PRICE AND PAY CODE

HC Deb 17 October 1973 vol 861 cc201-344

Mr. Speaker

Before I call the Prime Minister to move the Motion relating to the Price and Pay Code for Stage 3, I wish to inform the House that I have selected the amendment in the name of the Leader of the Opposition and his right hon. Friends, to leave out from ' House' to the end of the Question and to add instead thereof: 'noting the failure of the counter-inflation policy adopted by Her Majesty's Government over the last twelve months, which has proved both unfair and unworkable, declines to imply approval either of their record over the past year or their plans for the next year by taking note of Command Paper No. 5444; and calls for the adoption of policies that will protect living standards of ordinary families above all by controlling prices and rents, house prices and mortgage interest rates, and safeguard their future prosperity'.

3.30 p.m.

The Prime Minister (Mr. Edward Heath)

I beg to move, That this House takes note of the Consultative Document on the Price and Pay Code for Stage 3 (Command Paper No. 5444). I have on previous occasions told the House about the consultations which were going on between the Government, the CBI, the TUC and other organisations in the course of the summer and during stage 2 about the development of stage 3. These discussions were carried on within the same framework which we had agreed last year, the framework of three objectives, that is, the maintenance of economic expansion, the protection and improvement of the position of the low paid and pensioners, and the containment of inflation.

We were, therefore, in agreement about our objectives. It was the means to these ends which we have been discussing. To a certain extent, there was agreement between us about the means which we should pursue. In other fields, we were not agreed. But my colleagues and I have considered very carefully all the points which were put to us, and it is on this basis that we have published the proposals on which we are seeking the views of the House today.

This is a consultative document. We are carrying on consultations with organisations outside the House, but this is meant as a consultative debate today in which we shall listen with the utmost care to the points and proposals put forward by hon. Members on both sides.

It is apparent that the codes provided in the Green Paper, the consultative document, remain in statutory form. Perhaps the first question which should be asked is whether this is necessary. The Government's answer is that in present circumstances it is. It is necessary because it has not been possible in the course of the discussions to reach agreement about how the three objectives I have mentioned could be attained through a purely voluntary agreement. It is true—it is only fair to say it—that the employers would like to see no controls on prices but controls maintained on wages and incomes, and it is fair also to the TUC to say that it would like to see no controls on wages and incomes but full controls on prices.

However, the discussions which we have had about these matters have led to a considerable measure of understanding about how we should operate within the framework of the Act at present and the codes which have now been published.

When one talks only about free negotiation, one has to accept—I think that all have to accept—that problems exist even in a state of voluntary bargaining. Indeed, in some aspects of incomes and wages—this is touched on in one proposal put forward by the Liberal Party in its amendment—there is the use of the law to achieve the purposes we wanted. I suppose that the two major examples which at the moment exist under what has previously been a system of voluntary negotiation are the wages councils, in an endeavour to help the lower paid, and the movement towards equal pay for women, both of which have been provided for by statutory means. It is, therefore, an extreme position to say that in no circumstances could there be legal intervention in relation to collective bargaining.

As regards the framework which I have mentioned, one point in the discussions was urged on us more than any other by both unions and employers, namely, the need for greater flexibility—flexibility in dealing with the wide variety of circumstances and problems which arise in determining individual pay and conditions of employment, and flexibility, on the other hand, to encourage investment and improve efficiency. This theme ran through all our discussions, and as the Government we have accepted it. In other words, what was being urged upon us within the framework was a greater area of freedom. We have accepted this because we want to make orderly progress in both incomes and investment for industry.

I believe that there is an important psychological point in this connection as well. As people see that we can make orderly and steady progress, even though it may not immediately be as fast as they would like, they can then take a longer-term view of their own prospects and the prospects of industry instead of feeling that they have to take a short-term view because of the danger of the economy being brought to a stop once again.

In moving forward in orderly fashion to give greater freedom within this framework, we have a wider point in mind also. My colleagues and I have never disguised the fact that we were reluctant last year to introduce statutory controls. We did so because we came to the conclusion last November that there was no other way of containing inflation. Essentially that remains the position today. The consequences of abandoning controls entirely would at this moment, I believe, be disastrous. Those who challenge this view—whether for the abolition of controls on prices, as some advocate, or for the abolition of all controls over incomes, as others do—should, I suggest, in a debate of this kind take it as incumbent upon them to put forward positive proposals as to how they would achieve our three objectives of economic expansion, containing inflation and helping the lower paid and pensioners. They should at the same time indicate clearly what the other consequences of their own proposals would be, in particular what the consequences would be for the level of production and output in this country and also the consequences for the level of employment. If there are to be alternatives, let us have clear proposals put forward, and let us have the specific consequences of those proposals explained to the House and to the country.

We were determined in the discussions to extend the area of freedom as widely as possible, and this was agreed between us. The question was how we could provide this greater flexibility while preventing a resurgence of wage inflation and maintaining the fairness of the arrangements at which we aimed in stage 2.

In other words, in the standstill we had a fixed position. It was a freeze, and there was no room for negotiation. We then moved into stage 2, in which there was greater flexibility. It was not a freeze, and it is entirely false to describe it as such. There was deliberate room for negotiation because of the form of the framework, the £1 plus 4 per cent. It was not a fixed amount. It was an upper limit. It put a specific emphasis on helping the lower paid, and within the limit, taking the negotiating group as a whole, the amount and the distribution could be negotiated.

In the Opposition amendment there is talk of these arrangements being unworkable.

Mr. Stanley Orme (Salford, West)

Absolutely.

The Prime Minister

How can they be said to be absolutely unworkable when, in fact, 5,806 arrangements negotiated have been approved, covering 13.7 million workers? That is what has happened under stage 2. There has been this vast number of settlements, and very few difficulties have been encountered in it. I pay tribute at once both to employers and to unions for the success which has been achieved under stage 2 of the policy.

It was then put to us that other situations had to be dealt with in stage 3, and we have tried to deal with these. I shall mention them specifically. Both the unions and the employers stressed the need not to hold up schemes for improving efficiency. Both said that such schemes had to be genuine, schemes for genuine improvement, and not just a bogus cover for excessive wage settlements. It has been mentioned that this had been one of the major causes of the breakdown of the last Government's policy in this field. The employers wanted them to be genuine schemes, and so did the trade union leaders because they did not want a union to have the opportunity of an unfair deal on a bogus arrangement. So we have put forward proposals as to how that can be done.

We can discuss and we shall be discussing with the TUC next Monday, as we did with the employers on Monday last, the actual arrangements so that schemes are attractive but at the same time cannot be abused. There is room for judgment here as to how the schemes should be organised and how they should be introduced and monitored, and that is something which can certainly be discussed in detail in the talks.

Both sides stressed the need to provide flexibility for dealing with special situations where anomalies have to be dealt with or pay scales re-structured or where there are special problems of hours or other conditions of employment. That we have done through the flexibility margin. I believe it has been welcomed.

Mr. Dennis Skinner (Bolsover)

On the question of the flexibility allowance, may we take it that it was in this area that Sir John Stratton moved himself? Will the Prime Minister tell us whether that malpractice took place under phase 1 or phase 2 or both and if, as Sir John Stratton now suggests, it took place before, whether the continuing practice of increasing his money as a result of so-called productivity was an abuse of both phase 1 and phase 2? What action will the Prime Minister take about it in view of this enormous flexibility?

The Prime Minister

It was obviously not taken under the flexibility margin because that has still to be introduced under phase 3. I shall deal in detail with this a little later in my speech.

Mr. John Grant (Islington, East)

Since the Pay Board has recognised that the Civil Service pay situation is a glaring anomaly, does the Prime Minister accept that if it is to be corrected under phase 3 and not perpetuated it will be necessary to back-date Civil Service pay increases at least to the beginning of phase 2, and if not, why not?

The Prime Minister

I was dealing with the flexibility margin and mentioning anomalies under it but they are separate from the specific anomalies dealt with by the Pay Board as a result of the standstill and stage 2. I am coming to the point with which the hon. Member for Islington, East (Mr. John Grant) is concerned, namely, anomalies caused by the standstill. We have always intended to give special consideration to them under stage 3 and we have accepted the basis recommended in the Pay Board's report. That will not give the hon. Member everything he seeks. In the discussions with the Staff Side of the Civil Service which I hold as Minister for the Civil Service, I have listened to all the points put. We are obviously considering them all but we accept the basis recommended in the Pay Board's report.

Of course, in all the wage settlements after the introduction of the new policy, there had to be some measure of restraint, but the principles recommended by the Pay Board in its report seemed to us to provide a fair balance for dealing with those cases where an identifiable pay link was broken by the standstill. That includes the Civil Service on which it made a specific recommendation. The board has to report on relativities before the end of the year under the special remit given to it earlier.

By the amendments we are proposing to the Pay Code we provided for all the special circumstances where we felt we could do so within our agreed aims. At the same time we have maintained the provision for improving the position of the low paid which has been one of the principles of our approach throughout.

I emphasise the different ways in which that is being done under stage 3. First, it is being done through the form of the pay limit which gives a choice to negotiators of either £2.25 or 7 per cent., plus what is allowable under the additional arrangements outside that specific limit. The sum of £2.25 for everybody below £33 per week gives a higher percentage than 7 per cent. and therefore those who are thought of in normal terms as the lower paid will stand to benefit, proportionately, substantially more than those who are working with the 7 per cent. arrangement. The figure of £33 per week is the dividing line between £2.25 and the 7 per cent. arrangement though they can be in combined negotiating groups if the negotiators desire.

Secondly, the lower paid are helped by the continued and extended provisions for equal pay and improvements in hours and holidays because the lower paid are usually below standard in these respects. The arrangements for thresholds particularly benefit the lower paid because by having a standard payment, if the threshold is reached, the lower paid will be receiving proportionately more than those with higher incomes. Lastly they are helped through the comprehensive proposals we have now put to the TUC and the CBI for the creation of machinery to improve industry's capacity to pay higher wages through increased efficiency. The only effective way to deal with the lower paid is for industry, by increased capital investment, new techniques and other means, to improve its efficiency which will then enable it to start its workers at higher rates of pay.

At this point I shall deal with the proposal in the Liberal Party amendment for a minimum earnings level. We have considered the suggestion carefully during our talks. We found that to require earnings of all full-time employees to be brought up to two-thirds of the average for male manual workers—which will be about £25 a week, the figure suggested by the TUC—would directly cost in the region of £2,000 million a year. That would be nearly 50 per cent. of the total increase in wages and incomes allowed for in the year under stage 3. It is most important that it is realised what would be involved in going for a minimum incomes level at this stage.

Mr. Jeremy Thorpe (Devon, North)

That is why it is there.

The Prime Minister

The right hon. Gentleman the Liberal Leader says that is why he put it there, but he must ask himself whether he believes that the rest of the working population would be prepared to see the proposals we have put forward cut by half, with all that means for differentials and so on, in order to allow a change of this kind.

We must also look at the analysis of those who would benefit from this kind of arrangement. Sixty per cent. of those benefiting would be women who would get increases averaging around 15 per cent., which would be about 10 times what is needed for full equal pay. We have arranged to achieve equal pay in two equal parts by the end of 1975, which is what the law requires. But the minimum earnings proposal would require 10 times that amount. Also, 10 per cent. of those who would benefit would be men under the age of 21. Does the right hon. Gentleman believe that the rest of the 23 million working population would agree to half the amount available going to these categories of low-paid workers?

The scheme would increase the wage bill of the clothing industry by 15 per cent. and of the distribution industries by over 10 per cent. with consequent increases in the price of food and clothing. I put these hard facts before the House because we have all from time to time said it would be desirable to have or consider a minimum earnings level of some kind. We are trying to move upwards at a reasonable rate and faster than others in our attempt to help the lower paid. But to go through with this proposal would have the consequences I have outlined for the remaining working population.

Mr. Thorpe

The Prime Minister asked whether we realised what a guaranteed minimum wage would cost immediately. The answer is that we are well aware of the cost and it is for that reason that it is not practicable to introduce it immediately. Has he worked out the cost over a four-year period? We have worked out that figure and it is 3½ per cent. per annum on the wage bill, which I am sure he agrees could be absorbed. Has the Prime Minister studied the experience of European countries who have introduced minimum guaranteed earnings? Is he aware that the last people who will help the lower paid in this country are other employers and other workers and that that is why the Government have to act?

The Prime Minister

We have studied the points raised by the right hon. Gentleman. It is doubtful whether one could take 3½ per cent. on the wage bill purely in this respect in any given year. I am not arguing about the desirability of improving the position of the lower paid. That has been one of our objectives throughout the talks. What I am discussing is the best way of achieving it in a way which will be acceptable to the community as a whole—both employers and trade unions, as the right hon. Gentleman says—and at the same time will not have such an impact on prices as to affect the rest of the policy or such an impact on employment as to affect the future of those who are paid in those industries.

I know there are some who judge that the proposal of £2.25, if accepted, may very well have an impact on employment for some of the lower paid. I hope it will not. I believe that our other proposal, affording the opportunity to examine ways in which industry can support a higher wage for these workers, is valuable. I am glad that the TUC and the employers are urgently considering it, and will discuss with us the best way in which it can be established.

I should like to say something else on the point raised by the hon. Member for Bolsover (Mr. Skinner). The pay code under stage 2 contains several provisions relating to pre-standstill commitments and obligations affecting employees at all levels which could be honoured in stage 2. These included increases in pay under settlements reached before the standstill and schemes for payment by results in operation before 26th November 1972. This provision was put in as a result of our previous discussions with all those concerned, for obvious reasons. There were a considerable number of agreements between the unions and the employers which they urged ought to be left intact. We made that arrangement. The Pay Board is inquiring into the case the hon. Gentleman mentioned to see whether there has been any infringement of the pay code. We are reviewing urgently the provisions of the code that we have put forward in stage 3 as part of the general review, which is subject to consultations, to see whether any modification to those provisions is necessary.

I have seen it suggested that because of the extra flexibility we propose in stage 3 earnings will rise a great deal more than we have calculated. We do not believe that there is any reason why this should be so. The code certainly affords more freedom for negotiators. That is its purpose. But this is contained within a framework which provides safeguards against abuse. The fresh provisions are tightly drawn. For example, where payments flow from new efficiency schemes they will all be subject to Pay Board scrutiny to ensure that gains in efficiency are achieved and more than offset the extra payments, so that these schemes can make a real contribution to the reduction of costs and thus help the consumer.

Mr. Charles Loughlin (Gloucestershire, West)

Before the right hon. Gentleman moves from the question of an excessive wage increase for a particular individual, may I ask whether he is saying that he is going to take no definite action on this indecent incident? Has he investigated whether there is more than one case of this kind, whether there are not substantial numbers of similar cases?

The Prime Minister

I have told the House that the Pay Board is now examining this case. It is the Pay Board's responsibility to examine cases where it believes that the code has not been observed or where there may be reason to believe that it has not been observed. I have told the House also that we are therefore reviewing this provision in stage 3. That is specific action being taken.

I turn to prices—

Mr. Arthur Lewis (West Ham, North)

Will the right hon. Gentleman give way?

The Prime Minister

No. I cannot give way again.

On prices, the information given in the consultative document and in the report of the Price Commission, published yesterday, demonstrates the success that we have had in keeping the effect of rising world prices to a minimum. Between November 1972 and August 1973 import prices rose by 24 per cent. The wholesale prices of manufactured products sold on the home market rose by 4.7 per cent. Raw material costs of manufactured foods rose by 28 per cent.; wholesale prices rose by 11 per cent.; and retail prices rose by 3½ per cent.

Taking stage 2 alone, in the period April to August 1973, prices of materials and fuel bought by manufacturing industry rose by 15 per cent. The increase in wholesale prices was 4 per cent. That shows the extent to which price increases have been absorbed by industry, by its increasing efficiency and increased turnover as a result of an expanding economy. There are also increases resulting from import prices, of which we have heard another instance today, which may still be in the pipepline. But industry has played its part, and so has the Price Commission.

The increases notified between April and August were scaled down by nearly a third following the Commission's scrutiny. Far from being unworkable, as the Opposition amendment suggests, the policy has had a major impact in controlling prices and in coping with the increased prices as a result of world conditions.

Mr. Cledwyn Hughes (Anglesey)

A good deal has been said about what the Price Commission has done in rejecting applications for increases. Has the Prime Minister calculated what savings to the housewife would have been made if this machinery had been introduced two years earlier?

The Prime Minister

The right hon. Gentleman might ask himself what would have happened if his own Government had introduced that machinery. What we were trying to get was a voluntary arrangement. We had from the CBI a voluntary agreement covering a large area of prices which was very effective.

We have looked carefully at the prices code—[Interruption.]—I know hon.

Members do not like the facts, but they will get them. We have looked at the prices code to see whether it needs to be tightened up and we have taken action in that respect. We have included a thousand new companies—the category 2 companies with turnovers between £5 million and £50 million—which will now have to notify and justify price increases to the commisison. In addition, we have dealt with the splitting of industries for profit reference purposes and are giving the Price Commission greater powers under paragraph 72 concerning retailers' margins.

At the same time, we have made important amendments in the interests of investment. These will enable the Price Commission to apply the controls so that firms can get ahead with the investment which the economy needs. An increase of 15 per cent. in manufacturing industry is forecast from 1973 to 1974, which is welcome.

Mr. Robert Adley (Bristol, North-East)

Has my right hon. Friend seen the proposals put forward by the managing director of the Spar-Vivo group that the Government might invite the managing directors of 10 leading food supermarket groups to meet to see whether they would agree to Mr. Reynolds's proposals to hold for six months the basic prices of 10 or even 20 types of foodstuffs?

The Prime Minister

This proposal has been discussed with the retailers. It is one which they have examined. I think that if they came to the conclusion that it was practicable the retailers themselves would wish to put forward a combined scheme rather than the one mentioned by my hon. Friend.

This is a consultative document and it is incumbent upon the Opposition to say specifically what sort of price code they want. They apparently wish to have price control. Let them be quite specific and say in this debate what sort or price code they wish to have instituted. Let them tell us specifically where they think it ought to be improved or tightened in addition to the places where we have already done that. Let them tell us that they are prepared to allow for the increases in imported materials and to accept the increase in prices which comes from that. Let them say whether they are prepared to allow for the increased wage costs which come about under stage 3 as a result of our proposals, and to allow for the increased costs from that.

Let them also say how the sort of code they wish will be consistent with obtaining the investment which they say is essential for British industry if we are to continue expansion. If it is to provide for that investment, let them acknowledge that it can come only from the profitability of industry—sufficient profitability to cover the investment and to provide inducement for further investment. Dividends are still strictly limited under the code. It is incumbent upon the Opposition to point out what sort of price control they will have which will enable these points to be met.

I am sometimes told by employers, if I may now turn to the wages side, that they are worried about the restrictions which the wages policy imposes on their ability to get the labour they need. It is sometimes said that controls are evaded by the movement of labour to other firms at higher rates of pay. These fears are sometimes exaggerated and certainly in the examination which we have made of movements ion. If it is to provide for that investment, let them acknowledge that it can come only from the profitability of industry of labour there has not been much justification for them. A situation which exists in some places is that a firm which has been paying higher wages—because it may have more modern equipment or for any other reason—than a nearby firm, finds in the expanding economy that it can take on more people and does so at its wage level. People go there because they are paid better wages than in another firm.

This is understandable and is what is going on in some parts of the country. Even so, it can be exaggerated.

Mr. Eric S. Heffer (Liverpool, Walton)

Will the Prime Minister explain to the House what is happening now in the building industry where there has been this great development and expansion of labour-only subcontracting—"the lump"—which is growing the whole time and being aggravated as a result of the Government's pay policy? This is one escape route for the workers and it is causing a great deal of trouble among organised workers in the industry who are tied down by the pay policy.

The Prime Minister

I shall be talking about the construction industry in a moment. The hon. Gentleman will recognise that this is one of the most difficult problems. It is one which the TUC is considering. It has also been discussed in Neddy, and the Pay Board has set up its construction panel to look specifically at this point. Two recommendations have been made so far, which have been accepted.

I turn to the wider problem, of which I was speaking earlier. I must tell the House that competitive bidding up is not the answer to the genuine problem which exists in some places. It is by this that wage inflation has so often been caused.

If we are to keep hold of wage inflation at the same time as running the economy at a reasonably high level, then employers must find an alternative way of dealing with the problem instead of just bidding up wage rates. The alternative can only be taking up the remaining slack which still exists in the economy by making better use of their existing labour. It is the new provisions in the code for investment and efficiency schemes which we believe will help in that direction.

Mr. Emlyn Hooson (Montgomery)

The Prime Minister has not dealt with the point raised yesterday by my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond) who spoke of an area where a high wage industry such as the oil industry comes in and existing traditional industries there are unable to compete for labour and there is no slack to take up and there are no houses available for any incoming workers. This is a problem in many areas.

The Prime Minister

This is a particular problem on the East Coast of Scotland, which I do not think exists to quite the same extent elsewhere. I have seen it for myself and that is why the Secretary of State for Scotland has put particular emphasis upon getting the houses built, so that people can move to these areas to meet the needs of the industry. It is a comparatively recent development. When I was there a year ago all the employees needed were available, and more. Things have now developed at a rate which has created that problem. Many in Scotland who have not got jobs will be able to get themselves trained and earn good wages on the East Coast. The problem at the moment is primarily one of housing these people. I fully accept that.

These are the alternative ways in which we can deal with the problem. Yesterday the TUC said that we had not responded to all their proposals. I shall be meeting them next Monday and naturally I do not want now to discuss the individual points which they make. But I do want to say that we recognise the value of collective bargaining. I have explained that we have tried to expand the scope for it. I believe that we have substantially expanded the scope in the proposals we have put forward.

The agreed objectives of the whole exercise cannot be achieved unless there is some effective guarantee of restraint by those groups in strong bargaining positions. I have always said that I would be content, indeed I would prefer, that this restraint should be self-restraint. A voluntary agreement has always been open and remains open. But the restraint, whether statutory or voluntary, must impose some effective safeguard against some of the effects of freedom in collective bargaining which we have seen in the past.

I hope that the Leader of the Opposition will make his own position clear on this. Does he accept the logic of this argument? As I understand it, his position is that he wishes to maintain controls on prices but does not wish for any on wages and incomes. That is a recipe for disaster. Does he accept that any agreement which has to deal effectively with inflation must impose a limit on the bargaining position of the big unions? Does he still believe that one man's pay increase is another man's price increase? He should make plain his position, not only about what he requires on prices, but also on how he believes that this restraint can be achieved through the whole of the wage bargaining system.

There are always conflicting demands on our national income and it is out of these demands that the problems arise. We are trying to deal with them in an orderly way under our proposals for stage 3. It is, for the moment, the only way in which a responsible Government and Parliament can hope to make progress. What we have to do as a Govern- ment is to concentrate the help which we can give in this situation upon those who most need it.

We have discussed this with all who were parties to our discussions. This is what we have done with rents. We have made the resources available, whether in local authority housing or in private rented housing, to those who most need help. I have never understood just what justification there could be for freezing the rent, in this situation, of those with incomes of over £40 a week, of those who can now claim an increase of 7 per cent. plus the additional arrangements for which we have provided, and at the same time saying that their rents should be subsidised by others, including the lower paid and the pensioners who are getting less than they are. I cannot see any intellectual or social justification for that approach whatever.

The Opposition amendment also says that there is to be complete control of house prices. Most people would like to know how this is to be achieved.

Mr. Harold Wilson (Huyton)

Start with land.

The Prime Minister

How will that control the selling price of a house which is already built? Anyone can tell the right hon. Gentleman that the machinery required to control the selling price of every house in this country is impossible to create. Anything in the amendment or the debate which is put forward about controlling the price of housing in this country is entirely bogus.

I hope that the right hon. Gentleman will also explain how he will control interest rates, which he never at any time proposed to do under his own restraint. When he published his White Paper the right hon. Gentleman did not know that world interest rates would remain stable, but he said clearly that he would not control interest rates, for obvious reasons. A financial centre such as London cannot have its interest rates controlled when it is in competition with every other financial centre in the world. If the right hon. Gentleman intends to control mortgage rates, let him tell the House to what level and how much subsidy he will provide for controlling them.

Mr. Skinner rose—

The Prime Minister

No, not again. I come to food subsidies, which we have also discussed. I have told the House that we are not dogmatically against subsidies.

Mr. Skinner rose—

The Prime Minister

I have given way to the hon. Member for Bolsover (Mr. Skinner) several times, and I have given way many times to other hon. Members. I have shown the utmost courtesy. A large number of hon. Members wish to speak in the debate and I ask the hon. Member for Bolsover to show the same restraint and courtesy.

Mr. Skinner

Tell us about the Australian system.

The Prime Minister

We have been subsidising and will continue to subsidise milk. It is nice to know the source of the Leader of the Opposition's information—I see the hon. Member for Bolsover whispering in his ear.

We have used food subsidies in certain circumstances where the demand is fairly inelastic and where the supply is under our control. This we are doing with milk and we have done it with potatoes. The cost is considerable, but we are continuing to do it.

We are also keeping down nationalised industry prices, for which we are greatly criticised by the nationalised industries themselves. We are doing this as part of the counter-inflationary policy at a cost of about £200 million. This is the amount by which the prices are being kept down but the cost is about £400 million when the Government's contributions to all the nationalised industries together are taken into account.

Mr. Arthur Palmer (Bristol, Central)

Will the Prime Minister say something about pay policy in the nationalised industries? Outwardly they are treated as industrial undertakings, yet all the time behind the scenes Ministers are interfering-with the pay and price policies of the nationalised industries.

The Prime Minister

Under stage 3, as under stage 2, nationalised industries are governed by the code. Under stage 3, as proposed, a Minister has the power to say that the full price permitted by the Price Commission will not be allowed by the Government. That is done openly in the interests of the counter-inflationary policy if the Government so decide. But in the first instance the nationalised industry can put forward to the Price Commission its own proposals which are considered under the code. I hope that that answer satisfies the hon. Gentleman.

To subsidise foodstuffs generally would be enormously expensive and I think that the Leader of the Opposition must acknowledge that. The cost of subsidies to put the price of foodstuffs generally at the level of a year ago is £1,400 million. Even if the Leader of the Opposition took every penny of income over £5,000 a year, that would yield him less than an extra £400 million. In other words, the taxation involved has to go down into everybody's pay packet and that should be made absolutely clear to everyone.

So much of our food is imported and the price is outside our control. The impact of a subsidy today—quite different from during wartime—is to remove any incentive on the overseas suppliers to contain their price and to remove the incentive of our own importers to use their bargaining power to get the price reduced. That is an important factor when considering major items which are largely imported from overseas.

Let us look at the question of grain prices, which enter not only into bread but into many other staple foodstuffs and also into animal feed. The price of wheat on world markets today is about there times what it was this time last year. Membership of the Community is of positive benefit. We can now buy French wheat at £20 a ton less than we should be able to do if we were outside the Community. But we are having to pay £90 or £100 a ton for some of the hard wheat coming largely from Canada that we need for our bread. That is bound to affect the costs of our bread producers in the future.

What would be the effect if we were to peg the price by a large subsidy? We have a large harvest in this country and the reports from the Soviet Union and North America have shown a great improvement. It may be that prices are stabilising, although it will be some time before the grain to which the stabilised prices relate will be delivered. It would be extraordinary if at this time we were to intervene in the market with a substantial subsidy and so reduce both the pressure on those who are selling grain in the world markets to reduce their price and also the incentives to our buyers to exploit their skill in getting the lowest prices.

For these and other reasons we have come to the conclusion that the best way of handling this difficult problem is by the approach which we set out in stage 3, with a reasonable—indeed some commentators have said a generous—limit for pay arrangements and a cost-of-living safeguard for the wage earner. We have, of course, taken action to protect those with the special problems such as the lower paid, the pensioners and those who are buying their houses on mortgage. That is the approach which we have adopted and which we believe is the right one in these circumstances to deal with a very difficult problem.

I sum up by saying that we want to achieve our purpose of maintaining expansion, taking advantage of our competitiveness in world markets. For the reason I have given, I do not accept the recipe which the Leader of the Opposition produced when he came back from holiday of higher taxation—involving massive taxation, with substantial food subsidies. His recipe also involved freezing rents, which means that the better off who can afford to pay do not and those who have rebates have them taken away. That is not a policy which I can accept from the right hon. Gentleman, nor do I believe it makes sense.

What we must do is maintain our expanding economy and, with a position of competitiveness throughout the world that has been unequalled since 1945, exploit the opportunities now open to us. It means devoting more of our output to balance of payments and investments, and the Government have accepted that in relation to Government spending. After the increase in expenditure which was deliberately planned to take up unemployment and increase production, the Chancellor of the Exchequer has now taken steps to restrain its growth. As the House knows, he announced in May of this year a reduction in public expenditure programmes for 1974–75 amounting to £500 million to make the necessary room for investment and exports next year. Our present proposals to help pensioners have been offset in such a way that they will not add to the level of demand, and public expenditure from now on will be growing more slowly than our national income. This, surely, is the right way to proceed.

If we come up against areas of the economy where there is excessive demand we can deal with those problems as they occur without bringing the whole economy to a stop. That is what we have done with the construction industry. It is part of the public sector where excessive load has been inflating costs and delaying production. We are now phasing forward contracts which might be placed in the latter part of this year.

The projects will go ahead. Some were being held up anyway by a shortage of capacity. We are giving the construction industry time to increase its capacity by additional training and by obtaining additional resources and at the same time we are giving it the opportunity of steadying its prices.

I do not believe that in general unemployment is too low—if that is the view of the Opposition, let them say so—but there can be difficulties in specific areas. The real problem facing this country is that we still have more than half a million unemployed, but they are in the wrong places from the point of view of the work and they do not have the right skills from the point of view of the employment for which they are required. That is the problem with which we have to deal. It cannot be dealt with by creating more unemployment. That would undermine the confidence of industry when it is now prepared to invest, and undermine the confidence of those who are being trained and retrained and who would not think it worth while to do so if there were to be increased unemployment.

Mr. John Mendelson (Penistone)

The Prime Minister has now completed, almost word for word, a repetition of what he said at the Press Conference. Will he now take the matter a little further in the House of Commons and tell the House on what precise points his negotiations with the Trades Union Congress have broken down? He failed to do that before introducing phase 1. It is his duty to tell the House now, not to hide behind further negotiations. We have a right to know why he did not reach a voluntary agreement with the Trades Union Congress. On what point did the negotiations break down?

