MOTION OF CENSURE

HC Deb 02 August 1965 vol 717 cc1070-201

Mr. Speaker

It will probably be convenient if I indicate now that the Amendment in the name of the right hon. Member for Orkney and Shetland (Mr. Grimond) is not selected.

3.57 p.m.

Mr. Edward Heath (Bexley)

I beg to move, That this House has no confidence in Her Majesty's Government and deplores the Prime Minister's conduct of the nation's affairs. I should like to begin by thanking the Prime Minister for the welcome which he extended to me in my new position last Thursday. Of course, I wish to maintain the courtesies which are traditional between the two Front Benches and between the Prime Minister and the Leader of the Opposition. As I well know from previous experience, it is these courtesies, through the usual channels, and indeed direct, which enable Parliament to work in that effective and usually happy way in which it does. However much we may differ about our affairs, it is essential that this relationship should be continued. I am glad to have had this exchange of courtesies with the Prime Minister, because we now proceed to a debate about the most fundamental differences.

The Motion is a grave one. It is as harsh on the Government and on the Prime Minister himself as I think anything that can be laid, but then this is a grave situation. The Chancellor's statement last Tuesday made that quite clear. The Prime Minister has told us that he expected an economic Motion of censure, but the Chancellor's statement made it plain that his measures affect not only the economic but also the whole of the social policy of the Government, and, indeed, will affect their power to initiate overseas operations or diplomatic operations with foreign Powers. I therefore believe it right that this Motion of censure should cover the whole field of Government activity.

I realise fully the seriousness of these charges. I propose to relate them to the problems which the country is facing today, to the action required to overcome them, and to Britain's place in the modern world. I have no doubt that the Prime Minister, who I understand is to wind up the debate, and possibly also the Chancellor, who is to follow me, will wish to deal equally seriously with these grave matters which face our country at the present time. We believe that this country should concentrate on economic affairs, because these are at the heart of everything that matters for our country today.

Let us remind ourselves that ever since the end of the First World War this country's currency has suppported nearly half the trade of the world. In numbers we are not one of the giants—barely 52 million. In reserves, ours have been small compared with those of many other countries; they are less than the capital of the three main banks of New York; they are less than the capital of I.C.I., let alone Shell and other of our great companies. Yet we have carried through this task.

There may be arguments whether this has cost us a great deal in our rate of growth; there may be arguments about the extent to which this has benefited us through the activities of the City of London, but we have done it, and we have done it to the undoubted benefit of the rest of the world. More than that; we have maintained forces right across the world, in the interests of the free and independent countries not only of the Commonwealth but elsewhere, in Europe, Africa and Asia.

We are the only country to be a full member of the three great alliances spread across the world, with military commitments in all of them, and, at the same time, we have extended technical assistance and aid to the developing countries, in which we have been second in the record, and we have been foremost, through the Commonwealth, in providing trade facilities for the developing countries. This is a record of which we can be proud.

At the same time, we have seen the standard of living in this country rise, and we have made great social advances. There were 13 years in which the standard of living advanced more quickly than at any time in our history—in which, in real terms, people earned more, saved more, and spent more than ever before; in which 1½ million additional jobs were created, and in which Britain's investments overseas more than doubled. Indeed, the Prime Minister rightly boasted of this in his New York speech in April.

During this 13 years the rate of investment at home doubled; another 1½ million people were rehoused from the slums, and 4 million new homes were provided; expenditure on health was doubled, on schools trebled, and on universities quadrupled; and colleges of advanced technology were created and motorways built—and all this with greater freedom for the individual to create his own opportunity and his own rewards.

To my regret the Prime Minister has never been prepared to recognise these achievements. But no matter what gibes he may hurl, nothing can detract from these achievements of the people in the currency which I have described during the past 15 years. The Prime Minister may complain that we have been doing too much, but it hardly lies in his mouth to do that, because he and his party have constantly urged us to do more. What is the key to this? The key has been confidence—the confidence of industry and trade in this country, and above all, the confidence abroad in the currency that we maintain.

My charge against the Government and the Prime Minister—which I want to substantiate in detail—is that he and his colleagues have gradually undermined this confidence both at home and overseas, and that the consequences of this are momentous for the people of this country, for the people of the developing countries, and for those to whose protection we contribute.

I want to look at the present economic situation as fairly and as closely as I can, with the facts which are available to an hon. Member of the Opposition. Let us look, first, at production, which, as the Prime Minister has always emphasized, is the key to the whole Labour Party programme. For the three months December-February, the figure was 133; for the three months March-May—the latest figure available—it was 131. The June figure for production was the same as it was in December—132. That is the state of production in this country today—a state that the Prime Minister has always called stagnant.

The National Association of British Manufacturers says that the output of British industry has passed its peak. The Confederation of British Industry supports this. The Business Organisation Group reports that growth during the next 12 months will be at the rate of only 1½ per cent. These are the facts of production which I put before the House. What about investment prospects? On 26th May the N.I.E.S.R. predicted a flattening out of investment in 1966. The National Association of British Manufacturers and the C.B.I. support this. All the indications are that this is beginning to happen in small businesses, and the forecast is that investment will fall away in 1966.

Now let us look at savings. I gave the figures during the Third Reading debate on the Finance Bill. Today, they are worse than at that time. National savings for the first quarter of this year are only roughly half what they were a year ago In 1964, from 14th June to 31st July, they were £32 million, and in 1965 they were down by £13 million. There is a similar picture in respect of building societies. The figure for the first six months of 1964 was £271 million; for the first six months of 1965 it is £154 million. The figure in respect of unit trusts for the three months April-June, 1964 was £20.8 million; for this year it is £10.3 million. These are the indicators of what is happening to the economy today.

What about the cost of living? We have discussed this at length, and I do not want to go into it in detail now, but retail prices are rising now at an annual rate of 6.6 per cent.—faster than at any time since the last Labour Government, despite the great campaign—and we all admire his energy in this respect—that the First Secretary has been carrying through to bring down prices.

Naturally, the party opposite has made the most of it in its propaganda leaflets. I have here the economic report of the Labour Party, "Talking Points No. 8". Turning it over I find: Stop Press. The Price War. Down. We would expect to see a great list of prices, but instead we read: Hoover announced that they are to discontinue resale price maintenance on all their products sold in Britain. Although we know that the Prime Minister is never hesitant to take credit for his Administration, it would be difficult for him to take credit for a Bill which was passed during his complete absence from the House of Commons.

Let us look at the picture of wage increases. These are well known to the House. Of the 42 settlements we have been able to find only one which is below the norm. It is ironical that this should be a settlement in respect of 204,000 hospital workers, when we think of what was said about the previous settlements in 1961 and 1962. These 204,000 hospital workers have had a wage increase of 2½ per cent. Looking at this economic position, who can feel anything but anxiety lest these increased wages are to be passed on in still further increased prices?

Now let us look at the trade position today. The other day the President of the Board of Trade gave us the figures for the first half of 1965 as compared with the first half of 1964, but let us also look at the figures for 1965 themselves. Exports have fallen every month of the year since February. In every month export figures have been lower than the month previously. That is what is happening to our export trade.

What of imports? They have risen in every month until June when—and we welcome this—they fell. As for the surcharges, during the first six months of this year imports of those goods which were not subject to surcharges fell by £70 million, whereas imports of those which were subject to surcharges increased by £40 million. The President of the Board of Trade has said that no commitment had ever been given by the Government as to what these surcharges would bring. He was challenged on this during Question Time on 29th July. He said: The Government did not say £300 million, but so far the saving has been rather greater than we expected."—[OFFICIAL REPORT, 29th July, 1965; Vol. 717, c. 661.] We have only to look back to the speech of the Chancellor of the Exchequer on 11th November when he said: There is good reason to believe that the charge on imports will yield a substantial saving on our imports bill approaching £300 million a year."—[OFFICIAL REPORT, 11th November. 1964; Vol. 701, c. 1028.] The President of the Board of Trade, who has great responsibilities for the trade of the country, is not even aware of what his right hon. Friend the Chancellor of the Exchequer said or of what his plans are. Therefore, we see that, instead of a saving of £150 million during the first six months of this year, there has been an increase of £40 million, so the Chancellor is already £190 million out in the calculations which he has made.

Let us look at the financial commitments of the country today. These are, perhaps, the most serious of all, because the Government have, rightly, said from the beginning that their objective was to maintain the parity of sterling. Since the Government came into power, we have seen that, although there have been improvements from time to time, sterling has not yet made the firm, stable recovery which the Prime Minister and the Government rightly want to see. But the additional indebtedness is 2.4 billion dollars of indebtedness to the I.M.F. which has to be repaid.

When I heard the Secretary of State for Education and Science, who alas is not with us today—[HON. MEMBERS: "He is."] I am sorry. He is far further down the Front Bench than is his wont. When I heard him wind up the debate on Thursday night and praise, as one of the Chancellor's great achievements, that he had made a contribution of £250,000 to "Operation Neptune"—which I welcomed—and set that against the additional indebtedness of 2.4 billion dollars, I realised that that is the scale on which the Government have incurred debt for the country.

Let us sum up this economic picture, because it is on that which the Prime Minister and the Chancellor of the Exchequer have to comment today. We see production which is stagnant, high increases in wage settlements, rapidly rising prices, decreasing savings, a downturn forecast for private investment, exports at best static or else gently falling and imports still high, with heavy international indebtedness. There can be no wonder that the country is anxious about this situation.

At the same time, we have certain reserves which can be used to meet it. We have the existing reserves and still some international drawing rights and the Government portfolio which the Chancellor of the Exchequer has told the House he is liquifying and has not yet used. However, he must also agree no doubt that, in the present international situation, the possibility of creating additional international monetary liquidity does not look promising. This too, is a fact which has to be borne in mind today.

No doubt the House will agree that I was right to describe as a serious economic situation that with which we and the country are faced. The question which I want to ask now—this is relevant to the Motion—is how the Government come to be in this position today—[Laughter.] I notice that it is not the Prime Minister who is smiling. This is why it is essential to look at the detailed record of the Government since they came into power—[HON. MEMBERS: "What about the £800 million?"] Of course, the usual cry of the £800 million deficit—

Mr. J. J. Mendelson (Penistone)

The right hon. Gentleman has gone into some detail to relate to the House the sort of economic changes and advances which are taking place over 12 years. Would he not complete the picture by also telling the House about the inheritance which he and his Government left behind when they left office?

Mr. Heath

I am grateful to the hon. Member for mentioning this fact. It was obvious that the debate would not get very far without it. It enables me to say one or two things about it.

I have constantly criticised the Prime Minister and, particularly, the First Secretary, for exaggerating and distorting. In the White Paper which they published on 26th October, they stated quite baldly that the balance of payments deficit was likely to be between £700 and £800 million. They have now popularly used the figure of £800 million, and the Prime Minister, on television, calmly bandies a figure of about £1,000 million, saying that that is the rate. The Prime Minister was very insistent last Thursday, in dealing with American trade figures, about saying £277 million instead of £270 million, which was put forward by one of my hon. Friends.

Perhaps he would be more precise about this figure and recognise that it was a deficit of £745 million and also be prepared to acknowledge that half of this deficit was the trade deficit and the rest was part of the capital investment of which he himself boasted in New York. It was part of the sum of which he was so proud.

The Prime Minister (Mr. Harold Wilson)

The figure was £745 million, because in December we exercised a rare right of taking a bisque on the American loan, without which it would have been £812 million. The annual rate of over £1,000 million was calculated by taking the third quarter actual deficit of £251 million—I referred to the third quarter figure and to the fourth quarter figure—and multiplying £251 million by four, which gives a figure slightly higher than £1,000 million.

Mr. Heath

Any Government is entitled to take that bisque, of course. It is very easy to multiply the seasonal third quarter by four and then use this as an annual rate. That is typical of the whole attitude of the Prime Minister to these matters.

Another interesting thing which the Prime Minister said was that he was not to be criticised for exaggerating or demonstrating this figure, because the figure was known to all overseas observers already. But there are two things which flow from this. First, of all, if he intended to use that figure, he should have explained the context and the make-up to the people of the country and, secondly, if all the overesas bankers and others knew the figures already, is it not plain that they had complete confidence in my right hon. Friend the Member for Barnet (Mr. Maudling)—[HON. MEMBERS: "Oh."]—because, the facts being known, the crisis of confidence came under the Prime Minister and his Government and not under the previous Government.

I want to examine in detail the policy of the Government in dealing with this situation—

Mr. Archie Manuel (Ayrshire, Central)

Let us have Alec back.

Mr. Heath

It is the Government's policy on which they will be judged, even if these were the facts which they claim to have found when they came into office.

What did they say on 26th October in their White Paper? They said: Apart from special problems of individual areas and a limited number of industries, there is no undue pressure on resources calling for action. Moreover, the Government reject any policy based on a return to stop-go economics. That was the decision of the Government after they had examined the whole of the situation and reached their own conclusions and decided on the measures which they would take.

Then we come to 27th October. When winding up the debate on Thursday evening, the Secretary of State for Education and Science stated that Mr. Gordon Walker had never made any statement about the Bank Rate. The right hon. Gentleman is another example of colleagues who do not even know what their own former colleagues were doing On 27th October, in Washington, Mr. Gordon Walker said that the Government … would not raise Bank Rate in the near future. That, too, had its effect on international opinion.

On 11th November, we had the autumn Budget, with its disincentive to initiative and its incentive to higher industrial costs. Then there was the announcement about prescription charges. On 19th November, we had the E.F.T.A. meeting, the run on sterling and Bank Rate raised to 7 per cent. on the Monday—not on a Thursday, as many expected but, panic-wise, on the Monday. What did the Chancellor say? Having taken the step to raise the Bank Rate to 7 per cent., the right hon. Gentleman said: … I hope it will not work through to the domestic economy …".—[OFFICIAL REPORT, 23rd November, 1964; Vol. 702, c. 916.] What, then, is the point about Bank Rate? This is an excellent example of the doing of one thing and immediately denying its validity which permeates the whole of the Government's actions.

The Minister of Housing himself said that It should be a matter of weeks and not months before we can hope that the 7 per cent. Bank Rate is over. It was, of course, not weeks but months.

On 25th November, there was the 3 billion dollar credit; on 8th December, a credit squeeze; on 16th December, the Statement of Intent was signed, and then, on 19th January, local authority borrowing was eased—let us note that point; a deliberate action by the Government to ease local government borrowing and encourage local authorities to borrow more. Let us remember that when we come to the Chancellor's statement of last Tuesday. It was an action taken by this Government, in full possession of the facts, knowing the situation, and deciding what ought to be done. On 21st January, in this situation, the Government lost the Leyton by-election, but the Prime Minister went to a parliamentary meeting when, according to the report in The Guardian, he gave the Labour Party a message of good cheer. He told his followers that things would now begin to improve. The economic crisis, with the unpopular measures it had demanded was now virtually over. The future was bright with promise. Is that what his supporters thought on Tuesday, when the Chancellor of the Exchequer made his statement?

On 22nd February a £600 million increase in public expenditure was announced—let us bear that in mind, in view of the Chancellor's statement last week. Then, on 29th April, special deposits were called in, on 5th May the credit squeeze tightened and increases in advances were limited. On 20th May the Chancellor said: The credit squeeze has not yet started to bite but on 7th June he said: I think we are round the corner or at least turning the corner. Bank Rate has come down and that is a good sign that from now on we can look forward to an improvement. On 1st July, the Prime Minister said: What we have done is to stop the boom getting out of hand"— there is no doubt about that— and I hope put an end to the stop-go policy of the last 13 years. We come now to the night that many of us will remember, the winding up of the Third Reading debate on the Finance Bill, after all our long debates. We listened to the Chancellor of the Exchequer then, perhaps with some astonishment. He said: There is a temptation to assume, because the effects of these measures are not immediately obvious, that we should rush into further measures which would have the effect of restraining the economy even more. This would be an unfortunate thing to do and I am resisting the temptation to do it."—[OFFICIAL REPORT, 15th July, 1965; Vol. 716, c. 911.] The next day, sterling fell and equity prices rose, and on the Saturday, at the Durham Miners' Gala, the Chancellor reversed his position and said that, of course, he would take action. So, in less than 48 hours, he had changed his position.

For the Prime Minister or the Chancellor to argue that "measures" commonly refers to financial measures or another Budget does not hold in the context of all this, and those of us who heard it know full well what the impact of that statement was. That is the whole story of the Government taking action gradually, in driblets, denying always the validity of the action they took, and always having to take more.

In 1964 there was written—with the usual political exaggeration, perhaps—the classic definition of what stop-go is alleged to be: The Government, panicked by the loss of gold and currencies, institutes frantic measures, such as crisis interest rates, and a general attack on business confidence. At the same time harsh cuts in Government spending on social services and on that considerable area of capital expenditure which comes under Government control adds to the deflationary effects. The banks are held on a tight rein. The labour unions are threatened with all the pains of hell in an holy wages freeze, or 'pay pause'. Hire-purchase (consumer credit financing) is restricted by Government fiat. An emergency Budget raises taxes"— it should be three emergency Budgets— falling mainly on the poorer members, particularly on consumption of the community. We are forced to borrow abroad on a prodigious scale. That was written by the Prime Minister and is almost exactly the definition of the policies that he has been following.

There are many things we have to ask about the Chancellor of the Exchequer's statement, and particularly about its timing. Why was this statement made when it was made? Obviously, when it was made it put the Chancellor in, to say the least, an embarrassing position, in view of his Third Reading speech on the Finance Bill. The Prime Minister, speaking in last Thursday's debate, made explanations which were almost frivolous. He told us about a "Chinese gold spree", but this was a withdrawal by the Chinese Government of gold from London to meet their trading commitments because they were not meeting them in sterling. That is not a "gold spree", but a perfectly normal action by a Government in those circumstances.

Then the right hon. Gentleman said, "Well, we had just completed our review of expenditure and as it had come forward we made it then, regardless of embarrassment"—but did not the Chancellor know that this was likely to happen when he made that Third Reading speech? How can he have been put in such an embarrassing position?

But when one looks at the paragraphs on expenditure in the Chancellor's statement, the whole thing is even more extraordinary. It says: We have, accordingly, reshaped the total programme and I can inform the House that from now on expenditure will be kept to the level that we as a nation can afford. I am giving instructions to Departments that the 1966–67 Estimates shall be drawn up within a limit which has been determined for each Department within the agreed total."—[OFFICIAL REPORT, 27th July, 1965; Vol. 717, c. 229.] What exactly does that mean? It means absolutely nothing whatever. There are no figures in it. Why are no figures given, so that the Government can carry conviction about what they say will happen to Government expenditure? The plain reason is that there has been a display of differences among members of the Government which shows itself in that paragraph.

The real reason for the statement was given by the Chief Secretary, I believe, on television, when he said: You are right in saying it is to strengthen the confidence of the foreigner. It is not connected with the internal economic situation of this country, and the facts I have given about the state of the economy which cause anxiety to so many hon. Members on that side of the House as well as on this. What has happened is that the Prime Minister has forced the Cabinet to make this statement in an attempt to restore the confidence which he lost long ago and which it has taken him so long to regain.

I want to deal only briefly with the effects of the Chancellor's measures. Hon. Members will already have looked at those, and they are plain, but there are questions to be asked. What is the amount of public investment which is to be saved as a result of this slowdown? Can the Chancellor tell us that?

Then we see that the building industry finds all the promises that were made to it by the Minister of Public Building and Works earlier in the year denied, and there is now a further state of uncertainty in the industry. Hire-purchase restrictions will affect the motor industry, in particular. What I would say in the circumstances—and I hope that the Chancellor will endorse it—is that I believe that it is vital for British industry, if overheads are to increase as a result of the Chancellor's action, which is what the Prime Minister himself has always forecast, that it is essential to keep those overheads down by greatly increasing exports in every possible market. It is the only way that those overheads can be reduced.

Housing is to be contained within the existing programme. What exactly does the Chancellor mean by "within the existing programme"? that has to be answered explicitly. Is it the programme for three years or for one year? I ask the same question about hospitals: will the Chancellor tell us exactly what the programme for hospitals is to be? What has been happening is that the Government have been privately, without telling the House, cutting back the hospital programme for some months. We ought now to be told what is happening. Then we see that schools are to be contained within the existing programme. What is meant by that, and for how long are they to be contained?

I want to make some comments on the Chancellor's latest measures.

Mr. Emrys Hughes (South Ayrshire)

I hope that they will be constructive suggestions.

Mr. Heath

Yes, I am coming to some constructive suggestions, but this is a Motion of censure on the Government.

First of all, I deal with the limitations of the Chancellor of the Exchequer on public expenditure. Very well; they may be necessary. But that does not alter the fact that the Government, knowing the situation, increased public expenditure and allowed it to increase. It is, therefore, an act of the Government themselves. The local authorities were deliberately given easier facilities by the Government. Now the Chancellor of the Exchequer is cutting them back. It is a denial of his own policy. The Government have increased the number of Departments, and we now have three new ones. They have increased all the regional establishments, and now they say that they are to cut them back. That is the sort of action that we have seen from the Government throughout their period of office.

Never, in respect of technical education or roads, did the Conservative Administration go as far as the right hon. Gentleman's Administration have gone. In the situation in which the Government find themselves, I believe that it may be necessary to take many of those steps. I have told the House quite frankly and I have shown how the Government have got into this position.

There are two major questions which arise and which I must put to the Prime Minister. First, if those steps are not sufficient in the short term to achieve the results which he wants, is he prepared to take still further measures? Secondly, is he himself not anxious that, in the long term, the reductions in Government expenditure which he is proposing will add to the existing signs of a downfall of investment and cause a very considerable down-turn in production, which will affect the country? [HON. MEMBERS: "Cheer up."] I am entitled to give the facts as I see them and ask the Prime Minister the question. We see in the White Paper that they believe that they were doing everything necessary, and constantly they have said so, including the Chancellor's Budget speech. Yet it has been a series of measures which has been dribbled out.

This has been an era of doing one thing and saying another, which is why the Prime Minister cannot re-establish confidence in his Government. Why do the Government use these measures at all if they have alternative measures to use? Throughout the election campaign, the Prime Minister campaigned on the basis that these measures were not necessary and were never to be used. If he has alternative measures, why does he not use them, or did he believe that there could never be pressure on sterling whilst he was in power? The whole of the period has been plagued by a series of misjudgments which it is difficult to believe unless one goes over the whole history, as we have done.

The result has been the longest period of uncertainty since the war, and the longest period with sterling under strain. It is clear that these measures now affect social policy. They have affected the whole of the promises that the Government made. They are, moreover, affecting their overseas relations. They affect their defence relations with other countries. They affect overseas investment. Above all, as I think the Chancellor will agree, they affect any movement to secure international monetary reform, because the Chancellor's position is itself suspect. It is suspected that he wants reform only for the purpose of further loans in order to support the currency of the country.

That, therefore, is the weakness of the Government's position. It means that the Prime Minister is unable to influence European policy, that the effect of this on E.F.T.A. is considerable, and that the European Economic Community is waiting to see when the country can regain its strength and confidence.

Mr. Sydney Silverman (Nelson and Colne)

Is it the right hon. Gentleman's case that the Government are doing the wrong thing, or is it the right hon. Gentleman's case that they are doing the right thing too late? Which case is he making?

Mr. Heath

I am certainly not going to be taken in by a question like that.

My case against the Government is clear. They have not re-established confidence, and they have failed to do so because of the changes of policy which they have continuously made, and because of their misjudgments of the existing situation. They have lived only for the day. They have never acknowledged honestly their own policies. They have never explained to the country what they were trying to do. They have always denied that what they were doing was to safeguard sterling.

The Government have never set out to make their economy a competitive one. Indeed, they have made it more protectionist. They have protected it through their surcharges; they have protected it through their action on coal; and they have protected it through their action on the airlines. In all those ways they have made it a protectionist economy. [Interruption.]

Mr. Deputy-Speaker (Dr. Horace King)

Order. The House must listen more quietly.

Mr. Heath

Then, too, what about the Prime Minister's endeavour to recreate drive and initiative in technology? One has only to read the Estimates Committee's Report on his right hon. Friend the Minister for Technology to see how lamentable a performance that has been. There was to be a drive for new industries and, indeed, for existing industries. But the Minister of Technology is no tiger. That is now plain. The Prime Minister has put a tortoise in the tank.

What is the Government left with? The Government set out to achieve their aims through an incomes policy. The First Secretary never had a chance with his incomes policy, for the simple reason that the Chancellor of the Exchequer, through his Budget and his failure to take other measures, has always allowed too much pressure on the economy to let the First Secretary get in. That is quite apparent. The right hon. Gentleman was warned that his first Budget was inflationary. Then we have the national plan. Everything is left to the national plan. It was billed to be introduced on April Fool's day, and then it was postponed to the autumn equinox. But what basis can there be now for the First Secretary to produce a national plan at all?

Mr. Emrys Hughes

What would the party opposite do?

Mr. Heath

We shall produce policies, with which I will deal now. Let the hon. Gentleman not forget that it took his right hon. Friends two years in opposition before they produced a single policy at all.

Mr. Ivor Richard (Barons Court)

rose—

Mr. Heath

The first thing that it is essential to do in the present situation is to stop trying to "kid" the people that everything can be done easily by gimmicks, by new Ministries, or merely by new and meaningless phrases. I believe that the impetus for change must come from individuals themselves, from men and women. That is the basis of our policy, because it leads to the encouragement of individuals, which is not what we have seen from the Chancellor of the Exchequer or other Ministers in the present Government. We believe that the taxation system ought to be adapted to this end, and I have constantly said so during the long debates on the Finance Bill and on the Budget.

Secondly, we must grapple—perhaps it has been put off for too long—with one of the central problems of the British economy, namely, restrictive labour practices. Nobody can accuse me of not trying to tackle the restrictive practices in industry and in retailing. I believe that is an essential to recreating a competitive economy, and that this lies at the heart of it. There is no reason for hon. Members opposite to look pained by this. Not only are millions of people frustrated by the restrictive practices in industry, but millions of members of trade unions are frustrated as well. I believe that this can be dealt with in all fairness to trade unionists, and that it lies at the heart of many of our problems.

I am fully prepared to deal with the other restrictive practices in management, which the President of the Board of Trade has failed to do in his Bill. We were setting out to do that, with the reform of company law, so that there may be greater publicity about the affairs of companies and greater efficiency in them. We are prepared to encourage wage settlements which deal with productivity, and where these have been adopted they have been successful. This is a programme—it is no more than a strategy; it is not the detail; the detail can be filled in—to deal with the economy which can be based on high wages, high efficiency and low costs which can maintain our exports. This needs encouragement in investment at home, and not discouragement, and the encouragement of savings and not the situation which the Government have got into. It means co-operating with industry and not being antagonistic to industry.

It is no use the Prime Minister setting out in the Labour Party's manifesto, which we all know he wrote himself, that everything depends on the new partnership with industry, when, last week, at the Dispatch Box, he defended an attack by his right hon. Friend the Postmaster-General on industry itself. These two things cannot be matched and they will not produce the answer. It needs a real drive for regional development much greater than the First Secretary has been able to put in, in view of his other responsibilities. It means a policy of working with Europe on specific projects and in specific ways which are of interest to our own trade. There is no point in talking about tunnels and bridges. What is required is specific action on individual items which are in our own interest and in which we can advance with our E.F.T.A. partners. Only in this way can we re-establish confidence abroad.

