HC Deb 18 December 1974 vol 883 cc1594-724

4.11 p.m.

Mr. Edward Heath (Sidcup)

The events of the past few days have made it essential for the House to debate the economic situation before rising for the Christmas Recess.

The extreme gravity of the crisis now facing this country has in the last fortnight become appallingly clear, and every indicator points to the fact that it will become worse.

This situation is disguised for many outside the House by massive increases in earnings over these past nine months. The figures published today show that since March basic wage rates have gone up by 21.3 points and the RPI cost of living index has gone up by 12.3 points. Therefore, as a result, wage rates have increased one and three-quarter times the increase in prices in this country.

For those whom the Prime Minister commonly calls the big battalions, who have been able to get these substantial increases, the very nature of the crisis has been disguised. It has also been disguised externally by the massive borrowings made by the Chancellor of the Exchequer from the oil producers.

Just over a year ago, in November, the Prime Minister said that this country was in pawn to the oil sheikhs. That was only in the context of our being dependent upon the oil producers for our total oil supplies. Now, of course, we are dependent on them for the massive loans that they have already given us and for continuing loans to cover the vast deficits that the Chancellor of the Exchequer foresees both internally with Budget deficit financing and externally on the balance of payments. Therefore, to use the Prime Minister's phrase, we are now in pawn to the oil producers both for the oil that we need until North Sea oil comes forward and for our existing loans and massive future loans.

I say to the Prime Minister, in the absence of the Foreign Secretary, that he must now accept that his foreign policy in the Middle East will have to be acceptable to all those there. If there were to be a further conflict in the Middle East by the spring of next year, which many fear, he would then have to hold a position which was acceptable to both sides, which he failed to do when he was in Opposition, and recognise not only that the oil supplies to this country would be in danger but that the continuation of future loans from the oil producers in those circumstances would be at risk.

The Government are not taking the measures necessary to deal with the short-term crisis which we now face, nor are they tackling the deep underlying problems of the British economy which have faced every Government—the lack of future investment, which is now particularly critical under this Government; the lack of capital behind our working population in which we compare so badly with other industrial countries; the wasteful use of resources, especially of manpower with overmanning, to which my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) drew attention last weekend, and the industrial disturbances and restrictive practices which exist in our industry. Indeed, the Government's present policies are immensely damaging in many ways to our industrial life and economic prospects.

The Chancellor's taxation policies and the Government's policies for public ownership, intervention and control and the so-called continuing renegotiation in Europe have created uncertainty and destroyed confidence. It will now require an extraordinary effort by the British people to restore confidence in our economy as well as in the stability of our society.

I believe that the country would not only have failed to understand but would wholeheartedly have condemned the House of Commons if we had risen for the Christmas Recess without discussing this grave situation and giving the Government the opportunity of explaining their failure to act in time in the face of the calamity threatening us and giving the Opposition an opportunity of placing the facts before the country again and of putting forward constructive proposals.

The Government failed to offer any statement or debate. The Opposition are giving Parliament the opportunity to discuss the matter. I believe that we must seize the opportunity to bring home as vividly as we can to the people of this country the gravity of the situation and what is required of the nation today.

We must tell the nation the plain truth about the situation. What is required today is a national response from the nation as a whole. We cannot expect that from the British people unless they are told the plain, hard truth about the situation.

The Government have always been behind hand with the truth on inflation, on increasing unemployment, on the breakdown in industry and on the real need for conservation measures on oil, which we have not yet had. These are but a few of the examples where the country is not being called upon to face the hard facts of life today.

Let the Chancellor of the Exchequer, who is to follow me, face the reality today, and let this House make a bold attempt to give the nation the leadership that it requires.

We have had nearly 100 days since the Chancellor, on 23rd September, told the nation that inflation was currently running at 8.4 per cent. At about the same time, 20th September, the Secretary of State for Prices and Consumer Protection made the comment: All one can say about inflation is that it is beginning to move downwards. But, as usual, the definitive mis-statement came from the Prime Minister the day before polling when he said: Unemployment … is beginning to fall; the balance of payments shows a substantial improvement; the pace of inflation and price rises is moderating … but now we are being inundated with gloom and doom from the Conservative leadership. Time after time the Prime Minister and the Chancellor of the Exchequer told the voters that inflation was getting better, slowing down, being reduced, moving downwards, and anybody who disagreed was, in the right hon. Gentleman's cliché of the day, spreading gloom and doom. But one cannot assassinate the truth with a cliché. Now the truth is there for all to see, and the country recognises it.

The Chancellor of the Exchequer claimed that 8.4 cer cent. was the rate of inflation at the General Election. Will he tell us what the figure is today? Will he do it on the same basis as he calculated the 8.4 per cent? Will he tell the House?

I will tell the House. On the Chancellor's basis the rate of inflation today is 21.1 per cent. That is based on the past three months, which was the period taken by the Chancellor in misleading the country by saying that the rate was 8.4 per cent. and coming down. But we have still to feel the full impact of the November Budget with higher petrol prices, higher postal charges, higher rail fares, higher gas and electricity charges, the further increase in petrol charges, which has just been sanctioned, and the result of the changes in the Price Code.

All of that still has to come on the rate which I have just cited to the Chancellor. If he prefers to stick to the rate over a year, it is 18.2 per cent. That surely is high enough as a rate of inflation, but the indications from these last three months of what is to come are that this rate is bound to increase. These figures are the highest since records were first published in 1947.

Let us turn to the wages front. There have been numerous breaches of the TUC's pay guidelines. One can take whichever source one likes. There was an article in the Financial Times listing all those who have obviously and openly broken the social contract. So far, about 350,000 people have had massive wage increases, none of them for special circumstances or for special reasons. They were a plain breach of the social contract, and no longer does the Secretary of State for Employment pretend to have a policy about pay.

I have given a brief summary of the figures which have emerged, and they demonstrate all too clearly what is happening on the pay front. The truth is that today this country stands on the brink of hyperinflation, and that is not the only danger facing us. However great those consequences may be internally, that is not the only danger.

There is a danger to the balance of payments. I have already mentioned the Prime Minister's statement that it was improving, yet now we see that the non-oil deficit is getting worse, not better. In November it was £227 million, twice as bad as in October. What we are seeing is that in money value exports have stabilised, which, with increases in other imports, must indicate that, volume-wise, we are decreasing, and this is the dangerous threat that we have to acknowledge in our exports.

The visible trade deficit for the same month was £534 million, the worst ever. The current balance, including invisible earnings which are so valuable to us, was £404 million in the same month, again the worst ever. It is also a matter of fact that since the election sterling has fallen dramatically to its lowest point ever.

The situation is vividly illustrated by the figures given by the National Institute of Economic and Social Research in its last report. It forecast that from the third quarter of 1974 to the end of 1975 there would be a depreciation of sterling by 4 per cent. That was the basis on which the National Institute made its calculation. The report, which was published a fortnight ago, referred to the end of the third quarter of 1974, but already there has been a depreciation of sterling of more than 4 per cent. on what it was allowing for for the whole of the 14 months to go to the end of 1975. No one can say this with any satisfaction, but it is a measure of the problem that faces us as a nation.

The next dangerous thing about the situation is that it has commonly been accepted by Governments and economists in the past that if prices get out of level a change in parity or the exchange rate is one means of dealing with it, and might be preferable to other methods. This means that we get increases in prices, which cuts down imports, but later we get an opportunity for exports with lower prices to more than match them, but we recognise that it takes nearly two years before exports can do that.

What is happening now is that with the rate of depreciation of sterling we are never able to get the advantage of the improvement of prices in exports because import prices are reflected in our prices, and the wage increases which follow deprive us of the advantage of getting a depreciation in the currency or a change in the parity rate. This is the great danger facing us, as the Prime Minister understands full well. The technical phrase is the J curve. We are not getting an opportunity to go up the curve. We are getting the downward part, but there is never sufficient time to take advantage of the upward turn of the curve.

What are particularly worrying, and it has come as a surprise to many of us, are the reports from many industrialists that we have lost our competitive edge in the markets of the world. If we have done that our falling export performance is understandable, but it is an intensely dangerous situation. We can look at the problem of world trade as a whole and see forecasts for 1975 but it is unlikely that we can comfort ourselves by saying that Federal Germany and two other members of the Community are reflating. The reflation will be of no advantage to us if we have lost our competitive edge in the industrial markets and markets for investment, equipment and manufactures.

Mr. Norman Atkinson (Tottenham)

The right hon. Gentleman is putting a powerful case. Does he recollect that on 3rd October 1973, when his Government were introducing phase 3 of the prices and incomes policy, his Front Bench speakers were arguing the exact opposite of what he is now saying? If he looks at the record he will see that to be so.

Mr. Heath

I cannot agree with the hon. Gentleman. The phase 3 figures were introduced before there had been any increase in oil prices. I do not accept the hon. Gentleman's statement that a different case was being put on that occasion. The case I am putting relates to the danger to our exports. We have to face the situation realistically if we are to find a solution to the problem, and, as the hon. Gentleman said, the case I am putting is powerful.

We can see the squeeze on companies, despite what the right hon. Gentleman has done, the industrial disputes and the loss of our competitive position. British industry is being squeezed by taxation, by difficulties in borrowing, and by a pay policy which is, in effect, a free-for-all. All this is driving more and more of British industry into bankruptcy, and, therefore, into the Department of Industry to get support from the Government.

One has to say to the Chancellor of the Exchequer that there may be some hon. Gentlemen below the Gangway who want this to happen, but I am prepared to give credit to the many on the Government Front Bench who do not want it to happen. However, it is happening. For how long will the Chancellor of the Exchequer be able to find from public funds the vast sums that are needed to maintain the position of British industry and those who are affected by the position in the stock market and elsewhere? We have had a further statement this afternoon—a very important one—involving large sums of money. The Chancellor of the Exchequer has to face the impact on the Stock Exchange, the effect on investment and the issue of how he will find the necessary funds to deal with this problem.

I deal next with the industrial situation. The number of days lost through strikes between April and October was up by nearly 50 per cent. compared with the same period last year. So much for the Prime Minister's period of "peace and quiet". No one can take any joy from industrial disputes, but the Government surely ought to have the honesty to recognise that these disputes are occurring under their administration. The figures are up by 50 per cent., and the criticisms made by the Prime Minister and his colleagues of the previous Government ought to be withdrawn.

If one looks at the general forecast of industrial trends from the CB1 and from industry, one realises that a more sombre picture is being painted than at any time since July 1966. In two months since the election, when we were told that everything was to get better, we have seen the worst-ever rate of inflation, with forecasts of still worst to come. This is inevitable from the figures published today on the movement of wage rates and earnings. Since the election we have seen the worst-ever balance of trade deficit, the worst-ever current account deficit, the worst-ever rate for sterling and a collapse of the stock market. The Chancellor of the Exchequer said earlier this year—perhaps in a rather unguarded moment—that the Stock Exchange "is a very accurate barometer" of confidence in the Government's ability to govern. It is pretty well at the bottom of the barometer now, though it may go lower, and it shows no confidence in the Government's ability to govern.

The stock market is at its lowest level for 21 years, and in real terms at its lowest level since well before the Second World War.

Mr. Atkinson

It is irrelevant.

Mr. Heath

Is it irrelevant to all those trade unions which have pension funds invested in equity stock? Is it irrelevant to all those with small savings who put their money into insurance funds? Is it irrelevant to those who will retire and are looking to that as their source of income? I have never before heard such a disgraceful remark from an hon. Member. It is indicative of the harm that is being done to this country and to its people. It embodies the attitude that the Stock Exchange is only the concern of a few wealthy people and what does it matter if it brings in its train the collapse of British industry—or is the hon. Member for Tottenham (Mr. Atkinson) one of those who wish to see the State take over every item of British industry?

Mr. Atkinson

I meant that the Stock Exchange was irrelevant in terms of yield. What people are getting today is the equivalent of fixed-interest loan yields, and the Stock Exchange has shown an inability to provide fresh issues. Therefore, fixed interest loans are irrelevant.

Mr. Heath

I advise the hon. Gentleman to discuss the matter with those who manage his own trade union's funds and ask them whether they are happy with the present situation of the Stock Exchange.

The Government are presiding over, and indeed hastening, the decay, destruction and near-collapse of normal mechanisms of production, finance and savings. The momentum of corporate expansion is dwindling to almost nothing because of the shortage of internal and external finance. Financial institutions are finding fewer creditworthy clients to lend to and cannot offer the public security of capital or income. The real rate of return is still negative. Each of these problems compounds the others and leads to further complications and distortions. These are the symptoms and effects of inflation at a rate of 20 per cent.

There are many forces which threaten to make the current wage inflation worse. Stage 3 has been abandoned. We shall see in the new year greater pressures on negotiators to press for higher wages, interim agreements and topping-up arrangements of one kind and another—all of which will break the 12-month rule. They will press for new threshold arrangements to ensure protection against price increases. Many groups have already obtained settlements to compensate them for the past and they now want settlements to anticipate the future. This has been pointed out in the introduction to the National Institute's report.

The Secretary of State for Employment (Mr. Michael Foot)

I hope that the right hon. Gentleman will not give currency to that part of the National Institute's report, because it is quite untrue that any anticipatory arrangement would be within the guidelines, and it is untrue that any settlements are being made on that basis. It is a misleading statement made in the National Institute's report, and I am sure the right hon. Gentleman will not wish to give it currency. If he were to do so, it would encourage people to try to make settlements on that basis.

Mr. Heath

I appreciate the right hon. Gentleman's point, and I would in no way wish to emulate his conduct when he was in Opposition.

Mr. Foot

I said that the statement made by the National Institute was wrong in both particulars. That report suggested that anticipatory arrangements would be within the guidelines. That is untrue. I also said that it was untrue that settlements were being made on that basis in any general sense whatever. Now that the right hon. Gentleman has been given the facts, I hope that he will withdraw that statement and give no further currency to it.

Mr. Heath

I repeat that I shall deal with this statement in detail because I do not propose to follow the course taken by the right hon. Gentleman in Opposition; namely, of inciting every major wage claim he could find.

To deal in a little more detail with the right hon. Gentleman's point, what is stated in the Institute's report is not within the guidelines of the social contract. There can be no other explanation for very large wage increases, which cannot be justified under the social contract, other than that they are anticipating the future. This is well known to anybody who has been concerned with trade union negotiations.

Mr. Foot


Mr. Heath

I hope that the right hon. Gentleman will allow me to finish the point. I do not know how any of these very large awards can be justified except on the basis that people are trying either to get in before a wage freeze or to anticipate a rise in prices. The National Institute correctly points out that to take such a course is to compound inflation. It cannot do other than make the situation worse. This is where the Secretary of State for Employment is so completely ineffective in not trying to restrain such awards or finding some way of dealing with them, because it is compounding inflation.

Mr. Foot

I repeat to the right hon. Gentleman that that statement by the National Institute is false and misleading. I trust that the right hon. Gentleman, having had the facts drawn to his attention, will now refute the statement and not continue to give it credence. It is quite untrue that settlements are generally being made on that basis. The right hon. Gentleman should withdraw what he said.

Mr. Heath

The Secretary of State for employment will have to deal with the facts of the case and explain how these massive awards can be justified. They are leading to increased inflation.

I hope that in their reply tonight the Government will say what precisely they intend to do about the wage position. Will wages continue at the rates I have cited today in quoting from the Department of Employment's figures, will this situation be allowed to continue, and what are the Government prepared to do about it?

If there were no such cover as the social contract and this House or the country were to see an announcement of these figures at any normal time, we would say "These are completely incomprehensible and unjustifiable". However, the Government are seeking to give an air of respectability to the whole situation. That is the dangerous aspect of the social contract. The Secretary of State for Employment has responsibility in this matter. He has to say that wage demands will deal with the real position of the economy, or he has to accept that he has an ineffective policy, or that he has at the moment no policy at all. There is no time to be lost if the Government are to have any chance at all of mastering inflation either through a voluntary policy of some kind or through an alternative statutory policy.

A great deal has been said recently about conciliation and arbitration. Those of us who have had experience in the Department of Employment, or the Ministry of Labour as it was, appreciate the importance of conciliation and arbitration. We also know the weaknesses. There are many aspects of industrial life in which that aspect can be successful. Let me quote what the Chairman of the Conciliation and Arbitration Service said the other day: You must not think that the CAS is responsible for the terms of settlements; we do not mind if it is £30 or £40 or anything else. Our first responsibility is to try to secure a settlement". The situation on arbitration and conciliation at present could not have been stated more clearly. I am not talking about disputes over conditions in factories, because obviously there are many cases which can be dealt with speedily by conciliation, but I am dealing with arbitration. That statement certainly sums up the situation. The whole philosophy behind the CAS is to secure industrial peace, but, obviously, it is prepared to do so at any price.

How can this situation be reconciled with an effective anti-inflation policy of any kind or with an economy that is balanced and able to hold its own in the competitive world outside? That philosophy encourages those in militant groups to make extreme demands of all kinds. We have witnessed this so often in negotiations. A wage demand is made and the employer says that it cannot be met. The negotiators then say "We shall take the matter away with us and consider it." The employer eventually makes another offer, and stage by stage the matter moves on and no response comes from the other side. Finally, the parties go to arbitration, and usually there is a fifty-fifty difference between them. The renegotiations then begin, and the final award is made approving the arbitration rinding. This is the reason why arbitration without principles cannot be an effective means of dealing with inflation in this country either in the present critical situation or in a normal situation. Without proper guidelines we see the embodiment of peace at any price.

I recognise that some members of the Labour Front Bench appreciate what is going on. The right hon. Gentleman the Foreign Secretary spoke honestly about his worries in Brussels recently, speaking from his experience as an ex-Chancellor of the Exchequer. He knows about the policies that led to devaluation and the great loss to sterling on the way. There are some others who see in the crisis an opportunity to introduce a Socialist State. It was the Secretary of State for Industry who told the Labour Party conference in 1973 that the crisis should be … the occasion for fundamental change and not the excuse for postponing it. Of course, many fundamental changes may be necessary in this country in industry and the economy, but fundamental change to a Socialist State siege economy is not the fundamental change that the country wants.

There are reports of differences in the Cabinet about policy and about changes in pay policy. Perhaps the Chancellor of the Exchequer will tell us what his attitude is. Perhaps the Secretary of State for Employment is willing to tell us what his proposals are. The Chancellor apparently wishes to ask the Prime Minister what the policy is first. It all rather implies that we are approaching the Bank holiday, when the Prime Minister will again take over supreme direction of the economy—always on a Bank holiday, and always followed by devaluation.

The Chancellor was asked during the February election whether he would give a promise not to introduce a statutory incomes policy. He replied: I would not give such a pledge because I am an honest man, and I know how circumstances can change cases. It was an honourable reply. At the October General Election the Chancellor, the Prime Minister and all their colleagues bound themselves in no circum- stances to have an incomes policy which required statutory backing.

The Chancellor of the Exchequer (Mr. Denis Healey): So did the right hon. Gentleman.

Mr. Heath

If the right hon. Gentleman did not bother to read the Conservative Party manifesto, one can understand his ignorance.

Mr. Healey

What about 1970?

Mr. Heath

We are talking about the last election. We have learned from experience, but the Chancellor and his colleagues chose to hide their heads in the sand and to say in October that there were no circumstances in which this could arise. Are we, the country and the world to assume that this inflationary situation, approaching hyperinflation, is to continue at an ever-increasing rate, that the sort of announcement about wage increases we have heard today is to go on, and that the Government will take no action of any kind? Is that the situation? If it is, the Government are heading for catastrophe.

The truth is that the country needs a new policy to be thrashed out on the whole question of the economy and, in particular, on prices and wages. There are those who say that the Government must introduce a freeze. I hope that those who demand it at the moment will recognise the immense difficulties of going for a straight freeze. I hope that, above all, they will recognise that any action of that kind requires, later on, after a comparatively short period—in our case, five months—embarking on the process of getting out of the freeze, which is one of the major problems facing any economy. It can be done with considerable flexibility, but the difficulties are great.

I understand the attitude of the Secretary of State for Employment in these matters, because he, not being prepared to take any open line about what ought to happen to wages, or the economy as a whole, or to incomes, is just prepared really to wash his hands of the whole thing because he is so terrified that if he were to take a particular line he would be proved to be wrong, or the regulations would not be observed, or other difficulties would arise. But if he goes on taking that point of view with the economy as it is, he can only expect the sort of figures we have had today and the disaster which follows from them.

But it is more than just a question of working out these policies. We have to thrash out a programme of measures which could be agreed by all parties in this House as far as possible. I say to the Prime Minister that we Conservatives are fully prepared to co-operate where action is taken to save the mixed economy and prosperity of this country and the freedom of its peoples, which depends upon that economy. We are prepared to co-operate in a genuine attempt to save the mixed economy in this country, and there are items which should be on the agenda for such a programme.

We have to agree to cut the borrowing requirement which the Chancellor of the Exchequer has embarked upon. The Supplementary Estimate on 9th December was for £1,538 million. Is it not a mark of the times that outside this House, in the country, it has passed almost without notice? There were times when Supplementary Estimates of £80 million or £90 million were a major cause of dissension in the whole of the Press, amongst economists and elsewhere.

A massive 68 per cent. of the Supplementary Estimate reflected the rate support grant for local authority expenditure, and £550 million was the increase in real terms expenditure, quite apart from pay increases or from subsidies. This increase comes from Government policy. Public expenditure this year in real terms is £725 million more than it would have been after the cuts proposed by Mr. Anthony Barber. For the whole of that increase, the present Government are responsible.

That is the position on the Chancellor's borrowing requirement. It must be cut. There can be no real increase in public expenditure. I have never believed in a rigid pattern of Government expenditure, because one has to change it from time to time, but where increases have been made, cuts must be made to offset them.

Although it is always tempting for an Opposition to make capital out of cuts, if the January White Paper on public expenditure follows a sound strategy, in which it is bringing public expenditure under control, we will not draw political advantage from it and will support the Chancellor in what it is really necessary to do.

Mr. Healey

I hope that we can also rely on the right hon. Gentleman's support for the increases in nationalised industry prices, for which he has been attacking us. Is the right hon. Gentleman aware that the increase in the Estimates published the other day arose from increases in pensions and in expenditure on housing, and also threshold payments in the public sector, for which he alone is responsible? Is the right hon. Gentleman prepared to tell us that he is against any of these elements?

Mr. Heath

I have pointed out that the amount of the increase in real terms is the result of policy decisions. The right hon. Gentleman has given us credit for increasing pensions. Well and good—I accept that. It is right. He has given us credit for increased expenditure on housing. Yes, that is all right.

Mr. Healey

What about the threshold payments?

Mr. Heath

The Prime Minister pressed me constantly when he was in Opposition to introduce threshold payments. He should not now, through the Chancellor of the Exchequer, try to shift the burden. I accepted my responsibility. The Prime Minister had better accept his as well.

The Prime Minister (Mr. Harold Wilson)

I accepted full responsibility on threshold payments during the right hon. Gentleman's period of office and during the election. As my right hon. Friend the Chancellor of the Exchequer has pointed out, in real terms—nothing to do with inflation or thresholds—the whole increase is due to higher pensions and more expenditure on housing. The right hon. Gentleman is condemning the increase in real terms. What is he condemning—the increase in pensions or the increase in housing expenditure? Which would he cut?

Mr. Heath

As usual, the Prime Minister is trying to change the question. What I am saying is that these increases—

The Prime Minister

In real terms.

Mr. Heath

—in real terms are the result of Government policy. It was Government policy which increased expenditure on pensions, and the present Government have always claimed credit for the housing programme. Let them accept responsibility for the expenditure as well.

The Prime Minister

The right hon. Gentleman has accepted that the real terms increase in Government expenditure is the Government's responsibility. He has not replied to the question put by my right hon. Friend the Chancellor of the Exchequer. The right hon. Gentleman knows the facts. Pensions and housing explain the whole amount in real terms. Will the right hon. Gentleman say which he would propose to be cut? Would he cut pensions or housing, or neither?

Mr. Heath

The right hon. Gentleman knows that the Government contribution to pensions is small in any case. By far the greater part has to come from the National Insurance Fund. On housing we made it plain at the General Election that we did not agree with the large amount given to local authorities for the purchase of private housing. We never agreed with that policy, and I repeat that statement now. If the Chancellor is prepared to bring Government expenditure under proper control, he has a better chance of keeping the money supply under control as well, and this, too, is necessary. [HON. MEMBERS: "Oh."] Oh, yes. But the right hon. Gentleman seems to believe that money control always has to be at a fixed rate. Nothing could be further from the truth. He should read some of the monetarists' arguments and see. Of course there can be a change of rate. What is essential is that when we have a Budget deficit of this kind we must keep our monetary policy under control.

As I have already said, as far as the prices and incomes part is concerned this Government have to go out and fight for a proper relationship between wages and the economy. We must agree on a shift of real resources to industry and exports, which implies a cut in standards for the rest of us. It means less for wages and less for other public expenditure. This must be faced. We cannot go on with figures of the kind announced today. It means that priority must go to higher profitability for British industry, however much hon. Members opposite below the Gangway may dislike it. Without it, unemployment will increase. Nothing less than that will happen, unless the Government are prepared to insist that firms maintain people in employment—in which case, the Chancellor must find the money, in which case we become more and more of a subsidised economy, unable to compete in the export markets of the world. That would be the outcome of a policy of that kind.

We must find a means to restore the capital market, to enable British industry to gain, from institutions and others, the savings that it wants. There must be a realistic approach to all these matters affecting the capital market, including the capital taxes which we debated yesterday, and on which my right hon. Friend the Member for Finchley (Mrs. Thatcher) spoke.

As for subsidies, we kept them to a low level. This Government have gradually increased them, and they are now finding that there is a danger that these subsidies will increase even more. They have to face up to the fact that we are in no financial position to go on in this way at this moment and that the changes in world prices which are reflecting themselves here must reflect themselves in consumer expenditure. The Government are doing it with nationalised industry prices. With respect, I did not attack the Chancellor; I said that they have to be taken into account in the level of inflation in the coming year.

That is one of the hard things which must be faced, and the same applies to changes in world prices, which now, at last, the present Government are acknowledging. If they had been prepared to be honest when we were in power, they could have supported a policy which was prepared to tell the unions and the employers that this was what was happening in the world, and to take the action necessary to deal with the situation.

I can go on to the question of energy saving. The Secretary of State's measures the other day were pitiful. We must realise that we cannot afford a deficit of this kind on purchases of overseas oil. A saving of £350 million, eventually, was the Secretary of State's proposal. That is one month's oil deficit and less than the £404 million of last month's current account deficit. That is the scale on which he is working. [An HON. MEMBER: "Piddling."] As my hon. Friend says, it is piddling.