The Prime Minister

The negotiations with the trade union movement have not broken down. They are coming to see me next Monday to have further talks with my colleagues and myself. I am sorry that the hon. Gentleman has a complete misunderstanding of the attitude of the TUC.

I have said that we have to have a labour force which is meeting our requirements. In the past year, the number of people moving with Government help has more than doubled, and we have now introduced a new scheme to help people with the cost of looking for jobs in areas where work is more plentiful. In 1971, we trained 15,000 people; last year, under the Training Opportunities Scheme, we trained nearly twice that number; and in the first nine months of this year we have already passed the total which we achieved last year. The Employment Service is being reorganised so as to make a more effective contribution in bringing together people and jobs.

But in the last resort these problems will be solved by the ingenuity of individuals up and down the country, together with the help and co-operation of both employers and trade unions, both of whom have told us that they will do everything possible to help. So I believe there is no reason why, if we pursue these practical policies, our economy should not grow at a rate more nearly like that of our overseas competitors—not just for a year or two, but over a sustained period. We made it clear to all the organisations with whom we have had discussions at No. 10 and at Chequers that, in the end, it was the views of this House which would prevail. We wished to reach agreement with them so far as we possibly could—

Mr. John Mendelson

Why did you not?

The Prime Minister

—and they all understood this. I have already explained to the House and to the hon. Gentleman, that the reason why we do not have a voluntary arrangement is that neither the employers nor the trade unions could convince us that they would be able to contain inflation if there were to be no control of any kind at this stage of the economy. That is a very simple statement of fact.

Everybody in the discussions understood that this was something for Parliament finally to decide. There is something here which is more than a constitutional point, because inflation affects not just the members of these organisations but every citizen and every family in the country. And it is this House and Parliament alone which represent the interests of all the citizens of this country, and it is therefore on this House that the responsibility for decisions must fall.

I know that the House will wish to consider carefully the proposals put forward in this consultative document. I have asked that the House should comment in detail, and I hope constructively, on all the proposals which we have put forward. We shall listen to all of these comments with care and we shall take them into account. We shall also take into account views which are given to us by those who feel themselves affected, whether as organisations or as individuals. Then will be the time for the substantive codes to be published.

But I hope that all the time the House and the organisations are doing this, they will remember that our purpose is to contain inflation and to enable us to sustain in the long term the growing prosperity on which the future of this country depends.

4.24 p.m.

Mr. Harold Wilson (Huyton)

I beg to move to leave out from "House" to the end of the Question and to add instead thereof: 'noting the failure of the counter-inflation policy adopted by Her Majesty's Government over the last twelve months, which has proved both unfair and unworkable, declines to imply approval either of their record over the past year or their plans for the next year by taking note of Command Paper No. 5444; and calls for the adoption of policies that will protect living standards of ordinary families above all by controlling prices and rents, house prices and mortgage interest rates, and safeguard their future prosperity'. I begin by apologising to the right hon. Gentleman, because I missed the first half-minute or so of his speech. As he will know, there are several hundred Scottish ladies in the Grand Committee Room who have come to demonstrate against high prices. It was fixed up many weeks ago before we knew that we were to debate the subject. I think that the Prime Minister refused to meet them, but I have just been to meet them and I hope that hon. Members opposite will take the opportunity of discussing these problems with them. The most fitting commentary, not only on the right hon. Gentleman's speech but on the whole style of his Government, was provided by a headline on the first page of the Daily Telegraph yesterday.

Heath to curb price-rise publicity —not price rises, but publicity about price rises. It is, of course, now clear that 6 million housewives entirely misunderstood the right hon. Gentleman in 1970—that flowing eloquent language about prices in the manifesto; everything he was going to do. He never meant them, we now know, to get the idea that he was going to deal with prices at a stroke or in any other way. He was going to deal with publicity about them. And now they are going to see decisive action at last.

The second commentary is that yesterday the Government admitted that the pound of June 1970, which was then worth 20s. or 100p, is now worth 77½p and that figure is already two months out of date.

Before I come to the content of the right hon. Gentleman's Command Paper on stage 3, I must once again register the utter condemnation of all of us that the Prime Minister saw fit to announce these proposals not to Parliament but with the Americanised razmataz of a televised Press conference. This House was, in fact, due to meet just eight days later but, as in the January announcement of stage 2 when Parliament's reassembly was only six day away, he preferred to ignore this House. There was no urgency about anouncing it last week—if one excludes disreputable calculations about the Conservative Conference which was about to assemble. I read in all the Conservative Press that he did so specifically to set the stage for that conference.

But the right hon. Gentleman achieved his object. He was able to announce his proposals. Unlike January—I hope I have got this right—it was a Green Paper and not a White Paper. But he was able to announce his proposals and put his own slant on them, without having to meet the discipline either of Opposition comment or of parliamentary questioning. This is one more example of the right hon. Gentleman's total contempt for our parliamentary institutions. It was the same attitude which led him to take vast areas of industrial relations outside the control of this House and put them into the control of a politically created creature court. It was the same high-handed attitude which considered—and there is the man responsible—that Parliament should not be free to debate the essential issues in Britain's entry into the Common Market, and to ensure—so far as the right hon. Gentleman is concerned for ever—that Parliament loses virtually all control over vast areas of our national life.

His unconstitutional action—I am surprised that he has not apologised to the House or said why he felt he had to do it—is made all the worse by the fact that he took the occasion of his Press conference to introduce a mini-autumn Budget. There was the decision to increase by 9p—nearly two old shillings—the employers' insurance contribution. This should have been announced in this House. His spending plans, including his throwaway announcement of a cutback in school and hospital building, on which he made the most perfunctory comments this afternoon, should have been made—whether by himself or by the Chancellor—in this House, and should have been subject to parliamentary questioning. I might put it to the right hon. Gentleman that journalists are not necessarily better at this role of questioning than hon. Members of this House. In any case, they have not been elected by the people for the job.

I shall come in a moment to our reason for rejecting the proposals set out in Command Paper No. 5444. Fundamentally, we reject them as unfair and unworkable, for the same reasons which led us to oppose stages 1 and 2; and our warnings on stages 1 and 2 were justified by the outcome. We opposed stage 1 and stage 2, as we now reject stage 3, because all of them, 1, 2 and 3, fail to deal with the rising cost of living of the average family in this country.

The right hon. Gentleman and his Ministers seem so insulated from the problems of ordinary families, so unconcerned and uncaring, that they fail to recognise that the two most important factors in the household budget of an ordinary family and food and housing. These latest proposals involve no more an attempt to deal with food and housing than did stages 1 and 2. Stages 1 and 2, as we warned at the time, entirely failed to curb rising prices, for the same reason that stage 3 will fail.

It is not necessary to remind the House of all the details of the prodigious increase in food prices, rents and mortgage interest rates during a period fraudulently put forward as one of absolute freeze and total standstill. Everyone recalls what happened. They recall, too, that during this freeze the price of an average house rose by £60 a week, and that young couples who bought a house at that time, making the most difficult and intolerable domestic budgetary arrangements to pay for their house, are now facing the 11 per cent. mortgage interest rates.

These young people remember stage 2, and the patronising compliments of Ministers about the gallant little housewife who stopped beef prices rising further because she stopped buying it. Because she stopped buying it her family did not get beef. They wanted beef, so she shopped around. I do not know how much shopping the Prime Minister has done in the last few months, but she found that the price of every other kind of meat and fish followed the upward price of beef—lamb, pork, chicken, bacon, tinned meats and all the principal varieties of fish.

Each week The Times publishes an up-to-the-minute guide to food prices currently ruling in the shops. Last Friday, while the Chancellor of the Exchequer was stepping out the light fantastic on a Blackpool dance floor, The Times summarised the situation in the shops and in the supermarkets with this heading: Pheasants for some, but stews are dear. That is what a Conservative Prime Minister has done. The right hon. Gentleman may recall that it was a former Conservative Prime Minister who subtitled his greatest book "The Two Nations".

I should like the Prime Minister to tell us of a single staple protein food which is not very much dearer now than it was a year ago. These are the things that the Prime Minister should have been talking about for 50 minutes—not the repetitive speech which we have heard so often. Daily we are warned that many prices of food will rise still further. Can he give a guarantee that they will not? Bacon and eggs have already disappeared from countless breakfast tables. Can he tell us that the prices have now reached their peak?

In 1970 the right hon. Gentleman, in his famous Leicester speech, said that under the Labour Government house-wives had to buy standard eggs from the supermarket instead of large ones. Now many people cannot afford pullet eggs. I invite the right hon. and learned Gentleman the Minister for Trade and Consumer Affairs, who is to reply, to foresake his usual obsession with alibis and to give us facts for a change. I should like him to tell us the prices of large and standard eggs in June 1970 and the prices which have to be paid now.

Mr. Christopher Brocklebank-Fowler (King's Lynn)

Since the price increases to which the right hon. Gentleman has referred in the last few minutes are all entirely dependent upon the increased world price of wheat and other grain products, will he tell the House what steps he would take to reduce the world prices of these important basic commodities?

Mr. Wilson

I intend to come to world prices in a moment. I was referring to what the right hon. Gentleman told the housewives in 1970. Hon. Members who are barracking now—I did not hear them cheer the Prime Minister during his speech—are there only because of his promises.

The Prime Minister

Will the right hon. Gentleman tell the House that during that period world prices were stable and that the increase in prices was due entirely to his own inflationary policy?

Mr. Wilson

I will deal with world prices as I did during the last election. The right hon. Gentleman at that time never knew about them. He discovered them only in the last 12 months.

It is not only protein I remember the right hon. Gentleman warning the country in June 1970 that on his calculations we would have a three shilling loaf within this Parliament if Labour were elected. Does he remember that? Does he deny it? The House has read the warnings of the principal millers and bakers, and I should like the right hon. Gentleman to tell the House when he expects to become the custodian of the three shilling loaf.

Ministers are contentedly luxuriating in recent retail price index figures. It was the late Iain Macleod who reminded the House that the index usually falls in the autumn. We have nothing later than the August retail price index. The more up to date Financial Times grocery prices index recorded that the September figure was 2.8 point up—2.2 per cent. This is the first year since the Financial Times series began in 1965 that it has not fallen substantially between Angust and September, if the right hon. Gentleman will allow me to exclude an increase of 0.01 per cent, in 1970.

Now, more chastened as I think he is—that was very clear this afternoon, although he is not half as chastened as hon. Members behind him—he knows that the whole of his stage 3 is a gamble. There is hardly anything which will make a significant reduction in the prices to the ordinary family. He knows that his prices and incomes policy has failed. He knows, too, that he cannot do yet another U-turn, so he has gambled on a fall in world prices. But, as he knows, a considerable part of the increase in this year's world prices has still to work its way through to the prices in the shops. The right hon. and learned Gentleman can tell him that. He knows, too, that there are things which he cannot control because of the terms he accepted for entry into the Market. Steel prices will go up again and again over the next 12 months. Meanwhile, as he showed this afternoon, he has become the creature of the mechanisms which he has created. He has become a sort of unpaid PPS to the Price Commission and the Pay Board.

However, I will concede this to him. Stage 1 and stage 2 have succeeded. They have stripped of all validity his claims that the high prices from which we suffered were due to trade unions and wages. The acceptance by the unions, however reluctantly—and we urged them once the Bill became law, if we were unable to amend it in Committee, to comply with the law during stage 1—and stage 2—has now laid bare the facts. The responsibility for the soaring cost of living is that of the right hon. Gentleman. There I sympathise with the right hon. Gentleman. At least he has stripped himself of the argument that this is an issue of the Government and the people versus the unions. So much for the Pearl Harbour warriors who hope to spring an election campaign.

We reject the stage 3 proposals because, like their predecessors, they are unfair. The Lord President of the Council ought to remain quiet. He was telling us that beef prices would come down in the summer of 1972. We have not seen that yet. Because these proposals are unfair, they will prove unworkable and they will further divide the nation. Some grocers and supermarkets are at this present time—I do not think this can be denied—profiteering on the people's food. We have made clear that because the Government clearly, even after a year, have no effective plan for dealing with prices, we have to reject stage 3 which provides no improvement on stages 1 and 2. The absence of any serious price strategy is shown by their doctrinaire rejection of subsidies on the main essential foods and the absence of any effective proposals for controlling prices in the shops. I will come to subsidies later.

The right hon. Gentleman has said that he has calculated that £1,400 million of subsidies would be needed to bring prices back to the level of last year. That figure is the total tax which has been laid on the British people, and on the food they eat, since the right hon. Gentleman said a year ago that he was going to tackle inflation. I doubt if there is more than a small number of housewives who believe that present shop prices are fair or that the Government are doing all in their power to stop profiteering.

The day before the Lancaster House Press conference given by the right hon.

Gentleman, the Sunday Telegraph published a serious and documented allegation of profiteering by wholesalers and retailers, on bacon: With bacon prices at record levels—best cuts could reach 74p a lb this week—it is the shopkeeper who is making a bigger percentage profit out of bacon than anyone else in the industry. While the pig farmer is making a profit of 50p on a 140 lb pig, the grocer is clearing a gross profit of around 13p a lb on bacon. Some grocers and super-markets are working on profit margins 10 times that of the pig farmer and the bacon curing factories. Retail prices are expected to go up another 2p a lb in most shops this week"— that was last week— after wholesale prices rose last week—and by Christmas best bacon could cost 80p a lb."— or 16s. a pound.

Does the right hon. Gentleman understand what that means? When he made his notorious appeal on prices to the housewives of Leicester—to whom he must once more return—the comparable price of bacon was 34p a pound—not 80p a pound. Has the right hon. Gentleman ordered a detailed inquiry into this matter? Have the allegations been confirmed? If there are any people who are guilty, have they been brought to book? When are we going to see the price reduction?

We saw the Price Commission Report this morning. I do not know why it took the Government three weeks to print it. The Commission is to look at this matter, but why has it waited? Everyone knew what was going to happen. During the summer the Government were engaged in massive publicity. We heard the Minister for Trade and Consumer Affairs on about 17 radio programmes in three days. In fact he is never off the air. The radio car is parked outside his house. During the summer, in support of the magnificent initiative which was announced, the right hon. and learned Gentleman was supporting proposals for the Price Commission to be asked to take on a special role to invigilate food prices in the shops, but soon afterwards the Price Commission complained that it could not do this because it did not have enough staff. Can we be told what, if anything, has happened? When are we going to see results in terms of prices in the shops?

Turning to the cost of manufacture, to which, as always, the Prime Minister devoted a good deal of time, although a good deal less than to the cost of living, there are gestures in stage 3 on profits and dividends. For example, there is the ban on the arbitrary subdivision of firms for price control purposes and proposals that the medium-sized firms should notify the Price Commission as soon as they put up prices instead of waiting a while before doing so. We welcome this proposal. It seems that at least they are all going to tell us when they put up their prices.

But there is one thing that I am not clear about—and nor, I think, is the House. By whom, under the right hon. Gentleman's new publicity cover-up, will price increases be announced and how long shall we have to wait to be told about them? Will it be compulsory for firms to announce price increases? If it will not, shoppers will go into shops and suddenly find that prices have gone up. Indeed, one hears of shopkeepers and staff in supermarkets not knowing until they receive a trade list by how much prices have gone up. Are we to be prevented from knowing?

What is the position regarding the 2,000 or so firms in the £5 million to £50 million group? Will they have to announce price increases? If not, will the Price Commission? Perhaps we can have the answer this evening.

While the right hon. Gentleman has just tightened up the marginal provisions about sub-dividing, in the other direction, on price control by manufacturers, pressure on price margins is eased by the provision that the reduction of profits as a result of price control must not exceed 10 per cent. The really significant factor arising from the Price Commission's Report—the Commission appears to agree with it—is that control is too lax rather than too tight.

However, the evil which is spreading, as we warned it would spread, is that firms are using the code now as an incentive to wasteful expenditure. Rather than be forced to reduce prices they are spending unwisely and wastefully. I warned the Government about this months ago. The right hon. Gentleman is now presiding over the creation of a cost-plus economy, and a cost-plus economy is itself an ally of inflation. So much for prices.

Turning now from prices, the Government still stubbornly refuse to deal with rents. This month, millions of families have to face the equivalent of a 50p cut in take-home pay under the Housing Finance Act. The relief for owner-occupiers announced at Lancaster House by the Prime Minister is a sham. We described it as a sham that day. It became clear the next morning that the Prime Minister had not even reached agreement with the building societies on this. The building societies did not seem to know about it. It had not been worked out. This was another of the right hon. Gentleman's gimmicks, like the beef price inquiry last January. But if the statement about mortgages had been made in the House, the situation would have become clear because there would have been hon. Members from both sides pressing the Prime Minister on the matter, rather than a complacent Press.

What the right hon. Gentleman has now proposed is something which some building societies have been doing themselves for a considerable time. But what are the consequences? The position is that, under the Prime Minister's proposals as they have been explained—but he may change them—a young couple would pay less than the ruling rate for the first year or two and more after five years. I think I have it right. The right hon. Gentleman can correct me if I have it wrong—if he thinks he understands it—[An HON. MEMBER: "Too long."] The proposals will mean that, in many cases, people will be paying mortgages for 60 or 70 years, which, I agree with the hon. Gentleman, is too long. [Interruption.] I would like hon. Members to follow this, because they are the property-owning democracy party. Although the Prime Minister has no experience about this, some hon. Members opposite have and so have some of their constituents, including some who voted for them.

On a £10,000 loan the low-start mortgage repayments would begin at £850 a year and increase by £50 annually from the second to the fifth years—if the interest rate were still 11 per cent., a rate for which the right hon. Gentleman is responsible. During this time, there would be no capital repayment so the unpaid interest would be added to the original sum borrowed. I hope that I am carrying the right hon. Gentleman with me. At the end of five years the young couple would owe not £10,000 on the expensive house they had to buy under this Government, compared with what they were on average in June of 1970. I have seen it calculated by building societies that the couple would owe not £10,000 but £10,999—or let us say £11,000, give or take a quid. If this loan of £11,000, as it has become five years after the mortgage has been taken out, were turned into the usual repayment mortgage, it would have to run for a further 20 years, with payments increased by £332 a year, from £1,050 to £1,382 a year.

However, suppose that, in the first year the wife were working but that, some time within the first five years, she stopped working to have children, as many wives do. The family's monthly payments would then rise sharply at the very time that their income was sharply reduced. How many people are earning on sufficient scale to be able to pay £1,382 a year on mortgage repayments alone if there is only one income in the house? Of course, the right hon. Gentleman got what he wanted. The scheme got into the headlines.

But it is not only a question of new borrowers. The right hon. Gentleman is doing nothing at all for owner-occupiers who, last year, or earlier this year, bought a house at peak prices and are now paying an inflated mortgage rate on that price. The reason for high mortgage rates is not world prices. The high rates have nothing to do with Chinese rice harvests or with anchovies off the shores of Peru. The reason is the anarchy in the City of London borrowing market created by almost the last achievement of the Selsdon period which on ideological grounds the Prime Minister refuses now to change, and it is the creation of a free borrowing system in a so-called competitive atmosphere. I prefer to call it anarchy in the City.

Despite appeals from the Bank of England last year and this, a great part of the increased borrowing last year was for land speculation, property speculation, stock exchange speculation and investment companies. When they borrow they do not have to count every penny of interest that they pay. They are not in the position of a poor young couple buying a house, deluded by what the Prime Minister told them in 1970. The gains from this kind of speculation are too great for them to worry overmuch about the interest that they pay. The result is that a diminishing amount is available for the building societies, and it is the young families who have to pay.

In addition there is the fact of free competition for the money in the market. Here I reply direct to the right hon. Gentleman. We believe that long before this the Government should have introduced techniques into the control of capital borrowing which have been the stock in trade of previous Conservative and Labour Governments. We believe that they should have introduced a system for the control of borrowing based on economic and social priorities and not on free competiton for borrowing forcing up interest rates against householders, against local authorities and against the Government.

I turn to the provisions for pay. I suppose that the best that can be said of them—and I say it gratefully—is that the Government have gone a little way towards accepting amendments proposed by the Opposition when the stage 2 Bill was going through this House. An example is the London allowance, whatever that may prove to be worth. But although the Prime Minister is prepared now to permit limited provisions to deal with anomalies for all those who were caught in last year's freeze—the vast majority of them low paid and in essential services—the most that they can hope for now is to begin to catch up. But there is no provision for reimbursing what they lost last year.

The Government refuse to take any action to deal with the growing shortage of essential manpower in the more overheated parts of the country. In London and other big cities there is chronic undermanning of essential services, as the Prime Minister must know. There is chronic undermanning on our buses and tubes. There is chronic undermanning among ambulance drivers, hospital and health service workers, postal workers, workers in sewerage and other local health authority services, health inspectors, laundry workers in our hospitals, radiographers, therapists and schoolteachers The right hon. Gentleman must know how many schools in London are now on part time. There are grave shortages in the police, where there has been a net loss since 1st January this year of 400. The right hon. Gentleman must know that essential services in London and other big cities are grinding to a standstill and gravely affecting the standard of living of our people.

Mr. Kenneth Lewis (Rutland and Stamford)

It is quite true that there are difficulties in London. Will the right hon. Gentleman persuade some of his hon. Friends and trade union leaders in London Transport for example, to accept the introduction of women into certain grades, which they have long resisted, and which goes contrary to the proposals of the right hon. Gentleman and his party for equal opportunities for women?

Mr. Wilson

I do not know how many women there are employed on essential services in Rutland and Stamford but I can assure the hon. Gentleman that there are a great many in London. I hope that the hon. Gentleman will bring home to his own Government the fact that many people engaged in essential services cannot get homes near their places of work, which is probably the main reason why there is a paucity of people to drive buses and tube trains. British Railways were trying to provide homes for their drivers and other essential workers. Now apparently they have been told that they cannot do it under stage 3 because it would be an offence against the Pay Code. Unable to recruit railwaymen by normal means, they are now denied the right to recruit them by offering them homes. Perhaps the hon. Gentleman will rub that point into his right hon. Friend the Prime Minister.

In considerable parts of the country there is widespread evasion of the law by bidding up the price of labour and by every device, legal and illegal, while other employers are reacting in the same way to hold the labour that they have. Outside the manual field at any rate, though within it as well, there have never been so many creations of new titles, new grades, and new and honorific job specifications as we have seen in the campaign of many employers to frustrate the pay policy. But for the farm worker, the miner, the steel worker, the textile worker, the railwayman, the post office worker and many other social service workers, there can be no bogus titles.

Now we have this imaginative provision for working what we are now to call "unsocial hours". That may be of some help in mining and heavy process industries, though all the evidence is that even there the proposal may create as many anomalies as it removes. But there again there is no sense of priorities between essential and less essential work.

I understand from such statistical inquiries as I have been able to make that there is no necessary or direct correlation between services to the community and the working of unsocial hours. Indeed, I am credibly informed that the proportion of bunny girls qualifying under this provision exceeds the proportion of coalface workers.

The stage 3 proposals are fundamentally unjust and divisive. Comparing the total money going to old-age pensioners through the Christmas bonus with the additional take-home pay for £5,000 a year executives, The Guardian's headline was More for the rich than the poor. That was clearly the judgment of the Stock Exchange, and those in the Stock Exchange should know.

Day by day we read of the bonanza for banks and property interests. On 11th October a London evening newspaper said that since the Lancaster House conference … the share values of the top eight property companies alone have put on more than £150 million. Last Saturday the Economist said: Commercial property companies are beside themselves with joy. Of all the undeserving rich, property has been given exactly what it wanted: certainty. The investment value of properties (as measured by the initial yield purchasers would pay for good quality buildings) will rise well in advance of the underlying rent increases, thus continuing to create capital gains for landlords throughout Stage three. These the Government should tax. Mr. Heath appeared during his press conference to be under the illusion that property companies pay a fair whack of taxation. They do not. The 20 top property companies, controlling assets of £3.2 billion, paid an average tax bill of just over £1 million each last year. If the right hon. Gentleman wants to know where he can start getting taxes to pay for the food subsidies, let him read page 90 of last week's Economist. But against this bonus which he gave to property speculators, last week we also had the Prime Minister speaking in the language of priorities. We know what his priorities are now. School building is to be cut. Hospital building is to be cut. Only recently the Secretary of State for Social Services described himself, in the context of hospital building, as "Britain's biggest slum landlord". I wonder whether he still thinks he is. If so, why did he not fight the Prime Minister's cuts?

Then, again, we have read of the effect of the Prime Minister's cuts on local authority essential services. The list that we have read includes old people's homes, day nurseries and health centres, while the educational axe will hit infant, primary and nursery schools.

This is the right hon. Gentleman's idea of priorities. But let us ask: for what higher priority than schools and education are all these being cut back? It cannot be housing. The housing figures for the last three months have been running at a rate below the annual rate of 300,000, on which some of the older Members on the Treasury Bench campaigned in a General Election 22 years ago. That figure was in fact achieved by Mr. Harold Macmillan in 1953, 20 years ago. Under this Government, with all the building going on in our big cities and towns, the building rate for the last three years seasonally adjusted is less than the 300,000 on which the right hon. Gentleman was campaigning in the 1951 General Election. So it cannot be for housing.

Under the unreal yardsticks which this Government have imposed on local authorities, housing has been cut back. Waiting lists in most areas have greatly increased since a year ago. Yardstick control has enabled the Government to carry through a great cut in public building without even announcing it. We would regard that as the coward's way out.

While the three great social priorities—housing, education and hospitals—are now to languish, the rate of office building and property speculation races ahead unchecked. The right hon. Gentleman cannot deny that. Of course, there are no yardsticks there. The right hon. Gentleman's achievements in dividing the nation will even outlive him in the glass and concrete memorials which posterity will see as typifying the Heath Age. The whole of his policies he seeks to justify by telling us again and again and again about what he calls "growth"—[Interruption.] One of my hon. Friends says "Prosperity". The right hon. Gentleman calls it "growth". Many people understand something different by "growth" even when the Prime Minister mentions it. It is growth achieved at the cost of devaluing the national currency at home and abroad. But growth of what? We have just noted his priorities.

But is it really growth? We had it again this afternoon. The Central Statistical Office is now turning traitor. Against all the statistical oratory—we are still getting it from the right hon. Gentleman—of 6 per cent., 7 per cent. and 5 per cent. industrial expansion—now we are told it is to be 3½ per cent.—the last production index for all industries in August showed 111.3 against 111.2 in March. That is not 3½ per cent. For manufacturing industries the figure for August is 112.2 against 111.8 in March.

This afternoon the right hon. Gentleman talked about investment. He said that we must look forward to still further increases in investment. Further! We have not had them yet. We have had the investment intentions. Can the right hon. Gentleman stand up and tell us, on the latest published figures, that investment, not intention, on the ground in plant and machinery has yet got back to the 1970 or 1971 level? These are figments of the right hon. Gentleman's imagination to justify the inflation that he has inflicted on the country.

But the right hon. Gentleman quotes statistics not only of growth, but of the standard of living—a comparison between earnings and prices. The standard of living is measured not only in terms of earnings versus prices, but it is reduced for many people by the steadily declining standard of public services. If there is no train to get one home at night, if buses are scarcer and later and if health services are deficient, that is not a higher standard of living. There are 19,450 London school children who cannot get full time schooling. The right hon. Gentleman will probably tell us that, on the statistics, they are doing better. But are they, in terms of standard of living or in terms of their prospects for the future?

Over the past year we have repeatedly said in this House and outside—the right hon. Gentleman has challenged me on this matter—what our policy will be to fight inflation. I set this now against the Government's stage 3 Command Paper. We believe—he does not, and that is the difference between us—that it is essential that any policy dealing with inflation must tackle the two main constituents of the family budget—housing and food. Therefore, we demand action on food prices, including strict control on food prices in the shops and measures to fight profiteering, whether by wholesalers or retailers. We must have fixed cash margins, not percentage margins. We must have food subsidies to hold down the prices of the main essentials in the shopping bag. We must have a standstill on the Housing Finance Acts, pending their repeal under a Labour Government, together with—the right hon. Gentleman should not falsify things in this way—continuing provision for rebates. We have made that clear many times. Will he now desist?

We must have action to protect the owner-occupier by reintroducing controls on capital borrowed on the basis of economic and social priorities—that is, exports, investment, housing and other essential public building. We must have a national housing finance corporation to provide, on reasonable terms and at reasonable rates of interest, the finance required by councils for essential house building and by building societies for owner-occupiers.

We must have action to take all land required for building, development, redevelopment, slum clearance, schools, hospitals, playing fields, sports centres and other amenities into public ownership at existing values. Pending that—we press this on the right hon. Gentleman, as we have throughout all the stages of this policy—we must immediately have an emergency crisis tax on all profits and capital gains from land and property speculation. That is another contribution to getting social justice.

We call for immediate action to curb profiteering in agricultural land by individuals or institutions, including the removal of special estate duty and other concessions, except in the case of the working farmer and the owner-occupier.

We call for an immediate increase in pensions week in, week out—not what the former Prime Minister, the Foreign Secretary, used to call a donation to old-age pensioners of £10 every Christmas—of £10 for a single person and £16 for a married couple.

That is our policy—fair, realistic. It is a programme to unite the nation; an investment in social justice; a legislative and Governmental background against which all our people can work for Britain. Because the right hon. Gentleman rejects every single one of these essential proposals, we table our rejection of his limited prejudicial stage 3, knowing that what we reject today the country will reject tomorrow.

5.9 p.m.

Mr. J. Enoch Powell (Wolverhampton, South-West)

Any hon. Member who casts his mind back to the debates which we were having on the counter-inflationary policy a year ago must be astonished by the contrast. The contrast, however, is not in the real circumstances or in the rate of inflation. Broadly speaking, the rate of inflation is today roughly the same as it was a year ago. I thought it a remarkable omission in the speech by my right hon. Friend the Prime Minister at the beginning of a major debate a year after our counter-inflationary policy was put into operation that he did not refer at all to our experience in the matter of inflation or compare our present position in that respect with what it was a year ago. Indeed—and I cannot exempt much of the speech of the right hon. Member for Huyton (Mr. Harold Wilson) from this charge—so far this has hardly been a debate about inflation and the means of diminishing it.