When the Prime Minister comes to be considered by the historians, I believe that they will find that the outstanding point of these nine months has been the failure to give to the people those things which he held before them at the General Election. I am not referring to the promises which we debated last week, I am referring to other things which are, in many ways, much deeper. This was touched on by the Minister of Labour when he was winding up the debate on Wednesday night. The Minister, who is a man of great courage, said: The real problem which faces this nation is that many people abroad are beginning to lose faith in the British people and their ability to adjust and adapt themselves."—[OFFICIAL REPORT, 28th July, 1965; Vol. 717, c. 585.] We have not lost faith in the British people. [HON. MEMBERS: "Oh."] I hope that nobody in the House has any doubts about their enterprise, energy and desire to work for themselves and also for their country. What we have doubts about is the ability of the Prime Minister to give them the leadership which they require. Based on the Government's record of these past nine months we are entitled to those doubts and to say that the people deserve better leadership than they have been given. It is for this reason that we are censuring both Her Majesty's Government and the Prime Minister today.

4.48 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

The right hon. Gentleman the Leader of the Opposition concluded his speech by saying that he had not lost faith in the British people. I agree. He and his colleagues never have had any faith in the people. If they had faith in the people they would have told the truth last year. If they had faith in the people they would have disclosed the severity of the economic situation with which the country was faced, instead of making us imbibe a dose of sleeping pills during the whole of 1964. We were cossetted with fair words and fine promises from the party opposite. The people were never told the truth during the whole of the year and it is only now, when the party opposite is in opposition, that it is courageous enough to say what it never had the courage to say when in government.

The right hon. Gentleman has been consistent in one thing this afternoon. He has been, as usual, quite unwilling to give a clear opinion about the Government's measures, how far they are necessary, whether we should go further in them, or whether we have done too much. Never at any time during the last nine months has the right hon. Gentleman given us a clear view on this.

This afternoon, speaking of public expenditure, the right hon. Gentleman said that it may be necessary to cut it back. Last November, speaking of the import surcharges, he said that it may be necessary to put them on. He said that it may be necessary to do something more about exports. All the time, the right hon. Gentleman fails to give a clear guide as to his own opinions. I quite agree that on the question of resale price maintenance he told us quite clearly what his views were and that he forced them through the House; but it has been a consistent omission on his part, which many of us have noticed the whole time, that he will not tell us frankly what his view is about the economy today.

I put it to the right hon. Gentleman: if he is to give credible alternative leadership to this country, he should say quite clearly whether the Government are doing too much in curbing inflationary demand, whether they are doing too little, or whether he thinks that they are doing the right thing but at the wrong time. He has given us no clear view about this at all today, and never has done.

The right hon. Member for Barnet (Mr. Maudling) has always given a clear view, right or wrong, as to what he thought about it. The present Leader of the Opposition is much too canny a politician for that. It is all very well being a canny politician, or being a vigorous Leader of the Opposition; but that is not the same as giving leadership to the nation and speaking the truth out of the knowledge one has.

I put this question to the right hon. Gentleman. He says, for instance, that the incomes policy has failed. It never had a chance, he said, because there was too much pressure in the economy. That, at least, is a half-expressed view. But the former Leader of the Opposition went further than the present Leader. He told us that the Conservative Party would cut taxation. Moreover, the right hon. Member for Bexley (Mr. Heath) and his party voted against increased taxation. How, then, at one and the same time, can the right hon. Gentleman tell us that there is too much pressure in the economy and yet refuse to support the measures which were designed to reduce it? Is this honest?

Mr. Christopher Chataway (Lewisham, North)

The wrong measures.

Mr. Callaghan

The hon. Gentleman says that they were the wrong measures. In that case, I should have expected to hear from the Leader of the Opposition, not from the hon. Gentleman, what the alternative measures were.

We were told that the right hon. Gentleman would produce a new policy. Which of these measures does he think should have been replaced by others? Does he, for example, consider that, when we put up the old-age pensions, it was wrong to increase Income Tax to pay for it? I quite agree that the party opposite did not oppose the increase in old-age pensions, but it opposed the increase in Income Tax.

Sir Ian Orr-Ewing (Hendon, North)

rose—

Mr. Callaghan

I am addressing myself to the Leader of the Opposition. I am willing to give way to him on this, and I am asking him the questions at the moment.

Again, on the import surcharge, would the right hon. Gentleman have used quota restrictions instead? Is that the alternative policy? We have not heard this afternoon. Which of the measures which we have adopted to reduce the pressure in the economy does he believe are wrong and which ought to be replaced by others? We have not been told about a single one today. The right hon. Gentleman has not even told us clearly, although he said it by a side wind with reference to the incomes policy, whether he really believes that the pressure in the economy is too high.

Sir Harmar Nicholls (Peterborough)

On a point of order, Mr. Deputy-Speaker. The right hon. Gentleman has refused to give way and has explained his refusal by saying that he is talking to my right hon. Friend the Leader of the Opposition. Is not he talking to the House when we are in debate?

Mr. Deputy-Speaker

Order. The hon. Gentleman has been in the House long enough to know that that is not a point of order.

Mr. Callaghan

The right hon. Gentleman said things at the beginning of his speech which are, of course, profoundly true and a matter of united opinion. The first is that these economic problems are at the heart of our affairs. I agree. I have said it myself, and I think that every one of us who is concerned with policy today feels that we are "cabin'd and confin'd" by the balance of payments deficit from which we are doing our best to escape. It is true also, I agree, that we have supported the international financial structure to the benefit of the rest of the world. We have done it at some cost to ourselves in the expansion of our own economy, but it has been of benefit to the world. Finally, I agree with the right hon. Gentleman that the military commitments and aid which we have undertaken during these years have been a very heavy burden upon the British people.

I come now to the situation confronting us. For the Leader of the Opposition, history seems to have started on 16th October last; and I shall not, therefore, go back over the preceding years, except for two quotations, both of which are non-party but which put this debate and the measures of the last nine months in somewhat different perspective.

First, I quote from the O.E.C.D. Annual Report, just published: The attempt … to reflate the economy"— started by the right hon. Member for Barnet— and to reach a steady and sustainable rate of growth of output had disappointing results. The pressure and pattern of demand generated by the expansionary measures taken in 1962 and 1963 proved too great for price stability and balance of payments equilibrium to be maintained. That is the first quotation, and it is a statement of fact from which, I think, no hon. Member on either side could dissent.

The second quotation is from the Report of the Bank for International Settlements: When the Government took office after the election"— that is, this Government— it was confronted with the hard facts of the balance of payments situation; the overall deficit for 1964 was evidently going to be between £700 million and £800 million.… While some deficit was in conformity with the new economic approach, this was obviously overstepping the mark, since the deficit was far larger than could be accounted for by working capital requirements. When the right hon. Gentleman says that confidence drained away I do not dissent. It drained away precisely for the reason given in the latter part of that sentence because the deficit was far larger than could be accounted for by working capital requirements. What happened? Right hon. and hon. Members opposite are no innocents in this matter of creating economic crisis. The position in 1960–61 was parallel, though not quite so severe as it was in 1964. But the simple truth—the House and the country must understand it—is that at a moment when we had followed an expansionary policy for something like 18 months, but not much longer, we were incurring a substantial and growing balance of payments deficit due to imports outrunning exports to an increasing extent.

The world began to wonder whether it was possible for the British industrial system to pay its way at any substantial rate of growth. This is what happened. There is no doubt that, last November, the world began seriously to wonder whether Britain was in a position to overcome the large balance of payments deficit and to put herself again into a position where she could face and compete with the rest of the world. This was the trouble we were faced with. It is only in one sense a party trouble. It is a national difficulty that we are faced with. It cannot be overcome by putting down Motions of censure, as though everything which is wrong started on 16th October last. It did not.

Without going over the previous 13 years—I do not wish to embarrass anybody—the roots of our trouble lay far deeper and go way back beyond 16th October last. This situation could not, and cannot, be rectified overnight. Much of what happened in the months following our assumption of office had already been decided and was irretrievable. Our inheritance included not only a massive deficit in 1964, but also a prospective deficit of substantial size in 1965. We were obliged to undertake a series of measures to bring the situation under control, and our policies have been designed to improve, and are improving, all parts of the balance of payments.

The right hon. Gentleman asked me why I had taken measures now. I can tell him in a sentence, immediately. It is because we found in 1964 that we were confronted with a balance of payments deficit, impending in 1965, and I am taking action in 1965 to ensure that we shall not be in the same position in 1966. That is the reason. As he knows, one has to take these measures in good time. Without going back over the dreary days that preceded the last General Election, the fact is—no one can deny it—that if the late Government had wanted to take action to prevent a balance of payments deficit this year, they should have acted in the summer of 1964.

It is all very well to pile all the responsibility on the right hon. Member for Barnet. He knew, but he did not act. The present Leader of the Opposition also knew, and he did not care, because all he was concerned about was how to win the election. I say to the right hon. Gentleman the Member for Kinross and West Perthshire (Sir Alec Douglas-Home), for whom I have great respect, that maybe he did not mean it in this way but I believe that one of the worst things he ever said was the speech that he made on assumption of office in November, 1963, when he said, "From now on all we do and all our actions and all our speeches must be directed to winning the General Election." He may not have meant it in a dishonourable way—I do not believe he did—but there are other and better politicians than he on the Conservative Front Bench who knew very well what they were about.

My complaint against the right hon. Member for Barnet is that he was not strong enough to act at the time when he knew he should have acted. All subsequent history reveals that he should have acted. But the responsibility is shared by the former President of the Board of Tade. It is the President of the Board of Trade who has the trade figures. He knows what the trade gap is every month. He knows what the balance of payments deficit is to be. It is all very well the right hon. Gentleman reading out the balance of payments deficit now. What was he doing and thinking of last year when the balance of payments gap was minus £75 million in January—I am talking not on a crude basis but on a balance of payments basis—x00A3;55 million in April, £66 million in June, £51 million in August and £67 million in September? That was how the deficit was mounting up month by month.

There sits the former President of the Board of Trade. Was the right hon. Gentleman urging the right hon. Member For Barnet to act? Was he asking his right hon. Friend to take action because of the growing deficit? He knew well that it could not be financed and that action would have to be taken after the election. But he did not care, because either he would have lost the election and we should have had to take the action, or he would have won the election and we should have had the same old cynical broken pledges again.

The Conservative Party was making pledges knowing full well what the situation was. Right hon. Gentlemen opposite were trying to "kid" us and the country that everything was all right. They were making pledges and embarking on public expenditure sprees. I have been loftily rebuked by the right hon. Member for Barnet for using the word "sprees", but right hon. Gentlemen opposite were embarking on sprees which they knew very well they had no chance at all of paying for.

I was told by the right hon. Gentleman that the Conservative Government costed the programme. I should like to hear my right hon. Friend the Minister of Health telling us about the costings of the hospital programme over the last few years. It was not costed. What the right hon. Gentleman did—I shall come back to this point later—was to add up the total programmes that the Departments put in to him, see what the figure was, write it down, put it in a White Paper and say, "Look, I have costed it." But it bore no relationship to our capacity or to whether we could fulfil those programmes. I tell the right hon. Gentleman that I found an incoherent mess of public expenditure that had to be dealt with when we came to power.

When we assumed office we acted directly on the trade balance—our policies have been designed to improve all parts of the balance of payments and not merely one part—by the temporary import charge, by the ex port rebate and by all the other measures in the fields of export finance, export credit and export promotion. We have acted directly on the capital account by the exchange control measures in the April Budget, reinforced last week by the measures that I announced then, and by the introduction of the Corporation Tax, which will have a substantial influence, building up from 1966 onwards on the capital account. Relief from underlying tax on income from portfolio investments abroad and the Overseas Trade Corporation scheme have also been withdrawn and this will have beneficial effects on the capital account.

We have acted on Government expenditure overseas to reduce expenditure and increase receipts. A stringent review of Government expenditure as a whole was set on foot last October. I shall come to the question of defence later. Meanwhile, all Departments and public authorities have been instructed to observe the most stringent economy in overseas expenditure and do all they can to increase overseas receipts.

We have acted indirectly on the balance of payments through the economy by our monetary and credit policies, by the fiscal measures of both Budgets and by the curbs on central and local government spending recently announced. It is to ease the excess pressure on demand and to redeploy resources towards exports and import saving that this action has been taken. [Interruption.]

The right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) asks what the difference is between this and "stop-go". There are two major differences. One is that these measures are much more selective than those which he adopted in similar but less severe circumstances in 1961. I shall demonstrate this later. The second is that we are tackling the underlying problems as well as the short-term situation. I do not believe that all this can be solved by manipulating financial levers in Whitehall. There has to be a basic reconstruction of the economy as a whole, and it is upon this task that the Government are engaged.

I need not outline here all the steps that are being taken to modernise and strengthen our industrial base and to make the economy more competitive. There is the reorientation of our policy of overseas investment and the more productive reallocation of our resources. These are policies which will pave the way for sustained growth by making a lasting and not just a short-term improvement in our external position.

The balance of payments began to improve in the first quarter of this year. Let me just read the figures. This is what happened in 1964: in the first quarter there was a deficit of £140 million; in the second quarter £174 million; in the third quarter £251 million; and in the fourth quarter £180 million. In the first quarter the deficit was about half as much as the quarterly average in 1964; but it was still too large and its smaller size owed something to the distortion of the trade pattern early this year. But it was minus £97 million—far lower than in any quarter in 1964.

The deficit in the second quarter, ending 30th June, is not yet known precisely and will not be for some weeks, but I am glad to tell the House that there are reliable indications that it was further reduced by comparison with the first quarter. The trade deficit in the first half of this year was little more than half the rate in 1964.

This is an encouraging factor to place before the country and I hope that it will be read not only inside the country, but outside the country as well. It seems to me of the utmost significance that we should, in two successive quarters, have been able to reduce the balance of payments deficit, the first quarter being well below that of last year and the second quarter proving to be, I believe, below that of the first quarter.

This quarter is not likely to be a good one, for reasons well known to the House and traditional in the manner in which we make our purchases; but the fourth quarter, if I may make a projection, is likely to be a reasonably good quarter again and there is no doubt that our balance of payments this year will be vastly better than it was when we took over 12 months ago.

Sir Cyril Osborne (Louth)

While we welcome these quarterly improvements, I am sure that the right hon. Gentleman will agree that they are unintelligible unless we know the answers to two question. First, how much stockpiling is taking place, either adverse or otherwise? Secondly, how much finance is included in these figures?

Mr. Callaghan

I am giving the balance of payments figures and not trade figures. As the hon. Gentleman will be aware, the figures are set out in the tables published by the Central Statistical Office. He will not expect me to give the tables for the second quarter, because the figures have not yet been published. However, he will find all the figures published in Table 137 of the Monthly Digest of Statistics, June, 1965.

As I have said, the third quarter will not be as good, but the fourth quarter should be much better. This is important, because we have to find the resources to meet this strain; and provided that we are clearly on the way to recovery and to achieving the aim of equilibrium by the second half of next year, I can say that there is no doubt that we can finance the deficit for 1965 and that there need be no anxieties on that account.

This, of course, depends upon there being neutrality in confidence, so to speak. I am not here making allowances for improvement or deterioration in confidence factors. Subject to these—and it is at least a modest assumption to make—there will be no difficulty at all in financing the deficit for the current adverse quarter or for the fourth quarter of 1965.

To make sure that we can meet this bill we have, as the House knows, been converting the Government's portfolio of dollar securities into a more liquid form so as to be available for immediate use if necessary. This process was begun by the right hon. Member for Barnet and continued by me. I have thought it right to do so and to inform the House that I was continuing the practice. I am, therefore, bound to say that I thought it was unnecessarily abusive of the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), in a speech on 17th July, under the heading: Am I to Stay Silent? to say that I was failing to state the facts.

In that speech, the right hon. and learned Gentleman called himself a "family solicitor". I must say that if a family solicitor gave that sort of advice to a family he would be quickly sacked. It really was unfair of the right hon. and learned Gentleman to talk about us "pledging" these assets or "putting them in pawn," which was his elegant phrase.

I have already said clearly to the House that these assets have not been used. They are lying in a separate account in New York and will stay there until transferred. But it is not for the right hon. and learned Gentleman to talk about putting the economy into pawn. [HON. MEMBERS: "Why not?"] Because he was a member of the Government who, in February, 1957, pledged our dollar portfolio as collateral against a dollar loan in New York. That is why not.

Mr. Selwyn Lloyd (Wirral)

I was also the Chancellor of the Exchequer who took certain steps in 1961 as a result of which, within 12 months, we had paid off every penny we had borrowed, Bank Rate was down to 4½ per cent. and sterling was completely strong.

Mr. Callaghan

I thought that the right hon. and learned Gentleman was getting up to justify his comment that we were pawning the dollar portfolio. Instead, he slides off on something else. I have reminded the House of an agreement made after Suez—when the right hon. and learned Gentleman was silent and has managed to remain silent ever since—under which he and the then Government pledged the assets. I therefore take it a little hardly, when I have done my best to give the House the full facts, to have the right hon. and learned Gentleman indicating that he could not remain silent because I was failing to state the facts.

Mr. Selwyn Lloyd

The truth was stated to the House with regard to what happened in February, 1957. Is the right hon. Gentleman saying that the present portfolio is not earmarked against any forward liability?

Mr. Callaghan

The right hon. Gentleman obviously is not willing to believe what I say. I have told him and I have told the House now four times that these assets have been made more liquid, that they are lying in a separate account in New York and that they have not yet been put into the reserves. I cannot say this more clearly. What is the right hon. and learned Gentleman trying to do? What game does he think he is playing?

The right hon. and learned Gentleman is normally a fair adversary and he should get up and withdraw any suggestion he has made that these assets have been already used. They have not been used. He should withdraw his suggestion that they have.

Mr. Selwyn Lloyd

I have made no suggestion that these assets have already been used. If the right hon. Gentleman will read my speech he will see that I referred to three different matters. [HON. MEMBERS: "Oh."] I will not make the speech now. I shall not delay the House. But I am not suggesting that the British Government portfolio has been pawned. I merely ask whether it has been earmarked against future liabilities.

Mr. Callaghan

I brought with me a report of what the right hon. and learned Gentleman said: Then there is the mystery about what is actually happening to the £400 million or so of Government owned securities in New York. They are our iron rations. I know that I shall be criticised for pointing out these facts. What was that designed to do? What mystery was there? I had already told the House, when he said that, that these assets had not been used in any way.

Then the right hon. and learned Gentleman asks whether they are earmarked. Of course they are earmarked in the sense that funds lying in a separate account can be transferred to another account. I have not made any mystery of this any more than did the right hon. Member for Barnet and I would be willing, as I believe he was, to transfer them into the reserves. I have not tried to hide this.

If the Opposition do not agree I hope that they will say so, but I believe that it would be right to use these reserves in view of the great improvement that has taken place in our balance of payments situation. We have a deficit to finance and we shall have a continuing deficit; but I can say—on the basis of the new policies—that we will be in credit by the end of 1966.

Do the Opposition agree or not? It would be useful for them to say whether they think it is a good thing to do. They need have no scruples. They were willing to use the I.M.F. loan. If and when it was done—and the third quarter would be an appropriate time to do it—and if there is such a step, I will announce the details of such a transfer of the portfolio in the same way as the use of swap facilities is announced. I cannot be clearer or more precise than that.

If the Opposition disagree they should say what further deflationary measures should be taken to make it unnecessary to make this transfer. We have, of course, very considerable assets quite apart from those, which amount roughly to 1,250,000,000 dollars, and there are 250 million dollars in the Export-Import Bank credit not yet used. That makes a total of 1,500 million dollars in addition to our own reserves which, the right hon. and learned Member for Wirral did not hesitate to point out, owed a great deal to the I.M.F.

At the end of June our reserves stood at £997 million, the latest published figure. The three together, the £997 million at the end of June plus 1,500 million dollars in our own portfolio with the Import-Export Bank credit, are the reserves which we have to finance the deficit which became clear to right hon. Gentlemen opposite in 1964 and which I am having to finance in 1965 but which, I am glad to say, is diminishing rapidly.

As I have said, a gap in 1966 already threatens: hence the measures I have taken. I took them basically because, as I have told the House before, for a variety of reasons with which I will not trouble the House, exports were not increasing at the rate which I calculated and hoped for in the spring of this year. I took them because, on the basis of the forecasts made known to me, I could see that it would not be possible to achieve the balance which I had set myself. That was the basic reason for it. Now I am told that I gave the House the wrong impression by saying on the Third Reading of the Finance Bill that it was not in my mind to take further measures.

I should like to read an earlier piece from what I said then, which puts it in a rather better context than the right hon. Member for Bexley did, although he read quite a lot of it. I was putting some questions to him then as I have again this afternoon. I asked him what was his real view about the state of the economy, whether it demanded further restriction. I did not get any reply then. I said: The right hon. Gentleman knows perfectly well that the economy is extremely tightly stretched. It was in April when I introduced these measures, and it still is. There is absolutely no case, in my view, for relaxing—certainly not in April, and not today—the restraint which has had to be placed on the economy and which I have exercised through the means of these tax proposals."—[OFFICIAL REPORT, 15th July, 1965; Vol. 716, c. 911.] The right hon. Member for Enfield, West (Mr. Iain Macleod) said last Thursday that that was a soft statement and that that was what led to the run on sterling. There was nothing soft about that. I said that the economy was tightly stretched and that there was no ground for easing in any degree the measures which I had already taken and for which I had been attacked by some hon. Members opposite. I went on to say that I was doing my best not to rush into further measures which would have the effect of restraining the economy even more.

The measures which I have now brought forward were being discussed at that time. What I was trying to do, and what I believe I have done, was to avoid taking measures which would have long-term harmful effects on the economy. That was the point I was trying to make and I make it now.

Sir Alexander Spearman (Scarborough and Whitby)

We have always known that we had the resources to deal with past and present deficits, but what steps is the right hon. Gentleman taking to see that our prices are competitive in future?

Mr. Callaghan

I will come to that a little later. I have a section of my speech on that, although I will try not to keep the House too long.

As always, in the measures we have taken we have tried to avoid affecting productive industry. The measures are selective. For example, we have picked out housing and hospitals in order to try to avoid the worst effects of the deferment of placing contracts. We have also exempted areas such as development districts and areas of high unemployment. This is where the selective nature of the measures comes into play. It differentiates them from the measures taken by the right hon. and learned Member for Wirral in 1961.

We have also taken the direct measures to which I referred—the export rebate which is expected to cost some £80 million this year; prepayment for imports has been tightened; short-term credits are now or rather will be at Bank Rate; longer-term credits will be covered by E.C.G.D. on more favourable terms. Again, on the direct side, there are the exchange control measures and the tightening of the investment currency market and the re-establishment of the property dollar market.

I remember attacking the right hon. Member for Barnet when he abolished this market. He was wrong, for to do so was too great a strain on our resources with the various other measures of liberalisation undertaken. I regret that we have had to tighten it up again, but it would have been folly not to have done so. Now, too, certain remittances are going through the official reserves.

All these measures constitute a direct attack on the capital account; they are in addition to the indirect and direct steps which have been taken on the current account. That is why I believe that it is true to say that once we escape from the morass into which we have been plunged—and sometimes I feel as though I am fighting a never-ending enemy—the measures which are now being taken can give the country more confidence that, unlike previous occasions—and I hope that we all learn from our mistakes, myself but also hon. Members opposite—we can avoid once again plunging the country back into the morass into which it was plunged last October as a result of the apprehension of the £800 million deficit, far larger than the country had ever had in the past.

Mr. Hugh Jenkins (Putney)

Will my right hon. Friend expand on the education cuts? Does he not realise that it is very necessary that teacher training should continue at its full rate and that any hold-up in teacher training would be very serious? Will he say a word about that?

Mr. Callaghan

Can I come to that in the appropriate place? I have a great deal to say about public expenditure.

I have seen a number of estimates of the amount of unemployment which is likely to arise. A number of them have been quite wild. What we will suffer from over the long term is not unemployment, but a shortage of labour. If the plan upon which the Government are now engaged is to be carried to fruition we shall find that we are extremely short of skilled, as well as unskilled, manpower. In fact, in London and the South-East today there are two and a half vacancies for every man unemployed. In the West Midlands there are three vacancies for every man unemployed. But in Scotland the position is round the other way; there are three unemployed for every registered vacancy and in the Northern area there are two unemployed for every registered vacancy.

It is for these reasons that I believe that it is right to make these measures selective, because we want to call in these areas in order to redress the balance and make the maximum use of the manpower we have, especially as we are likely to be short of it in the long term.

For this reason, to take the building programmes of local authorities, in those areas a large part of local authority programmes will be exempt. This is the reason why, in the development districts, advance factories are going ahead, as are Government training centres.

I now come to public expenditure. I have said some harsh things to the right hon. Gentleman about public expenditure, but I quite see that it is the most difficult thing in the world to control. Every Minister in a Cabinet has his own projects which he believes to be all-important and on which money must be spent. But what was quite clear to me and my colleagues in the Government was that there was no prospect of the so-called programmes which we had inherited bearing any relation to the country's capacity to carry them out. They were disorderly and had been piled on top of each other for reasons about which I will not speculate now, but which will be clear to the country. They had to be reduced to some sort of order; and we have done this.

The right hon. Gentleman the Leader of the Opposition asked why we had produced no figures. I was making a relatively short statement. I can say that when the plan is published he will find there a section on public expenditure which will contain the figures for this year and for 1970, showing how we expect growth to take place in the various sectors which I have been describing. Although these have been described as cuts they are more properly deferments. I was asked about the housing programme. What did I mean by saying that it would be contained? What I meant is that it will continue at its present level next year. That is what I mean by saying it will be contained within the existing programme.

Taking the period from now until 1970, it is quite clear that, given a reasonable rate of growth—and I hope that all parties are united about this—the country can, if it is willing to get its priorities right, see a substantial improvement in a number of services. As illustration of this, in education, between now and 1970 I expect to see a substantial improvement. Perhaps I might be forgiven for not giving figures here. I can assure the right hon. Gentleman the Leader of the Opposition that he will find them when the plan is published. I hope, at a later stage, to publish a White Paper on the subject.

In health, there will be increased benefits, assistance and rebates. Housing will also be improved. In all these fields, between now and 1970, my colleagues in the Cabinet and I can look ahead and can see, on an orderly basis, what programme of expenditure can be sustained by the revenue, provided we get a reasonable increase in our rate of growth.

This is a different exercise from that carried out by the right hon. Gentleman the Member for Barnet. What he did—and he was I hope working forward to this, but he had the misfortune to be doing it in an election year—was to add up the sums. I have done a rather different exercise. With the aid of my colleagues we added up the sums and we allocated the priorities and we saw where it was possible to add something on. If we added something on to one programme we had to subtract it from another. Did the right hon. Gentleman do that? No. [Interruption.] The right hon. Gentleman says that he seems to remember the same exercise. I do not think so. The right hon. Gentleman will see in the White Paper what the right hon. Gentleman the Member for Barnet said, that this was the sum total of all the programmes submitted by the Department. That is not what we have done. We have done something entirely different. We have tried to refer this to our resources and then to allocate priorities. This is a very different job.

Mr. Reginald Maudling (Barnet)

This is precisely what I was trying to do. It is the only way in which public expenditure can be carried out properly, with a forward look based upon the Plowden Committee's Report.

Mr. Callaghan

That may have been what the right hon. Gentleman was trying to do, but he did not do it. I will not go into detail, but he will see that Paragraph 5 of his White Paper states that he made an approximate calculation of the prospective levels of public expenditure in 1967–68 on the basis of the Government's present policies and programmes. That is not it. If right hon. Gentlemen opposite cannot see it, no wonder their expenditure was left in such a mess.

Mr. Geoffrey Howe (Bebington)

rose—

Mr. Callaghan

It is a different purpose. I can assure the right hon. Gentleman that the programmes he left behind, especially when we took into account the increases in defence, made a nonsense of any attempt to order our resources, and to try to relate the resources to the demands that he was to make upon them. This is what we have tried to do.

Mr. Maudling

I assure the Chancellor that this is totally untrue.

Mr. Howe

rose—

Mr. Deputy-Speaker

The Minister obviously has not given way to the hon. Gentleman.

