ECONOMIC AFFAIRS

HC Deb 01 December 1966 vol 737 cc642-768

4.14 p.m.

Mr. Speaker

Before I call the Motion on the Order Paper, may I announce that I have not selected the Amendment standing in the name of the hon. Member for Poplar (Mr. Mikardo) and other hon. Members.

Mr. James Dickens (Lewisham, West)

On a point of order, Mr. Speaker. May I ask, with great respect, whether you will reconsider your decision not to call the Amendment standing in the name of my hon. Friend the Member for Poplar (Mr. Mikardo), myself, and 44 other hon. Members on this side of the House? We feel that it puts forward an alternative point of view which will not be held officially by either of the two Front Benches this afternoon.

Mr. Speaker

I am not prepared to reconsider my decision. When the Chair makes a decision on selection, it makes it after careful thought. I quite understand the point of view in the mind of the hon. Member for Lewisham, West (Mr. Dickens). He will observe in the debate that I have taken care, in selecting from both sides of the House, to give opportunities to hon. Members who take neither the Government's point of view nor the official Opposition point of view, but have their own.

4.15 p.m.

Mr. Edward Heath (Bexley)

I beg to move, That this House has no confidence in the economic policies of Her Majesty's Government. I emphasise the words "no confidence" because they are not just Parliamentary, technical words. I believe that they represent the situation accurately. I move the Motion in the name of my right hon. and hon. Friends and myself, but there is no need for me to be partisan about it. What yesterday's debate showed clearly is that this point of view is represented on both sides of the House. There was not a friend to speak up on behalf of the Government yesterday from any of the benches. I have read a great deal of the debate and, with respect to the Chancellor, I heard a considerable amount of it as well.

There are different reasons why Members have no confidence. Some want less control, some want more control, some want deflation to continue, and some want rapid reflation. Whatever the reasons, no one was prepared to speak up on behalf of the Government.

However, everyone wants to know what the Government believe will happen. In that, I believe that we reflect the position in the country, which is undoubtedly worried about the immensely serious situation. Individuals are worried, particularly those who are unemployed and those who fear that unemployment will overtake them. No one, be he businessman or trade unionist, has any confidence in the Government, and I must say frankly that one finds very little more confidence abroad than there is at home.

Let us, then, ask the Government what they believe will happen. So far, they have refused constantly to tell us, whether they be the Prime Minister, the President of the Board of Trade or, yesterday, the Minister of Labour. I hope that the Chancellor of the Exchequer at least will be prepared to give us his view of the future.

It is very strange that, just over a year ago, the Government were prepared to tell us in detail what would happen every moment in the next five years. Now they are not even prepared to tell us what they think will happen in five months. I believe that the Government are giving us less factual information about the situation, or indications of how they see it developing, than any of their predecessors.

That is not the way to restore the confidence of the business community or of people abroad. It is not the way to get the best out of the British people. What the country expects from this debate, and what it has not had so far, is a full and frank description of the position from the Government and how they believe their policies will meet it. What the rest of the world is looking for and waiting for is this, and I believe that it is fundamental to the whole situation. What they want to see is that changes are being made in the structure of the economy which will produce permanent and longterm results.

I am glad to see the Chancellor of the Exchequer nodding about that, because it means that we are in agreement about what is the key to the present situation. They want to see permanent results which will enable us to repay our debts when they are due, to meet the sterling area commitments, and to meet such other overseas commitments as the Government maintain. It is on the results of that that the future of sterling depends. As both sides of the House are agreed about the key to the whole of this, at least we have a criterion by which we can judge the Government's own policies.

From the point of view of restoring confidence, or of showing that these permanent changes are taking place, the Government are their own worst enemies. They have far too great a legacy in all too short a time of wrong forecasts, of unfulfilled undertakings, of faulty psychology and of the failure of their policies for anyone at home or abroad to accept lightly what they say.

The Government must recognise what a blow to confidence it was to find the complete reversal of every previous policy in their measures of 20th July. Whether one regarded their policies as right or wrong, the fact that a Government so recently returned at a General Election should completely and utterly change their policies at a moment's notice in the way that they did has undermined the confidence in any pronouncement which the Government may make, be it by the Prime Minister or the Chancellor.

We had warned what would happen, but the Chancellor repeatedly derided our warnings and from the Prime Minister we heard those famous words, "I see no reason for an increase in unemployment this winter". They must be ringing rather hollowly in the ears of the mounting unemployed. We were told that the National Plan would be carried through. When it came out I described it as "the biggest gimmick yet", and so it has turned out to be. The Government are still proclaiming this Plan and yet they are not prepared to give us a single figure on which they are basing their expenditure or their future policy; and they are not prepared even to carry out their own belief to produce another plan to take its place until the end of next year. How much store can be set by what they say?