No, the contrast is not in the inflation. The contrast is in the demonology. It is in the excuses that are trotted out to account for the arch-enemy inflation.

A year ago we had the trade unions. The whole basis and justification of the resort to statutory control of wages and prices was that the exorbitant demands and monopoly powers of the trade unions were the cause of the rate of inflation with which we were afflicted. Never, not even in pantomime, has the demon king been so speedily whipped back into the wings. His place is now occupied by what is called world prices. World prices, we are assured, are the principal if not the sole cause of the continuing inflation and the justification therefore for the continuance of a statutory policy to control in detail prices, wages, dividends, and the rest.

There is no doubt that world prices, the prices—in whatever currency taken—of that bundle of things which this country habitually imports have been rising in relation to the prices we get for the bundle of things which we habitually export. That is hard fact. That is reality. It is reality from the consequences of which we cannot escape, and it is a reality for the onset of which my right hon. Friends can be expected to take no responsibility. It is a fact of the world in which we live, an economic change in the environment in which this country lives, that is bound to have its impact upon the relative prices in this country of the goods and services which ordinary families buy. Of course it must. Nothing can prevent that so long as the terms of trade continue to deteriorate.

But what has that to do with inflation? Prices change relatively to one another whether there is inflation or not. Changes in the economic world reflect themselves in real, that is relative, changes in prices. But a relative change in prices, even of a group of requirements so important as those which this country habitually imports, is not the same as inflation, and it does not cause inflation.

There seems to be a widespread notion that, if the terms of trade are deteriorating against a country, then somehow the impact of that can be lessened and cushioned by inflation; that if it can be contrived that all prices rise, the impact of a relative change in price—of a new scarcity—will be diminished.

If that were so, I dare say a good many of us would think much more kindly of inflation than we do; but the mere addition of a rise in all prices, of a diminution in the value of money generally, to the effect of a deterioration in the terms of trade does nothing whatever to alter or to diminish the impact of that deterioration. It is as if a tall man and a short man were going up in a lift together and we were to expect that by the fact of the lift rising the tall man might somehow become shorter, and the short man taller. The relatives remain the same. The real scarcities remain unaltered, even when we depreciate the currency and increase the general price level.

In itself, the rise in the real price of a group of goods and services does not cause the price of all others to rise. In itself, it causes the price of all others to be depressed. In order to produce the phenomenon of inflation—and that is what the debate is primarily about—there must be the means whereby all prices can rise—indeed, rise at the present unsurpassed rate of almost 10 per cent. per annum.

My right hon. Friends and my right hon. Friend the Chancellor of the Exchequer know perfectly well what the key cause is. In speech after speech my right hon. Friend the Chancellor of the Exchequer has recognised that inflation cannot continue, that we cannot have 8 per cent. or 10 per cent. inflation per annum, unless that is rendered possible, unless the process is fuelled, by a continuing and on-going increase in the total of money demand—expressed, perhaps more crudely, as an increase in the money supply. Nor has my right hon. Friend the Chancellor of the Exchequer seriously denied that this key factor is something that lies within the control of the Government, or that its variation flows from the manner in which the Government manage and finance their expenditure. There is no secret about this matter, and certainly no question of my right hon. Friends seriously believing that inflation is the result of a deterioration in this country's terms of trade.

Yet although my right hon. Friend recognises, and has done so by the very wording of speech after speech, the underlying cause of the inflation which we purport to be fighting, that factor has not varied—it certainly has not improved—during the whole period in which the counter-inflation policy has been in action. It is therefore not surprising that at the end of a year of our counter-inflationary policy we have to register the fact that we are no further on than a year ago in lessening the rate at which our currency loses its value.

I noticed that in speaking yesterday about phase 3 Sir Frank Figgures, the Chairman of the Pay Board, addressing himself to the new provisions for pay in the draft code, said: Increases in basic pay … are likely to be in the order of 9 per cent. to 10 per cent.", but he went on to say—and this was the more significant statement—that this indicates a rise in average earnings of about 13 per cent. That is a remarkable figure, remembering that the object of this whole policy is so to control prices and wages that the net result will be—at least so we used to be told—the defeat of the dread enemy of inflation, the lifting of the shadow of inflation from this country.

If earnings are increasing at 13 per cent. per annum, and if it is estimated that productivity will be increasing at 3½ per cent., a curious coincidence confronts us when we do the subtraction; for taking 3½ per cent. from 13 per cent., it happens that the remainder is 9½ per cent., which is precisely the going rate of inflation. In other words, the code which is put before us is a code which, so far from imposing controls that will, of themselves, diminish the rate of inflation, accepts the present rate of inflation and proposes to carry it forward.

The more I hear and the more I read what my right hon. Friends write and say, the less sure I am of what is their objective. We used to think a year ago that in the Government's view a rate of inflation approaching 10 per cent. was an environment in which it was not possible for a civilised country to go on living for very long, and that however one might criticise the methods, at any rate the object was clear: the object must be a rapid and decisive reduction in the rate at which our money lost its value.

I wonder whether that is still the Government's object. I hope that my right hon. and learned Friend the Minister for Trade and Consumer Affairs, when he winds up the debate, will make clear whether it is still the intention of the Government, let us say over the next 12 months, to reduce the going rate of inflation—it is not for me to supply an approximate figure—but shall I say from 9½ per cent. to 9½ per cent. per annum? I am not trying to put figures in my right hon. and learned Friends mouth. All I am saying is that I think that he is required to reassert and to place beyond doubt what is the object of this policy, what is the object of this legislation, what is the object of this grand bureaucracy which has been erected under the counter-inflation Acts.

I read with great care the words of my right hon. Friend the Prime Minister in introducing phase 3 at Lancaster House and his description of the three aims which he designated. The second aim—it is noteworthy that it was the second and not the first; in his first repetition this afternoon of what he had said at Lancaster House, I noted that it had gone down to third place in the order—is "to contain inflation". We should pause for a moment upon that word "contain". When in a battle we say that we have "contained" the enemy's advance, we do not mean that we have driven him back on to his base. We mean that it is level-pegging. So if we are to take the word at face value, the object of "containing" inflation is, if possible, to prevent it from becoming even faster. Should my right hon. Friends say that that is too nice, too precise an interpretation, I wonder why, when it would have been so easy to say "to reduce" the rate of inflation, when all would surely have applauded—after all, the metaphors used out of doors have been much more dramatic, such as "fighting inflation", "War against inflation", "victory over inflation"—my right hon. Friend adopted so strange, so tame, so anti-climactic a term as to say that his object is to "contain" inflation that is running at 9½ per cent.

The House knows very well what is the dilemma of my right hon. Friends. Nor is it a dilemma which is private to them. It is a dilemma which is shared by and faces both sides of the House, and indeed all those whom we represent out of doors. The dilemma is this: they know, and we know, that if the rate of inflation is to be reduced, at whatever rate my right hon. and learned Friend later this afternoon announces is the Government's intention, then the result of that, for the time being, must be a slowing down of the rate of economic growth and a slowing down, to put it mildly, in the fall in unemployment. That is the known and certain consequence of reducing the rate of inflation—not of the way in which it is done but of the fact that it happens. So there is a dilemma which confronts my right hon. Friends and confronts us all.

My right hon. Friends—it is a laudable stance—are devoted passionately—Heaven forgive me! I almost said "fanatically" [Laughter.]—to growth. Who shall blame them if they regard, as we all do, the minimum sustainable level of unemployment in this country as a major objective of policy? But there is here a conflict; and in that conflict I believe my right hon. Friends have a duty, whichever choice they take—for they are taking a choice; perhaps they have made it—to make clear to the country what that choice is and what the consequences will be. They have a duty either to say to the country, "We propose to continue with inflation at its present level and to maintain or 'contain' it at that level, because otherwise there would be at least a temporary loss of growth and unemployment", or, alternatively, to say, "So great and intolerable are the consequences, direct and indirect, social, moral and economic, of on-going inflation at a cumulative rate of nearly 10 per cent. per annum, that we intend to bring that rate down steadily, consistently, perceptibly, and "—my right hon. Friend this afternoon said that this concomitant truth ought to be told—" We tell you that the price which we shall have to pay for that will be some reduction in growth and in employment." So I think that of all of us—

Mr. Norman Atkinson (Tottenham)

What does the right hon. Gentleman advocate? Is he saying that there should be unemployment?

Mr. Powell

I have left no doubt whatsoever where I believe the priority lies.

Mr. Atkinson

The right hon. Gentleman cannot treat us to a thesis of this sort without spelling out clearly whether he himself wants unemployment to be cut. Services, particularly in London, are short of manpower. If these are some of the major problems facing the country the right hon. Gentleman must come to the House armed with figures and tell us pre- cisely what his recommendations are and who should be put out of work. He should not live in cloud cuckoo land but should tell us precisely what he is advocating.

Mr. Powell

Very well. Unlike the hon. Gentleman, who is not prepared to tell his constituents that he would insist on inflation going on at 10 per cent—

Mr. John Mendelson

Come off it.

Mr. Powell

—I am prepared to say, as I have done over and over again, that I believe inflation at 10 per cent. per annum cumulative to be an evil far more dangerous, far exceeding in its consequences the cost of the temporary dislocation which is involved in terminating it. I have said that time and again.

Mr. Mendelson

Demagogy—that is all it is. How much unemployment does the right hon. Gentleman want?

Mr. Atkinson

How much unemployment?

Mr. Powell

If hon. Members wish me to conduct a seminar for them—

Mr. Mendelson

No.

Mr. Powell

—I am willing to do so, though I hesitate to trespass upon the time of hon. Members. I have placed before the House, as it lies before the Government and applies just as much to hon. Members who interrupt as to anyone else, the real dilemma that exists. We either go on at present with the present rate of inflation or else we deal with inflation and incur the temporary cost in terms of output and employment.

In the real world there is no third choice. What the Government are doing with their counter-inflation policy is declining to take that decision in the open, declining to come forward and make clear which decision it is that they have taken, and using the counter-inflation policy as a means of pretending that a third course exists when they know that it does not.

5.30 p.m.

Mr. William Rodgers (Stockton-on-Tees)

The right hon. Member for Wolverhampton, South-West (Mr. Powell) is often perverse, sometimes obscure but seldom irrelevant. A good deal of what he said today is relevant to our continuing debate, but I shall leave it to the Minister for Trade and Consumer Affairs to answer from the Government Front Bench the greater burden of his criticisms.

I think we are engaged today in what threatens to become an increasingly elaborate parlour game, with its own rules and conventions and a set of participants, including the right hon. Gentleman, who are cosily familiar with them. I do not regard the game as irrelevant any more than I regard his remarks as irrelevant, but there is a danger that it will get out of proportion and fascinate us beyond its purpose.

It has been a criticism, and one I have been prepared to make, of the Labour Government of 1964–70 that, particularly in the early years, they elevated a prices and incomes policy to the status of central economic strategy, seeing it, initially at least, as an alternative to both devaluation and conventional economic management. But we are experiencing now even more acutely the same progression and in much less acceptable circumstances.

I must make it clear that I am not opposed in principle to a prices and incomes policy. I have said before in this House, and have not always been popular with my hon. Friends for saying so, that I do not rule out the occasional need for statutory powers of compulsion. I would defend a great deal of what was done by the Labour Government, in which I was closely involved. But it is vital to keep a perspective.

The fact is that the whole panoply of a prices and incomes policy has great and special attractions to a Government. In the first place it is a marvellous opportunity to persuade people that the Government are actually doing something with the economy, if only by way of dramatic conferences at Downing Street. Secondly, they can somehow thrust responsibility from themselves by appealing over the heads of Parliament, as the present Government have done, and, finally, over the heads of the CBI and the TUC, to the people, who must then share in the failure. Thirdly, Ministers making the policy have the marvellous excuse that it is primarily a matter for common sense, and in this area at least they are the Chancellor's equals. It is the civil servants who tire of the prices and incomes game soonest. I believe that there are some very tired ones now.

What are the real milestones in the history of this Government? They are the policy of industrial non-intervention and its abandonment; unemployment at an unprecedented post-war peak—although even that seems to be below the level which the right hon. Member for Wolverhampton, South-West, would accept; a series of divisive Budgets designed at their simplest to make life more comfortable for the comfortably off; and a pound floating down.

From these harsh realities, the search for a prices and incomes policy is for the present Government a welcome escape. It is satisfyingly time-consuming and within the intellectual capacity of most Ministers. It is in a sense their foreign war, designed to distract the nation from their wider failures.

It even enables the Government to slip round an anticipated growth rate of 5 per cent. in a way which still surprises me, although once upon a time it was the justification for putting up with a great deal of economic nonsense. Now it is confirmed at 3½ per cent. for 1974—but for how long? If sterling sinks a further 10 per cent., and the growth rate looks more like 2 per cent., no doubt phase 6 or phase 7 of the policy will be launched with a White Paper as fat as a volume of Harold Macmillan's memoirs and a Press conference in the Albert Hall. The Government will then cloak their failure in a further massive appeal to the people, although an appeal which avoids the necessity of a General Election.

The only really rapid growth at the present time is in the prices and incomes industry itself. It is, of course, cyclical. There were bad times immediately after 1970. But it is also self-sustaining. In one of our daily newspapers, phase 3 was celebrated by over 20 contributions from 15 named journalists.

The career for the ambitious young man is plain—a reasonable degree in philosophy, politics and economics, a year or two at Nuffield College, Oxford, a period as a trade union research secretary, secondment to the Government or one of their outposts dealing with pay and prices, speech writer to Lord Kearton and perhaps, if I dare say so, a job in Brussels persuading the temperamental Mr. Grierson not to resign yet.

I say all this in high seriousness. I am not mocking those who are genuinely seeking to find a way out of our economic impasse. Earlier this year I said in the House that I hoped the Chancellor would succeed in his pursuit of expansion and that, in so far as a prices and incomes policy was essential to success, the Government would get better than their deserts. My concern now is that we may not see the wood for the trees because there are very many trees in the White Paper, although, in the main, willowy ones designed to bend in the wind.

These points are familiar to all my hon. Friends. I have in mind here, for example, the flexibility margin and the efficiency payments upon which there has already been much comment. I do not dispute their inclusion if we had to have phase 3, but there is plenty of scope now for the ridiculous.

Reflecting on my own experience at the time of the voluntary incomes policy eight years ago, I recall that time and time again we were presented with what were called efficiency schemes in which the appropriate part of a negotiated wage increase was to be absorbed by a reduction in total costs. The crunch came when we asked an employer to confirm that no attributable price increase would follow. At that point he would equivocate and his previous impeccable arithmetic would come unstuck. Every trade union will have a right to stretch these provisions to the limit, and good luck to them. But the Government should not deny what flexibility is likely to mean.

I am grateful to my hon. Friend the Member for Edmonton (Mr. Albu) for a suggestion which I should like the Minister to comment upon. It is clear enough that the House cannot debate today the whole White Paper and give it adequate and serious treatment. I propose that the right hon. and learned Gentleman should make clear tonight that, if a substantial body of opinion in the House so wishes, there should be a Select Committee of the House to examine the White Paper in detail. There is, for example, one aspect of it which should be examined against Sir Arthur Cockfield's latest report, especially in paragraph 7.10 in which he says that profits have not suffered from the control either in Stage 1 or in Stage 2. This report, published yesterday, deserves as close examination as the White Paper itself.

I am not against profits on principle. On the contrary, they are clearly necessary for reinvestment and—even on fixed interest terms—as a reward to those who lend rather than spend their money. But the plain fact is that the policy so far has shown that price control need have none of the alarming economic consequences so often attributed to it.

But my vote tonight will be related at least as much to the whole economic and social context of the White Paper as to its contents. My right hon. and hon. Friends have said that it is unworkable because it is unfair. I would go further. It is not possible to have a workable long-term policy unless it grows naturally from an approach to the problems of society as a whole which is fair and is seen to be fair. By that I do not mean that people are eaten up by envy or that they demand equal rewards for unequal achievement. But one cannot expect them to welcome a prices and incomes policy unless the Government's wider policies are all of a piece.

I am reluctant to join in the popular sport of attacking The Times, but the opening remarks of its leading article on 9th October had a special quality of their own: If the country does not accept and abide by the broad terms of phase 3 of the Government's prices and incomes policy, then it clearly has no wish to resist Latin-American rates of inflation and the prolonged bout of heavy unemployment to which that would lead. That is the most insufferable nonsense. It reveals a gross misundertanding of the motives, anxieties and aspirations of our people.

Of course, inflation is dangerous—here again I agree with the right hon. Member for Wolverhampton, South-West—and, of course, excessive inflation is destructive of the fabric of society. But to say that a failure to accept and abide by the White Paper will be evidence of a wish to be demoted to the South American league is a slander.

Perhaps we, the politicians, have all failed, to a lesser or greater degree, and we must all share some responsibility for the widespread disenchantment with politics. But our failure cannot be visited on those men and women who may be less than prepared to accept and abide by this White Paper.

We have had another important White Paper lately, that concerned with company law reform, published just at the end of the recess. That White Paper, which no doubt we shall debate in due course, is much too late and contains much too little of a positive kind; but it focuses on a whole area of policy remote from the experience and opportunity of average men and women, though not remote from their comprehension.

I am more tolerant than are some of my hon. Friends of a mixed economy, and more sceptical than some of them about whether a change of ownership is always an appropriate remedy for failure or abuse. But I believe that the whole twilight world of "get rich quick by cutting corners" is an offence against the greater part of the nation. An appeal to restraint in the national interest falls on ears deafened by the noise of capital accumulation in the City. For a long-term prices and incomes policy to succeed, the problems of the underprivileged and the deprived, and the abuses of affluence, must all be dealt with.

Let me give another illustration. A man who started putting £1 a week aside into national savings in 1940—a great deal of money for any working-class family then—and who is still saving £1 a week today—a great deal for an old-age pensioner—has accumulated less over those years than did a man who bought, say, 5,000 shares in Shipping and Industrial Holdings, with money he did not have, at the beginning of the last Stock Exchange account and sold them 10 days later.

What justice can be seen there, and what sort of appeal can one make to those affected by this White Paper if that is the background to the sort of world in which we live?

I reread the other day a classic study of the organisation of society. I quote briefly from it: It is obvious, indeed, that no change of system or machinery can avert those causes of social malaise which consist in the egotism, greed or quarrelsomeness of human nature. What it can do is to create an environment in which those are not the qualities which are encouraged. That was R. H. Tawney 50 years ago. He was not preaching then, and I am not preaching now. But this Government have not created, and cannot create—there is no evidence in the White Paper—the social environment in which the problems of inadequate growth and excessive inflation can be solved.

5.45 p.m.

Mr. Peter Hordern (Horsham)

I greatly enjoyed the remarks of the hon. Member for Stockton-on-Tees (Mr. William Rodgers) about the prices and incomes industry, which bears all the hall marks of being a rapid growth industry, and I shall come later to some of the other points which he made.

Listening to my right hon. Friend the Prime Minister and to the Leader of the Opposition, and following the debate so far, I could not help feeling that our position was much like that of someone fine-tuning a car in the middle of a desert without any idea where the next petrol dump was. I listened with great interest to what my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) had to say about the impact of commodity prices. I agree with him in this respect, that there is an undeniable effect on the standard of living of our people when raw material and commodity prices rise as rapidly as they have during the past six months. They rose by 15 per cent. in the three months to September, and they are now 40 per cent. higher than they were a year ago.

However, with respect to my right hon. Friend the Member for Wolverhampton, South-West, it appeared to me that he did not deal with the question of what the Government should do about the absolute deterioration in living standards caused by the increase of raw material and commodity prices. It seems to me perfectly proper for the Government to take action to see that the impact of this relative deterioration in the standard of living is not felt, or is felt least, by those who can least afford it.

It occurs to me also that the course of commodity prices does not run smooth, and there is a reasonable expectation at least that they will in due course decline, though they show little sign at present of doing so. Indeed, just at the very time when, last month, commodity prices showed some sign of moving downwards, we have had the outbreak of war in the Middle East, and no one can tell now how these prices will move. What does seem certain, however, is that the stage 3 proposals should not be regarded as proposals which can with any certitude control inflation, or even contain it. We are very much in the lap of events over which we have no control.

I turn now to the proposed pay policy and, in particular, to the threshold guarantee. It seems likely that retail prices will continue to rise sharply, at least until Christmas, while the increase in wholesale prices works its way through. Yet October is the reference month which the Government have chosen, and it is seasonally a low month for the price index. Also, I believe that we shall find that earnings will continue to rise very fast. They rose by 1½ per cent. in July alone.

Whatever my right hon. Friend the Prime Minister may say about evidence of a shortage of labour, in my constituency at least, where the number of vacancies far exceeds the number of unemployed and has done so for a considerable time and where companies have substantial and growing order books, including export orders, it seems to me difficult to admonish them for poaching people to carry out the work which they already have on their order books It is unreasonable to suppose that they will not try to obtain labour to carry out the work which they have on order today.

I do not believe that the South-East is alone in that predicament. I believe that the same is true of many other parts of the country, even in Scotland, the North-West and the North-East. It is certainly true in the Midlands, and I believe it to be true in East Anglia as well.

I regard that as a factor which my right hon. Friends have to bear carefully in mind. I think that the course of earnings drift is likely to bear heavily on the course of earnings itself and that in consequence the threshold arrangement will be activated.

In my opinion, it is not a good principle to build in an inflation clause. I should much prefer to have kept some form of weapon, some form of special assistance, such as increasing the family allowances, for this purpose rather than to build in an inflation clause.

In the proposals on prices I believe that I detect a certain appetite for detailed and careful planning on the grounds of apparent fairness and equity in business and industry. There is the example of the companies which earn less than 8 per cent. on their capital. These companies are allowed to raise their prices and those that earn more than 8 per cent. may not do so. The efficient company which we have always been told should be encouraged is, in other words, handicapped, and inefficient companies in the same industry are given special allowances. It is not right, nor does it seem to me to be the business of the Government, to discriminate against efficient companies just because they are efficient. Nor does it seem right to try to draw a distinction between investment and profits as though one were more than desirable than the other.

It is claimed that those countries which have a high proportion of manufacturing investment in their gross national product have the best growth record, but it is also true that those countries which have a high proportion of manufacturing investment also have a high proportion of profits in the gross national product and the lowest proportion of government expenditure and taxes. The truth is that the level of trading profits is now dangerously low in Britain and has been for the last two years. As a proportion of the national income, they have fallen steadily since 1964—from 12 per cent, to 6.7 per cent, last year—so the recovery that is being experienced in company profits now must be allowed to continue if we are to get the growth that the Government so much desire.

People are looking to the Government to restrain inflation. I hope no one thinks that these measures will succeed in that aim on their own, because they must be accompanied by an appropriate monetary policy. I do not believe anyone disputes that, and certainly the Chancellor does not. I can only refer the House to his Budget Statement if confirmation of that is required. The question is whether his policy is being successfully pursued. I hope that no one is using the movement of Ml as anything but a debating point. M3 on the Bank of England's own meas- urement has been rising at the rate of 24 per cent. Nor can the figures be reasonably compared with the movement of money supply in other countries, because the difference is that other countries do not have large budget deficits. France and Holland indeed have a surplus. We still have a large borrowing requirement, but we also have a large capital market, and there is no reason why that requirement should not be met provided that interest rates are kept high enough and provided that public expenditure is under control.

It is sometimes suggested that our economic position is really a matter of choosing between a policy of growth and a policy of stagnation. But what sort of growth policy is it that forces companies to borrow at a rate of between 12 per cent. and 14 per cent.? The truth is that we are now paying the price of the cheap money policy we had last year. That policy was designed to deal with unemployment. It is a perfectly proper act of policy for a Conservative Government to tackle unemployment, but it is fallacious to think that it can be done without cost and especially without some cost growth.

It is also a perfectly proper act of policy to try to alleviate the impact of higher prices, and we are more likely to do so with phase 3 than without it. We are not in the position of the Irishman who would not have started here. We have no choice. These are not normal conditions—they are highly abnormal; and although our policy now towards prices, incomes and industry bears as much relation to the Selsdon policy as a man with a red flag walking in front of a steamroller, I am sure that in these conditions this policy should be supported.

There is no alternative. There is certainly no alternative from the Opposition. Their policy seems to be to have higher wages, higher expenditure and higher taxes and yet not high enough to cover their expenditure. Their policy is simply a fraud. So it makes it even more important that phase 3 should be adopted because, although phase 3 cannot work without an appropriate monetary policy, I am equally sure that a monetary policy without phase 3 cannot work either.

5.55 p.m.

Mr. John Pardoe (Cornwall, North)

The debate has offered a wide choice of methods for dealing with inflation and some of those methods have been presented as though they are starkly contrasting. The Government appear to have been converted since the General Election to short-term or at least medium-term statutory intervention in prices and incomes. But of course they are reluctant converts and those who openly avow, as did the Chancellor of the Exchequer on television at the end of the party conference, that their policy conflicts with their principles do not usually carry much conviction and their policy is not usually likely to be very effective.

The right hon. Member for Wolverhampton, South-West (Mr. Powell) condemned demonology but he seemed to be offering a new mythology, or perhaps not so new but simply an old monetary mythology presented again. Of course, everyone in this House accepts that money plays an important part in the inflationary process. But it does not play the sole part. I also read Marshall in my youth. The right hon. Gentleman may have read it later in life, but there are other economists, and his arguments this afternoon sounded nothing so much as like the arguments of those who opposed Keynes's remedies for deflation in the 1920s and 1930s which were interventionist with a vengeance.

I was in the Conservative Central Office bookshop this morning picking out one or two valuable pieces of propaganda and I came across a leaflet entitled The Selsdon Group Inflation Competition £100 prize (at parity valuations 1/10/73). It says We do not understand the argument that we have all suddenly become more greedy, the trade unions more demanding. or the speculators more speculative. We think it is more likely that people are the same. The only change is that the Government is injecting unreal money into the economy". Of course the Government have injected unreal money into the economy, although the amount is now rather less than it was a year ago, due, of course, to the substantial bonus from increased taxation revenue.

Mr. J. Bruce-Gardyne (South Angus)

The hon. Member for Cornwall, North (Mr. Pardoe) has made a statement which I would challenge. He said that the Government were injecting less unreal money into the economy now than a year ago. Does he not recognise that the rate of increase in the money supply has accelerated considerably?

Mr. Pardoe

We can argue about M1, M3 and any other sort of M, but the fact is that the Government's borrowing requirement by the end of this year will undoubtedly be substantially below the £4,000 million which has been trotted around by the hon. Member. Of course, through the money supply the Government have been responsible for inflation. I do not doubt that for a moment. But the right hon. Member for Wolverhampton, South-West and his friends have to say, as he was challenged by the hon. Member for Tottenham (Mr. Atkinson), what level of unemployment he would accept. If he is challenging right hon. and hon. Members to say what level of inflation they would accept, he must also say what level of unemployment he will accept. I have not seen in any of his speeches a clear statement that he is prepared to accept the levels of unemployment that would exist in this country if his monetary policy was followed to its logical conclusion.

Mr. Powell

The hon. Member must not conclude his sentence by saying "if his"—that is, my—"monetary policy is followed". He must say "if the rate of inflation diminishes". That is the cause, not the method; it is what happens.

Mr. Pardoe

What most of us in this House are endeavouring to do by one means or another is to construct a counter-inflation policy which does control inflation.

Mr. Powell

Reduce it?

Mr. Pardoe

Control it. I have never promised that any policy advocated from these benches, or indeed from any other benches, would substantially reduce inflation at a stroke. It must inevitably be a gradual process.

I do not believe that the Government, whatever they said at the last election, are now claiming that they can substantially reduce the rate of inflation immediately or in the next few months. They cannot. But the right hon. Member for Wolverhampton, South-West does not say what level of unemployment he would accept. He says that inflation is an evil, and it is, but it is not the worst of evils. There are rates of unemployment which are substantially worse evils than a 10 per cent. rate of inflation.

When the right hon. Gentleman says that perhaps growth will temporarily have to be sacrificed, he has to say what level of growth he would accept. We shall have only 3½ per cent. over the next year. We had only just over 2 per cent. during the years of the Labour Government. How does one begin to govern a country whose economic expectations are consistently well above its achievement? It becomes a miserable, inward-looking country, a country that is ungovernable.

A prices and incomes policy is here to stay. It has been quite successful over a long period. No one supposes that a prices and incomes policy can do anything about inflation which stems directly from the rising cost of imports. The effectiveness of such a policy must be judged from the movement of output prices, less import costs.

In the eight and a half years from October 1964 to March 1973, statutory prices and incomes policies of one sort or another were in force for three and a half years. In the five years in which those policies were not in force output prices, excluding import costs, rose at an annual rate of 5.4 per cent. In the three and a half years in which statutory prices and incomes policies were in force output prices, excluding import costs, rose at an annual rate of 3.1 per cent. It may be just sheer coincidence, and many other factors played their part, but to say that statutory prices and incomes policies played no part is to be downright cussed. Prices and incomes policies have worked, and must be made to work in future. I approach the Government's phase 3 in that spirit.

I turn briefly to phase 2 and how that has worked. The problem is that it has not worked as well as the Government expected. I refer to two publications of the Conservative Central Office published in September 1972. One, entitled "For all the people" and priced 10p—then—says: The effects of all this have begun to show. Although prices are still rising too fast, there has been a significant slowing down from the 10 per cent. a year rate of increase of mid-1971 to only about 6 per cent. in mid-1972. The other pamphlet of the same period, "Year of Achievement", says:

Well, it has not been turned back much. Prices are still rising too fast. But for the first time since Labour devalued the pound in 1967 there are clear signs that the tide of cost inflation is being turned back. Although the Government set out with a norm of 8½ per cent. —that is what £1 plus 4 per cent. Was—earnings are up by slightly more than 15 per cent. from July 1972 to July 1973.

Therefore, the right hon. Member for Wolverhampton, South-West is absolutely right to say that phase 2 has not been very effective. In my view the primary reason why it has not been effective is the Government's totally inadequate enforcement procedures. It is at that point that the real yawning gap appears in phase 3, too. How will phase 3 work?

Mr. Joel Barnett (Heywood and Royton)

Is not the hon. Member going to say how the Government should have enforced that policy?

Mr. Pardoe

The hon. Gentleman will and the answer in our amendment, which has not been selected, if he will read it as carefully as the Prime Minister obviously read it because he devoted quite a large part of his speech to replying to it. I shall come to that later.