Mr. Callaghan

If the right hon. Gentleman says that that is totally untrue, I can only tell him that in my view it is totally true, and that I regret that he failed to carry his colleagues with him when he was Chancellor of the Exchequer.

On the question of public expenditure, we believe that we have now got a series of priorities which we shall be able to sustain. This year and next year will be the most difficult. But 1968–69–70 will be years when the situation will be easier in the field of public expenditure. If we can get the rate of expansion that I believe is possible we shall be able to say to the people that we can go even faster than we have so far done.

Mr. Howe

rose—

Mr. Callaghan

I have given way a lot. The hon. Gentleman will have the opportunity of making his speech later, I hope. There is no reason why he should make a speech in the middle of mine.

On the matter of housing loans, I regret very much that it has been necessary to ask local authorities to curb some of their expenditure. It has been going ahead at an incredible rate. The Greater London Council has played the largest part. I am not blaming it for that; it has been meeting a great need. But if I tell hon. Members that in 1962–63 total local authority advances for house purchase were £89 million, and that this year it is estimated that they would be £210 million, they will see the problem of financing which the Treasury had. It is a measure of the need in London that in the case of the G.L.C., or the L.C.C. as it was formerly, it was spending £3 million in 1962–63, and was expecting to spend £80 million this year.

Clearly, a rate of increase of this sort, from £3 million to £80 million, in a period of three years, could not be contained, and that is why it has been necessary to ask everyone to maintain the average level of the past three years. In the case of local authorities outside the G.L.C. area, it will clearly not have such an impact because their increases have not been anything like as big as the others.

I want to say a word about defence. We have been having a thorough review, over the last nine months, and real savings have been and are being effected. The right hon. Gentleman the Leader of the Opposition asked me about this matter. I believe that the previous Administration should have taken this in hand far earlier than they did. In 1956, less than 10 years ago, overseas net Government expenditure was £240 million. It grew last year to £552 million. That is on military expenditure, economic aid, maintenance of embassies and all the rest. This figure has to come down. That is why the Government have been putting such energy and effort into making a full-scale review. I hope that the Leader of the Opposition will help us in this matter by giving us his thoughts on the way in which this expenditure can be cut down, if he think that it is appropriate to do so.

There are a number of military commitments overseas which are of very great significance. They cannot be escaped from easily, but there is no doubt that there must be a lessening of the liability of the taxpayer in this direction. This is why my right hon. Friend the Prime Minister was able to say that we intend to make a substantial saving this year, as we do; why I can say to the House now that it is our intention to ensure that the programme for 1964–65 is maintained at its existing level and, by 1967, will be no larger. It is why I can say—and I think that this ought to be remembered—that the expenditure next year will be £150 million less than it would have been if the programme we inherited had continued unchecked.

I gave the figure of £100 million last week in the House because we had already made some savings, but, looking up what it would have risen to without any check, we shall have saved £150 million. That is a very considerable achievement.

Mr. Sydney Silverman

My right hon. Friend knows that a great many of us on this side of the House are extremely anxious about defence expenditure. We quite appreciate that one has to look at all expenditure on the basis of whether one can afford it. But does my right hon. Friend really think that in the situation which he has described so honestly and painstakingly this country can afford to go on spending even at the present rate, or even at the rate taking into account the reduction which he contemplates between now and 1969–70, and still fulfil the Government's objective of standing on our own feet and paying our way in the world?

Mr. Callaghan

I should like to cut this expenditure faster than we are doing. I believe that it would be possible to do it without undue—well, it would do damage and one must weigh the damage which it would do against the benefits which would be incurred.

But I can give my hon. Friend an affirmative answer. The programme on which I am working both in relation to the balance of payments and to internal expenditure—and I present it as honestly as I can—will enable us to get into balance of payments equilibrium by the end of 1966—not over the whole year, but by the end of 1966—and will, I believe, enable us to finance the other aspects of Government policy which are necessary and which I have outlined from now until 1970.

Clearly, if it were possible to go faster in this direction, my hon. Friend may take it that the Government would be ready immediately so to do, down to the level at which proper safety can be maintained. I can assure my hon. Friend of this: we are all pressing in this direction as hard and as fast as we can to ensure the maximum saving in the minimum amount of time.

I said earlier that I did not believe that just pulling the financial levers in Whitehall would make our position come absolutely right. My right hon. Friend the Prime Minister will deal tonight with some of the long-term measures which are necessary. I fear that I have detained the House rather long, but I say, in passing, that I am quite certain that the production of the proposed national plan, with the opportunities which it will give for scrutiny, for criticism and for various industries to match their potential against what the plan forecasts, will give this country a sketch map for the future. I believe that this is important.

I agree with the Leader of the Opposition at this point. It is not good enough for the people to go through these eternal, recurring crises in which growth and expansion are slowed down and we are unable to sustain the rate of growth which I believe this country is entitled to and should get. That is why I place so much importance on the plan and on the basic reconstruction—the clearing away of restrictive practices, the changing balance of some of our industries, the human effects involved. These things are of the greatest importance.

So I may say, in conclusion, is the prices and incomes policy which I believe is essential, which the Tory Party election manifesto said was essential and which, I hope, the Leader of the Opposition believes is still essential. I regret very much that he used terms this afternoon to characterise it which can only be described as slighting. They were not calculated to encourage the efforts which everybody must make if we are to get a prices and incomes policy which will avoid deflation and unemployment.

I hope that it will be agreed that I have avoided much reference to the last 13 years, but they have been very present in my mind, as they always are. We can at least say that the Government—[Interruption.] It is all very well to be bold in opposition. It should be much easier for a party with a majority of 100 to be bold when it is in power. We have a majority of three. [HON. MEMBERS: "Is it three?".] I hope that it is theoretically three, anyway.

I remember how the Opposition dodged the problem of the liner trains, pushed it away under the rug, failed to tell the country what was happening—[HON. MEMBERS: "No."] Yes; hon. Members opposite know it. They failed to tell the country what the position was about the B.B.C. licence fees, failed to deal with the postal charges, failed to achieve a fuel policy. These are things which can be dealt with much more easily by a Government with a majority of 100 than by a Government with a majority of three. I am glad that we are having the courage to do these things.

I believe that the Opposition, through their failures when they were the Government, were culpable in landing the nation in the situation with which we were confronted when we came to power. The Leader of the Opposition was less than candid with the people when he was President of the Board of Trade. I have read all his speeches on this subject, particularly the speech which he made at Greenwich on 3rd September, 1964, when he dealt with what he called the 10 major election issues—five at home and five away—up-to-date factories, regional development, N.A.T.O., East-West relations, and the rest. He outlined the 10 major problems which we had to face—and he did not even mention the balance of payments, not once. We were then facing the biggest deficit which this country has had. [Interruption.] Does the right hon. Gentleman wish to contradict that?

Mr. Heath

During the whole time that I was at the Board of Trade there was hardly a speech which I made throughout the country in which I did not point out that the country could survive only by having a competitive economy and by putting forward all the proposals for dealing with it. If the right hon. Gentleman will look up my Press statement on the trade returns as late as the August before the election, he will see that I pointed out this fact then.

Mr. Callaghan

This morning I read all the right hon. Gentleman's speeches in preparation for this debate, to see what reference he did make to the balance of payments during these vital months. Of course, he went on saying that the economy must be competitive and that it was essential that we should be able to export more. But not once—at any rate, not in the Press comment which I have seen—did he direct the nation's attention to the basic balance of payments crisis which he knew it was facing.

We are ready and willing and intend to carry through our programme in every field, putting the recovery of the nation, the strength of sterling and the reconstruction of the economy first and then the social benefits which will flow from that strengthening of our economy. We are ready to carry out our programme honestly and faithfully. I hope that at the end of the day the epitaph on us will not be the epitaph which could be delivered on right hon. Gentlemen opposite in their last year of office: they had neither the guts to govern, nor the grace to go.

Mr. Deputy-Speaker

Before I call the next speaker, may I announce that Mr. Speaker has not selected the Amendment in the name of the right hon. Member for Orkney and Shetland (Mr. Grimond). However, that does not limit the debate in any way.

5.48 p.m.

Mr. J. Grimond (Orkney and Shetland)

I should like to start by commenting on two points made by the Chancellor of the Exchequer.

It seems strange that the Chancellor of the Exchequer should come to the House and tell us that he expects a serious shortage of labour in this country on the very afternoon that we are told that there will be more stringent regulations against immigration. Secondly, I cannot share the optimism which he expressed about the long term unless very much more radical measures are taken than have been mentioned this afternoon. Throughout the right hon. Gentleman's speech he failed to deal with the question of incentives. I regard incentives as absolutely vital to our condition. It is all very well talking about sketch maps and about a plan, which seemed to me painfully familiar. The words of the right hon. Member for Barnet (Mr. Maudling) struck a very familiar chord—we had been through all this before.

What will make people work? What will make them take risks and put in a little extra effort? In the long term, that is the most important question facing us. If the Chancellor doubts that, let him look at the real nature of the brain drain. Let him consult people who are coming out of the technical schools and universities and look at the absenteeism in the mines of South Wales, where the miners do not consider it worth working even full time because of the taxation they have to pay. I still believe that the country must make its wealth through the free enterprise system. The sooner we are committed to making that system work and putting steam into it the better.

I had hoped that today we would spend less time than we have done in treading round the weary, well-trodden path and arguing about who did worse. I agree that the Chancellor has not gone back 13 years, but we have been over the last two years so fully that they are as flat as opened soda water six days old.

Nevertheless, we are asked to condemn the Government wholesale. We are asked not merely to condemn their economic measures, but to say that everything they have done is wrong. We are asked to say that the first tentative steps towards regionalism were wrong, that the Prices and Incomes Board is wrong and that the Highland Development Board is wrong. The Tories are, presumably, telling us this afternoon that they would have done none of these things. I believe them. I do not believe that they would have done any of them. It is because of that that we find it quite impossible to support their Motion of censure. I very much regret that our Amendment has not been called. It is the only one on the Paper and it expresses our point of view.

If the Tories were so much against those things, they should have voted against them, but they did not. Now, at the end of the year, they say that they have disapproved of everything done by the Government. That is not a position which we can support. Who are these people who condemn root and branch the Government of the past year? They are the biggest set of Micawbers who ever sat on a Front Bench. All last year they clung to office hoping that something would turn up to save them from defeat at the polls. It is all very well for them to express no confidence in the Prime Minister, but when history is written the history of the Government of 1964 will be seen to be one of the most irresponsible Administrations that the country has ever had.

When are we asked to express this wholesale condemnation? We are, curiously enough, asked to express it at the very moment when the Government have screwed up their courage to take some of the measures which are needed to regain confidence. We have waited in the hope that the official Opposition would use these last three Supply days to bring forth some comment on the future and to examine some of the Government's current economic proposals. We have waited also to see them deploy their own alternatives, but we have got nothing of the sort. They have wasted one day of Parliamentary time in a ludicrous knockabout over broken election promises, in which, incidentally, they got hounded out of the ring, and they have now taken a blind swipe at the whole of the Government's record, trampling again all over the ground which we had last week about broken election pledges, who did worse and who promised what.

We are always told—we were told it loudly last week—that the Tories will reform. All my life I have been taken by the arm by my Tory friends and told, "My dear sir, forget all about the past. Of course, it was all very disreputable, but that is finished. Forget all about it. We are not that sort of party now." This is particularly the case when they get a new Leader.

The Tories got a new Leader when they had Sir Winston Churchill. He was pledged to go into Europe, but he did not. Did he have a dynamic effect upon the Tory Party? Did they suddenly become a great reforming Radical party? No, they did not.

I have a high regard for the new Leader of the Opposition, but he has taken on a Herculean task and we must certainly reserve judgment until we see rather more closely what he proposes. This afternoon we were not told much about this. I for one would never expect the Tories to tell us anything about policy—they have never done that—but they could at least explain to us which of the Government's measures they propose to repeal. They have not done that either. I strongly suspect that they would repeal none of them and that in 10 years' time they will begin taking credit for a good many of them.

The immediate matter which faces us is another crisis. Is this just one more crisis? Certainly, it bears a horrible resemblance to its forebears, with the failure to act in time, the political parrot cries and then the hasty measures in late July. They are all very familiar.

I am glad to see that we have the old family solicitor with us. He has been through it all before. We know well the old family solicitors who invested the family funds in 3 per cent. War Loan and watched them gradually dribble away until they were worth about one-quarter of what was originally invested. Let us be careful of old family solicitors. They are too used to disaster to be good guides in taking a courageous way out.

The most horrible resemblance of all is the failure to treat this crisis any more seriously than the last. The country sees the House of Commons engaged in a party wrangle. This serves to confirm two growing suspicions. The first is that Parliament is not a serious instrument of government and that, while calling for everyone else to modernise, we in this House are quite incapable of modernising ourselves. The second suspicion is that these constant warnings, this shower of clichés, this talk about the Dunkirk spirit, getting off our backsides and modernising the country, are phoney. The people have heard "Wolf, wolf" cried until they take no notice whatever.

The end of the fable was that the wolf came—and nemesis does come. It does not always come in the shape of a wolf. It comes sometimes like an insect which wears away the very timbers of our institutions. It is already with us. We still keep up all our old panoply—the Crown, the Church, the State. And who pays for it? International bankers. We have more medals, more special issues of stamps and more celebrations than we ever had, but we have some of the worst roads and some of the worst housing in Western Europe.

We aspire to a great peace-keeping rôle in the world. We have hardly enough troops to discharge our obligations in Malaysia alone. Let the slightest pressure be put upon our ancient fabric, and it creaks with premonitions of imminent collapse. If the pound has a bad week, as it did a fortnight ago, the Chancellor has to throw all his promises into the wastepaper basket. If there is a crisis in the Eastern Mediterranean, as there may well be, our overstrained military set-up will also collapse. That is the situation whatever Government are in power. It has been the situation for many years. It is the result of the constant failure to face the choices before us and, indeed, our constant failure to relate our actions to our words.

I disagree with what was said the other night by the Minister of Labour. He said that to borrow was wicked. Not every person and every country can be in exact balance all the time—the world runs on borrowed money—but what is wicked is to borrow money, not to improve one's ability to be self-supporting, but to live above one's means. That is what the British are doing and have been doing for a long time.

We were promised last autumn that the time bought with the enormous loans then incurred would be used to modernise ourselves and improve our efficiency. The best of British industry is constantly modernising itself and is extremely efficient, but what has been done to modernise the lagging end of British industry? What has been done to galvanise those firms which never do any exporting?

I have met no industrialist of any political persuasion who does not think that the Finance Bill was, at best, irrelevant.

Mr. Harold Lever (Manchester, Cheetham)

The right hon. Gentleman has said that this country borrowed to live beyond its means or its earnings. Will he tell the House of a particular borrowing which falls into the category which he has just described?

Mr. Grimond

We have borrowed enormous sums of money and although the Chancellor of the Exchequer says that our balance is getting better, we are still in deficit. We are still in this country doing the sorts of non-productive things which we can pay for only if international bankers support them. We have set up a Ministry of Overseas Development, but, presumably, it will invest not in surplus but a deficit.

I was coming to the Finance Bill. I have found no one who thinks of it at best as more than an irrelevance. Many people, indeed, think it much worse. It has done great damage to some of our international companies, and far from simplifying taxation, as the Chief Secretary thought it would, and as he promised, it is going to divert still further talent to the sterile profession of accountancy. It is not so much a question of what reforms we bring in, but how we bring them in, and the changes in the taxation system were brought in in a manner calculated to cause great disquiet at the very time when the restoration of confidence was essential, particularly for a Labour Government.

Let us look more closely at the future position. First, there is the short term. Whatever their economic relevance may be the psychological effects of the measures recently announced will, I believe, be substantial and may well carry the £ over the short-term hump. I must say that the hon. Member for Ashfield (Mr. Warbey) has helped enormously. Could there be anything which could really convince foreigners more that the Government mean business and are prepared to be courageous and to take sensible measures than the absolute condemnation by the hon. Member for Ashfield?

But the Government have not only to staunch the drain on our reserves. They have to lay the foundations of a long-term policy which will enable us eventually to earn a surplus. Now, their method has been to tread the familiar path. Credit has been tightened and taxation increased. However, the logic of this policy has not been followed through. The amount of purchasing power withdrawn through higher taxation has been offset by increases in such things as pensions. The toughness of what their right hand has been doing has been offset by the softness of their left hand in social measures, their deeds—worse still, their words.

I sometimes think that the Government do not believe that foreigners know English, because they appear to think that things said on platforms in the North are not known across the Channel; but they are, and we have sometimes heard contrary speeches which have undone a great deal of what they intended to do, and as a result their deeds have failed to reassure our creditors that we were using the time and money we gained for the one essential overriding priority, which is to make our productive industry more efficient. They saw the great increase in public expenditure which we have had within recent years, which has more than offset the rise in taxation. So now we have these cuts in public expenditure.

I should like to make certain points about these cuts. First of all, the Chancellor assured us this afternoon—and I was very glad to hear it—that they were selective. He particularly emphasised that they were more selective between one region and another, and that we welcome, but is it sensible to cut the roads and, indeed, to cut higher education when these are two of the things which in the long term will contribute directly to our exports? One of the greatest difficulties about exports has been the holdup in getting them out of the country, and I should have thought that both the road programme and the programme of technological and higher education would contribute directly to our efficiency.

Secondly, will this postponement of public works mean simply that existing works will be finished more quickly? If that is so, there will be no immediate relief to our extended resources. Thirdly, during the postponement will there be a radical reappraisal of these projects? The Chancellor spoke at one time as though the time for their completion was merely to be extended, but it seems to me that we must get down to a much more radical look at the methods of controlling expenditure in the public sector. There seems to be far too little sense of cost in this sector. It is not only a question of postponing grandiose headquarters for local authorities. It is, in my opinion, a question of cancelling them. The administrative costs of the Inland Revenue doubled between 1952 and 1962. In every sphere of public administration staffs have been increased. There is no real sign of any real retrenchment over administrative costs, and this is one of the things which calls for very close examination while we are re-examining this whole subject.

Fourthly, does this mean that the Government have temporarily abandoned their growth target? Or what is their growth target now? Fifthly, as far as foreign exchange is concerned, should there not be rather more selection to allow, for instance, money for setting up export agencies?

I turn to the medium term. We shall probably see a turn down in investment during the winter. The announcements of last week will have their economic, as opposed to their psychological, effects next year. They will not take effect at once; they will take time; but if they coincide with a serious turndown in world trade then the Government should release the credit squeeze. There is a strong case now for taking off some of the credit squeeze and instituting higher investment allowances. I would expect the balance of payments to improve next year, because import will probably fall through destocking.

A crucial question then is how far we need to squeeze demand in the home market. The experience of various industries differs over this. Some maintain that without a buoyant home market their overheads are bound to rise. Others think that if the home market is soft it is too much to expect them to go out for exports, and that, in any case, if they do, the vacuum at home will merely be filled by further imports. If there is to be a large transfer of purchasing power from savers to spenders—and there has been that already because of bigger pensions—it will be necessary to squeeze consumption still further.

I think we might look in this connection at a retail tax, on the Irish model, and consider the much despised Regulators, and even, in certain regions of over full employment, putting on a payroll tax. If the demand for labour in the South-East is inordinately high this might well be a measure to take.

But what seems essential is not to run the country as a whole into a depression next year. This seems to me to be a serious danger. We constantly underestimate the time it takes for pressure on investment to get through, and it might well be getting through at the very moment when there is a general downturn in activity in the world The greatest help for exports would be to free some some of the labour and other resources for exports, and if we are to give incentives, let us give them on a really big scale. So far we have dealt out only a smaller amount of exports help, and that will not produce the result we need. I would be opposed to further restrictions on imports. I would much rather see tighter measures of prepayment for imports.

If at the same time we had a vigorous plan for retraining we might get the labour shift which is so essential if the country is to be competitive and to sell effectively in overseas markets, but export incentives are no substitute for the basic need to stop deficit financing and to modernise the inefficient part of British industry. No amount of exhortation will do it. In the long run we have to make the market at home tougher and productive, and to give incentives, to those who are exporting and to those who put in the extra effort to make our industries more efficient. We have to deal with restrictive practices far more toughly than we have done. I would ask the Government to speed up the report of the Royal Commission on the trade unions. The sooner it comes the better.

I am not one of those who is absolutely terrified by the word "devaluation". I think there was a case last year for a deliberate devaluation accompanied by the sort of measure I have outlined, and also a case for making the £ float, or for a gradual devaluation over a period of time. I am against devaluation now, because now it would certainly be a forced devaluation and be known as such, and would be likely to be used to absolve us from taking just those steps which are absolutely essential if we are to pay our way.

I believe that many people in this country are agreed about what needs to be done. In America the President in this situation would have some chance of getting a concensus of agreement. He would have some chance of carrying with him those people who see what needs to be done. Here every right but unpopular measure is bound to be exploited by all three parties in turn, and we have seen that again and again in the last 10 days. We know that the measures which the Government brought in last autumn were prepared by a Tory Government, but that did not prevent a violent attack being made on them by the Tory Party. We have heard the "stop-go" denounced bell, book and candle, but that is what we have now. It is called a different name. It is still now bitterly attacked by the very party which is carrying it out under its new name.

We find ourselves sparring away and using the same epithets and clichés which have echoed around this Chamber since it was built. If there was another Government the same thing whould happen. They would have to face the same situation. They would face the same opposition, and the speeches made today would be repeated, only by a different party from a different side of the House.

Can we carry through a programme of long-term radical reform or not? That is the question. For 15 years we failed to do it. Nothing disastrous has happened. The country has simply gone downhill gradually, and our debts have got bigger. We have fallen behind in the international race, and it is our fault that this has happened and no one else's. What is more there is no sign that it is being cured.

So far I do not believe that in the economic field the Government have begun to mobilise the radical forces which are available. I think that it would be possible to get these forces to agree on most of the measures which need to be taken. Time is getting short. Our problems are pressing, and, if I may say so, cracks are appearing in the party opposite. If we are to mobilise those who are prepared to carry through a long-term policy of radical measures, certain things are essential.

The party opposite has to drop these ideological bees in its bonnet of which it is so fond, the principal one being steel nationalisation. It has to concentrate on making a mixed economy more efficient. If hon. Gentlemen opposite were Socialists I would forgive them for not doing this because they would want to destroy the free economy. But they are not Socialists in the strict term. The trouble is that they have these albatrosses from the past round their necks, and this prevents them putting enthusiasm into making the competitive system work as it should.

We do not ask for the denationalisation of anything. Indeed, we want the nationalised industries to be made more successful and efficient. For goodness sake let us make up our minds how we are going to run the economy, and get on and take the necessary steps. If it is impossible to do this there is only one solution—it will not cure anything, but it might clarify the issues—and that is a General Election as soon as it can be held.

6.13 p.m.

Mr. Clifford Williams (Abertillery)

It is with great trepidation—[Interruption.]

Mr. Deputy-Speaker

Order. The hon. Member is about to make his maiden speech.

Mr. Williams

As I was saying, Mr. Deputy-Speaker, it is with great trepidation that I embark on my maiden speech. I hope that the House will bear with me and forgive the nervousness that I shall undoubtedly betray. Perhaps when I have finished its only claim to distinction will be that it was made on the former August Bank Holiday Monday, after a very exacting Session.

May I begin by paying tribute to two former Members who represented the Abertillery constituency in this House. I refer, first, to the late George Dagger who represented Abertillery for so many years and who was regarded with great affection by all who knew him. My immediate predecessor was the late Llewellyn Williams, whose oratory and sincerity were so much appreciated in this House. He was held in high esteem not only by this House, but by the people in his constituency, and we mourn his passing by which we were deeply shocked. I shall try to live up to the standards which they set.

The constituency which I have the honour to represent has for many years past been predominantly coal producing. I believe I am correct in saying that even today there are more miners employed and more collieries working there than in any other constituency in Wales. If the coal mining industry is to contract in the years ahead, as so many of us fear, it is obvious that the people whom I represent will be greatly concerned to ensure that new industries are established there as quickly as possible.

The people of my area lead a very warm community life, and for that reason would like every encouragement to continue to do so. In the past we have seen the mining industry contract with no provision being made by way of alternative industry for the many thousands rendered unemployed, with the consequent misery for so many who desire nothing more than the right to work. I know of nothing worse than a community without hope for the future.

Like the miners in other coalfields, the miners of South Wales had their years of travail, and I remember what I and thousands like me suffered during the ups and downs of the mining areas. If the hooter blew, there was no work. If the manager did not like a man's face, he was on the road. For many years I had my share of this. I used to receive unemployment pay of 23s. a week for my wife and myself, and 2s. 3d. a week for my child.

It was experiences of that sort which bred such bitterness in the hearts and minds of the South Wales people against the injustice of submitting their lives to the needs of the free enterprising coal owners who merely plundered the coalfields. Perhaps at some time in the future the nation will pay full tribute to the gigantic and massive efforts of the National Coal Board, the National Union of Mineworkers, and to all those engaged in the industry in making their full contribution to the country's economy.

If industrial expansion takes place, and new technological developments are to be made, changes must occur in the pattern of industry if we are to keep abreast in the highly competitive world market. Hence, I welcome with all my heart the measures already introduced by the Government to reassure the people of this nation, to offer greater security, to give new hope of meeting technological change with a sense of common justice and protection, and a right to a standard of life which a modern society can and must provide. Surely it is not too much to ask that when changes take place every care is taken to ensure that the living standards of every individual so affected receive the maximum safeguard.

During this Session the House gave a Third Reading to the Redundancy Payments Bill. That Bill is one of the necessary instruments to ease the passage from one form of industrial change to another, and it helps to take the fear out of change. To quote the Minister of Labour in the Second Reading debate: It marks a very significant step forward in the way we think about the status of the industrial worker."—[OFFICIAL REPORT, 26th April, 1965; Vol. 710, c. 35.] It is my fervent hope that during my presence in the House I shall see further legislation designed to remove the fears and anxieties from the minds of those millions who are engaged in industry, and therefore provide the foundation of security upon which we can build a better human relationship in industry in the Britain that is yet to be, so that the people of this great country of ours can have a fuller, richer and far happier life.

6.20 p.m.

Mr. Nigel Birch (Flint, West)

I congratulate the hon. Member for Abertillery (Mr. Clifford Williams) on his maiden speech. I knew both his predecessors very well. In particular, I had a great respect for the late Mr. Dagger. The House has heard the hon. Member with attention. He spoke with sincerity and knowledge on his own subject, and I am sure that every hon. Member will look forward to hearing from him again.

We have had a stirring speech from the Leader of the Liberal Party, who has slipped out. I read in my paper that in spite of his speech he will either vote for the Government or abstain from voting. He must have some deep design—an old Etonian Machiavelli. Who knows what he might get? He might be asked to join his mother-in-law in another place.

Mr. David Webster (Weston-super-Mare)

I do not believe that that is so, because I passed him a letter from the Prime Minister. Perhaps they are having a private consultation.

Mr. Birch

Perhaps the letter contained the offer. I do not suppose that my hon. Friend read the letter.

Mr. Webster

No.

Mr. Birch

We have had many references to 13 wasted years. We shall hear about them more and more, because the more deeply the Government get into trouble the more they will use that argument. It is the best tranquilliser they have. It is exactly what happened in the 1945 Parliament. The deeper the troubles into which Members of the Labour Party get the more their minds revert to the past. In those days it was not a question of 13 years; the period of Tory misrule was held to coincide with the whole of recorded history. One was quite likely to come into the House and hear someone bewailing the hard fate of our ancestors due to the high price of woad—due again to Tory misrule.

It is rather dangerous to look so much to the past. After all, they were not very good at solving their own financial crises. In 1947 they broke the agreement under which the American loan was obtained, and spent most of it. In 1949 they devalued by 40 per cent. and in 1951 they ran for it. One reason was that they would not turn their attention to things as they are. It is the duty of politicians—especially those in Government, and those who support the Government—to try to see things as they are. Il faut cultiver son jardin remains the only sensible advice ever given by a philosopher. In using their tranquillisers I hope that they will not take so many purple hearts as to be completely incapable of noticing their surroundings.