Also, far too little is being done about saving the use of energy in industry itself. However much Ministers may criticise our action last December, it showed that industry could dispense with 10 per cent. of its fuel supplies without in any way interfering with production and that, given time, it could save much more than 10 per cent. and benefit the country by that amount.

We need, moreover, a crash programme on North Sea oil. There is no doubt now—all the evidence is there—that progress in North Sea oil development is being consistently slowed down as a result of the Government's approach and policies. Marginal fields are now not being developed because of the uncertainty. Investment in equipment for oil extraction is now being slashed. Weeks and months have been wasted. One day lost in development of North Sea oil costs us £10 million across the exchanges. The total savings of the Secretary of State, with all his effort, amount to between £10 million and £15 million. So all that he has saved is one day to set against the months which are now being lost in development of North Sea oil.

I do not believe—all the experts no longer believe—that this country can be self-supporting in oil from the North Sea by 1980, as was originally intended, and most people will say that if we are self-supporting by 1985, that will be a remarkable achievement. These are the consequences of the delay, the indecision and the policies towards public ownership of the Government in North Sea oil—and they are immensely damaging. What is more, the calculation that by 1980 we could have to borrow £15½ billion sterling to pay the deficit on our trading account meantime has to be increased by another five years' worth if we do not supply ourselves permanently until 1985. That is the scale of the problem. Again, the programme of keeping Britain in Europe, as we now agree, must be pursued energetically and speedily.

There are also some things that the Government must stop doing if they are to produce an answer. In the crisis that I have described, it is madness to press ahead with nationalisation plans. It is absurd to hound the saver, the investor, the small businessman and the farmer in the way that the Government are doing.

It is wrong just to permit concession after concession to those who try to obtain their ends by extreme and disruptive means, and leave at their mercy those who are working for a moderation in our society in every way. This is so foolish and it is another policy that the Government have consistently followed. The Government have to encourage the creation of wealth and not damage it. They have to produce a training programme because it will be urgently needed. It is needed in Scotland to an extent even greater than we were able to achieve to enable people from Glasgow to go across to the scene of North Sea oil development on the East coast.

Of course, it is the small businessmen and shopkeepers who have been particularly badly squeezed between taxation and the rates burden which still faces them; with some reduction in consumer demand in the New Year, which must come about, they will be in great difficulties. These are the problems facing the economy.

We have been talking particularly about our own affairs, but what we are really seeing today in the outside world and in this country is a massive redistribution of power. Unless we in this House recognise that, we shall never have a corporate mind which can deal with these problems. The first thing externally is the massive shift of resources to the oil-producing countries and the raw material-producing countries. At the moment, in many ways, this shift is only financial; it is balances, but in real terms it means a shift of resources and production from the industrial West to the raw material-producing countries.

At OPEC we are being held on prices which are consistently being increased. When one looks back at the UNCTAD of 1964 and thinks of the low prices and what we try to do to help the balances of payments of the raw material-producing countries, and then considers the level of their prices today and what their balances of payments are getting—look at sugar, for instance—does anyone believe that those countries will ever allow those prices to go down again to anything like their former level? Does anyone think that they have not learned the lesson of OPEC and that they will not be able to join together, to organise themselves? That is what the industrial West must face. That is the transfer of power which is going on in the world.

I hope that those who have this newfound power will exercise it with responsibility, because of the damage that they can do by changing the other power relationships in the world—whether it is damage to NATO through the West or the strengthening of the Warsaw Pact because of the dangers which face all of us. That sort of power shift can affect their friends and can then be to their own detriment. I cannot believe that it is in accordance with the foreign policies of many of these countries that this should happen, so I would ask them to exercise responsibility.

It is also true that we in this country are not suffering only from a technical imbalance or a financial difficulty. For a long time a shift of power has been taking place within the United Kingdom, between the constituent parts of the United Kingdom and between those in industry in the United Kingdom. That is the shift of power which is taking place. The real job of political leadership and of this House is to judge whether this shift is genuine and has to be accommodated or whether it is superficial or is the result of lobbying of one kind or another.

What we have to do in this country is to recognise that the economic malfunc-tionings which are represented by inflation, by the balance of payments problems and by rising unemployment are symptoms of the fact that we have so far failed to adapt ourselves to the power changes which have been taking place in these last few years. I do not believe that the right process is to follow that of the Secretary of State for Employment and just to give way to all the changes in power. I do not believe that for a moment. I believe that they have to be accommodated in changes in our industrial system which will enable all of those in industry to exercise a responsible attitude in the economic crisis we now face. I believe, therefore, that we have to restore confidence to our institutions and to our society by a change of this kind. If we can achieve again that unity, our problems will be much easier to solve.

The task facing the British people today is, I think, the most formidable that we have faced in peace time. Many criticisms are made of us as a nation—that we are slow to seize opportunities, and slow to respond to danger. Some will say that our social system is outdated. Others will say that our economic attitudes are based on division rather than co-operation. Some will say that we have not reconciled ourselves to the loss of worldwide power, nor have we completely accepted the new European Community of which we are a member. In all these criticisms from the outside world there may be an element of truth. But what no one can deny—within or without—is that the British people throughout their history have beaten off every challenge when they have realised what is at stake.

Today in this country everything is at stake. Inflation at today's levels, let alone the increasing rate that is now inevitable, can destroy individual and corporate savings. It can destroy our economic potential. It can destroy our social structure and both individual and corporate faith in the future. It can destroy our power in the Community and our influence in the world. It can destroy the very basis of law and order on which our society exists and the very freedom for which so many generations in this country have fought. That is what is at stake today.

The response required is a national response and it must be one of individual effort as well as corporate effort in the whole length and breadth of the country. It must be a response of preparedness to forgo in the short term in order to ensure the interests of the longer-term future and of future generations.

I am convinced that at this moment the British people are prepared to make just such a national response to a national economic crisis. It is because so far Her Majesty's Government have failed to acknowledge this crisis or to take the necessary measures to bestir the nation that we shall vote against them tonight.

5.3 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

I must confess to a certain diffidence about intervening in what is clearly a two-day Conservative Party selection conference, and I think that others may share my melancholy at the thought that if this morning's newspaper reports are true, our proceedings may be distorted for a period of weeks every year while the Opposition agonise over the inadequacies of their leadership.

The right hon. Member for Sidcup (Mr. Heath) opened his speech by saying that he welcome the debate as an opportunity for the Opposition to put forward constructive proposals for solving our national problems. I listened to him very carefully. It is true that at the very end of his speech we had a few paragraphs of perfunctory analysis—all at far too high a level of abstraction to use as a guide for action—but for the most part his speech was one of those familiar shrill tirades on conventional party-political lines. I propose to give him a friendly cuff or two at the end of my remarks so that I may respond in the spirit in which he opened the debate.

I welcome this opportunity, even so soon after the Budget debates, to discuss the state of the economy before the House rises for the Christmas Recess at the end of one of the most difficult years in our country's history.

Mrs. Elaine Kellett-Bowman (Lancaster)

Thanks to you.

Mr. Healey

I want to deal with the international and the national aspects of our problem in turn, and first, the international context, to which the right hon. Gentleman gave surprisingly minuscule attention in his somewhat lengthy speech. [HON. MEMBERS: "Rubbish."] The outlook has darkened a good deal even in the last five weeks since the Budget debates. I am talking about the international situation. No one now denies that the world is in a recession. The question is whether it moves from recession into slump. In any case, it now appears possible that in 1975 world output and trade may not grow at all, and recovery could be postponed until 1976. If this is proved to be the case, next year could be even more difficult than this for Britain and for most of her partners in the world. So I make no apology for the efforts that I have made over the last nine months to warn my colleagues abroad of the dangers and to seek united action to overcome them.

I think that the House will recognise that I have been not without success. By the autumn, there was general agree- ment, both in the Community and in OECD, that unemployment is now as serious a danger as inflation.

Mr. Peter Rost (Derbyshire, South-East)

At 8.4 per cent?

Mr. Healey

I pointed in my Budget speech to the central rôle of the United States and Germany in this regard. If there is to be a revival of world activity in trade, these two countries must provide the decisive impetus and the environment in which others can introduce expansionary measures without too much fear of balance of payments repercussions. I think that the whole House and the country will be grateful for the contribution which Germany is now making in this regard under Chancellor Schmidt, both in an international context and in German domestic policies.

On his recent visit to Washington, Chancellor Schmidt discussed with President Ford the co-ordination of economic policies. They agreed that the world economy had slipped into recession, and President Ford welcomed the measures which the German Cabinet were about to introduce. These measures were announced last Thursday and they reveal the determination of the German Government to bring about a solid upswing in domestic demand though without increasing inflationary tendencies. Indeed, it was recognised that appropriate expansionary measures can moderate inflationary pressure by reducing unit costs.

This is a welcome counterpart to my own argument—so far, unfortunately, lost on some hon. Members of the Opposition—that restrictive policies which create unemployment can make inflation worse rather than better.

In France, too, the Government are taking steps to check rising unemployment, with more promised for next year. New measures to stimulate the economy have been introduced in the Netherlands.

In the United States present policy can best be described as one of continuing caution. There have been some signs of slight relaxation in monetary policy in recent weeks, but the general opinion seems to be that this is unlikely to be sufficient to underpin a sustained recovery in the economy. Indeed, my colleague Mr. Simon warned only yesterday that unemployment in the United States was likely to reach 7½ per cent.—which I understand may mean 7½ million people out of work—before the upswing begins.

The prospect for the world economy as a whole, therefore, remains uneasily balanced. There will, however, be an opportunity for further discussion of a concerted approach when I meet my colleagues in the Interim Committee on Monetary Reform of the IMF in Washington next month. I believe that some shift in American policy now is inevitable, but it will be critical for all of us how soon and how large that shift proves to be.

We must all recognise that very little that is done now, either in Britain or elsewhere in the world, is likely to have much effect on world trade during the next 12 months. The major part of the January meeting of the IMF will be devoted to considering new machinery for recycling the oil producers' surpluses. Without such machinery all our efforts to discourage restrictive fiscal policies will be wasted, because consumer countries will not be able to import the oil they need to stay in business. Moreover, the strains on the international banking system could soon prove intolerable.

At the IMF annual meeting in September I suggested a new facility in the IMF for the investment of petrodollars as a basis on which we could co-operate in the distribution of finance between the oil consuming countries. I envisaged a facility which would be flexible, open-ended and capable of responding to market conditions, and which would also give the producers the advantage of investing in an excellent asset in the form of a claim on the IMF. Since September, the fund staff have been putting flesh on these proposals and I believe that next month we can reach agreement in principle on the scheme. It has already been supported by all my European partners and has been well received by the oil producers, too as I found in Saudi Arabia last week.

But even this will not be a complete answer. We need a variety of mechanisms, and the latest proposal is that set out by Dr. Kissinger and Mr. Simon, the United States Treasury Secretary. This is not the same as the IMF facility, but it could certainly play a useful rôle. It recognises that we cannot afford to test the limits of recycling through existing private intermediaries and as such it represents an important stage in the evolution of American thinking.

I hope that it will be possible to make progress on this American concept, too, in January. But it is highly improbable even if in January the IMF members support this in principle—and some Governments are very hostile to the concept at the moment—that this American machinery should be operating before the end of next year. Therefore, there is little chance that it would be available in time to avoid excessive strains on the world banking system.

Moreover, the American proposal offers no rôle either for the oil producing countries or for the less developed countries which are suffering so seriously from the recent increase in oil prices. Now that, in Martinique, President Ford has recognised the case for a general dialogue between consumers and producers—as President Giscard d'Estaing suggested—I hope that he will also recognise the value of an extended IMF facility as the basis for such a dialogue. The Saudi Government officials to whom I talked last week recognise the value of the enlarged IMF facility in this respect.

Success in these international negotiations is of critical importance to our national economy here in Britain, but of course it is not enough. What we do by our own efforts is vital. What we can achieve in international negotiations on these issues can simply create the conditions in which our own efforts are worth while.

I turn to developments in our national economy, since the Budget, and particularly to the events of last week, to which the right hon. Gentleman referred. I shall deal first with the parity of sterling. I must confess that the only word that I can use for the right hon. Gentleman's remarks about this is "impudence", because the value of the £ sterling fell by close to 20 per cent. in the 20 months between my predecessor's decision to float the pound and his leaving office at the end of February. Indeed, the effective devaluation of sterling on 16th January was 20½4 per cent. In the past 10 months there has been a further fall of about 4 per cent. to, I think, at lunchtime today an effective devaluation of 21.5 per cent. But in the first six months of my party's tenure of office the pound remained exceptionally stable at around 17 per cent.

Since then we have had two recent periods of disturbance in the markets. The first was in November when the value of the American dollar was moving rapidly against the Swiss franc, and the German mark, and sterling, as always, was affected by these movements. The second was last week. That was occasioned by some selling of sterling by American oil companies which had expected to make their quarterly payments to Saudi Arabia in the middle of the month in sterling but appeared to have been told otherwise at a late stage in their preparations.

The reaction of the Press and other observers to the fact of a change in the payments arrangements for oil was very much overdone—I was glad that the right hon. Member for Carshalton expressed the same view in an interview on television last week—because other Middle East States changed their arrangements some time ago without in any way jeopardising our ability to attract capital inflows to finance our current account deficit. As I explained to the House last Friday—and it should have been clear from the publication that week of the latest quarterly balance-of-payments figures—the use of this or that currency as a vehicle for making oil payments should not be a matter of concern. What matters greatly is how and where the oil producing countries, having received their revenue from the oil companies, decide to invest their money.

In the first nine months of this year the oil exporters as a group added almost 4¼ billion dollars to their holdings of sterling or sterling denominated securities, and this inflow, together with the programme of public sector borrowing, initiated by the Consevative Government when there was no oil deficit whatever to contend with, and the initial drawing for technical reasons on the Government's 2½ billion dollars facility, has enabled us not only to finance our current account but also to top up our reserves.

I was greatly reassured by what the Saudi authorities told me last week about their intention to go on investing in sterling, and the House will be aware that since then the Kuwait authorities and the United Arab Emirates have given similar assurances—

Mr. Peter Tapsell (Horncastle)

Does not the right hon. Gentleman realise that the aspect of our debate which causes the greatest concern outside this House is the preoccupation of the two Front Benches with proving to one another that they have been less, or slightly more, successful in securing the parity of sterling? What the whole country, and indeed the world, is waiting for is evidence of some determination by the present administration that this problem is now to be tackled. Is it not absolutely clear that sooner or later, in order to deal with this problem, we must have a wages freeze and import controls, and ought not the right hon. Gentleman to announce such moves now?

Mr. Healey

I am aware of the point the hon. Gentleman makes, and that is why I was so disappointed by the speech of the Leader of the Opposition. As a Member of the House for many years, the hon. Gentleman must not blame me if on occasions when I am speaking about the policy of the Government I refer to some of the attacks on the Government by the right hon. Gentleman, made in a debate for which the right hon. Gentleman called. I cannot ignore statements made by the right hon. Gentleman, and I do not propose to do so. It has never been my nature, I regret to admit to the House, to turn the other cheek.

However, if I might now continue, the whole House will welcome the assurances given by the oil producers, because they make an essential contribution towards financing a deficit which is inevitable until the OPEC countries can absorb imports of goods and services equal to the value of the oil they export. But they impose a heavy burden of interest payments which we must reduce as fast as we possibly can.

Unless we are seen to be making progress in our trade deficit—this is the point which the hon. Gentleman wanted me to make—we may not indefinitely appear to be so suitable a country in which to invest. It is therefore more than ever necessary to carry through the changes in the structure of our economy to which I referred in my Budget speech. We must achieve a substantial shift in the pattern of our output towards exports and capital investment long before we receive the full benefit of offshore oil.

I left plenty of room in demand for exports, and at present levels sterling remains competitive, but the evidence available so far this year suggests that British export prices have been rising faster than those of our competitors, although there is some evidence that, perhaps, the last month's improvement in the French trade figures may have been due in part to a big increase in their export prices.

The latest figures for Britain show that the erosion of our competitiveness has been a good deal smaller over the past nine months than earlier appeared. The exchange rate changes in the past few weeks will help to keep our exports competitive, but in order to retain this position and to minimise the effects of international uncertainty, is it essential that we slow down the rate of domestic inflation. British exporters will need to be vigorous and determined if we are to hold and develop overseas markets, and if our exports falter the implications for employment, for investment and for the living standards of the whole country will be serious.

I frankly admit that the trade figures for November were disquieting.

Mr. Norman Lamont (Kingston-upon-Thames)

Since the right hon. Gentleman has said what he has about his forecast for world trade now being very different, and it was assumed in the Red Book both that world trade would grow at about 5 per cent. and that British exports would grow by not much less, and since the right hon. Gentleman has also made his comments about our exports becoming much less competitive, is it not now clear, only six weeks after the Red Book was published, that the prospects for British exports are radically different?

Mr. Healey

I think that they have worsened, but, if the hon. Gentleman will took at my words when reported in HANSARD tomorrow, I think that he will find that I said that it was possible, if nothing was done, that there could be no increase in world trade and output in the coming 12 months. With respect, the prospects are worse than they appeared when I made my Budget speech, but, on the other hand—I am coming to this—there are great opportunities for increasing British exports to the oil producing countries of which we are not at present taking anything like full advantage.

I had just referred to the trade figures in November. There were, as always, some special factors. Perhaps the November figures reflect the first effect of the slow-down in world activity to which the hon. Gentleman has just referred. It is all the more important, therefore, that we look to those markets which offer the prospects of rapidly growing demand for our products, and those markets are to be found in the oil producing countries. There is enormous potential here if we take our chances.

I believe that my visit to Saudi Arabia last week opens the door to a big increase in British exports at least to that country. As I told the House on Friday, a joint working party consisting of officials of our two countries will be meeting in February to develop a medium-term programme for increasing British exports to that country. [An HON. MEMBER: "Why February?"] For various reasons—if I may answer that question. The importance of the meeting in February is that the Saudi Arabian Government will be finalising their five-year plan in the first three months of next year, and until they are clear about their requirements it will be difficult for us to decide the extent to which we can meet them.

Mr. Robert Adley (Christchurch and Lymington)

To take up the point made by my hon. Friend the Member for Horn-castle (Mr. Tapsell), and hoping that the Chancellor will not spend too much time on blaming other people, may I put this question? The right hon. Gentleman has talked about exports. Does he not realise that the exports which he requires, and which we all desperately need, are likely to be produced only by companies within the private enterprise system, and many of these companies are finding it very hard to convince themselves that his Government are doing their best to give them every opportunity to make themselves profitable and thus to encourage them to export?

Mr. Healey

I am not sure whether I hope that the hon. Gentleman will catch the eye of the Chair later, but that was a speech in the form of an intervention, making points with which, of course, I shall deal in a few minutes.

Apart from the international factors to which I have referred, the key to our success in running the economy next year will be our ability to control inflation. This will determine our ability to sustain exports, to prevent mass unemployment, and to attract overseas finance.

I must remind the House, since the Leader of the Opposition made so much of the matter, that we inherited a very high rate of inflation. The retail price index rose 1.9 per cent. in January this year and 1.7 per cent. in February—in other words, in those two months at an annual rate of 21.6 per cent. Yet, in spite of the continuing rise in oil prices, we achieved some moderation in the rate as the year wore on, a point which Sir Arthur Cockfield, who was, I believe, appointed by the right hon. Gentleman as tax adviser to his party when in opposition, made in the Report of the Price Commission which he published after the election.

Sir Arthur Cockfield pointed out—I shall quote the way he put it—that the prices of products which he controlled through the Price Commission rose 23 per cent. last winter, 16 per cent. during the spring, but only 9½ per cent. in the summer.

Mr. Rost

When will the Chancellor tell us what he intends to do?

Mr. Healey

I am coming to that. The hon. Gentleman must contain himself, and the less he intervenes the faster I shall reach the point.

Mr. Rost

The nation is waiting.

Mr. Healey

The retail price index is now rising again, as I warned it would. [HON. MEMBERS: "Oh."] Yes, I did in September, and hon. Members can look it up in the Conservative Central Office files if they wish. Nobody can be satisfied with last month's figure. It was 1.8 per cent., as high as in the last months when the Conservative Government were in power, although I must point out that a significant part of this increase arose from increases in the price of sugar and second-hand cars, which have very little to do with Government action or with the social contract.

At least, the House can now be satisfied that Government fiscal policy is no longer the main villain as it was last year, for the money supply is at least under strict control. Both Ml and M3 are well under last year's rate, M3 being well under half last year's rate. Both are well under the growth in money GDP.

Against this background, a public sector borrowing requirement of £6.3 billion, although disturbingly high, as I said in my Budget speech, is not actually fuelling inflation. Indeed, as the right hon. Member for Down, South (Mr. Powell) pointed out in our Budget debates and again yesterday, to a large extent the size of the public sector borrowing requirement is the inevitable counterpart of the deficit in our balance of payments, and, if I tried to remove it, it would mean squeezing other sectors of the economy, thus producing a large fall in national output and a large increase in unemployment. However, as I say, I do not think that anyone can claim that Government fiscal policy is any longer fuelling inflation as it did last year.

Public expenditure, too, is under strict control, as will appear from the White Paper to be published next month. I noted, in passing, that the right hon. Gentleman complained that it was not appearing in December. He will recall that in similar circumstances he did not publish his annual paper on public expenditure for 1971 until the January.

Next year, local authority expenditure, which for the past three years has been rising at 8 per cent. a year, is to be held to an increase of 4 per cent., which, in the circumstances, I think, is the strictest control we can hope to exercise so quickly.

Last year, part of the rise in the RPI was due to the rise in import prices— above all, the rise in the price of oil. Next year, import prices are likely to rise much less, but, contrary to our earlier expectation, they are likely still to rise substantially. Nevertheless, as I predicted last summer, the key to controlling inflation in 1975 is likely to be the level of wage and salary settlements.

My right hon. Friend the Secretary of State for Employment will deal with this matter in detail when he winds up, and I shall content myself now with only two points. First, three-quarters of those who settled since July received increases within the guidelines laid down by the TUC. Second, of the increase in earnings over the past 12 months about half is accounted for by the threshold agreements introduced by the Leader of the Opposition, and a substantial further part was caused by public servants, such as nurses and postmen, who had been unfairly penalised by the statutory policy, catching up as soon as opportunity arose.

The striking feature—it struck me again today—is that in any event the Opposition offer nothing to put in the place of the social contract. There was a time when they were in favour of a statutory policy, but now they claim that they want a voluntary, not statutory, policy, and what they claim is that they will make their voluntary incomes policy work by somehow or other bringing the CBI into the social contract.

Do the Opposition think, for example, that the attitude of the mineworkers' leaders to their current claim and the negotiations following it will be affected by the inclusion of the CBI in the social contract? That is a preposterous idea. Of course, I agree very strongly that the Government should seek the same constructive relationship with business and industry as it has achieved with the trade unions, but that is not the same as trying to bring industry or the CBI into the social contract.

The key here is what the Government can do to ensure that industry produces more exports and more investment. In Britain wage settlements over the last 20 years have not been higher than in most of the countries which compete with us.

Mr. Adley

They are now.

Mr. Healey

No, they are not. The trouble is that the increases have not been accompanied by the same growth in productivity as has been experienced in other countries, and that is not just a question of investment.

Mr. Adley

You are right.

Mr. Healey

I know that I am. I am all for bringing hon. Members along with me and I have no doubt that by the end of the debate we shall have achieved a form of national unity.

Investment is not the only key to increased productivity and I strongly agree with hon. Members on both sides of the House who pointed out that to reduce the number of industrial stoppages would do more for output in the immediate future than any conceivable increase in investment. Whatever view the Leader of the Opposition might take on the Conciliation and Arbitration Service as a determinant of wage settlements, I am sure that he will agree with me that it can play a major rôle in reducing the number of stoppages at every level.

Investment is a major component in productivity and the problem here again is not so much the rate of investment. In this respect Britain has not done very differently from many of its competitors, such as Germany. The problem has always been that British industry has a much lower rate of return in output per unit of investment than Germany, Japan or the United States. The NEDC has decided that it will concentrate on this aspect of the problem in the next 12 months because this is a problem that cannot be dealt with by Governments at the macro-economic level. This is an essential problem for particular individual firms and companies in the ordering of their affairs.

Mr. Eric Moonman (Basildon)

My right hon. Friend has referred to the importance of the micro-aspects rather than the macro-levels of the economy. While he is right to rebut the idea that simply introducing the CBI into the social contract would help, why is it not possible to widen the social contract to introduce a feeling of personal involvement among management and executives?

Mr. Healey

I shall be dealing with my hon. Friend's point later. The Government have a duty to provide the necessary environment in which what my hon. Friend called the micro-economic changes can take place. The level of demand set by Government policy, the availability of finance, the return on capital, the amount of taxation are all factors which create the climate in which decisions at company level need to be made.

We face a special problem here during the world recession. It may be very difficult, no matter what opportunities and however much money we offer, to persuade many firms to invest a lot of money in new capacity, in what some call "green field investment", because there is not enough confidence in the level of world demand for the next few years.

But there is none the less great scope for improving productivity from existing capacity by the sort of investment which, for example, removes bottlenecks in the production process. I have been glad to find in talks with leading industrialists in recent weeks that many of them plan, in spite of all the problems, to concentrate investment in this sector over the coming months.

The Budget measures and further changes in the Price Code, which my right hon. Friend the Secretary of State for Prices announced this afternoon, prove the good will of the Government towards the private sector. I found no questioning of this good will in my talks with the CBI. I am prepared to consider whether anything else is needed, but I must be assured of some return for anything I do in terms of investment. I do not want to find myself in the position in which the Leader of the Opposition found himself when in Government when he complained to the Institute of Directors that he had done everything it had asked and he had nothing in return by way of investment. The right hon. Gentleman will recall the luncheon, which was fully reported in the institute's journal a year or two ago.

The Government have some right to demand a return from industry in terms of investment and exports in the same way that it has a right to demand a return from the trade unions in terms of the level of wage settlements. The Government have the same duty to take the necessary measures to protect the nation's interests if they fail to get that return either from the unions or from business. If industry and the unions respond, as I hope and believe they may, then I think this is the way to forge a type of national unity for which the whole nation has been crying out and which I think the Leader of the Opposition genuinely desires.

Mr. Tom King (Bridgwater)

Is the Chancellor serious when he says that he knows that private industry feels that the Government have its good will at heart? Does he not realise that industry is acutely worried over the Employment Protection Bill of the Secretary of State for Employment, and over the attitude of many members of the Government, including the Minister of State for Industry, who restated last week that it is his aim to abolish the whole basis of capitalism in this country? Does he believe that industry has confidence in the Government?

Mr. Healey

I know that there are many in industry, just as there are many in the trade unions, who disagree with many aspects of the present policy. But from the many talks I have had, both official and informal, with industrialists over the last five weeks, I think there is a genuine recognition now of a Government desire to help, but also a recognition that that help can honestly be offered only in return for undertakings on the part of industry, too.

