a great commercial city. I do not believe that there should be any conflict between a pursuit of the arts on the one hand and commercial and scientific achievement on the other; in fact, it is in an enthusiastic marriage of these two aims that the future prosperity of this nation, both economically and morally, will lie.

I know that my elders may feel that I speak as an angry young man, but I am not too disturbed by that knowledge. In the words of Logan Pearsall Smith:

"The denunciation of the young is only a necessary part of the hygiene of older people, and greatly assists the circulation of the blood."

I will not deny my elders the circulation of their blood, but the younger generation gets a little tired with the sort of latter-day Götterdämmerung speeches that we get from elderly Members of all parties who say, "The barbarians are upon us. Rally round boys, put your thumbs in the dyke and hold them there as long as you can. We will try to get Charlie to relieve you."

I find the world in these changing times to be wildly exciting. I should never want to live in a complacent age. That goes for most of the younger people of this country. They do not want detailed plans; they want to make their own programme, but they do want some idea of the direction in which our resources can be channelled. They want leadership in the best sense of that word.

Because I am an unrepentant expansionist, I wish to say a few words about investment, for investment is the necessary creature of increased production and increased productivity, and all the exciting things that we are doing in the scientific field. I pay tribute to the Chancellor and my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) for the progress made last year in the rate of fixed investment. I was surprised when the right hon. Member for Huyton took comfort in the fact that at this time last year he said that the Budget of my right hon. Friend the Member for Monmouth would not lead to increased investment. Last year the rate of fixed investment rose by 5 per cent. in real terms and, as the Economic Survey pointed out, over the past five years the proportion of the gross national product devoted to fixed investment has risen from 14 per cent. to 17 per cent.

The Committee must appreciate that all over the world the demand for investment is greater than the supply. I regard that as a healthy state of affairs, because it is a reflection of the tremendous advances which have been made in scientific knowledge and, therefore, in the enthusiastic exploitation of the opportunities afforded by new knowledge.

We have two ways by which we as a nation can deal with this shortage of capital. We can either do as was suggested by the right hon. Member for Huyton and have a very large overall surplus Budget above and below the line to enable one to cover a lot of necessary investment with a consequential higher level of taxation, or the alternative which I would prefer, of a reduction in personal taxation thereby providing means by which companies and private persons may find it possible to save; and by stopping inflation, or at least keeping it down to a tolerable level, making it worth while to save.

Nor do we always make proper use of the capital we have already. I suggest to my right hon. Friend that greater consideration be given to the productivity of capital. That means shift-working, such as we have in my own industry—the chemical industry. But it also means that our social legislation must be so framed to make it possible for people working on shifts not to be denied the same opportunities for sport, leisure and shopping available to other members of the community who work more traditional hours. I would also suggest a far wider use of work study in the design stages and that no Government contract with either a public or a private contractor be finally completed unless it has been examined critically by work study techniques. I will not bore the Committee with what can be done by work study, for I spent a number of years working on it whole-time. I submit that work study is the key to making better use of our resources and to building up the savings to provide the capital we need.

Against that background, I think that my right hon. Friend was right to aim at something near an overall balance in his Budget. He has allowed himself only a modest overall deficit which I believe he stands a reasonable chance of financing by savings. It would be intolerable at this stage to have any marked increase in the floating debt. unless, of course, things should turn down and we were faced with a real recession.

The real "nigger in the woodpile" is still the high level of Government expenditure, and most of that comes from policy decisions. I hope that during the next year my right hon. Friend will rethink out the financing of nationalised industries. I should like to see them allowed to make bigger profits and thus be self-financing at least to the extent of two-thirds, like private companies. Some of my hon. Friends suggested going to the market, but who would buy ordinary stock in the Coal Board? I think the time has come for hon. Members on both sides of the Committee to have new thoughts about how to pay for the social services. I am an enthusiastic supporter of the rôle of the State as the entrepreneur in expanding social services but I think that the time has come for new thoughts on the subject of how the financial burden is distributed between taxpayer and user. Speaking as a governor of one of the London teaching hospitals, I may say that we wish to do a lot more building, but in present circumstances it would be intolerable to ask for a higher proportion of the national income to be spent on the Health Service. Therefore we must find new methods of charging for some of the services.

There should be new thinking on the way in which Government Departments spend money. I am against a "Geddes Axe" approach with swingeing cuts of 10 per cent. or 20 per cent. all round. I suggest as an alternative that there should be a constructive examination of Government policy through work study. I put to my right hon. Friend the "Price Plan for work study in the Government service." I suggest that every Department should have its work study unit of civil servants, trained in work study, working under the head of a Department and reporting direct to the Minister concerned. At the Treasury there should be an advisory committee reporting directly to my right hon. Friend and presided over by some distinguished industrialist, with a judicious mixture of civil servants and industrialists in an advisory capacity. I have never been completely satisfied about the work of the Organisation and Methods Section at the Treasury. They deal with detail, when it is policy which is screaming for examination. It is like using a salt spoon when we need a steam shovel.

Although my time has run out, I must mention taxation before I sit down. My right hon. Friend is faced with the position which confronted Edmund Burke, and in which he said:

"To tax and to please, no more than to love and be wise, is not given to men."

I noticed that one of the newspapers, referring to the modest reductions of taxation proposed by my right hon. Friend the Chancellor, called the Budget "Amory's appetiser." Many of us on this side of the Committee looked forward hungrily to the main meal, when great may be the feasting of us, the anæmic taxpayers.

The hon. Member for Eastleigh (Mr. D. Price) always makes an interesting and agreeable speech, and his speech on this occasion was no exception to the general rule. I am not sure whether it was agreeable to the Chancellor, although the right hon. Gentleman looked round at the hon. Member and nodded warmly before leaving the Committee.

I do not find a very close identity of view between the hon. Member and the Chancellor in the views which the hon. Member put forward. The hon. Member said that he was an unrepentant expansionist, which was a very good phrase. He thought that the Chancellor of the Exchequer was a qualified expansionist. I thought the hon. Member was rather clutching at a straw to believe even that.