The Government are pinning a great deal of their hopes on a reduction in the rate of increase in import prices—I do not say a fall in import prices. That is—allowing for a war here or there—a fair assessment. At least we shall not see copper prices doubled over the next year and a half. Undoubtedly, if import prices do not rise as fast as they have risen over the last two years, we have a great opportunity, but we shall throw it away if we simply allow home-produced inflation to fill the gap left by the levelling off of imported inflation. That is what phase 3 is doing.

What level of earnings increase, for instance, can we afford? We are told that we can expect a 3½ per cent. growth rate. We might possibly be able to afford a 5½ per cent. increase in average earnings without it being paid for out of increased prices. But we cannot possibly afford more than that. Anything more must come from increased prices.

I accept immediately that 5½ per cent. as the norm is impossible here and now; it is politically unrealistic. But what norm are we offered? The Government start with 7 per cent. plus this, that and the other. At the end of the day we find that phase 3 is a question of going to sea in a sieve called "flexibility." It is a recipe for inflation. It is phase 2 at a higher level of inflation. The miners' increase is an example of this. Under the 7 per cent. norm which the Government have set, Mr. Ezra has announced a 16½ per cent. increase for the miners. How is it done? It is done within the formula.

Mr. J. D. Concannon (Mansfield)

For a very small percentage.

Mr. Pardoe

All right, but the point is that it is possible for any employer to use the same means, the same phase 3 formula. The sum is done simply. —[Interruption.] I could make many special cases elsewhere. Seven per cent. is the basic norm. We then have I per cent. for more holiday pay, 4.3 per cent. for higher pay for night shift—those bunny girls the Leader of the Opposition told us about.

Mr. Concannon

Not down the coalmine.

Mr. Pardoe

That is true. We have 0.7 per cent. for bits and pieces, 3.5 per cent. for something called an "efficiency deal", and it adds up to 16½ per cent. So what can we expect from the 7 per cent. norm of phase 3? I suggest that it will be much nearer to 15 per cent., and possibly substantially more.

The Government must tell us—I hope we shall be told tonight—what is the price inflation which is built into a wage inflation of this level. That is something we must know if we are to judge phase 3 accurately.

I turn briefly to the lower paid. They have not done at all well in phase 2 and will do even worse in phase 3. The Government have produced their formula of 7 per cent. or £2.25. That figure is an option which has to be chosen by the negotiating group and it is highly likely that the higher-paid members of the group will prefer the 7 per cent. formula since it is much easier for them to get the full increase that way.

I do not believe that the lower paid will get very much out of phase 3. I quote the Economist of 13th October, which said: The low-paid do not come as well out of stage 3 as appearances might suggest, unless they are young, unmarried and irresponsible, in which case their incomes could jump by as much as 15 per cent. I do not think that that is the group that we are particularly out to help.

In answer to the point in our amendment about the lower paid and minimum earnings, the Prime Minister said today that we all ought to do more for the lower-paid and that the argument was about how this was to be done. All Governments have been telling us that they want to do more about the lower paid. The Labour Government signally failed to do anything to improve their lot. Phases 1 and 2 have signally failed to do anything to improve the lot of the lower paid. Why not try the minimum earnings guarantee which we have proposed and which is mentioned in our amendment?

The Prime Minister said that it would cost a lot of money. It would cost 31 per cent. per year phased over four years. Obviously the period over which it would be phased would depend on the state of the economy, but I do not think that 3½ per cent. on the wages bill is an excessive price to pay for this necessary element of equality when the Government are quite happily planning to increase the wages bill, by 12 per cent. on their estimate and by 15 per cent. on my estimate.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The hon. Gentleman has said that he believes the present norms might result in a 15 per cent. wage increase. He now wants a 3½ per cent. increase. What would he cut out to reduce the existing commitment?

Mr. Pardoe

I have already said that I regard the norm as being grossly inflationary and full of holes. I would regard the 3½ per cent. as having the highest priority within whatever increase is allowable. It is not on top of the 15 per cent., or the Government's 12 per cent. It is part of a much lower norm. I agree that this would be unpopular with the hordes of better-off workers from which the Labour Party derives 85 per cent. of its income. That is perhaps why the Labour Party conference rejected a minimum earnings guarantee.

The Minister for Trade and Consumer Affairs (Sir Geoffrey Howe)

May I press the hon. Member a little further on this point? Putting on one side but still leaving him to deal with the question of where the 3½ per cent. comes from and at what rate may I put this question? He has described 5½ per cent. as apparently economically realistic on his analysis but he has then dismissed it as unrealistic. He has referred to a figure of that kind as unpopular. Where, in the judgment of the Liberal Party, do we arrive at a figure which is popular, realistic and non-inflationary?

Mr. Pardoe

I have some other figures to put forward before we do the final sum. I must tell the Minister that I have one or two other bills to pay for equality. We might as well go along that road first.

Sir G. Howe

Just so long as we come out with a figure at the end.

Mr. Pardoe

I shall come out with a figure at least as accurate as anything which the Government have produced. Since the Government set out on phase 2 to produce an 8 per cent. increase and ended up with a 15½ per cent. increase, I do not see why I should not be able to do rather better.

The Prime Minister said that there would be a serious effect on employment as a result of a statutory minimum earnings guarantee. I have to tell him that there are suggestions that the economy is becoming overheated, that there is a shortage of labour, not a surplus, in large parts of the country. London Transport is 5,000 people short. Ought we really to be encouraging industries which cannot afford to pay their labour an adequate wage by allowing them to go on paying wages which are clearly below anything which a civilised country ought to tolerate? Their labour ought to be transferred to high wage industries. If a minimum earnings guarantee, statutorily enforced, helped to do this it would benefit the economy considerably.

There is—I accept this immediately although the Prime Minister did not mention it—a particular problem in some of the regions where incomes are as much as 20 per cent. below the average for the country. There regional employment premium is of the essence. I accept that regional employment premium is not a short-term measure. It must be a continuing measure and it would be the cornerstone of any policy for a statutory minimum earnings guarantee.

The Government have proposed some measures for profits control but have not gone anything like far enough. Any attempt to control profits without controlling the absolute margins rather than the percentage margins is doomed to failure. We saw this in phase 2. The Government now say that firms showing low profits, those reporting 8 per cent. and less, will be entitled to increase their prices to guarantee a higher return. Profits are not always low because of prices. Sometimes it is as a result of bad management, sometimes because of the low productivity of the labour force, which is perhaps badly trained. Sometimes it is because of under-investment. To allow these firms to raise prices to compensate for such things is absolute nonsense.

The proposal on mortgages is just a piece of front page window dressing. It will build no more houses, it will bring no more money into the housing market. I warn the Government that the shortage in the housing market in future will not be what it was a year ago. There is still a continuing shortage of land but I doubt whether the cry will be a shortage of land in six months' time. The real trouble will be a shortage of housing finance in the public and private sectors. It is that which we have to bolster up. The Government's measures have done absolutely nothing there.

The Labour Party's proposals are contained in their amendment and I would advise my right hon. and hon. Friends to vote against it. It was Tom Jackson who said that there was a yawning gap in the Labour Party's counter-inflation policy, and that was the absence of any provision for incomes. We had Mt Scanlon at the Labour Party conference saying: We reject entirely attempts by this or any other Government to freeze wages. Similarly we reject any so-called incomes policy that directly interferes with the process of free collective bargaining. Yet we had the right hon. Member for East Ham, North (Mr. Prentice) saying this: we do want to continue the search for a voluntary agreement between a Labour Government and the trade union movement for an incomes policy based on democratic, Socialist principles"— whatever they may be. He went on: Socialist planning must include planning of something so fundamental to the economy as the movement of money incomes in a modern industrial society". There are two views from high up in the Labour movement, categorically opposed. When the right hon. Member for Leeds, East (Mr. Healey) came to tell us how the Labour Party's proposals were to be paid for, he came to the point when he had to answer Tom Jackson's point about incomes. He said: We must discuss this problem with the trade union wing of the movement to see if we can reach agreement on a voluntary policy for incomes which takes account of taxation too. It is three and a half years since the last election and we are still having to get down to a discussion!

The solution to these problems will not be found in any one area. Voluntary prices and incomes policy is no use at all in our view. It has to be a statutory policy, a long-term policy. I do not believe that the Government's measures of enforcement have worked in phase 2 or that they will work in phase 3. The proposals set out in our amendment are for an inflation tax on excessive wage, price and dividend rises. That is the centre-piece of an effective policy to control inflation. The other parts are to protect those who will undoubtedly suffer from the inflation which will come about under the Government's policy.

6.20 p.m.

Mr. David Knox (Leek)

The speech of the hon. Member for Cornwall, North (Mr. Pardoe) contained something for everyone, as speeches by members of the Liberal Party usually do. The hon. Gentleman complained that the policy of the Chancellor of the Exchequer conflicted with his principles. That is not likely to trouble members of the Liberal Party, because they no longer have any principles.

I agree with the hon. Gentleman's point there is a danger of Keynes being rejected by the people of this country. In the next breath—as we would expect—he went on to do exactly the same himself. He criticised the Government for injecting "unreal money" into the economy. If in a deflated economy the injection of extra money into the economy is not what Keynesism is about, I do not know what is.

I am sorry that my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) has left the Chamber. Someone on the same side of the Chamber should comment on two matters to which he referred. First, he repeated yet again that if we are to reduce inflation we shall have to have higher unemployment. There is no evidence that this is so today. Eighteen months ago there were 1 million people out of work. The figure had risen steeply in the previous 12 months, but there was no abatement of inflation then.

Even if one accepts my right hon. Friend's claim that there is conflict between inflation and unemployment—which I no longer do—I believe that unemployment is a much greater social evil than is inflation. Anyone who claims the contrary has never seen unemployment at its worst. If we did what my right hon. Friend suggests we would have higher unemployment, yet again growth would be brought grinding to a halt, yet again an investment boom which has just begun would be halted and yet again would the country be condemned to another 10 years of pathetically slow growth with living standards rising much more slowly than in other advanced industrial countries. My right hon. Friend's entire philosophy is one of misery and I entirely reject it.

Secondly, my right hon. Friend claimed that in phase 3 the sum total of incomes would rise by 13 per cent. He deducted from this 3½ per cent. for growth and said that this meant that there would be 9½ per cent. inflation in the next 12 months as there had been in the past 12 months. He omitted to take into account that part of the 13 per cent. that goes in taxation. He also omitted to say that incomes in general represent about three-fifths of total costs. His argument was preposterous nonsense. From time to time he accuses people of dishonesty; he should be a little more scrupulous in his own use of figures.

I am grateful to have been called to speak in this debate, which is on one of the most important subjects to be discussed in recent years. As the Economist rightly pointed out recently, Britain is about two-thirds of the way towards an economic miracle, towards the big breakthrough to economic growth for which we have been waiting. The achievement of this British miracle depends on the success of phase 3.

The Government's growth policy has been extremely successful. There are the pedlars of misery who do not think so—some from the City, some from the Opposition benches and one or two even from the Government benches. But for the majority of the British people the higher living standards they have enjoyed in the last two years, the better social and public services, the higher level of employment and the lower level of unemployment—all of which are fruits of growth—are welcome evidence of the success of the Government's policy. There is no doubt that the upsurge of investment which has been encouraged by the growth in the economy during the last 18 months, will help to ensure the continuance of that growth.

The one black cloud that still hangs over our economic horizon is inflation. Unless inflation can be contained our chance of achieving this economic miracle will be lost. I am not saying that we can stop inflation or eliminate it—it is impossible in a modern industrial society to do that; I am saying that we must bring it down to a reasonable level—say, 4 per cent. to 5 per cent. If it can be brought to an even lower level so much the better.

We must be clear about the nature of the inflationary problem which confronts us today. Some people fail to make a distinction between demand inflation and cost inflation. Given the economic policy of the Labour Government and of this Government in its first few months, there has been no pressure of demand for a long time and nor is there today with half a million people out of work and unused capital capacity. In the great boom years of 1959, 1961 and 1964 labour was the constraint, and not capital capacity. If the same is true now, as I believe it probably is, as long as we have half a million out of work there cannot be any great pressure on capital capacity. It is therefore nonsense to suggest that there is excessive pressure of demand. There has not been for many years. How, in these circumstances, anyone can argue that we have demand inflation is beyond me.

It is obvious that we have cost inflation which before the past 12 months was caused by excessive increases in incomes and in the past 12 months has been principally caused by the rise in import prices. World commodity prices have risen by 90 per cent. and world food prices by 76 per cent. The total rise in price of our imports is over 30 per cent. The eventual effect of this on our domestic price level will be an increase of about 8 per cent.

It is obvious that in recent years we have been suffering from cost inflation—an income cost inflation up to 12 months ago and an inflation caused by increases in world prices within the last 12 months. We can do nothing to control import prices. We can do something to control increases in incomes.

The fact that in their Green Paper on phase 3 the Government accept that we have a cost inflation and deal with incomes, wages and salaries alike, shows that they are dealing with the right problem. To judge from certain public speeches some people seem to think that we should be dealing with demand inflation problems, but in my view we are not suffering from demand inflation.

Before considering whether the policy in phase 3 will work, I wish to say a word about the success of the freeze and phase 2 because this is the context within which phase 3 should be judged.

It is difficult to convince people, in a year when prices have risen by 9½ per cent. that this policy has been a success. But import prices—[Laughter.] It is all very well for hon. Gentlemen to laugh but, as they know perfectly well, import prices have risen by 30 per cent. over the last 12 months and the effect on our domestic prices of that increase must be an increase of 8 per cent. Of course, not all of the increase in import prices has yet worked through, but it is reasonable to say that somewhere between 5 per cent. and 6 per cent. of its effect has already been felt on our domestic price level, which is about two-thirds of this year's inflation. Remembering the time lag between income increases and the consequent price increases and the big increase in incomes immediately before the freeze, many recent price increases have been a consequence of pre-freeze income increases. When these facts are considered it is reasonable for the Government to say that the freeze and phase 2 have been a great success. The success of the freeze and of phase 2 was borne out in the article in the Economist on 8th September, which showed that the annual rate of wage and salary cost inflation during the freeze was the lowest since October 1964, and that, at the same time, the annual rate of import price increases was much higher than at any other period since October 1964; indeed, not just much higher, but about five times higher. So the Government have had considerable success thus far.

The success has not been due only to the limitation on income rises. The Price Commission has played a notable part as well. First, its very existence has deterred some firms from applying for increases. [Laughter.] The hon. Member for West Ham, North (Mr. Arthur Lewis) laughs, but if he knew anything about industry he would know perfectly well that people are just a little more reluctant to put up prices, or to apply to put up prices because the Price Commission exists.

Mr. Arthur Lewis

Has the hon. Gentleman seen an account in today's Press of what happened a few weeks ago? The timber firms have admitted overcharging and will be taking a 5 per cent. reduction. One big multiple firm has admitted that millions of pounds worth of excessive prices have been charged, and no action at all has been taken against any of them.

Mr. Knox

I am afraid that the hon. Gentleman did not quite get the point I was making. My point is that some firms were deterred from putting up prices, or from applying to put up prices, because the Prices Commission exists.

Mr. Lewis

It should stop it.

Mr. Knox

No prices and incomes incomes policy will be perfect. No policy of this Government or of any future Government will be perfect. There will always be anomalies. A prices and incomes policy is particularly open to avoidance. As a nation we have a great deal to learn. But what the hon. Gentleman said in no way destroys the point I was making. However, as we have seen in today's papers, consumers have been saved well over £300 million by the operation of the Price Commission, and this has probably cut the rate of inflation by one-third.

There is one weakness in the Price Commission, and that is the excessive publicity given to price rises, which it approves. It is a perfectly legitimate point. Day after day, through the media, we have been told about price increases. But we were not told what happened on the wages front and the impression created in people's minds, given that there has been a fast rate of inflation anyway, is that the rate of price increases has been much higher than it really has. It therefore seems to me that rather less publicity should be given to increases; or, alternatively, much more publicity should be given to rejections, or partial rejections, of applications for price increases. Even hon. Gentlemen opposite would then have a more balanced view of the situation—because their view at the moment is obviously very distorted. I hope that my right hon. Friend may mention that point when he winds up tonight. As I said, a prices and incomes policy is not a perfect instrument, by any manner of means. There have been inequalities and anomalies in our present policy but it is undoubtedly true, whatever anyone may say, that the freeze and phase 2 have achieved a fairly large measure of success. The rate of inflation is certainly much lower than it would have been without a prices and incomes policy and in this context phase 3 surely deserves some success.

I want very briefly to touch on one very important aspect of phase 3. Much of the detail of phase 3 appeals to me, but, taking out all the frills, the essence of the Government's proposals is that income increases should be up to 7 per cent. and that the threshold safeguards should be brought into being if the retail price index rises by 7 per cent. or more. In this way, the Government have established that the policy of phase 3 is fair, and the public are reassured that under it their living standards will not fall. They are fully protected and, in most cases, living standards should rise slightly. It is because phase 3 gives the public this protection that I believe it is fair and reasonable, and deserves to succeed.

It seems to me that if we can make phase 3 work it will give Britain a chance to embark on the economic miracle of which we have been deprived for so long, which most other advanced countries have already experienced. Our turn is long overdue. I believe that the Government's proposals for phase 3 offer us that chance.

6.36 p.m.

Mr. Charles R. Morris (Manchester, Openshaw)

I am pleased to follow the hon. Member for Leek (Mr. Knox) and I am encouraged to do so by a point which he made at the opening of his speech. I share his revulsion about the prospect of unemployment. No one who has seen the impact which redundancy, unemployment—call it what you will—has had on the family lives of steel workers, mine workers and textile workers in my constituency will lightly opt for unemployment as a solution to the economic problems now facing the nation. I recognise that, by implication, the hon. Gentleman was attacking his right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell).

It would be a useful exercise for the House to consider exactly the implications of the theory and policy advocated by the right hon. Member for Wolverhampton, South-West, who suggested that he was in favour of increasing unemployment as a solution to the economic problems now facing the country. Essentially, the people affected by that theory and policy will be those least able to bear the burden. It will not be the hon. Gentlemen on the green benches opposite; it will not be their friends in the City; it will not be the affluent, or the middle-class people who will suffer as a result of this comfortable theory about allowing unemployment to rise. It will be decent ordinary people outside, who do not have the financial background to help them deal with situations such as that. That is why I feel that we should hesitate before accepting the rather glib solutions offered by the right hon. Gentleman.

I do not dispute the seriousness of the economic position which now faces the country. Equally, it would be hazardous if this House were to ignore the growing frustration in the country outside with a Government who seem impervious to the problem of rising prices and helpless at stemming the rampage in land values; and who appear to have abrogated any responsibility for mortgage interest repayment rates and have deliberately increased council house rents.

We are invited to accept that equity lies at the roots of the price and pay code which the Government have placed before the nation. The Prime Minister this afternoon, when talking about the prospects of a voluntary incomes policy, said that it is not possible for the Government to negotiate a voluntary incomes policy with the TUC and the CBI because the Government are not convinced that the TUC and the CBI can contain inflationary pay settlements. I suppose that is a reasonable attitude to take in the circumstances. But how can the TUC and the CBI be expected to contain inflationary pay settlements if the Government for their part have not provided their share of the economic equation? How can one expect the TUC to accept the Government's policy if the Government refuse to act in the matter of council house rents and mortgage interest repayments?

Consider the Government's policy in introducing the Housing Finance Act. The Government christened that Act "the Fair Rents Act". How fair is the Act as it is working? Let me give an illustration of some of the problems which have arisen in the implementation of the Act. In Manchester the housing committee looked at its housing revenue account against the background of the 50p increase which the Housing Finance Act dictates should be introduced and, indeed, was introduced on 1st October. The housing committee said, "Let us look at our housing revenue account and see what sort of increase would be reasonable for council house tenants to pay to keep the housing revenue account in a credit balance. The committee decided that a reasonable increase in council house rents would be 5p. It then had informal discussions with the Government rent officer in Manchester, and they jointly agreed to put their submissions to the rent scrutiny board established under the Housing Finance Act. The only problem was that the administrative burden carried by the rent scrutiny board did not allow it to report on those submissions until the end of 1973. Meanwhile, the provisions of the Housing Finance Act had to be put into effect.

We therefore have a situation in Manchester in which 94,000 council house tenants have had to pay an increase of 50p a week when the city council, the housing committee and presumably the Government rent officer agreed that a reasonable increase would have been, on average, 5p a week. What sort of equity and justice is there in that? In such a situation, how can workers whose earnings are being restricted sit back and be persuaded that the Government are being fair in applying their pay and incomes policy? It would not be unreasonable for the TUC to demand assurances about the continuance of full employment as one of the prerequisites for its co-operation in the prices and pay policy. I do not want any part of a policy which casts men on the unemployment scrapheap merely to pursue economic theories which make safe the incomes of the affluent in the country. If there are economic burdens facing the nation they ought to be shared by all sections of the community.

Reading the consultative document I am not wholly convinced that the Government are serious about their proposals for controlling profit margins. We have seen during phase 1 and phase 2 individual companies blatantly ignoring the provisions for submitting information to the Government about their price increases. What sort of penalty do they risk?

Mr. Arthur Lewis

None.

Mr. Morris

They do indeed—£400. That penalty does not bear comparison with the increases envisaged by the companies concerned. The Government ought to be more—

Mr. Lewis

When I said "None", I was referring to the fact that neither the Government nor the Prices and Incomes Board have taken action against any of those companies which have flouted the policy. They have not prosecuted one. I have given details to the Prime Minister and to all the appropriate Ministers of hundreds of company directors who have flouted it, and not once have they taken action. Indeed, the Prime Minister has refused to take action.

Mr. Morris

I am extremely grateful for that information. My hon. Friend is particularly anxious about this problem, as I know from the Questions which he has tabled to Ministers in the past. We need to be persuaded that the Government are tackling these companies which increase prices and do not make available information about such increases. If the Government are really serious about controlling prices, let them take action against these companies which blatantly refuse to give any warning about their price increases.

Paragraph 22 of the consultative document says: New orders will also be made describing the information that will be required from companies which are affected by the change in the profit margin control.… I can only hope that the new orders are better than the old orders. The old orders have been ignored by far too many private companies. I hope that the Government are serious about these proposals and that positive action is taken.

I want to deal with one other important point, and it is to be found in paragraphs 23 and 24 of the consultative document dealing with nationalised industries' prices. It always struck me as slightly ironical that a Government who traditionally represent the capitalist and private industry should exercise the major control of prices by imposing their diktats and policies on the nationalised industries. I am concerned about some of the effect which this continued control on nationalised industries' prices is having. Paragraph 23 states: Prices of electricity, gas, coal, fares and postal charges, all of which are important items of household expenditure, have been held well below the levels which would have been commercially justifiable, making a significant contribution to the reduction of the price level. The operative part of that paragraph is in the phrase: … which would have been commercially justifiable". The Government told the Post Office in 1969 that they were to establish it as a public corporation, that it would have the right to operate on a profitable and commercial basis, and that it would have freedom to invest and so provide the country with the postal service to which it was entitled. Almost ever since the Government have sought to impose their will on the Post Office as a nationalised industry. I do not agree that nationalised industries should be free from control, but they should be dealt with in precisely the same way as private industry.

Mr. John Golding (Newcastle-under-Lyme)

Is my hon. Friend aware that the Government are now in a situation in which, in return for low telephone charges, they are prepared to pay a subsidy for the telephone service? The Government are prepared to subsidise telephones but are not prepared to reduce the price of bacon and eggs by paying subsidies. That is the illogical situation created by their policy.

Mr. Morris

I very much share the views of my hon. Friend. He expressed similar views when the Post Office's borrowing powers were discussed last year in Committee and in the House.

My hon. Friend has rightly referred to the impact on tariffs. There is also a great psychological impact on the workers in the industry. They are in a situation in which year after year the industry to which they are making a contribution is consistently producing deficits. Understandably, people equate deficits with inefficiency, but I do not. Having spent many years in a nationalised industry which, through no inefficiency on its part, tended to make deficits. I cannot accept the proposition contained in paragraph 23 that it is all right for nationalised industries to continue year after year making deficits because the Government refuse to give those industries the same commercial freedom which they allow to private industry.

I shall have no hesitation this evening in supporting the amendment in the names of my right hon. Friends, particularly that part which calls for the adoption of policies that will protect the living standards of ordinary families, above all, by controlling prices and rents, house prices and mortgage interest rates, and will safeguard their future prosperity.

Mr. Deputy Speaker (Mr. E. L. Mallalieu)

I remind the House that there are still many hon. Members who wish to speak in this debate. I hope, therefore, that interjections and interruptions will be kept to a minimum.

6.55 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I can agree with the final point made by the hon. Member for Manchester, Openshaw (Mr. Charles R. Morris). I am surprised that he should want to remove deficits in the public sector of industry, as I do, but at the same time wish to impose deficits on the private sector by the rigorous price control which he advocated. I should like to protest that the amendments to the detailed code which we are now discussing would be far better handled in a Committee stage form of debate, as there are many technical points which the House ought to be arguing and, it necessary, voting on. I intend to raise some of these technical points but I hope the Government will consider whether they can devise some form of Committee stage, because this is far too important a matter to be left to a general debate with a vote at the end.

I wish to thank my right hon. Friends for at least meeting the point about depreciation being allowable in full as a business cost, which I urged during stage 1. I also wish to criticise them for continuing to prevent incentive and share option schemes. Bearing in mind that we spent most of the year arguing and debating this matter in Committee, it is ridiculous that it should be included in a Finance Bill by the Treasury team yet blocked by a statutory instrument. I cannot see that allowing to go forward those share incentive schemes which are now on the statute book would conflict with control of inflation.

I wish to discuss the operation of stage 1 and stage 2 and to predict the future of stage 3. I predicted that when stage I came into existence, the effect would bear more hardly on prices than on wages. For a time, as the year went by, I appeared to be more and more wrong. But if we look at the figures we shall find that that was not so. During the period from November of last year to July this year, earnings went up by 10.8 per cent., according to the document that we have. In effect, they were planned to go up by 0 per cent. during the standstill and by 8 per cent. for the 4½ months of stage 2, until July. Thus, in that period we had an average expectation of 4 per cent. but in the end it turned out to be an 8.1 per cent. increase in incomes. That means that the rate of increase in incomes was double the prediction at the beginning of the period.

We are told that in stage 3 wages will rise between 9 per cent. and 10 per cent. but, as my right hon. Friend the Member for Wolverhampton. South-West (Mr. Powell), has said, the Chairman of the Pay Board has predicted that this means a 13 per cent. increase in earnings. My guess is that it will probably be a 15 per cent. increase, but that is a pure guess, because these figures are always more than the most wild expectation—and no one would call Sir Frank Figgures' expectation wild. Stage 3 has been started with an offer of 13 per cent. increase to the miners and it is clear that we shall achieve rates of increase in earnings far beyond the predicted increase that would he allowable in a counter-inflationary situation.

The reasons why earnings are likely to outstrip the norm are, partly, the gateways or loopholes in stage 3 and the turnover of employees in some firms, which has reached as much as 30 per cent. a year, as well as the many promotions and titles invented throughout industry to disguise wage rises, and partly because of the large-scale poaching by small firms, who are able to put up pay rates without attracting the suspicion or the notice of the Pay Board, thereby causing wages to rise and at the same time denuding those firms which have to adhere to the Pay Board's dictums or code. That is what will happen. We will have increases in earnings of 15 per cent. or 16 per cent. against a predicted growth rate of 3½ per cent.

We were told this morning by the Chairman of the Price Commission that £316 million has been "saved" in increased prices. Saved from what? Saved from whom? Saved from where? Assuming no price elasticity, the differing prices would not have caused differing demands by the public for what they purchased, and we can only assume that £316 million has been taken out of the corporate profits sector and injected into consumption. If there had been no policy. pre- sumably we would have had £316 million more in profits and £316 million less in consumption. To add that amount to consumption which otherwise might have been put into investment or even saved is highly inflationary. It is not encouraging for counter-inflation.

Althought the expectations of the increase in wages has doubled in stage 2, at the same time the diminution in prices has been real to this considerable extent. The evidence which one gets from dividends is startling. In 1962 dividends represented 5.1 per cent. of the gross national product. They remained at about that level during the whole of the Socialist administration. In 1969 they were 4.3 per cent. In 1973 they are estimated to have dropped to 2.7 per cent. So one effect of the policy seems to have been almost to have halved the share of the gross national product taken by dividends. Those who have always believed that the spiralling of prices that we have seen has been caused by excessive profits or dividends and that all we had to do was to stop profiteering in order to stop prices going up cannot continue to hold that view after looking at the profit record of British industry as a whole. Profits have been far too low—historically, and still today—for the kind of capitalist economy that we are trying to run.

That brings me to my main concern about the Green Paper. It is that it is much more likely to bear successfully on prices than it is on wages and that if it does bear successfully on prices, both profits and dividends and, from them, investment will suffer still further.

If there is an increase in efficiency or productivity I do not believe that the allowance left in the hands of the company concerned is adequate. What is more, there is only a 50 per cent. allowance for allowable labour costs which will have the effect of making an automatic fine on companies unless they can increase efficiency automatically by a set percentage every year.

If one looks at the gateways for investment, although they are more favourable, there is no reward for companies which make new investments as from the future. My right hon. and hon. Friends always say that we are on the verge of an investment boom. The figures have shown a slight upturn in the first half of this year. But I believe that those investments were planned and decided upon long before anyone heard of stage 1, stage 2 or stage 3 and that we are seeing the results of decisions made some time ago.

I want to ask my hon. Friend the Under-Secretary of State for Trade and Industry to tell the House how many schemes for new investment have come to his notice which have been put off as a result of stage 1, stage 2 or stage 3. If he will give us this information I believe that we shall discover that a very large number of important investment projects have been cancelled because the price code, if administered rigorously, would make those investments uneconomic. I suspect, though I hope very much that I am wrong, that the next investment intentions surveys will show not an increase but a reduction in likely investment intentions in the future.