We cannot underestimate the blow to confidence of the reversal of these policies. The Government have done very little since to dispel the gloom. The Minister of Labour, who yesterday, came along in his charming, frank, and honest way, and appealed to all and sundry for suggestions and ideas on how to deal with the situation, has not done anything to restore confidence in himself or his colleagues. It is against this background that I want to take a cool, hard look at the present position, and I believe that it can best be done by examining the situation on the balance of payments.

I want to put these figures to the Chancellor, and I hope that he will give us his comments about them. I apologise to the House for giving some statistics, but it is essential if we are to get to the heart of the problem. If we compare 1964 with the latest figures which we have for a full year, which is mid-1965 to mid-1966, we see that there was an improvement in the balance of payments of £463 million. This is a substantial sum. I shall not today go over the arguments which we have had in the past about the 1964 position, but that was an improvement in the balance of payments.

But what happens when we get down to an analysis of the position? We find that about £390 million of that £463 million was due to temporary, short-term fortuitous circumstances. This is very important. The effect of a 3 per cent. improvement in the terms of trade accounts for £150 million. The effect of the limitations on exchange control accounts for another £100 million. The effect of the import surcharge, which was temporary, and which has now been removed, accounts for £100 million at least, and some would say £150 million.

The importance of the figures is that they show that any change in the balance of payments due to fundamental structural alterations is very small indeed. I would put it at a maximum of £70 million out of the improvement in the balance of payments, and if the import surcharge was more effective than the figure I have given it may be less.

That surely points the key to the real problem with which the Chancellor is confronted, because the National Institute forecast, just before the last Budget said that the situation required an improvement due to basic structural alterations of £300 million a year in the balance of payments. This is what was required to meet the situation, and against it one has to offset the fact that over the latest period it is only a small proportion of that. This is really the problem with which the Chancellor has to deal.

I agree with the President of the Board of Trade about the efforts of our manufacturers. I welcome what he has done to encourage them further. I pursued similar policies at the Board of Trade. The right hon. Gentleman has carried them further, and I agree with this, and welcome it, but it does not alter the fact that there is this basic problem of structural changes which are required in the economy to produce this scale of the balance of payments.

Looking back, we can see quite clearly the real failure of the Government from 1964 to 1966. They failed to manage the level of demand in the economy at a level which was in line with what the balance of payments would stand. Of course, the balance of payments has to be taken into account with the degree of confidence in the Government, but their fundamental failure was to manage the level of demand.

I suppose that the best interpretation is that they overestimated the effect of the direct measures which they were taking, and they underestimated the effect of the pressure of demand. We constantly pointed this out to them. We said that they were running an inflationary economy, and that the pressure of demand was too great. The worst interpretation is that they did it for electoral reasons, but, as I am today being non-partisan and non-controversial, I shall give them the benefit of the doubt and say that this was a double failure of judgment.

The crisis came when it was seen that, because of their policy, the balance of payments could not be met by the end of 1966, and they would not, therefore, be able, in 1967, in all probability, to have a surplus on the balance of payments which would enable them to repay the debt. It was recognised that the Government were not achieving their objectives, and as this was recognised in the second quarter of July, the crisis came.

I believe that the vital point in this argument—and I emphasise it—is that there must be a much greater structural change in the economy, and that what has taken place so far is very small. We, and, therefore, the country, must not deceive ourselves that by good monthly figures here or there, or by the confidence of the Chancellor on television, or the President of the Board of Trade here last night, that the problem has been surmounted, or is being surmounted, because I do not believe that that is the case. Has the Chancellor any evidence about the situation which I have described? If he feels that he can contradict it, let him do so, but I do not believe that the figures are controvertible.

The surcharge has been removed. What calculation has the Chancellor made about the impact of this on our balance of payments in the coming year? Has he made any calculation of the consequences of his action in the present deflationary situation? First, there is the question of the distortion as a result of imports being held back, and, secondly, there is the impact in the longer term of the removal of the surcharge.

Can the Chancellor say what is happening to the proportion of imports to total home sales? Can he give us this as an indication of the way imports are likely to move to deal with the balance of payments and the likely movement of exports? Can he also say what is likely to happen to our share of world trade in world exports? Is the decline in any way being stopped or slowed down? This is the second vital equation in trying to foresee the future of the balance of payments.

It is on those fundamental points that we must judge the real trading position; and I emphasise again that it is essential to look at the long-term underlying trends if we are to have a satisfactory basis for policy.

The results of the crisis, in the measures of 20th July, are well known. The Leader of the House, in one of his most carefully prepared statements, said the other day that it would be wrong to transform a carefully calculated cutback into an unplanned crisis of confidence. There was nothing carefully planned about that cutback. It was done at a few days' notice. It was done in panic, and in extreme measure.

The House will probably say that the Government, in the position into which they had got themselves by their miscalculations, had no real alternative if they were to save the £. This was the consequence of their own mismanagement and misjudgment, but what happened was that this unwise deflationary action was added to what the Chancellor had planned, prepared, and carried through the House, the Selective Employment Tax. It is the consequence of the double dose of deflation with which the Government and the country now have to cope, and this is where we want further indications from the Government.