I have referred before to the extent to which it is reasonable to blame my party. When we left office the economy was overheated and a little overstrained. But this is not a criticism which could be made by hon. Members opposite. As my right hon. Friend the Leader of the Opposition pointed out, when they got in they said that there was no overstrain of the economy and that they were not going to do anything about it. Everything that has happened since has come from that initial misjudgment.

I now turn to the extraordinary business of the last Budget—the third Budget—the measures introduced last week. For months every alarm bell in the Treasury has been ringing. The one which I found most significant was the fact that not only was the borrowing requirement in the second Budget—£724 million—very high for an overstrained economy but that the Chancellor never mentioned in his Budget speech that he was budgeting for an overall deficit of that size.

In all the Budget statements that I have heard—and I have heard a good many—I have never heard a Chancellor who did not say what the overall deficit was. The fact that the Chancellor did not mention it to the House meant that he knew it was wrong and that he was taking a big risk, and he did not want to draw attention to what he was doing. As my right hon. Friend has pointed out, many other alarm bells have been ringing. The Budget figures have been going wrong, especially those below the line. They have been going wrong for several months.

Then we had the situation of a large number of unfilled vacancies because the demand for labour was far greater than the supply. That resulted, as it always does, in rapidly increasing earnings. A number of economists have worked out what increase in wages could be expected with various levels of unemployment, and we now know that the increase has worked out almost exactly as predicted by those economists. It is either exactly as they forecast, or rather more. This is an inevitable development. Wages are rising faster than they have since 1951.

That brings other inevitable consequences. Hon. Members may have noticed the Ministry of Labour publication which came out last week concerning the number of days lost through trades disputes in the first six months of this year. The figure for this year was 2,004,000, which was 622,000 more than in the equivalent period last year. This is high, but not unprecedentedly high. What was unprecedented and rather sinister was that we had that high figure in spite of the fact that there was not a single major official strike; it was due almost entirely to unofficial strikes. That shows that as a result of too great a pressure on the economy the authority of the trade unions is breaking down. Nothing is more damaging to industrial efficiency than the breakdown of trade union authority.

As my right hon. Friend said, costs and prices have risen very rapidly. Savings have been lagging, and in the last three months the trend of our visible trade balance has been deteriorating. The Chancellor indicated that it would go on deteriorating for two or three months, but that it might then improve. I hope that he is right, but it does not look particularly healthy at the moment. There has been no revival of confidence in these months. The nerves of the sterling area are frayed. There is no secret about the state of our reserves. Every financial newspaper brought it out. More than 90 per cent of our published reserves are borrowed money—borrowed from the I.M.F., the Swiss or the Federal Reserve Bank of New York. The figure of borrowed reserves is now appreciably more than 90 per cent. and on fairly short term.

We have these 1,250 million dollars in America, in respect of which the Chancellor made some slightly equivocal remarks. I suspect that we have to hold that against the very big forward purchases of sterling made by the Bank of England, which it has not yet had to take up. That, I suspect, is the real position about them.

As I said, alarm bells have been ringing in the Treasury deafeningly, but why has nothing been done? I believe it is because there are no alarm bells in the Department of Economic Affairs; that the offices there are padded. We all said to the Prime Minister when he split the Treasury that it was a fatal mistake. If it was felt that it had to be split, the final authority should have been given to one or other Minister. One must be master and have the final responsibility, otherwise we get exactly what we have had—these hard-fought Committee decisions which dribble out over the months, one after the other, each time failing to catch up with a situation which has already occurred.

If the Prime Minister created this abortion of two Ministries, he might have done something about it but until lately he seems to have taken very little interest in economic affairs. He has been touring round the world, pouring his niaiseries about A.N.F. into polite but inattentive ears. He has come round now and he has these measures and I hope to goodness that they work, as I hope to goodness that the Budget measures would have worked. The Chancellor said, in his statement, that he could not quantify. That is the sort of Crippsian jargon which I have always disliked. It might mean that he has not the faintest idea what they add up to, or that he does know what they add up to, but, in the short-term, they add up to so little that he would frighten foreigners if he published the figures, or it might be a mixture of the two. If we are to try to win back world opinion, it is important to give some hard figures.

I was interested, in what the right hon. Gentleman said about defence. In his original statement he said that he has cut over £100 million off defence and said today that the figure was £150 million. But off what total? I tried to ask him that, but he did not seem to want to answer. Perhaps he meant that he was cutting £150 million off what he thought the previous Government might have spent, although he could not know what they would have spent. If he is going to convince somebody, what he wants to say is that we will spend on defence next year £x million. Give them the actual figure. Giving a reduction on an unknown figure is not very likely to impress anybody. I am astonished at his moderation. Why not £250 million? It would be equally meaningless.

Overwhelmingly, these measures cut capital expenditure and not expenditure on consumption. That was against the doctrine set out for many years by the Prime Minister. Before and during the war it was a fairly popular economic doctrine that one could use public works, Government capital expenditure, as an anti-cyclical weapon, but I should have thought that it had been established doctrine for many years now that that simply does not work because it is slow-acting, and, very often, the effect of what one has done in accelerating or decelerating capital expenditure produces no effect at all for a couple of years—or very little effect—and, in a couple of years, one is more than likely to want to do the opposite to what one wants to do now. Far from ironing out the trade cycle, it makes things very much worse.

For example, instead of cutting down on technical colleges, instead of delaying starts of technical colleges for six months—which will, in the short run, make very little difference—supposing that the Government had put 10 per cent. more on sweets and ice creams. That would bring in about £36 million now, which would bite now and we should not have to cut back on technical colleges. Would not that make rather more sense? We are cutting all our hospital programmes, operating theatres and so on, and at the same time taking off prescription charges. If prescription charges were put on again now, that would bite at once and help to deflate the economy as it should be deflated. That would allow us to continue capital expenditure.

Surely, what the Government are doing now must be wrong. I pray that it will work, but I do not know. One must, of course, have some sympathy with the Government. The trouble is that the people will not take the economic position seriously. They never will, they never have done. They feel that someone will always bail us out and that, if we have to devalue, at least we shall not have to deflate. That is nonsense. If we devalue, we shall have to deflate even more. It is no sort of alternative.

There was one other point about devaluation which I was surprised that the Leader of the Liberal Party took so lightly. Suppose that we devalued, that is to say, that our currency went down in terms of the other hard currencies in the world. When we come to repay our debts, we shall have to repay them in those hard currencies and that will cost more in sterling to the extent that we have devalued. We have on our neck this colossal debt. When the Leader of the Liberal Party and Professor Alan Day and others talk lightly about devaluing, they should realise that if it comes it will not be at all a funny business. It will be a very dangerous and damaging business. We will only recover by our own efforts.

It is no good talking about more world liquidity making everything all right. Whenever I read tracts on monetary reform—Triffen, Bernstein, Stamp, Roosa, Rueff and old Sir Roy Harrod and all—I come to the conclusion that all of them, with the possible exception of Sir Roy Harrod, would agree that no monetary system can possibly help a country so radically out of balance as we are. It is no good advising a new system, because nobody will advocate it unless we pull ourselves together.

It is no good talking about bankers' ramps. The bankers of the world have been extraordinarily generous to us. We have about 57 per cent. of the total lendings of the I.M.F. and many hard-up people are trying to get money out of them. The banks have been very generous to us. It has been said that this is a holding operation, and the long-term plans of the Government will work. I should like to know what their long-term plans really are.

First, the incomes policy. I am not one who completely dismisses an incomes policy. I believe in the First Secretary's view that, at the margin, at certain times, it can bring certain benefits, it can do something. The ingenious Mr. Jones may, in the long run, do something about changing attitudes of mind which he says he is trying to do, but consider the 5 per cent. wage increase for the banks. They did not want to put up their costs, they were not under intolerable pressure from the unions. They put up the wages because they could not recruit. Every bank, insurance company and industry is trying, in order to carry on their business and fulfil their contracts, to bribe people away from somebody else. When we get this sort of pressure, it must happen.

It is no good blaming the employers, the unions, the shop stewards or the men. They are all in the grip of a situation about which they can do nothing. The only people who can are the Government, who can lessen the pressure and so make the situation tolerable and produce a situation where wages rise only at a reasonable rate, in line with the rise in productivity.

So much for the general situation. As has been stressed several times today, in the last resort everything depends on confidence, and if we are to get confidence back the moral side of the thing is every bit as important as, or even more important than, the material. We have in this country to show courage, integrity and wisdom if we are to get that confidence back, and here, I think, is where the Prime Minister has let us down.

My right hon. Friend the Member for Monmouth (Mr. Thorneycroft) and my right hon. and learned Friend the Member for the Wirral (Mr. Selwyn Lloyd), when faced with runs on the £ acted with great courage. They were traduced, vilified, mocked—every conceivable thing was said about them; but it worked. Confidence came back. The £ was saved. They had the courage of their convictions, and everyone in the world knew that they intended to carry through at whatever the cost.

No one could accuse himself of courage more often than the Prime Minister. Fourteen times in one speech he referred to himself as tough; and he constantly asks people to examine his guts, and to admire them. In my life I have known a great many men of great physical courage and a great many men of great moral courage, and a few with both, but I have never heard one of those men of courage talk about being tough, or asking one to admire his guts—the two things do not go together.

I believe that if the Prime Minister had been a man of courage, he would have acted with decision earlier. If he had acted with decision earlier, and had really shown that he meant it, he would not have had to do anything like the number of unpleasant things he has done. It is entirely this lack of decision and lack of courage that is the trouble.

Then we come to the question of integrity. I believe that more harm than almost anything else has been done by the double-talk and the double-think in the Government. Abroad, we have tried to persuade the foreigners that we were deflating; at home, we said that we were not deflating. These last measures mean nothing unless they cause some unemployment, but we are told that they will not cause unemployment. That is not the way to get confidence back, and I think that the Prime Minister's equivocations are becoming positively dangerous. The fact that when he is at the Dispatch Box and is asked questions he simply cannot give a straight answer to anything is really damaging to the country.

The Prime Minister's ideas are no more original than his jokes, and I cannot help feeling that he must be imitating someone. I have taken great trouble to meditate on the technique he has devised, and I am inclined to think that I have the answer. It has always been my habit to verify quotations—that is something one ought to do—but, unfortunately, I have not on this occasion been able to verify the quotation, although I am fairly certain that I have the substance of it right.

The quotation is from Billy Bunter. When Billy Bunter was accused of stealing a currant cake, he said, "I never even saw the cake, and it hadn't got currants in it, anyway."

I think that the Prime Minister has taken that as an ideal platonic type of the perfect answer in Parliament. Nearly all his answers on Vietnam boiled down to that. It may well be the fact that he can equal or even surpass his master that so intoxicates the Parliamentary Correspondent of The Times.

So much for equivocation and lack of integrity. I believe that we shall never get overseas confidence back unless he can give some straighter answers, and tell the truth.

On wisdom, it seems to me that the Prime Minister's motto has really been: Ah, take the Cash, and let the Credit go. He has always seized the short-term advantage without bothering about what would happen when the bills came in. For example, during the election he spent his whole time banging the £ and saying we were "bust" while, at the same time, making promises that would have sunk a far stronger currency. That was bound to catch up with him. Then the follies of the 100 days—they were bound to catch up with him in 100 days, and he must have known it.

And was he really wise, in last Thursday's debate, to gain the temporary acclaim of hon. Gentlemen below the Gangway by saying that he would carry out all his promises in 1966 and 1967? I ask that because, as hon. Gentlemen will have noticed, these are the years when we have to pay back our colossal debts, and nothing could be more certain than that very heavy expenditure—and the promises are quite meaningless unless they cost quite a lot—is not consistent with paying back our debts or with maintaining a proper balance at all. That is another cheque that is bound to be "Referred to Drawer." "Ah, take the Cash, and let the Credit go"—the right hon. Gentleman's credit has gone, he has very little cash left, and I wish that he would go.

6.46 p.m.

Mr. Arthur Blenkinsop (South Shields)

It is clear that the speech of the right hon. Member for Flint, West (Mr. Birch) won far more applause from the benches opposite than did the speech of the Leader of the Opposition. Hon. Members opposite may well be reconsidering the decision they took only very recently about the potentiality of the right hon. Gentleman whom they have put in the very responsible place of Leader of the Opposition.

We heard from the right hon. Member for Flint, West one of his normally supercilious and cynical speeches, but we must at least give him the credit that he has consistency. He was well known for the attacks he made on his own Government in times past and, indeed, he had the courage to resign from his own Government at one time because of differences of opinion he had with them. We must, therefore, pay credit to him for his unquestioned courage and sincerity. I thought it rather peculiar, however, that we should be told that apparently the only way in which we can make headway is by means of such measures of deflation as would create fairly considerable unemployment, on the one hand, while his only positive proposal was one that would be bound, presumably, to increase the cost of living; yet it is precisely on that issue that the Government have been charged by him and his hon. and right hon. Friends in regard to some of our recent measures for dealing with our present financial situation.

We will all regret the fact that the Leader of the Opposition gave no positive lead in regard to the Opposition's policies or made any detailed criticism of the positive actions the Government are taking. That weakness is noted by all of us here, and it will certainly be noted in the country. It would be more valuable to look at the practical measures that may be taken. It is now platitudinous to say that the issue we face is an economic challenge. It is not just a short-term challenge—it is a very long-term challenge, and one that requires quite major changes in the attitude of mind of all our workers and employers. That is platitudinous. But it is important to take that platitude and examine what it means in terms of particular industries and see what actions are being taken in this country with the encouragement of my right hon. Friends that can have very real benefit, possibly in the short term and certainly in the long term.

I want to refer quite briefly to the position of the shipbuilding and ship repair industry, as an example of the kind of problem that we are facing. As is well known today, there has been severe criticism of the lack of modernisation in some parts of the shipbuilding and ship repair industry. It would be unfair to make that criticism over the industry at large, but certainly it can apply to parts of the industry.

It has been useful to have the comments of my hon. Friend the Minister of State at the Board of Trade, who is responsible for shipping, who, not long ago, was out in Japan. He has made available a report on the Japanese shipbuilding industry which I think hon. Members on both sides will find of very real interest. It is true that the Japanese industry has made enormous progress in the last few years and clearly has carried out far more extensive modernisation than we have been able to do. Certainly they are employing more up-to-date plant and are using more up-to-date methods.

Therefore, it is of the greatest importance to us that we should examine the way in which they are conducting their affairs, to see what we can learn. But, at the same time, as we pay tribute to the most valuable report that has been published, we should pay some attention to the efforts that are already being made in some of our shipyard and ship repair yard areas. On the Tyne, there is a very important development taking place that I hope will be of considerable consequence for the future as well as for the present. The main shipyard and repair yard owners are getting together with the unions in the Confederation of Shipbuilding and Engineering Unions, to discuss two major problems: on the one hand, to try to get greater flexibility in the use of labour in the yards, which is certainly urgently necessary; and, on the other hand, from the workers' point of view, to see how to get a more adequate sense of security than they have today. That is a very important development, and it has come on the joint initiative of the employers and the men on the Tyne.

Frankly, that initiative would have been much more difficult but for the measures that the Government have already taken. I refer in particular to the Redundancy Payments Bill which is of very real concern here because it offers a means of helping many men who otherwise would not have any security at all. However, it does not meet completely the special problems and difficulties of many men in the shipyards and the repair yards because, in the past, the problem has been that even though a man has been working for most of his life in the ship repairing industry in particular, he is unlikely to be able to show a continuous record of work with any one employer for anything like the qualifying period required under even this very much improved Measure.

The problem therefore, is how one can expect the trade unions there to adopt what we might regard as a more modern and more flexible attitude towards the use of labour in the yards, which we all agree is necessary, if we cannot, on the other hand, offer greater security. That is why the discussions that are taking place are so important, because the employers and the workers are getting together to see of the Tyne can be looked at as a whole and whether all the employers on the Tyne can be treated as one employer for this purpose.

Sir Harmar Nicholls

The hon. Member has commented upon the report on shipbuilding by the Minister of State at the Board of Trade. Would he not accept, from both the speeches and the report, that his hon. Friend has said that the security would be more likely to follow the giving up of the restrictive practices and waste of time that he suggests take place there?

Mr. Blenkinsop

We have to understand that these things go together. One cannot look at one without the other, and that is where Government action is so valuable. We have made a considerable step forward in the new Measure that is now becoming law. The new Redundancy Payments Bill is offering a far better hope of security than the old Measure did, but there still remain these difficulties. However, I am sure that the way to get over them is through the kind of action that the men and the employers of the Tyne are discussing at the moment, which may mean that the whole of the employers of the Tyne can be regarded as one unit for the purpose of the Bill, and that would certainly mean that a very large number of men who in the past have had no security at all would be given the security they have never had.

It has been a matter of concern to me, and I am sure to anyone who recognises the situation, to find that there are many men well into their fifties who have given their lives in work in repair yards in particular who can still be paid off at the present time at a few days' notice, without any kind of security or knowledge of what they are going to do in the future. That is quite impossible today if we are to call for that greater flexibility of work at all parallel to what appears to be common in the Japanese yards, which is clearly needed. If we are going to get that, it can only be through some kind of agreement such as they are attempting to reach themselves.

I hope very much that my right hon. Friends will give every encouragement to that local effort on Tyneside because, if it succeeds, clearly the same proposals can be applied in other parts of the country in this industry and, as in other cases, the Tyne may very well lead the way in this kind of development. But it may well mean some examination by my right hon. Friend the Minister of Labour of the regulations that may be published under the Redundancy Payments Bill to see if they can link up successfully with any new agreement that may be reached by the employers and the workers on Tyneside.

It is that kind of activity that we want to see all over the country, and we should be spending our time much more profitably if we tried to pinpoint actions of that sort more frequently, instead of some of the rather sterile material that we have to suffer in the House all too often. I very much hope that my right hon. Friends will comment on and encourage this development in the hope that it will become general throughout the country.

6.57 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

When we heard, a few hours ago, that the Chancellor of the Exchequer would speak in the debate, and not the First Secretary as had been anticipated, we imagined that it was because the Chancellor felt the need to explain the contrast between his statement on the Third Reading of the Finance Bill on 15th July and his action last week.

The right hon. Gentleman gave some sort of explanation. But, in the history of those few days when the policy was clearly reversed, he omitted to tell us that he had been to Paris to see the French Finance Minister, and he omitted to tell us what the consequences of that discussion were.

It is clear, not only from that omission but from the facts, that the right hon. Gentleman there received, if not his orders, such a warning from those to whom we are in debt that we suffered a very considerable national humiliation, because the Chancellor of the Exchequer of the United Kingdom had to go into reverse. It is a humiliation which, I think, has not been paralleled since much the same thing was said to Philip Snowden, 34 years ago. In those circumstances, I think that the House is obliged to consider how we can make sure that we never suffer an equivalent national humiliation again.

It is useless for hon. Members on either side of the House to say that any attempt to join the Common Market would mean a loss of sovereignty, and words to that effect, when we realise what sort of sovereignty we at present enjoy when the Chancellor of the Exchequer has to change his policy because we are so badly in debt to international bankers. Everybody knows that if one is thoroughly in debt one has no sovereignty, whether one is a nation or a person or a limited liability company, and this is a very vivid illustration of the lack of sovereign power over our economic destiny when our Chancellor of the Exchequer has to change his tactics at such short notice and in such a public and humiliating way. I am very sorry for him, and I very much respond to his suggestion that we must all reexamine our policies and make sure that we do not get into this condition again either in the short term or in the long term.

From the Report of the O.E.C.D. on which is inscribed "Paris, June, 1965"—a very significant place and date—it is clear, reading between the polite paragraphs and, indeed, reading the polite paragraphs in this Report, that it is upon the reduction of internal demand in this country that our salvation depends. By that is meant that we should have less power as consumers to buy things. Putting it quite bluntly, if there is too much money chasing goods, we shall suck back into our economy goods that ought to be exported and we shall suck into the United Kingdom goods which we should not be importing. This is so elementary that it hardly needs stating, but one has to state it over and over until everyone realises that that is the crux of our problem.

We need a permanent cure for the situation. How do we cure it? The best way of curing it, although it does not seem to be open to us at present, is, instead of consuming, to save voluntarily, which is what we were doing rather more successfully up to this year. We were saving at about double the rate at which the ordinary person is now saving. If that cannot be done voluntarily, I think that all economists agree that what we have to do is to tax ourselves so that we do not use this spending power to consume and so that it is taken away from us compulsorily. This is the consequence of the situation.

However, it does no good if the Government, with the purchasing power that they have "creamed off"—I think that that is the usual verb that is used—then redistribute it in the form of more consuming power. It makes the first situation worse because the very process of taxation itself engenders a demand for higher wages; and then, with the results of the taxation, if instead of taking it away and burning it, to put it crudely, we redistribute it into the pockets of consumers we have got the worst of every possible world. That is what has happened since the first and second Budgets.

If we look at the figures, we see directly in the form of higher wages for Government employees and indirectly in the form of other wage settlements that have followed the example of the Government, that the purchasing power which it was hoped to remove by means of taxation has been more than redistributed and the economy has been reheated all over again. That is the essential vice of the policy that the Government have pursued. They have followed the policy of trying to do the right thing, of trying to skim off excess demand, but of re-injecting that demand because they have not yet had the courage to say "Demand is too high. The consumer is getting too much and is spending too much. The consumer is, in fact, inhibiting our exports and is sucking in our imports, and we find ourselves with the present balance of payments problem".

The President of the Board of Trade last week, in the debate on the cost of living, mentioned some of the difficulties about the first stage of the operation of reducing demand by the process of taxation. He said, I think with a note of pathos in his voice: If one tries to mop up demand inflation by such taxes"— that is indirect taxes— one is bound to some extent to inflate prices and cost inflation at the same time. But if, for these reasons, one concentrates solely on increasing direct taxes … then it can be said that one is striking at incentives and investment."—[OFFICIAL REPORT, 28th July, 1965; Vol. 717, c. 502.] It shows one of the difficulties of using the taxation process in the first place.

But even assuming that that can be done—and all Chancellors of the Exchequer try to do it—then it is even worse when, having gone through that painful process, one redistributes the demand all over again in the form of wage settlements at an immensely high percentage which are imitated and followed, as they have to be, in the private sector. It contrasts very badly with what my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) did when he was Chancellor of the Exchequer, when, in the face of immense opposition and popular outcry, he held public servants down as an example of the need to curb wage inflation and consumer demand.

Those of us who served with my right hon. and learned Friend in those days remember the intense unpopularity that he and everyone with him had to bear at keeping down, often very unfairly, the wages of public servants who were ill paid in the first place, but which it was absolutely necessary to do if we were not to get this reheating process which has happened in the last six to nine months. I hope that example will be followed, although I doubt it, by the present Government.

The O.E.C.D. Report makes it clear that the rate of demand increase at the moment is much too high. It says that even in 1964 nominal incomes were rising considerable faster than real output. The rise in wages and salaries appears to have accelerated in 1965. The Report states: Hourly wage rates during the last recent three months period for which data are available, March to May 1965, were 5.4 per cent. higher than a year earlier; but because of 'wage drift' actual earnings were no doubt rising much faster. The average increase in terms of hourly rates agreed in collective bargaining during the first four months of this year was over 6 per cent. That does not take into account wage drift in addition. The rate of increase in home demand, therefore, is reaching a pitch of mania, and until it is grasped I am afraid the Chanceller of the Exchequer, for all the well-meaning palliatives which he introduced last week, will find what he described as the "never-ending enemy" getting him down once again. It was a most revealing remark which the right hon. Gentleman made at the Box this afternoon, spontaneously, I am sure, when he said that he felt sometimes that he was fighting "a never-ending enemy". So of course he is, as long as he permits the stoking up of home demand in this way.

The capital cuts which the right hon. Gentleman announced last week will do very little. It is the consumer cuts we need, as my right hon. Friend the Member for Flint, West (Mr. Birch) remarked. The capital cuts take a long time to work through and really will not have the effect required. The hire-purchase restrictions, of course, will have a small effect, but not very much.

If the money is in the pocket and it is not saved—it does not look as though it will be saved—it will be spent on something, and if it is not spent on the motor car because the down payment is now too high or the period over which the instalments have to be paid is too short, it will be spent on something else. Total demand will not really be reduced. Therefore, although I do not think that it was wrong, we cannot rely very much upon such measures, which may merely irritate without producing the result.

Then it is said that all must depend upon the prices and incomes policy. I am a supporter of the prices and incomes policy, and I feel very sad that the whole concept and principle of such a policy has been considerably damaged by its being introduced without a degree of deflation and cooling of the economy. Once again, to quote the O.E.C.D. Report, it is clear that one cannot succeed, human nature being what it is, with a prices and incomes policy if demand is running at the present rate.

The Report say that the achievement of this policy is unlikely. Past experience has shown that with unemployment below 1.5 per cent. it is not realistic to hope to stabilise prices or wages. In other words, one has not the right atmosphere for a wages and incomes policy until one has first, not afterwards, reduced home demand. This is now being discovered. By concentrating on prices first, the First Secretary is, in a sense, making a mistake, putting the cart before the horse. If one reduces prices without also reducing wages and incomes, one makes the matter worse. You are releasing a lot of demand and not mopping up purchasing power.

If the price of a product is lower, the man who buys it has more to spend on something else and will, therefore, make an increasing demand upon our resources which might otherwise go for export. These things must be done at least simultaneously, and probably first for wages, because otherwise, if prices are reduced without wages being affected, one will simply make more demand upon our manufacturing capacity which ought to be released for export purposes.

The same applies to rents. If rents are to be kept down or reduced it must be as part of a comprehensive wages policy, otherwise, the simple consequence is that there is more money in the pocket of the consumer to spend on other things and make further demands upon our manufacturing resources.

I endorse with all the force at my command what my right hon. Friend the Member for Flint, West said, that it is no good expecting management or labour, the business community or anyone else, voluntarily to reduce consumer demand. This can be done only by the Government, and it can be done only by strong measures, fiscal measures and measures in the public sector of wages such as were taken by my right hon. and learned Friend the Member for Wirral. So far, there is no sign of the Government doing it, but, until they do, they will still be fighting the never-ending enemy next year. No amount of sketch maps of a plan for the next five years will help them. This is the evil. The cure they have not yet begun to find.

7.15 p.m.

Mr. Desmond Donnelly (Pembroke)

I listened with attention to the hon. and learned Member for Darwen (Mr. Fletcher-Cooke), who put forward an attractive proposition in certain respects. As I understood him, he said that we should not be making capital cuts, but should be introducing cuts in our consumer spending, and he advocated that we should have higher taxes in order, as he put it, to cream off the surplus from the economy and, at the same time, not spend these on the social services.

On the face of it, there is some basis for what he says. But it is easier said than done. It is very much easier to make capital cuts in the short run, especially in a situation such as we confront today. Secondly, it is not always efficacious to make the cuts in consumer spending. The hon. and learned Gentleman suggested higher taxation, but there comes a point when the taxes themselves, beyond a certain threshold, achieve an inflationary rather than a deflationary effect. This has been the lesson we have learned in the past year from some of the measures which my right hon. Friend has tried to take, with the best will in the world. So, inherent in what the hon. and learned Gentleman has said, there are, to my mind, grounds for doubt whether the policy which he advocates is right.

I shall return to some of the hon. and learned Gentleman's observations later. At this stage, I come straight to the speech of the right hon. Gentleman the Leader of the Opposition, for whom I have a great affection and a genuine admiration, even though I do not accept all his views. The right hon. Gentleman's argument was, in effect, twofold. First, he accused the Government of a year of slither and slide which had grossly aggravated our economic problem. These are my words, not his, but I think that that is the substance of what he said, that we have had a year of slither and slide which had created a very serious economic situation. Secondly, he accused the Government of speaking with two voices. Again, that is my paraphrase of what he said.