I believe that the effects of the policy as it is working—first, the tendency for earnings increases always to outstrip and even to double the target and, secondly, the effect of dragging down the level of profitability and discouraging investment—will be cumulatively more dangerous as time goes by. I do not think that very much damage has been done. It may be that little damage has been done. But for every year that these two tendencies continue and develop, the share of the gross national product going to consumption will increase and the share going to investment and profits will reduce. This in itself is not a happy springboard for the economic miracle which my hon. Friend the Member for Leek (Mr. Knox) hoped for and predicted.

What we have to do now is try to remove these two effects. If one is to correct the two tendencies—the first for the consumption aspects of the policy to become more profligate and the second for the investment and profit side to become more squeezed—one begins to ask whether we ought not to relax the controls, the ambitions and the side issues included in both. Much though I share the hope that our low paid will receive a higher share of our wealth in the future, that is not a counter-inflationary expectation. It is the reverse. Much though we would like to see certain groups of people helped because of our constituency interests or our personal views, we must not forget that we are discussing inflation and, therefore, that we cannot consider all sorts of other clauses mixed up in the same policy.

I hope that the Government will call it a day with stage 3. Stage 3 must give way to a situation where the distortions which are being built into our economy can be eased out and removed. Then, I believe, we can look forward at least to not interrupting the investment and growth in the country which we all dearly want to see. I believe that we face the danger of throttling the very growth to which the Government are trying to contribute by building in these economic distortions.

I have been careful not to talk about how I would like to see inflation controlled. I am frightened of hearing some unpleasant epithets if I go too far in putting forward my views on that subject. They are well known. But if we are to have this policy we have at least to deal with the reality of the words in the Green Paper which could be considerably damaging to our economic structure unless they are moderated.

In this debate we are asked to say what we think about the nuts and bolts of stage 3. In giving the Government what I hope are my rational and constructive views I beseech them not only to listen but to design stage 3 so that it is the last of these enterprises in ever-increasing bureaucracy, under the guise of controlling inflation but merely building distortion and confusion into our economic system.

7.9 p.m.

Mr. Stanley Orme (Salford, West)

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) said that he hoped that phase 3 would be the last stage of this experiment or excursion by the Government into a prices and incomes policy. I do not think that he believes it to be the last.

It is very interesting when a Government become involved in a policy of this kind. The more that they refine it—the more that they bring in checks and counter-checks—the more that they become encouraged by and enveloped in their own policies, the more hopeless the policy becomes. The present policy bears no reality to the economic situation in the country at large.

What is the situation? I am in favour of growth, and the Government say that they are going for economic growth. If we go for growth and reduce unemployment, the pressures about which we have already talked within the labour market will begin to make themselves felt.

If this is such a perfect incomes policy, why cannot we get bus and tube drivers in London? Why cannot we attract workers to the essential services?

The hon. Member for Cirencester and Tewkesbury talked about a labour turnover of 30 per cent. in one firm. Labour is beginning to move up and down the road again—using the jargon of the labour market—following and going to jobs that have been created for which more realistic salaries can be paid in the market as it operates than anything related to an incomes policy. This has nothing to do with the lower-paid worker. It does not assist the hospital worker, the bus driver, the train driver, teachers, probation officers, and many others.

We understand that the Government are to stop some public sector building. Where will the labour in the building industry go? Will it go into house building? I hazard a guess that it will go into luxury and other types of building, where high wages are being paid, much of them on the lump at the moment, and where people can earn wages far in excess of what is being paid in the general labour market.

Where does the medium and large employer fit into this situation? Where does the employer who has good industrial relations and wants to pay his work-people a decent wage but is prevented from doing so by the Pay Board, and finds that his labour is being sifted away by smaller firms paying more attractive wages, fit into this situation?

Once we start to distort the market economy in the way that it is being distorted at present—I am no defender of the market economy—and take away free collective bargaining for true wages for labour, no incomes policy, Pay Board, unsociable hours and such nonsense will fit the bill. In consequences, we shall get large movements of labour. We shall get people in the wrong jobs. We shall get a great deal of dissatisfaction amongst many people who have perhaps devoted their working lives to one industry—even to one employer. But people, whether they try to redress the balance through trade unions or in other ways, will be stopped if they are in vulnerable positions where they are easily identifiable.

This incomes policy does not apply to everybody in our society. There are millions of self-employed people. I have raised this issue time and again. There are jobs in which certain people can get remuneration without any redress to the Pay Board and without violating the policy. Yesterday, reference was made to a famous butcher who increased his salary to a tremendous extent. The Prime Minister said he would reply to that point, but he has subsequently dodged the issue. Workers on the shop floor are able to point out where these anomalies exist.

Mr. Richard Tomkins, the managing director of Green Shield Stamps—that is a marvellously productive job that is assisting the economy—through his company paid himself a £1 million last year. As chairman and managing director his salary was £260,000. He raised dividend payments from £900,000 to £1,500,000 and, as holder of more than half of the 100,000 shares, he received a dividend cheque for £750,000, before tax. Therefore, his salary and dividend payments together gave him a total of £1,010,000. That was for one man in our society.

Mr. Peter Rees (Dover)

What would it be net after tax?

Mr. Orme

It is considerably more than £250 a year.

I turn next to the much maligned workers in the motor car industry. The Chrysler case is interesting. This multinational company offered to pay its electricians an amount which was agreed by the unions, but it was stopped by the Government's incomes policy. The car industry has been thrown into chaos through a conflict not between employer and trade union but between employer, trade union and the Government. The Government's policy has caused this trouble. Chrysler wanted to pay the money. Throughout the whole of this dispute the management continued to negotiate with several trade unions, some of which were more opposed to the policy between themselves but on no occasion took the dispute to the National Industrial Relations Court.

I should like to mention a point regarding the National Industrial Relations Court because its architect is to reply to the debate tonight. A serious question arises from a recent issue in that court I refer to the AUEW case and the sequestration of £100,000 from that union concerning a recognition matter. This point is germane to what we are talking about. If that dispute is not resolved satisfactorily we could have serious industrial trouble this winter. We are not yet out of the wood with the Chrysler dispute. That is still simmering, and an inquiry is going on. But here we have a dispute concerning the type of firm which we suggested the National Industrial Relations Court would bring into conflict with the trade unions.

What are the facts? Briefly, they relate to a small firm—Con-Mech—employing 31 manual workers, 26 of whom voted voluntarily to join a trade union. They then joined the AUEW. After joining that union they elected two shop stewards. The managing director sent for the two shop stewards and told them that he would not recognise the union. What is more, he sacked the two shop stewards. The manual workers then withdrew their labour.

The AUEW was going through the normal employer and trade union negotiations for recognition, which any reasonable, responsible employer would have recognised, but instead this employer decided to go to the NIRC. The AUEW does not recognise the NIRC and did not attend the hearing. It maintained that this was a purely trade union matter, which was dealt with in a properly constituted trade union manner. In his judgment, Sir John Donaldson said that the AUEW had not obeyed the court's instructions and that it would sequestrate £100,000 of that union's assets.

Steps have been taken to get that money, but the court made another decision at that time. It said that the firm should take back the two shop stewards and negotiations could then take place. Not only did the firm not take back the two shop stewards; it subsequently sacked the other 23 men who had joined the union. What about these double standards? Why is it that the court is proposing to take £100,000 from the union but is not enforcing the reinstate. ment of the men concerned? Why has the court allowed 23 other men to be dismissed by this employer?

Sir John Donaldson has a case to answer. My union, having considered the matter, wants to resolve the problem in a proper manner. It does not want to defy the court. It considers that this is a matter not for the National Industrial Relations Court but for settlement by normal collective bargaining. My union is not looking for a showdown with the court, but if the court goes a stage further and imposes a fantastic fine upon it the union will have no alternative but to consult its members about what further action may be taken.

My union has taken the first steps in the matter. There is a time bomb ticking away under the Government's policy and it could be set off by the issue that is now before the NIRC. We are not clear of the Chrysler dispute, yet here is a classic example of the court's doing the very thing that we warned the Government could happen. We warned them how a small employer, or an individual such as Mr. Gould, could bring about industrial unrest, at a time when millions of other workpeople recognised the trade unions and belonged to them—trade unions with whom the vast majority of employers negotiated freely.

In his statement on behalf of the TUC Mr. Len Murray emphasised that all that the employees of Con-Mech are asking for is the right to belong to a union and to obtain recognition from the employer. That is a basic right which has always been supported by the trade union movement, but which is denied to these workers by the disruptive and discredited Industrial Relations Act. The answer that these trade unionists got from their employer was the immediate dismissal of the representatives. No one should be surprised that they reacted by withdrawing their labour. What deeply concerns the trade union movement as a whole, and what should concern the Government, is that an employer should be able to use the Act as a bludgeon against these workers and their union. The AEUW has throughout been willing to discuss this issue with the employer. The employer's response has been to sack all the trade union members. The NIRC has told him to take the strikers back, but so far the court has done nothing to enforce this. It is clearly the Government's responsibility to facilitate a settlement of the dispute, and to put the Act itself into cold storage before it causes any more damage.

Sir Harmar Nicholls (Peterborough) rose—

Mr. Orme

I normally give way, but I hope that on this occasion the hon. Gentleman will allow me to complete my speech in as short a time as possible because I know that others wish to take part in the debate.

I thought that it was important to put the facts of the case before the House. My interests are well known. I am a sponsored Member of the AEUW and Chairman of the Parliamentary Group of 22 Members, and I felt it right to take the course that I did.

Having spoken to Mr. Scanlon this morning, I know that the last thing he and his executive want is a showdown—an industrial dispute. They want to talk the matter over with the employer and resolve the difficulty. All that they are asking for is the common decency, which we thought had been established a long time ago, of the right of the majority in this firm to belong to a trade union, be recognised and have negotiating rights within the firm. That is what is being asked for, and it is incumbent upon the Minister who replies to the debate to say what action the Government propose to take to defuse the situation.

It will be difficult for the Government to implement their incomes policy. It has given rise to the Chrysler dispute, but there is a far more important principle involved—a basic trade union one, and trade unionists will not stand by and watch their trade union broken by the action of a one-sided industrial court. The Government have a duty tonight to answer the case.

7.25 p.m.

Mr. Derek Coombs (Birmingham, Yardley)

The reality of what the Government are attempting to do through the Price and Pay Code is to mitigate the effect on the people of this country of extraordinary levels of world-wide inflation.

I was amazed when I obtained Reuter's figures from the Commons Library to see they showed that in the last 12 months up to 2nd October all world primary commodity prices had increased by an astronomical 83.4 per cent. There has not been an increase of that kind within living memory. Reuter's records go back to 1932, and even during the Second World War its index showed an annual increase of no more than around 8 per cent.

The only other very bad period after that time was 1948–51, on the eve of the Korean war, and even here one is talking about a figure of 16 per cent. per annum. This therefore demonstrates beyond all question of doubt the extraordinary price changes that have taken place in the world recently. I am told, again by the Commons Library, that the total cumulative increase from 1947 to 1970 was 80 per cent., which is still less, in 23 years, than we have suffered during the last 12 months.

Comparing this figure of 83.4 per cent. and the others provided by the National Institute and the Economist with the six years under the labour administration is also startling. World prices rose by between 1 per cent. and 4 per cent. during the whole of those six years. It is therefore abundantly clear that the rise in prices during the Labour term of office was entirely domestically generated. In other words, it was due to the massive increases in taxation and other measures which the then Government imposed upon the British economy. It makes one shudder to think what would have happened to prices if those restraints had not been removed.

Assuming that no Government, of whatever political persuasion, could have controlled these world forces—and I think that that is a reasonable assumption—where do we find ourselves now? Since 1970 average earnings have risen rapidly. The standard of living has increased at double the rate it did for the previous six years. Even under phase 2 the increase in earnings had been about 7 per cent., whereas in the same period of phase 2 prices rose by about 2 per cent. The new guidelines for the current phase will inevitably mean that the standard of living will go on rising, probably at a faster rate, and so we are better off.

If we had not joined the European Community, price levels would be virtually identical to what they are now. We can be grateful that we have escaped increased taxation and all the other depressing side effects normally associated with international speculation. No one likes rising prices. The Government do not like them. One can manoeuvre within the pressures—changing the method of control, examining "sore" areas such as home-buying for young people—but the pressures themselves are beyond any single country's jurisdiction. Of that there can be no doubt.

To suggest to the housewife that the situation could be better than it is is both misleading and dangerous. No one in his wildest dreams could anticipate world prices rising as they have done in the last 12 months, and we have to face that reality. Shown in this light, the Government's intervention in limiting price increases in the way they have done is a commendable and remarkable feat. It is incredible what the Government have achieved under the most difficult world conditions that we have ever experienced, and they should be commended for it. Perhaps the Government are being too generous in phase 3, but in the interests of the nation as a whole the policy had to be socially acceptable. I believe that it is.

7.30 p.m.

Mr. William Hamilton (Fife, West)

We have heard a lot about percentages of various kinds, but the housewives who have come here today from Scotland, Yorkshire and elsewhere do not shop for or with percentages. They know that prices are rising daily.

The hon. Member for Leek (Mr. Knox) said that one of the reasons why housewives are so disillusioned is that there is excess publicity for the price increases. Presumably the housewives would be much happier if we pretended that prices were not rising. Indeed, with the connivance of the Price Commission the Government are already embarking on steps to ensure that less publicity than hitherto is given to price increases which are already in the pipeline. The hon. Member for Leek said that we were two-thirds of the way towards a miracle. I do not know how one gets two-thirds of a miracle. One either has a miracle or one does not. One cannot get two-thirds of the way towards a miracle.

Housewives know very well that the object of the exercise was to reduce their standard of living. The average working family is now worse off than it was before the Government started on a statutory policy. At the last General Election the Conservative Party said that it would have nothing to do with a statutory policy because such a policy could not work.

Being a fair-minded fellow, I believe that it would be futile and dishonest for any political party, Liberal, Labour or Tory, to pretend that it has instant solutions to the problems about which we are talking, the multiplicity of problems that we call inflation. When we talk about inflation we should be concerned not only with prices and incomes but also with the general quality of life, which cannot be measured by prices. Inflation concerns the kind of school that one's children attend, the kind of hospital that the old lady either gets into or does not get into, and the general quality of life. That cannot be measured in pounds, shillings and pence or by the cost-of-living index.

This vicious and damaging spiral of price/wage inflation cannot by stopped but it can be slowed down by Government action. The prices and incomes policy which in theory we are discussing tonight is a much wider problem. We are discussing how best to share out the national wealth, and how fairer the shares shall be. The Government have repeatedly stressed that they have leaned over backwards to create one nation, to create a sense of fairness in the community which will enable people the better to accept an official prices and incomes policy. In that sense we are all interventionists now. All political parties believe that the Government at some point or points must intervene to prevent the excesses of market forces.

Reference has already been made to the presidential-type presentation of the White Paper. I hope that that will not recur and that when we reach phases 4, 5, 6, 7, 8, 9 and 10 the Prime Minister will not make a party-political broadcast at the taxpayer's expense in Lancaster House. He ought to come to the House and be cross-examined. He ought not to go to Lancaster House to be asked a supercilious question by Robin Day and to fob it off. On this occasion there was no supplementary question, not even from Robin Day. That is an abuse of the House and a direct contradiction of the Prime Minister's pledge about open government.

On every possible occasion over the last three years the Prime Minister has talked about one nation and the fairness of his policies. I want to deal with the divisive effect of the policies that have been pursued by the present Government by quoting from the very Tory. Right-wing London Evening Standard of Thursday, 11th October. It contains the headline Astonishing, how the rich men of property got their way again. I shall quote it at length: At three o'clock last Monday after-noon,"— that was the Lancaster House affair— one of the most efficient and lucrative pieces of political lobbying this country has ever known was brought to a triumphant conclusion. As a result, while inflation remains the nation's number one problem, while wages and prices are still to be controlled under Stage 3, one area of the economy—where inflation is not only raging but making gigantic fortunes for a comparatively tiny number of individuals and companies—was quietly let off the hook. Within the hour, some of the richest men in Britain were already millions of pounds richer—and the rest of us could soon be a great deal poorer. This is from the Tory Evening Standard. What happened at three o'clock last Monday was that after nine months of intensive behind-the-scenes badgering by the property men, the Government finally abandoned its proposals for long-term control of business rents. The apparently innocuous announcement sent property shares racing upwards. Within minutes"— within minutes— Land Securities, for example, had put on more than £15 million. Why the melodramatic reaction? Because what had been averted was nothing less than a threat which could have brought the whole structure of an over-inflated property market crashing down in ruins. The article went on to mention that in those few minutes Centre Point, that massive office block in Camden which has been empty for about two years, rose in value by £2 million. The whiz-kid of Slater Walker, now king of the empire of Trade and Industry, said a year ago that he would take it over. Nothing has happened to it. It is still empty.

The article continued at great length. It said: In the last seven years, for example, Land Securities, the biggest property company in the world, made by way of capital appreciation and rent more than £500 million"— that is in the last seven years— equivalent to Britain's entire contribution to Concorde. On the whole of this, Land Securities have paid tax of less than £15 million (or three per cent.). How many of us, how many of the women who have come here today from Scotland and how many ordinary workers are paying only 3 per cent. tax on their income?

I should like to compare that with an advertisement which appeared also in the Evening Standard in relation to the House of Commons. The advertisement appeared the previous week, on 3rd October, and stated:

• "House of Commons
• Refreshment Department
• require the following staff:
• Cafeteria General Assistants
• £16.85, 40-hour week.
• Evening Cafeteria General Assistants
• £9.30, 6–12 or later; overtime after 12."

That is unspecified.

• "Barmen (split duties)
• £21, 40-hour week.
• Wine Waiters (split duties)
• £18.60, 40-hour week.
• Commis Wine Waiters (split duties)
• £13.50, 40-hour week."

God knows what they do. If they just wash the glasses they are grossly underpaid. Chefs de partie, with split duties, are offered £25.75 for a 40-hour week; kitchen porters, with split duties, are offered £17 for a 40-hour week: and cashiers, who are top of the pops, are offered £22.70 a week.

Compare what our employees are offered with what Land Securities and other property speculators have been getting—and remember also that a few months ago an old lady died trying to eat cardboard because she was starving! Compare them, and one sees the kind of society that this Government have created. How on earth can one expect ordinary workers to accept any policy of restraint when we get that gross, obscene disparity between the vulgar wealth at the top and the crass, gross poverty at the bottom?

The Government say that the policy they are pursuing is due to circumstances beyond their control—that world commodity prices have gone up at an all-time record rate. I suspect that they went up at as high a rate during the Korean war but I do not remember the then Conservative Opposition saying "We will excuse the inflation because world commodity prices have gone up." Of course the housewife does not accept that as the reason, because she and we all know very well that a large element of the increase in housekeeping costs is the sole responsibility of the Government.

The rent increases have nothing to do with world commodity prices. They were a deliberate policy to save money on housing subsidies in order to give tax concessions to people with over £5,000 a year. It was a redistribution of the national wealth. It is the same with mortgage interest rates. The Prime Minister says that the Government are now engaged with the building societies in order to try to get interest rates down from the present 11 per cent. to 8½ per cent. over the next five years. That period will take in the next General Election, so that the Government will then be able to claim great concessions for owner-occupiers, but once the election is over couples will still have to pay back. They will have to get back to the 11 per cent. and pay back all the cash they have been relieved of at the very time when they might have a family, when their expenses are increasing. At that point, five years from now, if there is agreement with the building societies, they will be faced with substantial increases in their mortgage repayments.

All this has nothing to do with world commodity prices. Land speculation has nothing to do with world prices. The value added tax, which is imposed on virtually everything, even on food, indirectly, has had a substantial effect. It is solely the policy of the Government. It does not even have anything to do with the Common Market. Italy has been in the Common Market for 16 years and only in the last year has it decided to introduce value added tax. The present Government were committed to value added tax whether we got into the Common Market or not. It was their declared policy.

My hon. Friend the Member for Oldham, West (Mr. Meacher) has made the point, repeated in The Guardian and other respectable papers, about the gross unfairness of the distribution of national wealth which has been going on and has been underlined in the phase 3 White Paper. The White Paper is a recipe for further inflation. The Government have failed to control inflation up to now. Not only that; the White Paper is a recipe for increased unfairness in the ways I have outlined.

There is, for instance, the proposed cut of £70 million in the school building programme. Whom will that affect? Not Eton or Harrow or the other public schools. It will affect the schools in West Fife, in Oldham, in all the areas where the kids of ordinary working people are. They can never retrieve their loss. Those who are getting only part-time education in London and other conurbations will never recover the lost ground. It is gone for ever. But the Secretary of State for Education and Science does not give a darn about it because she and most of her friends contracted out of the State system. That is why we are going to get rid of the private education system, not by demolishing the buildings but by letting other kids into them instead of the élitists who are now allowed to use them.

Let us look at the propositions for wages. The meat tycoon has already been mentioned. The Prime Minister did not say that his salary increase was illegal; on the contrary, he said that it was legal under phase 2 because productivity had increased and therefore this gentleman was entitled to £15,000 a year extra. Then the Government tell the ordinary worker that he cannot nave more than 7 per cent. or £2.25.

In this country 625,000 people earn over £5,000 a year. Under phase 3 they will be able to get £350 a year increase—obviously, some will get more. In total, it will give them £220 million a year. At the other end of the scale are the old-age pensioners—seven and a half million of them. They will get £80 million. Their £10 Christmas bonus is worth only £9 compared with last year. So, seven and a half million old people get £80 million and 625,000 people at the top get £220 million. Yet the Government dare to say that this is fair and flexible and should be accepted by the unions and everyone else. It will not be accepted and the Government have no right to expect it to be.

I do not believe that anyone who is in any way rational or sensible about these things believes that the answer lies in the extremist policy advocated by the right hon. Member for Wolverhampton, South-West (Mr. Powell) or in the policy advocated by Mr. Hugh Scanlon. It is a curious alliance—their policies are remarkably similar.

Mr. Powell indicated assent.

Mr. Hamilton

I do not think Hugh Scanlon w ill be flattered by the right hon. Gentleman's nod of assent that he and the right hon. Gentleman are agreed on the solution to the problem. They say, in effect, "Let the Government stand aside and let industry and the unions fight it out for themselves." But who will suffer? It will be the third party—the consumers, the people not organised in unions or who are in weak unions, because this is one monopoly power against the others, the union monopoly against the business monopoly, and the consumer takes the hindmost.

The basic question, therefore, is how the Government intervene, where they intervene, and how an incomes policy fits into that intervention. I do not believe that an incomes policy is even the keystone of it. The Government can intervene, and have intervened, in all kinds of ways, by fiscal measures, monetary measures and the rest, in the overall management of the economy. The Government must be active in this way to build up the kind of society in which ordinary men and women can have confidence.

The ordinary man or woman in the street does not have a very active interest in politics and does not understand 90 per cent. of the jargon talked, for example, in this debate. I was in someone's house last Saturday when the Prime Minister was having his theatre show at Blackpool. He talked at times in a language which ordinary people just do not understand. He said that old people are now spending more on food. Good heavens—we are all spending more on food now, but that does not mean that we are all eating better. We spend more on a sausage roll this year than we spent on a pound of beef last year, but we are not eating better. No pensioner would ever be persuaded to believe that sort of proposition.

The Government must create a new atmosphere. It cannot be created overnight, even if we have a Labour Government next year or the year after, whenever the election comes. No one can pretend that one can overnight build up an atmosphere in which ordinary men and women feel that the Government are determined to establish a fair and just society in which they are protecting the weak and making certain that the strong do not grow fatter.

It is a difficult and long-term exercise, and the present Government's record up to now gives the people no confidence that they can deliver the goods. At the next election the Labour Party will have a simple question to ask. We failed between 1964 and 1970. I believe it to be the hallmark of the statesman, having been in office, to admit that he failed. This is not easy—sometimes it sticks in the throat—but it must be said that we failed. We paid too much attention to the balance of payments problem. But we learn by our mistakes, and we shall have this simple question to put to the people: "You had us in government. You have had the Tories. You must judge who has the fairer sense of social justice". The inevitable answer, I believe, will be "The Labour Party". For good or we have our ideology. We have ideals. The Tory Party has not.

The Prime Minister deceived the British people in a monstrous way in 1970. He has now been found out, and the people will turn to us, not because we can solve these problems overnight but because they believe—at any rate. I hope we can convince them—that we represent ordinary working folk, and we know what their problems are. On the other hand, by the very nature of things—I say this in no derogatory sense—Conservative hon. Members, by and large, with one or two exceptions, do not represent workers who are living on £20, £30 or even £40 a week. Not many of them have a majority of their people in that sort of wage bracket, and still less people with under £20 a week.

On that equation, therefore, I believe that there will be no doubt in people's minds about where the answer lies. But, for heaven's sake, let no party, Labour, Liberal or Tory, pretend that it has ready-made solutions to this problem. No country has solved it. I believe that we can go a long way towards solving it. We must, I believe, have a prices and incomes policy of one kind or another. We have learned the lesson—and the present Government will learn, too—that one cannot have a statutory incomes policy for long. It will have to be voluntary. I believe also that, if we have a voluntary policy, the Labour Party is far more likely to get the co-operation of the trade unions, of the organised workers, than the Tory Party is, and that is why I am sure that the Prime Minister will hang on till 1975.

7.55 p.m.

Mr. Peter Trew (Dartford)

The hon. Member for Fife, West (Mr. William Hamilton) was commendably honest in saying that his party failed from 1964 to 1970. I venture to predict that it will fail again if it goes to the country with the banner under which it temporarily achieved unity at Blackpool.

If we are, over a period of time, to reduce inflation, quite apart from any monetary or budgetary policy—to which I shall come later—we must do at least two things: first, we must make much more effective use of our resources of labour; second, we must greatly increase our productive capacity. If the pursuit of those two objectives may loosely be called growth, I am unashamedly in favour of growth, and always have been.

I support the present pursuit of growth, even though it is associated with a Budget deficit which is aggravating our problems of inflation. I do not believe that from the fact that the present pursuit of growth is associated with a Budget deficit one should infer that growth must necessarily be associated with a Budget deficit. As a general principle, I believe that it is possible to achieve growth with a balanced Budget, or, indeed, when budgeting for a surplus. While I believe that as a general principle, however, I believe also that to take precipitate action now to deal with our present deficit, in order to cure our present inflation, would harm our present pursuit of growth. It would be not simply a matter of accepting a temporary setback in our growth, but of doing profound damage to our future prospects of growth, since many of those who are now declaring their intention to invest would rapidly change their minds if they were persuaded that we had once again reverted to "stop-go".

However, although I should not favour precipitate or severe action now to eliminate the Budget deficit, I believe that we must get rid of it over a period of time. I should prefer to see it disappear through the benign action of fiscal drag and the tailing off of public expenditure which we have already been promised. One of the most encouraging opinions that I read recently appeared in an article in The Times two or three weeks ago, suggesting that the Budget deficit was now not £4,400 million but £2,500 million. That was an estimate which, for me, had the ring of authenticity, though I note that it has been neither confirmed nor denied by the Treasury.

Mr. Powell

It has been denied.

Mr. Trew

It has been denied? Nevertheless, on the calculations that one can make for oneself, based on the rate of inflation, I believe that it is not far off the truth. I believe that, by the continuing process" of the buoyancy of the revenue and the tailing off of public expenditure, without further action from the Chancellor the deficit would eventually disappear, and that is an outcome which I should welcome.

If we are to rule out sharp deflation now, however, we are left with some form of statutory control of prices and incomes, and, in so far as a requirement of such a policy is fairness and flexibility, I believe that stage 3 more or less fits the bill. The trouble with fairness is that it is such a difficult concept to define, since what is fair to one man may be unfair to another. On the question of fairness, I often think of the parable of the master of the vineyard who took on labourers during the day—some in the morning, some at mid-day and some in the afternoon—and, regardless of when he took them on, paid them precisely the same wage. He thought he was acting fairly, just as his employees thought he was acting unfairly. Perhaps we should be grateful there was no pay code in biblical days, because the master of the vineyard would have been in breach of it and we should have been without a useful and instructive parable.

But in modern times and in the context of statutory control of prices and incomes, what people appear to mean by fairness is that there should be equality of sacrifice as between one class and another and in that context, in spite of the extreme examples given by Labour Members, by and large that equality of sacrifice exists except in one respect. It is that dividends are limited to 5 per cent. a year compared to about 13 per cent. for wages, as we have been told. Some people who receive dividends are well-to-do, but a large proportion of dividends go to life insurance funds and pension funds which provide for the needs of the not very well off. A large proportion of dividends go to unit and investment trusts in which the investors are predominantly less well-to-do and there are many small investors, some of them retired and relying on dividend income to supplement their pensions. If wages are allowed to rise by a certain amount there is a strong case for dividends rising by the same amount.

Certainly the proposed code is flexible both on wages and—I am glad to see—on the limitation on profit ceilings, acknowledging as it does the need to maintain investment. I welcome flexibility on profit ceilings in the code, but we must beware of adopting as a permanent feature of Government policy measures to depress the level of industrial profits. There are five good reasons why it is dangerous so to do. First, they are a source of new investment, as is acknowledged by the code. Secondly, they are an incentive for new investment both by existing firms within particular industries and by firms coming into new industries and thereby increasing competition. It is one of the functions of profits to draw competitors into particular activities.

The third reason is that, historically, profits have been getting lower. Taking into account depreciation of capital assets and appreciation in the value of stocks, the purchasing power of pre-tax profits is now one-third less than it was about 10 years ago. The fourth reason why it is unwise to attempt to depress the level of profits is that the mechanics of doing so are exceedingly cumbersome, involving a great deal of administrative work not only for firms but the Civil Service too. The final reason, which is overlooked by many, is that when profits are high the Exchequer, representing the public, gets 50 per cent. of those profits and so there is always some protection for the public even if those profits are by some people's standards too high.

Stage 3 can be said to be both fair and flexible. I hope that it is a transition to a time when we can dispense with statutory controls. I hope we shall gradually move to such a state and that at the same time we shall gradually bring our budget into balance. That we can do without inhibiting growth which, for me, remains a high priority.

8.4 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

What I find astonishing is the ready acceptance by so many Tory Members of the detailed control of prices, profits and incomes. That control, which they accept so readily, goes well beyond anything that a Labour Government ever suggested. One recalls the standard Tory reactions to that kind of control. The typical phrases which were then in use come down to us now—such phrases as "the dead hand of bureaucracy", "Whitehall knows best", and "set industry free." Those are all Tory phrases and, forming as they did so much of the emotional and practical Tory philosophy, they contrast very strangely with Conservative acceptance of the kind of control that goes well beyond anything ever suggested by a Labour Government.