The main impression which has emerged from the Budget this year is that the right hon. Member for Monmouth (Mr. P. Thorneycroft) need hardly have bothered to resign and that his deflationary spirit still lives and is still entrenched in the Treasury. I dare say that if the right hon. Member for Monmouth had still been in office we would have had a somewhat more buoyant Budget speech, even if we had not a more buoyant economy.

Without question, we need a little buoyancy in our economic affairs. The economic prospect which the Chancellor held out to us yesterday is the most gloomy that any Chancellor has held out since the war. The right hon. Gentleman's own words about the level of production were:

"The level of industrial production has tended to decline slightly in the last few months and unemployment has been rising. These trends may well go rather further during the rest of the year."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 50.]

On the Chancellor's own estimate, that is the position which he is asking the Committee to support him in consolidating at the present time. It is a position in which, after two and a half years' or three years' virtually stagnant production, we are moving into a still less favourable position in which production is easing down. The Chancellor believes that this tendency will be increased as time goes on, and he is unable or unwilling to take any substantial, worth-while measures to remedy the position.

Why does the Chancellor take this extremely cautious view and accept this stagnant production position at best, and, at a little less than best, a position of falling production? First of all, it is due to the mess which was left by the right hon. Member for Monmouth and the mistaken view that inflation is still the main enemy to be fought.

It was, I think, the peculiar triumph of the right hon. Member for Monmouth that he nailed his colours to the mast by lighting inflation at all costs at the very worst of all possible moments in the past seven years at which to choose to do that, because that was the very moment when the target was disappearing. I think we are now in a position in which the Government, the present Chancellor as well as the former Chancellor, are trying to expiate their sins of not dealing with inflation when it should have been dealt with, in the six years after 1951, by taking an extraordinarily vigorous martial attitude against it when it has completely disappeared from the field. This is a most mistaken and most dangerous position.

The second point which, no doubt, weighs with the Chancellor is that we cannot afford expansion at the present time from the point of view of the stability of the £. The Chancellor talked about this in terms of a temporary postponement of expansion. He said:

"we are not in a strong enough position yet to resume a policy of general expansion. In the first place, we have only just emerged from a dangerously strained position,"—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 54.]

The Chancellor presented the matter very much in temporary terms. The President of the Board of Trade, on the other hand, struck a rather different note this afternoon. The President emerges as the high priest of permanent stagnation. His note was quite different from that struck by the Chancellor. At least the Chancellor sounded slightly ashamed of the fact that he cannot allow production to expand, but the President positively glorified in the fact. All the arguments he put forward saying that it was dangerous to expand production now were not temporary arguments but would apply with equal force almost in perpetuity. The President said that the loss of £1,500 million a year in national wealth is a price which everyone ought to be very glad to pay to avoid having any import restrictions beyond those bold import restrictions he still keeps on. It was quite unreasonable to suggest any changes in the present situation which would make it more possible for us to expand. It really is a sad end to the dash for freedom which the President used to claim to lead that we are now in a position in which all he can offer to the Committee is a permanent theory of stagnation.

Let us look at the Chancellor's view more closely, because the Chancellor's view, I suppose, is more important than that of the President of the Board of Trade. The President may stay in his office rather longer than Chancellors do, but he is mostly out of the country when major economic decisions are taken. That, perhaps, may explain his greater duration in office. Let us look at the Chancellor's more temporary approach as opposed to the President's permanent approach. The Chancellor's hope is that the position will get better in a short time and that expansion which we cannot now afford without endangering the £ will then become possible. But why should it? What element is there in the situation which leads one to believe that we shall be better able to afford expansion in six months' time or a year's time than we are at present?

Is the future of United Kingdom balance of payments such as to be a contribution in this direction? Our balance of payments is in a very healthy position at present. Whether one takes a pessimistic or an optimistic view about the American recession, I should have thought the prospect is at least one which would have a sufficient effect to mean that our balance of payments was, if anything, likely to worsen rather than to improve over the next few months.

What about sterling balances? The President said that these were likely to be run down at a rather more rapid rate as the current earnings of the countries owning them were diminished. Neither of those two factors will be an additional strength. There is, therefore, not the slightest reason to expect changes in the near future which are likely to enable us to bear the strain of extra expansion if we cannot bear it at present.

It may be argued that there is one factor for which I have not allowed and that is that we shall get more gold in and get further from the crisis of last autumn. But if we get gold into this country and at the same time our short-term liabilities increase to an equivalent amount, to what extent does that make us 'in a more secure position? It is the net position which is all-important from this point of view.

Although we get the monthly gold figures, what we do not get, which I should have thought it eminently desirable and perfectly possible to have, are the monthly figures for sterling balances, and we are therefore not in a position to see what is happening to the all-important net position from month to month. There is, therefore, not the slightest reason to believe that the position, on the Government's own assumptions, will quickly become more favourable to expansion. The difference between the Chancellor and the President of the Board of Trade therefore becomes essentially one of form rather than substance and the Government's policy becomes one of perpetual and constant stagnation and a permanent fear to expand. This is the best that can happen. The best -that can happen on the Government's showing is that from this all-important point of view of the expansion of our national wealth we shall be forced to continue to stay where we are.

It is extremely likely that with the effects of the American recession, something slightly worse will happen and we shall slip back. We shall get growing pockets of unemployment, falling production and falling living standards.

But let us for the moment deal with the question on the assumption that the best of the Government's assumptions will in fact occur and that we shall continue to stagnate. In that event, we shall not fall back but will merely continue to stagnate as we have done for the past two-and-a-half years.

How important is it that this should not be the case? I think there is probably an increasing volume of opinion, particularly on the Government side of the House, but to some extent outside the House amongst the financial commentators and others of that type, which is beginning to suggest that it is not of major importance whether we expand—that provided we can maintain a strong £, provided we can maintain our traditional banking function, provided we can prevent unemployment from getting out of hand and provided we can make a little compensating adjustment here and there, one industry growing and another shrinking, then expansion is perhaps not of major importance.