The third thing which the Government did was to impose the freeze. I think that we ought at this stage to look rather carefully at the real purpose of the freeze. Was it deflationary? No, it was not. The freeze was equally on prices as well as on wages. It was not, therefore, a deflationary effect. Was it to enable those in industry to change their attitudes and provide a basis for longterm development of the policies that the Government were pursuing?

It is difficult to believe this, because the Government, obviously, had no idea that they were going to pursue these policies at the freeze. They demonstrated that time and time again, and they still have no idea how they are to pursue them later. What they have done is to damage industrial relations and to make the prospects of voluntary co-operation in the sort of things that we want, such as productivity agreements, less favourable than they were; and the Government were so foolish as to stop productivity agreements during the freeze.

The real reason for the freeze was to appease foreign opinion, and this, too, is now absolutely clear. What was the reason for this? The Government, mistakenly, in my view, had placed such emphasis on the prices and incomes policy of the then First Secretary, as to make it appear to be the be-all and the end-all of their policy. The result was that when it disastrously failed, again as we pointed out during the election, the only way they could cope with the problem, to try to maintain confidence in them, was to impose the squeeze in order to appease foreign opinion. The Government's problem is now to unwind. At the end of the next six months they will, in fact, be facing disaster.

In fairness to the Chancellor of the Exchequer, he always said that the freeze was not necessary. He said that the other measures which were being taken would achieve their end, and, at The Hague, said the freeze was, after all, a bonus. So one can say that he believed in the deflationary measures—a double dose—and that he has never really believed in all the pain and grief, the friction and irritation caused by the freeze. Perhaps the Chancellor might tell the House exactly how much he thinks the freeze has been worth in the balance of payments. The calculations which were published last Sunday indicate that the overall value of the complete freeze has been comparatively small.

Let me turn now to the economic prospects at the moment, in order to come to the policy pursued by the Government. First, the problem of unemployment, which reached 541,000 last month. By purely seasonal increases, unemployment will reach just over 600,000 by February—that is, by purely seasonal increases. Since May unemployment has increased, allowing for the seasonal increase, by 20,000 a month, and this is very steep indeed. If, therefore, this progression continues, added to the seasonal unemployment, the figure may well be up to 650,000 by February. In fact, this is allowing that it will not go on at quite the same rate.

The Prime Minister, usually when confronted with the steepness of the progression, says, "Of course, the figure is far less than November, 1962, or November, 1963". But that is not the right point of comparison. The Prime Minister took his measures on 20th July this year and we are now in November. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) took his measures in July, 1961, and the right point of comparison is November, 1961. That is the point in the cycle, because it is five months after the measures were taken.

But, of course, we cannot compare the same stage in the cycle a year ahead. If the Chancellor looks at the figures five months after my right hon. Friend took his action, what will he find? In July, 1961, the figure for unemployment was 258,000 and by November it was 387,000. The right hon. Gentleman took his measures in July this year when unemployment was 264,000, or 5,600 more. Now the figure is 541,000, which is an increase of 154,000 over the similar point of the cycle in 1961.

There are two aspects which have to be considered. The first is that it is now becoming accepted that in the management of economic policy the rate of progression is of the greatest importance. One should then deal with this matter of reflation or deflation with as much gradualness as possible. That is the first thing.

The second point is that, with this steepness of progression, what is to be the position a year ahead? The general view is that we shall not see the peak of the measures which have been taken until the winter of 1967–68. I do not believe, with great respect to the right hon. Gentleman, that anything which he has announced today really will affect that peak, when it comes, either its size or its position. That is the point which I put to him. He must take into account the very steep progression of unemployment which he has created by the double dose of deflation.

It is also extremely interesting that when my right hon. and learned Friend took his measures in November five years ago, sterling stood at 2.81¼. Yesterday, five months after the right hon. Gentleman's measures, the £ stood at below 2.79—it was 2.7815/16. This is also an extremely interesting point about the efficacy of the right hon. Gentleman's measures and the problem with which he has to deal.

Mr. R. B. Cant (Stoke-on-Trent, Central)

Would the right hon. Gentleman agree that this weakness of sterling, according to the Financial Times, is a technical weakness due to the withdrawal of funds to Europe for window-dressing purposes?

Mr. Heath

Exactly the same period of the year, so far as my right hon. and learned Friend was concerned. What is more, if the right hon. Gentleman looks back to 1961, he will find that there was an additional complication about the question of deflation and the lira at the same time. We can take those as being comparable situations.

This is the prospect with which the Chancellor is faced. Unemployment was really caused to reduce imports, to reduce the bargaining power of the trade unions and to get redeployment. Here, the Government have really done very little to help. I should like to make my position clear on the question of unemployment. I have constantly said that we could not run this economy with any degree of efficiency, or without a severe risk of inflation, at the rate at which the right hon. Gentleman was running it last spring. I have said that quite clearly. I therefore believe that the unemployment figure would be higher than it was then if the economy were to be run with a reasonable regard to balance of payments. One should try to get a balance between those who are able to work, excluding the number mentioned by the Ministry of Labour yesterday, and those for whom jobs are available. The level at which one can run the economy depends to a very large extent on the obstacles to growth in the economy.