On page after page the Price Commission reports contain detailed and close examination, control and regulation of a kind that represents Whitehall at its bureaucratic best, and that is the kind of situation that Conservative Members find themselves defending. It is astonishing that the collective memory of the Conservatives has not risen to object to what is happening in their name. Look at what took place at Lancaster House. The Prime Minister said that in the next 12 months control over prices must be strengthened. He did not say that in phase 3 it would be eased, as was expected after phases 1 and 2. He did not even say it would be maintained. It is to be strengthened. But the fact is that a phase 3 does not exist. It is a myth, and must be accepted as such.

Sir Harmar Nicholls

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) is saying that we on the Conservative side should be opposing the policy and that he and his hon. Friends should be accepting it. If that is so, why is he not speaking in favour of the proposal he intends to vote against later tonight?

Mr. Sheldon

The hon. Member for Peterborough (Sir Harmar Nicholls) really does not understand. I said that his Government have gone far beyond anything a Labour Government ever introduced. I should have expected him to have opposed it as strongly as anyone else in his party.

Whatever the Price Commission may do in the way of huffing and puffing and slowing price increases, as it now proposes, one fact remains. There is such a thing as a phase I where a freeze is imposed to shock industry and shock the public into a rejection of the theory that inflation can increase uninterrupted. Phase I introduces that sharp, short shock which can be valuable and provide a breathing space within which Governments might come up with some more readily useful economic solution. Phase 2 also has a limited use, in so far as it produces a bridge between the freeze and what the Government might hope to produce to create a more lasting change in the economy.

However, phase 3 is a nothing. It does not exist. It has no meaning, because it says that the Government are to control the economy from Whitehall—control prices, profits and dividends in a way in which no other country has ever succeeded in doing. That is something which only a handful of countries has ever attempted to achieve, those countries being China, the Soviet Union and, to a lesser extent, Bulgaria. Do those economies have anything in common with ours? Their problems are of an entirely different kind and their solutions do not match in any way the kind of problems that we are facing.

It is no surprise to find that the City and informed opinion in industry generally are contemptuous of what is going on in their name because the Government are trying to control these matters, over which they have far more limited control than the Government assume.

We heard the Prime Minister today. I think he impressed the House with his knowledge of the detail of prices and incomes policy. There is great danger in this. It showed that the Prime Minister is really the departmental Minister of the prices and incomes policy. The danger therein is that he cannot sit back and look at his policy from the outside. He is too deeply, directly and personally involved. As a result, there is no one to act in relation to this Minister, together with his Permanent Secretary, as the Prime Minister can act in relation to any other of his Ministers. There is no one to tell him, with an arm on his shoulder, "This is a nonsense. Enough is enough." There is no one to tell the Prime Minister that, because he is the Minister himself. It is the danger that comes when a Prime Minister tries to make a technocrat of himself instead of surveying the broad general field, to lead, to guide and to encourage.

So we find ourselves back in the old familiar place: that it is not in the province of any Government to control all these prices. It is a nonsense. What makes me delighted in this context is that we in the Labour Party accepted it as the nonsense that it is. It was the Conservative Party that was foremost in decrying this sort of situation as nonsense—and now finds itself accepting it.

Our policy is limited. It says that on certain essential items in the budget of the low income family we shall try to exercise control. We are not trying to control the whole range of prices. We know it cannot be done.

When we try to control prices—we have all said this again and again—we know what industry does. It reduces its quality and produces new products. If we try to control its profits it will spend more in advertising. Even if we produce a draconian measure of control we cannot force an industry to sell those products which it does not wish to sell because either its profits will not be sufficient or it can make more by selling certain other items. That is what is happening, and that is why we see price control being ineffective in the way that it is.

The Government are making great play of the cost of raw materials being the main ingredient in the failure of their anti-inflationary policy. In paragraph 3.8, the Price Commission's Report says that prices of raw materials and fuel purchased by manufacturing industry increased by 37 per cent. over the 12 months to August 1973. This has been too readily accepted as the cause of inflation. We know that total imports are only about one-fifth of the cost of all those articles manufactured and produced in this country. The cost of raw materials is less than half of those imports. More than half of the increase in the cost of imported raw materials is due to devaluation of the pound rather than to an increase in the price of raw materials. When we take all those factors into account we find that it is a small increase by comparison with the large increase in inflation. The Government have a splendid excuse. At the end of the day all prices and incomes policies resolve themselves into excuses, trying to prove the unprovable—that which cannot be proved at all.

In its report, in paragraph 3.10, the Commission praises itself. It claims that it was able to keep the increase in prices from April to August this year at a figure lower than 7 per cent.. Over the precisely comparable period last year the increase in prices over the previous year was also less than 7 per cent. Thus, we have this massive nonsense that comes up year after year, proving what? Proving that the Government do not know what to do—and the Prime Minister takes a personal hand in the matter.

We know that the latest figure on inflation, which is reputedly at the rate of 9.2 per cent. on a three months' basis, does not give the true rate of inflation. We all know that it is much greater. I am not referring to any fiddling of the cost of living index, although if we were to pursue a prices and incomes policy to its eventual conclusion even that might not be completely remote from reality in due course. Those countries that have had these policies do that to a marked extent. It is something that we must not brush lightly aside.

The figure of 9.2 per cent. excludes the decline in the quality of our services and certain aspects of our industrial society that have gone on during this period. Buses are not running to time, the post is not being delivered, and there is a decline in the number of teachers in London and in other London services. What we see in this decline is virtually equivalent to the eating up of capital. At some time we shall want to restore the services to the level that existed before this policy was introduced. That will cause a certain amount of increase in inflation beyond 9.2 per cent. Whether it reaches 10 per cent., 11 per cent. or 12 per cent. none of us can say, but the levels of inflation are much greater than those given in the cost of living index.

I have always been strongly in favour of growth. I would do many things for it. The nightmare that I have—it is a nightmare that the whole House will have to share—is that we might find ourselves with just 3½ per cent. growth and inflation considerably in excess of 10 per cent. That is the prospect that may be before us. The proposals before the House today do nothing to remove it.

Mr. J. Bruce-Gardyne (South Angus)

I hope it will not too profoundly embarrass the hon. Member for Ashton-under-Lyne (Mr. Sheldon) if I confess to him that I found precious little in his speech with which I disagreed. His description of his own party's plans for intervention in the price system seemed more modest than those advanced earlier by the Leader of the Opposition. That apart, I found a good deal of common ground with what the hon. Member had to tell us.

I am relieved that we are asked this evening to take note of the White Paper. One can take note with all sorts of emotions, ranging from enthusiasm to despair. I congratulate my right hon. Friends on two points in the White Paper. They have resisted the clamour, advanced again by the Leader of the Opposition this afternoon, for food subsidies which are calculated only to increase vastly the Government's indebtedness. Secondly, they have bowed to the logic of reality and made New Year's Day a holiday. I very much hope that they will find a solution to the problem of compensating Scotland therefor.

Before we go further we should briefly consider some of the things that have been said about the achievements of the prices and incomes policy to date. We have always been told that there is an element of rough justice in these things. No one would dispute that when we compare the announcements from, dare I mention it, Sir John Stratton in the last day or two with the letter from Lord Abercon-way printed recently in The Times about the negotiations he undertook on behalf of the employees of English China Clays. I hope that with his legal background my right hon. and learned Friend the Minister for Trade and Consumer Affairs, who is-to reply to the debate, felt a blush brought to his cheeks when he read that letter.

This is a price we must pay for a prices and incomes policy which is successful. In what way is it successful? We are assured that it is accepted, in the sense that there have not been vast industrial disruptions. It is worth recalling that on the last occasion on which we had a comparable rate of domestic expansion, 1963–64, there was also a low incidence of industrial disputes. I do not think that the two events are entirely disconnected. Even if the policy has been accepted I must point out that that is not a basis for assuming that it has succeeded.

On the prices side it may well be true, and probably is, that the action of the policy has modified what would otherwise have been the consequences of the movement of world prices, to which I shall return later. The abatement has also been due again perhaps at least as much to the rapid expansion in the economy which has occurred over the period and enabled industry to absorb industrial costs. The reason for the invocation of this policy last winter was not because prices were out of control but because pay was out of control. We were escalating. The Chancellor reminded us the other day that pay rates were escalating at 15 per cent. and more. What is the latest figure? Year on year, to July, there is a 15.9 increase in earnings. The de-escalation has hardly been particularly remarkable.

If there has been a success it has been much more on the prices side than on the pay side. I readily accept that no one in the country believes that for a moment. How unfair it is, because we have been the victims of the surge in world prices. Yes, it is unfair. In the first place we should not overlook the fact that the problem of escalating world prices and raw materials and foodstuffs has been considerably aggravated for us by the depreciation in the currency which to some extent at least was brought about by the policies pursued in a desire to obtain the acquiescence of the TUC in the prices and incomes policy.

Further, if we make the stock exchanges as unattractive to investment as this and other Governments around the world have been making them, there is a tendency for people to move their funds into commodities and speculative positions, to develop them. This has been another factor in the equation. Thirdly, my right hon. Friends have been behaving rather like a Catholic divine who says that the Pope will be infallible on every day except Tuesdays. Selective infallibility is difficult to make convincing. Of course my right hon. Friends have always made it clear that the impact of world prices could not be controlled by a prices and incomes policy. I am afraid that that form of selective infallibility is a little difficult to carry through.

I accept that phases 1 and 2 have had their achievements. They have been tremendous for those customers who have been able to obtain steel from the British Steel Corporation and sell it at substantially higher prices within the EEC. They have done wonders for Fleet Street and the advertising industry as more and more firms have been obliged, to abide by the Prices Commission's profit margins, to spend more money on advertising. No doubt this may account for the enthusiasm in some quarters of Fleet Street for the policy. They have done wonders for the manpower agencies. Brook Street Bureau has had a record year. Judging from my own constituency the rate of mobility of labour is approaching the speed of sound.

For one part of the equation they have not done very much good. I refer to the Government's standing and support in the country. When we read the Prices Commission's report on its activities I am sure that no one can sit down with a dry eye. It complains bitterly that an impression has been created of continual price increases and suggestions that the Commission was responsible for these increases. No wonder it is asking for less publicity. There may well be much to be said for that proposition.

Now we turn to phase 3. The hon. Member for Ashton-under-Lyne said that it was a myth. I rather hope he is right. It certainly is not on flexibility and I suppose that one could say that the latest offer to the miners is a splendid example of what that may mean. I do not want to go into details of the code. Apart from anything else I think they will largely be washed away by the tides of reality as the months go by.

I am bound to say a word about threshold agreements. What will happen when we get towards the threshold point? I would not like to take any bets on the extension of food subsidies at that stage. What will we do with the prices of the nationalised industries at that stage? I wonder and hope.

I should like to say a brief word about the economic strategy embodied in the phase 3 White Paper. We were told in the summer that the CBI and the TUC were to be given the most up-to-date and sophisticated economic model of prospects for the economy. This is embraced in paragraphs 7 to 9 of the White Paper, hardly the most sophisticated model but interesting nevertheless. In paragraph 7 it is said: The Government expect that this growth rate will be achieved and that growth will continue during 1974 at a rate of about 3½ per cent. broadly in line with the long-term rate of growth of the economy's productive potential. The implications of that for unemployment are presumably broadly neutral. In paragraph 35 we read: More people will benefit because the Government's policies for continued expansion … are likely to increase employment as firms increase their manpower to raise production. There is a profound contradiction between those two propositions upon which I hope that my right hon. and learned Friend will shed some light.

Several commentators have said that phase 3 represents a gamble on the abatement of the escalation of commodity prices. I very much doubt that. I should have thought that was a two-way loser. If commodity prices were to stabilise or even to fall, the view expressed in the White Paper that consumers' expenditure must be expected to rise at a rate not far from that of the economy as a whole could be brought about only by substantially higher taxation. I do not see that that is the gamble. The gamble is that there is a substantial margin of spare capacity left in the economy to enable us to sustain a continuing rate of relatively high growth.

My right hon. Friend the Prime Minister when speaking at Blackpool said that there were still half a million unemployed and that here was a reservoir of labour that could be tapped. I can judge only by my own constituency, which is hardly situated in one of the most supposedly booming parts of the United Kingdom. It certainly is not the experience of firms in my constituency that this reservoir of employment represents a ready source to tap. One cannot always easily fit retired bank managers into machine tool factories.

If we are already virtually in what is in practical terms a position of full employment, the only consequence of continuing to finance additional demand on the basis of a massive central Government deficit must be to suck in more and more imports and thus presumably further to depress the exchange rate and add those inflationary pressures to the system.

We were told when phase I was introduced that a statutory prices and incomes policy would enable us less painfully to bring the admittedly excessive rate of growth in the money supply under better control. It has not happened. The latest figures show that in the July quarter the rate of increase in the money supply by the M3 definition was 31 per cent. The Bank of England estimated an adjusted figure to take account of distortions of more like 24 per cent., which is approximately the same level as when the prices and incomes policy was introduced.

I come to the nub of the problem. There are perhaps many in Whitehall today who believe that inflation is basically an unreal problem and that we should concentrate on expanding the economy and expect people to adapt themselves to a higher and higher rate of inflation. They are the same men perhaps whose fathers 40 years ago told us that unemployment was a problem with which we must learn to live. No one would accept that view of the 1930s today, and I doubt whether historians in future will accept that view of inflation today.

My right hon. Friend the Prime Minister has placed before us a brave vision of this country expanding at a rate which enables us to catch up with others in Europe who have done better than ourselves. I hope he is right. My hon. Friend the Member for Dartford (Mr. Trew) used a biblical analogy. I hope I may be allowed to use another one. To distort the biblical quotation, I wonder which of my right hon. Friends by taking counsel with the think tank can add one cubit to his stature.

Keynes has shown us that by massive deficit financing one can in time and for a time reduce levels of unemployment, but there is no evidence to sustain the proposition that when one has achieved full employment one can continue to add to the underlying rate of productive potential by maintaining a massive Government deficit. Let us hope that this trick can be turned. If that is our strategy, it would be better to take away the whole paraphernalia of prices and incomes policy because it will not contain inflation and it is not intended to do so. What it will do is to impose upon the Government the odium of pretending to contain inflation when people can see that this is not happening.

8.35 p.m.

Mr. Walter Johnson (Derby, South)

Many of my hon. Friends have been consistent in their rejection of any form of statutory control of wages and salaries. The argument that wage and salary increases are not the cause of inflation has been increasingly accepted by economists and has been finally proved decisively by the Government's total failure to prevent price rises during the freeze of phase 1 and the £1 plus 4 per cent. in phase 2. For the same reason I remain convinced that the continuance of only slightly milder pay restrictions in phase 3 will equally fail to check inflation.

It is suggested that the Prime Minister is gambling on the slowing-up of rises in world prices and it may be, if this is a long-term trend or if some other cause of inflation is affected, that we shall see a check to the present rate of inflation during the next year. But it will be due not to the Government's policies but to factors outside their control, and that is a very dangerous surmise indeed.

For political reasons, the Government no doubt feel that they have no alternative but to continue with their present policies. A General Election is near, and to admit at this stage that the economy has been mismanaged could be fatal for the Government. The policies now being pursued will prove fatal for the country, though presumably the Government feel that the consequences could be deferred until after the General Election.

It is extremely unlikely that all the gambles will come off. For example, will increases in wages be held down to the level intended by the Government? A monotonous refusal to stop rent increases under the Housing Finance Act and to control the adverse impact of rising food prices suggests that the Government are not prepared to face their responsibilities.

With the increasing shortage of labour in certain industries, private employers will no doubt find ways around the provisions of the code to enable them to offer higher rates of pay to attract the necessary manpower to sustain production. In the public sector the Government will be able to keep a tighter check on the situation and the effect will no doubt be increasing resentment among public sector employees, who will express their opinions with their feet by leaving in increasing numbers for better-paid jobs. The manpower shortage being experienced at present in public transport, in teaching and in local government—to name just three areas—will be magnified.

The commuters on the 8.15 are in for a rough time. Soon there will be no 8.15. But that will not be the fault of the employees or, in fairness, of some managements. British Rail and London Transport have both shown a willingness to try to deal with the manpower situation which overtakes them at regular intervals. Both managements were prepared to offer increases in pay outside what has become the annual wage and salary negotiations to assist in overcoming the problems caused by the unsocial hours which public transport employees are inevitably required to work, which lead to staff moving to other jobs which offer the same or more pay but without the requirement of weekend work or of working from very early in the morning until late at night.

The reaction of the London Transport Executive shows clearly that the stage 3 proposals, if rigidly enforced, would make it impossible for the offers made by London Transport and by the British Railways Board to be put into effect on the basis proposed, because most public transport employees already receive more than one-fith of their basic rate for hours which are deemed unsocial in the consultative document. The fact remains that compensation on so limited a scale is not sufficient recompense for the disruption of an individual's social life to encourage him or her to remain in the industry. This is not only my view; it is the view of the labour force as a whole, the staff shortages being eloquent testimony to this point.

The Government also seem to be assuming that the rate of increase in prices will level off, because if the cost of living rises by 7 per cent. or more in the next 12 months payments under the threshold agreement provisions become operative. Nobody doubts that prices will continue to rise. Flour and bread prices will rise because of the higher cost of wheat, and many other increases, which have not yet been reflected in the retail price index, are in the pipeline. In an election year the threshold agreement provisions may prove to be a convenient way out of a politically embarrassing situation if, as is likely, prices rise by more than 7 per cent. In the present economic situation, however, the activation of the threshold agreement clauses would only make matters worse, even though the clauses do not operate until all the basic 7 per cent. allowed under stage 3 has been wiped out by price increases.

One suspects that the Government will fight tooth and nail to keep price increases below the 7 per cent. mark and that to do this we may well see within the next 12 months a further dramatic conversion, this time to an acceptance of food subsidies and other direct action on prices. After all, it was not so very long ago that the Government were prepared to use the taxpayer's money temporarily to hold back the rise in mortgage rates.

The Government would do well to follow the example of the Labour- controlled Greater London Council, which has done far more to hold back the rise in the cost of living than the authors of the Price and Pay Code. The GLC has refused to authorise a fares increase suggested by the London Transport Executive and has tried to compensate for the present Government's miserly attitude towards pensioners by introducing free fares on the buses. The Government could also have eased the situation by suspending rent increases under the Housing Finance Act. How sickening it is for council tenants to be told that it is necessary to restrict pay increases and avoid unjustified price increases at the same time as the most unjustified increase of all is being imposed on them by the Government.

The Government's economic policy bears the hallmark of desperation. Ever since they were returned to office they have sought to find scapegoats for their own failures. First it was the trade unions. Now it is the increase in world prices and tomorrow, no doubt, there will be another excuse—perhaps the Middle East war. The unfairness of the policy is there for all to see: increases of £350 per annum for those earning over £5,000 a year; £113 per annum for the low-paid: strict Government control over public sector employees and their pay, and a consequent deterioration of morale in these industries; delight for property developers by a refusal to introduce long-term control of business rents; continuing rises in rents and no attempt to counteract the effects of the rise in food prices, both of which issues will hit the less-well-paid hardest of all; and previous tax concessions to the better-off to continue. This is all part of the general policy of the present Government.

To put it bluntly, the Government do not deserve to succeed, and without further changes in policy it is unlikely that they will. Their policy is unrealistic in the present situation. The clauses relating to efficiency increases, for example, permit additional money to be paid only after the scheme has been in operation for three months and the savings achieved, and the Pay Board been satisfied on this score. No group of working people will enter into efficiency agreements on that basis.

Organised workers of the TUC and the National Federation of Professional Workers have all condemned stage 3 of the Government's pay and prices policy, as they previously condemned stages 1 and 2. They believe that the policy of compulsory wage restraint has been not only in direct contradiction to the Government's election pledges; it has also dismally failed to check inflation. It has served instead, and has been intended to serve, to shift the balance of distribution of income against the workers as a whole. It has perpetuated and exacerbated injustices in income distribution. It has prevented fair and reasonable pay adjustments reflecting changes in organisation of employees and other changes. It has failed, and will continue to fail, to permit the creation and maintenance of good industrial relations. Phase 3 provides no alternative to the vitally necessary restoration of free collective bargaining.

The possibility of any such voluntary policy emerging is clearly dependent upon a clear determination on the part of the Government to withdraw themselves from any policy of external interference in free collective bargaining between employees and employers, but it also requires the emergence of a sense of justice throughout society and a fundamental change of attitudes between different sections of our society, including a fairer distribution of wealth to the benefit of employees generally and of the pensioners in particular. Certainly it is quite vain to expect a willingness on the part of any group of workers to make unilateral sacrifices while the Government make no effective attempt to control prices, regard rent increases as an integral part of their overall policy, permit the present high interest and mortgage rates, encourage higher profits, and permit the multiplication of the numbers of those on top-level incomes while reducing their tax liability.

With an election so near, the Government have gone past the point of no return in their economic policy. Like drug addicts, they find it impossible to turn back and reform themselves. The consequences will be serious. The present balance of payments deficit, the fall in the value of sterling and the worrying level of inflation may be nothing compared with the situation in 12 to 18 months' time.

8.47 p.m.

Mr. Norman Lamont (Kingston-upon-Thames)

I welcome the main provisions of phase 3. While I have some reservations about the long-term role of legislation in this sphere I have no doubt that in the last year we could not have got by without some form of legally backed incomes policy. At the very least the policies of the Government have prevented us from leaving the European league of inflation and entering the Latin American league. We have witnessed in the last year one of the storms that from time to time sweep across the international economy uncontrollably in the form of international commodity prices. My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) has cast some doubt on the impact of those on the domestic price level, and there are those who argue that, with a constant money stock, all the effect of rising import prices is to lead to a fall in the demand for other goods and for domestic goods. Fair enough, but in the present situation, and with the degree of inflation we have had from commodity prices, I believe it would take rather more than just a transitional amount of unemployment—it would take a very considerable amount of unemployment—to lower the level of demand for domestic goods sufficiently to bring about price stability by itself.

To me the whole point of an incomes policy is that it moderates the amount of unemployment that would be needed to deal with a given rate of inflation. The vital contribution is in removing the panic, in lowering expectations, and in preventing the leap-frogging which could so easily have occurred in response to the rise in world commodity prices.

The difficulty with incomes policies in the past has always come in phase 3 or in their equivalent in phase 3. That, of course, is what happened in the United States with President Nixon's policy, and, without doubt, we are now entering the most difficult and critical part of the Government's incomes policy.

The conclusion on the Government's proposals must be that they have gone to the very limit of flexibility and generosity which could be allowed in dealing with inflation, and the question which has to be asked—a question which, rather significantly, was not asked from the Opposition Front Bench—is what the formulae in phase 3 mean for the nation's salary bill. My right hon. Friend the Member for Wolverhampton, South-West mentioned the statement of Sir Frank Figgures about the expected rate of earnings growth. Perhaps the amount of 3½ per cent. that my right hon. Friend allowed as a productivity deduction was too small. I know there are people who say that the rate of increase in productivity recently has been somewhat in excess of that.

Perhaps we should also bear in mind that not all wage increases under the code can be passed on in the form of higher prices. But I hope that the Minister will comment on this aspect because it is of considerable concern to the public and to business.

There is no doubt that the sums that have been bandied about in dealing with the miners' claim have given rise to considerable concern. The miners have been offered a 7 per cent. rise, on top of which there is an allowance for unsociable hours and shift working, improvements in holiday pay under the flexibility arrangements, and a productivity scheme. These three items would add 3 per cent. on top of the basic wage bill, and that is before one takes account of the question of the threshold provision being triggered off. I emphasise this because there are feelings that the figures proposed in the code in the latest proposals could be inflationary. It will still be necessary for the Government to take a tough line, and the Pay Board will have the unenviable task of sorting out the 3 per cent. to 5 per cent. which will probably come on top of the basic 7 per cent.

The second main question concerns commodity prices in the coming year. It has been said that the Government are taking a gamble on commodity prices. I believe they are but for reasons which I will explain that it is a justifiable gamble. It may be an undignified posture to wait around like an inverted Mr. Micawber, waiting for something to turn down, but I believe that in the next year the trend of world commodity prices will be downwards, particularly as the American and European economies begin to slow down.

It would be against all experience if the rise continues at the rate of the last few months, though of course there can be no guarantee that this will happen. That element of uncertainty is well known and appreciated by the trade unions. Unless there can be a guarantee that trade unions will be protected against the possibility of commodity prices continuing to increase there will be no chance of their acquiescence, let alone their approval of the proposals.

The main point about the threshold provisions is that they would be triggered off only after the retail price index had gone up by 7 per cent. from the beginning of phase 3. Even on the most pessimistic estimate it must be towards the end of phase 3 before the threshold arrangement will be triggered off. Whatever the chances are of commodity prices coming down in the next few months, or in the immediate future, it is surely unlikely that they will continue upwards through phase 3 and beyond, and it is only then that the threshold agreements would be triggered off. At least it will give a breathing space until the correction comes, as it must, in world commodity prices.

One can appreciate why the Government felt they had to go to the outer limits of generosity. It is absolutely necessary that an incomes policy should be based on a small increase in real incomes. That is why income policies have so often failed in the past. This is the first occasion on which we have introduced an incomes policy at a time of expansion. It is what we ought to have done long ago.

Much of the debate has been taken up with the principles of the code itself, and the code itself rather more than the general debate is of prime importance to industry and business. I welcome many of the detailed changes which have been made in the code. There have been comments on the relaxation of controls on office rents, but I would argue that the relaxation of controls is only to recognise the reality of the situation and that it is surprising that the Government did not do so earlier. There is no doubt that in conditions of acute shortage of office accommodation in the centre of the City of London, for example, the controls were extremely ineffective and that because, of necessity, new leases had to be exempted from the controls, one could almost argue that the controls were positively inflationary in their old form.

I make some criticism of the continuing restraint of 5 per cent. on dividends, which is extremely hard to justify. It is less than half the amount being budgeted for earnings and, considering that dividends can go down as well as up, there is a strong case for arguing for a bigger norm for dividends. The Government obviously believe that such a restraint will not make much difference to the ability of companies to raise risk capital on the market, but with interest rates at their present high level I have some doubts about that.

Publicity has also been given to the number of companies complaining of the shortfall in income which will accrue to their pension funds because of the dividend restraint. The same principle applies to the small investor. If the Government's objection was simply a political concern for the rich private investor, the problem could have been dealt with through an investment surcharge, which is a device not unknown to the Government. Certainly it would have been preferable to a blanket control on all dividends regardless of whether they went to pensioners or to pension funds.

The TUC has opposed the Government's package on the ground that it gives inadequate control of profits. Yet we are living through a time as a number of hon. Members in the debate have emphasised, when the need is to get industrial investment upwards. We have seen large increases in industrial profits reported in the past few months. But for the most part they have been profit increases reflecting a year or 18 months ago. Now that capacity utilisation is much higher and the element of stock profits has been removed, the outlet for corporate profits must be much less favourable than it was a year ago. We shall not be able to get the investment boom which has eluded us for so long unless profits are maintained and therefore, I welcome the Government's decision to limit the reduction in profit margins to 10 per cent.

One of the problems about a policy of this kind is that it is known to create anomalies and distortions. Such policies have done so in the past and I suspect that they always will. That is one reason why I welcomed the emphasis which my right hon. Friend the Prime Minister put in his Press conference on the possibility of returning eventually to a voluntary agreement. I understand the fears of those who oppose legislation because they see it as a threat to a free economic system and to free collective bargaining. But we are confronted with one of the dilemmas confronting democracies in several areas of politics. It is whether a Government who are not too strong for the liberties of their subjects can ever be strong enough to deal with great emergencies. There is no doubt that in the past year we have lived through a great emergency which threatened our currency, our prosperity and our society. The Government's measures have saved us from great danger. They now present us with a great opportunity.

8.59 p.m.

Mr. Alfred Morris (Manchester, Wythenshawe)

I shall be very succinct. My sole purpose in intervening in the debate is to refer briefly to the extremely serious manpower problem in the Metropolitan Police Force. As the House knows, I do so as parliamentary adviser to the Police Federation for England and Wales.

The ugly fact is that even if all the police officers in Wales were to be transferred to London they would barely fill existing vacancies in the Metropolis.

Again, even if every police officer were transferred from Manchester and Liverpool, there would still be vacancies in the Metropolitan Police Force. That is the dauting extent of the present crisis.

The Metropolitan Police Force is both gravely undermanned and grossly overworked. Police officers in London now have to work long periods of overtime in excess of their standard working week. Many have had to work up to 60 hours a week. Shift and weekend duties involve acute strain on individual police officers and their families alike. The need is urgent to break the vicious circle in which working hours cannot be reduced because of the growing shortage of manpower. Indeed, urgency has rarely been more urgent.

To break the vicious circle, police salaries must be pitched at a level sufficient not only to attract qualified recruits but to retain the services of experienced officers. We must have a salary and career structure for the police service which will vouchsafe the standards demanded by the public.

If we are to avert an even more serious crisis, Ministers must act immediately to settle the claim advanced for London's police officers by the Police Federation. I implore the right hon. and learned Gentleman to address himself to this deeply urgent matter when he replies to the debate. I am sure I do so with the support of hon. Members on both sides of the House.

9.2 p.m.

Mr. Denis Healey (Leeds, East)

This has been a frustrated debate and I think that its tone throughout has been rather leaden. That is not surprising, because the Prime Minister made it crystal clear, when he first revealed his proposals to the country in a most improper way, in the view of many hon. Members in this House, that he had no real intention of being deflected from the ideas that he then put forward.

This has been perhaps the twentieth in a score of debates on the Government's counter-inflation policy, although today we have the advantage of nearly a year's experience of its operation, which has in part been summarised by yesterday's reports from the Price Commission and the Pay Board.

The lack-lustre speech by the Prime Minister and the embarrassed silence with which his back benchers greeted it shows that they are as aware as any of us on this side of the House that their counter-inflation policy has not worked. Prices have risen as fast as ever over the last 10 months, and faster than in the countries with which we mainly compete for world trade.

The Government's counter-inflation policy has been fundamentally unfair because, at a period when the nation's wealth has risen by over 5 per cent., the average men and women who created that wealth have not shared in the increase. Indeed, the majority have seen a fall in their living standards.