This is certainly the view which emerged from what the hon. Member for Wolverhampton, South-West (Mr. Powell) quite rightly said was an extremely interesting and persuasive article by Professor Robbins in Lloyds Bank Review. I found this article particularly interesting, because it convinced me far more than anything else how closely he must have been behind the policies of the right hon. Member for Monmouth. Had he not been largely responsible for devising them, I do not think he could possibly have defended them quite so slavishly. Although the article sought to discuss the central issues of our present economic problems, it dealt with the problem of economic growth only as part of destroying another argument and it did not place it in a central position to any extent.

The same feeling that economic growth is at very best of secondary importance pervades all the thinking of the Cohen Committee, and it also pervaded all the thinking behind the speech of the President of the Board of Trade which we heard this afternoon.

I believe this view to be profoundly mistaken, and it is also an extraordinary position for the Conservative Party to have manœuvred itself into. After all, all of us on this side have become accustomed in the past to accusations by hon. Members opposite of being interested only in a rather squalid squabble about shares of the national cake, and of not being concerned about increasing its total size. I am sure the President of the Board of Trade himself made a lot of very eloquent—or, at any rate, fairly eloquent—speeches on those lines during the 1950 and 1951 Elections.

What is the position now? The position now is that it is the Conservative Party that has completely ceased to be interested in the size of the national cake. It is the Conservative Party that, not just for one Budget but for three years now, has become a party of constant national wealth, and a party that has turned its back on the central issue of economic growth.

The hon. Member for Wolverhampton, South-West this afternoon posed what he thought was a central dilemma in out affairs at the present time; the fact that the people, notwithstanding that their economic prosperity had been growing very rapidly, none the less felt a great sense of discontent and malaise, for some reason of which he was not quite sure. Certainly the policy that, as I understand, he has been supporting, and in support of which he resigned, would have solved this problem by ensuring that the national wealth at any rate did not continue to increase, and the dilemma would not have presented itself in the same form, whatever else it did.

I am sure that it is now essential that our approach to this whole problem should be the approach of giving expansion almost first priority. I agreed with a great deal of what the hon. Member for Ealing, South (Mr. Maude) said. Here I would say that I am very sorry to know that the hon. Gentleman is leaving the House of Commons. We will all greatly miss him, and regret his departure. As I say, I agreed with a great deal that he said about the need for an attack on restrictionism in all forms. Of course, that is very necessary, but it does not really make very much sense unless the attacks on restrictions are made in the context of a buoyant and expanding economy. Unless that is the position, they will not achieve results, and it will he much more difficult to carry them through.

Of course, in discussing in this Committee whether or not we are to have an economy of rapidly expanding growth, we are not only discussing—although I think that it is extremely important—the question of our standard of living here at home. We are also discussing our ability to meet our overseas liabilities; our ability to hold together and help the sterling area in ways that I believe to be desirable, and our ability to compete in the economic race with the Soviet Union, which is going ahead at a steady rate of expansion of from 6 or 8 per cent. a year, and has been for some time past.

Even from the point of view of our balance of payments, of our exports, the policy of not being concerned about expansion is an extremely short-sighted one. It is perfectly true that, in the short run, a restrictive economic policy is likely to improve the balance of payments. It will certainly cut down imports and may, to a somewhat lesser extent, make manufacturers at home more eager to export.

Equally certainly, however, a policy that is not based on growth, a policy that is not based on high investment, will, in the long run, substantially worsen our export position.

There is no question at all that over the past five or six years, when our investment performance compared with that of most of our rivals has not been in any sense a good one, our export competitive position has also been worsening. We have failed to keep up our share of world trade. Partly, that has been because a very large part of our exports go to the Commonwealth, which has not been as rapidly an expanding a market as some other parts of the world, but even in markets like those in Western Europe which have been expanding more rapidly we have, to quite an extent, failed to keep up our share of the trade available.

This is not unrelated to the fact that, over this period as a whole, we have been a low investment economy. Certainly, there was a spurt in investment in 1956 and 1957, but even at the height of that investment boom we were not, by the standards of most major industrial countries, a high investment economy. We were very far from being near the top of the list and we still had an extremely long way to go.

Therefore, I should have liked to see a much more expansionist Budget which gave much higher priority to stimulating investment. The concession about initial allowances is really a very small one indeed, and one which was, I suspect, put in the Budget not so much for its own sake as to enable the Chancellor to say that he was not by his Profits Tax adjustment worsening the position of those companies which previously ploughed back a very large share of their profits.

The reply of the Government to the expansionist approach is to say that it is very dangerous because it would weaken the position of sterling. At the same time, however, they say something else. Yesterday, the Chancellor quite firmly rebuked those who had in any way called into question the position of sterling, the position of Britain as a world banker, and our general currency arrangements. He did it in terms which suggested that this really was not a subject for discussion, that we were perfectly satisfied with the way in which all these arrangements were working and had not the slightest intention not merely of not making but not even of contemplating any changes.

I ask hon. Members to consider the matter and see whether the position is really such that the Government are entitled to say that the system is working so perfectly that they will not look at it. Here we are in the United Kingdom, in the spring of 1958, with a good deal of excess capacity, having had no increase in our production for three years, with the threat of a world recession around us, and with a very strong balance of payments position. Despite all these factors, for reasons associated with capital account and the working of the exchange position not directly related to our own balance of payments, the Government are in a position in which they are quite unable to set on the move any expansion here at home.

The hon. Gentleman has spoken a great deal about the failure to expand here. Has he borne in mind the experience of the motor car industry, which, after the check in demand in 1956, is now producing more cars with less labour? Is not it possible that that experience may be found in many other industries?

I do not think that the hon. Gentleman is quite right in saying that the motor car industry is producing more cars. I do not think that production is quite up to its 1950–55 peak yet, though it is certainly very near it.

With much higher investment.