Let me turn to the speech by the right hon. Member for Sidcup. What disappointed me again today, and I suspect that it disappointed some of his hon. Friends, is that he showed no sign of having learned anything from the experience of his three-and-a-half years in office. The right hon. Gentleman quoted the right hon. Member for Leeds, North-East (Sir K. Joseph). Let me quote him now. The latter pointed out in a letter to the Economist that at the end of the right hon. Gentleman's period of office, We had an historic high rate of inflation, an enfeebled economy, the worst relations with the trade union movement in decades and a lost Election with the greatest fall in our share of the vote since 1929. He went on to say Surely this was sufficient incentive to rethink". I would have thought so, too, and yet there was no sign of that either in the right hon. Gentleman's speech today or in the speech by the right hon. Member for Finchley (Mrs. Thatcher) yesterday. There has been no rethinking of the problems in the Conservative Party over the last nine months in spite of the patent evidence of failure in the economic situation faced by that Government at the end of their last period of office and their failure to win the General Election at that time.

The right hon. Member for Down, South yesterday described one of the contenders to the throne, the right hon. Member for Finchley, as Satan rebuking sin. The Leader of the Opposition is the Prince of Darkness himself. He is the Beelzebub of Bexley. There was a time when he had a reputation for clear thinking and plain speaking. But we have had no clear thinking or plain speaking from him today on the major problems on which he sought this debate in order to make constructive proposals.

Mr. Rost


Mr. Healey

I will not give way. I am anxious to quote the Leader of the Opposition accurately in what he said when he was interviewed by a television commentator last week. He was asked, Where do you stand on the major dilemma any government faces? Do you go for deflation to preserve the value of money or reflation to save jobs and prosperity? The Leader of the Opposition replied, I do not think you can put it as simply as that. Any government has got to use all the economic measures at its disposal in order to deal with the economy, but we are in a particularly difficult situation. The right hon. Gentleman was also asked, Now that the Government's said that it won't have a wage freeze, would you like one? He replied, Well again, what they've got to do first of all is get the employers and the unions together and having explained the position very frankly to them see how far they can get. That impeccable sort of sentiment is the only positive contribution we have had from the right hon. Gentleman to the debate ranging on economic policy in all parties, and outside all parties, over the past nine months.

The right hon. Gentleman said again, and so did the right hon. Member for Carshalton in the Budget debate and on television last week, that the Government should allow no increase in Government expenditure from now on, which would mean cutting £900 million off the expenditure plans published by the previous Government last December. Yet the Opposition told us not to touch defence expenditure, which under their plans was due to rise by £400 million next year. They told us that we should have given twice as much aid to industry as I gave in the last Budget—£1,500 million. They have listed a whole range of additional social security benefits that they want. They committed themselves in the last election to abolishing the rates, and to 9½ per cent. mortgages. The total cost of those proposals, as the right hon. Gentleman knows, is about £3,000 million. On top of that, we had another pretender, the right hon. Member for Taunton (Mr. du Cann), writing in the News of the World, on Sunday that we must cut taxes.

This farrago of dishonest self-contradiction is made all the worse by the shrill and hysterical abuse that the right hon. Gentleman pours on anyone who has a positive policy to put forward, and by his prickly petulance at any hint of criticism, however friendly. Worst of all—we saw it in spades this afternoon—he takes obvious satisfaction, despite his denials, in any item of news which bodes ill for the nation, and has a determination to ignore anything that bodes well. The fact is—the right hon. Gentleman knows it as well as the rest of us—that he sees his political survival as depending on the nation's disaster. He has a vested interest in catastrophe, and this robs his criticisms of all credibility. Even as a prophet he is no Cassandra. He is more like the Fat Boy in "Pickwick Papers", whose only aim was to make our flesh creep.

That is no basis for national unity. What we need is a Government who will attempt to understand the problems and attitudes of others, even when they disagree with them, a Government who will take pride in the nation's successes— for example, the big reduction this year in the non-oil deficit; the maintenance of high levels of employment, when unemployment is rising to record levels in many other countries; and the sort of compassion which put pensions, families and houses first, and which the right hon. Gentleman for one moment purported to attack in his speech this afternoon, until he was interrupted.

Above all, what we need is a determination, while recognising the immense and daunting scale of the problems faced by Britain and the world, to make the sacrifices needed to pull through.

Mr. Nigel Lawson (Blaby)

Before the Chancellor sinks into a sea of cliches, will he answer the question that he complained my right hon. Friend the Leader of the Opposition did not answer? Does he intend to deflate the economy to preserve the purchasing power of money, or does he intend to inflate it in order to preserve jobs?

Mr. Healey

The hon. Gentleman counts himself—[HON. MEMBERS: "Answer."] I will answer. The hon. Gentleman will be aware that only five weeks ago I presented a Budget, and I embodied my judgment in the Budget decisions. The Budget increased demand by about £600 million, on top of the £200 million increase in demand in the July measures, on which the Leader of the Opposition put down a motion of attack and then failed to vote when it came to it.

Mr. Lawson

Will the right hon. Gentleman answer the question?

Mr. Healey

I have answered it. I believe that it was necessary to increase demand in order to maintain employment at adequate levels, and I did so.

Mr. Robert Carr (Carshalton)

May I put the question in rather more specific terms? As the right hon. Gentleman has said that it is essential to hold down inflation, can be explain why, in the whole period for which he has been solely in control, inflation has risen under his measures from 8.4 per cent. in September to 21.3 per cent. now? What will he do about it? Will he continue to let it go up, or will he bring it down? If so, how will he do it?

Mr. Healey

I dealt with the whole problem of inflation at some length earlier in my speech. [HON. MEMBERS: "No."] I take it that the right hon. Gentleman wants a reply. As I have made clear, there is bound to be a further increase in the rate of inflation, because of the increase in world prices, which none of us expected a few months ago; the increase in nationalised industry prices, on which I hope we shall continue to have the support of the Opposition; and the relaxations in the Price Code, which were strongly supported by the Opposition, and which they have consistently maintained did not go far enough.

But I believe that it is possible to reduce the amount of wage inflation through the successful operation of the social contract.

Mr. Rost

When does it start?

Mr. Healey

I have dealt with that, too. If the hon. Gentleman takes the trouble to turn up after dinner, my right hon. Friend replying to the debate will blow the hon. Gentleman out of the water—if he cares to interrupt again on that matter.

As a nation, we have never in peacetime—here I agree with the Leader of the Opposition, and I have been saying it consistently since last December—faced economic problems of the scale and complexity of those which we face this year, and which may well be even more daunting in the year ahead and on the world scene.

However, I think that the tide will turn in 1976. I shall do my best, as the British Chancellor, to persuade my colleagues to take the measures which may enable the tide to turn before next year is out.

Our nation will receive sorely needed help, on which others cannot count, from the oil round our shores, which will start flowing in quantity round about 1976.

Meanwhile, however, we must accept a period in which living standards cannot rise and could even fall. We shall have to be fitter. We certainly shall not be fatter. We shall have a leaner and more efficient economy. I believe, too, that under this Government we shall have a society invigorated by a unity which has eluded us for a generation of peacetime, because it is a unity based on compassion and justice.

5.48 p.m.

Mr. Jeremy Thorpe (Devon, North)

I believe that the Chancellor of the Exchequer gave us a concentrated biographical sketch of himself when he said that he found it hard to turn the other cheek. That is what I found disappointing in his speech, because I believe that the British people today expect the House to express its concern about our present economic situation, to show signs of its determination to attack it, and at the end of the debate to give them some sign of hope. For that reason, I do not think that discussion about the contenders for the throne of the Tory Party, the costing of the Tory economic policy, and the hard work that must have gone into such phrases as "Beelzebub of Bexley". are relevant or helpful in dealing with the economic situation.

On the credit side, the whole House listened with great interest to the right hon. Gentleman's proposals and hopes about the recycling of world oil surpluses. Here the Government not only have played but are playing a very constructive part. They are not dragging their feet. Probably the right hon. Gentleman will be the first to agree that it is disappointing that it is nearly 13 months since Dr. Kissinger made his speech to the Pilgrims and it has taken the world so long to move such a short way. On that matter we wish him well.

I therefore found little in the Chancellor's speech which showed that there was a new direction, or new hope, or indeed a recognition of the desperate seriousness of the situation.

I was hoping to hear from the Leader of the Opposition something about the Tory Party's current thinking on the question of prices and incomes. This is not a matter—and this will be my only reference to other events—on which one has a second ballot. One has a view now.

The background to our economic situation could not be more bleak. In 1939 this country was the most prosperous in Europe. Today only Ireland and Italy are poorer than we are. The balance of payments deficit for November was £534 million—more than we are accustomed to in a full year. The non-oil deficit doubled. On the basis of the November figure, we could have a balance of payments deficit of up to £6,500 million in one year.

Our volume of exports in September— October was 6 per cent. down. Our volume of imports in October was 2.5 per cent. up. Production is falling by 1.5 per cent. compared with September last year. Although since December 1971 we have had an effective devaluation of sterling of 22 per cent., the pound today appears to be over-valued and has had to rely on massive support from the Bank of England—and it is anybody's guess how much that was. According to today's figures from the Department of Employment, wage rates have increased by 26 per cent. compared with last year. Prices have increased by 18.3 per cent. compared with last year. Both figures are accelerating. The figure of 2 per cent. growth on which the Chancellor of the Exchequer based his Budget is not likely to be achieved.

Taking the OECD projections of the gross domestic product of various countries, in 1960 our GDP was 112 per cent. of that of France. It is estimated that in 1980 it will be 60 per cent. In 1960 our GDP was 156 per cent. of that of Japan. It is thought that by 1980 it will be about 33 per cent. In 1960 it was 93 per cent. of that of West Germany. It is thought that by 1980 it will be about 60 per cent.

That is not all. The Bank of England, in its "Quarterly Bulletin" for December, said: More cannot be expected of price control; on the contrary, some domestic prices may have to rise faster to reflect more of past cost increases than has hitherto been allowed. In the Financial Times of 14th December, Mr. William Keegan, its economics correspondent, wrote: Wage pressures have now taken over from commodity prices as the main upward push on the cost of living. In 1966, 1972 and 1974 we set out as a nation to achieve an export-led recovery. Instead we have ended with an import-led collapse. As the Economist said about sterling on 14th December: In October British exports fell even in value by £97 million and in volume by over 4 per cent. In November the value of exports fell by another £49 million. There has to be a question whether Britain is not following the worst possible exchange rate policy; pricing itself out of export markets by clinging to too high an exchange rate on the eve of world recession. That is the case for letting the exchange rate drop sharply instead of trying unsuccessfully to prop it up". Against that extremely bleak situation, which no right hon. or hon. Member would deny, what should we as a nation do? I trust that I shall be allowed to put forward one or two suggestions in the hope that they are practical and constructive. The first is a psychological question. It is essential that the Government bring home clearly the gravity of our economic situation. I do not believe that the people yet accept it. It has to be made crystal clear that the problem is not curable by further borrowing on an excessive scale. We shall already owe about £13,000 million by 1980 and, with the best will in the world, the Shah of Persia will not be able to cure our deep-seated economic problems even if we wish to go on borrowing. We shall not cure them by further mortgaging of the North Sea. Goodness knows how much of that has been pledged in advance.

We shall not cure our problems with blanket subsidies which produce an unreal situation and shield the people from the realities of economic life. To that extent, I welcome the Government's move concerning the nationalised industries which is economically correct. It is wrong that we should be paying £700 million in blanket food subsidies which subsidise the bread of Mr. Harry Hyams as much as they subsidise that of the old-age pensioners.

If the Government make clear to the people the gravity of the situation, the country's response, however tough the measures, will be practical and constructive, providing the people are convinced that those measures are fair and are likely to be effective.

During the election—and this is my second suggestion—I prophesied that within six months, whatever party was returned to power, the Government would be compelled to introduce a statutory prices and incomes policy. I stick to that prophecy. The Labour Party rejected it during the election. The Conservative Party—whose manifesto, I assure the Leader of the Opposition, I read—was incredibly equivocal.

The social contract has been a valiant attempt to solve the problem. In one sense, it is far too rigid because it restricts increases to an across-the-board norm linked to the cost of living and does not permit of adequate machinery to deal with special cases. On the other hand, it is too flexible because the Government have been able to show or to declaim that practically every settlement miraculously comes within the confines of the social contract.

The fact that the social contract has defects can be proved out of the mouth of the Prime Minister in his speech at Cardiff during the election and out of the mouth of the Secretary of State for Prices and Consumer Protection in her speech a month ago following the Budget. Both of them indicated that they were giving serious consideration to penalising employers who went beyond the norm of the social contract. In other words, they expected that claims would be made which went beyond the social contract and, by inference, that they would be granted by employers. Last week the social contract, in effect, turned on whether Mr. Gormley was able to get out of his sick bed and attend his union meeting.

Even if the social contract were working, do the Government believe that this country can absorb a 20 to 25 per cent. increase in prices and wages year in, year out in the present state of the economy? Is it right to say that we can guarantee the living standards of the people however much we want to do so? Is that a fair economic yardstick by which to ask for the people's support?

As I have said, I believe that we shall require a statutory prices and incomes policy and, unlike the Leader of the Opposition, I have no hesitation in saying what I think it should be. We in the Liberal Party have long advocated the concept of an inflation tax which, I understand from one newspaper, the Cabinet is alleged to be considering. However, I do not believe that an inflation tax which will claw back an excess, either through national insurance contributions in the case of wages or corporation tax in the case of companies, will be acceptable unless at the same time massive help is given to the low-paid and low-income families. The concept of the guaranteed minimum earnings and the extension of the credit income tax system are two ways of bringing that about.

Next, we must restructure industry. Our biggest growth potential is in the sphere of public administration, whether in local government or in the National Health Service. In the NHS there is a grave shortage of doctors and ancillary staff but no shortage of administrators.

If we have to face a recession, that means that people will lose their jobs. I very much doubt whether any Government have yet done a sufficiently clear survey of the growth industries in which there will be opportunities for employment, and whether those potential vacancies will be matched by adequate retraining schemes, so that those who lose their jobs can be prepared immediately for alternative employment. I suggest that when those people are undergoing retraining they should be paid a proper salary.

The mechanical and electrical engineering industries, the metal goods industries, the extractive industries and housing offer enormous scope for absorbing, after retraining, people who may find that the industries in which they work are declining, partly as a result of Government policies but more as a result of world recession.

I should like to see a genuine float of sterling, possibly within monthly limits, and I believe that that is preferable to straight devaluation. What happens after devaluation is that we have a feeling of well-being which we continue to enjoy until we have dissipated the benefits, when we think to ourselves that we might do it all over again. I should like to see a genuine float of sterling through a crawling peg. That would restore confidence.

It is difficult to advocate import controls. I should like to see a considerable cutting back of imported luxury goods, but there are difficulties. I have no doubt that the Government will look into that, but under GATT and our commitments to the Community that would be difficult, and it could produce contraction. We in this country must do more to help ourselves. There is scope for an enormous increase in food production. I see no reason why over a five-year period we should not knock £600 million off our import bill. When we consider that in 1974, with a £4,000 million deficit, £2,700 million of which was on imported food and £1,600 million on temperate foodstuffs which we could have produced in this country, the Government must surely agree that there is great scope here.

The proposals by the Secretary of State for Energy for saving energy were a welcome start but a small one. They will save £350 million, and that will leave a £2,000 milion oil bill still to meet. When one goes around the country and sees lights blazing, offices overheated and an appallingly profligate waste of energy, one would not believe that there was any requirement on anyone to conserve energy.

Mr. David Marquand (Ashfield)

The Liberal Whips' office is overheated.

Mr. Thorpe

The hon. Gentleman is wrong. I have turned off the radiator in my room, and it will remain off until it gets really cold. The radiators are turned off in the Liberal Whips' room and they will remain turned off. If the hon. Gentleman cares to make a further discovery, he will find that some contribution is being made. In parenthesis, I am not impressed when we in the House sometimes turn down the heat simply by opening the windows.

Does our shift system in industry make the best possible use of natural light? Experience during the period of the three-day week showed that people could be much more flexible. By those two methods of energy-saving alone we could knock an immense amount off our balance of payments deficit.

If ever there were a time when we needed international co-operation with our European partners, it is now. The Prime Minister agrees with that and so does the Leader of the Opposition, so I need not open the argument between the Prime Minister and those who sit behind him.

On 5th July 1974 the New Statesman said: Managers of the economy are judged by their performance on growth, unemployment, inflation, the balance of payments. All of these are going badly. What the New Statesman said in July has managed to survive the test of time right up to December, and I believe that it is right.

The people want evidence from the Government that they are fully aware of the reality of the crisis. The sixth-form debating speech made by the Chancellor of the Exchequer did not assist in that direction. If the Government with conviction are able to make the people aware of the crisis, they will be entitled to ask the people to accept stringent measures. If those measures are fair and are likely to be effective, the Government are entitled to the support of all parties in the House for those measures, and I am confident that they will receive the support of the British nation.

6.5 p.m.

Mr. David Marquand (Ashfield)

As so often happens with members of the Liberal Party, I detected a curious mixture of frivolity and seriousness in the speech made by the right hon. Member for Devon, North (Mr. Thorpe). However, I agree with him that we are facing a much more severe crisis than either of the Front Bench speeches suggested. I was glad that the right hon. Gentleman struck that note at the beginning of his speech and, now that the Front Bench gladiators have departed, I hope that the rest of us will be able to retain that note.

The country is facing its most severe economic crisis since the war, in many ways a more severe economic crisis even than the crisis of the inter-war period. The present crisis, if it were to accelerate, could actually destroy the United Kingdom and possibly even undermine the foundations of parliamentary government, and that did not happen between the wars. That is the magnitude of the problem.

The crisis has many elements in it, one or two of which I will mention. First, we have a balance of payments deficit of about 8 per cent. of our national income. In other words, we are consuming 8 per cent. more than we produce. We are able to do that because the rest of the world is lending us the money and it is doing so in effect at a negative real rate of interest because of the rate of inflation and the depreciation in the value of our currency.

At the same time, there is undoubted evidence that the rate of inflation is accelerating. None of us in the House takes as gospel what appears in the bulletins of the National Institute of Economic and Social Research, and I was glad to have the assurance from my right hon. Friend that the National Institute is wrong in what it says about the way in which the social contract is being interpreted. If my right hon. Friend gives that assurance, of course I accept it.

Nevertheless, the National Institute forecasts a rate of inflation next year of between 20 per cent. and 25 per cent., and I should be surprised if the forecasts within government were very different from that. The methods used by the National Institute to make its forecasts are similar to those used inside the Government economic machine.

It must be remembered, moreover, that these forecasts cannot take account of the psychological impact of accelerating inflation itself. Forecasting techniques make use of econometric assumptions based on past behaviour. They cannot take account of the changes in behaviour which are likely to take place if inflation gathers speed. Therefore, I fear that the forecast errs on the optimistic rather than the pessimistic side.

I agree with the right hon. Member for Devon, North that the most alarming feature of the crisis is that there is little sign that the British people feel in their bones that they face a crisis at all. During the February election campaign I was impressed by the number of people who spontaneously came up to me in my constituency and said, "My God, what a crisis you will inherit when you come into power". Some even asked, "Why on earth do you want to get into power at a period of such severe crisis?" That was the mood in February. There was a disposition then for the British people to accept sacrifices and austerity. I am sorry to say that that mood has been dissipated. I see very little sign of it now.

This situation clearly cannot continue indefinitely. If there is no improvement in the balance of payments, the foreigners who are so kind as to lend us their money at a negative return to themselves will take it out of the country. There can be no dispute about that. If domestic inflation is not brought under control, if the forecasts of the National Institute prove true, the balance of payments next year is bound to deteriorate, because inflation in the United Kingdom will be worse than the inflation experienced by our competitors. I also believe that if we fail to bring domestic inflation under control we shall, sooner or later—although it is impossible to say when—proceed from the cantering to the galloping phase of inflation. We may even start to experience what has sometimes happened in some Latin American countries and what happened in the Weimar Republic between the wars, when whole societies lost confidence in money. That may sound a wild prophecy to make in this House, but it may be fulfilled if we fail to control domestic inflation.

What, then, do we do? I believe that the first objective must be to bring home to our people—not only to the people at large but to the key decision makers, those whose bargaining ultimately determines what the rate of inflation will be— just how serious inflation has now become.

Sir John Hall (Wycombe)


Mr. Marquand

I should like to answer that question as I develop my remarks.

The first thing to be done is this—and I do not think Ministers have done it sufficiently although they have begun the process. They must ram home again and again the simple truth that inflation redistributes income from the weak to the strong at any level in society. Because of our history, because our working people, in contrast, for example, to those in Germany, suffered in the past much more harshly from deflation than from inflation, there is a residual feeling at the back of the minds of many trade union negotiators at the grass roots level that although inflation is very inconvenient and unpleasant it is not as bad as all that, and that inflation is certainly not as bad as deflation. That attitude of mind exists. I understand the reasons for it, but I think we must do our best to eradicate it. I suggest that my right hon. Friends make use of every opportunity, not only in national speeches— although my right hon. Friend made a marvellous speech during his recent party political broadcast—but at the shop floor and trade union level to ram home the lesson that inflation robs the poor and benefits the strong and that its effects are totally contrary to the whole philosophy of democratic Socialism.

But preaching is not enough. We must somehow take the people of this country by the scruff of the neck and show them that we are facing a crisis. I believe that some extraordinary measures are essential to bring that fact home.

Let me give one example. The Chancellor of the Exchequer made a profound mistake when he tried to promote conservation of oil supplies by means of raising prices rather than by means of rationing. I know the economic arguments in favour of raising oil prices, and they are very powerful in some ways, but they ignore psychological realities. When we raise the price of petrol to the consumer he grumbles and complains, and may even cut his consumption for a week or two, but before long he has absorbed the price increase and is simply pressing for a higher money income to compensate. If we want to show people that there is a crisis, the way to have done so would have been by physical rationing rather than by rationing by price.

Mr. Atkinson

Does not my hon. Friend agree that price control has the same effect, since wages are rising faster than, or as fast as, the cost of living.

Mr. Marquand

I do not think that my hon. Friend has grasped my point. It is that the people of this country do not realise how serious the crisis is. Some dramatic action must be taken by the Government to bring this home, and I think that the rationing of petrol would have been a useful start.

Another suggestion is one which was originally made, I think, by the right hon. Member for Orkney and Shetland (Mr. Grimond). I shall take my ideas, if they are good ones, from any source. The Government should give serious thought to cutting the remuneration of the highly paid members of our society. There should be direct cuts made in high incomes. I am delighted that the Secretary of State for Employment has referred the question of high incomes to the Royal Commission. I am delighted that the Royal Commission has been set up. Let us now go further and make exemplary cuts in the incomes of the highest paid. I can think of nothing which would do more to a ram home the fact of the crisis

I also believe—if this suggestion is not considered treasonable—that the Royal Family have a part to play. A constructive and valuable measure would be for the Royal Family to make a voluntary sacrifice of a dramatic kind, which would show the people that they took the situation seriously. That, too, would help to create the right psychological atmosphere.

However, I do not think that psychological warfare, if I can call it that, is any longer enough. We also need to toughen up the institutional framework of the social contract. The National Institute is right in saying that to operate a social contract in the way it is now being operated, whereby the negotiators themselves have to decide whether or not a given claim is or is not within the guidelines, imposes an intolerable burden on the negotiators concerned. Trade unions are formed to protect the living standards of their members. They have a duty to the wider society, of course, and in many cases they have responded to that duty. The fact remains that their primary purpose is to protect the living standards of their own members. It is asking an enormous amount of trade union negotiators to expect them to act as instruments of Government policy. There must be an impartial board or body of some kind which can say whether or not particular claims fall within the guidelines. Such a body would also make clear what the guidelines actually are and what they are supposed to achieve. I can see no objections to that.

Some of my right hon. and hon. Friends would probably say that this suggestion would be the thin end of a wedge leading back to the horrors of a statutory policy. Some might add that such a step would be seen by the trade unions as the thin end of the wedge and that it would therefore encourage the sort of claims that we want to discourage.

But what is the alternative? I am confident that the alternative is that the forecasts of the National Institute will prove to be true and may even be exceeded. That is far less acceptable than what I am suggesting and is contrary to everything for which the Labour Party and movement have always stood.

Mr. Atkinson

On the question of wages, there is no doubt or ambiguity about the statement made by many trade unionists and the TUC statement concerning the guidelines, which said clearly that wage negotiators should bear in mind the national situation and should not go beyond maintaining the living standards of those they represent. If my hon. Friend wishes to go further and is now saying that somebody should judge wage negotiations against that criterion, he is thinking of giving sanction powers to that body, which is what the trade unions are opposed to.

Mr. Marquand

I am not asking for that. I am saying that an independent body, representing the community and both sides of industry, is in a better position than negotiators themselves can possibly be to know whether the guide- lines are being applied at a given moment, and in a much better position to set out in objective terms what the guidelines are supposed to achieve, so that the rest of us may know whether the policy is working.

This is not a departure from the concept of a voluntary policy. I believe in the idea of the social contract and in a voluntary incomes policy. No one in his senses would want deliberately to go back to a statutory policy. No one in his senses would prefer all the rigidities and difficulties that that involves. One of the weaknesses in the speech of the right hon. Member for Devon, North was that he did not admit that there were difficulties in a statutory policy and say how he would deal with the problems which would arise from one phase to the next.

If I were to be presented with a choice between the collapse of the social contract, with resulting mass unemployment, and a return to a statutory policy, with all its disadvantages, I should opt for a return to a statutory policy—and so, I think, would the Labour Party in general. What I call for now, however, is a last effort to make the social contract work. The ideas which I have tried to throw out represent, in my view, the last chance of making it work. My right hon. Friend the Secretary of State for Employment has probably put more into this policy than anyone else. He carries a tremendous responsibility to make it work and to bring its requirements home to people at every level.

Mr. Foot

I have listened with great care to all that my hon. Friend has said. But one disadvantage of what he is now saying—the same is true of the speech of the right hon. Member for Devon, North (Mr. Thorpe)—is that a return to a statutory policy creates difficulties in the meantime. I say again that I am bitterly opposed to any return to a statutory policy. That is Government policy. I hope that it will be understood, and I hope that my hon. Friend, despite his right to make his comments, will understand that there are dangers in presenting the case as he has done.