I do not, therefore, accept that there is an automatic figure of unemployment at which we can run the economy. If one looks at each of the Western industrial organisations, they have a different figure which they reach without having inflation. The least perhaps is the Federal German Republic, and, in some ways, the American organisations, although their figures are not strictly comparable, tend to be higher.

Surely the purpose of our efforts ought to be what the rest of the world wants, to make the structural changes which will remove the obstacles to growth and allow us to run the economy with a decreasing number of unemployed. That is my own position on unemployment, and I want to make it quite clear.

Let us look at the second indicator, that of production. Production is now back to what it was in December, 1964. There has been a severe drop. In my view, a further fall in production is likely. I think that we shall see this coming about. I think that we shall see an increase in unit costs, particularly in the motor industry. As we know, the motor industry is highly geared and its exports, particularly, can be affected by an increase in unit costs. I hope, therefore, that the Chancellor and the First Secretary will, particularly so far as the motor industry is concerned, watch the question of unit costs and export prices before anything else, because I do not believe that it is comparable with some of the other industries in this respect. Indeed, if it is necessary, I hope they will take action which will enable them to keep their costs down.

I believe, too, that productivity has fallen. Has the Chancellor any indications that as a result of his policy productivity will rise? I have not seen any indications, and it is a serious matter if productivity is falling. My experience is that in areas and industries that are threatened with unemployment there is an undoubted slowing-down of effort and, as a result, productivity falls. Can the Chancellor of the Exchequer provide any answer to these problems? This is a judgment based on our own experience, and if he has anything to contradict it, let him say so. We ought to know.

The next indicator is the decline in investment in the private sector. It will probably be 4 per cent. this year. The Board of Trade says 7 per cent. for next year, while the C.B.I. gives a figure as high as 20 per cent., or over. Whichever figure one takes—and I suspect that the figure of the Board of Trade looks very much on the best side—it is an alarming prospect. What are the reasons for this? It is essential that we should look at the fundamental reasons for the decline in investment.

First, there is lack of liquidity, as was mentioned by an hon. Member earlier this afternoon following the statement made by the President of the Board of Trade. The lack of liquidity is due to the credit squeeze—firms do not feel that they can get money for investment. But lack of liquidity is also due to the Selective Employment Tax. Some firms think that with repayment the lack of liquidity will be removed, but I do not believe so. Firms will have to recognise that they are constantly paying this money out, and, therefore, with the exception of those who get rebates, they will be using the money as a pool for payment of their Selective Employment Tax.

But the rebate that some of them get is liable to taxation, so that the end amount for liquidity is comparatively small and unlikely to influence the situation. And any surplus liquidity they have, they want to keep in a situation in which they have no confidence. They want to prepare for anything worse that may come.

I believe that the change from investment allowance to cash grant has also been detrimental to investment programmes. This is not a dogmatic view. The President of the Board of Trade has explained the delay in paying the grants. With investment allowances, firms knew through the Inland Revenue that they could get the allowance; it now depends on an administrative decision of the Board of Trade. When I heard the President of the Board of Trade last night expounding the virtues of having simultaneous delays instead of continuous delays—the right hon. Gentleman produced that flash of brilliance; I could not have produced anything like it—I asked myself: what will happen over the cash grants for investment? There will be similar simultaneous delays in granting the cash to industry, and this also militates against investment.

There is also the cost of borrowing. The Chancellor of the Exchequer is in difficulty about doing anything there because of competition in other capital markets of the world. I do not think that he will be able greatly to help firms there. The right hon. Gentleman the President of the Board of Trade has made a statement of an increase of 5 per cent. over two years, but the machinery has to be installed, as I understand it, before the end of the two years. With a great deal of capital plant it is not possible to find the machinery, decide on it, order it, and get it installed in the time that the right hon. Gentleman has mentioned. It is quite unrealistic. I do not believe that the 5 per cent., though welcome, will greatly help investment in plant and machinery.

Another factor which is fundamental—

Mr. Robert Sheldon (Ashton-under-Lyne)

If increases in investment grants are of such little encouragement to industry why, in the United States, have investment incentives been withdrawn in order to discourage investment?

Mr. Heath

That is one of the marginal factors. I do not say that this has no effect. I say that the 5 per cent. increase in the existing grant by the President of the Board of Trade is unlikely to have a very great effect, and the reasons for that are twofold: the first is liquidity, and the second is profitability. Firms today, with profits falling heavily, being squeezed, not only by the credit squeeze, but by the prices and incomes policy, do not see profitability being returned on their present investment and that makes them extremely wary about going for any future investment. These are fundamental facts.