And with much higher investment. The motor car industry went through a bad period, and it is now going through a good period. It is extremely fortunate for the Government that the motor car industry is now temporarily in a good period for, were it not so, both the amount of unemployment and the index of industrial production would look a good deal less healthy than they do. I am not sure how confident the hon. Gentleman is about the future of the notoriously mercurial motor car industry during the next few years. All that he is saying really is that the motor industry is one of the industries which is better off than some others; it is producing more, and some are producing less. The average of the total is our present level of production.

I was putting to the Committee the position in which, despite the fact that there were many strong reasons why we should like to set on foot a policy of expansion, we were quite unable to do so because of the exposed position in which our currency finds itself in the world. I certainly think that this in itself is a reason for having a close look at the working of our currency arrangements and at the commitments we have undertaken.

I do not pretend to have an easy solution for cutting our commitments and putting ourselves in a position in which these difficulties do not apply, but I believe that, certainly over the last three or four years, the Government have made some extremely mistaken moves for which we are paying heavily at present. It happened particularly during the last days of the Lord Privy Seal's régime at the Treasury.

It is very difficult to find out exactly what the free operation of sterling is costing us, but it appears clearly from figures in the Balance of Payments White Paper that we are losing on account of the working of free commodity markets in London and on supporting at the transferable sterling rate in Zurich and elsewhere a sum of between £150 million and £200 million a year. This is a very substantial amount indeed which we are losing directly as a result of the policies of the Lord Privy Seal.

In a position in which the Government are hopelessly inhibited in what they can do, it is not good enough for the President of the Board of Trade to suggest that any measures which might be taken to put us in a position in which we have more freedom of manœuvre and more freedom to expand at home are merely Socialist controls which would provoke a flight from sterling. If the Government had not themselves introduced much too late the control over the Kuwait gap and if this were not in existence, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) suggested, I am sure the President of the Board of Trade would have spoken scathingly of a Socialist control which could do nothing but harm, which would break up the sterling area and which would lead to concern in Zurich and to everybody retreating from sterling. I am sure the President would say the same thing about dollar import controls which he himself operates if they did not exist and if they were opposed by this side.

These are questions not of principle but of more or less. It would seem sensible for any Government which had not been drugged by failure into a hopelessly dogmatic approach to believe in a position in which we find ourselves at present at least to look at these matters and see whether we can to some extent break the paradox of having an immensely strong balance of payments position and yet be unable to expand at home and unable to promote our economic growth because of the position in which we find ourselves so far as our currency and banking position is concerned. I believe that undoubtedly over the next few years the question of whether we can get this country once again into the position of being a dynamic expanding economy will be the central question in our home economic politics, and on that issue more than any other the next Government will be judged.

There is no doubt that over the past few years we have become a stagnant economy. This carries immense dangers for the future. The Chancellor's Budget offered not the slightest glimmer of hope as to how we could escape from this period of stagnation. It was a weak Budget from a weak Government, and I hope that it is the last that we shall have from this Government.

The theme of the speech of the hon. Member for Stechford (Mr. Roy Jenkins) was Tory stagnation, and he quoted my right hon. Friend the Chancellor of the Exchequer as holding out gloomy prospects for the rest of the year. My hon. Friend the Member for Eastleigh (Mr. D. Price), indeed referred to the unknown darkness ahead of us.

I know that the hon. Member for Stechford is a diligent reader of Blue Books when he is not chatting with his colleagues on the Front Bench. On this occasion, however, he seems to have been more anxious to indulge in gossip than to inform himself properly about the state of the nation. Had he gone, for example, to the National Income and Expenditure Blue Book for 1957 and referred to the figures, he would have seen a queer picture of the Tory stagnation to which he has referred.

Had the hon. Member turned to Table 20—Consumers' expenditure at 1948 market prices—he would have seen that in the last year in which there was in office a Government of which he was a supporter, consumers' expenditure totalled £8,825 million but that in 1956, the last complete year for which figures are available, it had risen by £1,000 million to £9,847 million. That, it is true, is consumers' expenditure.

The hon. Member has referred, very properly, to the necessity for increases in the gross fixed capital formation from year to year. Again, if he turns to 1950, the last year when there was a Government of which he was a supporter, he will find in Table 51 that, at 1948 prices, gross fixed capital formation was £1,641 million but that in 1956 it had risen to £2,234 million. That is at constant prices. That ignores inflation. That is certainly not stagnation.

rose——

If I may quote one other figure, I will then willingly give way. The hon. Member referred to the necessity for saving. When we turn to savings, we find an ever greater contrast. Admittedly, this is not at fixed 1948 prices; it is actual money prices. Table 2, however, shows that in the last year of a Socialist Government, of which the hon. Member was a supporter, the balance of saving before providing for depreciation and stock appreciation in the year 1950 was the miserable sum of £150 million, but that in 1956 it was 10 times that figure at £1,504 million. The hon. Member had the nerve to talk about Tory stagnation.

As I was talking almost throughout my speech about two and a half years of stagnation, it is not altogether surprising that I did not refer the Committee to figures for between 1948 and 1956, which was almost exactly the beginning of the period of two and a half years. My point was that we have had two and a half years of stagnant production. Certainly, there was increasing investment, although even at the height of the boom I do not consider that it was adequate. We are now, however, in a position in which British industry is not allowed to make full use of that investment and is not allowed to get any extra production from the additional investment which took place and in which there is no immediate prospect of a change being allowed.

The hon. Member was very wise, as he has just admitted, to refrain from referring to any of the figures which his Government achieved when in office. It is a wise policy, whether building a house, a national economy or anything else, to test each step as one goes along and, as The Times leading article today advises, not to go for production at any cost but to go for production at a reasonable cost. Only by so doing can the future of the nation be reasonably assured. That is the policy which my right hon. Friend the President of the Board of Trade advocated this afternoon.