I take, first, the slither and slide argument. The right hon. Gentleman knows, as all hon. Members know, that the economic problems which we are discussing today and which have been discussed many times, as the right hon. Member for Orkney and Shetland (Mr. Grimond) said, are old problems. We have had this debate year in and year out. This country's economic problems are long-term, not short-term, and they are deep. They go back not over one Government or two or three Governments, but over 40 or 50 years. Really, ever since 1918, the economy of this country has been stagnant, and we are now reaching a point, because of changes in the world situation, at which this country can no longer maintain itself as a leading industrial Power for a variety of reasons

This is a deep-seated, long-standing problem. It has nothing to do with any individual Government and it goes far back beyond this Government's term of office. Although it may be argued, marginally, that this Government or the last were particularly culpable, the fact is that this is a long-term problem, and the House will do itself a disservice if it tries to set it within the narrow limitations of this Motion of censure.

Now, the two-voices argument. This may be advocated, but I wonder whether it holds substance. As the right hon. Member for Orkney and Shetland suggested, the Government must recognise that the world can speak English and can understand what is being said. He thought that they did not recognise it, but I am firmly convinced that they do. Every Government in any situation, especially in this situation, has two tasks—to advocate prudence and counsel caution, and, at the same time, give heart. No Government can do other than counsel caution and give heart to the people of the country. It is very difficult to strike a balance between those two functions of government in any situation.

I do not believe that what the right hon. Gentleman said really amounted to the terms of the Motion. To put it very moderately, I think that his argument did less than service to the Motion that he put before the House, or vice versa, whichever way the House prefers. The words did not meet the Motion and the Motion did not meet the words. That is the impression that I am left with inescapably from this debate so far.

One thing that the Leader of the Opposition said struck me forcibly. He spoke about the critical balance of payments situation last year. He reiterated this in the course of an intervention to my right hon. Friend the Chancellor. The right hon. Gentleman knew the economic situation last year, and so did other right hon. Gentlemen on the Opposition Front Bench. If there is any blame to be apportioned, it must go much more to them than to my right hon. Friend. They knew the situation.

Yet the political programmes of all three major political parties at the General Election were not capable of being sustained by the productive capacity of this nation or on the basis of the prospects then confronting us. It was the failure of all three major political parties to face up to this, and to face the electorate with a frank statement, which led to a great deal of the recrimination that we have been having endlessly in our debates of the last few days. This is the gravamen of the situation.

What are we discussing? Apart from this last year, we are discussing the statement made by the Chancellor last Tuesday. My right hon. Friend said, in effect, that the Government had to have certain priorities and that we could not go beyond a certain stage of progress in many of our investment programmes and in our consumer spending. My right hon. Friend the Prime Minister said last Thursday: … there must be priorities, priorities in legislation and financial priorities."—[OFFICIAL REPORT, 29th July, 1965; Vol. 717, c. 730.] What we are really discussing today is priorities if we are looking ahead.

The first priority of any Government in any country in the world, by definition of apparatus of State, is defence. It need not be an over-riding priority—indeed, it should not be—but it has to be the first priority. My right hon. Friends, whatever criticisms may be levelled against them, during the first nine months of office have shown themselves to be good members of the Western Alliance, good members of C.E.N.T.O. and good members of S.E.A.T.O. All the challenges and charges brought against them last autumn about their possible defection from the Western Alliance and their unreliability in regard to the Communist bloc and the neutralist world have been proved to be totally unfounded. Indeed, if there is a charge against them, it is that their membership of these alliances has been too good, too unselfish, and too responsible in relation to the rest of the world. They have rendered a signal service to our country in this respect.

Nevertheless, I am not one to say that the way in which the Government have accepted—accepted without question—these obligations, originally incurred by previous Governments, is one which it is possible for us to sustain indefinitely. It is not possible, in my view, in the present situation to sustain obligations in Europe and East of Suez and in the Persian Gulf indefinitely. These are the things to which we shall have to address ourselves in future defence debates. However, the Government set their first priority, which was defence, and they have honoured it.

The Government's second priority is industrial investment. Obviously, we cannot do everything at once. However, the Chancellor has set industrial investment as the second priority, and this is, indeed, the right second priority, because it is only if one has the industrial investment next that one can sustain the first priority and, indeed, that one can pay for the third priority, which is the better social services that we all desire regardless of where we may sit in the House.

I take the view—I have said it repeatedly in my constituency—that if the choice lies between, for argument's sake, a factory making machine tools in the constituency of my hon. Friend the Member for Manchester, Ardwick (Mr. L. M. Lever) whom I see there and a new hospital in my constituency I would always advocate the machine tool factory first, because that is the way to pay for the better hospital in the end. This is the only way we can set about it. The Goverment are advocating that same policy boldly and courageously.

Having said that about priorities, I come next to the question of the specific measures which the Chancellor announced last Tuesday—are they the right measures, and are they sufficient?—and finally, perhaps I may say a word about the overall long-term national strategy. As my right hon. Friend said, his measures are selective. He is right to preserve the industrial priorities and to sustain the priority for housing with regard to the starting of new houses. There is a close correlation between the two. One of the most important practical problems confronting the country is the need for mobility of labour.

There is far too much lip service—as a representative of a development district I say this in parenthesis—paid to the development district concept as a pure social service. Nobody wants unemployment, pockets of unemployment, or derelict areas, but in the last analysis there has to be movement of workers, and the factor governing that is the profitability of the enterprise in which they will be working. There is no escape from this. There is far too much mealy-mouthed talk about the need to take industry to the workers and far too little thought is given to how one takes workers to industry. Housing is one of the key factors in this respect.

The other day a man came to see me to ask whether his small township could be made a development district. I explained that there was a development district only 15 miles away. He said, "I cannot think of taking families all that way." I said "Fifteen miles is only 15 miles. How do you think California was built in the first place?" We must have more of my attitude.

My right hon. Friend was right to adopt these selective priorities. However, I have certain doubts about certain of the measures which are to be effected. The Leader of the Liberal Party spoke about roads. This is an essential infrastructure for industrial development in the future. We may save money on road extensions, but we shall then lose a great deal of money through traffic congestion. One has to get the balance right. A hold-up or a slow-down in the road programme would be extremely damaging in the long run, just as my right hon. Friend has acknowledged in the case of the ports, in the movement of industrial products for export. I feel that this must be thought about again.

Secondly, there is the whole question of various essential industrial investments which we shall have to undertake if we are to modernise the country. To take a specific example, suppose that there are large discoveries of gas under the North Sea. This would transform the whole prospect of our energy supplies. Again, it is most desirable that these expansionist-orientated projects should not be held up in the present situation. Nor need they be.

In reaching that conclusion, we need only look across the Channel to the problems Italy faced two years ago. The Italians had the problem of financing their autostrada and their partly State-owned industrial enterprises. They were prepared to go outside the normal framework of governmental financing and use the merchant banking facilities of Europe to finance, in particular, currency saving or currency earning projects. I think that a great deal more could be done like this by us.

Mr. Woodrow Wyatt (Bosworth)

Toll roads.

Mr. Donnelly

As my hon. Friend the Member for Bosworth (Mr. Wyatt) says, we could have toll roads. One cannot go wrong with merchant bankers with these if they are servicing and repaying the loans.

Mr. Webster

That may be so in a place like Italy, where there is a bad road structure and very little competition between different roads. But in this country we would find toll roads little used and the traffic going on other roads. Is not the other system, used in Amsterdam, the better one? In that case, it is guaranteed out of the Road Fund.

Mr. Donnelly

I am sorry. There was a hubbub. I did not gather that last point.

Mr. Webster

The interest on the principal should be guaranteed out of the Road Fund from which an agreed contribution has already been paid.

Mr. Donnelly

I think that the hon. Gentleman misunderstands me. He is fining it down too much. Indeed, there are alternative roads in Italy or in Germany or any other country. Nor do I accept that Italian roads are better or worse than ours, or that the traffic they have to carry is any greater or less. It is a balance of which is the cheaper—the time taken by lorries on such roads, their cost and depreciation, their wear and tear and tyre replacements as compared with the payment of £1 or 10s. to go straight up the motorway. It is a question of whether one wants this so as to obtain a communication network.

This applies to roads projects and to various other schemes as well. I think that one can do this and go outside the country's financing structure provided that one is prepared to adopt a much more commercial approach to the structure of one's communications system. The same would apply to the Gas Council's investment in the North Sea operations.

In this respect, I have considerable doubt whether the Government are pursuing the right policy towards this essential part of our national fabric. I also have the same doubts that have been expressed about the policy towards the universities, which are the seed corn for our society which we must not eat. In addition, there are other measures which we should be thinking about in the short term and which will have long-term implications.

We have talked about restrictive practices, but we have a large number of national restrictive practices such as units of measurement, the way in which we drive on the left and, to give a technical illustration, the practice of having a three-plug 240 volt system in our electricity industry when the Continent is running on a two-plug 220 volt system. All these national restrictive practices are handicapping us in the markets of the world.

This country cannot hope to go into the 21st century on rods, poles and perches. We have to think in standardised practices, along with the rest of the world. I know that there are difficulties. I know that there is a cost in adapting a monetary system. I know that there is a cost in adopting decimal coinage and in shifting to the right hand side of the road. But if we set a date enabling people to prepare themselves we would get effective action. We could say that a certain thing will be done in 1968, another thing in 1969 and something else in 1970. New methods and processes would be adopted temporarily and eventually it would be possible to move to the new pattern. It is essential for us to do this.

I asked whether this week's measures are still enough. I do not think that they are unless there are certain deeper changes in our political attitudes and national concepts. First, let me say something about the political attitude and, secondly, about the social and then the industrial attitudes.

The thing that has bitten deep at the root of every Government for the last 20 years is that we are constantly seeking to ride two horses—the horse of the Welfare State, with an easier and better life, and the horse of modernising Britain and reorganising our industrial society. These two horses pull in opposite directions and we have to set a definite priority—that modernisation comes before the Welfare State. As I inferred earlier, the Welfare State would be paid for better and, in the end, much more satisfactorily that way.

Secondly, there is the social attitude. One of the dangers in our society reflects every facet of that society and is not applicable merely to us on this side, but applies equally to right hon. and hon. Gentlemen opposite. This is the philosophy of envy. We have to get away from the concept of thinking that capital, profits and high wages are necessarily dirty words.

I have no objection to Mr. Harvey getting £270,000 a year, provided he earns it. I emphasise "provided". I have no objection to anybody having a reward commensurate with his services. Our taxation structure is such that it takes care of a great deal of the money and the status granted to people. For instance, there was the famous case of Lord Beeching. I doubt whether the difference between his salary and the standard salary of a nationalised industry chairman was more than merely the fact that he might be able to smoke cigars instead of cigarettes. These things are taken care of in the process of the machinery of government. I have no objection to people having proper rewards and status provided the status is earned and the rewards are fair.

The third attitude that we must change is the industrial attitude towards work. The concept that it is clever not to work, that it is "infra dig" to have to work, really stems from the concept of squirearchy and the idle rich and right hon. and hon. Members opposite have only themselves to blame if other people ape their attitudes and think that it is clever not to work.

On my first visit to the United States many years ago I was struck by finding people, however rich, consider that it was almost immoral if they did not have a job—apart from a small narrow circle of playboys who were irrelevant to society.

Sir C. Osborne

Would not the hon. Gentleman agree that since the Welfare State came and Income Tax and Surtax rose to about 18s. 6d. in the £, that is true also in this country and that the majority of people in business in this country work very hard and are proud of it?

Mr. Donnelly

In business; but what I am saying—and I am not attacking the hon. Gentleman, who must not take this so personally, for I am almost on his side—is that there is a malaise which runs through society and which starts, I suppose, with the fox hunters and ends on the shop floor. It is a danger and we have to get away from it.

What we have to aim at is a high efficiency, high wage economy. As I have tried to argue all along, we have to give proper rewards properly earned and if people do not earn those rewards, they should not have them. If board rooms are inefficient, or if industrialists do not get off their backsides, to borrow from the modern vernacular, we must be prepared for those firms to go bankrupt. At the same time, if workers do not do their jobs properly or do not want to work, they must be sacked.

Someone must say this, because this is the only way in which to get new attitudes and a sense of industrial self-discipline, and this goes far deeper than the daily platitudes about restrictive practices. We have to get away from the ideas of the 1930s and of 2 million unemployed. That is not the reality of the situation today. We have to be prepared to recognise that in certain industries there is over manning and that there must be redeployment of our labour force. But we cannot get that redeployment without certain measures which will create unemployment and we cannot get people moving to new jobs unless we start to discourage them or push them out of their existing jobs in industries where they are not pulling their weight in the national sense. There is no escape from the realities of the situation.

Of course, there must be proper methods of retraining and a proper social system to enable people to move and to cushion them against the deeper social effects and harms of such a great redeployment as that which must take place.

The crux of all this is embodied in the appalling phrase about which people used to argue a year or two ago, when it was said that the railways were a social service. The railways are not a social service. They are a means of transportation. The same principle is true of all the major industries. The social services are something quite separate, but there must be a socially responsible approach, which is quite a different matter.

This brings me to the third facet of my remarks, which is the overall sense of national strategy. What I am proposing is a radical change—[Interruption.]—far more radical than my hon. Friend envisages.

Mr. Ted Leadbitter (The Hartlepools)

I have listened to a good deal of this speech and I have been in the Chamber all day. My hon. Friend is now making a remark to which I object.

Mr. Donnelly

I am sorry if my hon. Friend is taking my words amiss, but, speaking again in the modern vernacular of the Prime Minister, he has been interrupting me while sitting on his backside for a long time. I do not want to detain the House for any longer than I need.

Mr. Leadbitter

The speech is taking too long.

Mr. Wyatt

It is very good.

Mr. Leadbitter

The hon. Member for Bosworth (Mr. Wyatt) is another one.

Mr. Donnelly

We have to find a new strategy politically and in this country. The right hon. Member for Orkney and Shetland said that he did not propose to support the Motion. This means that, despite my hon. Friend the Member for Ashfield (Mr. Warbey), the Government are in no danger of defeat tonight. I am in favour of the Amendment for some of the reasons that my hon. Friend the Member for Ashfield is opposed to the Government. However, the right hon. Member for Orkney and Shetland said that the Liberal Party did not intend to oppose the Government on the censure Motion for a variety of reasons and all those reasons find a common approach and a common ground among the radical Left.

It is along that road that the Government must go. The alternative is slither and slide in the political sense. The alternative is damage to the country and disaster to the Government. We have to be practical realists about this situation. I congratulate the right hon. Gentleman on his speech and applaud him for the policy which his party is to follow in the Lobby.

I move now from the question of the Government and party to that of the nation. All the measures which I have intimated, all the changes and all that I have said about the application of the discipline of profitability in our industrial society can be applied only with great difficulty in a highly susceptible democracy in a closed island society such as ours. I do not believe that the whole long-term change can be effected and a new sense of national purpose acquired unless we raise our sights considerably beyond the Channel and move much more to act as though we were already members of Europe and in a position to make a much more effective rapprochement with Europe when the time is propitious.

That will be the central issue in British politics for many a year to come—whether we are to remain in our island society, feather bedded, isolated, claustrophobic behind our English Channel, or prepared to submit ourselves to the challenge of a much wider industrial community. We must face that challenge in the markets of the world and it is far better to start facing it here on our own doorstep, where we are capable of facing it to commence.

What I would like from the Government is a much more liberal approach to the whole subject of trade arrangements. I know that this is Government policy.

Mr. Leadbitter

Liberal!

Mr. Donnelly

My hon. Friend believes that it is a matter of labels, but I am talking about liberal with a small "1", which is much more important than his narrow partisan semantics. The destiny of this country is either that of a small unimportant island, diminishing to the status of Holland, or membership of the wider European Economic Community.

The country faces a challenge comparable with and in some ways more difficult than and in other ways not as difficult as that which faced France a few years ago, when France was considered to be the sick man of Europe. Look at France today! Look at Germany today! I do not believe that there is one hon. Member who has a spark of patriotism in his heart who would say that the French or Germans were more able or more brave than the British people are capable of being, given the leadership.

7.49 p.m.

Mr. Rafton Pounder (Belfast, South)

Over the last few days, we have had a variety of debates on crucial issues and, judging by the terms of today's Motion, it is as well that this debate has been somewhat narrowed by the elimination of matters such as the cost of living and the Government's broken election promises. Despite the result in the Division Lobbies on Wednesday and Thursday, there is no doubt that the Government and their supporters stand firmly convicted of the indictments of increases in cost of living and broken promises. They stand firmly convicted by an ever-growing body of disillusioned and discontented electors.

However, any economic problems which may have confronted the country in recent years are small if not minimal compared with those confronting the economy now. It is absolutely no use hon. Gentlemen opposite trotting out, chorusing and chanting the slogan about 13 wasted years. That remark may, once upon a time, have been reasonably clever, but any amusement which it might once have caused has long since ceased to have any validity at all. It is now threadbare and I much prefer the original version of that remark, the one which is attributed to the late President John Kennedy who, on entering the White House, is said to have remarked that he found things were as bad as he had said they were. In its original form it is much better than the hackneyed form in which it is now used by hon. Gentlemen opposite.

As a child I remember being brought up to the view that if one looked over one's shoulder one was continually failing to make the most of the opportunities which presented themselves. I respectfully suggest that the Government's position of looking back and trying to say, "Oh, this was a situation which we inherited", is to make a very poor show at utilising their own opportunities. As my right hon. Friend the Leader of the Opposition made perfectly clear this afternoon, the real crisis confronting this country is one which rests fairly and squarely on the Government's own shoulders, and which was of the Government's own making.

Unfortunately, as so often happens, it is not necessarily the person or small group of persons making the mistake who have to pay. In this case it is all the people of the country. No one, least of all myself, is seeking to make political capital out of a difficult national situation, provided it is a genuine situation and not one which has arisen through the errors or mistakes of some other person. For instance, in foreign policy, this country has always taken a bipartisan view. Why not do the same in economic affairs. Simply because the Government, and I am not trying to be unnecessarily provocative, have failed pretty dismally in the past nine months. As I see it, it is impossible for a party, at election time, to make extravagant speeches and over-elaborate promises and not to be held to account.

Traditionally Britain has been a country whose voice has been listened to by the nations of the world. Last October was no exception. The nations of the world listened to the outpourings from our election platform, and when the Labour Party won the election, they were quite reasonably entitled to assume that the Government would implement their plans and policies. On the strength of that they understandably took a certain measure of fright. I think that the Chief Secretary said last week—

The Chief Secretary to the Treasury (Mr. John Diamond)

I am listening very carefully to the hon. Gentleman and in response to that point may I say that I thought that he was giving last week's speech? I am more anxious to hear today's.

Mr. Pounder

The Chief Secretary is quite wrong. I had hoped to get into the debate last Wednesday, but I tore up that speech and wrote one this afternoon. I hope that answers the point. During the course of the last nine months the Government have had three bites at the cherry. I listened intently to the hon. Member for Pembroke (Mr. Donnelly) and I agree with a great deal of what he said. There is no point in having three little nibbles and seeing if each one is sufficient. One has to be tough. I do not agree with my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke), who talked about new taxation ideas which, frankly, I do not think are desirable.

It is true that in certain areas of this country one has a substantial measure of over-employment. Equally, there are certain areas in which, if one has a credit squeeze, one might siphon off extra demand from the South-East or Midlands but still hit other areas. If one is going to try to siphon off excess demand it must be done in the form of a selective regulator, selective more in the geographic sense than any other. I seem to recall that in previous economic difficulties, before I arrived in this House, one found particular note being taken of the problems of areas where unemployment levels were substantially above that of 1 per cent. or 1½ per cent.

It is quite monstrous to have a situation where, in eight months, and I am quoting the Chief Secretary's figures which were given to me in an Answer, the real value of the £ has dropped by something like 5 per cent. in eight months. There is no reason to assume that this is not necessarily going to continue in the course of the next few months.

My right hon. Friend the Leader of the Opposition talked in terms of a 7 per cent. depreciation in the real value of money in the course of a year. This is quite shocking, and something of which any Government should be utterly and profoundly ashamed. It is not something which they should try to hide and to blame on my hon. Friends. The fact of the matter is that we are not in government at the present time. There is no sense in turning round and asking questions of the other side, saying "What would you do?". The ball is on the Government's own pitch. It is for them to kick it out of the goal, or right through it, as they would appear to be doing at the present time.

Might I ask the Chief Secretary one question arising out of the effect which Tuesday's third dose of Treasury Measures are going to have on an industry such as the motor industry? It seems extraordinary—and I speak as one who worked in the motor industry for a couple of years, and with first-hand experience of the situation which developed in the early summer of 1961—that we may find ourselves in much the same sort of position again. Is there going to be cutting back of a major exporting industry? I am not thinking so much in terms of consumer durables, from which it is fair enough to siphon off excess demand. But that is certainly not so in the case of a major exporting industry. I would be very interested to know what plans the Treasury has for safeguarding against such a situation as developed in the early spring of 1961.

Mr. Merlyn Rees (Leeds, South)

Does not the hon. Gentleman recall that in the Budget speech earlier this year, the Chancellor deliberately did not put up Purchase Tax? Is he not aware that this was the major factor in the pullback of the motor industry in 1961? Motor car workers are sensitive about this. Since the hon. Gentleman says that he has connections in the industry would it not have been better to have phrased that remark in a completely different way? This is an extremely nervous industry and there is no question of this happening.

Mr. Pounder

I have no interest in the motor industry now. I had once upon a time. What I am trying to get at is a at one saw running through the financial columns of yesterday's papers very real anxiety about the position in which the motor car industry was likely to find itself. I want a serious, non-political answer to a serious, non-political question.

May I turn to the position as it affects my part of the United Kingdom? On 6th August last year, in a television programme the First Secretary of State said, "You can build aeroplanes." We know that, and since the Government came into power last October the Belfast aircraft industry has gone through an excessively lean time. Its entire future is, to say the least, in a position of considerable uncertainty. We know that we can build planes. Why do not the Government give us the opportunity to continue with the development of what was a flourishing aviation industry?

During the course of the election we had promises about assisting regions of the United Kingdom. Let me take an isolated, but nevertheless very important example, which arose in the early part of the present Government's Administration. In November of last year the 15 per cent. surcharge was imposed. Raw materials were exempted but the raw material which is essential to the manmade fibre industry comes into the country, according to Treasury requirements, as a semi-processed commodity. Nevertheless, it is a basic raw material to this industry, an industry which in Northern Ireland has developed from nothing to being a very important industry in the short space of 10 years. What sort of incentive is this to companies which set up and develop in areas other than in the South-East and Midlands where there is under-employment and when they are finding it difficult to maintain employment and when circumstances are certainly not conducive to expanding production as a result of measures of this kind?

I do not pretend to be an agriculturist, but I have listened very attentively to all the debate and there has been no reference to the Government's behaviour in agriculture. I should have thought that the last Price Review, if it did not actually bring farmers to their knees, jolly nearly did so. The Chancellor of the Exchequer's benevolent 6d. increase in fuel tax last autumn added no less than £200,000 to the fuel bill of the ordinary small farmer in Northern Ireland. One questions very much whether this additional and unnecessary cost was taken into account in the Price Review.

I conclude by referring, as the hon. Member for South Shields (Mr. Blenkinsop) did, to shipbuilding. Here again, on 6th August last year, the First Secretary of State told the people of Northern Ireland that they could build ships, and we know this. But why have the Government obstinately refused to consider the reintroduction of the shipbuilding credit scheme which was so very successful in tiding an essential industry over a difficult period in 1963? We read in the trade and in the responsible journals about the savage competition which the shipbuilding industry is facing from Japan, Germany and other countries. Later this month—in about 10 days, I think—it is quite widely expected that the Council of Ministers of the European Economic Community will authorise a subsidy for shipyards within the Six. This is a direct subsidy of, I think, 10 per cent., except in the case of Italy for which it will be 15 per cent.

What action do the Government intend to take to safeguard the very important British shipbuilding industry? Only last week they announced their intention not to proceed in the immediate future with a nuclear-powered ship. Why? Is Britain, this great maritime nation, to be left behind again in the race for technological improvement in marine engineering? There is no justification whatsoever for withholding the green light to go ahead with the construction of a nuclear-powered merchant ship. If this is the Government's idea of saving, it is the height of the penny wise, pound foolish mentality.

8.2 p.m.

Mr. Brian Walden (Birmingham, All Saints)

We are nearing the end of a series of debates on censure Motions urged by the Opposition since the middle of last week. I will say for this Motion that, if it lacks any other merits, it is at least brief. Its message is simple. It is indeed a Tory Motion. It dodges all the snares and pitfalls of stating any ideas, any conceptions. It concentrates on emotion. Its message is very clear, and it came out clearly in the speech of the right hon. Member for Bexley (Mr. Heath): the Government, and especially the Prime Minister, are to blame for everything.

I do not want to put the Government's case. I am incapable of doing it, and they have their own spokesmen in the House. However, I do want to put a case which varies somewhat from the case put forward by right hon. and hon. Members opposite and to concentrate on two speeches—first, that of the right hon. Member for Bexley, and, secondly, that of the right hon. Member for Flint, West (Mr. Birch). I thought that both speeches were revealing, that both stated a case of a kind and that both need to be commented on.

I deal, first, with the attitude of the right hon. Member for Bexley, for whom, incidentally, I have a very great admiration. He said that it is quite wrong to say that the deficit would fall between £700 and £800 million. Apparently, that was an alarmist statement and it was wrong to average out the deficit for the last two quarters and to make it £1,000 million for the year and that the precise figure should have been, and was £745 million. The right hon. Gentleman then left the subject; that was the answer. Indeed, when pressed, he said that it was perfectly apparent that this £745 million was not a factor which was affecting confidence. There was no run on sterling before the election, and, therefore, palpably the deficit had nothing to do with it. It is, according to the right hon. Gentleman, the bungling of the Government which has produced it.

This was the argument which the Leader of the Conservative Party was prepared to put forward today in a debate on a censure Motion on the Government. This was the sort of comment which he thought it relevant to make about what has been happening in the country recently. In the right hon. Gentleman's view, the deficit did not count. All that counted, apparently, were the errors made in management and that if he and his colleagues had stayed in power there would have been no errors in management and no economic difficulties worth mentioning. This is in line with the arguments which hon. Members advanced during the debate on the censure Motion moved last week.

It is all very well for the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) to tell us how splendid it would be to put on additional taxes, which would increase prices and which would soak up excess demand. But that is not what hon. Members opposite were saying last Thursday. I understood then that increased prices were to be greatly deplored. Indeed, I have understood from speeches made by members of the Front Bench opposite and by the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home) in the country when he led the Conservative Party that what we wanted was not merely price reductions but tax cuts.

What we needed to do was to "beef up" the demand which lay in the economy and that it was this Government's taxation policies which had pushed up prices. The view was that if there were tax cuts and price reductions, all would be well—not at some future date, not in some vague future contingency, but here and now, as a serious policy to be urged this year. Apparently, what we should be concentrating on is a taxation policy which permits more money to fructify in the pockets of the people. Some of my hon. Friends will recall that that very phrase was used by hon. and right hon. Members opposite—more money for people to spend to increase the present level of demand in the economy.

Mr. Howe

The hon. Gentleman is advancing a fluent argument founded on an entirely false premise. The point made by my right. hon. Friend the Member for Kinross and West Perthshire (Sir Alec Douglas-Home) was that in the long run, as was done in the long run over 13 years, we on this side of the House would reduce taxes, thus enabling wealth to expand. That is a perfectly tenable proposition which needs to be dealt with justly and on its merits.