Mr. Marquand

Perhaps my right hon. Friend will take this point. I have heard that argument before. I heard it when I first came to this House in 1966 and again in 1967, about devaluation. I was one of those, as was my right hon. Friend, who argued for devaluation in spite of all the objections to putting the argument publicly because we thought it to be necessary. I realise the responsibilities in relation to incomes policy and I did not say what I said lightly. But I believe that, in the end, each of us has an obligation to say what he feels to be right— and I know that my right hon. Friend does not want to prevent me from doing that. And if I may say so, the trade union negotiators, whose reactions my right hon. Friend is worried about, can read the National Institute report and see the facts themselves. They know what is happening just as much as the rest of us do.

6.24 p.m.

Mr. Edward du Cann (Taunton)

For myself, I cannot say I am sorry that 1974 is coming to an end. The Chancellor of the Exchequer said, in what I thought was a profoundly disappointing speech, that this had been a difficult year. The right hon. Member for Devon, North (Mr. Thorpe) was much nearer the mark when he said that he thought it had been disappointing. We have made too little progress in the effective management of our affairs. That may be thought to be a matter for regret. I say that it is a matter for shame on the part of this House of Commons.

In what I know everyone will say was a fine and courageous speech, the hon. Member for Ashfield (Mr. Marquand) said that we were suffering an economic and financial crisis of the greatest magnitude. That is true, and I am sure that it is right that, like him, we should not endeavour to meet the situation with party dogma but, rather, by saying plainly that our concern is for our country and for the future of our children. That is the priority, and nothing else should be.

The situation is most severe—there is no lack of evidence of that—and my right hon. Friend the Leader of the Opposition said that it was deteriorating. I am sure that it is right that we in this House should warn. We have a duty to do that.

However, my theme is a different one. It is that much public discussion at present is misdirected. We should look to the causes rather than to the symptoms of what is wrong. So I speak hopefully of remedies rather than indulging in the current petty fashion of constant carping cynicism and complaint which seems to occur so frequently in dinner table and other conversations. I have no sympathy with what may be called, listening to the wireless in the morning, the gloom-and-doom brigade.

Thus I do not ask whether the strength of our people is adequate for the tasks facing the nation and moan that they are not. I prefer to think of ways to refresh or renew the resolution which lies untapped or too little tapped in our people. The needs are to stimulate, maintain and develop the national will to succeed and to give the leadership by which it can be achieved.

What is to be done in practical terms? We live in a practical world, and we should speak in practical language. Our overriding problems, of many, are inflation and the balance of payments. Like the right hon. Member for Devon, North and the hon. Member for Ashfield, I have some proposals to put forward which in conjunction could affect both beneficially.

I was flattered to hear that the Chancellor of the Exchequer had read the article which I wrote last Sunday in the News of the World. It was probably better reading for him than the stuff which must be served up to him constantly. I shall endeavour to amplify some of the remarks that I made in that article.

First, cannot we construct a comprehensive programme to save energy? What has been suggested to date is hardly impressive. Nor is there evidence of a determined search for or encouragement of the exploitation of alternative sources of supply. I give some instances. So far as I am aware—and I have made inquiries—there is little or no research into the possibility of methane production from farm waste. There is little research into the uses of solar energy. There is still less research into the uses of the wind for electricity generation.

Another matter referred to by my right hon. Friend the Leader of the Opposition concerned the development of our resources. It seems to me that the Government are much more interested in taxation than in production. Looking at the financing of North Sea oil exploration and how far it has got, I am bound to say that it is too slow and exists far too little. What I argue for—and this is one aspect of it—is a credible programme of self-help. I see no sign of that at present.

Second, the Government should mount an import-saving drive. I do not mean that I am in any way an enemy of a liberal trade policy. I remember well that UNCTAD conference in 1964 to which my right hon. Friend the Leader of the Opposition referred. He and I were colleagues in government at that time. I am much in favour of broadening the basis of trade throughout the world.

I object strongly to imports which enter the United Kingdom because we are careless, idle or wasteful. For example, for every ton of paper that we recycle we save importing a ton of pulp. Surely that is obvious. We can look at the bill. The figures are there for all to see. Yet my local authority has now stopped waste paper collection. Meantime, United Kingdom imports, to quote a single figure, constitute 20,000 tons of waste paper per month. That is nothing short of scandalous. I understand that there is now a danger that some waste paper merchants, at any rate in the West Country, will go out of business. This state of affairs seems so extraordinary that it is hardly credible.

In the United States the recycling industry—paper, steel, iron, plastics, and so on —enjoys a system of special tax relief. In Holland, the Government finance the stockpiling of waste materials for future recycling.

Surely, with imagination, it should be possible to mobilise public enthusiasm for this cause. The hon. Member for Ashfield was entirely right to point out that the public is largely unheeding of our cries of "Wolf" at present. I suggest that we should let that imaginative programme be done, and be done at once. These may appear to be small matters, but I say that in the aggregate they are substantial in terms of cash contribution to the balance of payments.

Even more important is the psychological effect of these matters. It is right that we should endeavour to promote public awareness of the dangers that we face, and the consequence of failure. Many people in our society have taken prosperity for granted for far too long. Indeed, one must be well over 40 years of age to have experienced anything other than a comfortable life. It is urgent to mobilise public enthusiasm to counter those dangers.

I turn now to larger matters. I would pick up the theme of my right hon. Friend the Member for Finchley (Mrs. Thatcher) in the excellent speech that she made at the opening of yesterday's debate. My right hon. Friend was, in effect, saying that we depend for our very life and livelihood on commercial success. Can we not agree between us to remove the discouragements to commercial success which politics seem constantly to impose? In one way they are practical—the kind of discouragements that we hear every small business and saver in the country speak about. It would not be difficult to remove them.

The discouragements are also political. It is urgent that we remove from industry, commerce, insurance, shipbuilding, steel—I could give a longer list— the threat, if not the reality, of political interference of the gravest kind.

I thought that my hon. Friend the Member for Bridgwater (Mr. King) did the House a service when he interrupted the Chancellor and asked how he thought industry and commerce could sincerely believe that the Government have their best interests at heart when we still have in the Government the right hon. Member for Bristol, South-East (Mr. Benn). There could be no greater improvement in confidence than to see changes in certain Departments at this time. We need more practical success and less intellectual dog-fighting over industry. Could we not agree to a 10-year moratorium from political pressures on industry? Why cannot we leave industry well alone to do the job that it is supremely qualified to do?

I now turn to the fourth point that I should like to make. On this subject particularly—the social contract—I found the Chancellor hardly inspiring, let alone convincing. My view about the social contract is simply described. I hope to see it succeed. Manifestly it is not succeeding. It must have stronger backing.

I do not argue for a freeze for anyone, least of all for senior executives who so often seem to be a target of one kind and another, but excessive settlements must be brought under better control. There are various possibilities, as the House knows. The right hon. Member for Devon, North referred again today to the possibility of taxes on higher percentage increases. That is one possibility. Indexing, which I favour, is another. But there is a need to remove uncertainty from people at the lower levels of remuneration, and especially the continual scrapping to which this country is now subject. We also need to encourage greater emphasis on increased earnings through increased production or productivity.

We are doing none of these things. We are not handling satisfactorily any of the matters with which we should be coping. For the Government to pretend that the social contract, as it exists, is ideal, is patently absurd. It requires amendment, and soon, if the prevailing mood of cynicism about it is not to grow to an extent which will inevitably destroy it.

Fifth and last in my list, I would write a new industrial charter. It should be easy to write an obligation to bring about a greater degree of consultation in industry and commerce. The strategy of a business should not be the exclusive prerogative of the boardroom. Equally, its profitability is highly relevant to the work force. Industry is a partnership, not a battleground. Let us promote unity in industry by every available legislative device for consultation, for directorships, if people wish to have them, for profit sharing—heavens, if the French can do it, why cannot we?—and for share ownership, a matter in which I have long taken a personal interest. These and other devices are readily to hand. I am sure that they provide a vastly better recipe for industrial harmony than all the apparent delights of State ownership.

My list of five points is by no means exhaustive. Other right hon. and hon. Members will have many proposals to make involving such matters, perhaps, as the restoration of confidence in markets —so very much needed—and better control of Government and local authority expenditure. Whatever the Chancellor may have said, neither local government nor central Government expenditure is under control. I am as certain as I am standing here—I speak as a past Chairman of the Public Accounts Committee and as the first Chairman of the Public Expenditure Committee—that it would be possible to get vastly better value for money than we currently do.

Other right hon. and hon. Members will wish to talk about the regeneration of industries—for example, the construction industry, which, in the South-West at any rate, is having a miserable time—or the deficit financing which we are enjoying, if "enjoying" is the right word.

Returning to the general, I was extremely pleased that my right hon. Friend the Leader of the Opposition this afternoon spoke about support for the Government for every proposal where common sense and patriotism are the sponsors. I endorse that approach. We on the Opposition side of the House should and shall, I believe, always support the Government in such circumstances, not least the Chancellor's efforts to counter on a world scale the imbalances which result from the sudden increase in oil prices to which he referred.

I should like to make a supporting proposal. I suggest that the Chancellor should mobilise the support of the developing world, not least in Africa. It is true, as many speakers have remarked in the past, and will again, that to a large extent the balance of power in the world is changing. The sufferings of some of the developing countries are great, and they need help, and they could well support us in the councils of the world.

Some of us welcome the Chancellor's Budget as a step in the right direction of liberating industry from the shackles that he previously imposed upon it. Of all the examples that one might quote, I suppose that the most important discussions that we shall enjoy—again, if that is the right word—in 1975 in this House will be those about the European Economic Community.

I was an opponent of our country's entry into the Community. I thought then that there were better alternatives, and I still think that. I have never seen any reason to change my opinion, but, the House having made a democratic decision, we should now work for success in Europe and try to shape its destiny as we believe to be right. If we succeed, well and good. If we do not, then will be the time again to consider the alternatives. Meantime, let enthusiasm be in order. What we need above all—I am trying to say this by means of illustration— is certainty in what we do.

I return to my main theme. It is within the knowledge of many hon. Members that, lately, I have seen something of many whom I am pleased to regard as personal friends in both Africa and the Gulf, notably in Kuwait. They all seem to say much the same thing to me, and I dare say, to other right hon. and hon. Members from time to time. I can summarise it like this: "We who have confidence in you and your nation beg you to have equal confidence in yourselves". I would pray, so let it be.

It is true to say that this country is at a crossroads, but the reality is that our destiny is in our own hands. I just hope that in 1975 we are more worthy of it than we have been this year.

6.41 p.m.

Mr. Norman Atkinson (Tottenham)

The right hon. Member for Taunton (Mr. du Cann) will not be surprised if I do not share his laissez-faire attitudes or agree with his remedies. In fact, it was somewhat odd to hear him say that there were faults within the existing system and then go on to say that it should be left alone and we should preserve it, as though the debate was being held as a result of the success of the system rather than as a means of discovering how we can remedy its failures. It is odd that someone should want to protect something that has failed the nation, so I make no apologies for being a political interventionist and putting a Socialist point of view. I believe that it is by a planned economy that we shall find a remedy for the problems facing us.

I want to set out the Socialist case and argue for greater intervention, a planned economy, and free wage bargaining within that set up. I believe that that is not a contradiction in terms but that, on the contrary, the two things go together. In fact, one depends upon the other.

I want to comment first on some of the things that were referred to by the Leader of the Opposition and then to take up some of the other arguments that have been advanced today about investment, about the need for import controls and, finally, about wages and prices.

I take up first the point made by my hon. Friend the Member for Ashfield (Mr. Marquand). If the National Institute is correct in its prediction of a 25 per cent. rise in the retail price index, and if that is wage-led, it must of necessity mean an average increase of 35 per cent. as a result of present wage negotiations, but on the basis of our recent experience I do not think that even my hon. Friend would suggest that wage bargainers are getting anything like that average increase. In fact, some wage bargains are not keeping up with the rise in the retail price index, with the result that in terms of take-home pay some people will suffer a reduction in their living standards in the months ahead.

We were all sadly disappointed in the Chancellor's speech. He gave us a survey in trivia. That is to be regretted, because it demonstrates the attitude of those who believe in some kind of elitism. They do not think it is necessary to present to the House a solid and well thought out argument in order to convince Parliament and take Parliament along with them. They take it for granted that the party system guarantees them support in advance of any arguments they advance. It is an insult when they give us a half-hour lecture of the kind that we heard today, and deal in trivia. I am sorry that my right hon. Friend is not here, because if he were I should have even more pertinent things to say to him.

As the Leader of the Opposition said, we have a mixed economy. It is mixed to the tune of 25 per cent. public sector and 75 per cent. privately owned. Therefore, the predominant ethics against which we must judge the situation are the ethics and ideas of a free market economy, and it is with those ideas in mind that I propose to make my remarks.

Again, as the Leader of the Opposition said, fundamental changes are taking place in Western capitalism. These are structural changes that we can identify and see clearly. Incidentally, some of these structural changes are beginning to expose fundamental defects in the system. That is why some of us say that whatever remedial measures are taken by the Government must be judged against the criterion of change. If we are to think of unity in our party, it must be made clear that whatever remedial measures are taken recognise the need for change within society and are aimed at bringing about a shift of power in accordance with the principles which we believe should be found within the Labour Government. That is one reason why we criticised the Finance for Industry bank. That was the basis for a long controversy about the Lever arrangement, and why we said that the whole purpose of our policy should be concentrated upon the immediate creation of a National Enterprise Board.

Another important aspect of the matter is the clear relationship between cost inflation and the structural changes to which I have referred. We all recognise that the old entrepreneurial characteristics of the system have gone and that what we are now seeing is capital intensification and a regrouping of small enterprises into larger groups. Secondly, we are seeing the internationalisation of manufacturing processes and the introduction of international commodity pricing policy. The two things go together. They are interrelated, and it is important to understand why that is so.

It is no accident that multinational manufacturing concerns are dominating the scene and that we see coming into being international agreements on pricing policies for the supply of commodities. Here I refer to three areas in particular which demonstrate clearly what I am saying. One organisation is OPEC, which comprises the petroleum producers, another comprises the copper-exporting countries, and yet another organisation represents the bauxite-producing countries. All those organisations are undertaking for commodity-producing countries what the multinational companies have done for Western capitalism. These matters are interrelated, and it is no accident.

Again, it is no accident that as a result of those structural changes in Western capitalism, one of the largest contributory factors in the inflationary process has come from the supply of basic commodities and the under-utilisation of the extra capacity which the merging of smaller enterprises has created. Those are two major reasons why we are now suffering the sort of inflation through which we are passing and why there are problems in the Western world such as those which have been outlined in this debate.

Let me make one final point about capital intensification and some of the difficulties which arise from the merging of smaller enterprises. That process, in itself, does not guarantee a growth in market potential. We have come to recognise that where a multinational structure has been established without an increase in market capacity, the problem of under-utilisation is very real. The nature of the capital intensification that is brought about brings with it an inflationary trend. The whole shift away from labour intensification has been a major contributory factor.

The question of investment is uppermost in our minds and is one of the essential ingredients of our ideas concerning planning agreements. We are probably in for one of the worst investment recessions we have seen in post-war years, and possibly this century. It has not been a good record, and those of us with any knowledge of the machine tool industry have seen a practical demonstration of the inadequacy of the investment method, culminating in the inability of the system to generate the sort of investment which we continually need to allow us to move towards any improvement of our living standards.

When we consider that the major part of our economy is still in private hands, that there is no strategy to control investment policies, and that each individual enterprise takes its own investment decisions, we can see that there is an absolute need for some sort of planned agreement by a Government concerned about the well being of our nation to intervene in the system so that the whole business may be orchestrated. We have argued as strongly as we can for the creation of a National Enterprise Board and for a strengthened prices board in bringing about the orchestration which we believe to be so necessary.

We believe that in the present situation private investment should be conscripted in the national interest. We do not believe that individuals or individual companies should have complete freedom in terms of investment policy. We believe that in regard to the restricted resources which have been illustrated in this debate the Government should intervene. They should ensure that whatever the investment taking place and whatever the allocation of resources, they should not be handled on the basis of individual decisions taken in various boardrooms. These decisions should be made centrally by the Government, so that we can ensure that the allocation of resources accords with the national need and not with the investment policies of some independent firm.

It was in this sense that I intervened in the speech of the Leader of the Opposition to comment on the irrelevancy of the Stock Exchange. It is true that, last year, the only fresh issues raised on the Stock Exchange amounted to a sum of £135 million. That figure is irrelevant in the present situation. The Stock Exchange is not now a serious source of new capital investment in this country; it has ceased to fulfil its original function. Not only has the system changed, but the purpose of the Stock Exchange also has changed. A total of 60 per cent. of investment is being raised by individual companies and this strengthens our arguments for a planned strategy for investment.

I should like to deal with the question of overseas trade and the need for planning agreements. I believe that there is now a case for the imposition of import controls. Many Labour Members are determined to campaign for the creation of such controls because we do not believe we can solve many of the major problems that face us within the economy unless we have some sort of planned arrangement over those commodities which are freely imported into the United Kingdom.

The Chancellor of the Exchequer recently said that it would be wrong to interfere with the freedom of importers and that any action on those lines would only add to world recession. I believe the opposite is true. If we accept the conventional view of the Treasury when there are balance of payments difficulties, the remedial measures involve deflating the economy and reducing demand levels domestically to correct our external trade. If that is to happen, surely the Chancellor of the Exchequer is ignoring remedies which he has long advocated. Rather than the imposition of import controls having a recessionary effect, surely the reverse is true. When we have run into balance of payments difficulties the Treasury, backed by successive Chancellors of the Exchequer, has cut back on our demand levels. Therefore, if we take the view that we should have planned arrangements for imports, we can go for growth domestically rather than the other way round. When the situation is left to conventional Treasury methods, the practice has been to bring about a deliberate deflation of the economy because of the imbalance overseas. If we can bring about some planned order in terms of external trade, we can then begin to boost the economy and bring about a growth rate which we have not known in the last 20 years.

Mr. Donald Stewart (Western Isles)

The hon. Gentleman has emphasised his view that there should be a cut in imports. That argument may be superficially attractive, but does he not agree that other Governments may take unilateral action? If we say that we are cutting back imports from country A by an amount of £50 million, will it not immediately take retaliatory measures?

Mr. Atkinson

It may do so, but with the deficit which we now face any retaliatory action would be in our favour.

Mr. Marquand


Mr. Atkinson

Perhaps I may answer my hon. Friend the Member for Ashfield by giving an illustration. If we are so deeply in deficit that some country wishes to take retaliatory action, that country will start cutting back on its exports to this country. If it wants to see a growth in world trade and flourishing domestic economies, it must seek a higher growth rate all round and must recognise the sense of trying to obtain some sort of planned balance in world trade, rather than leaving it to each country to make its own arrangements.

I think that the argument is in favour of import regulation if we are talking about a growth in world effort. If we want to avoid some of the problems caused by the imposition of the conventional policies pursued by the Treasury, there is no alternative but to introduce some degree of planning into our external trade. We go further, and say that there must be a severance of external trade arrangements from the management of our domestic economy. The one should not depend upon the other. It is ludicrous to try to get an external balance on the basis of deflating our domestic arrangements. The one is contradictory of the other. Of necessity, there must be some planning.

I turn now to the question of free wage bargaining and some of the things that have happened in our experience of price regulation. It is exactly two years since price regulation was brought about. Since then, we have seen two or three changes, most notably getting rid of wage control on 25th July this year. We are at the end of phase 3, and we can look, with a judge's advocacy, as it were, at what has happened during the phase 3 period.

The Leader of the Opposition seems to have forgotten that the figure of 18.3 per cent. now given as the price rise was up to that phenomenal level over the period of phase 3 and price regulation. We do not know what precise effect price regulation has had on the index, but from what statistical information is available to us it would seem that there is an argument that about 3½ per cent. is being suffered as a result of that policy. There is possibly no way of knowing for certain. All we can say is that during the phase 3 period there have been price increases of 22½ per cent., which, reduced by 3½ per cent., brings the figure down to that which has been given to us as a result of the abolition of price control.

I come back to the comments that the Labour Opposition made when the Conservative Government introduced the price arrangements. We said, in the famous words of one of my hon. Friends, that it was a bureaucratic entanglement. That I still believe. When the TUC and certain unions talk about a permanent system of price regulation, they are not talking about making permanent the system we have seen in operation—far from it. They are talking of a very different system indeed. The present system cannot distinguish between the various sizes of companies which have to operate within it. The criteria apply right across the board, by and large, apart from certain productivity variations, and so on. The system's weakness, therefore, in having largely the same criteria, will mitigate against our use of planning agreements.

We go further. If the Government are serious about the introduction of planning agreements and the establishment of the National Enterprise Board, we can- not continue with a system of price regulation of the kind we now see because the two things will not work together. Therefore, we say that there must be fundamental changes in the whole business of price control if we are to have planning agreements of the kind we envisage.

I come back to the point that the remedial measures must be directed towards the whole process of social change. It is at the heart of the social contract when we say that we must have a much more simplified system of price regulation. We believe that if wage negotiators are to be allowed freely to negotiate against price ceilings, but those price ceilings cannot be established by the mechanism outlined in the price regulation policy, we have to have a completely new system of price ceiling arrangements if we are to succeed in the whole business of freely negotiating wages against fixed maxima. This is of absolute importance.

Let us judge the question of the coal industry negotiations going on today. The National Union of Mineworkers, the Government and the National Coal Board should now be talking about the price of coal and not the whole business of a wage agreement within it. We believe that it is part of the union's responsibility to present to the country what it believes the price of coal should be. It has a shared responsibility in that. Therefore, our approach is to look at price first, then to achieve the various elements within the price, where they belong and where they can be negotiated.

We think that in this situation, because of its seriousness, there must be an almost revolutionary approach to the whole business of trying to save the situation by allowing wage negotiators a complete freedom, because we think that the wage negotiator also has a responsibility— which is to allocate the resources of the country in accordance with our criteria and our priorities, and not those of the normal price mechanism.

Mr. Daniel Awdry (Chippenham)

The hon. Gentleman keeps using the expressions, "We believe", "We think". Who are "we" in this context?

Mr. Lamont

On a point of order, Mr. Speaker. Have you any guidance to give hon. Members about the length of time they should speak?

Mr. Speaker

My guidance is that I hope that all speeches will be as short as they can be.

Mr. Atkinson

I am trying to be as brief as I can, Mr. Speaker, in setting out the case as I see it.

Mr. Lamont

Twenty-five minutes.

Mr. Atkinson

I believe that I am about to take the same amount of time as my hon. Friend the Member for Ash-field did. I think that is a reasonable proposition.

Mr. Speaker

I can help the hon. Gentleman. The hon. Member for Ash-field (Mr. Marquand) took 18 minutes.

Mr. Atkinson

I return to the question of the important matter of free wage bargaining against price maxima. In order to obtain the sort of policy we envisage, we see many aspects that need changing, and I was hoping to spell out one or two more illustrations dealing with some of these things being talked about —involving the food processes, for example. Perhaps that is for another time. I accept that perhaps this is not the time to have a serious discussion about some of these problems. Perhaps we should ignore them. But I notice, Mr. Speaker, that some of your strictures and those of others do not apply to hon. Members who seem to speak pretty frequently. This happens to be my first intervention in this Parliament. I cannot apologise to anyone for the time I am taking when I consider the amount of time which some hon. Members opposite take very frequently.

Mr. Speaker

Order. Perhaps I should explain to the hon. Gentleman that I have a list of about eight hon. Members on the Opposition side who wish to speak in the debate and who have not yet spoken in this Parliament either.

Mr. Atkinson

In that case, Mr. Speaker, I shall sit down and allow my case to rest, hoping that I have at least stirred the imagination of some hon. Members, or have alerted them to the fact that we are serious about our demands for changes in these three areas.

First, we believe that there is now an absolute necessity to go for a much greater degree of Government intervention in the economy, to go for as much planning as we can, particularly of a physical kind, to intervene physically in the economy, to try to reduce to a minimum the influence of the free market system, and to do so first of all in the whole area of investment.

Secondly, we believe that we must introduce a system of import controls in order that we can get the kind of balance that we require. Thirdly, we believe that we must start to reconstruct the whole business of price regulation in order that we can ensure a fair redistribution of the wealth we produce and —probably equally as important—ensure also that wage bargainers can freely negotiate against price ceilings, and by this means make a serious contribution towards bringing down the galloping inflation rate from which we suffer at the moment.

7.10 p.m.

Mr. John Biffen (Oswestry)

There is, in all parts of the House, a mood of deep apprehension about the current state of the economy and the inflationary prospects. As a result, almost every hon. Member has been prepared to regale us with a litany of disasters, either actual or impending. I thought that that mood was affronted by the manner in which the Chancellor responded to the speech of the Leader of the Opposition. Although the hon. Member for Tottenham (Mr. Atkinson) has drawn a handful of strictures from some of my hon. Friends, there will be widespread acquiescence with his point about the unsuitability of the way in which the Chancellor treated this debate.

In a situation of inflationary flux, when institutions come under question, we would be well advised to take account of what hon. Members like the hon. Member for Tottenham think, because he knows what he wants done in this situation. It is as well that those views, which are widely entertained in certain sections of the trade union movement, are also expressed and taken into account in this House.

I want to confine myself, partly because many hon. Members wish to speak on these occasions, to one aspect of the economy which is central to all our discourse and which was touched upon by my right hon. Friend the Leader of the Opposition—namely, the tremendous size of the public sector deficit, which, for the current year, has been running at £6,300 million, or, as I prefer to put it, at a rate of £2.50 per man, woman and child per week.

As this is a ranging shot of a debate before the Budget in March or April, we have to ask ourselves whether we dare contemplate that kind of deficit being perpetuated for a further year. The answer must be "No". It carries profound inflationary consequences. I was encouraged to see that the Financial Times, in an editorial on 16th December Now we are seeing supposedly tight monetary policies offset by indisputably weak fiscal ones. I shall turn further to that in a moment.

There is one particular reason for the deep anxiety about that deficit—not merely on account of its size but on account of one of the major means which has been used to finance it—namely, recourse to oriental capital. The anxiety is that that source—that vital contribution to the Chancellor's arithmetic—is politically precarious. There would be few in this House, certainly on these benches, who would not feel an uneasy instinct that, at some time in the next six months or so, there will be a preemptive strike by Israel as a means of protecting her position in the Middle East. I pass no judgment on the virtue or otherwise of such action by the Israelis, but this is a calculation which we have to take into account, because the consequences for this country and for its domestic financing arrangements would, in my view, be significant and severe indeed.

Second, if our domestic policies are being financed by borrowing from abroad on such a large scale, ultimately—I think in the not-too-distant future—the whole means becomes an affront to our sense of self-respect. If we are unable properly and adequately to finance what we wish to do from our own resources, we shall find, over time, that we put into pawn not merely our foreign policy but our domestic policy as well.