This Budget has been called a small Budget. I saw a headline in a newspaper today; I think it was "Derick, or Little by Little". I think that is totally unjustified. There are two major features of this Budget, one concerning the Purchase Tax, on which I do not propose to say anything this evening, because I am quite certain that my hon. Friend the Member for Kidderminster (Mr. Nabarro), should he be fortunate enough to catch your eye, Sir Charles, will have a great deal to say about it. The changes in Purchase Tax are very substantial and will bring great benefits to many people.

The other major change is the change in the Profits Tax, against which the hon. Member for Stechford and his hon. and right hon. Friends divided the Committee yesterday. Today, I heard the right hon. Member for Bishop Auckland (Mr. Dalton) say that in his opinion no intelligent person would support the amalgamation of the two rates of Profits Tax. I am bound to say that it sometimes amazes me that hon. and right hon. Gentlemen opposite do not spend a little more of their spare time in reading these Blue Books.

I should have thought that at any rate the right hon. Member for Bishop Auckland would have read the Final Report of the Royal Commission on the Taxation of Profits and Income. Had he done so, he would have seen, for example, in paragraph 535, the following words. This, I agree, is the Majority Report, and there were certain reservations by Mr. Woodcock, Mr. Bullock and Mr. Kaldor, to which I shall refer later. This is what the Majority Report says:

"Indeed, given the profits are in fact retained or are ploughed back, there is no safe inference that this is less inflationary in its effect than the distribution of a corresponding amount by way of dividend. Some part of a larger distribution may be saved, even by an individual receiver; on the other hand, it does not follow that smaller distributions will reduce consumptive demand."

The final conclusion of the Majority Report recommended:

"The use of differential rates may have been of some value in the immediate post-war years, but the arguments against such a tax structure increase with the years and in the end must prove decisive. We recommend that the differential rates should be brought to an end."

The right hon. Member for Bishop Auckland said that no intelligent person would say anything of that sort. This is a privileged place, and therefore the very distinguished members of the Royal Commission have no course of action against the right hon. Gentleman, but the Minority Report in point of fact does accept the desirability, indeed the logic, of a single rate of Profits Tax. The reservation which the Report makes is that it should be coupled with a capital gains tax. [HON. MEMBERS: "Hear, hear."] Hon. Gentlemen opposite say, "Hear, hear," but I am bound to say that if any Conservative Government introduces a capital gains tax, there will be a Suez movement of a size which we have never seen before. The practical difficulties are far too great.

I suggest to the Committee that hon. Members who think as apparently the right hon. Member for Bishop Auckland thinks are quite overlooking one vicious feature of the two rates of Profits Tax, which the right hon. Gentleman himself introduced, and that is the piling up without time limit of non-distribution relief over the years. There is no time limit to that, and if that situation was allowed to continue, it would mean in due course that the contingent liability might well exceed the total wealth of the company concerned, which is a completely unrealistic position and one which I should have thought no intelligent person could possibly support. This is a major change and a very good one indeed.

I want to turn now to another good feature, though a relatively minor feature. of this Budget, and that is the further reduction of Stamp Duty on the purchase of small houses. This is in entire keeping with the Conservative philosophy of a property-owning democracy. [Laughter.] Hon. Members opposite laugh, but I am quite certain that the people who were unable either to buy or to rent houses during their term of office would not laugh at all.

However, I wonder whether, welcome though that change may be, my right hon. Friend is prepared to consider something more. Many of my hon. Friends feel that the Schedule A tax on owner-occupiers should be done away with. It happens that I am not one of those. I think it would make an unfair discrimination between those who are fortunate and are able to buy a house to live in in a fixed position and their colleagues whose jobs taken them from one place to another year by year so that they cannot buy their own homes.

I wonder very much, however, whether my right hon. Friend has given full consideration to the possibility of increasing the statutory repairs allowance. The Royal Commission considered the situation and said in paragraph 873:

"So long as a revaluation is postponed we feel that there should he no increase in the statutory deduction for repairs…"

That is perfectly true. On the other hand, I wonder how long it will be before the revaluation is completed. My information is that it will be many years. In the meantime, a great deal of time is being wasted in the Inland Revenue offices by the Inspector of Taxes working out and altering Schedule A maintenance claims submitted by house owners. I wonder whether my right hon. Friend would consider increasing the statutory repairs allowance at any rate in relation to small houses. He might well take the rating valuation adopted for the Rent Act, 1957, as defining small houses—£40 rateable value in London and £30 elsewhere. It would not cost very much, but it would help——

Surely the hon. Member realises that the owner-occupier has been under-assessed under Schedule A for twenty years, and I should think that from his point of view the longer the revaluation is postponed the better. Surely there is merit in the Royal Commission's suggestion that, while the values remain at their present level, which are definitely under the rack rental value at the present time, it would be unfair to increase the statutory repairs allowance.

There is some force in that, I agree, though I think the hon. Gentleman is a little of a pessimist in general terms in thinking that revaluation will in every case bring about an increase in the rateable value. That is not necessarily the case everywhere. However, I entirely accept that there is some force in what he says.

On the other hand, the cost of repairs has risen very much. The number of Schedule A maintenance claims at the present time is so large that I should have thought that a change such as I have suggested in respect of small houses only would do away with a great deal of administrative work in inspectors' offices while costing the revenue very little, and it would bring relief to small house owners, many of whom are not familiar with the rather complicated business of completing maintenance claims and that kind of thing. I should have thought that, taken all round, there would be a small but reasonable amount of benefit to people who well deserve all the help we can give them.

I turn to another point in my right hon. Friend's Budget which concerns the provision of new dry docks to meet the change in design—that is what it amounts to—of ships, in particular tankers. My right hon. Friend appreciated the difficult situation at the present time. He said that there is a grave risk of a shortage of dry dock accommodation, in particular accommodation for the larger tankers and other vessels which will be coming forward in increasing numbers in the next decade. He went on to say that he proposed to arrange for assistance to be given, provided that the dry docks were to be built in those areas where unemployment was rather higher than average.

It seems to me that a dry dock has to be built in a place where there is sufficient water to accommodate the necessary ships. It may be that in certain areas the level of unemployment happens to coincide with that physical feature, but it is certainly the case that in a number of places where dry docks might otherwise be contemplated, unemployment is not running at a high level at present.