A further complication is the uncertainty in their minds about what the First Secretary will do with his prices and incomes policy in July. They therefore cannot make investment decisions because they cannot have any judgment of profitability. If the First Secretary intends to continue the same policy that he is now following, with the same consequences on returns, profits and dividends, they see no way ahead for further investment. These are the fundamental things that the Government have to face.

Let us look at the problems of the Chancellor of the Exchequer in that context. He has to get a surplus of balance of payments to repay debt, and he will agree that the amount will be about £310 million by the autumn of next year. He cannot bank on an inflow of funds to London, because world liquidity will not permit any great flow of funds into London. I do not believe that he can adopt the suggestion made by some of his hon. Friends to confiscate our overseas investments. I understand that privately he has repudiated that idea, and I hope that this afternoon he will take the opportunity of publicly repudiating it.

That suggestion could only be gravely damaging to our own national credit, and rouse suspicions that if a Government were driven to such ends to maintain the national currency they would not hesitate to block balances here. This is something that no Government, even in war, have done, and I do not believe for a moment that the Chancellor of the Exchequer would tolerate it. I therefore hope that he will repudiate that suggestion contained in his hon. Friends' Amendment.

The Chancellor of the Exchequer once said that if it were necessary to repay the debt from reserves he would do so, but I am sure that he cannot be very happy about that. It would not create confidence in sterling as a whole, though it may be that he still has Government holdings in the United States which he could move in.

This situation means that, fundamentally, he must get the repayment of debt out of a surplus on balance of payments. and I believe the amount to be about £300 million or so next year and over £400 million between 1967 and 1970. This means a surplus from 1967 to 1970 of between £250 million and £300 million. With a slow rate of growth such as we have now—between 1 per cent. and 2 per cent.—there must be grave doubt whether he can achieve this.

Public spending at 4¼ per cent., which the Prime Minister has reiterated is the Government's objective, is bound to take everything there is in that slow rate of growth, and, I think, more than there will be in it. That will mean no increase in consumer spending throughout the period, even though there might be slight increases in income. And it would mean, I think, that public spending would take from other resources. I have quoted those figures because I believe that they demonstrate the magnitude of the task that faces the Government, the Chancellor of the Exchequer, and the country during these next four years.

My second conclusion is that the Government have so far shown no indication that they know how to deal with this situation. What is more, they have failed to explain the real situation fully and frankly to the country. We therefore cannot have confidence that their policies will be able to deal with the situation, or call forth that sort of response from industry, trade unions and the public.

The Chancellor of the Exchequer has put himself into a very real dilemma in the policies that he puts forward. A considerable number of his hon. Friends are proposing a completely controlled economy to deal with the situation. They would have import control, wage, price, and dividend control—and the rest of the controls that would undoubtedly have to flow from them. In fairness, I have to say that they are quite prepared to face all this. From their point of view, this is a perfectly arguable case. In fact, some of them would say that what they are arguing is real and true Socialism, and what they have always meant by Socialism. Now, some of them, like the hon. Member for Ebbw Vale (Mr. Michael Foot) are coming forward boldly and frankly with these proposals.

I reject their proposals completely—and I hope that the Chancellor of the Exchequer will also reject them. They are, first, a complete infringement of liberty in a free society, and, secondly, even with that infringement they cannot succeed. They will not produce a sufficiently dynamic economy to meet the requirements of our people. I do not believe that they can succeed. It is all very well for them to wish to control everything and then reflate.

As soon as the Chancellor reflates in those conditions pressures will seep through, as we saw them seeping through before, from 1945 to 1950. We have also seen them seeping through in the first 15 months of this Government, and they will do so again. Therefore, even if hon. Members opposite are prepared to accept the reduction of liberty involved the policy will not be successful.

Let us look at the alternatives facing the Chancellor. If he tries to prevent the growth of unemployment, because of the pressure of his hon. Friends, but encourages consumer reflation, he will find himself in exactly the same position he was in last July, with a balance of payments problem probably even more acute than it was then. It means that the balance of payments has to govern the right hon. Gentleman's conduct. I hope that he agrees with that. It means slower growth until the Government are able to restore confidence at home and overseas by showing that they are making the necessary fundamental changes in the economy.

Confidence will depend on structural change, so let us consider that. Training for redeployment is one of the fundamental changes, as I have constantly said. I welcome what the Minister of Labour said yesterday on the subject, but the £2 million from the Government is minute compared to what has been spent by industry and the training boards.

The Minister of Labour (Mr. R. J. Gunter) indicated assent.

Mr. Heath

The Minister nods. It is only a small drop in the pool. Apparently the Chancellor agrees. He appears to be complacent and quite happy about the situation, but this contribution is on too small a scale, and too slow. Furthermore, it is limited to the unskilled and semi-skilled workers, although it is clear that more skilled men are urgently required. It is here that the problem needs tackling by the trade unions. We need to open up training rapidly for skilled men, and this needs to be accepted by the unions. Even with unemployment running at a high level and mounting rapidly, industry is short of skilled men. This situation must not be allowed to continue.