Mr. Walden

I will so deal with it. John Maynard Keynes said it long before I did, but, in the long run, we are all dead. What matters is not what right hon. and hon. Members think might be done in the long run, at the end of the century. What matters, as was rightly said by the Chancellor of the Exchequer today, is what they would do in the existing situation for which they are censuring the Government.

The only ideas from right hon. and hon. Members opposite which we have to go on are those which we have heard in today's debate and in the speeches which they make in the country. In those speeches, tax cuts and the iniquity of high prices have played a very large part. We are, therefore, entirely within our rights in assuming that hon. Members opposite feel that it is reasonable to talk about a policy of tax cuts in 1965 and that it is wrong that prices should be as high as they are.

The right hon. Member for Bexley called on us to be tough and to face up to things. I am prepared to face up to this and to say this: if the country takes out in wages, and therefore, in purchasing power, more than the economy can afford to bear, it will have to pay that money back through the nose in taxes and prices. That needs to be said. There is a lot of talk about how wrong it is that wages should go up and the surrenders which the Government have allegedly made on the wage front.

I do not think that hon. Members opposite can have the argument both ways. If too much has been paid out in wage awards this year, which is an arguable proposition, that is all the more reason why we should carry our present taxation and prices level. We cannot ask for tax and price reductions and not expect to see it have its effect within the economy, namely, to make demand, which is already excessive, yet more excessive. This is a dilemma to which hon. Members opposite have not applied their minds. It is no use their coming to this debate and saying that they have. They have not.

The hon. and learned Member for Darwen made an excellent speech, in which there were a number of good points. All of them were opposed to things that his own side has urged throughout this Parliament. The hon. and learned Member called for redeployment of labour. When we tried to redeploy labour following the TSR2 cancellation, there was opposition from the benches opposite. The hon. Member for Belfast, South (Mr. Pounder) told us that this year's Price Review was a bad one for farmers because it was not as generous as or perhaps not more generous than, last year's Price Review. We did not pay out more money to boost the level of demand. Hon. Members opposite must make up their minds.

If we significantly redeployed, as I think we should—and I do not want to deceive the House; both on the railways and in our extractive industries, in the aircraft industry and in a number of other industries, we are over-manned. There are too many people working in the industry. The railways could do with two-thirds of their existing staff, the extractive industries, including coalmining, could do with two-thirds of their existing manpower and the aircraft industry could do with two-thirds of the staff in that industry which we inherited on coming to power.

Suppose, however, that the Government try to undertake this hard redeployment, both in terms of producing it through Government machinery and in getting people to accept it. Is it really the case that hon. Members opposite come here shouting with joy because the Government are now adopting the right priorities? It is nothing of the kind, least of all from hon. Members who represent Northern Ireland constituencies, who regularly tell us that much more money must be pumped into their economy locally, and, therefore, into the national economy also, to stimulate a yet higher level of demand. I am all in favour of doing that.

The right hon. Member for Barnet (Mr. Maudling), who is doing me the courtesy of listening to my speech, was an expansionist. I agree with him about that. I agreed with his former leader, Mr. Harold Macmillan. I do not like to see deflation applied—nobody with sense does; but what hon. Members opposite have been doing is to call for an expansionist policy for agriculture, the aircraft industry, a number of other industries and in regard to our commitments overseas, at a time when we were in a situation that cried out for a reduction in the general level of demand.

Hon. Members may call it disinflation if they like. I will call it straight out deflation. This situation calls for a measure of deflation. It therefore makes no sense to be an expansionist, least of all hon. Members opposite when they were largely responsible, through unplanned and ill-thought-out expansion and remedies which for a long time have not been taken, for putting us into the situation when anybody who sat on the Government Front Bench and was exercising national responsibilities, including the right hon. Member for Barnet, could not fulfil the sort of demands that are daily made in this House, not merely in censure debates, but all the time, for people to be cushioning their constituencies against unemployment, for prices to be reduced throughout the country for the benefit and satisfaction of constituents and friends, and for no tough decisions to be taken when they hurt the sections whom we represent. All the harshness and the toughness has to be exacted upon somebody else.

Politics aside, do not all hon. Members know that in the trade unions, in business and even in the City, psychologically that is the main thing that is wrong? Change is always a splendid thing for the other fellow. He should always stiffen up his sinews and take it. If, however, it is a trade union which is being asked to make the change, people find that they cannot. There are very great difficulties. Change causes upset, and time is needed.

Industry will make the same argument. People in industry would love to export, but they have desperate problems in their home market. They have not strengthened themselves sufficiently. Life must be made softer yet for them so that they can sell more extensively and then they might, possibly buttressed by a soft market, be able to do some exporting.

The right hon. Member for Bexley, in the three items which he gave as his constructive suggestions, had the effrontery to include tax reforms and a reshaping of the tax system. When that was done in the Finance Bill, we had from hon. Members opposite the doctrine of unripe time. Change was involved. It upset the City—as if change anywhere in this extremely traditional country is not bound to upset the people who are the victims of it. It does not matter what we do, whether we change trade union structure, as I profoundly wish that we could, whether we change the rate of technical innovation in an industry, which I wish we could, or whether we change the consumption boom, which has done so much to prevent industries seeking markets abroad and stopping goods going abroad.

I am worried by the acceptance on both sides of the House of this consumtion myth. Whatever is done will involve change, and that will involve hardship; and the hardship will be resented. The trade unionist who is made redundant will be just as resentful as the City company which has to work out all over again its tax liability.

If hon. Members opposite put an argument against change in one regard, cannot they see that they are putting an argument against change in all respects, that if it causes trouble, upset and uncertainty in one sphere it will cause trouble, upset and uncertainty in every other sphere as well and that what they are asking is that the change should be put back, diluted, reported upon, referred and, in fact, given the St. Augustine's prayer, "Lord make us good, but not yet".

Mr. George Y. Mackie (Caithness and Sutherland)

A little earlier, the hon. Member classified agriculture with a number of industries which, he said, needed to be reduced in size in terms of manpower. I should like to point out that agriculture has had a constant reduction in its labour force ever since the war and has had a constant rise in production per man and a total rise in production exceeding the national average.

Mr. Walden

That is quite true. I could add, further, that the agriculture industry is a great saver of foreign currency. Is there an industry which is represented in any one of our constituencies for which we cannot make out an excellent case, especially in terms of its being given further tax assistance or a generous Price Review? What I said was not that agriculture was not valuable, but that in our given situation it has no right to expect the same sort of Price Review in 1965 as it received in 1964. Any hon. Member who says otherwise must explain how he squares his view with the general assessment which has been given from both sides of the present situation of the country.

I wish to say one or two things about this. The speech of the right hon. Member for Flint, West (Mr. Birch) was a classic illustration of stating problems cynically, no doubt, but nevertheless fairly, and with a great deal of intelligence, putting his finger on the problem again and again in blissful disregard of the fact that his hon. Friends all around him say utterly different things when the particular issues are raised. That, surely, must be a matter that is relevant to a censure debate.

Let me give just a few examples. The right hon. Member for Flint, West said that there was a demand for labour; he stressed this again and again. He said that the demand had enormously exceeded the supply and that we simply could not recruit the kind of labour we wanted because there is a desperate shortage. Does not that point out still further the case for the maximum amount of redeployment and make nonsense of the stand taken by the party opposite on TSR2, when the most valuable skilled labour reserves in the country were in process of being, at least in part, unfrozen? Hon. Members opposite opposed this.

Secondly, does it not, at least economically—I say nothing about the social side—make nonsense of the action of the party opposite on immigration? Who is it who tells us that we must keep down the number of people coming into the country? It is true that the Government have adopted a similar policy. I said earlier that I was not making the Government case; I was making a case against the censure Motion. It is true that the Government have gone a long way, although, I suspect, not the whole way. I suspect that we never shall go the whole way in satisfying hon. Members opposite on this issue, for a reason that everybody in the House knows.

Is it not hon. Members opposite who mainly have urged again and again that this country should be restrictive concerning immigrants? But they would not permit labour to come into this country, and that in spite of the fact that in another section of their programme they were in favour of joining the European Common Market, Article 48 of which insists on free movement of labour, including free movement of labour into this country. How hon. Gentlemen opposite will go to the country to explain that away when we join, as I hope we shall, the European Common Market, I do not know. It makes nonsense of their argument that the demand for labour exceeds the supply, as though in saying that they were in some sense censuring the Government. The right hon. Gentleman said that. He said that we could not blame industry, that we could not blame the men, that we must blame the Government, but the Conservative Party's policies are out of line with that statement that the demand for labour exceeds the supply.

Then the right hon. Gentleman told us about the figures of days lost in trade disputes. If I may say so with respect, the right hon. Gentleman has got hold of entirely the wrong end of the stick. It is not the general figures of days lost, whether 600,000 up on the previous year or not, that really matter in this respect. Our figures in this respect are a great deal better than those of the United States. Where we are worse, where we fall down, is in what is not easily expressed in statistics—the kind of stoppages of men in a dispute, even for a few hours, and which make little difference to the figures, but which sometimes will stop an entire factory. That is what really does the damage.

This is where we have a very bad record indeed, worse than that of any country. It is not a question of days lost. We do not want to play the numbers game about this. We play it often enough about other things. This is essentially a question of getting the analysis right. The analysis calls for an end of that sort of stoppage.

Again, I do not know that hon. and right hon. Members opposite really believe in this argument, but what the right hon. Gentleman the Member for Flint, West said calls for discipline in the trade unions. It calls for discipline and the closed shop. I did not know hon. Members opposite believed in that, but that is the logic of what the right hon. Gentleman was saying, that we want more discipline in the trade unions and an end to stoppages, and that there must be power in the hands of union officials. I had not realised that for all these years hon. Members opposite had such a great admiration for strong, central trade union authority. The right hon. Gentleman told us about hard-fought committee decisions. I recollect a previous speech of his, at least as brilliant as the one he gave us today, when he talked of wet-hand tactics—of sending a small force to take a fortress and having the force wiped out and sending another. May be so, but wet-hand tactics are better than no tactics at all.

Hon. Gentlemen opposite did not like the nasty remedy and did not do anything about it last year because their feeling for votes was stronger than their patriotic sense of duty. I have always believed that the right hon. Member for Barnet expected that things would pick up. He has said it often enough, and I accept it. He thought that by the end of the year, despite the situation of the third quarter, we should not be running a deficit. He was wrong, was he not? He miscalculated very badly. He says no, now, but is he really saying that, if he had started in January to put things right, by the end of December there would have been an overall deficit of about £745 million?

Would he not, with the benefit of that foresight, have done nothing different from what he did? Because if he is really saying that he is paying this Government the biggest compliment that anybody has ever paid them, because the deficit is running at the moment at half the level it was last year. I do not think that he would not have done more had he realised what was happening I think that he miscalculated. He expected that there would be an upturn. He was probably surprised, as we all are regularly surprised when we are in a boom period, to discover the amount of imports we were sucking in.

Hon. and right hon. Members opposite miscalculated. It is not only this Government who can be accused of miscalculation. During the last 13 years there has been a series of miscalculations, with upturn and downturn and always a measure of too little, too late. To use that as an argument may be all right at an Oxford seminar, but to use it as an argument here, in a Motion of censure against the Government, is ridiculous.

The right hon. Gentleman the Member for Flint, West, talked of a 10 per cent. duty on sweets and confectionery and the reimposition of prescription charges. I agree with him. I think that something like that should be done. I know that most of my hon. Friends will completely disagree with me about this, but we probably should put prescription charges back on and cut back the present level of consumption, but it does not lie in the mouths of hon. and right hon. Members opposite to say this. If we were to put an additional 10 per cent. on sweets and confectionery that would put prices up, and if we brought back prescription charges that would have a general effect in putting prices up, and we should have hon. and right hon. Members opposite coming here with another censure Motion saying that prices have gone up, and what are we going to do about it? They cannot expect to argue one thing on Thursday and a wholly different thing on Monday.

What we have suffered all along in this country is failure to analyse correctly. It is not that we have evil men. It is not that hon. and right hon. Members opposite or on this side are actuated by malice and a desire to do the country harm. Nor is it substantially true that one side or the other has sectional interests. I do not think that that is true. What I think is true is that we have suffered from a failure to analyse.

The right hon. Gentleman told us about an economist who used to talk about the necessity for public works, and, of course, he was thinking of Keynes, but the whole trouble with hon. Gentlemen opposite is that they have always wanted a magic formula for producing social contentment without the need for radical social change and they cannot now deny that in the 'fifties they thought they had got Conservative prosperity to work. What was it they built on? The propensity to consume, to satisfy all the appetites which lead to more consumption. They were proud of it. They said that it was a splendid thing.

They fought elections not on a stern message that the people should vote for Conservativism to take stern measures to put the economy in balance but on the message that the electors had never had it so good, and hon. Gentlemen opposite were proud at that time that living standards were rising rapidly, and that people were consuming more. It never mattered very much what they were consuming. That was never an argument which hon. Gentlemen opposite were interested in, and when it was pointed out that the community might consume its resources more rationally, they regarded that as a smear against affluence. Hon. Gentlemen opposite have very largely dug the pit into which we have fallen.

If it is true, as they say, that people do not appreciate the gravity of the crisis, that people are unwilling to sustain sacrifices temporarily to give permanent stability, that may be so, but whose fault is it? Can hon. Gentlemen opposite say that they have no responsibility for the mood that the country is in now, bearing in mind that they controlled the country's affairs for so many years, and that the harsh things that were said were outweighed by the complacent and mollifying things that were said? The party opposite, as much as anybody, hitched its wagon to consumption. Both domestically and abroad it pandered to this nation's greatest post-war weakness, a refusal to match its aspirations to its resources.

The right hon. Member for Bexley gave a glaring illustration of this kind of irrationality, and coming from a man of his intelligence and power it was almost terrifying. In his opening remarks he said, "We have commitments in Asia, in Africa, and in Europe. We alone of the free world are members of all the regional alliances. Is not that something to be proud of?". In one sense it is, but it points out the dilemma facing us. This was pointed out by Andrew Shonfield 10 years ago, and I recommend hon. Members to re-read his works.

We have this stupid belief that what matters is not the resources available to us, but the honour involved in the commitment; that if we are well doing it does not matter that we are doing it with other people's money. But it does matter. We have to reduce these commitments. Hon. Gentlemen opposite cannot say that they have taken a major part in doing that. Did they recommend a base that should be given up, or that we should get out of certain areas? Any economist with any sense knows that we have to internationalise our commitments in the Far East, and that our future is European and not Asiatic, but that idea was never suggested, and if this Government ever do it they will be criticised by hon. Gentlemen opposite. All sorts of things will be said about dishonouring commitments, and so on.

I believe that if we cannot expand resources to meet our commitments—and we cannot—we must reduce the commitments down to our resources. That is our general problem. Economically, socially, and psychologically, we consume what we do not earn. For prestige reasons, often for very good reasons of defence, we spend abroad money that we do not earn. Socially, economically, and psychologically, this nation is not prepared to face the situation in which it finds itself.

I would vote for a Motion that said that, but I shall not vote for a Motion which puts the blame for that on my party, and, by implication, takes the blame away from the men whom I regard as not wholly culpable, but more culpable than anyone else.

8.32 p.m.

Mr. Anthony Kershaw (Stroud)

The hon. Member for Birmingham, All Saints (Mr. Walden) has boxed the compass on a number of ideas. It is rather harsh on his part to blame us for the slogan of "Never had it so good", and not blame his own side for saying, "If you vote for us you will have it even better".

The hon. Gentleman may also have forgotten that at the end of his speech he said that if taxes were put up prices were stimulated and that made the situation worse, whereas at the beginning he said that if taxes were put down that also caused rises in price by releasing more purchasing power. The hon. Gentleman's argument about putting down taxes was a serious one, and I shall try to meet it. I think that tax cuts are possible without inducing any inflation or releasing resources for other purposes, if it is the Government who reduce their own expenditure. Nothing is more inflationary than Government expenditure by its very nature. By its nature it is taking permanent resources to spend in the current year, and that is a most inflationary thing to do. If the Government are willing to reduce their expenditure and to release such pressure on resources, which presumably expenditure is devoted to, we find that the inflationary position is remedied, prices do not rise, and therefore the economy is not under such strain.

I accept what the hon. Gentleman said, that if taxes fall we as taxpayers must do without things that we all want, that we must accustom ourselves to it and not scream too hard if we have to do without roads and without schools which are necessary, but which cannot be had without excessive public expenditure.

As for the aircraft industry and the TSR2, this is not a matter merely of the redeployment of labour. Very important defence questions arise. There are also important questions of technology for the future of industry, and important questions concerning the balance of payments. That is a rather more complicated subject than redeployment only.

I do not accept what the hon. Member said about the value of immigrant labour. I know that he comes from a part of the country where this question has been closely studied, but I believe that the idea that this country can dispose of large quantities of comparatively cheap and unskilled labour from abroad has postponed the modernisation which is overdue in parts of our industry. Nor do I believe that it is the right way to regard the immigrants who come in, and I do not think that in our mental approach to these matters we have benefited nearly as much as we should have done from the extra labour which has become available.

The point that the hon. Member made about Article 48 and the Common Market is not a valid one. He will realise that the regulations of the Commission lay down that the country concerned shall first offer to its own nationals any jobs which are going, and only after that is it possible for others to come in. This is admittedly a transitional period. Some people look forward to a United States of Europe. This may come about in the future, but it is hardly a matter of great importance at present.

The hon. Member talked of my right hon. Friend the Member for Barnet (Mr. Maudling) making some miscalculations before the election. That is not fair, either. One of the features of the election, which was covered up during the flurry of the hustings, was the fact that my right hon. Friend at all times put before the country the exact state of our financial position. During the three weeks of the election campaign—my memory does not serve me as to the exact date, but it was during the vital three weeks—figures were published showing exactly what the position was. There was no concealment at all.

Mr. Robert Maxwell (Buckingham)

Does the hon. Member remember that when the right hon. Member for Barnet (Mr. Maudling) introduced his Finance Bill in 1964 he said that he would not hesitate to introduce additional measures should the balance of payments necessitate it? Why did he fail to do so, since we were running a balance of payments deficit of £1,000 million a year?

Mr. Kershaw

The hon. Member will remember that my right hon. Friend was heavily attacked because his Budget was too deflationary. In any event, the second part of my point is that if we had not had the crisis of confidence which was induced by the party opposite it would not have been necessary to go in for these measures. The crisis of confidence was induced by the party opposite. After 13 years in opposition—and we can understand the climate of opinion—they were electioneering after the election was over. The first thing they did was to put £300 million in extra expenditure on the social and other services. One could hardly blame foreigners losing confidence if they found the Chancellor of the Exchequer and the Prime Minister saying that, economically, we were nearly bust and then reading in the newspapers the next morning that we had given away a large amount of extra money—

Sir C. Osborne

Which we had not earned.

Mr. Kershaw

—which was purely inflationary in its nature and which we had not earned, as my hon. Friend says. This was the crisis of confidence. The Government have been relearning once again—for the third time within our experience—the value of confidence to a country which is circumstanced as ours is economically.

Now we have been forced to abject surrender to the international bankers, whom the party opposite called the gnomes of Zurich, but who have treated us with great generosity. The gnomes of Zurich have been rather good to this Government—good beyond what they had a right to expect. But the gnomes and the international bankers generally remain unconvinced even now of the efficacy of the measures which the Government have instituted. As my right hon. Friend the Leader of the Opposition has pointed out, the Chancellor's calculations about the surcharge are about £190 million adrift at the moment. This is very serious. Of course, it also alarms our friends on the Continent. They must also look, I suppose, to various other projects which we have, and, in particular, to the projected very large expenditure of dollars for aircraft and other weapons from the United States, which will undoubtedly form a very heavy burden in the next year or so, combined as they will be with the repayment of the loans which we are now spending.

So we find that, in spite of the efforts and the loans, forward sterling is still weak and almost all the loans have been used up. It is true that our true reserves are no larger than they were and the deflationary measures which the Government have been forced to take may well cause a slowdown in production, which will have its cumulative effect once again. The Chancellor said this afternoon that he undertook that if, and I quote, "a reasonable increase in the rate of growth was achieved", he would guarantee that all the essential services envisaged in the Labour Party policy would be honoured in the years 1966 onwards. I hope that growth will improve, but, at the moment, it is down to 1½ per cent., which is far below what is necessary to implement those programmes. This is a very serious situation for us all.

Therefore, we find ourselves in a sterile position and, even if the measures which the Government are now taking are successful, it appears that we can look forward only to a dreary return to "stop-go", such as, I admit, we have had in the past and which has always been so heartily condemned by right hon. and hon. Gentlemen opposite and said to be so out of date.

What else can be done? We might resort to loan once again, but, on the question of going to the I.M.F. and trying with them to reorganise international liquidity, I am absolutely certain, as are all hon. Members, that nothing can be done quickly at present. We are, at any rate, almost at the limit of the money which we can borrow from them, and any increase would be very unlikely.

We might resort once again, if it were merely a matter of cash, to the United States. It has been assumed in the past that the United States would do almost anything to prevent devaluation of the £, because they would anticipate that the result would be very harmful to world trade and would bring down the dollar after it. I doubt whether those considerations are as strong as before. The dollar is steadily increasing its own power so that it may well be able to maintain its position even if sterling were well below it in value. The United States must also be thinking that it is about time she had a viable ally who is not always running to her for help. If devaluation is necessary—I do not think so—she might not rush to our rescue again in the way that she has done in the past.

Furthermore, as has been pointed out this afternoon, more loans are not the answer to the problem. The time is long past when the country could think of borrowing money in order to get itself out of this position. It would be possible—it has been done by Governments over and over again—fairly quickly to reduce the pressure on the labour market and to reduce the personal expenditure of the citizens. The Government have shrunk from this. I do not wholly blame them for that. It is a disagreeable necessity with so small a majority. It is politically very difficult to do and it is, perhaps, politically rather more difficult for a Labour Government than for a Conservative or any other Government. Whilst condemning therefore the results of their action, I have some sympathy with their attitude.

Apart from that, nothing has been done to sharpen the competitive position of our industry in general. I refer to the sluggardly approach to tax matters which we have seen in the Budget and which gives no incentive to younger people or to companies to improve themselves or to invest, and the sluggardly approach also to the problems of trade unions, whose influence is vital to our economy and which has been referred to a Royal Commission which may report sometime and may report never. There is no obligation to carry out anything which the Commission reports when we know what it is.

One way in which some progress could be made is by a more positive approach to the European problem. It is not solely or even mainly, an economic problem of working more closely with Europe, although this, in our present juncture, is extremely important. I agree with the hon. Member for Pembroke (Mr. Donnelly), to whose speech I listened with enjoyment, that the exposure of ourselves to a wider environment than just these islands, to a world environment in which our industry may operate is very imporant in our thinking and in our industrial approach to our problems. If our industry were able to shape its operations in a much wider sphere and consider a much larger home sales area, I am quite certain that we would get very much better response than we are getting at present.

It is very difficult to know what the policy of the Labour Party is towards Europe at present. Prior to this afternoon, I had thought that five conditions had been laid down, and had been repeatedly affirmed by the Prime Minister and by the noble Lord, the Earl of Longford, in another place; and that the five conditions were absolutely inviolable. Everyone knows that those conditions make absolutely impossible our working with Europe at present.

At Question Time today, however, we had the Minister of State for Foreign Affairs, to the obvious surprise and dismay of some of his elderly supporters, saying something quite different. He said that the five conditions were all negotiable, that they might not apply in the future or in the present context, and that, therefore, the whole thing was likely to be very different. I think that we are entitled—though, perhaps, not in this debate—to a further explanation of what the policy of the party opposite is in regard to Europe, because it is fairly obvious that the Minister of State, who heard of Europe only a short time ago, cannot possibly have given that Answer except under instructions. It must have been written out for him—he read it out very carefully, and quite well—and he must know whether the party opposite has drastically shifted it position in relation to Europe or whether the assurances of the Prime Minister about the five conditions still apply.

Whatever the policy of the party opposite may be about shifting its ground now, the sort of tentative building of bridges and tunnelling of tunnels has not been an answer at all. Nor do I believe that joint works studies and joint work on aircraft and other things that have been undertaken between ourselves and France will be extremely helpful. As they work out on individual items, they seem to be a donation by us to French industry. I have nothing against that provided that, in the long run, the thing works out well. At present, however, the arrangements that have been made, particularly in the technological sphere, do not instil very great confidence that the project has been soundly based. The proposals made from time to time that the E.F.T.A. and the E.E.C. should in some way get together, that the E.E.C. should become part of the E.F.T.A., or of something extraordinary like that, would not work at all, and should be discarded at once.

I admit that the present opposition by General de Gaulle to us, or to any extension of the Common Market until he gets it settled in the mould he thinks is necessary, is a very great obstacle, but a little more initiative might now be used. We should by now have heard something from the Prime Minister about the internationalisation of nuclear weapons. I believe that there is a very fruitful line here by which we might establish a European defence force based on some sharing of resources, not only nuclear but others.

I am certain that the negotiation will be long and difficult, but I am rather dismayed that it has not been started yet; not quite as dismayed as I might be, because I am quite certain that the party opposite would make the most awful hash of it, and as I expect our own party to be back in Government before long it might be held over. Nevertheless, a little probing of the matter would be helpful. It would be helpful for the Prime Minister to tell us something about it, because then we could think of an all-party policy. As he is not very good at negotiation while my right hon. Friend the Leader of the Opposition is, my right hon. Friend could well use the ground so well prepared by the Prime Minister, who is extremely good at words, and let my right hon. Friend get down to deeds, and do the job.

Unfortunately, the position of the Government has made very difficult the idea of making a further approach to Europe, because the economic situation in which we find ourselves makes it impossible boldly to launch into the arena either in relation to Europe or, indeed, anything else. We ought to be in the process of reducing our tariffs in order to expose our industry to greater competition, but we dare not do it because the result would be to suck in imports for which we cannot pay. We ought to stimulate our industry, but we are utilising measures which will have the opposite effect for the time being. We ought to be increasing our educational investment especially in technical education, but unfortunately we have had to put a stop to that and are at the moment reversing the trend. There appears to be a paralysis of policy at the present time. It is our hope that these measures may do the trick, but they will work only very slowly, because the Government have adopted what they feel is the least unpopular way of doing it. We cannot expect very much effect for a year or so, and that may be too slow.

Nevertheless, even if those measures are effective, where do we go from there? We have no hint of any further steps that may be taken. It does not appear that those measures will regain the confidence which is the Achilles' heel of their economic policy. If they cannot regain the confidence of those who have to invest in this country and, unfortunately, at the moment have to support it, there is no solution that we can expect from them. The only solution they can provide is to make up their minds to go, and have a General Election as soon as possible.

8.52 p.m.

Mr. Merlyn Rees (Leeds, South)

The last 45 minutes have been what might be described as a P.P.S.s' three quarters of an hour. My hon. Friend the Member for Birmingham, All Saints (Mr. Walden) is a P.P.S. to a Treasury Minister and the hon. Gentleman the Member for Stroud (Mr. Kershaw) was the former P.P.S. to the Leader of the Opposition. We all sat through the Finance Bill and, in a way, I suppose that this is the P.P.S.s' revenge. The revenge against me is that the brilliant 20-minute speech that I had prepared will now have to be cut down to five or six minutes.

The Motion is set in general terms, and it is not my intention to refer very much to economic matters. However, I will say, first, that the hon. Member for Stroud argued that it would be possible to cut Government expenditure and thus reduce taxation, without saying what. He argued that there was no need to cut the TSR2 and that there were defence matters to take into account as well, all of which indicated an attitude of mind in defence matters more appropriate to 10, 15 or 20 years ago than to today.