Unless we do something for this industry, certain it is that the repair of very large tankers will go to Holland, Denmark, Sweden, Belgium, France and Germany, in all of which countries taxation allowances are substantially higher than they are in this country. My right hon. Friend's intentions in this respect are excellent, but the execution of his intentions is faulty, and I hope that he will look at the position again.

My right hon. Friend's Budget has received a substantial measure of welcome, even from hon. Members opposite. I give it my blessing tonight, but I am bound to say that I am quite unrepentant about the standard rate of Income Tax. I want a substantial reduction in the standard rate. I am not convinced that a large Budget surplus above the line is still necessary in the thirteenth year of peace. A large Budget surplus is necessary only if private savings of the same amount cannot be forthcoming.

It is a fact that since the war, on the last two occasions under a Conservative Administration when the standard rate of Income Tax has been reduced, savings in the year following the reduction have increased by more than the cost of the 6d. remission. I do not believe that if 6d. or 1s. were taken off the standard rate of Income Tax that the beneficiaries would go out on a wild spending spree. That is not the sort of thing that we do. Was it Mr. Gladstone who said, "Trust the people and let the money fructify in the pockets of the people?" I believe that it would. I am sure that until the Government reduce the standard rate of Income Tax, we shall find possibly even one more supporter for the hon. Member for Orkney and Shetland (Mr. Grimond) —that is rather a long bet, but it is just possible.

On the other hand, I accept that the paramount issue at present is the stability of the £ at home and overseas. It is for that reason, coupled with the uncertain outlook in the United States, with whose economy we are so closely linked at present, that I support the Budget. The Profits Tax and the Purchase Tax moves are major improvements and if the position is held, as I believe it will be, then substantial reliefs can come later and our fortitude and determination will fully justify and earn them.

I beg to move,

That an humble Address be presented to Her Majesty, praying that the Public Service Vehicles (Conditions of Fitness) Regulations, 1958 (S.I., 1958. No, 473), dated 18th March, 1958, a copy of which was laid before this House on 25th March, be annulled.

I suggest that it will save time if we also discuss the second Prayer—

That an humble Address be presented to Her Majesty, praying that the Public Service Vehicles and Trolley Vehicles (Carrying Capacity) (Amendment) Regulations, 1958 (S.I., 1958, No. 472), dated 18th March, 1958, a copy of which was laid before this House on 25th March, be annulled.

I am moving this Motion because we have before us the consolidation of a very large number of Regulations concerning the condition of fitness of public service vehicles. These public service vehicles are buses and coaches in which people travel the width and breadth of the country, and they are designed mainly for the safety of those who ride in them.

Since this is a consolidation measure, to a large extent, there are certain amendments in respect of which we feel that it would be helpful to hon. Members interested if the Parliamentary Secretary gave some indication of the reason for their introduction, and their exact effect. At the same time he might inform us whether full consultations have been held with interested parties both in the industry and in relevant organisations.

The main reason for our decision to put down these Prayers was that they both incorporate certain proposals which make it possible for buses which seat twelve passengers or less to operate on the roads without being made subject to certain conditions of fitness which apply to larger vehicles. It is with these exemptions that we are mainly concerned. The Explanatory Note states what they are. Certain exemptions apply in the case of vehicles with a seating capacity for not more than twelve passengers, and the Regulations include such questions as clearance, side overhang, doors, drivers' accommodation and passengers' communication with drivers.

The Minister has contended that these changes reduce the standards of comfort of passengers but do not affect safety. We wish to obtain from him tonight a further assurance that these changes do not have any effect upon the safety of passengers. At the same time, we should like to know whether a change in the safety requirements of buses and coaches is justified in the light of the improvement of transport services in the rural areas for which the small vehicles are designed. Those are the two tests that we must apply in this matter.

In a short Adjournment debate on 3rd April, the Parliamentary Secretary stated in regard to these small rural buses that:

"Up to date their construction and seating arrangement would not have conformed to our regulations. We have now relaxed the regulations relating to the dimensions and the seating so that these 12-seater buses can conform with a few adaptations. We have not relaxed the safety requirements, but we have relaxed the seating arrangements."—[OFFICIAL REPORT. 3rd April, 1958; Vol. 585, c. 1466.]

I trust that the Parliamentary Secretary was correct in making that statement, and that he can give us a further assurance on that point tonight. Looking through these Regulations and seeing the changes that have been made, however, certain doubts arise in my mind as to whether he was quite correct in that rather sweeping statement. For instance, in the Regulations relating to steering, the requirement is that:

"The steering mechanism shall be so constructed or arranged that no overlock shall be possible and that the wheels shall not in any circumstances foul any part of the vehicle."

It says, further:

"The steering arms shall, except in the case of a vehicle with a seating capacity for not more than 12 passengers, be polished but shall not be painted or plated."

Those are rather technical expressions, but so far as I understand it the drop-arm on the steering is the most important link in the steering arrangements and it is here required that that shall be polished. The reason is so that it can be seen whether there is any fatigue and deterioration or any wear so that it can be replaced before it breaks and an accident occurs. There is a requirement that

"The ball and socket joints of steering connections shall not be pendant."

That is so that the ball socket shall not drop and cause an accident. If it is considered essential in the case of large vehicles that these safety provisions should be complied with and that passengers cannot be carried unless these conditions are fulfilled why are they not required in the case of smaller vehicles? There could still be a maximum number of twelve passengers in the small vehicles, and if anything went wrong there is the danger of fatalities and certainly of casualties.

I wish to know why it is considered that these requirements can be dispensed with in the case of the smaller vehicles which will still operate under normal road conditions. There are other exemptions, but I do not wish to take up time in referring to them, except for one numbered 17 (1), which states:

"…no fuel tank shall be placed under any part of any gangway or under any part of any passage leading to an emergency exit if that part of the gangway or passage is within 2 feet of any entrance or exit."