Therefore, there is a widespread belief, a widespread wish—not confined to these benches, I suspect—that the Chancellor should proceed with a stabilisation programme. If we are to make a con- structive contribution to this debate, we cannot leave these topics hung in mid-air, in cliché and generality. We have to be prepared to indicate just how we should like to see the Chancellor set about his stabilisation programme. Therefore, I do not apologise for the fact that I intend to indicate one or two areas where I believe that he should act as expeditiously as he can, although I realise that the Budget is probably the most appropriate occasion for such action.

First, I make no apology for recommending to the House again that there should be a speedy diminution in the size of the food subsidies bill.

Mr. Patrick Cormack (Staffordshire, South-West)

Hear, hear.

Mr. Biffen

I am glad to have the throaty agreement of my hon. Friend. I assure him that he is in distinguished company, because I read in "Redistribution: A Review of Progress", by Mr. John Mills on behalf of the Labour Economic, Finance and Taxation Association that The main danger from inflation is … that the Government may use the limited taxable capacity of the country to fight inflation with general subsidies That is a conclusion, coming from the Labour Party, with which, in this spirit of national unity we should all be happy to agree.

When we are looking for areas of retrenchment in public sector spending, few of us will agitate for further cuts in social service expenditure or education in the light of retrenchment already being undertaken at the behest of the previous Chancellor, now Lord Barber. Certainly my hon. Friends will not agitate for further cuts in defence expenditure. So we have to face some of the realities—and, in terms of expenditure, the overwhelming reality to which one is propelled is that underlined by the author of the pamphlet from which I have just quoted.

Confronted by so daunting a deficit, we should have to increase Excise duties. Again, in my anxiety to enlist support from various parts of the House, I have heard with approbation the remarks of the hon. Member for Meriden (Mr. Tomlinson) who also feels that this particularly non-buoyant tax should be increased. I believe that that is so, and I would go further. I do not believe that we can sensibly approach a significant diminution in the size of the public sector borrowing requirement without an increase in income tax.

There may be others who would prefer an increase in the value added tax. We can debate the advantages and disadvantages of whichever method is chosen, but one of the neglected parts of the Chancellor's speech in November was his hint that there would be a possible increase in income tax. I believe that it would be much better if we had a much clearer and more tangible idea of how the Chancellor wished to proceed in diminishing that enormous public sector borrowing requirement, because it cannot be done by stealth. The whole psychology of this policy will be undermined if the Chancellor believes that he can proceed without causing pain and hurt, for there will be a painful convalescence from the fever of inflation. I do not believe that there is any other way.

The quality of debate and the character of political decision are not assisted by the kind of remarks made by the Chief Secretary the other day, when he accused some of my hon. Friends of relishing certain levels of unemployment. My hon. Friend the Member for Blaby (Mr. Lawson) quite rightly objected to the debate being conducted in those terms. For what we ought to be doing, not in any concocted form of political national unity but out of a wider regard for what advantages one can seize from this fairly unhappy situation, is to see whether, as we return to reality, we can proceed to public debate which will be more happily conducted and more firmly rooted for the future than it has been in the past.

Heaven knows, it does not lie easily on my tongue to be an advocate of increased taxation, but that is what is immediately obliged by the present situation. I believe that once appropriate and honest levels of taxation are being levied there will be a much wider questioning of the vaulting ambitions of the Government. My right hon. Friend the Member for Taunton (Mr. du Cann) gave a very robust exposition of the virtues of free enterprise. Again, I should like to turn to Mr. Mills, the author of the Labour pamphlet to which I have already referred. In one of his conclusions he says: As personal taxation in Britain is already high there is therefore a strong presupposition that any increase in government income and expenditure will be regressive. In these circumstances the proposition that increased public expenditure has a general tendency to lead to a more equal society is a dangerous fallacy. Therefore, I hope that out of our present agonies we can proceed to a situation in which political debate can be about the size of public sector spending, how the revenues are raised, and to what purposes they are put. That would be a valuable and constructive area of dissent and would contrast very favourably with so much of our recent sterile political argumentation over the lines of economic growth and the virtues of size.

But there is a second advantage which can be gained from our present unhappy situation. That is that as public sector finance is freed from overseas borrowing, so we have a chance for a restoration of self-respect, which is the indispensable prelude to a restoration of national self-confidence. For I truly believe that we are mesmerised by fear. I think that the impact of inflation brings about precisely the situation which was outlined by the hon. Member for Ashfield (Mr. Marquand), in which there is one level of perception in the House and among opinion formers, perhaps, of deep anxiety, and one of profound apathy on the part of the general public.

But it is an extraordinary condemnation of us and of this institution if we have been unable to convey to those whom we serve what are the underlying realities of our situation. I believe that the English sickness, if such there is, is centred at Westminster more than anywhere else, for I believe that we demonstrate all too little faith in our own institutions and that we show all too little confidence in the innate manufacturing skills and commercial arts of those whom we are privileged to represent.

I hope that from the analysis I have made and from the course of action I have suggested—which makes this contribution, perhaps, a little more distinctive than some others—we can proceed to this happier situation. I say to my hon. Friends, and particularly to those from England, that if we cannot recreate a sense of patriotism and a sense of success in the United Kingdom, the union itself will be at risk. I do not say that light-heartedly in the presence of the hon. Member for Banff (Mr. Watt) and his hon. Friend the Member for Western Isles (Mr. Stewart).

I have no doubt that the more that we reflect on our own shortcomings and fears, the more may people in some component parts of the United Kingdom think that they can restore to themselves the traditions of nationhood. That will be part of a wider debate to which the House must attend no less than to economics. For the question of the union will not be resolved entirely in terms of economics. That is why, in the extrication of ourselves from our present dilemmas, the language of economics is not enough. I hope, therefore, that in the time that is available, which is short, a sense of meaningful patriotism and direction will be injected into our economic policy.

7.26 p.m.

Mr. Donald Stewart (Western Isles)

I was greatly impressed by the realism in the concluding remarks of the hon. Member for Oswestry (Mr. Biffen). If I may say so, as a Scot, it is something which English Members ought to regard very seriously.

The problem of the United Kingdom is a problem largely confined to England. However, four nations are concerned in the United Kingdom at present, and we must face the facts as they are. When my hon. Friends and I advocate that Scotland should have self-government, we do so not arguing that we ought to leave a sinking ship. We of the Scottish National Party argued this case in the days before we knew that there was a single spoonful of oil under the North Sea, and in the days when England was a prosperous country and when Scotland and Wales were apparently poor countries. We advocated this purely on the ground of nationhood—the ground which the hon. Member for Oswestry said ought to be applied to England as well.

As I listened to the Leader of the Opposition and to the Prime Minister today I could not help thinking that whatever the country was short of, it was not short of cliches. The argument almost induced me to fall into the trap of talking about pots calling kettles black, people in glasshouses not throwing stones, chickens coming home to roost, and all the rest. As has been mentioned in the debate, the country is fed up with the Conservative Party and the Labour Party trying to establish which bears the greater blame in this situation.

Is the country in danger of imminent collapse? The Government must come clean about that and tell the people. We sometimes hear scare stories before a Budget to the effect that a great tightening of the belt is due, but we then find—as with the last Budget—that the Budget is largely an anti-climax. The most serious aspect of the last Budget was the incerase in the price of petrol by about 10p a gallon. That is serious enough in many places, but it can hardly be described as a national crisis.

The Leader of the Opposition today asked the Government to tell the truth. I certainly back that request. However, I remember that less than a year ago, when the first signs of the economic catastrophe —if that is what it is—were on the horizon, the right hon. Gentleman was assuring hon. Members that the problems we were facing were the problems of success. The request to tell the truth, therefore, should apply right across the board.

The Government ought to take fundamental measures to ensure that agriculture is put on a sound footing. If there are hard times ahead—and I believe there are—any country that can feed its own people by means of its agriculture industry will be in a strong position.. The same applies to the fishing industry. I do not propose to go into details, because of lack of time, but both these industries are in need of help, and the Government should help, for the sake of those industries, the people in them, and the contribution made by those industries to the country's larder.

The problem of the Scottish steel industry is now coming to a head. When the industry was nationalised on a British basis many of us forecast that it would mean doom for the industry in Scotland. We had no great feelings one way or the other on the question whether the industry should be nationalised or should continue under private enterprise, but we were certain—we are now seeing it proved —that the nationalisation of the industry on a British basis was the signing of its death warrant.

The Benson Report made clear that the Scottish steel industry was a separate entity, and since the British Steel Corporation adopted that report as its basic philosophy we should have gone all the way and kept the Scottish steel industry separate. The Scottish people are becoming aware of the plans to destroy the industry in Scotland—the proposals cannot be described in any other way. I warn the Government that if the proposals are permitted to go ahead there will be a whirlwind against which the row over teachers' pay and such things will appear merely as minor inconveniences.

The British Steel Corporation has an option on the land at Hunterston. Many of us believe that the corporation is holding that land for the purpose of what I would call sterilising it and keeping out any further developments. The Government should face the BSC with an ultimatum that it must produce plans for the development at Hunterston or let the land free for others to develop.

I shall now list the action that I think is needed. First, the Government should put the facts plainly before the people and should then end divisive measures. I do not say that a Government elected on a Labour or Socialist philosophy has no right to introduce Labour or Socialist policies; or course they have. But there are certain proposals that are divisive apart from their political content. I have in mind, for instance, the proposal to increase the cost of the national insurance stamp for the self-employed. Many self-employed people are fairly affluent, but many others are not. This seems to me to be a totally irrational and vicious proposal, and an indirect and dishonest way of collecting more income tax.

We should also have genuine cuts in defence—not the kind of charade we had on Monday night. I do not believe that the country would be one whit more at risk if substantial cuts were made in the defence programme. Most of the defence projects are a conspicuous waste, and add nothing whatever to the defence of the United Kingdom.

The Government should also take a look at overseas aid. I am in favour of overseas aid, but it ought to be on a selective basis. For instance, the Indian Government, despite the fact that there are millions of starving people in that country, have constructed a sophisticated bomb and are now in the big boys' league. I suggest that the Government should cut off overseas aid to India. If India, with its starving population, can afford to waste money on something as wicked at a bomb, we should ignore its begging bowl when it is held in front of us.

There should also be improvements in industrial relations. I know that it is easy to say this, but with the country in its present position more effort should be made in this respect by both sides. We have heard a lot about industrial strife in Scotland recently. Incidentally, it was curious how indifferent the Government in London were regarding this. One would almost have thought that Scottish government had arrived and that the Government in London had nothing whatever to do with the matter. There was no invitation to trade union leaders, or strikers, to have beer and sandwiches at Downing Street at midnight. It seemed to be a problem in which the London Government were not at all involved.

We should have some regard for the facts behind the claims made by people in industry. There are many substantial claims. We hear of the miners asking for an extra £30 a week. I believe that the miners have more right to a decent wage than most people, but if they get wages of the sort they are seeking they must realise that it will mean the cost of a bag of coal going up to perhap £1.50 or £2, and this will particularly hit old-age pensioners. I do not want to single out the miners. The effects of wage increases cannot be confined to particular industries. They spread throughout the economy.

The Government should say whether, in fact, we have a crisis and, if that is the case, they should get down to the measures needed to put the position right.

Mr. Deputy Speaker (Sir Myer Galpern)

I remind the House that there are still 19 hon. Members anxious to take part in the debate. I do not know how these Members can be accommodated, but I am sure that hon. Members do.

7.36 p.m.

Mr. Ian Gow (Eastbourne)

Despite some appearances to the contrary, the crisis facing Britain today is real. It was spelt out with unusual uniformity by the three main parties at the General Election. It has been recognised, almost ad nauseam, in all parts of the House. It is the constant refrain of the Prime Minister, of the Chancellor of the Exchequer and of my right hon. Friend the Leader of the Opposition, and yet those who sent us here have hardly begun to understand the gravity of the peril which we face.

For this I do not blame mainly, or even exclusively, the Government. The responsibility for the nation's well-being rests primarily with Parliament, by whose leave alone the Queen's Government can be carried on and which is still, in all the matters which we are debating today, sovereign and supreme. It is not open to any hon. Member of the House, just because he happens to sit on this side, to wring his hands and say, "My party is not in power. What can I do about it?" We are all in this together. That is why I want to start my speech by explaining what seems to me to be a fundamental unity shared, I would think, by almost every Member of the House.

Hon. Gentlemen opposite attach, rightly, great importance to their manifesto. On inflation their last manifesto said: Britain faces its most dangerous crisis since the war. The first priority must be a determined attack on inflation. The manifesto of my party was in almost identical terms: The dangers now facing Britain are greater than any we have seen since the last war. Everything else is secondary to the battle against inflation and to helping those who have been wounded in it. The Liberal Party manifesto stated: The Government which takes office after the Election will face the greatest peace time crisis we have known since the dark days of 1931. This Election is being fought against the threat of economic disaster. The quotations are interchangeable. Any of them might have appeared in either of the manifestos of the other two parties. More than 93 per cent. of those who voted at the last election supported candidates of parties which were warning of imminent peril, but the warnings were simply not believed and are not believed to this day.

There are three main reasons for this phenomenon. First, inflation is not as deadly as the bullet and the bomb. The present crisis has been compared with the last war. Then, at least, the enemy was readily identifiable. He could be seen, heard and felt. By comparison, at least for the majority—and certainly not for the time being—inflation seems to be an abstract enemy, and to some a positive ally.

Second, we politicians have for too long been the handmaid, or even the midwife, of inflation. For us to condemn inflation is too like Satan rebuking sin.

Third—the most important factor of all, I believe—the people have come to learn, and too often with good reason, not to believe what politicians say.

So much for the diagnosis. Is there a cure? The medical analogy is not false. It is neither kind nor conducive to recovery to say to a man desperately ill, "Do not worry, old boy. A couple of Alka-Seltzers, and you will be feeling better in the morning". There are some grave illnesses which require prolonged treatment and on which there is a genuine difference of view among experts as to the treatment necessary and as to the timing of a change to a new prescription, but there would be agreement among all doctors on two points at least, that the object is to achieve a return to full health and vigour, and that the psychological will of the patient to recover is of enormous importance.

I take those two objectives in reverse order. The current psychology of winning the battle against inflation and restoring national solvency and self-respect is all wrong. Again, I do not blame the Government alone, or even mainly, for that. We on this side of the House, wherever we sit, must accept our fair share of the responsibility. But if we are to convince others of the need to take the crisis seriously, we must take it seriously and be seen to take it seriously ourselves.

In 1951, when the economic crisis, by common consent, was infinitely less grave than our crisis today, the then Prime Minister announced cuts in ministerial salaries. Almost exactly 23 years ago, speaking from that Dispatch Box, he said: We have thought it right to make certain reductions in ministerial salaries. They are not intended as a reproach upon the party opposite, but only as a signal which may be helpful for all… The reductions are intended to mark the emergency character of the period upon which we have entered. …"—[OFFICIAL REPORT, 6th November 1951; Vol. 493, c. 70.] I underline the words, a signal which may be helpful for all … to mark the emergency character of the period upon which we have entered. That example should be followed now. There should be a 5 per cent. cut not just in ministerial salaries but in the salaries of Members of Parliament. The money saved would be the proverbial drop in the ocean, but the effect on morale and public confidence in the will of Parliament to set a lead would be profound.

The second psychological factor which we have neglected is the need to save energy. The measures announced by the Secretary of State on 9th December were nothing like severe enough. We should make a start by reducing the lighting and heating in this place and in the other place. The maximum heating level of 68 deg F in non-residential accommodation is far too high. It should be reduced by at least 10 per cent. Ministers and others should use "mini" rather than "maxi" cars.

So much for the psychology. I turn now to the medicine. It needs to be administered at once. We are living far beyond our means. We have been accustomed to be told that there will be no increase in our standard of living for the next two or three years. It would be nearer the truth to say that, while the Government have a special duty to protect the least well off sections of society, most of the rest of us will have a real reduction in our standard of living over the next few years.

In his Budget statement last month, the Chancellor of the Exchequer said that he regarded the public sector borrowing requirement of £6.300 million as being a disturbingly large figure which one would never accept in normal circumstances".— [OFFICIAL REPORT, I2th November 1974; Vol 881, c. 279.] The Chancellor of the Duchy of Lancaster, in the Budget debate, spoke of an "astronomical balance of payments deficit" and of the need to run our own affairs in ways which do not discredit us abroad."—[OFFICIAL REPORT, 14th November 1974; Vol. 881, c. 600.] Since then we have learned that inflation is running at an annual rate of 21 per cent., with the prospect of an even higher rate next year.

We cannot go on as we are. In the short term, we must bend the curve of public expenditure downwards, and that of taxation, especially on non-essentials and on imported luxuries, upwards. We must resist the temptation, to which, I am afraid, the previous Conservative Government succumbed, to allow the money supply to expand faster than real growth will allow. We must secure a genuine and substantial switch of resources from domestic consumption into savings and into exports. The saver and not the spender must be encouraged. We must accelerate the process of removing subsidy from the nationalised industries.

These policies will be painful and unpopular, but the pain and unpopularity will be far less than if we continue as we are, hiding the harsh truth of economic reality from the British people and creating an ever-rising mountain of domestic and foreign debt.

National recovery cannot be achieved without the support of Parliament as a whole. I do not believe that this Government as at present constituted can overcome the crisis on their own, any more than Mr. Chamberlain's Government in 1940 could overcome that crisis. The pressure of events will soon require a more broadly based administration. The title of that administration whether coalition or national is unimportant. What matters is that it should, over a period of two or three years, follow an agreed stabilisation programme with the broad assent of the majority of the House.

Some seem to think that the mere existence of a national or coalition Government could of itself solve our problems. That is a cruel deception. Such a Government could succeed only if it were to persevere fearlessly and with an iron resolve with the policies which most of us recognise to be essential. If from this Parliament such a Government were to emerge, it would render as great a service to our country as was done by the last national Government. A new administration is inevitable. The sooner it comes the better.

7.48 p.m.

Dr. Jeremy Bray (Motherwell and Wishaw)

No doubt due to a change in the occupancy of the Chair, there have been three speeches in a row from the Opposition benches. I had wished to have the opportunity to speak directly after the hon. Member for Western Isles (Mr. Stewart), not to take up his debating argument extensively but to answer his comments on the Scottish steel industry.

Some of us have been acting on this matter instead of merely talking about it. The hon. Gentleman will be glad to hear that the Lanarkshire works this afternoon had another 1,000 tons a week added to its rolling programme, and it is to maintain 15-shift operation instead of reducing to 10 shifts in the new year. It is that kind of action which we shall continue to see from the Labour Government in Scotland, looking after the true interests of the Scottish steel industry.

Mr. Douglas Crawford (Perth and East Perthshire)

Will the hon. Gentleman agree with his right hon. Friend the Secretary of State for Industry that a Scottish steel corporation should not be set up, or does he think that a Scottish steel corporation should be set up?

Dr. Bray

That is wandering somewhat from the substance of the debate. What I am sure of is that the Scottish steel industry should be able to pursue policies aimed at the expansion of employment in Scotland and the meeting of full demands from the Scottish engineering industry.

We have a grave subject for debate today, and I return now to the starting point this afternoon when the right hon. Gentleman the Leader of the Opposition repeated his accusation against the Government of not telling the truth. Like, no doubt, George Washington's mother he has repeated this injunction several times and this time he specified that he wanted the truth on inflation and the truth on unemployment. I have scanned the Press releases on unemployment, inflation, the trade figures, wage rates and earnings to see whether there is any way in which the Government have been suborning the statisticians, in which they have been interfering with comment and interpretation by officials on this vital data on which our understanding of the situation is based. I have found absolutely no evidence to support that suggestion.

The Leader of the Opposition is running the grave danger of undermining the public's belief in the integrity of the information provided by the Government statisticians, so that in the vital matters of wage negotiation with which my right hon. Friend the Secretary of State for Employment is so concerned they are misled by the Opposition Front Bench into an utterly misconceived interpretation of the true position.

In delving back through the Press releases I came across those which related to the trade figures for 1973. Here one understands the difficulties of interpretation. The right hon. Member for Worcester (Mr. Walker) had an engaging habit of instant comment—not to replace the civil servants, I am glad to say, because the Conservative Government allowed their officials to comment on the figures. But the right hon. Gentleman always jumped in with his comment. There was an appalling figure for March last year with a deficit of £205 million on the visible balance. When in April the deficit had shrunk to £45 million the right hon. Gentleman said The April trade figures are excellent. I only wish that those who were predicting gloom on last month's trade figures will begin to realise that Britain's economic expansion is at last becoming export based. That was the right hon. Gentleman speaking in the middle of May.

When the May trade figures were published the deficit on the visible balance had risen to £209 million and the import bill by a further £120 million. But not to be outdone the right hon. Gentleman said: A comparison of the export figures for the first five months of this year with those of the same period of 1972 highlights the fine performance of our exporters. There is an ever-increasing volume of raw materials, industrial materials and machinery coming into this country.… It is clear evidence that the expansion of the economy is continuing on a sound basis. The deficit on the visible balance that month was £138 million. The right hon. Gentleman made no comment in the ensuing months as the deficit rose to £135 million, £158 million, £196 million, £364 million, £278 million and £330 million.

There was no comment on the trade figures but there were Press releases on export opportunties in Germany, small firms, Sherlock Holme's dog, company law reform and "A super department— does it work?".

In September the right hon. Gentleman found himself in Tokyo where he said, Many congratulations to Britain's exporters. That month the deficit was £196 million. There were no further comments until 1st February 1974, the middle of the three-day week period, when, speaking at Davos in Switzerland, he said, What a fascinating and challenging period the last quarter of this century is going to be. There is a grave danger of the mood of this House and the country polarising itself on the one hand into the" hair-shirt brigade"—we have heard some of my hon. Friends speaking along these lines today—and on the other hand the "soft-head brigade", and we have perhaps heard some of those, too. The difficulty about this is that the hair-shirt brigade might very well find the Chancellor giving us increases in personal allowances for income tax in the Budget within a few months because of fiscal drag. One of the ironies of inflation is that in order to keep up with it there have to be tax cuts. The hon. Member for Oswestry (Mr. Biffen) is always worth listening to. He may talk about tax increases without advocating unemployment, but by crikey he would give us unemployment in a very big way.

The fact is that we are in for a very high rate of inflation for a number of years. That rate may increase or fall, but the realistic attitude of this House must be to consider how we cope with it. Take, first, the question of the practicality of operating on the relationship between prices and incomes. Prices will increase substantially with the increases now on the way from nationalised industries, increases in rates and rents and undoubtedly with some restoration of profit margins. This means that there are going to be, if we are to avoid appalling levels of unemployment, substantial wage increases also. The Government have been scrupulous in their revelation of the true position. They have made available the full story of the way in which the Treasury looks at the economy, and details of the Treasury's macro-economic model so that people may study for themselves the relations between wages and prices.

It is quite clear that average earnings are primarily a reaction to the retail price index. The actual relationship is in terms of half the effect coming through in the first half-year, four-fifths in the first year and the balance of the effect in the second year. On the other hand price increases are determined by a wider range of considerations—certainly by wages, but also by changes in import prices, taxes, subsidies and profits. There are now very big movements in these last four, and keeping a delicate balance between the movements of prices and earnings should be what concerns the House today.

I take the view that a statutory policy, whether based on a sophisticated indexing system or any other system, can only exacerbate the situation. This point needs to be argued objectively and there is a good hard-headed case to be made against a statutory policy. But we need reinforcements in the way in which that fine balance can be kept. I would prefer to see some means of adjusting in the fairly short-term the level of taxes on income or of national insurance contributions so that the balance could be sufficiently finely adjusted to assure people both of full employment and of a reasonable maintenance of their standard of living.

The effect of fiscal drag is that we are going to have to make continued increases in personal allowances, and effectively that means continued cuts in the rates of tax that people would otherwise pay. Can we not find a means by which such cuts can be made quickly, instead of having the long drag of the Budgets and the adjustments of PAYE?

We need a quick-acting system of tax holidays or national insurance contribution holidays announced at the end of each quarter, to be applied in the following quarter, so that the level of real spending power in the nation is guaranteed. That system would be redistributive towards the lower-earners. A flat-rate tax remission, or reduction of national insurance contributions, would be highly favourable in its distribution to low-paid workers. I do not press that particular method but let us find some way of achieving the objective.

The second way in which we must look for a means to bring about that fine adjustment between the movement of the total of incomes and prices is to consider what we want to make happen in the economy. There is no doubt that major increases in exports and investment are required.

We have at present a low pressure of demand, which on present indications is likely to fall, so we shall see investment falling next year, and probably slow to respond when demand does increase.

Mr. Hamish Watt (Banff)


Dr. Bray

I have already given way to one of the hon. Friends of the hon. Member for Banff (Mr. Watt). I am anxious to let other hon. Members speak.

We shall not have the increase in capacity that we require over the next two or three years merely by the voluntary investment activities of private enterprise. The only practicable way is by a substantial investment in public enterprise or by investment of public money in private enterprise. It must be in those areas of industry where there is potential demand. Heavy engineering and steel in Scotland are examples of such industries. There are shortages of certain kinds of steel. We want to make sure that the development areas as a whole share in the investment. The only way in which that can happen is by public intervention.

I hope that we shall soon be having consultative documents on the Scottish Development Agency and the National Enterprise Board. I hope that the board will be set going quickly, as a major contribution to the macro-economic balance in this country, and not merely as window dressing in nominal fulfilment of an election manifesto.

If we are to live with inflation, we must find a practical way to cope with the balance between the short-term and longer-term uses of money. The most obvious example is in housing. I do not wish to speak of the public sector housing finance problems, because we have debated the matter recently and shall do so again. But in considering the mortgage market and building activity in the private housing sector we should seriously examine the real value mortgage system. I am puzzled, because Conservative Members, with all their City connections, have failed to pursue the constructive developments needed in some of the most fuddy-duddy sections of the City, where a bit of enterprise, although it would not bring direct financial gain to those in the City, would be of great value to the country.

With a real value mortgage system, the burden of repayments in the early years of the mortgage is eased. It is spread into the later years, when the chances are that incomes will have reflated, and there will be a possibility of repaying faster. The mortgage can be adjusted year by year. There is an interesting article on the system in the National Institute Economic Review. Others seem to have flagged in their reading of that much-discussed journal before reaching that article.

Underlying the discussion in the House and the country is a fear of what is happening at the grass roots. My children, and many of your constituents' children, Mr. Deputy Speaker, have been at school for only two days this week. There is a degree of unease and unrest in the country which can easily get out of hand. It will get out of hand if the Government lose their head and listen to some of the advice they have been given by the Opposition.

Terrible things could happen as a result of the withdrawal of Arab oil money now in this country. But there are vast resources for recycling, without the participation of the Arabs, if need be, by the countries which control the other currencies in which the Arabs would necessarily then have to hold their funds. But what no one can do is to force the people of this country to accept income distribution, uncertainty, hazards in their working lives and fears of unemployment. If the people are forced into action, the danger is of a breakdown in our civil structure.