I now turn to the public sector. Here, there is one very important fundamental structural change. The Chancellor and the Prime Minister have always argued that they want more men to allow for redeployment. There are two places in the public sector where manpower is obviously available—in the railways and in the coal mines—but these are the two places in respect of which the Government have not only refrained from taking action but—as far as the Minister of Transport is concerned—have slowed down action in this respect.

I pay tribute to the National Coal Board and to Lord Robens for having made considerable changes in a most humane way, but much more has to be done, and with it must go Government policies to provide quickly the housing requirement for redistribution and redeployment. With the railways, it is not only a question of tackling the problem of liner trains; it is a question of rapidly making the railways more efficient and more economic in manpower than they are today.

Surely this is preferable, as a way of providing manpower for expanding industries which require it, than to go for acute deflation to provide it. The Government have refused to face one problem and they have created many other problems for themselves by doing it the other way.

Mr. Michael Foot (Ebbw Vale)

Is the right hon. Gentleman saying that in his view the closure of pits should go ahead faster, despite the heavy unemployment in Wales?

Mr. Heath

In my opinion, the closure of pits should move forward as fast as possible, and faster than it has been doing, provided that the Government make the necessary arrangements to enable the process to go on in the humane way that Lord Robens has already provided. [An HON. MEMBER: "And the unions."] I agree that the unions have also been concerned in this; it has been a joint effort between them. This is a place where manpower can be found, although we know that some pits are short of manpower. As a result of the squeeze, however, men are going out of manufacturing and exporting industries and back into coal mining, which is not an exporting industry. That is a by-product of the Government's policy.

Mr. Archie Manuel (Central Ayrshire)

What about the railways?

Mr. Heath

I cannot give way again. I have given way frequently, and I am trying to argue a fairly closely reasoned case.

I now turn to another fundamental problem—the problem of regional policy.

Mr. Manuel rose——

Mr. Heath

The hon. Member knows that I always give way many times, and I have done so today. I cannot give way now.

I turn to the question of regional policy. I agree with the President of the Board of Trade that the action being taken is undoubtedly having an effect in preventing the increase in unemployment proceeding as quickly as it has in the past. He cannot claim credit for this. The incentives and the factories were there, and industry piled in during the five years from 1959 to 1964. But we can agree that this policy has had an impact.

The figures relating to this aspect are completely unrealistic at the moment. We know that we cannot get expansion in growth regions during a time of contraction, such as at present. From the point of view of fundamental structural change a programme of growth points and growth zones, with the Government providing the infrastructure for industry, is the only satisfactory way of bringing about real change. Merely to go on spreading the jam thinly over all areas will not convince people that we are changing the basis of our industrial life.

I should like to know what the Government calculations are about private and public investment. On Tuesday, the Minister said that the level of investment will not fall. There can be only one inference to be drawn from this there will be a great increase in public investment. Will the Minister confirm this? This is not what is required in present circumstances. What is required is an increase in private investment, because a great increase in public investment will put greater burdens on private industry and, therefore, on the taxpayers generally.

Apparently we shall see the Government squeezing private industry more and more, taxing it more and more, spending more of the proceeds on public investment, and, finally, turning to the private sector and saying, "You will not be able to capitalise yourself. We must take a further interest in you." That is the logical conclusion, which the Leader of the House realises as well as the Member for Ebbw Vale, of the policies which the Government are now following in this time of contraction and squeeze.

Will the Chancellor say what will happen about public expenditure? One of the largest increases in public expenditure—if not the largest—is in local government. We know about the great burst of exuberance when the Government came in. They freed the reins. Will that situation continue? We have only to look at the figures of local government expenditure to see how it has increased. Will the Government continue with this policy, or will they reduce local government expenditure?

Mr. Ron Lewis (Carlisle)

What about the Borough of Bexley.

Mr. Heath

I know all about that. We do not get a new town hall, but others do.

What the Government must do is to provide real incentives for private investment. The cause of the Government's dilemma is that they are trying to get results out of a private enterprise system in which they do not believe. It comes out time and again, for all the words of the Chancellor on television. It is quite clear that the Government are not taking action to encourage a fundamental private enterprise system. The present situation—with the burden of administration on firms and the degree of interference that is going on—is preventing firms from mustering their greatest efficiency. There is no doubt about this. The delay in making decisions, the intentions with which they are confronted, are damaging that very private enterprise which the Chancellor says he wants to encourage.

The White Paper which we are discussing also in the debate is so vague as to be almost meaningless. It is probably the worst-drafted White Paper I have ever read during the 15 years that I have been in the House of Commons. It refers constantly to the "national interest", or to "social justice", both of which are completely undefined. It claims to set forward criteria by which people are to make their decisions. In fact, they are not criteria at all. They are just generalisations which cover administrative decisions by the Department or by Mr. Aubrey Jones and the Prices and Incomes Board.