That would appear reasonable. If there is any accident it would ensure that the fuel tank does not explode and endanger the passengers. Here again, the 12-seater vehicles will be exempt and it is difficult to understand why. Those are the main safety conditions which seem to me substantially different from those which apply to the larger vehicles, although there are in addition a number of smaller conditions.

The second reason why we moved this Motion is to ask the Joint Parliamentary Secretary whether he considers there is likely to be a substantial contribution to the improvement in the transport services in rural areas which we all desire as a result of permitting these smaller vehicles to be employed without complying with the normal safety requirements. If so, these exemptions may perhaps be justified. It would be interesting to have more information from the Joint Parliamentary Secretary than he gave in the Adjournment debate to which I have referred about how he thinks these small buses will contribute to improving the services.

As the hon. Gentleman will know, the main difficulty of the bus operators in sparsely populated rural areas is one of cost. There is a substantial gap between the cost of operating vehicles and the revenue derived from them. We all know the reason why the revenue has fallen and costs have gone up. It is clear from the reports of various operating companies that in many cases this gap is large and the position is deteriorating continuously. But the cotnpanies may to some extent be prejudiced as they are interested parties and often concerned with propaganda for reducing the fuel tax; in other words, they may be making out the worst case possible regarding conditions.

Recently there has appeared a report by the Northumberland Community Council on rural transport in Mid-Northumberland. It analysed the conditions of operation of twelve operators, when there was a kind of social survey in the area. Of the twelve operators, only one was able to pay his way. The others lost amounts varying from l½. to 8d. per mile, a very wide gap.

It is difficult to believe that these small vehicles will be operated at such a reduced cost that that gap will be closed to any substantial extent, certainly not sufficiently to enable more services to be more regularly run in sparsely populated rural districts. The wages of the staff will be the same. Each bus will still need a driver, although an increasing number of vehicles are one-man operated. There will be some saving in fuel because of their lower power, but they will be petrol vehicles, whereas the larger vehicles run on dery and diesel oil and are more economic, because only half the fuel——

I hope that the hon. Member will not pursue this line or argument too far. It is a little wide of the Regulations.

I bow to your Ruling, Mr. Speaker. The purpose of these Regulations is to enable small vehicles to be put on the road. We want to make sure that it is worth while putting them on the road. I will add very little to what I have said, but I think you would agree that I can ask the Minister what he envisages will result from the modification of these vehicles in increase of transport services in the areas where such increase is desirable.

What advantages will result from the introduction of these smaller vehicles? Can they pay? If they cannot pay, are they likely to be introduced? There is considerable difficulty in operating services of large buses, but will these small buses overcome those difficulties, one of the chief of which is concerned with peak periods, such as market days and Saturdays, when small buses may not be able to cope with the load, and so will not really act as a relief?

For all these reasons, we have moved these Prayers. I hope that the Minister will be able to give us an assurance about the safety provisions, and some encouragement to hon. Members who represent rural constituencies and want to get relief in the very difficult conditions which prevail.

I beg to second the Motion.

We are anxious to get more information from the Joint Parliamentary Secretary. Tonight we are discussing two sets of Regulations. One seeks to tighten the Regulations for the bigger vehicles, and the other set of Regulations seeks to slacken considerably safety precautions for smaller vehicles. I understand that there has been discussion between the Ministry of Transport and the authorities concerned. I gather that in the late summer and early autumn of last year the Minister met the four associations.

I should have thought that, in connection with the operation of these small 12-seater vehicles, the Ministry is moving substantially in the dark. The only people who have experience of this kind of service are those who are operating at present. The Minister, I understand, met the four associations concerned with public passenger transport. The Joint Parliamentary Secretary will know that they comprise one concerned with municipal transport and three concerned with privately-owned transport and publicly-owned undertakings, of which the British Transport Commission is the principal one. Together they represent far and away the biggest proportion of publicly and privately owned public service vehicles operating on the roads of this country. I am advised that the four associations gave careful consideration to this matter and consulted a large number of individual extensive operators of transport in rural areas, where presumably the bulk of these 12-seater vehicles will be used.

My advice is that there was the strongest possible opposition from the industry generally to the introduction of this utility type of vehicle, because the capacity was limited and the standards were relaxed considerably in a communication sent out by the Ministry on 24th May, 1957. One of the reasons why the operators object to the smaller vehicles is that, despite the relaxations which have been made, the operating cost of a 12-seater vehicle as compared with the cost of the 26 or 35-seater one-man operated bus will be very little different, if at all. Operators take the view that in many cases the cost will be greater. If the operation of a 12-seater vehicle is undertaken it is probable that on the majority of routes on a market day or Saturday, and certainly on public holidays, the vehicle will not be of sufficient size to operate the service and it will be necessary to retain a second vehicle. The hon. Member for Kinross and West Perthshire (Mr. Leburn) smiles, but I suggest that people who make these points know something more about the operation of buses than he knows merely through looking through the window of a bus.

The British Transport Commission has had this matter before it and the Joint Parliamentary Secretary will know that on page 10 of the 1956 Report the Commission said:

"Consultative Committees have urged the use of smaller and cheaper buses. it has, however, been explained to them on behalf of the Commission-owned omnibus undertakings that these companies already operate some 200m. car miles a year of unremunerative services; and that it would cost more to operate smaller 12–14 seaters than the one-man operated 35 seaters which are being widely introduced."

The major cost in the operation of a bus service is the labour cost and, as my hon. Friend pointed out, this will be no less on a 12-seater bus than on a 26 or 35-seater bus. There may be some slight saving in fuel, but if another vehicle has to be kept in reserve for exceptional occasions, the cost of running the smaller bus will obviously be greater. It is also thought by the operators that a vehicle of this type and specifications would be easier of abuse.

In September a discussion took place about the tightening of Regulations, and as a result of that discussion we have before us these consolidating Regulations for the bigger vehicles. In view of the fact that the operators themselves are unlikely to use these smaller vehicles, because of the difficulties which I have explained, I should at least like to know from the Minister why he persists in introducing the Regulations, when he has been advised by the four operators operating by far and away the greater proportion of the public service vehicle mileage in this country that they are unlikely to use the smaller vehicles. If that is the case, what is the purpose of making the Regulations?