I am confident that my right hon. Friend the Secretary of State for Employment and his colleagues in the Cabinet will hold fast to the course they have set themselves. I believe that they will do so after the soundest and most objective analysis of the needs of the country in the present situation.

8.6 p.m.

Mr. Ralph Howell (Norfolk, North)

The whole House will agree that we face an economic crisis of great proportions. I fully agreed with the hon. Member for Motherwell and Wishaw (Dr. Bray) that it is not just an economic problem but a danger confronting every aspect of our national life.

We should not allow ourselves to be deceived into thinking that the crisis has been brought about largely by the huge increase in the price of oil. Other countries have to cope with it. We see that the West Germans, for example, have the lowest inflation rate in the EEC, at about 7 per cent., while we are grappling with 20 per cent.

The trouble we face is not the fault of one Government but of all Governments in recent years. We have failed to face reality. In the main, the fault is that of the system we have been operating. The country is weighed down by misguided welfare and smothered with subsidy, so much so that we are completely divorced from reality.

Fifteen years ago the then Prime Minister said that we had never had it so good. Looking back, I think that that was very true. Since then we have had it too good. We have been living beyond our means to a tremendous extent.

What shall we do? The two main questions we should ask ourselves are: "Why are we in this predicament?" and "How shall we get out of it?"

The main reason why we are in our present position is the combination of our tax system and our welfare system, which results in almost every person—certainly every married person, whether or not he has children—being as well off out of work as in work for about three months of the year. This creates a ridiculous situation in which people feel that jobs are not important, and it is virtually impossible for managers to manage.

Mr. Ray Carter (Birmingham, Northfield)

Is the hon. Gentleman aware that Germany, the land of economic prosperity, with an inflation of 7 per cent., has a system of welfare benefits much better than ours? Why is it that Germany, with such benefits, can achieve economic prosperity, yet we, with our benefits, apparently cannot?

Mr. Howell

In Germany there is no PAYE system. No person in Germany can be better off out of work than in work. First, in this country, people can be as much as £9 a week better off in the first 12 or 13 weeks of unemployment than they would be if they were in work. This causes irresponsibility at work.

Secondly, we insist on paying social security benefits to strikers. No other country does that. No other country has a worse record than ours in strikes and wildcat strikes which cause so much damage and disruption to industry. It is in the interests of any Government to alter this situation. A mistake was made in 1966 and it should have been corrected long ago.

Thirdly, we insist on using false unemployment figures and on believing that we have an unemployment problem. We have no unemployment problem. There is still a shortage of labour. We deceive ourselves in believing that the figures for unemployment and for vacancies are correct. The Ministry of Labour admits that it records only 25 per cent. of the vacancies.

Fourthly—and perhaps this is the most serious point—since 1960 and the days when we never had it so good 1 million more people are working in local government, and 500,000 people—teachers, cleaners, canteen workers, and so on—are working in education. We cannot afford to go on at this rate. More than 1 million people who might have been working in productive industry are working in service industries. The load remaining on those in production is too great and it is dragging us all down.

There is only one way in which we shall get out of our economic difficulties, and that is by sheer hard work and by creating conditions in which it pays to work. We must alter our tax system. It is all very well for hon. Members opposite to talk as if this is some way-out Tory thinking. Many people who vote Labour agree entirely with the view I am putting forward. Many people are heartily sick of seeing people who are out of work better off than they are.

If we are to remedy the flaws in our PAYE system, which could be done simply by one small clause in the Finance Bill, and if we were to make all short-term benefits taxable, not only would we save the rest of the tax-paying public about £200 million a year but we would create an incentive to work and people who were working regularly and consistently would be happier in their work.

There is only one difference between this country and Germany and one reason why Germany's performance is so much better than ours. Germany has created incentives to work, and the Germans are keeping themselves out of trouble merely by working much more sensibly than we are.

8.14 p.m.

Mr. Eric Moomnan (Basildon)

I hope that the hon. Member for Norfolk, North (Mr. Howell) will forgive me if I do not follow him down the road he has taken. It is useful to compare the practices of other countries with those of this country, but in this debate—and it has been a very good debate—hon. Members have dealt with the strengths and weaknesses of our society, and I should have thought that that was a sufficient brief to keep most of us busy until 10 o'clock.

I would like to correct my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) who said that some Members had struck an optimistic note and others a pessimistic note. It is wrong: every speaker has referred to the seriousness of the economic position. Indeed, the right hon. Member for Taunton (Mr. du Cann) said that he was glad to see the back of 1974. I am, too.

My hon. Friend the Member for Tottenham (Mr. Atkinson) referred to the question of public ownership. He made it the centre of the stage for his remedies. He attributes too much to the impact of public ownership. I agree with him about what is required in establishing our basic industries for the national good, but we must recognise that there are operational problems about implementing such major decisions. We should try and make effective the communication, operational and managerial aspects of the public sector as a first priority. We need to get the debate on public ownership into perspective. It is only one of the options open to this Government.

The fact that my right hon. Friend the Secretary of State for Employment is to wind up the debate illustrates perhaps the bizarre nature of any debate on economic affairs in this House. It is a wide- ranging analysis which takes into account his Department, but also the Department of Industry—yet we have not had the Secretary of State for Trade represented here. The discussion has taken into account the Treasury and the way in which the social contract—that is, the Department of Employment—will tackle some of the problems, but I am concerned that we have heard no voice from the Department of Industry. Perhaps that will be taken into account in the winding-up speech.

I can ignore that part of my script which merely confirms what other hon. Members have said about the gloomy state of the economy. Last week struck an all-time low. There was a slump in exports. Wholesale prices had increased by 28 per cent. in 12 months and are still accelerating. The pound reached a startling position. Some of the factors which make up the present depressing situation are outside our control. Nevertheless, it is useful to consider what we can do to influence matters in areas within our control.

The House must welcome the efforts of the Chancellor of the Exchequer towards producing a workable scheme for the recycling of the Arab oil surpluses which will take the pressure off the world's banking system and aid countries, in particular the developing countries, which have been hardest hit by rocketing oil prices. We must welcome the German Chancellor's announcement that Germany will not adopt a protective attitude in dealing with its economic problems but will take reflationary measures. I hope that the United States will follow suit and thus avoid the dangers and probable disasters inherent in a trade war.

I am not an economist and I do not intend to pursue economic arguments. I am interested in two matters—one, the way in which we manage the economy, and the other, the role of the ordinary people, for it is people who will ultimately decide the economic battle. In my constituency, and I am sure throughout the country, people are saying, "If things are so bad, how can we help?". They have been answered with exhortations about the social contract, and they have been told how they can save energy. Perhaps the statement by the Secretary of State for Energy last week did not go far enough. Plainly there is more to come.

The social contract, or, to be more accurate, the social compact, because it contains no legal sanctions—my right hon. Friend the Secretary of State will agree with that; there are no signatures and there is no other binding formality about it—holds the key to winning the battle. It would be a foolish hon. Member—even a Member as distinguished as the Leader of the Opposition—who would suggest that if we cannot make the social contract, or compact, work there are many other options open to us. This fragile instrument of the compact offers a new approach to Government by consent, valid for hard times as well as for good times, provided we put some effort into making it work instead of merely paying lip-service to its existence.

The strengths are worth mentioning. The Government's recognition of the power and importance of the trade unions and the workers they represent derives from their contribution to the economy and our need for their labour. We cannot shut our eyes to that. Hon. Gentlemen opposite might say that if we shut our eyes to them the unions will go away and we can legislate them out of existence. That was not on a few years ago, and it is not on now.

The second strength of the social contract is the way in which trade unions have grasped the opportunity to exercise not so much power but responsibility. The 8 point guidelines prepared by the TUC for wage negotiations and the concern for the interests of the weaker membership are positive benefits.

The third strength is the flexibility of the social compact. Anyone who has anything to do with industry knows that the hour-by-hour and day-by-day problems of the shop floor will never be solved until management and men meet to try to solve them.

Perhaps there is one word of optimism. Reference has been made to the report of the National Institute of Economic and Social Research which seems to have become essential reading, to many hon. Members. That report said that the rate of inflation is in principle and up to a point within British control. In August we took the view that the social compact should be given a year's trial to prove itself, notwithstanding our doubts about it. If there are strengths in the social compact there are also weaknesses. It would be foolish not to emphasise what they are.

I have spoken previously of the failure of some workers to realise for the time being what the social compact means in terms of wage restraint. Last week Len Murray pointed out the problems that would arise from the NUM claim for a £30-a-week increase. Failure of the social compact jeopardises every other aspect, for example, the Government's commitment to maintain full employment and the level of social security benefits. But the risks of settlements above the level at which inflation is fired must be taken in the interests of the economy as a whole.

One of the greatest weaknesses of the social compact lies in the number of people who feel themselves to be excluded from it. Those people include most wives and mothers who have to cope with the effects of inflation and who have to live on a day-to-day basis. A couple of years ago, a magazine suggested that it is easier for busy mothers to shop weekly, but they cannot because of the pressure on their purse. They have to do their shopping on a day-today basis. They, and many others who, because of the circumstances in which they work, are not members of a trade union or a political party, feel that the social compact does not concern them. I suggest to my right hon. Friend that the fact that they feel in this way should concern him. It is to the senior members of the Government that the public look for a lead.

Those people may receive some benefits from the social compact in terms of an increase in the social services, and so on, but we must be more specific. The social compact has been running for a few months now and I would urge that in 1975 the Government should take the opportunity to explain the obligations of the social compact for the widest possible public.

Management also feels excluded from the social compact. For the sake of the health of industry, management must be brought in. The suggestion that the CBI might be included in the social compact was greeted with some derision. That may be, but if we require advice on industrial matters it is usual to consult the TUC and CBI. We must talk to management on a wider basis.

The British Institute of Management, the central body of management which was set up many years ago by Sir Stafford Cripps, has a membership of 47,000 managers. There are many, many more managers who would like to know what they can do to help with this idea of the social compact. It should not be beyond the wit and intelligence of Government to devise a formula. My hon. Friend the Member for Tottenham suggested a link between the social compact and the planning agreements. Certainly management could be encouraged through the agreements.

If we want to make this aspect of the economy work we must accept that there are three parties to the social compact, not just two. The Government must set up formal communications structures. Most of the communications about the social compact seem to be made in public speeches to third parties. If the compact is to become a contract the parties to it must be made to state economic as well as social objectives for their policies.

Incidentally, Norway has had an interesting experience of a social compact over several years. Norway has not tried to isolate groups of people, nor has it assumed that other people in the community know what is going on.

Another factor associated with the economy is confidence within industry. There has been too long a gap between the publication of "The Regeneration of British Industry" and the present. There has been no follow-up statement. I hope that soon after the Christmas Recess information will be published on how the voluntary planning agreements will operate. Many of us are disappointed not to have had the detailed statements that must accompany the planning agreements.

The Department of Industry should also be showing positive interest in the small and medium-sized firms. It is wrong that such companies feel that there is a "Labour" Government attitude which makes their work more difficult. In short, we have to start convincing people. We have to become more credible, of course. Many of these problems can be looked at on an international level. We should look at the macrostructure as was sug- gested by my hon. Friend the Member for Motherwell and Wishaw.

Yet when we come down to it, we have to make people feel that Labour not only cares about the way companies take decisions but has the wit and intelligence to help them to achieve their objectives.

Several Hon. Members


Mr. Deputy Speaker

I remind hon. Members that the wind-up speeches are due to begin at 9 o'clock.

8.28 p.m.

Mr. Norman Lamont (Kingston-upon-Thames)

In his speech the Chancellor of the Exchequer made a rather unkind reference to the fat boy in "Pickwick Papers". All I can remember about him is that he was described as beaming benevolence in one eye and calculation in the other. That is quite a good description of the Chancellor's slightly schizophrenic attitude. On the one hand, he tries to be reassuring and suggests that we may be facing difficulties but there is no possibility of a catastrophe and, on the other, he tells us that we face the most serious crisis since the 1930s.

Perhaps that is why people come up to me and ask, "When will the crash happen?". One has difficulty in persuading people that we may now be in the middle of the most serious crisis the country has experienced for many years. As one journalist argued recently, it is rather like the academic dispute about the origin of the universe, between those who believe it began with a big bang and those who believe in the static state theory. There will not come a precise moment when everyone will say, "This is it, this is Armageddon day". If we go on as we are, we shall see a gradual continuing deterioration which will become more and more serious.

Last week I visited the Turner Exhibition, at the Royal Academy. I noticed a large number of Turner sketches of the burning of the House of Commons. I saw sketches which appeared to have been drawn after successive glasses of port, with more and more intensive flames, brighter and brighter colours surrounding the Chamber, and flames going higher and higher. When that great event occurred during the life of Turner, his immediate reaction, on hearing that Parliament was burning, was to rush out into the street and begin to paint the scene. I feel that today if, God forbid, this Chamber were to go up in flames, that would be the immediate reaction of most people. We do not produce Turners today, alas, but people would appear on the scene with imported Japanese cameras and take pictures. I do not think they would consider that this was the disappearance of an institution which had protected them in the way in which they ought to have been protected.

In past debates on the economy it has been usual to chronicle the miscalculations in economic judgment that the Government have made during previous months. If one wanted to do so again there would be no lack of opportunity. We can cast our minds back to the first Budget in March, when the Chancellor set himself the objective of reducing the Budget deficit, which was then thought to be skyscrapingly high at just over £3 billion. In that Budget he put the great squeeze on corporate liquidity, despite the fact that very strong representations and very firm predictions were made to him about what would happen.

We then moved to the second Budget in July—the mini-Budget with the mini-reflation measures. At that time the Chancellor told us that the measures he had taken between his first and second Budgets had added only a very small amount to the borrowing requirement. That happened early in July. Either the increase in the borrowing requirement has all happened since July or the Chancellor of the Exchequer did not know what was happening to the borrowing requirement at the time of his second Budget, which to my mind raises a serious question about his judgment and the advice he received.

Then we had the third Budget, in which some of the mistakes made in the first Budget were rectified. Some of the excessive squeeze on the corporate sector has now been turned round. I say this not to make a usual party point but because I think that one must have considerable anxiety about the way in which the Chancellor of the Exchequer and the Treasury arrived at their judgment on the economy and their decisions.

We remember the contrast between the Chancellor of the Exchequer as he now is and when he was in opposition, when he exuded certainty as to how he would be able to cure inflation and reduce the Budget deficit. Yet now we see him floundering around on the Government benches rather like a duck that has just alighted on a frozen pond, and finds itself skidding all over the ice not knowing quite where it is. Perhaps even the hon. Member for Tottenham (Mr. Atkinson) would agree with me to the extent that we must be very anxious about the quality of official advice that has been given to successive Chancellors of the Exchequer. Many mistakes may have been predicted beforehand, as many people outside the Treasury pointed out to the official advisers and to the Ministers.

I should like to see one thing. I hesitate to suggest this, because the British people perhaps have the somewhat unhealthy habit of contemplating their navels far too much. However, the one thing we have not actually contemplated is our navel. I should like to see some sort of committee or commission set up to inquire into the Treasury and to look at the basis on which it makes its judgments. I am so sceptical about the conventional wisdom displayed, including the many economists, who advise even as outsiders, the Treasury. For this reason I suggest that the body set up to investigate the Treasury should comprise a minority of English people and that there should be a number of officials from the United States Treasury and from the Treasuries of Continental countries, because their track records have been much better.

It would be a healthy step to hold a thorough investigation into the conduct of our own advisers in Great George Street. Even if the inquiry only produced the evidence that politicians overruled their official advisers, it would be useful to know that. However, I do not believe that. I believe that the mistakes have been made by many of the officials. I wish sometimes that those officials would come before this House. We are always told that we must not make any criticisms of those officials because they cannot answer back. I make these criticisms because I believe they ought to be able to answer back and that they ought to come to Parliament and explain how they have made many of their decisions.

Many of the forecasts which appear in the Red Book are very difficult to believe. A distinguished former Prime Minister remarked that trying to steer the British economy was rather like looking up train times in last year's Bradshaw. Judging by this Red Book, I fear that it is rather like waiting on a very draughty, cold suburban platform while the train goes shooting past without stopping.

What are we to make of the forecasts in the Red Book about exports for the first half of 1975 compared with 1974? We heard from the Chancellor of the Exchequer today that the world recession meant that the forecasts in the Red Book of a growth of 5 per cent. in world trade and of about 4½ per cent. in British exports did not look as though they would be realisable. But many people made that point when the Red Book was produced. We are told that there is recession in Germany and in the United States. Six weeks ago, when the Red Book was produced, it was known that recession was coming in the United States and in Germany. I find the Chancellor's admission astonishing.

The same is true of the Red Book's figures for investment, which show, in the first half of 1975 compared with the first half of 1974, a drop of 2 per cent. Again, I suggest that the figures are absurdly optimistic. I do not wish to go into the details now, but they do not even square with the figures of the Department of Industry about investment expectations for this year or with the figures of actual investment in the last quarter. I have read all the footnotes and I know that there is a caveat about the expectation of additional investment in oil-related industries and in the chemical industry—industries which, according to the Financial Times Industrial Survey of Investment Intentions, expected no increase in investment at all.

At a time like this we should be having a long, cold look at the methods by which the Treasury comes to its judgments about the economy, about the corporate sector and about energy saving. I agree that what is proposed in respect of the latter is quite inadequate. Then there are the proposals about public expenditure, of which we have no details yet. Unless we have real cuts in public expenditure, we have no hope of getting on top of inflation.

Another strong doubt which I have about the strategy of the Chancellor of the Exchequer concerns the Budget deficit which he is allowing himself to create. It is an absolutely skyscraping £6 billion. This is an extraordinary development from a man who, in opposition, seemed to become such a high priest of financial orthodoxy. No Persian could have been a more devout worshipper of the rising sun than the right hon. Gentleman when he went on and on, in opposition, about the need to balance the Budget to control monetary expansion. Today, we have a Budget deficit of at least 9 per cent. of our GNP, exceeding even that of Italy.

The sophisticated explanation put forward is that it will be financed in a way which is non-inflationary, but I wonder whether a Budget deficit of this size which, by the time it is finished, will vastly exceed our deficit on our balance of payments, can be financed in a non-inflationary way. It is one thing to borrow to finance investment, but merely to borrow to finance consumption is the road to ruin.

What will the Budget deficit do to interest rates? I can remember the Chancellor of the Exchequer, in opposition, criticising the then Chancellor, Mr. Barber, for his Budget deficit because it would raise interest rates sky high. This is what we can expect in the future.

We can now see the Government's strategy in the election was based on three frauds. There was the inflation fraud, whereby suppressed inflation has now become unsuppressed. There was the fraud about the exchange rate which, it was boasted, was strong and firm, but is now clearly being allowed to depreciate. Then there was the fraud about the social contract.

The Prime Minister always seems to adopt the motto of an American salesman; always sell the myth, never the reality; always sell the tinsel, never the Christmas tree. We were continually told that the social contract was the gateway to the promised land and that there was no other way to deal with inflation, but we know now that there is another way. We heard it from the Chancellor in his Budget speech. That other way is unemployment, because the right hon. Gentleman went out of his way to explain that if the social contract did not succeed he would have to take measures to curb demand and that would bring about a rise in unemployment.

I am glad that the Chancellor is now being realistic and recognises the realities facing this country. I hope that he read the article by Professor Beckerman in the New Statesman recently, in which he argued that if the Government cannot secure the compliance of the trade unions with their incomes policy, why should they be responsible for the unemployment that will follow from the actions of the trade unions?

To the extent that the incomes policy is successful, the less unemployment will need to be tolerated. But how can we argue that the Government's commitment to full employment should be absolute, but that the trade unions' commitment to the social contract should be conditional?

People may ask "How can we expect the trade unions to co-operate unless we maintain conditions of full employment?" The trade unions may be more willing to co-operate, but will they be more able to co-operate in the conditions that we have now?

The Chancellor doubted whether running the economy at a lower level of demand could do anything to reduce the pressure of inflation within a relatively short time. I hope that he will pay attention to the advice of realistic people like Professor Beckerman in the New Statesman.

I am not saying that unemployment cures inflation. That would be like saying that staying in bed cures a cold. It does not. However, one has to stay in bed as part of the process of curing a cold.

Inevitably, a rise in unemployment is one side of the side effects of dealing with inflation. This is not a moral question. It is not a question of black and white, or of blind reaction against a more compassionate approach. How can we argue that to allow a small rise in unemployment now is unacceptable compared with waiting for inflation to develop and for a much greater rise in unemployment to occur at a later date? How can we say that it is wrong to allow 4 per cent. of workpeople to be unemployed, if that will safeguard the jobs of 96 per cent. of the labour force? That is what Professor Beckerman was saying in the New Statesman, and I believe that that is a realistic approach.

I remember reading that Abraham Lincoln was asked why he looked so sad and wise. He replied that it was because he knew that he could not get all that he wanted. We all want everlasting sunshine, we all want price stability and full employment, but the reality is that we cannot go on as we are. We must tell the people the truth. Unless we do that, there will be an awakening of bitterness such as we have never seen before.

8.44 p.m.

Mr. John P. Mackintosh (Berwick and East Lothian)

I want to make only one comment on what was said by the hon. Member for Kingston-upon-Thames (Mr. Lamont). Although I take note of some of the criticisms which are often made about the expert advice which is tendered by civil servants, I think that in the last resort the key decisions facing this country will have to be taken by politicians. We cannot duck our responsibility by passing those decisions on to other sectors of the community. Therefore, we must face the key choices that lie before us.

I will begin with a statement with which I hope all hon. Members will agree. We cannot have an indefinite continuing increase in the rate of inflation in this country without disaster. If inflation here goes on increasing, particularly when inflation in Germany and the United States is going down, in time we shall reach a position where not only countries with large oil revenues but other countries will not be prepared to hold money in this country. Then we shall get a run on the pound, and a classic sterling crisis and disaster. Therefore, we have to focus our policies, from whichever side of the House we speak, on the objective of stopping the present rate of inflation from going up further still.

At this point, one turns to the strategies available to handle this matter. I think that the reason why the Opposition lost the last election was that they had no strategy. Only one strategy of any serious nature was put forward, and that was the one advocated by my right hon. Friend the Member for Ebbw Vale (Mr. Foot) and his colleagues and by most hon. Members on this side of the House, which was to use what is commonly called the social contract.

Let us consider precisely what that strategy implies, because we have got into rather arid arguments about it. The argument was that we should hold wage increases by voluntary agreement to a level equal to previous price increases but there were also other elements in the strategy. It was assumed that raw materials and other component prices would not continue to rise on the world markets and thus, if we held wages at the agreed level, productivity gains would mean that the rate of inflation would come down as a result of this higher level of productivity. The strategy was specifically designed to produce a decline in the rate of inflation in 1975 and we were told that then the rate of inflation in 1976 would be down into single figures. That was the totality of the strategy.

One has at some point to ask how far the strategy is succeeding.

Mr. John Gorst (Hendon, North)


Mr. Mackintosh

I have to restrict my speech to enable others to take part in the debate, and I think that it would be better if I were not to give way.

I have outlined the totality of the strategy, and we have at some point to ask whether it is working, or what evidence there is that it is not working.

I am told by the Leader of the Opposition that the present rate of inflation is not 18 per cent., as the official figures show, but 21 per cent., and I know that figures bandied about by Government Departments and experts suggest that by March it will be 23 per cent., which is roughly the level of the forecast made by the National Institute.

My right hon. Friend the Member for Ebbw Vale (Mr. Foot) interrupted my hon. Friend the Member for Ashfield (Mr. Marquand) and said, "Do not say that the strategy is failing, because if you say that you make it more likely that it will fail, you make it more dangerous".

Now, we must realise that the strategy could fail on any of three different fronts: first, because wages are going up too fast; secondly, because world raw material prices continue to increase and if this happens, then wages have to be held at a lower level for the strategy to work; thirdly, because we may not get the forecast productivity gains. We need all those three things to go as forecast to have the end impact on prices that was originally planned. If the Government want to act on any of these fronts, they must recognise that it is difficult to get productivity up easily especially when investment is declining. It is difficult to get world commodity prices down, particularly when the Arabs are still putting up oil prices. The one thing that one can operate on is wages, and it is the residual factor.

Now on the wages front, there is some evidence that the strategy is not working as well as we had wanted. I appreciate what my right hon. Friend said. If one talks in this fashion one may encourage trade union negotiators to ask for more or to go further, but there is the valid point that if one never asks how the policy is working, or at what point it begins to fail, one may proceed with the policy until great damage is done, and until it is even more difficult to turn back or change course.

I recall the damage that we did by refusing to face the need for devaluation before November 1967. We went on pretending that supporting the pound at its old value was working. We went on long beyond the point at which we should have continued to support the policy. There ought to be some criterion in the Government's mind, some fall-back position to which they can retreat if and when the overall strategy for containing inflation does not work, because if it is allowed to fail over a prolonged period, we are heading for disaster.

I do not expect great announcements on this. We do not expect clear points, but we want guidelines. It is particularly important to prepare the public, trade unionists and industrialists for the idea that beyond a certain point the policy will no longer be working. This is why the appeal which I made in the Budget debate and which my hon. Friend the Member for Ashfield made tonight is so important. He said, "Tell us what settlements are within the strategy, and what settlements are without it". My hon. Friend the Member for Ashfield said, "Give us some indication of the situation."

It is not clear to many rank and file trade unionists what is within the social contract and what is outside it. Trade unionists say to me, "We fought the election together on the social contract. We are now involved in detailed negotiations about night work, shift work payments, "dirty" money payments, special bonuses and so on. Which network of claims would be within the social contract?" I cannot answer them because I am not up on these matters. If I cannot understand the situation, how can I expect them to know all the answers? If the Government will not vet wage claims and say what will be within the strategy or what will result in failure, how can we expect them to work? This is a point we have missed.

I was interested to hear that the CBI considered setting up its own vetting machinery to decide which claims were within the social contract and which were outside it. However, the CBI decided not to follow it through. They decided to take no action because too many industrialists found that if precise guidelines were stated they would be morally obliged to resist claims outside the guidelines and they considered that if they did so, they might face strikes and might then become bankrupt.

So we have little strength on that side of the industrial bargaining process. The only strength in terms of a voluntary system lies in a clear indication by the Government of the point at which the system will break down. Unless we get this into people's minds, they will not be prepared for any change of strategy which may be forced upon us. I hope that a breakdown does not happen and that the Secretary of State for Employment succeeds in his efforts to make the social contract work. Every Member in this House should back him. However, we must be ready to face the point at which the contract may not work and we may wish to make a change.