I have put it to the First Secretary that wages are in future to be governed, as a major element, by social justice. This will not give confidence to anybody abroad or anybody in this country who is trying to produce an efficient and effective economy. They will immediately see that economic decisions are always to be pushed on one side in favour of a vague criterion of social justice. Surely the House must agree that, if social problems have to be dealt with, they should be dealt with by social policy and not by interference in economic policy as such.

The First Secretary still has no idea of what will happen at the end of the six months' period, in July, 1967. The essence of the present situation is that firms must be shown that their present and future profitability will increase. I believe that this must be done by the Chancellor making changes in taxation. The right hon. Gentleman ought now to conclude that the Selective Employment Tax was a foolish adventure and has done far more harm than good. He must look at the taxation of corporate bodies, as well as that of investors and individuals. I notice that the Chancellor said on television that, of course, savings must have a good return. Yes, but not if people invest in a firm or in industry. Of course not—when measures are taken through Corporation Tax to ensure that they are damaged—[Interruption.] He is not leaving them enough to plough back to get the investment they want.

The Chancellor must take action on individual taxation. Surely the increasing brain drain is evidence enough—even for this Government—that they must take action to prevent it by means of incentives to individuals. There is no point in mentioning here as good advice to the Government that they should abandon the nationalisation of steel, but I believe that they should look again at their policy of trying to take more and more holdings in private industry.

The Government ought to look again at the question of agriculture. I know that this is fundamental, but we are looking at fundamental changes. I am astonished that, in the present situation, the Government are not prepared to go for an expansion in agriculture, are not prepared to change their present system so as to bring that about. It is just not happening. Indeed, the reverse is true. They have undermined the existing financial structure of agriculture. They have undermined its confidence. This will reflect itself in its production and, therefore, the amount of our imports bill. This is one of the fundamental changes which ought to be made to take much greater advantage of agriculture.

I believe that a "mini-Neddy" is considering the right hon. Gentleman's relationship with industry over exports and imports. It could help us to the extent of £50 million or £100 million but, as far as I know, no action has been taken yet as a result of its deliberations. There is no sense of urgency in the Government over dealing with a problem as formidable as that which I have described.

I now come to the most fundamental structural change of all, for which opinion abroad, which, after all, is greatly concerned with sterling, is really watching. That is the question of trade union reform. This is where the Government refuse even to take a look. This is absolutely fundamental from the point of view of restrictive practices and the general attitude towards production. I know that the Government's view is that all this should be dealt with by human relationships. The Minister of Labour often says this. I do not believe this to be the case, and neither does the great part of the opinion in this country or overseas.

The written evidence of the T.U.C. to the Royal Commission was immensely disappointing; its verbal evidence was even more disappointing. This problem must be tackled and the great weakness of the Government is that they refuse to tackle it until they get a Royal Commission Report years hence, by which time all too much damage will have been done.

When the Chancellor or the First Secretary asks what is the alternative to the present proposals for the controlled economy, I say that the real alternative is a competitive, free-enterprise economy—with the encouragements which I have asked the Chancellor to give, but which, for reasons of social justice, he refuses to enter upon—and a reformed trade union law which re-creates a proper balance in the economy between management and manpower. This is fundamental.

It must be done through a legislative framework. Only if it is done will trade unions and management be able to carry out all their functions in freedom, without upsetting the balance of the economy. Of course, this is no simple task. It is very difficult and complicated—the Minister of Labour knows that, as do I, from my time at the Ministry of Labou—but this is, above all, the fundamental structural change in the economy which must be made. I do not believe that the economy will flourish, nor do I believe that holders of sterling abroad will have confidence in it, until it is done.

I therefore say quite clearly to the Government that they will not deal with the problems which I have described on the scale on which they exist—the dilemmas with which the Chancellor is faced—until they tackle this in addition to the other structural reforms which I have mentioned. The Government must explain frankly to the country the scale of the problem and they must adopt policies which will enable them to deal with it. They must set out to restore the confidence which industry has lost and they must give free enterprise those incentives which will enable it to work. Otherwise, they will not get the results. They must do more to secure expansion of investment through confidence and they must make the structural changes which I have described.

I notice that, in commenting on this debate, some have said that we have been greatly concerned with figures and statistics and organisation rather than with human beings. It is not true of this House that we are not concerned with human beings. We are, all the time. We know the consequences for individuals who have made their own plans and their own lives and who suddenly find them reversed through Government policy—whichever party may be the Government. We recognise that this causes grave hardships to individuals. It was always thought, perhaps, that the present Government understood this as well as anybody. I believe that we all understand it and want to bring it to an absolute minimum.

There is no question about it—unless these measures are taken, the ultimate hardship will be very much greater for many more people. We feel for those who at the moment are suffering unemployment and who are afraid of it and for those who undoubtedly will suffer it in the coming months. We all recognise this. I have said that I accept unemployment due to change. I also say that I greatly regret unemployment which is due, I feel, to incompetence and mismanagement.