I welcome the chance to say a word to explain the purpose of these Regulations. I confirm that the main purpose of the Regulations is consolidation—no consolidation has taken place since 1941and at the same time to make a few small increases in standards conforming to the technical advances over the past years. I reassure the House that this will not involve operators in substantial increases in costs. It will take the standards no further than is at present common good practice. This is the first general review since 1937.

As the hon. Member for Enfield, East (Mr. Ernest Davies) and the hon. Member for The Hartlepools (Mr. D. Jones) have said, the main point at issue is the proposal to relax standards for the certificate of fitness for public service vehicles for the 12-seater or less. The motive is to help rural transport in communities which are either threatened with the loss of their existing system or have already lost it.

The hon. Member for Enfield, East asked me to say something about the specific advantages of relaxation. I think that the principal advantage lies in capital cost. At present, the capital cost of a 12-seater which will conform to the existing Regulations for a certificate of fitness is about £1,100 to £1,200. There are very few of them in the country; only about three or four dozen are in existence. The effect of the new Regulations will be to enable the standard mass-produced miniature 12-seater bus, which is already on the market, to qualify for a certificate, with certain modifications. These modifications mainly concern such things as the re-positioning of the fuel tank and its supply pipe, which is a fairly expensive operation, and certain other smaller changes. The total cost of these modifications would be about £150 as carried out on an existing model but, of course, if manufacturers decide to manu- facture a standard model in the future with these modifications it will be a good deal less. The present list price of these miniature buses is about £650, so that there is quite a substantial reduction in the capital cost resulting from this relaxation. I believe that the difference may be sufficient in some cases to tip the scale, and just decide a would-be operator to purchase one of these vehicles where, otherwise, he would not. I will have a word or two more to say about that before I finish.

I should like to deal now with the safety factors referred to by the hon. Member for Enfield, East when he sought assurances, in particular, about the steering arm and the petrol tank. I quite accept that it is of first importance these vehicles should be completely safe and roadworthy. Although they will carry only twelve passengers instead of, perhaps twenty or more, the obligations are just the same.

It is perfectly true that the relaxation means that the steering arm joint may be pendant, instead of the reverse, as it is now, and, therefore, if there is a worn steering arm, it can drop off. The design of the pendant steering arm joint is, of course, that existing already on millions of cars. It is normal, standard design, and our officers are satisfied that, on a vehicle of this weight, with the strains to which it is exposed, this is really a perfectly safe and sound design. As the hon. Member rightly said, polishing of the steering arm is a safeguard to expose a fracture if one occurs in it. Once again, we feel that the danger of such fractures occurring in a vehicle of this weight is not serious and, in fact, not significant.

As to the petrol tank, it is certainly a matter of great importance that in a vehicle carrying passengers for public service, the fuel system should be safe. The existing Regulation requires that the fuel tank should be not less than 2ft. from any exit or entrance, and the relaxation requires only that the petrol tank should be clear of any exit or entrance. Once again, we have tried to take a practical view of this. In fact, we are satisfied that it would be really physically impossible to put the petrol tank 2ft. clear of any exit or entrance. Therefore, we have designed the Regulation in what we think is a safe and reasonable way, and we believe that so long as the fuel tank is clear of any exit or entrance then, in such a small vehicle, there will not be serious danger to the passengers.

The other main relaxations relate to the comfort and amenity of passengers. I would just say that these vehicles will certainly not be as comfortable as the full-size vehicles, but we have taken the view that it is quite optional whether they are used or not. We believe that there will be a better prospect of their being provided in the most difficult areas, and that country dwellers may prefer to travel in one of these less comfortable buses rather than not have a bus at all. They may, therefore, find advantage in it. Hon. Members were not concerned with the actual relaxations, so I do not think that they would ask me to go into detail about the relaxations on comfort.

In regard to the objections referred to by the hon. Member for The Hartlepools, we did receive representations from the bus operators organisation. Their representatives came to see us last autumn, and their advice was that this would be of no use to them that they would find more economic the single-man-operated bus of 20, 26 or, with licence, 35 seats. We listened very carefully, naturally, to their objections. not only from that point of view, but from others as well, but we were persuaded that the effect of this relaxation would be, in some cases anyhow, that somebody would be attracted to running a service on a part-time basis. The local storekeeper, the local garage proprietor, in a village which no longer has its service may well feel inclined, because he sees advantage in it, and because it fits in with the rest of his work, to run an occasional service, if only perhaps several times a week, from the village, perhaps remote, to the local town. Although that is certainly not a very wonderful service, it is still much better than nothing, and our belief is that this reduction in capital cost which will result from this relaxation may just tip the scale.

One of the two hon. Members referred to the survey made in Northumberland and the necessity that was felt by the people who made that very interesting and helpful report about the great practical problem of finding the necessary capital to replace the existing vehicles when they wore out. That undoubtedly is a very real one for these small bus companies. One of the perplexities of this picture is that on the one hand we have these big operators who are very public-spiritedly carrying unprofitable services by virtue of their more profitable urban services and, on the other hand, we have a number of these small operators working with one or two or three buses, and still doing a very useful job. I believe that this measure may help them, and especially those who are running an occasional service on a part-time basis rather than on that of a regular service.

I have to accept, of course, that the 12-seater cannot possibly deal with peak periods, but hon. Members will have noticed that we are specifically prohibiting standing passengers in these buses because, clearly, with a height of—I think it is—4 ft. 8 in. it would be unsafe and extremely uncomfortable to have to stand for any length of time. We thus realise that these vehicles have their limitations.

It is the second of these Statutory Instruments which concerns standing passengers. Can the Minister explain this rather extraordinary thing, that no standing passengers are to be allowed in these buses which have 12 seats but the maximum number of passengers to be carried is to be 15?