The Government's statistics show that the retail price index rose 6.1 per cent. between November 1972 and July this year. During that period average earnings increased 8 per cent. but, since in almost all cases average earnings would at that margin attract tax at the standard rate of 30 per cent., the real increase in incomes after tax was only 5.6 per cent. —½ per cent. less than the increase in the cost of living—although during this period most working men and women were working longer and doing more overtime than in the previous year.

The poorer the working man or woman is, the more he or she has suffered, because there has been a quite exceptional increase in food prices. Food prices have risen 26 per cent. since the freeze and the poor spend more of their income on food than the better-off. For example, old-age pensioners spend on average 42 per cent. of their income on food.

Many of us felt that it was a very cruel joke by the Prime Minister the other day to try to suggest in a public speech that old-age pensioners were actually eating more today than they have been previously. The right hon. Gentleman knows as well as we do that they have been spending a great deal more money on food, but the food they have been buying for that money has been far less nutritious. The consumption by retired people of all the energy-giving foods such as meat—both fresh and processed—fish, and eggs has fallen heavily over the last 12 months. All that has increased is the consumption by old, retired people of potatoes and vegetables.

At the other end of the earnings scale one finds wealthy people playing ducks and drakes with the whole concept of incomes control. We had the example, about which we are still to hear a comment from the Government, of the Chairman of the Fatstock Marketing Corporation, a man already earning more than £1,000 a week, increasing his income by more than £300 a week and claiming that he was able to do so within the terms of the Price and Pay Code. Indeed, as the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) said, in a speech which, as always, was interesting and hostile to his Government's policy, there is no difficulty for the better-off in business to give themselves new jobs, perhaps with subsidiaries of their own firms, in order to evade the kind of control of incomes that is imposed on the worst off.

The Prime Minister

I dealt with that explicitly in my speech. As regards the question of old-age pensioners, to which the right hon. Gentleman takes such exception, perhaps he will recognise that the last family expenditure survey, published on 26th September 1973, showed that in the second quarter of 1973 pensioners were spending 43 per cent. of their basic pension on food whereas in 1970. when we came to power, they were spending 49 per cent. That shows the improvement.

Mr. Healey

What always astonishes one about the Prime Minister is his total insensitivity towards and ignorance of how ordinary people live. The fact is that the price of everything has gone up over the last 12 months, particularly the price of housing. The result is that pensioners are unable to spend as much on food as they would wish.

The figures in the family expenditure survey have been referred to by the Prime Minister. In the speech to which I referred, he was talking about how much pensioners ate, not about how much they spent on food. Their consumption of all the energy-giving foods has fallen heavily over the last 12 months and they have had to switch to stodge, such as potatoes and vegetables, in order to spend only the small amount of money that they can afford to spend on food.

The Prime Minister

There is absolutely no truth in that assertion. The survey shows that pensioners are purchasing more cheese, eggs, sugar, jam, fresh green vegetables and bread than they were a year ago, and that they can meet their food requirements from 43 per cent. of their pension instead of using 49 per cent. of it. Cannot the right hon. Gentleman understand that?

Mr. Healey

I hope that the next time the Prime Minister visits Leeds, Leicester, Nottingham, Birmingham or Manchester, or the next time he meets a gathering of old-age pensioners in London, he will repeat those figures. He will then see what sort of answer he gets.

While the ordinary person has seen his standard of life fall during the last 12 months, there has, on average, been a massive 23 per cent. increase in profits before tax between June 1972 and August 1973, and a very much bigger increase relative to earnings. Indeed, we can be grateful to the report issued by the Price Commission yesterday for the information that between the begin- ning of last year and the beginning of this year the percentage of the national income taken by profits rose from 11.7 per cent. in the first quarter of 1972, to 13 per cent. in the first quarter of 1973.

Within that flood of increased profits, they have risen very much faster where less production has been involved. Retailers have done better than producers. Those who handle materials have done better than those who manufacture them. Those who have done best of all are those who handle nothing but money. The banks have seen their profits increase by 100 per cent., on average, over the last 12 months. Those who speculate in money, and particularly property speculators have seen the most fantastic and obscene increase in the value of their assets. As the Economist has pointed out, the 20 top companies which own between them £3,200 million worth of assets, have been paying, on average, only £1 million of tax each. I was quite astonished that the Prime Minister had nothing whatever to say about his refusal to do anything about these profits, which are not in any sense earned by those who enjoy them.

That is the situation in the private sector. But the situation in the public sector is far worse. Prices have been held down, sometimes rightly, but very often at the expense of the wages of those who work in the public sector. The result is that the public services are now finding it impossible to keep or to attract labour. As a result the services which a Government should provide for the people of the country have been deteriorating rapidly to crisis point. Sir Richard Way, the head of London Transport, has just informed us that people are likely to have to wait longer and longer every day for a bus or a tube train to take them to or from work. If that is the situation today, I shudder to think of the situation that will exist if the Government are forced in the near future to introduce rationing of petrol for private motorcars. I think the Prime Minister would find that he had a revolution on his hands, certainly in the major conurbations.

We have the same situation in the schools. My hon. Friend the Member for Fife, West (Mr. William Hamilton) gave some valuable figures on that subject. For the police, my hon. Friend the Member for Manchester, Wythenshawe (Mr. Alfred Morris) was able to fire a heavy salvo before I rose to speak. All over the country hospitals are having to shut wards because of shortages of nursing and ancillary staff and a growing shortage of specialists for medical treatment itself.

The country has paid for the Government's counter-inflation policy not only in a serious fall in personal living standards but also in a progressive decline in the standard of services offered to the ordinary family and individual by the State. All this is at a time when we have no reward whatever for all these sacrifices made by the country as a whole.

Inflation is as bad as ever. Indeed, the right hon. Member for Wolverhampton, South-West (Mr. Powell) pointed out that the Government no longer plan to reduce inflation but plan only to contain it. They plan to advance steadily without losing a foot of ground, as the old military communiqué used to say. This is at a time when wages have been kept by law under very strict control. This is at a time when in France and Germany, our major competitors within the Common Market, prices have been rising less than those in Britain although there is no control over earnings.

A great deal has been said on both sides of the House about the reasons why we are suffering from worse inflation than our major competitors in Europe at a time when we have wage control. There is no doubt whatever, and there is a growing consensus now on both sides of the House, that the major reason is what the Daily Telegraph recently called the "unprecedented fiscal profligacy" of the Chancellor of the Exchequer. I am astonished to find that the Chancellor is not talking to us at all in this debate. It is like Hamlet without the first grave-digger. He has left it instead to his right hon. and learned Friend the Minister for Trade and Consumer Affairs to introduce that ring of confidence which he claims is all we need to put our country right.

I was fascinated to read in The Times of 24th September that the Minister for Trade and Consumer Affairs had been telling the electors of Scarborough that he was so confident in the country's future that he was almost certain that by the 1990s the average income per head in this country would be lower than in Spain or Portugal. I do not know whether he was relying on another 18 years of the present Government or another 18 years in the Common Market. Perhaps he will tell us. But there is no doubt that this basic assumption still inspires the whole of the Government's policy.

The whole of the Chancellor's fiscal policy over the last three years has depended on robbing the poor to pay the rich. It is not just the cuts in school meals, the imposition of value added tax on essential goods and the rest. It is basically that he has paid for £4,000 million worth of tax reliefs to the better-off by contriving to raise prices for the average family. This point has been made by several hon. Members on the Government side but I shall develop it myself.

If the Government's counter-inflation policy has failed so desperately, we must try to see whether we can agree on the reason for its failure. The Government excuse this enormous deficit, the enormous gap between what they are spending and what they are raising in tax, by the argument that it is necessary in order to achieve growth. Of course, deficit financing is always good sense when there is spare capacity in the economy and insufficient demand to meet that capacity. But that situation has long since disappeared in Britain. The slack created by the Government's first two years of mass unemployment is now taken up. Indeed, the Government seem to assume in the White Paper that there will be no further fall in unemployment during the coming year because it tells us that they are relying on a growth of 3½ per cent. rather than 5 per cent. and a growth in productivity of 3½ per cent If that implies anything other than that unemployment will remain at 500,000, where it is today, I shall be most interested to hear the right hon. and learned Gentleman explain it.

But although the Government claim to accept 3½ per cent. growth next year, the Central Statistical Office tells us that from the second to the third quarter of this year production was rising at an annual rate of only 2.8 per cent. and that there was almost no industrial growth in August. The reason for this we all know very well—that the key to sustained growth is investment and we have never in recent history had an economic boom with so little investment.

The figures published last week by the NEDO show that 51 per cent. of the growth in our economy during the current boom has been in consumption as against 40 per cent. in the two booms of the 1960s, and between 6 and 8 per cent. has been in capital growth as against 20 to 23.3 per cent. in the two booms of the 1960s.

The fact is that investment fell 17 per cent. during the first two years the Government were in office, and there is still no evidence that it is rising. It is perfectly true that the Prime Minister can quote figures of businessmen's intentions as given to the Department of Trade and Industry, but figures of intentions have consistently proved grossly over-optimistic. Investment in 1971 was 8 per cent. less than the first inquiry by the DTI elicited; in 1972 it was 12 per cent. less. At this rate we shall get no increase in investment whatever in the curent year, despite the evidence of intentions given to Government authorities.

The reason for all this is that the only thing that has genuinely grown in Britain in the last 12 months is imports of manufactured goods, especially from Europe. Over the year as a whole, imports of manufactured goods have increased 50 per cent. faster in value than exports, and from July to September-the last quarter for which we have figures—they rose 160 per cent. faster than our exports of manufactured goods. This, of course, is the major reason for our balance of payments deficit, which now looks like being well over £1,200 million this year, and the recent increase in Middle East oil prices could well add several hundred million pounds to that.

That is the reason for the pressure on sterling, which has produced a fall in its external value of 20 per cent. This devaluation of sterling, which is a direct result of the Chancellor's fiscal policies, will ultimately be responsible for an increase in the cost of living of between 4 per cent. and 8 per cent., though so far, I suspect, only about 4 per cent. of the increase in the cost of living is due to the devaluation which has already taken place.

The Government's only answer to this problem is to raise interest rates so that they are higher than they are anywhere else in the world and higher than they have ever been before in Britain in peace time—so that mortgages are now totally out of the reach of ordinary people—and to send public authorities borrowing abroad. Already, 2,000 million dollars have been borrowed abroad in this way, since they were given permission to do so last March, with a probable increase to 2,500 million—in other words, a billion pounds' worth of foreign borrowing by the end of the year.

The Government's whole fiscal policy is a recipe for inflation, and it is an inflation which has brought us no significant long-term improvement in growth. The figures I have cited speak for themselves. In this situation, the Government are trying to keep the lid on the kettle by controls while turning the gas up still higher, and the inevitable result is not a reduction in inflation but a serious distortion in the whole way in which the economy works.

Labour is going to areas where it can avoid controls and out of areas where it is needed, such as exports, investment industries and the public services, and money is wasted by businesses on unnecessary extravagances in order that they may keep under the profit ceiling. One of the main reasons why we are now running into a major newsprint crisis is the enormous increase in newspaper advertising over the past few months, because companies might just as well spend their money on advertising as have it taken away by the Government. Typical, also, is the overheating in the construction industry, which even the Prime Minister will not deny is very serious. Far too many luxury offices axe being built, and far too few houses. The Government are seeking to meet this situation not by controlling luxury building but by cutting essential schools and hospitals.

That is the situation now. Let us look for a moment at the stage 3 proposals as a cure for it. The Government have allowed more flexibility in wages and in profits because they do not want the kettle to explode. They are gambling on a fall in world prices. What is happening to oil this week, and what may happen in the next few weeks, gives little confidence that that gamble will succeed.

Will the Minister answer this question? If the Government are so confident that world prices will level off, why have they gone for an effective norm of 13 per cent., with a threshold starting at 7 per cent.? If they are confident that that will happen, why do they not have a norm of 3½ per cent., to guarantee working people an increase in their living standards equivalent to the increase in production which they expect, and fix the threshold at zero?

For a married man with two children, on an average wage of £40 a week, the code now put to us for discussion means that if prices rise 6.9 per cent., so that the threshold is not triggered off, he will actually be 1.3 per cent. worse off in real terms after tax.

In other words, in real terms there will be a fall in the ordinary person's living standards if prices rise and if they do not rise why the Dickens did not the Prime Minister arrange to keep inflation down and guarantee a real rise in earnings by having a 3½ per cent. norm for wages and a zero threshold for adjustments for increases in prices?

Yet in spite of this immensely precarious gamble, even in this situation the Prime Minister could not forbear to discriminate in favour of the rich against the poor. The terms of the code are that if a worker agrees to an improvement in working in order to increase productivity he has to wait three months, and the improved productivity has to be proven in practice, before he gets that increase. But if an employer wants an increase in his profit margins for the sake of increasing his investment he has only to persuade the commission that his investment will increase in a year's time, His profit margin increases now. The Prime Minister knows that what I am saying is true.

My right hon. Friend the Leader of the Opposition described our alternatives to the Government's policy in great detail. I will refer to only one element which he did not cover, the basic shift in our fiscal policy. The first condition for bringing inflation under control is to redirect the pattern of growth towards exports and investment rather than imports and consumption. It is not a question of stopping growth. Growth is falling off rapidly, as the Prime Minister admits in the White Paper. It is a question of making room in the economy, which is already approaching over- heating, for a big expansion in exports which our 20 per cent. devaluation now puts well within our reach.

Even before the last spasm of the sinking of the pound, the Chancellor said that the pound was under-valued. The trouble is that British industry does not have the capacity to meet foreign demand because it is over-employed meeting demand in this country. The Chancellor should now withdraw the £400 million tax relief he gave mainly to the rich in his last Budget and he should cut defence expenditure—[An hon. Member: "By how much?"] He should aim at a cut of £500 million. [An hon. Member: "Would you?"]. Yes, certainly. I am the expert in cutting defence expenditure. He should also cut the £100 million contribution he is now making to the Common Market for the privilege of giving the French farmer the largest market for his food in the world. If he does that, by adopting the other policies listed by my right hon. Friend he will have the chance of creating a climate for moderation in wage claims in a system of free collective bargaining.

But he must then hit those who are profiteering out of inflation. He must hit the bank profiteers who are losing only £30 million out of expected profits of £600 million this year—profits derived not as a result of the banks' efforts but as a result of the Government's policies and interest rate. He must hit the property speculators and chairmen, like Sir John Stratton, who have given themselves a £300 increase. He must hit the tax dodgers, not only the people who are putting their money in havens abroad but people like the Duke of Buccleuch, whose recent death we deplore, who, according to the Daily Telegraph, saved £10 million in death duties by taking advantage of loopholes in the existing law well before he died.

The proposals put before us by the Prime Minister as stage 3 of his counter-inflation policy have simply compounded the unfairness of stages 1 and 2. They mean help for the better off at the expense of the well paid and they mean a further boost to profits at the expense of wages. They mean further help to financial speculators at the expense of those in productive industry. They mean further help for private luxury at the expense of the public need. All this to secure a further fall in living standards for the majority of the British people.

This stage 3 can be of no more value than stages 1 and 2 in the fight against inflation. Indeed, the White Paper admits as much by the figures that it prints. They involve the abandonment of the search for high and sustained growth at which the Government were aiming a year ago.

For all these reasons, I ask the House to reject the Government's White Paper by supporting the Opposition's amendment.

9.30 p.m.

The Minister for Trade and Consumer Affairs (Sir Geoffrey Howe)

The right hon. Member for Leeds, East (Mr. Healey) has closed his speech with a characteristic exaggeration of that which passed for argument in the substance of the remainder. He closed by characterising that which is now happening and that which is in prospect as involving a fall in living standards and the abandonment of the pursuit of expansion. I do not know whether it is more serious to believe that the right hon. Gentleman believes it than to believe than he does not.

The right hon. Gentleman referred also to what I have been reported as saying at Scarborough some weeks ago. I should like to take the opportunity of putting the record right, because it is an important argument underlying the whole of these discussions in the House. What I referred to in that speech was a prediction, made in that case by Herman Kahn, but others have made similar predictions. [Interruption.] If the right hon. Gentleman laughs he does so with the utmost irresponsibility, because the reality is that if we continue to grow at a rate relative to that being achieved by our competitors, such that we continue our performance since the end of the war, that prediction will come true. If that were indeed the future, the future of our country would be as gloomy, or almost as gloomy, as some of those prophets have said.

It is precisely because the Government do not accept that hypothesis and because they are determined to improve, and to improve dramatically, the growth rate of our economy and the prospects of prosperity for our people, that we are committed to policies of this kind. Because we believe in that, we are determined to do a great deal better than the prophets attempt to forecast for us. The debate today has been concerned with the working of stage 2, not only as far as it was designed to reduce inflation but also as it was designed to promote the continued growth of the economy. Our objective has been and remains as set out in paragraph 1 of the White Paper—to moderate, to reduce, the rate of cost and price inflation.

I intend to begin by examining the effectiveness of the controls which are already in existence. It is now generally acknowledged that during the last year this country, like every other country in the world, has been buffeted by a whirlwind of increases in world commodity prices—[Interruption.] Labour Members may moan and groan, but these are facts which apparently take a long time to penetrate their heads. They are important facts.

Over the 12 months up to August this year the prices of fuel and basic materials used by manufacturing industry increased by 37 per cent. Compare that with the increase of one-ninth of that—around 4 per cent.—in the previous 12 months. The Price Commission itself reports striking figures for individual commodities—100 per cent. increase in the last 12 months in raw cotton, wool and rubber; over 100 per cent. increases in many important food materials, including wheat, barley, maize and cocoa and nearly that for copper and for zinc.

These are the facts which any Government and any system of controls would have had to reckon with during this period. The Opposition may prefer as hon. Members apparently still seek to do, not to recognise these facts, but their acceptance is one of the necessities for anything resembling a responsible debate about this subject.

Mr. Healey

Does the right hon. and learned Gentleman not agree that a devaluation of 20 per cent. was responsible in large part for these increases in commodity prices and that countries such as Germany and Japan, which organised their affairs more intelligently, did not have to pay more for their imports as a result of increases in these prices because they were able to revalue their currencies?

Sir G. Howe

I do not accept that. Of course, in any attempt to achieve an objective analysis of the problems we are talking about the change in the parity of the pound is one factor to be taken into account. But it is only one, and the impact of these rising world prices has been comparable on other economies around the world. One of the important acknowledgements—

Mr. Brocklebank-Fowler

Is it not a fact that there is no country in the Western world which is more affected by rising ratios in basic prices of grain products than ourselves? Is it not also a fact that the rising prices of meat and other products of that kind is affected in the ratio of 6:1 by increases in world grain prices?

Sir G. Howe

I am grateful to my hon. Friend. It is entirely the case that our economy is more exposed than most of the others the right hon. Gentleman mentioned to factors of this kind. The important point conceded by the Leader of the Opposition today arose when he said that a considerable part of the world price increases had still to work through into our own domestic price index. That is an important acknowledgement, to have the right hon. Gentleman asserting and accepting that. It appears as though his assiduous listening to my various broadcasts has done him some good in understanding the problem.

In his contribution to the debate, my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) also recognised the importance of those facts, which he had not acknowledged in quite that way in his previous contributions. He acknowledges, as I understand it, that the impact of world prices must produce a relative movement in prices in this economy. I cannot understand how the impact of world prices can have nothing beyond a relative impact on prices within our economy.

It is remarkable, for example, that in most Western economies, beside our own, the rate of increase has been almost exactly the same as ours. Some have had a faster rate. It is a further demonstration of the importance of world prices in the argument. We have been helped in avoiding the price consequences of what has been happening in the outside world by the rapid growth in output in the last 12 months. It is that which has helped manufacturing industry to absorb higher commodity prices. Because of that it has been able to keep down output price increases to 8½ per cent. whereas input prices have gone up by 37 per cent. That is a measure of the absorption that has taken place and the extent to which price controls have worked.

There are plenty of other indicators of the effectiveness of the controls in the report of the Price Commission. Out of nearly 500 applications from the category 1 companies which were dealt with during the period covered, about one-third were withdrawn, rejected or lapsed altogether. Many of the remainder were approved only after reductions. The commission estimates that its vetting of category 1 applications since the beginning of stage 2 has saved the consumer about £320 million in a full year.

Mr. William Molloy (Ealing, North)

From whom? Who was going to cheat them?

Sir G. Howe

They have been saved from increases in prices that would otherwise have gone through as a result of rising commodity prices outside. [Interruption.] Hon Members opposite cannot have it both ways. They cannot on the one hand assert that a pattern of price control is ineffective and, when it is. pointed out that it is effective, say that it ought not to be effective. It is an effective control and they must acknowledge and accept that part of the argument. It is a remarkable achievement, and I wish to take this opportunity of paying tribute to Sir Arthur Cockfield, the other members of the Commission, and their staff, for what they have been able to achieve. It is worth pointing out that its work is not confined simply to dealing with price applications.

The great majority of the category I firms have now put in their first quarterly returns, and returns from category II firms are also being examined. By examining those reports the Price Commission takes action to ensure that price reductions are made when it is indicated that profit reference levels are being exceeded. Beyond that, up to the beginning of this month the regional offices and the headquarters of the commission have received about 25,000 inquiries about prices and have, moreover, brought about nearly 800 voluntary price reductions.

Hon. Members have discussed the wage rate index. The wage rate index for September, published today, shows that the percentage change in the index on a year earlier has come down to 11.8 per cent. compared with the 15.1 per cent. increase between August 1972 and August 1973. The last earnings figure, for August, shows an increase of 14.8 per cent. on a year earlier, and that gives the lie to the point made by the right hon. Gentleman when he argued that prices have been rising faster than wages. Prices have been rising more slowly than wages but, equally important, the rate of increase in earnings is coming down from the inflationary levels that existed before the standstill.

I take this opportunity to pay tribute to Sir Frank Figgures in the Pay Board and to the leaders of the trade union movement who have taken part in discussions and have helped to bring about this reduction in the rate of inflationary pay settlements. The figures tell the story of the success of stage 2, and that success has been acknowledged by various commentators.

Mr. A. W. Stallard (St. Pancras, North)

Will the Minister say how the tremendous increase in the price of second-hand houses in London fits in with this success story?

Sir G. Howe

House prices are only one part of the market. Hon. Gentlemen on the Opposition benches must face the fact that, as was pointed out in The Times of 6th September, If prices and incomes had not been under control and had perhaps risen at the same rate as import prices, then last year's rise in prices could have been more than three times as rapid as it was. A couple of days later, the Economist made the same observation, and said When all the figures are in, it will probably be demonstrable that, but for Mr. Heath's statutory controls, the retail price index would now be 20 per cent. higher than a year ago. Those are the realities of the argument, the real factors, and they are a measure of the extent to which stage 1 and stage 2 have been not only successful but importantly successful in restraining the rate of inflation that would otherwise have taken place.

It is interesting to speculate precisely what right hon. and hon. Gentlemen on the Opposition benches want. The right hon. Gentleman the Leader of the Opposition and his right hon. Friend pointed to the need for stricter price controls or strict legal controls. They apparently believe that the strict pattern of control that we have imposed is not effective because it does not go so far as to control the price of every lettuce in every shop and the price of every box of matches.—[HON. MEMBERS: "Bacon."]—Bacon is one of the many commodities whose price has been rising for the same two reasons. First, a change in the pattern of world markets, and, secondly, a change in the cost of feedingstuffs which are essential to the provision of bacon and pork for the market.

I should like hon. Gentlemen on the Opposition benches to explain to the House precisely how the stricter and more detailed controls for which they are calling are likely to be implemented. Do hon. Gentlemen mean that they will introduce a pattern of detailed control for every commodity and every outlet? Will they expand the Price Commission lo vet each and every price throughout the country? Will they apply a range of controls such as has never been applied save in time of war?

The Leader of the Opposition once again seeks to have it both ways. We are now applying a strict and effective pattern for the control of prices, but if hon. Gentlemen wish us to make it more strict, more detailed and more effective it is for them to point out exactly what they want. Do they, or do they not, want us to fix and control the price of every commodity in every shop in the country? Do they wish us to multiply bureaucracy in the kind of way that they know perfectly well to be impossible? The fact is that we have as strict and effective a control as it is possible for us to have, because in relation to retailers and distributors, as in relation to everybody else, the code demands that the gross percentage profit margin shall not exceed reference levels previously established.

Mr. Charles R. Morris

Will the Minister indicate when the Government propose to take action against those companies which have not made information and detail available?

Sir G. Howe

The hon. Member will find that almost all of the companies that are required to do so have now submitted their returns, and I have made it clear that, if it becomes necessary, the powers to prosecute which are provided in the Act passed by this House will be used. But hon. Members should not jump to conclusions about that. In fact, the analysis undertaken by the Price Commission shows that the gross percentage profit margins in distribution are, on average, about 1 per cent. below, and net profit margins are up to 2 per cent. below, the required levels. The commission has made it clear in its report that there is no support for the contention that retailers have not abided by the code or that it has not been operating effectively. Indeed, hon. Members who have tried to observe what has been going on here will have seen that a number of large stores such as Littlewoods, Beatties, Safeways, and Sainsburys have recently announced an array of price reductions.

The Price Commission yesterday announced that a number of timber distributors have agreed to reductions in their prices of up to 5 per cent., as a result of the intervention of the commission, and there is no doubt at all that the controls are beginning to bite on retailers. The longer the controls are maintained, the more effective they are likely to be. Indeed the Government can, and do, claim success in containing not only the costs of manufactured products but also the costs of manufactured foods in this country.

It has been suggested by one of my hon. Friends that we should contemplate the possibility of an agreement to hold stable the price of certain items in the housewives shopping baskets for a limited period of time. My hon. Friend the Member for Bristol, North-East (Mr. Adley) asked whether we could follow up a suggestion of that kind. There are attractions in that approach. We have, in fact, investigated the possibility of it, but we have not been able to secure sufficient agreement upon the scope and scale of that scheme to make it practicable; and it remains a fact that distributors are subject to control on gross and net margins which is effective in the way we would wish.

We have also been examining the arrangements for the pre-notification of price increases by the 180 large firms in category I. The commission states in its report that its role has been misunderstood, and it asks for an amendment not of the code but of the relevant statutory instrument, to ensure that the function of the Commission is clearly defined to be what in fact it is. that is one of rejecting unjustified claims and modifying excessive ones. The Government agree with that recommendation and the statutory instrument, which is the Counter-Inflation (Notification of Increases in Prices and Charges) Order, will be amended accordingly, to abolish formal approvals by the commission, except when the commission is empowered to authorise exceptions to the normal provisions of the code because it is satisfied that certain provisions are fulfilled.

It will work in this way: pre-notifying firms will still have to give advance notice of price increases, and the commission will still restrict or reject the increases if they are not justified by the code. The difference in future will be that where the commission decides not to restrict or reject an application, no approval will be given by it. The company in question will not then be prevented from implementing the increase when the specified period for pre-notification expires. That will place the responsibility for price increases where it should belong—with the company making the increase. Moreover, if it is subsequently found that the increase was not in conformity with the code, the commission will be able to roll it back.

We propose also that the periods for pre-notification should for category I firms be fixed at four weeks and for category II companies be fixed at two weeks. The requirement for two weeks pre-notification by category II firms represents a further tightening on the proposal in the White Paper that these companies should have to report price increases with justification as they are made. This will give the commission an opportunity, in relation to category II firms, as well as in relation to category I cases, to step in before the price increase is made where they think there are good reasons for doing so.

The new pre-notification periods of two weeks and four weeks respectively will be fixed, and the commission will have no powers to amend them by what is known as "stopping the clock." Where it is not satisfied, by the end of this period, that the applications are justified, it will be able to use its powers under Section 6 of the Act to restrict or prevent the increases taking place.

These changes have been incorporated in a revised notification order which will be laid before the House in due course and come into operation on 1st November 1973. From that date also, as my hon. Friend the Member for Leek (Mr. Knox) suggested, the announcement of approvals by the Price Commission will cease. [Interruption.]

Mr. Harold Wilson

Would it be possible, Mr. Speaker, to stop the animation of hon. Members opposite? We want to hear these very important announcements.

Mr. Speaker

I do not think the animation or bad manners come only from hon. Members on one side of the House.

Sir G. Howe

The criticism of the Price Commission's policy of announcing approvals of price increases in stage 2 has been that these announcements have created an impression of continual price increases and suggest, contrary to the facts, that the commission is responsible for those increases. In the next stage the responsibility for such announcements will be left where it belongs, namely with the companies who make the increases, and they will he entitled to do so only in accordance with the code.

We are making the price code for stage 3 tougher in three important respects. First, we are requiring category II companies in manufacturing and service industries to prenotify price increases to the commission with justification of those increases. Secondly, we are defining more strictly the unit of an enterprise to which the profit margin control shall apply, to prevent unjustifiable splitting. Thirdly, we are strengthening paragraph 72 of the code in order to deal with distributors' margins more effectively.

As my right hon. Friend the Prime Minister pointed out, without this programme we should not have been able to achieve the recent rapid growth of output. As the economy approaches the limits of its present capacity, it is inevitable that there may be some slowing down in the rate of growth of output in line with the forecast by my right hon. Friend the Chancellor of the Exchequer.

We remain committed to a strategy of growth which will benefit the living standards of the whole community. We are concerned not merely, as the Opposition amendment suggests, to safeguard future prosperity. From now on it is and must be our purpose to sustain a steady rate of long-term growth. The Leader of the Opposition spent part of his speech deriding in principle and in fact the nature of the growth that has taken place.

Mr. Harold Wilson

Tell us the rate.

Sir G. Howe

I will come to the rate. The right hon. Gentleman should note the disparity in the rate of growth achieved by the present Government and that achieved by his own Government Under six years of Socialist Government the growth, in total, in the economy was 8 per cent. During the three years of this Government the rate of growth has been at a figure of 13 per cent. inclusive. The fact is that the average rate of growth in the living standard of people in this country has been twice as high under the present Government as under six years of Socialism.

Mr. Harold Wilson

The figures the right hon. and learned Member has quoted have been paid for out of the balance of payments by printing money. [HON. MEMBERS: "Oh."] Of course they have.—[Interruption.]—Shut up, Ted. Will the right hon. and learned Gentleman now tell us what was the rate of growth between March this year and August this year at annual rates? Now tell us that figure.