I fear that there are many ways in which we can continue to delude ourselves. Indeed, there are many ways in which the public can pretend that things are better than in fact they are. Many members of the public are not all that worried about inflation. I do not think the public have fully taken on board the fact that inflation inflicts terrible damage on pension schemes and hurts people who are due to retire. They are not aware of how many small organisations are at the point of collapse because of inflation. I do not think many people realise that a redistribution of income in an egalitarian way arises from inflation. We have to do more to prepare the public psychologically for a change in strategy if it becomes necessary.

There are other ways in which we can persuade ourselves that no action need be taken. We can take the view that we are heading off the danger of the situation because the Arabs are keeping so much of their money in sterling. I sometimes get a little worried about such a policy. I am not happy that by 1980 we should be so much in debt to other people. I am surprised that people are content with that policy, and I am not sure that we shall get to 1980 without a major crash or withdrawal of those funds.

We can also hide from ourselves the tremendous decline in investment which is taking place. We are told that next year investment will be down 10 per cent.-plus. We shall not feel the impact of that factor until we experience falling productivity and further balance of payments problems in the years ahead.

But we cannot stay in this situation indefinitely and I have a real fear of hyper-inflation.

If this situation continues, the time will come when countries will not be prepared to hold their money in sterling and, despite the floating rate, we shall not be able to maintain our reserves. There will be a run on the pound and we shall be faced with a crunch situation instead of a slow slide. I do not know which of the two I prefer, and I would prefer that we had neither. However, I am worried that we shall go on pretending that the situation is not as serious as in fact it is.

I come to possible remedies. What alarms me is that if and when the crunch comes, or if my right hon. Friend the Secretary of State for Employment fails in the policies on which he has embarked, there will be a midnight meeting at Chequers or Downing Street, with the TUC, the CBI and the Government present, and that on that occasion when the Government turn to those outside agencies for advice and says "What shall we do? ", it will be the first occasion on which there will be no answer. Those outside bodies have no clear idea of which way to go.

There is no escaping the responsibility which faces the Government. One choice that is being peddled is that we should have another devaluation. That would be disastrous in terms of import prices. We could not face a further sag in the value of the pound. Some people believe that the easiest residual solution is heavier unemployment. That is the orthodox view advanced by the hon. Member for Oswestry (Mr. Biffen). It is a view that is held in other quarters. Not only do I dislike the social implications of unemployment, but I believe that heavy unemployment reduces productivity and tends to exacerbate inflationary forces. It is not an adequate answer. Also unemployment does not reduce the bargaining power of those in critical sectors of industry and it is that bargaining power which is pushing up wages.

I understand that in a Cabinet Paper an idea—put out at the General Election —is being peddled that we should freeze the prices of certain firms, and those firms, presumably, not being able to put up their prices, would have to resist wage increases asked from them or face bankruptcy, and this would in turn force down the rate of wage increases. But this policy is also unsatisfactory because it would not operate in the public sector, which would be dangerous, because the price mechanism does not operate there. Secondly, in the private sector, it would operate only through heavy bankruptcies, which I certainly do not want to see.

Whichever way we turn, the voluntary incomes policy being pursued by the Government is still the right way, in the sense that the most rational and sensible way to proceed is through operating directly on the level of wage settlements. But if that voluntary policy does not work, the question is whether we ought to face a return to a statutory incomes policy of some kind rather than face the greater dangers of devaluation, or bankruptcy, or heavy unemployment as alternative changes of strategy dictated by the situation.

This is where I quail for the future of democracy. I know that many hon. Members on both sides of the House say that the most rational and sensible thing to do is to operate on wages, if necessary by a statutory policy—and then those hon. Members turn back to me and say, "Both Labour and Conservative Governments have tried it. Each in turn have then faced confrontations and has been beaten. We cannot do it."

But it is the death of democracy if one says that the most rational, least socially-damaging way of doing something is something that one's institutions cannot handle. This is a matter we have to face and tackle. We have to say, "This is the least harmful way of doing it." Let us sell it in the interests of justice and of prosperity. If we do not, then a more disastrous strategy may well be forced upon us. I hope that it is not inevitable that we will be faced with this kind of choice, but if so, then we must accept our responsibilities and tell the country what is the best alternative open to us.

8.57 p.m.

Mr. Michael Grylls (Surrey, North-West)

I want to touch on one subject which has not been dealt with very much in the debate, and as I have only three minutes I hope that the hon. Member for Berwick and East Lothian (Mr. Mackintosh) will forgive me if I do not refer to his speech.

Perhaps one of the most worrying aspects of the situation is the apparent total collapse of investment in industry. It is vital that the Government do something about it. What worries people when they see that investment is not going on is that the Government really do not know what is happening. The CBI survey a few weeks ago showed that there had been the steepest fall in industrial investment for 11 years.

The problem is that real profits are too low. I agree with my right hon. Friend the Member for Taunton (Mr. du Cann) —who made an excellent speech—that there has been too much sniping at profits, that profits are the thing which will make investment. There is no other way. I am sure that the Chancellor of the Exchequer agrees that he, as a member of the Government, does not want to see the Secretary of State for Industry going round giving out money in this situation in order to prop up industries, because, generally speaking, those he props up are usually the least profitable—the ones which should not really be propped up.

If industry does not have enough profit to be able to invest in new plant, to increase working capital, and to deal with inflation and all the other problems we have been talking about—replacing outdated machinery and buildings, and attaining higher productivity—I believe that whatever successes the Government may have in other areas their economic policy will be doomed. If industry does not have money it will cut back its investment plans and stop investing. It will pull up the ladder and aim simply to survive.

Listening to the Chancellor of the Exchequer today, it seemed to me that he did not realise that a problem existed. As I have taken only three minutes, I hope that the Secretary of State for Employment will do me the courtesy to answer one point. What is the Chancellor going to do about encouraging confidence and investment in industry?

Will the right hon. Gentleman act, or does he believe that everything is all right? Perhaps I and other commentators tonight are wrong, but will he tell us what he is going to do? If he will tell us that he will put curbs on the Secretary of State for Industry and lock him up for a few months, we shall get more industrial confidence. Or perhaps he will cancel advance corporation tax, or lower the rate of corporation tax, or just easy the Price Code a little more. If the Government will give us that answer tonight, it will be the biggest contribution that they can make to improving industrial confidence.

9.1 p.m.

Mr. Robert Carr (Carshalton)

One is always tempted by the context and atmosphere of a House of Commons debate to make a speech from the Opposition side condemning the Government for their mismanagement and complacency —and that would not be difficult tonight. People outside may sometimes underestimate the value of such hard, pounding debates, but I am sure that the national need at the moment is too great for that tactic tonight and that the national mood rightly demands that Parliament should seek constructively to find as much common ground as possible and to lead the way out of our crisis. That has been the dominant mood of this debate. That has been obvious from speeches from both sides.

The background of the debate is that the immediate state of our economy and the underlying economic prospects combine to face us with a situation which is more grave than any hon. Member has ever had to face before. A position which was already serious in the summer and autumn has become substantially worse in the two months since the election. Indeed, I believe that the Chancellor himself admitted as much today. That cannot go on without disaster; strong new action is required urgently.

There are two underlying requirements which have come out strongly in speeches by my hon. Friends and by my right hon. Friend the Leader of the Opposition—and also, to be fair, by hon. Members of other parties. The first is that the Government must now tell the country the full truth of the situation and stop concealing —whether intentionally or otherwise I do not know, and I will not go into the question now—both the present gravity of the crisis and the future dangers which face us. Until they do that, the Government will not be credible in putting over whatever policies they think right.

This is also necessary because large numbers of people—I suspect still the majority—do not yet feel a sense of crisis in their personal lives. One of the difficulties faced by successive Governments over a number of years has been how to bring home effectively the major structural changes in policy in industry and in social affairs which this country needs, when in the short run the majority of people feel that life is probably better than they have know it before. The Government must tell the full truth of the gravity of the crisis, actual and impending.

Second, they must put forward a national recovery programme of policies which concentrate on essentials and which jettison inessentials, particularly those which are socially and politically divisive, and put forward a programme of policies with ingredients which bring home to people in their daily lives the fact that we are in a crisis which both requires and allows them to give their active co-operation.

I very much agreed with what my right hon, Friend the Member for Taunton (Mr. du Cann) and, indeed, the hon. Member for Ashfield (Mr. Marquand), among others, had to say about that need. It was the feeling—not only from the Opposition side of the House—that the Government have failed so far and are still failing in both these matters, and that they must respond quickly to this need.

One of the basic facts about our economic position, with which we must come to terms, however much we may dislike it, is that we have a great and rapidly growing dependency on foreign borrowing. That, in turn, makes the maintenance of foreign confidence in our affairs probably the most important single factor in avoiding catastrophe, at least in the short run. That is our first major criticism of the present Government. It is not that we believe that foreign borrowing is wrong in itself, or that it is unnecessary in present conditions. It is the scale of it which we criticise, and the almost voluptuous pleasure which the Government seem to take in piling up foreign debts.

This points immediately to three of the most urgent needs and, as we believe, the most culpable failings of the Labour Government since March. First, the country must—I use the word "must" because it is the only word to use—economise in the use of energy, in particular by reducing the need for oil imports. Yet after nine months in office, last week the Government produced a miserable little package, in which, for example, they said that talks were only just about to begin with the local authorities. By now, every third street light ought to be out, or something like that. There ought not to be as much floodlighting and display lighting as there is. We have waited nine months for talks to begin.

Quite apart from the savings, actions of this kind will help to bring home to people the fact that business is not just going on as usual, and cannot go on as usual. Even in the one matter of petrol pricing, where the fuel economy campaign—I do not complain about this—is being carried to a stronger degree, what did we see yesterday? We saw the Government announcing their latest decision in a Written Answer to the House. From the parliamentary point of view, what a row there would have been had any other party, in government, tried to do that. But from the psychological point of view, what madness it is to announce measures which will hurt lots of people who have been hurt fairly badly already— and to announce them in such a casual way. I nearly said that it was an underhand way.

Secondly, we must get our own oil supplies flowing at the earliest possible moment. Yet whatever may be the ultimate rights and wrongs about the question of ownership, it is surely indisputable that by raising this question now there must be delay. Whatever may be the rights and wrongs in principle, the proposals for nationalisation, as well as the particular proposals for taxation which are passing through Parliament at present, are causing confusion and delay. As my right hon. Friend the Leader of the Opposition pointed out, every day's delay costs us millions of pounds across the exchanges.

A third area in which our needs are most great and the Government are most culpable is the need to keep to a minimum the Government's borrowing requirement necessary to balance the Budget. That is a point about which the Chancellor used to criticise strongly my then right hon. Friend, now Lord Barber, and which in March he made a major point of reducing. Far from carrying out the reduction, the Chancellor has put the borrowing requirement to levels which no one previously would have imagined possible without very serious and almost immediate results.

However that may be, for the moment we are largely dependent on borrowing from abroad, and particularly on borrowing from the Arab countries. We are therefore largely dependent on sustaining foreign confidence. If foreign confidence were to collapse, so would the pound. There would then be no doubt whether disaster would come quickly or slowly.

In these circumstances other countries will be looking not just at our balance of payments position but at the whole range of our policies and performance. Regardless of whether we wish to take these matters seriously, other countries will—so we must take them seriously. Whether or not certain hon. Members of the Opposition wish to see large sectors of our economy nationalised, the large majority of the British people do not want this, and those from whom we borrow overseas, on whose confidence we depend, most certainly will not have their confidence supported by measures of this kind.

Our present policy as seen through our own eyes, and still more as seen through the eyes of other countries, throws up a number of major danger points, in addition to the fundamental one which I have already mentioned.

Danger point No. 1 is the high and rising rate of inflation. If the rate of inflation, although high, were falling—as the Chancellor was claiming during the General Election campaign—the confidence factor would be very different. But it is now not only high; it is rising. As departmental figures published in the past few days show, the retail price index has risen by about 18½ per cent. in the past 12 months, and over the past three months it has risen at an annual rate of over 21 per cent. That is not only a cause of suffering, injustice and anxiety here at home but a potential cause of loss of confidence abroad.

Of course, the Chancellor was right when he said in his speech that the most essential need is to reduce the rate of inflation, which is at present rising, and that the most single important element in doing that is to get more restraint over pay increases. Having made those two statements about the country's greatest need, however, he gave us little clue as to how the Government were proposing to achieve that need. He has left it to his right hon. Friend the Secretary of State for Employment to deal with this. Many of us thought that clues regarding this most vital need might be better given at the beginning of the debate rather than at the end, but so long as the Chancellor's right hon. Friend tells us about these clues we shall say, "Better late than never".

Danger point No. 2, which has been brought out by the debate, is the recent deterioration in our balance of trade. Last month's figures, as has been pointed out, were the worst ever. The Government were boasting both during the General Election campaign and before it that at least the non-oil part of our trading deficit was decreasing; indeed, the Chancellor made some claim about that in the closing part of his speech this afternoon. The deficit was reducing, but it is no longer reducing. In the past three months it has increased each month —from £53 million in August to £65 million in September, to £105 million in October, and to £227 million in November.

Danger point No. 3 is the current level of pay increases. Figures published this afternoon show that over the past 12 months basic hourly wage rates have risen by 27 per cent. What is more, in the period since March they have risen at an annual rate of 33 per cent. It is impossible for that to continue without massive inflation and, before very long, massive unemployment.

Danger point No. 4 is stagnating production, which is all the more dangerous when we have wage rates rising at the sort of pace we have now. Figures published last week, I think, or certainly very recently, show that the index of industrial production has fallen for three months in succession and is now 1½ per cent. lower than it was in July. What is the basis for confidence that the Chancellor's forecast, in the Red Book, about the very modest rise in production next year, will come about?

Danger point No. 5 is industrial unrest. Commenting on the latest index of production figures to which I have just referred, the Central Statistical Office said in its Press release: It is difficult to assess the present trends owing to the effect of industrial disputes. In absolute terms that is a serious matter, and it is especially serious as seen through the eyes of foreign observers.

From April to October this year we lost nearly 6 million working days, almost exactly a 50 per cent. increase on the number of working days lost in the same period last year. It has been estimated that the motor industry this year—

Mr. Healey

Does the right hon. Gentleman not agree that it is 30 per cent. less than the number lost in the seven months before the February General Election?

Mr. Carr

I am not quite sure where that gets us, for it was this Government who claimed, "Get rid of all the previous Government's anti-inflation policy, and, in particular, abolish any form of pay control, repeal the Industrial Relations Act, and institute an independent conciliation and arbitration service "—which, as we have heard today, is evidently to pay no regard to any principles or rules about national policy and national interest—" Do all those things and confrontations will reduce and come to an end".

I am pointing out that far from moving in that direction we are moving in the opposite direction. There were 1½ million days lost in October alone this year, and I repeat that the number of days lost in the period from April to October 1974 was 50 per cent. greater than in the same months last year.

Danger point No. 6 is the collapse of productive investment, to which special reference was made by my hon. Friend the Member for Surrey, North-West (Mr. Grylls). Greater productive investment has been one of this country's chief needs not for a few years but for many decades. Britain's poor performance—to be fair, under successive Governments of both parties—has been one of the most worrying features of our economic and industrial affairs for a long time.

A year ago—very late, it is true; disappointingly late from the viewpoint of the policies of the last Conservative Government—we had at last reached a point at which investment intentions were rising strongly, and future investment intentions had attained a record high level. A year later those intentions are in collapse.

Danger point No. 7 is the size of the public sector borrowing requirement, mentioned in particular by my hon. Friends the Members for Oswestry (Mr. Biffen) and Kingston-upon-Thames (Mr. Lamont), though not only by them and not only in Opposition speeches.

We believe that this carries the grave danger of inflation and perhaps the even graver danger of instability. I use the comparative in reference to stability because I accept that at least so far this very large extra borrowing requirement has largely been financed in a non-inflationary manner by foreign borrowing. Nevertheless, that does not make it safe, advisable or acceptable. It is too precarious, as my hon. Friend the Member for Oswestry pointed out, and as the hon. Member for Berwick and East Lothian (Mr. Mackintosh) also said, in effect. It may be all right to borrow to finance productive investment, but it is not right to go on borrowing endlessly to finance consumption and to pay for public services.

These, therefore, are some of the danger points which I believe have been brought out in the debate. Just as the debate has highlighted the danger points, so I think it has directed us towards the solution of our problems. The essence of the matter is, of course, that we are now living far beyond our means.

In the short run we must cut back on current consumption and on our expectations for our standard of living. In doing this we must above all do what we can to protect those in need—the pensioners, the sick and disabled, the unemployed and the lower-paid. We must do this by special help and not by wasteful general subsidies. The rest of us, however—which means the great majority— must now accept some real sacrifices, some real cut in our personal standards of living. That needs saying, and the Government have not yet said it loudly, clearly or without equivocation. Let them say it now and we shall back them, because I believe that the majority of us in this country must accept some cuts in our standards if we are to get through the crisis.

At the same time, if we are holding back consumption we must take action to increase our national means, so that in the future we can afford to live better. We must therefore devote more of our resources to productive investment and export. That is exactly what the Chancellor said in his Budget in November and what he said again today. We strongly agree with him and we shall back him in any moves that he makes in that direction. But we must tell the Chancellor that he is simply not doing enough to achieve the necessary transfer to meet our crisis. It requires on the one hand stronger restraints and on the other stronger boosts to productive investment, exports, and home food production.

Let us look at the restraints. The first is in pay. There has been debate today on how it should be done. For better or worse we are now committed to the social contract and it does not seem to be standing up very well. Whether it is right or wrong, it is a road we are committed to travel. The Government must try to make it stronger and more specific, and bring more people into it. They must set down stronger guidelines and provide some sort of referee for judging special cases so that people will know where they stand. This appeal comes not only from these benches.

There must be more restraint in public spending. There cannot be any real increase in public spending for the next year or two, and if there are increases in some areas there will have to be savings in others to match. We cannot afford increases at their present levels. There must also be a reduction in the public sector borrowing requirement. To the extent that we cannot get sufficient restraint in these ways we may have to face increased taxation, because that is the only way to reduce the public sector deficit other than by reducing public spending.

I put these proposals forward reluctantly, but if they are necessary they must be carried out. As we said quite clearly in the General Election campaign, extra spending must be covered by savings, or, if that cannot be done quickly enough, it must be covered by extra taxes.

Let the Government also examine ways to increase savings. That is an important method of holding back current consumption—much better for the ordinary person than paying extra taxes.

In total, all these measures of restraint must be strong enough to free enough resources to transfer to investment and exports. They must be matched by stronger boosts to investment and efficient production, and more help to agriculture. We must restore to industry profitability, or the hope of profitability. However, to overcome the crisis, however strongly some Labour Members may believe in nationalisation, we must also remove the threats of nationalisation and ministerial direction in industry. We must remove the threats to farms and businesses brought about by the capital levies proposed by the Government.

We must encourage savings by creating the belief that inflation will be tackled, by adopting an income tax system which does not penalise savings and savings income, as the Government's proposals do, and by abandoning the present proposals for capital transfer tax and wealth tax, which, if levied on top of our present income tax system and levels, and on top of our present personal capital taxes, will encourage spending rather than saving.

We must give a major new boost to training. I hope that the Secretary of State for Employment will say something about this. I am glad to say that it is a non-party matter. When we were in power we put in hand a major reform and expansion of the Government training programme, with a plan for rapid expansion to put us more on a level with countries such as Sweden, in labour market policy terms. It is vital—even more important than a few years ago— that that programme should be carried through with great urgency on the most massive scale possible.

What we need is a massive transfer of resources to investment, saving, training and exports. This transfer must be at the expense of immediate consumption.

Let me face the bogy of unemployment fairly and squarely. Whatever the Chancellor does, unemployment will rise next year. I do not think that he will try to deny that. The only question is how far, how fast and how much further it will rise in 1976. There is no longer any question of choosing between unemployment and inflation. As the Prime Minister said, they are now the same problem.

We do not want to see anyone unemployed who need not be; unemployment cures nothing. But if we let wages rip and boost consumption now, we shall not be preventing massive unemployment; we shall be causing it. We must free resources from consumption, but at the same time we must re-absorb those resources by pursuing strong, positive policies to encourage profitability and savings, and therefore to encourage productive investment and by an active labour market policy, to help people train and move quickly into new jobs and expanding industries, which have too often been starved of labour. That is the only way to provide secure jobs and prosperity for the future.

The debate has shown that there is some common ground in the House. With the exception of the more extreme Left wing, perhaps, we find that the differences between us are now more of degree than of kind. I believe that it would be possible to construct a national recovery programme which could command large majority support in the House. If we had a programme that was seen to command such support, I believe that it would command great respect and following in the country at large.

Such a programme should be, and certainly could best be, constructed and carried out by the sort of broad-based national Government for which we pressed in the election—formed for a limited period until the crisis was overcome. But, although less easily, such a programme could be carried out and constructed by this Government or any other party Government if that Government were determined to put national need and national unity first.

If the Government propose such measures, we shall support them. What we shall oppose tonight, and go on opposing, is continued drift and complacency, and a continued insistence on narrowly based partisan measures. The right hon. Member for Ebbw Vale, about 40 years ago, had a lot to say about guilty men. Let him and his colleagues be very careful that they do not become guilty men themselves.

9.30 p.m.

The Secretary of State for Employment (Mr. Michael Foot)

Apart from a few words spoken by the hon. Member for the Western Isles (Mr. Stewart)—and I apologise for my absence for a few minutes then—I think that I have heard every word spoken in the debate, which has covered the whole range of interlocking crises which face the country. If I were to seek to reply to all the different aspects of the matters mentioned in the debate, I should more than exhaust the time available to me. Therefore, I hope that no one will think me discourteous if I concentrate on the matters which fall most directly within the scope of the departmental questions for which I am answerable to the House, particularly those concerned with wages, with the social contract and with the way in which it seeks to affect wage settlements and income settlements in general.

That does not mean that I think that the other subjects which have been raised are not of paramount importance. I hope that we shall have a debate on the Manpower Services Commission and the working of the training services. That is a matter to which the Government attach the greatest importance. Even in these times of financial stringency, the Chan- cellor of the Exchequer has, I am glad to say, provided increased resources for that purpose. We hope greatly to strengthen the activity and operations of the Manpower Services Commission and the two executive arms which operate under it.

Mr. Heath

If the right hon. Gentleman is prepared to speak only on the narrow front which he has described, can he say why the Prime Minister is not replying or why he is not even present on an important occasion such as this?

Mr. Foot

The right hon. Gentleman made his speech and then cleared off very fast. He might show me a little courtesy and, before interrupting, allow me to say a few sentences. I shall try to deal with the central questions about pay and the social contract, which I should have thought it was perfectly proper for me to deal with, and the matters upon which he and the right hon. Member for Carshalton (Mr. Carr) have touched. I do not think the right hon. Gentleman can have any complaint on that score.

Some hon. Members have criticised my right hon. Friend the Chancellor of the Exchequer for having replied rather forcibly to some of the criticisms made about himself and some of his policies. I should not have thought that that was a ground for complaint. They did not criticise the main part of his speech, which referred to the international situation and other aspects of our problems. My right hon. Friend explained that he was not the sort of person who would turn the other cheek; it was not his normal custom. He reminded me of the statement made by the explorer Dampier—[HON. MEMBERS: "Get on with it."]—who, after his explorations, reported that the Papuans were a fierce and intractable race of savages who, when fired upon, had no scruples about retaliating. What the Chancellor of the Exchequer did was to retaliate to some of the attacks made upon him, as he was perfectly entitled to do.

As I said, I intend to reply directly to the figures which the right hon. Member for Carshalton quoted. I hope that that will not be thought to be the wrong way to proceed. I start with the figure which was published by my Department today of the 26.4 per cent. increase in the weekly wage rate index over November of last year. Last week we published the November retail price increase of 18.3 per cent. over the previous 12 months. The figures are serious, and the Government do not intend to minimise their significance. We are prepared to face the argument about them, and our desire and purpose as a Government is to see that those figures are reduced by all the sensible policies which we can bring to bear.

Before anyone runs away with the idea that responsibility for these matters rests entirely with the Government, before anyone, either inside or outside the House, starts rushing to conclusions, let us examine a little more closely what the figures contain.

The weekly wage rates were not settled by me; they were not predominantly settled by the social contract; they were not in the main settled by the negotiators who were engaged in the operations. In the main they were settled by the stage 3 Pay Code laid down by the previous administration. My right hon. Friend the Chancellor of the Exchequer has already explained that 11.7 per cent. of the 26.4 per cent. is accounted for by the threshold payments. Another ½ per cent. is accounted for by the London weighting allowance, on which we followed, not in every detail but in the main, the report which came from the Pay Board. We did not follow it inflexibly because that would have led to disasters of which the right hon. Gentleman knows.

There have also been some special cases, and I grant that. The Conservative Party, which so often boasts of its candour, has never told us whether it agrees with the special arrangements we made for nurses, postmen, railway men and London Transport. Those were special cases which added about another 2 per cent. to the figure. Right hon. and hon. Gentlemen opposite during the election campaign and thereafter have never said whether they agreed or disagreed with those settlements. I assume that most hon. and right hon. Gentlemen are aware of the excellent reasons we had for those special settlements. They were the groups of workers who had fallen furthest behind during the period of statutory restraint. As the reasons for those special arrangements are, I believe, now accepted on both sides of the House, I do not think that any criticism can fall on us on that account.

Mr. Peter Tapsell (Horncastle)

However these figures are accounted for, and whoever may be responsible for them, will the right hon. Gentleman tell the House what the Government intend to do to control the raging wage inflation which is threatening us all with disaster?

Mr. Foot

The hon. Gentleman should be a little more patient. I shall deal with the matter in my own way and in what I think is the proper way.

Of the figure of 26.4 per cent., 12 per cent. remains, which is rather less than the kind of figures achieved under the basic stage 3 rules. Where is the wages explosion which the right hon. Gentleman says we are experiencing? Most of the 26 per cent. is accounted for by the methods I have described. The right hon. Gentleman has never understood the situation and has never attempted to understand it. Moreover, never having understood the situation, he never wanted to understand it.

What was the range of settlements— [Interruption.] I hope that the House will permit me to continue, as I have the same right of reply as that which the hon. Gentleman had a little while ago.

I do not know why the hon. Gentleman should regard the figure of 26 per cent.—

Mr. Gorst

On a point of order. May I appeal through you, Mr. Speaker, and say that the right hon. Gentleman does not have the same right of reply? He is treating this House to a grave discourtesy. He has made it clear that he will not reply to the whole of the debate but only to half of it. Could you not ask the Chancellor of the Exchequer, who was not here through the whole of the debate, perhaps to reply on the Minister's behalf?

Mr. Speaker

Order. The hon. Member knows quite well that that is not a point of order.

I understand that the Opposition spokesman, when winding up, was listened to in reasonable silence. I hope that the Minister will receive the same courtesy.