I regret one remark that was made by the hon. and learned Gentleman for Darwen (Mr. Fletcher-Cooke), which illustrated very clearly a growing national attribute. He said that he did not know the facts, which, I should have thought, would have inhibited him from going further. However, he said that the reason for the recent policy statement of my right hon. Friend the Chancellor was that a few weeks ago he visited Paris, where the French Finance Minister had my right hon. Friend on his knees, telling him to go back and deflate, and that this was a national humiliation.

This kind of self-flagellation by British people is getting too much. It is not a question of other people telling us what to do, but of facing up to the facts of cutting our coat according to our cloth. It is not the wicked foreigners who forced us to cut the TSR2. Nor are they responsible for our economic policies. We have to face up to the fact that we have to pay our way in the world.

The first point that I wish to make is that I support the Government overwhelmingly, particularly on their educational policy. There have been no cuts in the school-building programme. On far too many occasions in recent years, the first part of the public sector to be cut back has been the school-building programme.

Mr. Chataway

Can the hon. Gentleman give one example?

The Minister of Public Building and Works (Mr. Charles Pannell)

The hon. Member for Lewisham, North (Mr. Chataway) has only just come into the Chamber.

Mr. Rees

The hon. Member for Lewisham, North (Mr. Chataway) will know more than anyone else that in the 1950s, when the then Government decided to have their stop-go, it was always the school-building programme which was held back. This is not the case here.

Further, I commend wholeheartedly the policy of the present Government on comprehensive education. When the last Government went out of office about 90 out of 144 local education authorities were preparing plans for compehensive education. Yet now, in the opinion of the Opposition, this is wrong and bad; it is the sign of a "wicked" Socialist Government.

The argument that I put to hon. Members opposite is that the old concept of a tripartite system, which suggests that only a small number of children are capable of advanced education, is wrong, and this argument is not without merit in the economic field as well. We have got to use all the ability that we have.

In the newspapers during the weekend there has been considerable reference to the fact that for the first time ever both the Prime Minister and the Leader of the Opposition are ex-grammar school boys. But this is by no means typical. It is not enough just to give more education to a wider selection of people. We are still in the position where about 76 per cent. of our judges come from one type of school, as do a similar number of hon. Members opposite. We must create better opportunities. This is the only way in which in the long run we will achieve economic success.

We must also consider industrial relations. The right hon. Member for Flint, West (Mr. Birch) spoke of the "sinister" increase in unofficial strikes. Far more attention has got to be given to good management. According to the argument of the right hon. Member for Flint, West, there should be more unemployment in order to solve the economic problem. If that is the policy which is to be followed by hon. Members opposite, then with a return to full employment there will be strikes, and more strikes, because of the uncertainty which will have been created in industry. More attention has got to be given to status, better management and better industrial relations. Then we shall achieve undreamed of success.

Finally—[HON. MEMBERS: "Hear, hear."] It is all very well for hon. Members opposite to say, "Hear, hear". I have one great advantage over many of them. I have been in this Chamber all the afternoon and all the evening. I believe that the Government will succeed, because they have not merely deflated. They have considered the social scene as well. We live in a country where there is a great deal of snobbery and inequality. Only when we give attention to those matters as well as to the economic side of things will we eventually succeed.

It was recently suggested that the Labour Party is not firm in its support of the Government. [HON. MEMBERS: "Hear, hear."] Hon. Members opposite are making a grave mistake. My hon. Friend the Member for Abertillery (Mr. Clifford Williams) spoke of the old days and of the future. There is now a new generation in the Labour Party, and it is also concerned about the future. We shall stay in office. I give my overwhelming support to the Government.

8.59 p.m.

Mr. Reginald Maudling (Barnet)

Three times within a week we have criticised the Government on their conduct of our economic affairs, and this is clearly right because, as has been agreed today, the conduct of the economy underlies all that we can do in social policy and in foreign affairs.

Last week, we discussed rising prices and broken pledges, and the party opposite found it difficult to defend itself. The facts are only too clear. The cost of living is now rising at nearly 7 per cent. a year, groceries are up 9 per cent., houses up 14 per cent., rates up 14 per cent., electricity charges are up. There is a long run of price increases which cannot this time be attributed to import prices because import prices are lower than they were last spring and, if anything, are tending to fall. It is home policies and home policies alone which have led to the rising prices which are the worst scourge of our economy now.

We had our argument and attacked the Government on their pledges, and we have had support this afternoon from some hon. Members opposite. There were pledges on prices freely given at the time of the election, pledges on mortgage rates, pledges on parity for pensions and pledges on taxation. All these pledges were given at the election, but all have now been cast aside. The standard of living has been falling and confidence at home and abroad in this Government is at a very low ebb. No one from the benches opposite has tried to deny this, because it cannot be denied. All that hon. and right hon. Members opposite have tried to do is to offer excuses. I shall deal with their excuses.

The Government have two familiar excuses, one that the public were not told about the balance of payments position last year, the other that, when they came into office, they faced a deficit of £800 million. Both are wholly untrue. All the facts about the balance of payments—I hope that the Prime Minister will listen to this—were published regularly. If right hon. Gentlemen opposite were facing a deficit of £800 million, this could have been only because they were looking backwards, as three-quarters of it and more was dealt with by the time they came into power. [Interruption.] Yes, dealt with—that is the Prime Minister's phrase, 23rd November last year.

As regards publication, I ask the Prime Minister to note the facts. More than once he, the Chancellor of the Exchequer and others have said that the facts about the balance of payments situation were not published last year and that the public were deceived. In fact, all the figures about our trade and about the balance of payments were published regularly, without hesitation and without amendment. I challenge the Prime Minister once again, as I have in the past, though with no greater hope than in the past that I shall get an answer, to produce a single example of any regular statistics about the balance of payments which were amended, delayed, altered or suppressed at any time by the previous Government. [HON. MEMBERS: "Answer."] The right hon. Gentleman will have 35 minutes to answer.

I put this other point to the right hon. Gentleman. It is typical of him. Last Thursday, when he was making his speech, I interrupted to ask: Will he recall that the latest figures on the balance of payments were published without emendation in the middle of the election campaign? His answer was: Yes, and in the middle of the night."—[OFFICIAL REPORT, 29th July, 1965; Vol. 717, c. 743–4.] What did that mean? I shall give the facts. Those figures were published in "Economic Trends", as they always are every quarter, and they were issued for publication in the Press on the morning of 30th September. They were released to the Press with the usual embargo line beforehand in order to make perfectly sure that the Press had them in good time to give them full attention, full coverage and full comment. Whom does the Prime Minister accuse? Will he make it clear? That phrase, "in the middle of the night", clearly implies suppression. This is what underlies our censure of the Prime Minister this evening.

Mr. Thomas Swain (Derbyshire, North-East)

On a point of order, Mr Deputy Speaker. I have just heard an hon. Member on the Opposition benches below the Gangway accuse the Prime Minister of being a twister. [Interruption.]

Mr. Deputy-Speaker (Sir Samuel Storey)

That does not raise a point of order.

Mr. Maudling

I just want to know one simple thing from the Prime Minister. When he referred to "publication in the middle of the night", was he accusing me of ordering the Civil Service to publish at the least conspicuous time, or was he accusing them of doing it? [HON. MEMBERS: "Answer."] He will not answer. This is my main charge against the Prime Minister—that he loves the smear and the innuendo, that he is a mean-minded man, a mean-minded little man masquerading as a Prime Minister.

Mr. E. Shinwell (Eastington)

Whatever my right hon. Friend is, he is better than you.

Mr. Maudling

The next point is about the expenditure commitments that the Government found. The Chancellor made some extraordinary statements this afternoon. He ought to look at this again. I think he got it back to front. The White Paper that we published in November, 1963, was a costed programme based upon Cabinet decisions based upon the allocation of priorities but, above all, based on the allocation of priorities to education and housing. Does the Prime Minister object to that? I did not think he would, but perhaps he does.

That programme in our White Paper of November, 1963, was still valid at the time of the General Election. Although we had added to the expenditure on education to accommodate the Robbins Report—what happens to the Robbins programme now I am not very sure—and added to it also because of the increased housing programme—what happens to the increased housing programme now is far from clear—despite that, our total estimates for expenditure in 1967–68 in that White Paper were still valid at the time the General Election took place.

In any case, what is the Chancellor complaining about? Is he complaining that we planned to spend too much? It is very strange. His colleagues and friends were certainly saying exactly the opposite all through last year. It is very strange that in the White Paper which the Government produced on 26th October last year they said quite clearly that, apart from the special problems, there was no undue pressure on resources calling for action. They said that, moreover, the Government rejected any policy based on a return to "stop-go" economics. If that was so at that time, if there was no undue pressure on resources at that time, if Government expenditure at that time was not too high, what is the right hon. Gentleman complaining about? He said at the time, quite rightly, that what the previous Government were putting forward in the way of a programme was the most any responsible Government could put forward. He tried—manfully, I agree—to restrain his colleagues and friends from doing the opposite. He did not succeed. Chancellors, shadow and otherwise, have their difficulties.

The Chancellor tried to stop the Labour Party from promising the impossible in expenditure, but he failed. On top of our programme in the White Paper, which we said was heavy and onerous, they piled hundreds of millions of £s of promises. In hardly an aspect of our social or economic life did they not make promises which involved more expenditure. How, then, can they come forward now and say that we were planning too much? How can they say that we were planning too much when we were, in fact, planning a programme of expenditure linked to a 4 per cent. growth rate, which was a good target and the national target?

Mr. William Hamilton (Fife, West)

You did not get it.

Mr. Maudling

We did get that target from the moment we started. I know that the Chancellor, when he came to office, said that it was only 2 per cent. but he was wrong. From the time the programme was introduced we reached 4 per cent.

What is the more surprising about the Chancellor's attitude is that we were planning public expenditure at a rate which involved an annual increase of expenditure of 4.1 per cent. but his own programme, produced last February, entails an increase of 4.25 per cent. If what we were planning was so grossly excessive, what is he playing at? He cannot get away with that sort of argument.

The fact is that the Government, having inherited a problem, created a catastrophe. The proof lies, strangely enough, in the Prime Minister's own speeches. I do not often quote his speeches to prove arguments but on this occasion I can. The balance of payments in 1964 was always going to be a substantial deficit. I said so in my Budgets of 1963 and 1964. This was accepted by the Prime Minister as being a wise move. In more than one of his economic speeches he said that we should draw upon our working capital, our liquid resources, to carry expansion forward.

When the Government came to office, some three-quarters of 1964 was through and more than three-quarters of the deficit had been covered, without any loss of confidence in the country because people abroad had confidence in the Conservatives. The Prime Minister himself summed the thing up extremely well in that famous speech of 23rd November which he tried so hard to forget. He said: The fact is … that so far as the trade gap is concerned, whatever the trade gap or the payments gap—whatever has been estimated as having to be met—there were reserves and borrowings more than adequate to meet this, but in the course of the past week there has been this new development arising rom confidence factors …".—[OFFICIAL RFPORT, 23rd November, 1964; Vol. 702, col. 933.] He meant lack of confidence factors. This is the truth of the matter. In 1964 we had, as we always said that we would have, a large deficit both on current account and, as it happened, on capital account with the special factors to which the White Paper of 26th October paid particular attention. I think that the right hon. Gentleman has forgotten that since. Both on capital and current account we expected a substantial deficit in 1964. We always said that the change would come in the winter and the change did come in the winter.

Mr. Shinwell

A good job.

Mr. Maudling

By the first quarter of 1965 the deficit on current account had been completely eliminated and no one, not even the First Secretary of State in his wildest flight of imagination, could pretend that that had anything to do with the present Government.

If evidence is required, I ask the Prime Minister to study the evidence. [Interruption.] The First Secretary of State is back from the Socialist meeting in Stockholm where he must have been the only European Socialist who still believes in Socialism. The truth is that the balance of payments on current account by the first quarter of this year had got back to balance—and that owes nothing to the party opposite.

The First Secretary of State and Secretary of State for Economic Affairs (Mr. George Brown)

The import surcharge.

Mr. Maudling

The First Secretary might believe that, but no one else will. He should look at the Board of Trade statements. The import surcharge had no effect on this. Export incentive? Bless my soul! No one would expect that to have any effect by the first quarter of the year. Precisely as we said all the time that after 1964 the balance of payments would come back, come back it did in the first quarter of this year into balance on current account.

What has happened since has been another story. What has happened since has been that the position has been deteriorating, and it has been deteriorating because the Government have neither achieved the confidence of business at home or abroad nor been able to produce a policy which could control the rise of prices in this country, which is a fundamental cause of the difficulty of our balance of payments.

The truth is simply this: having inherited a problem, they created a catastrophe. As I said; inheriting a situation where confidence remained in sterling despite our difficulties, the Government have destroyed confidence at home and damaged confidence abroad, and all the difficulties which we face and all the problems which we have now and all the measures which have to be taken stem from that lack of confidence.

Let us consider some of the things the Government have done—the surcharge and the way in which it was handled and the lack of consultations with our friends, half-promises about exemptions which did not come off. Bank Rate was not to go up and then it was. The Prime Minister said during the election that it was perfectly reasonable to put up Bank Rate, but that it would not be put up when his party became the Government; suddenly, at the last moment, on the wrong day, and at the wrong time, Bank Rate went up to panic levels and even then the Chancellor of the Exchequer did not know why he was doing it. One day he said that he hoped that it would not work through to the domestic economy—"for obvious reasons", he added, and I can understand that—and the next day he said that this was a reinforcement to the Government's deflationary measures. It is difficult to take the Chancellor seriously when his views vary so much in such a short time.

With respect, the new taxes which he introduced were a fundamental mistake when they were announced at that time last year, because, as I said at the time, they did considerable damage to the balance of payments because they discouraged the inflow of capital to this country at a time when the inflow of capital was immensely important. A look at the balance of payments figures for the first quarter of this year and the capital element in the balance of payments will show quite exceptionally reflected the Chancellor's unwisdom in announcing these taxes at a time when it became apparent to everyone at home and abroad that he had not the faintest idea how they would work out.

Then there was the Budget of last November. I said at the time that that Budget was inflationary and I repeat it today. His calculations were wrong in that on the one hand he made expenditure calculations which would lead to a large increase in demand and, on the other hand, he had reckoned to balance this up with the increases in taxation, Income Tax and the National Insurance contribution, which would not have the same effect. I said that the National Insurance contribution would largely be borne on the expenses of industry and increased Income Tax would largely be paid out of savings. It is no good making a neat calculation of expenditure and revenue on paper if one does not take into account that revenue will come not out of current consumption, but out of savings.

One can trace quite clearly from that Budget of last November the growing pressure on the economy. We accept the Government's view that in October when they came to power there was no undue pressure on the economy. They said so and the First Secretary agrees. There is now and for many months there has been, and step after step has been taken by the Chancellor of the Exchequer to try to reduce the pressure on the economy. But if pressure was not excessive in October, why has it become excessive since? There are two reasons. The first is that the right hon. Gentleman's Budget was an inflationary Budget by any economic calculation and the second was the collapse of the First Secretary's incomes policy. It has collapsed. It has been shot through. I, for one, regret it. I would not say otherwise, because I tried to get a similar policy when I was Chancellor of the Exchequer, and I failed because the trade unions would not agree. It is as simple as that. The right hon. Gentleman the First Secretary of State, having got a statement of intent, which he believes to be a policy, has been undermined so often by his own colleagues.

If he wants to know why his incomes policy is not working he need not look very far. He has only to look beside him. Look at the effect of the Chancellor's measures, at the effect of the new taxes, the effect of the succession of Budgets upon the level of prices. This undermines any chance of an incomes policy. He can look at some of his colleagues, the Postmaster-General and others, and the wage awards agreed in the public sector. It does not make any sense to attempt to have an incomes policy norm of 3½ per cent. as a Government collectively, and individually to act in a wholly different manner. I can produce for the right hon. Gentleman a long list of wage settlements in the public sector, all of them above the norm. There is only one—if one—below. This is why the holes have been shot in his policy.

Finally, there is, of course, the Minister of Technology. At least, he has the grace to admit that he does not like the policy anyway. These are the main reasons why the present Government have lost the confidence of people in this country and the confidence of people abroad: inept handling of the surcharge; the muddle over the Bank Rate; the muddle about the new taxes; the first inflationary Budget; the credit squeeze in December, imposed by the Chancellor and promptly denied the next day in a speech by the First Secretary; the constant optimistic remarks, denied a little while later—"Things are getting better, we are getting round the corner", or round the bend; all the time saying things are getting better.

The worst example was the Chancellor's speech on the Third Reading of the Finance Bill. I know that today he made a gallant attempt to defend it, but the simple fact is that the effect of his speech on confidence abroad, as reflected in the market, was a serious one. It was a very unwise speech and I think it did great damage. It was another example of the way the contradictions and incompetence of this Government have created the problems from which this country is suffering.

That is my main charge against the Government. They are incompetent in the handling of our economic affairs. My second charge is the way they have concentrated on doctrinaire policies, rather than on practical matters. For example, steel nationalisation, from which they were extricated only by their own folly; the handling of the British aircraft industry; the handling of the airlines; road transport; the Geddes Report with the idea that there should be more competition, hastily interred by the party opposite; their attitude to private landlords expressed so succinctly by the Minister of Housing; their doctrinaire attitude in imposing comprehensive schools throughout the country.

All these are examples of the way in which party doctrine has been given priority—that favourite Socialist word—over the practical needs of the nation. Above all, I blame the Government and the Prime Minister for this, that from the start they wrote down the position of this country and denigrated our own economic strength. They exaggerated the difficulties, as I have shown this evening. They went to Geneva and made emotional speeches. In April the Prime Minister was talking to the bankers of New York about the great strength of sterling, about the £11,000 million we had piled up in the days of private enterprise to defend our currency. A pity he did not talk about that last autumn, a pity he did not talk about that last November. Perhaps the crisis of confidence he talked about on 23rd November would not have happened if he and his colleagues had taken a different line.

These are our charges against the Government: incompetence, doctrinaire attitude and a deliberate attempt to denigrate the position of this country. That is why we want this vote this evening—to sweep away this weak and defeated Government, and this little man masquerading as a Prime Minister.

9.25 p.m.

The Prime Minister (Mr. Harold Wilson)

I should like to join the right hon. Member for Flint, West (Mr. Birch) in congratulating my hon. Friend the Member for Abertillery (Mr. Clifford Williams) on his maiden speech. It has occurred in the third, and we are now approaching the end of the third in this series, of censure debates which, we were told, would transform the political scene and electrify the Conservative Party. In fact, the first two censure debates were killed after the opening Front Bench speeches, and today's died quietly and without a struggle half way through the opening speech.

I must say that, despite that, it was revived by the speech of the right hon. Member for Barnet (Mr. Maudling), who made a much better speech. It is a great pity that he did not make it a fortnight earlier. I am bound to say that, taking all the speeches in the censure Motion debates, I thought that that of the right hon. Member for Altrincham and Sale (Mr. Barber), the former Minister of Health, did the best service for his party and that that was the best.

Referring to the maiden speech, if I may put it in that way, of the Leader of the Opposition, we are very grateful to him for one memorable phrase. He referred—[HON. MEMBERS: "Answer the debate."] I will answer the debate in my own way. I was grateful to the right hon. Gentleman for that memorable phrase about "the tortoise in the tank". I must say that I liked that. I liked it the first time I saw it in a Sunday Citizen cartoon on 27th June. I am sure that the House will always be ready to hear the right hon. Gentleman again, especially if he keeps reminding us of that phrase.

I will now deal with the right hon. Gentleman's speech. I thought—[Interruption] The hon. Gentleman will find that the Smoking Room is full of the hospitality which he wants. I thought that the right hon. Gentleman this afternoon was at his best near the beginning of his speech and a little later when he referred to Britain's place in the world and when he made his statement about the need for new attitudes in industry. He did not, in fact, get near at this stage—we understand this—to giving us a policy, although as long ago as last March he told us that he had the election programme ready. Today, we thought that we would see something of it. Nevertheless, we have a few statements—[HON. MEMBERS: "What about the Government's policy?"] Hon. Members opposite will get it if they just listen.

I want to follow the example of the right hon. Gentleman and to deal for a short time with some of the more fundamental parts of his speech and with some of the more fundamental questions which he raised about the industrial problems that we are facing. Therefore, I will leave for the moment—I will come back to it later—the question of the responsibility for the nation's economic position, the balance of payments position in 1964, the steps taken to reduce the deficit in 1965, to remove it next year, and all that. I want to try to direct the House's attention, as the right hon. Gentleman tried to do, to the more fundamental and long-term and deep-seated industrial problems which we face.

The House will agree, I think, that whatever short-term financial measures are needed in the kind of situation which we face, whether they be budgetary or monetary, or deal with hire purchase or any other question, they are essentially short-term measures to prevent the problem becoming a crisis, and to deal with the immediate problem of relating demand to the resources available. But they cannot of themselves cure the more deep-seated problems which we face.

Indeed, most of the short-term crisis measures of the past few years, under both parties, have been unable of themselves to deal with the industrial shortcomings. Some of the policies that have been followed have intensified our industrial shortcomings by deterring new investment in industry and then, through causing stagnation, under-employment and under-capacity working, discouraging innovation, discouraging risk-taking and enterprise, driving employers and trade associations—[Interruption.] I hope that hon. Members will take this seriously and try to follow the argument.

Short-term measures have driven employers and trade associations, on the one hand, and workers and trade unions, on the other, into a short-sighted but understandable reliance on restrictive practices. I believe that this has happened repeatedly, and I should be less than frank with the House if I did not refer to the margin of danger—[Laughter.] We are trying today—I though that this was the purpose of the debate—to deal with the future of Britain and its industrial problems.

There are some hon. Members, on both sides, to whom this subject matters. We are entitled, on both sides, to say what we think about it. Those hon. Members who are not concerned can go to the Smoke Room or to the bar.

My second point—[An HON. MEMBER: "What was the first?"] Those who were listening heard it—is that the solution—[Interruption.]

Mr. Robert Maxwell (Buckingham)

Why do you not belt up?

The Prime Minister

My second point is that the solution does not lie in cutting demand to an uneconomic level. Repeatedly, in past years, a crisis in our balance of payments has been met by reducing the level of industrial activity well below our productive capacity, producing not only under-capacity working but short time and under-employment. The theory was that this would discourage imports, because an industrial machine in low gear requires less imported material and the reduction in earnings would reduce the demand for imported consumer goods, while, at the same time, a tough home market would just marginally drive manufacturers into export markets. Certainly, there was less acute shortage of skilled manpower and industrial capacity.

Certainly, that kind of policy meant an improvement in delivery dates, which is one of the most important factors in improving exports. But to the extent that it works—and I have described the effects of this in terms of investment, innovation and restrictive practices—by its very nature it could work only so long as the under-capacity working continued. Once we sought to expand, and as elections drew near, there seemed to be a reluctance to tolerate the unemployment which had developed. There was a new desire to reflate and expand and, as we expanded, imports rose, exports were affected and the whole weary four-year cycle began again.

It is quite clear—[Interruption.]

Mr. Marcus Lipton (Brixton)

Order.

The Prime Minister

I ask the House whether it wants to hear the views of the Government on these fundamental questions that were raised by the Leader of the Opposition—incomes policy, restrictive practices, training for skill. Do hon. Members want to hear this or not? This is the best possible argument for the televising of Parliament. If there is one thing hon. Gentlemen opposite cannot stand to hear at the end of a debate it is the truth about our economic position.—[Hon. Members: "Answer our questions."] I shall make my speech in my own way. Hon. Gentlemen are free to listen to it or not, as they think fit. I think that the right hon. Gentleman the Leader of the Opposition wants to listen to it.

Mr. Heath

Yes.

The Prime Minister

I have made clear that holding down production for long periods is no answer to our economic difficulties, because nothing has happened in the period of low production to make us more resilient, more able, in the boom, to maintain and expand our exports and hold down imports by competitive home production. The problem we are facing, therefore, is not a financial problem, Basically, the problem is industrial, and it is with this I want to deal.

Last Thursday, I gave the House the symptoms of this problem. In 1964, a year of expanding world markets, world trade in manufactured goods rose by 14 per cent. while our exports rose by only 4 per cent. I do not think that the right hon. Gentleman the Leader of the Opposition, who was President of the Board of Trade at the time, will deny that our exports rose by 4 per cent. It is a very serious fact. Our exports rose by 4 per cent. against a world increase of 14 per cent. Similarly, in 1964, imports of manufactured goods into Britain, equally capital equipment and consumer goods, rose by 30 per cent. over the previous year, and the previous year they had risen by 30 per cent. over 1962.

I would remind the House of figures I recently gave in a debate about the Commonwealth. These are serious figures and the House must listen to them. From 1959 to 1964 imports into other Commonwealth countries rose by nearly £2,000 million. Our share, British exports, despite our preference advantage, was £65 million, or only 3 per cent. of the total increase in imports into Commonwealth countries.

These are the problems and the reasons, and the right hon. Gentleman knows this and understands this; it was the point he was trying to deal with this afternoon: all the time successive Government are being forced into short-run policies, because we have not sufficient adaptability and resilience in our industry to deal with the need to increase exports and to reduce our imports from abroad.

I will now try to say what I think is needed and what we are doing about it. First of all, our experience—

Mr. Alan Williams (Swansea, West)

On a point of Order. Mr. Speaker, do you intend to stop the organised conversation on the opposite side of the House?

Mr. Speaker

The rule of the House is that conversations should not be so loud as to interfere with the currency of the debate. It is the duty of all hon. Members, irrespective of their situation, to comply with the practice of the House.

The Prime Minister

I was referring to our export effort, the need for more of our industrialists, many of whom have good products which are competitive in world markets, to venture into export markets. We are told that 300 firms account for half of our total exports; and we have, of course, the familiar problems of delivery dates, delivery dates which are too long, delivery dates which are not honoured when they are fixed, after-sales servicing, spares, lack of attention to orders, unanswered letters, failure to submit tenders and the rest. [HON. MEMBERS: "The docks?"] I will deal with the docks in a moment, if hon. Gentlemen will listen. These problems are the problems which successive Presidents of the Board of Trade have faced and have preached about and have warned us about, and I admit that the answer is not easy.

I wish to refer now to the three problems raised by the right hon. Gentleman. The first of these is the problem of costs which is created by the tendency to take too much out of industry in the shape of rewards, whether wages, salaries, profits or dividends. The second is the problem of costs created by the tendency to put too little into industry in the shape of restrictive practices whether from monopolies and market sharing, or from insistence on the overmanning of a particular job, whether overmanning quantitatively—too many men—or qualitatively—too high a grade of skill—and the third is the problem of skilled manpower and industrial training. These are the obstructions which bar our path, first to viability, to the ability to pay our way, and then to great rises in the living standards that we can enjoy and the living standards that we can help others to enjoy.

On the problem of increasing costs rising from increasing incomes, I think that the whole House, or practically the whole House, recognises the need for an incomes policy based on a planned but restrained expansion of wages and other incomes planned to correspond with, to keep up with, but not to exceed, the planned expansion of industrial production. In opposition, as in government, this has been a centrepiece of our policy, and before the election we said that it would be.

My right hon. Friend has secured what has never been secured before, the willing assent of industry to the principle and to the machinery necessary. We have had disappointments, I do not underrate them, but for heaven's sake let us stop the self-satisfied cynicism of those who, after only two or three months of an incomes policy, say, as two right hon. Gentlemen said on successive days last week, that the incomes policy has failed, that it is a flop. To say this really is sacrificing the national interest to partisan considerations, because any new policy introduced after half a century of free and uninhibited collective bargaining is bound to have teething troubles, to say nothing of the immediate problems of differentials, of leapfrogging and outstanding claims, any of them undeniably strong, many of them conceded, as the postal workers were, in principle before we came in.