Sir G. Howe

The right hon. Gentleman does not accept the figures I have to put to him [HON. MEMBERS: "Answer."] The figures are precisely as I stated. The rate of growth under this Government has been twice as fast as under the last Government and they cannot be gainsaid.

The key to our programme for expansion is not merely in maintenance of the counter-inflation programme but in the continued increase in our investment, and this is the importance of the big increase in investment that is already taking place. [Interruption.] Does the right hon. Gentleman deny the existence of large investment programmes now taking place? Does he deny the announced programmes of the British Steel Corporation, of Guest, Keen and Nettlefold, of British Leyland Motor Corporation? These are actual, factual increases of investment taking place under this Government.

Mr. Harold Wilson

As this afternoon, I do not deny there are big investment intentions, but I challenge the right hon. and learned Gentleman now to say whether investment after three years of his Government has got back to the investment rate of 1970. Answer that now.

Sir G. Howe

The right hon. Gentleman knows perfectly well that it has taken us some time to recover from six years of stagnation.

The prospect for expansion of our economy depends not only on the counter-inflation programme, not only on the growth of investment taking place, but on our large and growing success in international trade. The volume of our exports is rising, and has continued to rise, faster than our volume of imports. Following the change in the exchange rates, products of this country are now amongst the most competitive in the world. Our exporters are achieving

record figures in terms of volume of exports, higher than ever in the past. We shall be able to maintain this, by keeping these three factors working together.

The House must have been astonished to find the right hon. Member for Leeds, East suggesting his measures for safeguarding the future prosperity of this country. What are they? How dare he come before this House, he of all people, accusing my right hon. Friend the Chancellor of the Exchequer of fiscal profligacy? The right hon. Gentleman is stalking the country as Shadow Chancellor, and is committed to a massive growth in public expenditure—more than £6,000 million. He commits himself to a huge increase in taxes on the people of this country saying that he will reverse the changes we have made.

One sentence of what the right hon. Gentleman said in his speech at Blackpool is true. That is that ordinary people will not accept tax increases without insisting on wage increases. It is for that reason, because a Socialist Government would involve massive profligate public expenditure, massive increases in taxation leading to huge inflationary pressures, that this House cannot take seriously the suggestion that a Labour Government will safeguard the economic prospects of the people of this country. Those prospects are best safeguarded under this programme maintained by this Government, and it is on that basis that I commend it to the House.

Question put, That the amendment be made:—

The House divided: Ayes 264, Noes 304.

Division No. 209.]	AYES	[10.00 p.m.
Abse, Leo	Bottomley, Rt. Hn. Arthur	Corbet, Mrs. Freda
Albu, Austen	Boyden, James (Bishop Auckland)	Cox, Thomas (Wandsworth, C.)
Allaun, Frank (Salford, E.)	Bradley, Tom	Crawshaw, Richard
Archer, Peter (Rowley Regis)	Brown, Robert C. (N'c'tle-u-Tyne, W.)	Cronin, John
Armstrong, Ernest	Brown, Hugh D. (G'gow, Provan)	Crosland, Rt. Hn. Anthony
Ashley, Jack	Brown, Ronald (Shoreditch & F'bury)	Cunningham, G. (Islington, S.W.)
Ashton, Joe	Buchanan, Richard (G'gow, Sp'burn)	Cunningham, Dr. J. A. (Whitehaven)
Atkinson, Norman	Butler, Mrs. Joyce (Wood Green)	Dalyell, Tam
Bagier, Gordon A. T.	Callaghan, Rt. Hn. James	Darling, Rt. Hn. George
Barnes, Michael	Campbell, I. (Dunbartonshire W.)	Davidson, Arthur
Barnett, Guy (Greenwich)
Barnett, Joel (Heywood and Royton)	Cant, R. B.	Davies, Denzil (Llanelly)
Beaney, Alan	Carmichael, Neil	Davies, G. Elfed (Rhondda, E.)
Benn, Rt. Hn. Anthony Wedgwood	Carter, Ray (Birmingh'm, Northfield)	Davies, Ifor (Gower)
Bennett, James(Glasgow, Bridgeton)	Carter-Jones, Lewis (Eccles)	Davis, Clinton (Hackney, C.)
Bidwell, Sydney	Castle, Rt. Hn. Barbara	Davis, Terry (Bromsgrove)
Bishop, E. S.	Clark, David (Colne Valley)	Deakins, Eric
Blenkinsop, Arthur	Cocks, Michael (Bristol, S.)	de Freitas, Rt. Hn. Sir Geoffrey
Boardman, H. (Leigh)	Coleman, Donald	Delargy, Hugh
Booth, Albert	Concannon, J. D.	Dell, Rt. Hn. Edmund
Boothroyd, Miss Betty	Conlan, Bernard	Dempsey, James
Dolg, Peter	Kerr, Russell	Prentice, Rt. Hn. Reg.
Dormand, J. D	Kinnock, Nell	Price, William (Rugby)
Douglas, Dick (Stirlingshire, E.)	Lambie, David	Probert, Arthur
Douglas-Mann, Bruce	Lamborn, Harry	Radice, Giles
Driberg, Tom	Lamond, James	Reed, D. (Sedgefield)
Duffy, A. E. P.	Latham, Arthur	Rees, Merlyn (Leeds, S.)
Dunn, James A.	Lawson, George	Rhodes, Geoffrey
Eadie, Alex	Lee, Rt. Hn. Frederick	Richard, Ivor
Edelman, Maurice	Leonard, Dick	Roberts, Albert (Normanton)
Edwards, William (Merioneth)	Lestor, Miss Joan	Roberts, Rt. Hn. Goronwy (Caernarvon)
Ellis, Tom	Lever, Rt. Hn. Harold	Robertson, John (Paisley)
Evans, Fred	Lewis, Arthur (W. Ham, N.)	Roderick, Caerwyn E. (Brc'n&R'dnor)
Ewing, Harry	Lewis, Ron (Carlisle)	Rodgers, William (Stockton-on-Tees)
Faulds, Andrew	Lipton, Marcus	Roper, John
Fisher, Mrs. Doris (B'ham, Ladywood)	Lomas, Kenneth	Rose, Paul B.
Fitch, Alan (Wigan)	Loughlin, Charles	Ross, Rt. Hn. William (Kilmarnock)
Fletcher, Raymond (Ilkeston)	Lyon, Alexander W. (York)	Rowlands, Ted
Fletcher, Ted (Darlington)	Lyons, Edward (Bradford, E.)	Sandelson, Neville
Ford, Ben	Mabon, Dr. J Dickson	Shelton, William (Clapham)
Forrester, John	McBride, Neil	Shore, Rt. Hn. Peter (Stepney)
Fraser, John (Norwood)	McCartney, Hugh	Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Freeson, Reginald	McElhone, Frank	Short, Mrs. Renée (W'hampton, N E.)
Freud, Clement	McGuire, Michael	Silkin, Rt. Hn. John (Deptford)
Galpern, Sir Myer	Machin, George	Silkin, Hn. S. C. (Dulwich)
Garrett, W. E.	Mackenzie, Gregor	Sillars, James
Gilbert, Dr. John	Mackie, John	Silverman, Julius
Ginsburg, David (Dewsbury)	Mackintosh, John P.	Skinner, Dennis
Gordon Walker, Rt. Hn. P. C.	Maclennan, Robert	Small, William
Gourlay, Harry	McMillan, Tom (Glasgow C.)	Smith, John (Lanarkshire, N.)
Grant, George (Morpeth)	McNamara, J Kevin	Spearing, Nigel
Grant, John D. (Islington, E.)	Mahon, Simon (Bootle)	Spriggs, Leslie
Griffiths, Eddie (Brightside)	Mallalieu, J. P. W. (Huddersfield, E.)	Stallard, A. W.
Hamilton, James (Bothwell)	Marks, Kenneth	Stewart, Donald (Western Isles)
Hamilton, William (Fife, W.)	Marquand, David	Stewart, Rt. Hn. Michael (Fulham)
Hamling, William	Marsden, F.	Stoddart, David (Swindon)
Hannan, William (G'gow, Maryhill)	Marshall, Dr. Edmund	Stott, Roger
Hardy, Peter	Mason, Rt. Hn. Roy	Strang, Gavin
Harrison, Walter (Wakefield)	Mayhew, Christopher	Strauss, Rt. Hn. G. R.
Hart, Rt. Hn. Judith	Meacher, Michael	Summerskill, Hn. Dr. Shirley
Hattersley, Roy	Mellish, Rt. Hn. Robert	Swain, Thomas
Hatton, F.	Mendelson, John	Thomas, Jeffrey (Abertillery)
Healey, Rt. Hn. Denis	Millan, Bruce	Tinn, James
Heffer, Eric S.	Miller, Dr. M. S.	Torney, Tom
Hilton, W. S.	Milne, Edward	Tuck, Raphael
Horam, John	Mitchell, R. C. (S'hampton, Itchen)	Urwin, T. W.
Houghton, Rt. Hn. Douglas	Molloy, William	Varley, Eric G.
Howell, Denis (Small Heath)	Morgan, Elystan (Cardiganshire)	Wainwright, Edwin
Hughes, Rt. Hn. Cledwyn (Anglesey)	Morris, Alfred (Wythenshawe)	Walden, Brian (B'm'ham, All Saints)
Hughes, Mark (Durham)	Morris, Rt. Hn. John (Aberavon)	Walker, Harold (Doncaster)
Hughes, Robert (Aberdeen, N.)	Moyle, Roland	Wallace, George
Hughes, Roy (Newport)	Mulley, Rt. Hn. Frederick	Watkins, David
Hunter, Adam	Oakes, Gordon	Weitzman, David
Irvine, Rt. Hn. Sir Arthur (Edge Hill)	Ogden, Eric	Wellbeloved, James
Janner, Greville	O'Halloran, Michael	Wells, William (Walsall, N.)
Jay, Rt. Hn. Douglas	O'Malley, Brian	White, James (Glasgow, Pollok)
Jeger, Mrs. Lena	Oram, Bert	Whitehead, Phillip
Jenkins, Hugh (Putney)	Orbach, Maurice	Whitlock, William
Jenkins, Rt. Hn. Roy (Stechford)	Orme, Stanley	Willey, Rt. Hn. Frederick
John, Brynmor	Oswald, Thomas	Williams, Alan (Swansea, W.)
Johnson, Carol (Lewisham, S.)	Owen, Dr. David (Plymouth, Sutton)	Williams, Mrs. Shirley (Hitchin)
Johnson, James (K'ston-on-Hull, W.)	Padley, Walter	Williams, W. T. (Warrington)
Johnson, Walter (Derby, S.)	Paget, R. T.	Wilson, Alexander (Hamilton)
Jones, Dan (Burnley)	Palmer, Arthur	Wilson, Rt. Hn. Harold (Huyton)
Jones, Rt. Hn. Sir Elwyn(W.Ham,S.)	Pannell, Rt. Hn. Charles	Wilson, William (Coventry, S.)
Jones, Gwynoro (Carmarthen)	Parker, John (Dagenham)	Woof, Robert
Jones, T. Alec (Rhondda, W.)	Parry, Robert (Liverpool, Exchange)	TELLERS FOR THE NOES:
Judd, Frank	Pavitt, Laurie	Mr. Joseph Harper and
Kaufman, Gerald	Pendry, Tom	Mr. John Golding.
Kelley, Richard	Perry, Ernest G.
NOES
Adley, Robert	Barber, Rt. Hn. Anthony	Body, Richard
Alison, Michael (Barkston Ash)	Batsford, Brian	Boscawen, Hn. Robert
Allason, James (Hemel Hempstead)	Beamish, Col. Sir Tufton	Bossom, Sir Clive
Amery, Rt. Hn. Julian	Bell, Ronald	Bowden, Andrew
Archer, Jeffrey (Louth)	Bennett, Sir Frederic (Torquay)	Braine, Sir Bernard
Astor, John	Bennett, Dr. Reginald (Gosport)	Bray, Ronald
Atkins, Humphrey	Benyon, W.	Brewis, John
Austick, David	Berry, Hn. Anthony	Brinton, Sir Tatton
Awdry, Daniel	Biffen, John	Brocklebank-Fowler, Christopher
Baker, Kenneth (St. Marylebone)	Biggs-Davison, John	Brown, Sir Edward (Bath)
Baker, W. H. K. (Banff)	Blaker, Peter	Bruce-Gardyne, J.
Balniel, Rt. Hn. Lord	Boardman, Tom (Leicester. S.W.)	Bryan, Sir Paul

Buchanan-Smith, Alick (Angus, N & M)	Hawkins, Paul	Neave, Airey
Buck, Antony	Hay, John	Nicholls, Sir Harmar
Bullus, Sir Eric	Hayhoe, Barney	Noble, Rt. Hn. Michael
Burden, F. A.	Heath, Rt. Hn. Edward	Normanton Tom
Butler, Adam (Bosworth)	Heseltine, Michael	Nott, John
Campbell, Rt.Hn.G. (Moray & Nairn)	Hicks, Robert	Onslow, Cranley
Carlisle, Mark	Higgins, Terence L.	Oppenheim, Mrs. Sally
Carr, Rt. Hn. Robert	Hiley, Joseph	Orr, Capt. L. P. S.
Cary, Sir Robert	Hill, John E. B. (Norfolk, S.)	Osborn, John
Channon, Paul	Hill,S.James A.(Southampton, Test)	Owen, Idris (Stockport, N.)
Chapman, Sydney	Holland, Philip	Page, Rt. Hn. Graham (Crosby)
Chataway, Rt. Hn. Christopher	Holt, Miss Mary	Page, John (Harrow. W.)
Chichester-Clark, R.	Hooson, Emlyn	Pardoe, John
Clark, William (Surrey, E.)	Hordern, Peter	Parkinson, Cecil
Clarke, Kenneth (Rushcliffe)	Hornsby-Smith, Rt. Hn. Dame Patricia	Peel, Sir John
Cockeram, Eric	Howe, Rt. Hn. Sir Geoffrey (Reigate)	Percival, Ian
Cooke, Robert	Howell, David (Guildford)	Peyton, Rt. Hn. John
Coombs, Derek	Howell, Ralph (Norfolk, N.)	Pike, Miss Mervyn
Cooper, A. E.	Hunt, John	Pink, R. Bonner
Cordle, John	Hutchison, Michael Clark	Pounder, Rafton
Corfield, Rt. Hn. Sir Frederick	Iremonger, T. L.	Price, David (Eastleigh)
Cormack, Patrick	Irvine, Bryant Godman (Rye)	Prior, Rt. Hn. J. M. L.
Costain, A. P.	James, David	Proudfoot, Wilfred
Crouch, David	Jenkin, Rt. Hn. Patrick (Woodford)	Pym, Rt. Hn. Francis
Crowder, F. P.	Jennings, J. C. (Burton)	Raison, Timothy
Davies, Rt. Hn. John (Knutsford)	Jessel, Toby	Ramsden, Rt. Hn. James
d'Avigdor-Goldsmid, Sir Henry	Johnson Smith, G. (E. Grinstead)	Rawlinson, Rt. Hn. Sir Peter
d'Avigdor-Goldsmid, Maj,-Gen, Jack	Jones, Arthur (Northants, S.)	Redmond, Robert
Dean, Paul	Jopling, Michael	Reed, Laurance (Bolton, E.)
Deedes, Rt. Hn. W. F	Joseph, Rt. Hn. Sir Keith	Rees, Peter (Dover)
Dixon, Piers	Kaberry, Sir Donald	Rees-Davies, W. R.
Dodds-Parker, Sir Douglas	Kellett-Bowman, Mrs. Elaine	Renton, Rt. Hn. Sir David
Douglas-Home, Rt. Hn. Sir Alec	Kershaw, Anthony	Rhys Williams, Sir Brandon
Drayson, G. B.	Kimball, Marcus	Ridley, Hn. Nicholas
du Cann, Rt. Hn. Edward	King, Evelyn (Dorset, S.)	Ridsdale, Julian
Dykes, Hugh	King, Tom (Bridgwater)	Rippon, Rt. Hn. Geoffrey
Eden, Rt. Hn. Sir John	Kinsey, J. R.	Roberts, Michael (Cardiff, N.)
Elliot, Capt, Walter (Carshalton)	Kirk, Peter	Roberts, Wyn (Conway)
Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Kitson, Timothy	Rost, Peter
Emery. Peter	Knight, Mrs. Jill	Royle, Anthony
Eyre, Reginald	Knox, David	Russell, Sir Ronald
Farr, John	Lament, Norman	St. John-Stevas, Norman
Fell, Anthony	Lane, David	Sandys, Rt. Hn. D.
Fenner, Mrs. Peggy	Langford-Kolt, Sir John	Scott, Nicholas
Fidier, Michael	Le Marchant, Spencer	Scott-Hopkins, James
Finsberg, Geoffrey (Hampstead)	Lewis, Kenneth (Rutland)	Shaw, Michael (Sc'b'gh & Whitby)
Fisher, Nigel (Surbiton)	Lloyd,Rt. Hn. Geoffrey(Sut'nC'field)	Shelton, William (Clapham)
Fletcher-Cooke, Charles	Lloyd, Ian (P'tsm'th, Langstone)	Shersby, Michael
Fookes, Miss Janet	Longden, Sir Gilbert	Simeons, Charles
Fortescue, Tim	Loveridge, John	Sinclair, Sir George
Foster, Sir John	Luce, R. N.	Skeet, T. H. H.
Fowler, Norman	McAdden, Sir Stepoen	Smith, Dudley (W wick & L'mington)
Fox, Marcus	MacArthur, Ian	Soref, Harold
Fraser, Rt. Hn. Hugh(S'fford & Stone)	McCrindle, R. A.	Speed, Keith
Fry, Peter	McLaren, Martin	Spence, John
Galbraith, Hn. T. G. D	Maclean, Sir Fitzroy	Sproat, Iain
Gardner, Edward	McMaster, Stanley	Stainton, Keith
Gibson-Watt, David	McNair-Wilson, Michael	Stanbrook, Ivor
Gilmour, Ian (Norfolk, C.)	McNair-Wilson, Patrick (New Forest)	Steel, David
Glyn, Dr. Alan	Madel, David	Stewart-Smith, Geoffrey (Belper)
Godber, Rt. Hn. J. B.	Maginnis, John E.	Stodart, Anthony (Edinburgh, W.)
Goodhart, Philip	Marples, Rt. Hn. Ernest	Stokes, John
Goodhew, Victor	Marten, Neil	Sutcliffe, John
Gorst, John	Mather, Carol	Taylor, Sir Charles (Eastbourne)
Gower, Raymond	Maude, Angus	Taylor,Edward M. (G'gow, Cathcart)
Grant, Anthony (Harrow, C.)	Maudling, Rt. Hn. Reginald	Taylor, Frank (Moss Side)
Gray, Hamish	Mawby, Ray	Taylor, Robert (Croydon, N.W.)
Green, Alan	Maxwell-Hyslop, R J.	Tebbit, Norman
Grieve, Percy	Meyer, Sir Anthony	Temple, John M.
Griffiths, Eldon (Bury St. Edmunds)	Mills, Stratton (Belfast, N.)	Thatcher, Rt. Hn. Mrs. Margaret
Grimond, Rt. Hn. J.	Miscampbell, Norman	Thomas, John Stradling (Monmouth)
Grylls, Michael	Mitchell,Lt.-Col.C.(Aberdeenshire, W)	Thomas, Rt. Hn. Peter (Hendon, S.)
Gummer, J. Selwyn	Mitchell, David (Basingstoke)	Thompson, Sir Richard (Croydon, S.)
Gurden, Harold	Moale, Roger	Thorpe, Rt. Hn. Jeremy
Hall, Miss Joan (Keighley)	Molyneaux, James	Tilney, Sir John
Hall, Sir John (Wycombe)	Money, Ernie	Tope, Graham
Hall-Davis, A. G. F.	Monks, Mrs. Connie	Trafford, Dr. Anthony
Hamilton, Michael (Salisbury)	Monro, Heclot	Trew, Peter
Hannam, John (Exeter)	Montgomery, Fergus	Tugendhat, Christopher
Harrison, Brian (Maldon)	More, Jasper	Turton, Rt. Hn. Sir Robin
Harrison, Col. Sir Harwood (Eye)	Morgan, Geraint (Denbigh)	Van Straubenzee, W. R.
Haselhurst, Alan	Morgan-Giles, Rear Adm.	Vaughan, Dr. Gerard
Hastings, Stephen	Morrison, Charles	Vickers, Dame Joan
Havers, Sir Michael	Murlon, Oscar	Waddington, David

Walder, David (Clitheroe)	Wells, John (Maidstone)	Wylie, Rt. Hn. N. R.
Walker, Rt. Hn. Peter (Worcester)	White, Roger (Gravesend)	Younger, Hn. George
Walker-Smith, Rt. Hn. Sir Derek	Wiggin, Jerry
Wall, Patrick	Wilkinson, John	TELLERS FOR THE AYES:
Walters, Dennis	Winterton, Nicholas	Mr Waiter Clegg and
Ward, Dame Irene	Wolrige-Gordon, Patrick	Mr. Bernard Weatherill
Warren, Kenneth	Woodnutt, Mark

Question accordingly agreed to.

Main Question put:

The House divided: Ayes 260, Noes 7.

Division No. 210.	AYES	[10.16 p.m.
Adley, Robert	Fenner, Mrs. Peggy	Lane, David
Alison, Michael (Barkston Ash)	Fidler, Michael	Le Marchant, Spencer
Allason, James (Kernel Kempstead)	Finsberg, Geoffrey (Kampstead)	Lewis, Kenneth (Rutland)
Archer, Jeffrey (Louth)	Fisher, Mrs. Doris (B'ham, Ladywood)	Lloyd, Rt. Hn. Geoffrey (Sut'nC'field)
Atkins, Humphrey	Fletcher-Cooke, Charles	Lloyd, Ian (P'lsm th, Langstone)
Awdry, Daniel	Fookes, Miss Janet	Loveridge, John
Baker, Kenneth (St. Marylebone)	Fortescue, Tim	Luce, R. N.
Baker, W. H. K. (Banff)	Foster, Sir John	MacArthur, Ian
Balniel, Rt. Hn. Lord	Fowler, Norman	McCrindle, R. A.
Barber, Rt. Hn. Anthony	Fox, Marcus	McLaren, Martin
Batsford, Brian	Fraser, Rt. Hn. Hugh (St'fford & Stone)	Maclean, Sir Filzroy
Beamish, Col. Sir Tufton	Fry, Peter	McNair-Wilson, Michael
Bell, Ronald	Gardner, Edward	McNair-Wilson. Patrick (New Forest)
Bennett, Sir Frederic (Torquay)	Gibson-Watt, David	Madel, David
Bennett, Dr. Reginald (Gosport)	Gilmour, Ian (Norfolk, C.)	Maginnis, John E.
Benyon, W.	Glyn, Dr. Alan	Marten, Neil
Berry, Hn. Anthony	Godber, Rt. Hn. J. B.	Mather, Carol
Biffen, John	Goodhart, Philip	Maudling, Rt. Hn. Reginald
Biggs-Davison, John	Goodhew, Victor	Maxwell-Hyslop R. J.
Blaker, Peter	Gorst, John	Meyer, Sir Anthony
Boardman, Tom (Leicester S W.)	Gower, Raymond	Mills Stratton (Belfast N)
	Grant, Anthony (Harrow, C.)
Boscawen, Hn. Robert	Gray, Hamish	Miscampbell, Norman
Bossom, Sir Clive	Green Alan	Mitchell, Lt.-Col. C.(Aberdeenshire, W)
Braine, Sir Bernard	Grieve, Percy	Mitchell, David (Basingstoke)
Bray, Ronald	Griffiths, Eldon (Bury St. Edmunds)	Moate, Roger
Brewis, John	Grylls, Michael	Molyneaux, James
Brinton, Sir Tatton	Cummer, J. Selwyn	Money, Ernie
Brocklebank-Fowler, Christopher	Gurden, Harold	Monks, Mrs. Connie
Brown, Sir Edward (Bath)	Hall, Miss Joan (Keighley)	Monro, Hector
Bruce-Gardyne, J.	Hall, Sir John (Wycombe)	Montgomery, Fergus
Bryan, Sir Paul	Hall-Davis, A. G. F.	More, Jasper
Buchanan-Smith, Alick (Angus, N & M)	Hannam, John (Exeter)	Morgan, Geraint (Denbigh)
Bullus, Sir Eric	Harrison, Brian (Maldon)	Morgan-Giles, Rear-Adm.
Burden, F. A.	Harrison, Col. Sir Harwood (Eye)	Morrison, Charles
Butler. Adam (Bosworth)	Haselhurst, Alan	Murton, Oscar
Campbell, Rt. Hn. G. (Moray & Nairn)	Havers, Sir Michael	Neave, Airey
Carlisle, Mark	Hawkins, Paul	Nicholls, Sir Harman
Carr, Rt. Hn. Robert	Hayhoe, Barney	Noble, Rt. Hn. Michael
Cary, Sir Robert	Heath, Rt. Hn. Edward	Normanton, Tom
Channon, Paul	Heseltine, Michael	Nott, John
Chapman, Sydney	Hicks, Robert	Onslow, Cranley
Chataway, Rt. Hn. Christopher	Higgins, Terence L.	Oppenheim, Mrs. Sally
Chichesler Clark, R.	Hill, John E. B. (Norfolk, S.)	Orr, Capt. L. P. S.
Clark, William (Surrey, E.)	Hill, S. James A. (Southampton, Test)	Osborn, John
Clarke, Kenneth (Rushcliffe)	Holt, Miss Mary	Owen, Idris (Stockport, N.)
Cockeram, Eric	Hordern, Peter	Page, Rt. Hn. Graham (Crosby)
Cooke, Robert	Hornsby-Smith, Rt. Hn. Dame Patricia	Page, John (Harrow, W.)
Coombs, Derek	Howe, Rt. Hn. Sir Geoffrey (Reigate)	Parkinson, Cecil
Cooper, A. E.	Howell, David (Guildford)	Peel, Sir John
Corfield, Rt. Hn. Sir Frederick	Howell, Ralph (Norfolk, N.)	Percival, Ian
Cormack, Patrick	Hunt, John	Pink, R. Bonner
Crowder F P	Iremonger, T. L.	Pounder, Rafton
Davies, Rt. Hn. John (Knutsford)	Irvine, Bryant Godman (Rye)	Price, David (Eastleigh)
d'Avigdor-Goldsmid, Sir Henry	Jenkin, Rt. Hn. Patrick (Woodford)	Prior, Rt. Hn. J. M. L.
d'Avigdor-Goldsmid, Maj.-Gen. Jack	Jessel, Toby	Proudfoot, Wilfred
Dean Paul	Johnson Smith, G. (E. Grinstead)	Pym, Rt. Hn. Francis
Deedes, Rt. Hn. W. F.	Jones Arthur (Northants, S)	Raison, Timothy
Dixon, Piers	Jopling, Michael	Rawlinson, Rt. Hn. Sir Peter
Dodds-Parker, Sir Douglas	Kaberry, Sir Donald	Redmond, Robert
Douglas-Home, Rt. Hn. Sir Ales	Kershaw, Anthony	Reed, Laurance (Bolton, E.)
Drayson, G. B.	Kimball, Marcus	Rees, Peter (Dover)
du Cann, Rt. Hn. Edward	King, Evelyn (Dorset, S.)	Rees-Davies, W. R.
Dykes, Hugh	King, Tom (Bridgwater)	Renton, Rt. Hn. Sir David
Eden, Rt. Hn. Sir John	Kinsey, J. R.	Rhys Williams, Sir Brandon
Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Kirk, Peter	Ridley, Hn. Nicholas
Emery, Peter	Kitson, Timothy	Rippon, Rt. Hn. Geoffrey
Eyre, Reginald	Knight, Mrs. Jill	Roberts, Michael (Cardiff, N.)
Farr, John	Knox, David	Roberts, Wyn (Conway)
Fell, Anthony	Lamont, Normar	Rost, Peter
Royle, Anthony	Taylor, Sir Charles (Eastbourne)	Walder, David (Clitheroe)
Russell, Sir Ronald	Taylor,Edward M. (G'gow, Cathcart)	Walker, Rt. Hn. Peter (Worcester)
Sandys, Rt. Hn. D	Taylor, Robert (Croydon, N.W.)	Walker-Smith, Rt. Hn. Sir Derek
Scott, Nicholas	Tebbit, Norman	Wall, Patrick
Scott-Hopkins, James	Temple, John M.	Ward, Dame Irene
Shaw, Michael (Sc'b'gh & Whitby)	Thatcher, Rt. Hn. Mrs. Margaret	Warren, Kenneth
Shelton, William (Clapham)	Thomas, John Stradling (Monmouth)	Wells, John (Maidstone)
Shersby, Michael	Thomas, Rt. Hn. Peter (Hendon, S.)	White, Roger (Gravesend)
Sinclair, Sir George	Thompson, Sir Richard (Croydon, S.)	Wiggin, Jerry
Skeet, T. H. H.	Tilney, Sir John	Wilkinson, John
Smith, Dudley (W'wick & L'mington)	Trafford, Dr. Anthony	Winterton, Nicholas
Soref, Harold	Trew, Peter	Wolrige-Gordon, Patrick
Speed, Keith	Tugendhat, Christopher	Woodnutt, Mark
Spence, John	Turton, Rt. Hn. Sir Robin	Wylie, Rt. Hn. N. R.
Stanbrook, Ivor	Van Straubenzee, W. R.	Younger, Hn. George
Stodart, Anthony (Edinburgh, W.)	Vaughan, Dr. Gerard
Stuttaford, Dr. Tom	Vickers, Dame Joan	TELLERS FOR THE AYES
Sutcliffe, John	Waddington David	Mr. Walter Clegg and
		Mr. Bernard Weatherill
NOES
Austick, David	Stewart, Donald (Western Isles)	TELLERS FOR THE NOES:
Freud, Clement	Thorpe, Rt. Hn. Jeremy	Mr. David Steel and
Grimond, Rt. Hn. J.	Tope, Graham	Mr. John Pardoe
Hooson, Emlyn

Question accordingly agreed to.

Resolved,

That this House takes note of the Consultative Document on the Price and Pay Code for Stage 3 (Command Paper No. 5444).