Mr. Foot

The right hon. Gentleman, of all people in this country, has less right to criticise that figure of 26.4 per cent. than anyone else. I remind the right hon. Gentleman of what he said during the General Election. It happened on other occasions, but it bears very directly on the matter. The Leader of the Opposition spends most of his time boasting about the truth he is supposed to have told at the General Election. However, when I come to the point of what he said about wages, he is not so eager to hear. During the General Election, the right hon. Gentleman said that wages settlements were being made at a rate of 40 per cent. That was wrong. The right hon. Gentleman said we had experienced some months of settlements on the 40 per cent. scale. Therefore, on that basis, the Government have made a reduction to 26 per cent.— on the right hon. Gentleman's own figure.

The right hon. Gentleman went up and down the country making the claim that wage settlements were taking place on a 40 per cent. basis. When it was pointed out to him that figure was based on the most absurd statistical fallacy, he continued to make the same suggestions and to pretend that it was a legitimate figure. It was very dangerous for anyone to say that. It is no good the right hon. Gentleman grinning now. That was a very dangerous thing to do because it led people to believe that settlements were being made on a 40 per cent. basis, and he could have given great encouragement to the inflationary situation.

The right hon. Gentleman did exactly the same today by suggesting—and I asked him to withdraw it—that the National Institute's statement that settlements were being made within the guidelines by anticipating future increases in prices, as well as by taking into account keeping up with cost of living increases which had already taken place.

I pointed out to the right hon. Gentleman that the National Institute was wrong on both counts. It is not true that the trade union guidelines say anything of the sort. Indeed, it is not true that settlements are being made on that basis. Only one or two settlements of which I know would come within that category. The overwhelming bulk of settlements covering large numbers of people since the lifting of the pay controls defy that proposition. Therefore it is wrong of the right hon. Gentleman now to spread the story again, after he has been corrected. It may be that the right hon. Gentleman was deceived by—

Mrs. Kellett-Bowman


Mr. Thorpe


Mr. Speaker

I am not sure to whom the right hon. Gentleman is giving way.

Mr. Foot

Ladies first. I give way first to the hon. Member for Lancaster (Mrs. Kellett-Bowman) and then to the right hon. Member for Devon, North (Mr. Thorpe).

Mrs. Kellett-Bowman

Will the right hon. Gentleman say which of the wage settlements in his opinion have exceeded the social contract?

Mr. Foot

I have called attention to some of them—the ones which I thought had exceeded it with the least excuse— and I have already mentioned other cases, too. What I am saying is that—[Interruption.] If the hon. Lady had followed these matters a little more closely, she would have known that I had mentioned them on several occasions.

Mrs. Kellett-Bowman

The Secretary of State does not even answer questions, let alone the debate.

Mr. Thorpe

Is the right hon. Gentleman aware that the House will be grateful, as will the country, if he can help us on this one matter relating to the future? He has mentioned 18 per cent. as being the increase in prices and 26 per cent. for wage increases last year. He said that, of that 26 per cent., in his view at least half was either inherited or for special reasons. Accepting that for the sake of argument, is not a rate of increase of that kind one which the economy cannot sustain in the future? If that rate of inflation were sustained, would not we move into really desperate recession?

Mr. Foot

I agree that if that rate of inflation were sustained, we should face increasingly grave difficulties. I acknowledge that fully. From the very beginning. I have never sought to minimise the figures, as I said at the beginning.

I shall come in a moment to the way in which this House should look upon these matters. But when some hon. Members headed by the Leader of the Opposition have gone out of their way to misrepresent what is happening and why it has occurred, we are entitled to put matters right, especially when the right hon. Gentleman also seeks to assist the situation, if that is his purpose, by attacking the Conciliation and Arbitration Service which we have established. I do not know whether the right hon. Gentleman thinks that that is helping the situation.

The Conciliation and Arbitration Service was established by the Government, but we sought to secure the co-operation of both sides of industry in establishing it. The CBI was consulted about it and has representatives on its board. We believe that one of the essentials to restoring respect for arbitration was that we should have a board which was independent of the Government. That was our purpose, and we have sought to carry it out. We believe that the increasing part which the Conciliation and Arbitration Service will play in settling disputes derives precisely from its independence. That is a proposition which not only was put to us by the trade unions but has been agreed by the employers as well.

I hope that the Leader of the Opposition will withdraw his misleading remarks both about the previous settlements and about the Conciliation and Arbitration Service. If he will not do the first, I hope that he will at least have the courtesy to do the second.

Mr. Heath

Will the Secretary of State explain how to quote the words of the chairman of the Conciliation and Arbitration Service is to make an attack upon it? When the chairman of that service says that he and his colleagues do not care at what rate they settle as long as there is a settlement, and I quote the words, how is that an attack on him? He has admitted it himself.

Mr. Foot

The right hon. Gentleman should not misquote himself. Having selectively quoted from the chairman of the Conciliation and Arbitration Service, he went on to say that this was the embodiment of the principle of peace at any price. It is not so. If the right hon. Gentleman thinks that, he should take his complaint to the employers' representatives who sit on the board of the Conciliation and Arbitration Service, and who are seeking to solve these problems, instead of pouring abuse on a Govern- ment who are seeking to re-establish the authority of arbitration.

The Leader of the Opposition went on to say how, therefore, we should proceed from our present situation. First, we say that it is necessary to understand not only the failures of the wage negotiations under the social contract, but the successes. If we were able to secure settlements on the basis of the guidelines laid down in the social contract over the coming six to eight months, we would be playing a major part in curbing inflation.

If anybody wants to study the matter seriously, this is the fact of it. The real test of the social contract depends on what will happen in the six to eight months ahead. It depends whether, for example, we can get a settlement in the mining industry which sustains the rights and general position of miners compared with other workers, which they achieved in the settlement earlier this year, within the guidelines of the social contract. We believe that it is better to proceed on those lines and to work on that basis. That is why we appeal to the miners to support the social contract. It is better to do that than to return to the statutory policy of the Conservative Government or the statutory policy advocated by the Liberal Party.

If right hon. and hon. Gentleman had listened to the debate more carefully, as I have, and heard the speech by my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) and the speeches of other hon. Members, they would have heard about the operation of the statutory policy which I have observed from practical experience. I was opposed to the statutory policy on theoretical grounds when. I went to the Department of Employment. Believe me, there are many practical grounds why a return to any statutory system would be a disaster for this country. Certainly that is not the policy of this Government.

Mr. Julian Amery (Brighton, Pavilion)

The right hon. Gentleman has spoken in firm terms about a statutory incomes policy. Are we to understand that he would resign from office rather than be party to implementing such a policy?

Mr. Foot

I have made clear in this House and during the election, and I make clear again, my absolute abhorrence of any idea of returning to a statutory incomes policy. I believe that to return to a statutory policy would soon bring us back to the catastrophes of last winter. Indeed, had it not been for the fact that we had the possibility of escaping from the rigid statutory controls left by the Leader of the Opposition, we would not merely have been unable to solve the mining dispute but would have been landed in one intractable dispute after another.

It would be wrong for anyone to suggest that we should return to such a statutory policy. We must make it clear to the people of this country that we are determined to carry through the policy of consent upon which we were elected. We do not propose to abandon that policy in a somersault, as the Leader of the Opposition did after having promised not to have a statutory policy. [HON. MEMBERS: "It was done in 1966."] It was done in 1966 and it failed then. It failed under the Tory Government. The difference between us—

Sir Paul Bryau (Howden)

Would the right hon. Gentleman resign rather than introduce a statutory incomes policy?

Mr. Foot

I have made clear my attitude on this matter, and I do not believe there is any misapprehension about it in any quarter.

The right hon. Gentleman the Leader of the Opposition led this country to disaster last winter precisely because he applied the policy that he is advocating, but he does not have the courage of conviction that one finds in the Leader of the Liberal Party. The Opposition are advocating a return to the policies which contributed so disastrously to the situation which the Labour Government inherited on taking office, and we shall not follow them.

The right hon. Gentleman would have benefited from hearing the speech of his hon. Friend the Member for Oswestry (Mr. Biffen). The hon. Gentleman said that the language of economics by itself would not be sufficient to solve the country's crisis, and I agree with that proposition. I agree also with those who oppose the idea of a one-party State by consent or anything of that sort. I am opposed to any idea that we can solve the country's problems by merging our policies and attitudes into one indiscriminate blur. We do not propose to abandon the National Enterprise Board, the planning agreements, and all the measures that we set out in our election manifesto for dealing in particular—

Mr. Tapsell

On a point of order, Mr. Speaker. Is there any precedent in the whole of British parliamentary history for a major censure debate on the economy of the country not being attended by the Prime Minister?

Mr. Speaker

Order. The hon. Member must sit down when I am standing up, or else leave the Chamber. The content of a speech is not a matter for the Chair.

Mr. Tapsell

Further to that point of order, Mr. Speaker.

Mr. Speaker

Order. If this is a point of order with regard to the content of a speech—

Mr. Tapsell

It is not. I did not refer to the content of the Minister's speech. I referred to the absence of the Prime Minister and the unprecedented example that has been set.

Mr. Speaker

Order. That again is not a matter for the Chair.

Mr. Foot

I am not sure how many bogus points of order the hon. Gentleman is entitled to make, but he has made three or four and he does not seem to have contributed to the success of the debate.

Mr. Donald Stewart

The right hon. Gentleman has taken up a lot of time answering the attacks from the Opposition benches. In the time remaining, will he say whether there is a crisis, and if there is, what the Government are going to do about it?

Mr. Foot

I have been dealing with the matters that were raised during the debate, which is what I was asked to do.

The determination of the Government is to enlist the support particularly of the trade union movement but also of others throughout the country to carry out by consent and democratic means the proper way of overcoming this crisis, and not to abandon that policy because people lose their nerve, patience and determination in the midst of it. We propose to carry our policy through by the only democratic means by which it can be done.

Question put, That this House do now adjourn: —

The House divided: Ayes 280, Noes 301.

Division No. 40.1 AYES [10.0 p.m.
Adley, Robert Gardiner, George (Reigate) Loveridge, John
Aitken, J. W. P. Gardner, Edward (S. Fylde) Luce, Richard
Alison, Michael Gilmour, Rt Hon Ian (Chesham) MacCormick, lain
Amery, Rt Hon Julian Gilmour, Sir John (East Fife) McCrindle, Robert
Arnold, Tom Glyn, Dr Alan Macfarlane, Neil
Atkins, Rt Hon H. (Spelthorne) Godber, Rt Hon Joseph MacGregor, John
Awdry, Daniel Goodhart, Philip Macmillan, Rt Hon M. (Farnham)
Bain, Mrs Margaret Goodhew, Victor McNair-Wilson, M. (Newbury)
Baker, Kenneth Goodlad, A. McNair-Wilson, P. (New Forest)
Banks, Robert Gorst, John Madel, David
Beith, A. J. Gow, l, (Eastbourne) Marshall, Michael (Arundel)
Bell, Ronald Gower, Sir Raymond (Barry) Marten, Neil
Bennett, Dr Reginald (Fareham) Grant, Anthony (Harrow C.) Mates, Michael
Benyon, W. R. Gray, Hamish Mather, Carol
Berry, Hon Anthony Grieve, Percy Maude, Angus
Biffen, John Griffiths, Eldon Maudling, Rt Hon Reginald
Biggs-Davison, John Grimond, Rt Hon J. Mawby, Ray
Blaker, Peter Grist, Ian Maxwell-Hyslop, Robin
Body, Richard Grylls, Michael Mayhew, Patrick
Boscawen, Hon Robert Hall, Sir John Meyer, Sir Anthony
Boyson, Dr Rhodes (Brent) Hall-Davis, A. G. F. Miller, Hal (Bromsgrove)
Braine, Sir Bernard Hamilton, Michael (Salisbury) Mills, Peter
Brittan, Leon Hampson, Dr Keith Miscampbell, Norman
Brotherton, Michael Hannam, John Mitchell, David (Basingstoke)
Bryan, Sir Paul Harrison, Sir Harwood (Eye) Moate, Roger
Buchanan-Smith, Alick Harvie Anderson, Rt Hon Miss Monro, Hector
Buck, Antony Hastings, Stephen Montgomery, Fergus
Budgen, Nick Havers, Sir Michael Moore, John (Croydon C)
Bulmer, Esmond Hawkins, Paul More, Jasper (Ludlow)
Burden, F. A. Hayhoe, Barney Morgan, Geraint
Carlisle Mark Heath, Rt Hon Edward Morgan-Giles, Rear-Admiral
Carr, Rt Hon Robert Henderson, Douglas Morris, Michael (Northants)
Chalker, Mrs Lynda Heseltine, Michael Morrison, Charles (Devizes)
Channon Paul Hicks, Robert Morrison, Peter (Chester)
Churchill, W. S. Higgins, Terence L. Mudd, David
Clark, Alan (Plymouth, S) Holland, Philip Neave, Airey
Clark, William (Croydon, S.) Hooson, Emlyn Nelson, Anthony
Clarke, Kenneth (Rushcliffe) Hordern, Peter Neubert, Michael
Cockcroft, John Howe, Rt Hon Sir Geoffrey Newton, Tony
Cooke, Robert (Bristol W) Howell, David (Guildford) Normanton, Tom
Cope, John Howell, Ralph (North Norfolk) Nott, John
Cormack, Patrick Howells, Geraint (Cardigan) Onslow, Cranley
Corrie, John Hunt, John Oppenheim, Mrs Sally
Costain, A. P. Hurd, Douglas Page, Rt Hon R. Graham (Crosby)
Crawford, Douglas Hutchison, Michael Clark Page, John (Harrow West)
Critchley, Julian Irvine, Bryant Godman (Rye) Pardoe, John
Crouch, David Irving, Charles (Cheltenham) Pattie, Geoffrey
Crowder, F. P. James, David Penhaligon, David
Davies, Rt Hon J. (Knutsford) Jenkin, Rt Hon Patrick (Redbr.) Percival, Ian
Dean, Paul (N. Somerset) Jessel, Toby Peyton, Rt Hon John
Dodsworth, Geoffrey Johnson Smith, G. (E. Grlnstead) Pink, R. Bonner
Douglas-Hamilton, Lord James Johnston, Russell (Inverness) Price, David (Eastleigh)
Drayson, Burnaby Jones, Arthur (Daventry) Prior, Rt Hon James
du Cann, Rt Hon Edward Jopling, Michael Pym, Rt Hon Francis
Durant, Tony Joseph, Rt Hon Sir Keith Raison, Timothy
Dykes, Hugh Kaberry, Sir Donald Rathbone, Tim
Eden, Rt Hon Sir John Kellett-Bowman, Mrs Elaine Rawlinson, Rt Hon Sir Peter
Edwards, Nicholas (Pembroke) Kershaw, Anthony Rees, Peter (Dover & Deal)
Elliott, Sir William Kilfedder, James Rees-Davies, W. R.
Emery, Peter Kimball, Marcus Reid, George
Ewing, Mrs Winifred (Moray) King, Evelyn (South Dorset) Renton, Rt Hn Sir D. (Hunts.)
Eyre, Reginald King, Tom (Bridgwater) Renton, Tim (Mid-Sussex)
Fairbairn, Nicholas Kirk, Peter Rhys Williams, Sir Brandon
Fairgrieve, Russell Kitson, Sir Timothy Ridsdale, Julian
Farr, John Knight, Mrs Jill Rifkind, Malcolm
Fell, Anthony Knox, David Rippon, Rt Hon Geoffrey
Finsberg, Geoffrey Lamont, Norman Roberts, Michael (Cardiff N.W.)
Fisher, Sir Nigel Lane, David Roberts, Wyn (Conway)
Fletcher, Alex (Edinburgh N.) Langford-Holt, Sir John Ross, Stephen (Isle of Wight)
Fletcher-Cooke, Charles Latham, Michael (Melton) Rossi, Hugh (Hornsey)
Fookes, Miss Janet Lawrence, Ivan Rost, Peter (SE Derbyshire)
Fowler, Norman (Sutton C.) Lawson, Nigel Royle, Sir Anthony
Fox, Marcus Le Marchant, Spencer St. John-Stevas, Norman
Fraser, Rt Hon H. (Stafford & St.) Lewis, Kenneth (Rutland) Scott, Nicholas
Fry, Peter Lloyd, Ian (Havant) Scott-Hopkins, James
Shaw, Giles (Pudsey) Steen, Anthony (Liverpool) Wakeham, John
Shaw, Michael (Scarborough) Stewart, Donald (Western Isles) Walder, David (Clitheroe)
Shelton, William (Lambeth St.) Stewart, Ian (Hitchin) Walker, Rt Hon P. (Worcester)
Shepherd, Colin Stokes, John Walker-Smith, Rt Hon Sir Derek
Shersby, Michael Tapsell, Peter Wall, Patrick
Silvester, Fred Taylor, R. (Croydon NW) Walters, Dennis
Sims, Roger Taylor, Teddy (Glasgow C.) Watt, Hamish
Sinclair, Sir George Tebbit, Norman Weatherill, Bernard
Skeet, T. H. H. Temple-Morris, P. Wells, John
Smith, Cyril (Rochdale) Thatcher, Rt Hon M. Welsh, Andrew
Smith, Dudley (Warwick) Thomas, Rt Hon P. (Barnet) Whitelaw, Rt Hon William
Speed, Keith Thompson, George Wiggln, Jerry (Weston-s-Mare)
Spence, John Thorpe, Rt Hon Jeremy (Devon) Winterton, Nicholas
Spicer, James (W. Dorset) Townsend, Cyril D. Wood, Rt Hon Richard
Spicer, Michael (S. Worcester) Trotter, Neville Young, Sir George (Ealing)
Sproat, lain Tugendhat, Christopher
Stainton, Keith van Straubenzee, W. R. TELLERS FOR THE aYES:
Stanbrook, Ivor Vaughan, Dr Gerard Mr. Adam Butler and
Steel, David (Roxburgh) Wainwright, Rihart (Coine V) Mr. John Stradling Thomas.
Abse, Leo Deakins, Eric Hoyle, Douglas (Nelson)
Allaun, Frank de Freltas, Rt Hon Sir Geoffrey Huckfield, Leslie
Anderson, Donald Delargy, Hugh Hughes, Rt Hon C. (Anglesey)
Archer, Peter Dell, Rt Hon Edmund Hughes, Mark (Durham)
Armstrong, Ernest Dempsey, James Hughes, Robert (Aberdeen N.)
Ashley, Jack Doig, Peter Hughes, Roy (Newport)
Ashton, Joe Douglas-Mann, Bruce Hunter, Adam
Atkins, Ronald (Preston N) Duffy, A. E. P. Irvine, Rt Hon Sir A. (L'pool)
Atkinson, Norman Dunn, James A. Irving, Rt Hon S. (Dartford)
Bagier, Gordon A. T. Dunnett, Jack Jackson, Colin (Brlghouse)
Barnett, Guy (Greenwich) Dunwoody, Mrs. Gwyneth Jackson, Miss Margaret (Lincoln)
Barnett, Joel (Heywood) Eadie, Alex Janner, Greville
Bates, Alf Edelman, Maurice Jay, Rt Hon Douglas
Bean, Robert E. Edge, Geoffrey Jeger, Mrs Lena
Benn, Rt Hn Anthony Wedgwood Edwards, Robert (Wolv. S.E.) Jenkins, Hugh (Wandsworth)
Bennett, Andrew (Stockport N) Ellis, John (Brigg & Scun) Jenkins, Rt Hon Roy (B'ham, St)
Bidwell, Sydney Ellis, Tom (Wrexham) John, Brynmor
Bishop, Edward English, Michael Johnson, James (Kingston, W.)
Blenkinsop, Arthur Ennals, David Johnson, Walter (Derby S)
Boardman, H. Evans, loan L. (Aberdare) Jones, Alec (Rhondda)
Booth, Albert Evans, John (Newton) Jones, Barry (East Flint)
Boothroyd, Miss Betty Ewing, Harry (Stirling) Jones, Dan (Burnley)
Bottomley, Rt Hon Arthur Faulds, Andrew Judd, Frank
Boyden, James (Bish Auck.) Fernyhough, Rt Hon E. Kaufman, Gerald
Bradley, Tom Fitch, Alan (Wigan) Kerr, Russell
Bray, Dr Jeremy Fitt, Gerard (Belfast) Kilroy-Silk, Robert
Broughton, Sir Alfred Flannery, Martin Kinnock, Nell
Brown, Hugh D. (Glasgow Pr.) Fletcher, Raymond (Ilkeston) Lambie David
Brown, Robert C. (Newcastle) Fletcher, Ted (Darlington) Lamborn, Harry
Buchanan, Richard Foot, Rt, Hon Michael Lamond, James
Butler, Mrs Joyce (Haringey) Ford, Ben T. Latham, Arthur (Paddlngton)
Callaghan, Rt Hon J. (Cardiff S.) Forrester, John Leadbitter, Ted
Callaghan, Jim (Middleton & P.) Fowler, Gerald (The Wrekin) Lee, John
Campbell, Ian Fraser, John (Lambeth, N) Lestor, Miss Joan (Eton & Slough)
Cant, R. B. Freeson, Reginald Lever, Rt Hon Harold
Carmichael, Nell Garrett, John (Norwich S.) Lewis, Arthur (Newham N.)
Carter, Ray Garrett, W. E. (Wallsend) Lewis, Ron (Carlisle)
Carter-Jones, Lewis George, Bruce Lipton, Marcus
Cartwright, John Gilbert, Dr John Litterick, Tom
Castle, Rt Hon Barbara Ginsburg, David Lomas, Kenneth
Clemitson, I. M. Golding, John Loyden, Eddie
Cocks, Michael (Bristol S.) Gould, Bryan Luard, Evan
Coleman, Donald Gourlay, Harry Lyon, Alexander (York)
Colquhoun, Mrs Maureen Graham, Ted Lyons, Edward (Bradford W)
Concannon, J. D. Grant, George (Morpeth) Mabon, Dr J. Dickson
Conlan, Bernard Grant, John (Islington C.) McCartney, Hugh
Cook, Robin F. (Edin C) Grocott, Bruce McElhone, Frank
Corbett, Robin Hamilton, James (Bothwell) MacFarquhar, R.
Cox, Thomas (Wands, Toot) Hamilton, W. W. (Central Fife) McGuire, Michael (Ince)
Craigen, J. M. (Glasgow M.) Hamling, William Mackenzie, Gregor
Crawshaw, Richard Hardy, Peter Mackintosh, John P.
Cronin, John Harper, Joseph Maclennan, Robert
Crosland, Rt Hon Anthony Harrison, Walter (Wakelield) McMillan, Tom (Glasgow C.)
Cryer, Bob Hart, Rt Hon Judith Madden, Max
Cunningham, G. (Islington S.) Hattersley, Roy Magee, Bryan
Cunningham, Dr J. (Whiteh.) Hatton, Frank Mahon, Simon
Dalyell, Tarn Hayman, Mrs Helene Mallalieu, J. P. W.
Davidson, Arthur Healey, Rt Hon Denis Marks, Ken
Davies, Bryan (Enfield N.) Heffer, Eric S. Marquand, David
Davles, Denzll (Llanelli) Hooley, Frank Marshall, Dr Edmund (Goole)
Davies, Ifor (Gower) Horam, John Marshall, Jim (Leicester)
Davis, S. Clinton (Hackney C.) Howell, Denis (B'ham, Sm H) Mason, Rt Hon Roy
Meacher, Michael Roberts, Gwilym (Cannock) Thomas, Ron (Bristol NW)
Mellish, Rt Hon Robert Robertson, John (Paisley) Thorne, Stan (Preston)
Mikardo, Ian Roderick, Caerwyn Tierney, Sydney
Millan, Bruce Rodgers, George (Chorley) Tinn, James
Miller, Dr M. (E. Kilbride) Rodgers, William (Teesside) Tomlinson, John
Miller, Mrs Millie (Redbridge) Rooker, J. W. Torney, Tom
Mitchell, R. C. (Soton, Itchen) Roper, John Tuck, Raphael
Molloy, William Rose, Paul B. Urwin, T. W.
Moonman, Eric Ross, Rt Hon W. (Kilm'nock) Varley, Rt Hon Eric G.
Morris, Alfred (Wythenshawe) Rowlands, Ted Wainwright, Edwin (Dearne V.)
Morris, Charles R. (Openshaw) Ryman, John Walden, Brian (B'ham, L'dyw'd)
Morris, Rt Hon John (Aberavon) Sandelson, Neville Walker, Harold (Doncaster)
Mulley, Rt Hon Frederick Sedgemore, B. Walker, Terry (Kingswood)
Murray, Ronald King Selby, Harry Ward, Michael
Newens, Stanley Shaw, Arnold (Redbridge, ilf.) Watkins, David
Noble, Mike Sheldon, Robert (Ashton-u-Lyne) Watkinson, John
Oakes, Gordon Shore. Rt Hon Peter Weetch, Ken
Ogden, Eric Short, Rt Hon Edward (Newcastle C) Weitzman, David
O'Halloran, Michael short, Mrs Renée (Wolv NE) Wellbeloved, James
O'Malley, Brian Silkin, Rt Hn John (Lewish.) White, Frank R. (Bury)
Orbach, Maurice Silkin, Rt Hn S. C. (Southwk.) White, James (Glasgow, P)
Orme, Rt Hon Stanley Sillars, James Whitehead, Phillip
Ovenden, John Silverman, Julius Whitlock, William
Owen, Dr David Skinner, Dennis Willey, Rt Hon Frederick
Padley, Walter Smith, John (N. Lanarkshire) Williams, Alan (Swansea)
Palmer, Arthur Snape, Peter Williams, Alan, Lee (Haver'g)
Park, George Spearing, Nigel Williams, Rt Hn Shirley (Hertford)
Parker, John Spriggs, Leslie Williams, W. T. (Warrington)
Parry, Robert Stallard, A. W. Wilson, Alexander (Hamilton)
Peart, Rt Hon Fred Stewart, Rt Hn Michael (H'smith, F) Wilson, Rt Hon H. (Huyton)
Pendry, Tom Stoddart, David Wilson, William (Coventry S.E.)
Perry, Ernest Stott, Roger Wise, Mrs Audrey
Phipps, Dr Colin Strang, Gavin Woodall. Alec
Prentice, Rt Hon Reg Strauss, Rt Hon G. R. Woof, Robert
Price, William (Rugby) Summerskill, Hon Dr Shirley Wrigglesworth, Ian
Radice, Giles Swain, Thomas Young, David (Bolton E.)
Rees, Rt Hon Merlyn (Leeds S.) Taylor, Mrs Ann (Bolton W) TELLERS FOR THE NOES:
Richardson, Miss Jo Thomas, Jeffrey (Abertillery) Mr. J. D. Dormand and
Roberts, Albert (Normanton) Thomas, Mike (Newcastle) Mr. Laurie Pavitt.

Question accordingly negatived.

Back to