Let us remember that the most successful machinery for an incomes policy in the world, that in Sweden, took 20 years to evolve. Certainly, we cannot afford a tenth of that time, but do not let us dismiss ours as a failure after only three months. Equally, let us be clear that one cannot preach the doctrine of freedom for other people to exploit a seller's market and then exclude labour from it. To this extent the right hon. Member for Wolverhampton, South-West (Mr. Powell) is logical, because he believes in a free market in land and in houses, regardless of social considerations, and a free market in goods and in labour. He thinks that it is wrong for a worker to demand less than he can get through the free play of the market. The right hon. Gentleman is nodding in agreement. I hope that the Leader of the Opposition will take the first opportunity to dissociate his party from the right hon. Gentleman's doctrines.

I do not accept the inevitable failure of the prices and incomes policy. We believe, as my right hon. Friend the Minister of Labour said last week, that this can be made to work within the operation of free collective bargaining, because democracy is at its greatest when it bases itself on restraint. I do not want to see statutory measures to enforce this policy, nor do I underrate the enormous practical difficulties of statutory provision, but if this fails, we cannot go back to the free-for-all.

If the voluntary system fails, we might have to provide for statutory reference of every claim for increased incomes above the norm to go to an expanded and strengthened Prices and Incomes Board, just as in the absence of voluntary agreement we might have to require a compulsory early warning system for reference to the Board of proposed price increases in cases which seem to require justification. I say I hope not, but do not let the House think that there is a way out in the absence of a prices and incomes policy, or that all we need is cheap sneers at the problems that we face in introducing it.

But, as I have said time after time—and other right hon. Gentlemen on both sides of the House have said it—an incomes policy, however necessary, of itself may appear negative, because an ounce of increased productivity is worth a ton of income restraint. This nation must become a high productivity economy before it can become a high wage economy. Once that is accepted, high wages will, in turn, lead to yet higher productivity.

We talked last week about monopoly and restrictive practices on the management side. The right hon. Gentleman today referred to what he called restrictive labour practices. I do not remember that he had much success with them when he was Minister of Labour, or that he even talked about them much in those days. The Government have now decided to identify a series of practices characterised by over-manning or other requirements which limit production per man, and to press by all the means open to a modern Government for ending these practices on fair terms, in which the resultant gains are shared by workers and consumers. We made clear our position months ago on liner trains.

My right hon. Friend the Minister of Labour has made clear our attitude to the Southern Region go-slow. Increased pay—yes; but whatever the cost we shall not agree to a pay settlement which fails to include the necessary provisions on manning and productivity.

There are discussions going on today about printing with the National Board for Prices and Incomes and, as the House knows, progress is at last being made on working practices in shipbuilding, with the very recent improvement in individual yards and the breakthrough on the Tyne which was referred to by my hon. Friend the Member for South Shields (Mr. Blenkinsop). All these things are having a marked effect now, not least in landing new and valuable orders, and they are being further examined by the shipbuilding inquiry that we set up this year. Shipbuilding orders in the first half of this year are the highest for eight years.

Perhaps the biggest challenge and the biggest opportunity that we face will come now that the Government have received the Devlin Report on the docks. My right hon. Friend will be making a statement before the House adjourns and the Report will be in the hands of hon. Members before the House adjourns on Thursday. [Interruption.] We received it at the end of last week. We have not wasted time. This Report is highly relevant. [Interruption.] I remember the right hon. Gentleman holding up the publication of a Monopolies Commision report for 10 months. Our record is not very bad on the Devlin Report. This Report is highly relevant. [Interruption.] I hope that hon. Members will take these problems a little more seriously. I know that it is late at night for them. The Devlin Report is highly relevant to exports and to efficiency. There is no area in the economy more relevant to exports and to the problems that we are facing than the issues thrown up by that Report.

It is on these lines—the problems of the incomes policy; the problems of restrictive practices; the problems of training for skill and the problems of a more intensive modernisation of our economy—not least in these key fields of computers where we have saved the British computer industry from extinction—that we can make industry effective, vigorous and muscular.

I believe that these are the issues which really underlie this debate and the two censure debates of last week.

Sir C. Osborne

rose—

The Prime Minister

I am sorry. I cannot give way. I have had so much seated interruption that I really have not time to give way to the hon. Member.

We heard from the right hon. Gentleman this afternoon his charges against us and I shall answer those charges for those who want to hear them. I repeat that he has not answered our charge against him—that this censure Motion should be against the Opposition, who allowed this situation to develop, who shirked the action necessary because they feared the electoral consequences and who made the situation immeasurably worse by postponing the election to the last possible minute.

The right hon. Member for Barnet at least warned his colleagues about this and demanded an election. In that, he was willing to put the economic strength of the country above his party interests. But what about the right hon. Gentleman the Leader of the Opposition? He knew the economic situation as thoroughly as the then Chancellor did. Did he join in those warnings, did he join in those demands for an early election so that action could be taken? What we are talking about—[Interruption.] I do not think that it comes very well from right hon. Gentlemen, who, knowing that action was needed, postponed the election, to talk about this today.

It is not only the conduct of the last 13 years, it is the conduct of the last nine to 10 months which we are dealing with today. The Leader of the Opposition condemned the actions we took on taking office. [HON. MEMBERS: "Hear, hear."] But the right hon. Member for Barnet at that time said that this was his diagnosis and these were his remedies. Those were his words.

I want to ask whether this was not the diagnosis and these the remedies of the Leader of the Opposition, or had he even then started the process of competitively undercutting each of his rivals? [HON. MEMBERS: "Cheap."] I want to ask the right hon. Gentleman what action he would have taken in the situation which the country was facing last October. If he was opposed to surcharges, was he in favour of import quotas? [HON. MEMBERS: "Answer."] I want to put this straight to the right hon. Gentleman because—[HON. MEMBERS: "Oh."] I know that hon. Members opposite want to protect him, but we are going to have an answer on this.

The right hon. Member talks all the time as though an £800 million deficit was not serious until people started to talk about it. I want to ask him this. He and his colleagues knew the facts last October; they knew what had to be done—[An HON. MEMBER: "So did you."]—but the right hon. Member for Barnet told us that he did not know that it was worse than £600 million. In those weeks during the election—[HON. MEMBERS: "Answer the debate."] I am answering the debate. In those weeks—[Interruption.]

Mr. Shinwell

rose—

Hon. Members

Sit down.

Several Hon. Members

rose—

Mr. Speaker

Order. It appears to me that there is too much noise.

The Prime Minister

I want to put this question to the right hon. Gentleman. He and his colleagues knew the facts. He knew what had to be done. In those very weeks they were preparing emergency action for dealing with this situation. I do not know whether their Cabinet colleagues knew, but the right hon. Gentleman knew. When we came into office we found that men who a day or two before on the hustings were denying the gravity of the situation had prepared for immediate introduction two alternative schemes, one for the surcharge and one for a total system of import quotas—

Hon. Members

Oh.

The Prime Minister

I want to ask the right hon. Gentleman whether he denies that in his Department, while he was making those speeches, and under his authority, a system of complete quantitative regulation of our import trade was being prepared, which was on our table when we came in, for immediate introduction—

Hon. Members

Answer.

Mr. Speaker

Order. The House must not make so much noise. I do not dictate, and do not seek to dictate, the contents of hon. or right hon. Gentleman's speeches, but I hope that the House, in its own interests, will listen to some of them.

The Prime Minister

The right hon. Gentleman refuses to answer the question, but we know that the facts show that the censure Motion, and his own attitude, are total humbug—

Mr. Heath

This is absolutely typical of everything which has characterised—[Interruption.] To raise a point at two minutes to ten—[interruption.]—when there is no opportunity whatever to discuss it—[Interruption.] The situation is well known; that the last Government instructed officials to examine every possibility—[Interruption.]

The Prime Minister

rose—

Mr. Speaker

Order. As one of my predecessors said, "Order, order—both of you".

Mr. Heath

Any Government would have been wise to examine those possibilities—[Interruption.] No decisions of

any kind were taken, as the Prime Minister knows full well—[Interruption.]

The Prime Minister

The right hon. Gentleman is afraid. We treat his censure Motion with contempt.

Mr. William Whitelaw (Penrith and the Border)

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly:—

The House divided: Ayes 290, Noes 303.

Division No. 268.]	AYES	[10.0 p.m.
Agnew, Commander Sir Peter	Courtney, Cdr. Anthony	Harvie Anderson, Miss
Alison, Michael (Barkston Ash)	Craddock, Sir Beresford (Spelthorne)	Hastings, Stephen
Allan, Robert (Paddington, S.)	Crawley, Aidan	Hawkins, Paul
Allason, James (Hemel Hempstead)	Crowder, F. P.	Hay, John
Amery, Rt. Hn. Julian	Cunningham, Sir Knox	Heald, Rt. Hn. Sir Lionel
Anstruther-Gray, Rt. Hn. Sir W.	Curran, Charles	Heath, Rt. Hn. Edward
Astor, John	Currie, G. B. H.	Hendry, Forbes
Atkins, Humphrey	Dalkeith, Earl of	Higgins, Terence L.
Awdry, Daniel	Dance, James	Hiley, Joseph
Baker, W. H. K.	Davies, Dr. Wyndham (Perry Barr)	Hill, J. E. B. (S. Norfolk)
Balniel, Lord	d'Avigdor-Goldsmid, Sir Henry	Hirst, Geoffrey
Barber, Rt Hn. Anthony	Dean, Paul	Hobson, Rt. Hn. Sir John
Barlow, Sir John	Deedes, Rt. Hn. W. F.	Hogg, Rt. Hn. Quintin
Batsford, Brian	Digby, Simon Wingfield	Hopkins, Alan
Beamish, Col. Sir Tufton	Doughty, Charles	Hordern, Peter
Bennett, Sir Frederic (Torquay)	Douglas-Home, Rt. Hn. Sir Alec	Hornby, Richard
Bennett, Dr. Reginald (Gos. & Fhm)	Drayson, G. B.	Hornsby-Smith, Rt. Hn. Dame P.
Berkeley, Humphry	du Cann, Rt. Hn. Edward	Howe, Geoffrey (Bebington)
Berry, Hn. Anthony	Eden, Sir John	Hunt, John (Bromley)
Biffen, John	Elliot, Capt. Walter (Carshalton)	Hutchison, Michael Clark
Biggs-Davison, John	Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Iremonger, T. L.
Bingham, R. M.	Emery, Peter	Irvine, Bryant Godman (Rye)
Birch, Rt. Hn. Nigel	Eyre, Reginald	Jenkin, Patrick (Woodford)
Black, Sir Cyril	Farr, John	Jennings, J. C.
Blaker, Peter	Fell, Anthony	Johnson Smith, G. (East Grinstead)
Bossom, Hn. Clive	Fisher, Nigel	Jones, Arthur (Northants, S.)
Box, Donald	Fletcher-Cooke, Charles (Darwen)	Jopling, Michael
Boyd-Carpenter, Rt. Hn. J.	Fletcher-Cooke, Sir John (S'pton)	Joseph, Rt. Hn. Sir Keith
Boyle, Rt. Hn. Sir Edward	Forrest, George	Kaberry, Sir Donald
Braine, Bernard	Foster, Sir John	Kerby, Capt. Henry
Brewis, John	Fraser, Rt. Hn. Hugh (St'fford & Stone)	Kerr, Sir Hamilton (Cambridge)
Brinton, Sir Tatton	Fraser, Ian (Plymouth, Sutton)	Kershaw, Anthony
Bromley-Davenport, Lt.-Col. Sir Walter	Galbraith, Hn. T. G. D.	Kilfeddor, James A.
Brooke, Rt. Hn. Henry	Gammans, Lady	Kimball, Marcus
Brown, Sir Edward (Bath)	Gardner, Edward	King, Evelyn (Dorset, S.)
Bruce-Gardyne, J.	Gibson-Watt, David	Kirk, Peter
Bryan, Paul	Giles, Rear-Admiral Morgan	Kitson, Timothy
Buchanan-Smith, Alick	Gilmour, Sir John (East Fife)	Lagden, Godfrey
Buck, Antony	Glover, Sir Douglas	Lambton, Viscount
Bullus, Sir Eric	Glyn, Sir Richard	Lancaster, Col. C. G.
Burden, F. A.	Godber, Rt. Hn. J. B.	Langford-Holt, Sir John
Butcher, Sir Herbert	Goodhart, Philip	Legge-Bourke, Sir Harry
Buxton, Ronald	Goodhew, Victor	Lewis, Kenneth (Rutland)
Campbell, Gordon	Gower, Raymond	Litchfield, Capt. John
Carlisle, Mark	Grant, Anthony	Lloyd, Rt. Hn. Geoffrey (Sut'n C'dfield)
Carr, Rt. Hn. Robert	Grant-Ferris, R.	Lloyd, Ian (P'tsm'th, Langstone)
Cary, Sir Robert	Gresham Cooke, R.	Lloyd, Rt. Hn. Selwyn (Wirral)
Channon, H. P. G.	Grieve, Percy	Longbottom, Charles
Chataway, Christopher	Griffiths, Eldon (Bury St. Edmunds)	Longden, Gilbert
Chichester-Clark, R.	Griffiths, Peter (Smethwick)	Loveys, Walter H.
Clark, William (Nottingham, S.)	Gurden, Harold	Lucas, Sir Jocelyn
Clarke, Brig. Terence (Portsmth, W.)	Hall, John (Wycombe)	McAdden, Sir Stephen
Cole, Norman	Hall-Davis, A. G. F.	Maclean, Sir Fitzroy
Cooke, Robert	Hamilton, Marquess of (Fermanagh)	Macleod, Rt. Hn. Iain
Cooper, A. E.	Hamilton, M. (Salisbury)	McMaster, Stanley
Cooper-Key, Sir Neill	Harris, Frederic (Croydon, N. W.)	McNair-Wilson, Patrick
Cordle, John	Harris, Reader (Heston)	Maddan, Martin
Corfield, F. V.	Harvey, Sir Arthur Vere (Macclesf'd)	Maginnis, John E.
Costain, A. P.	Harvey, John (Walthamstow, E.)	Maitland, Sir John
Marples, Rt. Hn. Ernest	Pounder, Rafton	Teeling, Sir William
Marten, Neil	Powell, Rt. Hn. J. Enoch	Temple, John M.
Mathew, Robert	Price, David (Eastleigh)	Thatcher, Mrs. Margaret
Maude, Angus	Prior, J. M. L.	Thomas, Sir Leslie (Canterbury)
Maudling, Rt. Hn. Reginald	Pym, Francis	Thomas, Rt. Hn. Peter (Conway)
Mawby, Ray	Quennell, Miss J. M.	Thompson, Sir Richard (Croydon, S.)
Maxwell-Hyslop, R. J.	Ramsden, Rt. Hn. James	Thorneycroft, Rt. Hn. Peter
Maydon, Lt.-Cmdr. S. L. C.	Rawlinson, Rt. Hn. Sir Peter	Tiley, Arthur (Bradford, W.)
Meyer, Sir Anthony	Redmayne, Rt. Hn. Sir Martin	Tilney, John (Wavertree)
Mills, Peter (Torrington)	Rees-Davies, W. R.	Turton, Rt. Hn. R. H.
Mills, Stratton (Belfast, N.)	Renton, Rt. Hn. Sir David	Tweedsmuir, Lady
Miscampbell, Norman	Ridley, Hn. Nicholas	van Straubenzee, W. R.
Mitchell, David	Ridsdale, Julian	Vaughan-Morgan, Rt. Hn. Sir John
Monro, Hector	Robson Brown, Sir William	Vickers, Dame Joan
More, Jasper	Rodgers, Sir John (Sevenoaks)	Walder, David (High Peak)
Morgan, W. G.	Roots, William	Walker, Peter (Worcester)
Morrison, Charles (Devizes)	Royle, Anthony	Walker-Smith, Rt. Hn. Sir Derek
Mott-Radclyffe, Sir Charles	Russell, Sir Ronald	Wall, Patrick
Munro-Lucas-Tooth, Sir Hugh	St. John-Stevas, Norman	Walters, Dennis
Murton, Oscar	Sandys, Rt. Hn. D.	Ward, Dame Irene
Neave, Airey	Scott-Hopkins, James	Weatherill, Bernard
Nicholls, Sir Harmar	Sharples, Richard	Webster, David
Nicholson, Sir Godfrey	Shepherd, William	Wells, John (Maidstone)
Noble, Rt. Hn. Michael	Sinclair, Sir George	Whitelaw, William
Nugent, Rt. Hn. Sir Richard	Smith, Dudley (Br'ntf'd & Chiswick)	Williams, Sir Rolf Dudley (Exeter)
Onslow, Cranley	Smyth, Rt. Hn. Brig. Sir John	Wills, Sir Gerald (Bridgwater)
Orr, Capt. L. P. S.	Soames, Rt. Hn. Christopher	Wilson, Geoffrey (Truro)
Orr-Ewing, Sir Ian	Spearman, Sir Alexander	Wise, A. R.
Osborn, John (Hallam)	Speir, Sir Rupert	Wolrige-Gordon Patrick
Osborne, Sir Cyril (Louth)	Stainton, Keith	Wood, Rt. Hn. Richard
Page, John (Harrow, W.)	Stanley, Hn. Richard	Woodhouse, Hn. Christopher
Page, R. Graham (Crosby)	Stodart, Anthony	Woodnutt, Mark
Pearson, Sir Frank (Clitheroe)	Stoddart-Scott, Col. Sir Malcolm	Wylie, N. R.
Peel, John	Studholme, Sir Henry	Yates, William (The Wrekin)
Percival, Ian	Summers, Sir Spencer	Younger, Hn. George
Peyton, John	Talbot, John E.
Pickthorn, Rt. Hn. Sir Kenneth	Taylor, Sir Charles (Eastbourne)	TELLERS FOR THE AYES:
Pike, Miss Mervyn	Taylor, Edward M. (G'gow, Cathcart)	Mr. Martin McLaren and
Pitt, Dame Edith	Taylor, Frank (Moss Side)	Mr. Ian MacArthur.
NOES
Abse, Leo	Craddock, George (Bradford, S.)	Fraser, Rt. Hn. Tom (Hamilton)
Albu, Austen	Crawshaw, Richard	Freeson, Reginald
Allaun, Frank (Salford, E.)	Cronin, John	Galpern, Sir Myer
Alldritt, Walter	Crosland, Rt. Hn. Anthony	Garrett, W. E.
Allen, Scholefield (Crewe)	Crossman, Rt. Hn. R. H. S.	Garrow, A.
Atkinson, Norman	Cullen, Mrs. Alice	George, Lady Megan Lloyd
Bacon, Miss Alice	Dalyell, Tam	Ginsburg, David
Bagier, Gordon A. T.	Darling, George	Gourlay, Harry
Barnett, Joel	Davies, G. Elfed (Rhondda, E.)	Greenwood, Rt. Hn. Anthony
Baxter, William	Davies, Harold (Leek)	Gregory, Arnold
Bellenger, Rt. Hn. F. J.	Davies, Ifor (Gower)	Grey, Charles
Bence, Cyril	Davies, S. O. (Merthyr)	Griffiths, David (Rother Valley)
Benn, Rt. Hn. Anthony Wedgwood	de Freitas, Sir Geoffrey	Griffiths, Rt. Hn. James (Llanelly)
Bennett, J. (Glasgow, Bridgeton)	Delargy, Hugh	Griffiths, Will (M'chester, Exchange)
Binns, John	Dell, Edmund	Gunter, Rt. Hn. R. J.
Bishop, E. S.	Dempsey, James	Hale, Leslie
Blackburn, F.	Diamond, Rt. Hn. John	Hamilton, James (Bothwell)
Blenkinsop, Arthur	Dodds, Norman	Hamilton, William (West Fife)
Boardman, H.	Doig, Peter	Hamling, William (Woolwich, W.)
Boston, Terence	Donnelly, Desmond	Hannan, William
Bottomley, Rt. Hn. Arthur	Driberg, Tom	Harper, Joseph
Bowden, Rt. Hn. H. W. (Leics S. W.)	Duffy, Dr. A. E. P.	Harrison, Walter (Wakefleld)
Boyden, James	Dunn, James A.	Hart, Mrs. Judith
Braddock, Mrs. E. M.	Dunnett, Jack	Hattersley, Roy
Bradley, Tom	Edwards, Rt. Hn. Ness (Caerphilly)	Hayman, F. H.
Bray, Dr. Jeremy	Edwards, Robert (Bilston)	Hazell, Bert
Broughton, Dr. A. D. D.	English, Michael	Healey, Rt. Hn. Denis
Brown, Rt. Hn. George (Belper)	Ennals, David	Heffer, Eric S.
Brown, Hugh D. (Glasgow, Provan)	Ensor, David	Henderson, Rt. Hn. Arthur
Brown, R. W. (Shoreditch & Fbury)	Evans, Albert (Islington, S. W.)	Herbison, Rt. Hn. Margaret
Buchan, Norman (Renfrewshire, W.)	Evans, Ioan (Birmingham, Yardley)	Hill, J. (Midlothian)
Buchanan, Richard	Fernyhough, E.	Hobden, Dennis (Brighton, K'town)
Butler, Herbert (Hackney, C.)	Finch, Harold (Bedwellty)	Holman, Percy
Butler, Mrs. Joyce (Wood Green)	Fitch, Alan (Wigan)	Houghton, Rt. Hn. Douglas
Callaghan, Rt. Hn. James	Fletcher, Sir Eric (Islington, E.)	Howarth, Harry (Wellingborough)
Carmichael, Neil	Fletcher, Ted (Darlington)	Howarth, Robert L. (Bolton, E.)
Carter-Jones, Lewis	Fletcher, Raymond (Ilkeston)	Howell, Denis (Small Heath)
Castle, Rt. Hn. Barbara	Floud, Bernard	Howie, W.
Coleman, Donald	Foley, Maurice	Hoy, James
Conlan, Bernard	Foot, Sir Dingle (Ipswich)	Hughes, Cledwyn (Anglesey)
Corbet, Mrs. Freda	Foot, Michael (Ebbw Vale)	Hughes, Emrys (S. Ayrshire)
Cousins, Rt. Hn. Frank	Ford, Ben	Hughes, Hector (Aberdeen, N.)

Hunter, Adam (Dunfermline)	Molloy, William	Silkin, S. C. (Camberwell, Dulwich)
Hunter, A. E. (Feltham)	Monslow, Walter	Silverman, Julius (Aston)
Hynd, H. (Accrington)	Morris, Alfred (Wythenshawe)	Silverman, Sydney (Nelson)
Hynd, John (Attercliffe)	Morris, Charles (Openshaw)	Skeffington, Arthur
Irvine, A. J. (Edge Hill)	Morris, John (Aberavon)	Slater, Mrs. Harriet (Stoke, N.)
Jackson, Colin	Mulley, Rt. Hn. Frederick (Sheffield Pk)	Slater, Joseph (Sedgefield)
Janner, Sir Barnett	Murray, Albert	Small, William
Jay, Rt. Hn. Douglas	Neal, Harold	Smith, Ellis (Stoke, S.)
Jeger, George (Goole)	Newens, Stan	Snow, Julian
Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)	Noel-Baker, Francis (Swindon)	Solomons, Henry
Jenkins, Hugh (Putney)	Noel-Baker, Rt. Hn. Philip (Derby, S.)	Soskice, Rt. Hn. Sir Frank
Jenkins, Rt. Hn. Roy (Stechford)	Norwood, Christopher	Spriggs, Leslie
Johnson, Carol (Lewisham, S.)	Oakes, Gordon	Steele, Thomas (Dunbartonshire, W.)
Johnson, James (K'ston-on-Hull, W.)	Ogden, Eric	Stewart, Rt. Hn. Michael
Jones, Dan (Burnley)	O'Malley, Brian	Stonehouse, John
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)	Oram, Albert E. (E. Ham, S.)	Stones, William
Jones, J. Idwal (Wrexham)	Orbach, Maurice	Strauss, Rt. Hn. G. R. (Vauxhall)
Jones, T. W. (Merioneth)	Orme, Stanley	Stross, Sir Barnett (Stoke-on-Trem, C.)
Kelley, Richard	Oswald, Thomas	Summerskill, Hn. Dr. Shirley
Kenyon, Clifford	Owen, Will	Swain, Thomas
Kerr, Dr. David (W'worth, Central)	Padley, Walter	Swingler, Stephen
Lawson, George	Page, Derek (King's Lynn)	Symonds, J. B.
Leadbitter, Ted	Paget, R. T.	Taverne, Dick
Ledger, Ron	Palmer, Arthur	Taylor, Bernard (Mansfield)
Lee, Rt. Hn. Frederick (Newton)	Pannell, Rt. Hn. Charles	Thomas, George (Cardiff, W.)
Lee, Miss Jennie (Cannock)	Pargiter, G. A.	Thomas, Iorwerth (Rhondda, W.)
Lever, Harold (Cheetham)	Park, Trevor (Derbyshire, S. E.)	Thomson, George (Dundee, E.)
Lever, L. M. (Ardwick)	Parker, John	Thornton, Ernest
Lewis, Arthur (West Ham, N.)	Parkin, B. T.	Tinn, James
Lewis, Ron (Carlisle)	Pavitt, Laurence	Tomney, Frank
Lipton, Marcus	Pearson, Arthur (Pontypridd)	Tuck, Raphael
Lomas, Kenneth	Peart, Rt. Hn. Fred	Urwin, T. W.
Loughlin, Charles	Pentland, Norman	Varley, Eric G.
Mabon, Dr. J. Dickson	Perry, Ernest G.	Wainwright, Edwin
McBride, Neil	Popplewell, Ernest	Walden, Brian (All Saints)
McCann, J.	Prentice, R. E.	Walker, Harold (Doncaster)
MacColl, James	Price, J. T. (Westhoughton)	Wallace, George
MacDermot, Niall	Probert, Arthur	Watkins, Tudor
Mclnnes, James	Pursey, Cmdr. Harry	Weitzman, David
McKay, Mrs. Margaret	Randall, Harry	Wells, William (Walsall, N.)
Mackenzie, Gregor (Rutherglen)	Rankin, John	White, Mrs. Eirene
Mackie, John (Enfield, E.)	Redhead, Edward	Wigg, Rt. Hn. George
McLeavy, Frank	Rees, Merlyn	Wilkins, W. A.
MacMillan, Malcolm	Reynolds, G. W.	Willey, Rt. Hn. Frederick
Mahon, Peter (Preston, S.)	Rhodes, Geoffrey	Williams, Alan (Swansea, W.)
Mahon, Simon (Bootle)	Richard, Ivor	Williams, Clifford (Abertillery)
Mallalieu, E. L. (Brigg)	Roberts, Albert (Normanton)	Williams, Mrs. Shirley (Hitchin)
Mallalieu, J. P. W. (Huddersfield, E.)	Roberts, Goronwy (Caernarvon)	Williams, W. T. (Warrington)
Manuel, Archie	Robertson, John (Paisley)	Willis, George (Edinburgh, E.)
Mapp, Charles	Robinson, Rt. Hn K. (St. Pancras, N.)	Wilson, Rt. Hn. Harold (Huyton)
Marsh, Richard	Rodgers, William (Stockton)	Wilson, William (Coventry, s.)
Mason, Roy	Rogers, George (Kensington, N.)	Winterbottom, R. E.
Maxwell, Robert	Rose, Paul B.	Woodburn, Rt. Hn. A.
Mayhem, Christopher	Ross, Rt. Hn. William	Woof, Robert
Mellish, Robert	Rowland, Christopher	Wyatt, Woodrow
Mendelson, J. J.	Sheldon, Robert	Yates, Victor (Ladywood)
Mikardo, Ian	Shinwell, Rt. Hn. E.	Zilliacus, K.
Millan, Bruce	Shore, Peter (Stepney)
Miller, Dr. M. S.	Short, Mrs. Renée (W'hamptcn, N. E.)	TELLERS FOR THE NOES:
Milne, Edward (Blyth)	Silkin, John (Deptford)	Mr. Edward Short and
		Mr. Sydney Irving.