Everyone in the House deplores the hardship, pain and grief which comes to people who are unemployed, but that should make us all the more determined to take the sort of action which I have described. What appals me is that I see no sign of this being taken by the Government, which is why we can have no confidence in their policies.

5.10 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

We have had from the right hon. Gentleman the Leader of the Opposition a speech which varied between a genuine attempt to get at what he called the fundamental problems of the economy and his duty as Leader of the Opposition to construct a Motion of no confidence. I am bound to say that I thought the emphasis was more on the fundamental searching inquiries about the economy than on his concern to concentrate on his vote of no confidence.

To that extent I found it more agreeable than I might otherwise have done but, although I do not want to encourage him in ill-doing, I must say to him that it was not quite the kind of speech we would normally expect from a raging, determined Opposition which wants to get at the Government because it has no confidence in the Government. However, I welcome the approach by the right hon. Gentleman and I shall attempt to respond to some extent in the spirit in which he spoke, although I have not forgotten that this is a Motion of no confidence and I shall have something to say about some of the attitudes of the Opposition.

The right hon. Gentleman said that we need fundamental change and that we have had very little of it in the last two years. We might inquire why at the end of the term of office of right hon. Members opposite fundamental change was necessary. The right hon. Gentleman might pause and tell us sometime why the continuing adaptation of the British industrial system to the changing needs of the world was not made continuously throughout the whole period of office of the Conservative Government. We might ask him why it was not until 1964 that we had to make fundamental changes which, had they been made over the previous years, would not have been required to be made at that moment.

If he says that little has been done in two years, what does he expect as a result of fundamental changes? How does he expect fundamental changes to show their shape in a period of two years? While he was speaking I wrote down a list of the fundamental changes which are being and have been undertaken. I find that on none of them do we get much support from the Opposition. Indeed, every time we propose a fundamental change they scream and howl about it, and keep us up late at night. Of course they always insist that it is the wrong fundamental change. The only fundamental change they want is that we should declare war on the trade unions.

That was the fundamental change to which the right hon. Gentleman committed himself this afternoon. I say straight away that if he wants to make fundamental changes about the status of men in relation to their employment—which he properly described as a complicated task—he had better try to secure the co-operation of those whom he proposes to change. I would not have brought this up but I am reminded of it by the fact that he has now plunged into a war against the unions. [HON. MEMBERS: "Not fair."] He told us that this is the only thing which people abroad are concerned about and that everything seemed to be judged by this and that what we had to do was to reform trade union law.

I have not had a chance to check the date, but I believe that, in 1960 or 1961, when he was Minister of Labour, he was given an opportunity to set up a Royal Commission to inquire into the complicated structure of the trade unions and the relationship to the law of those engaged in industrial work in this country, but he refused to do it.

Mr. Heath

I thought that we were having a serious debate, but if the right hon. Gentleman wants to adopt this attitude I should say that in 1959 three of my hon. Friends put a Motion on the Order Paper suggesting that a Royal Commission on the trade unions should be set up. None of my other hon. Friends signed it. I explained that we were trying to get the trade union leaders to reform the movement from within. They have failed to do so and therefore we have moved on to this suggestion.

Mr. Callaghan

From 1959 when he failed to get the co-operation of the trade unions, as he thought, he did nothing. When this Government came in they set about the task of reform of trade union law and set up the Royal Commission. I hope that no one will attack the bona fides or the authority of that Royal Commission which is engaged on the most delicate task of examining the constitutional and legal relationship of the trade unions with the law.

It is right that we should allow the members of the Commission to get on with their work and to produce a Report. In the light of that Report we shall see whether we should make fundamental changes in a field of law for which many people have fought. Taff Vale is just outside my constituency. Its name is engraved on the minds of many people and it is written into the history of the Labour movement. Any attempt to change the law relating to the trade unions, to which I am not necessarily opposed, must be done with the full consent of those with whom they work. We must ensure that we shall get their co-operation or the attempt will fail.

In the last resort the Government must act on this when we have the Report of the Royal Commission. It is not only the trade unions which are involved. What foreign opinion is looking to see is not whether we reform the law on trade unions, but whether we can deliver goods at competitive prices, on time, of the right quality, and when we promised to do so. We may organise our internal affairs how we like provided we do that. It would be wrong if we did not organise our internal affairs as we like. This is the basic problem. What the right hon. Gentleman should address himself to is not what foreign opinion thinks about this, but what changes he thinks ought to be made in these relationships which are necessary to achieve this end.

I made a note of some of the fundamental changes which are now in train. There is the setting up of the Ministry of Technology which has a substantial effect on a number of industries. I illustrate this particularly by reference to the computer industry. It is not too much to say that the industry has been given a new injection of life as a result of the activities of the Ministry together with a considerable injection of public finance. That is one fundamental change.

Then there is the aircraft industry. At the moment discussions are going on, or are about to start, with the aircraft industry in order to achieve the fundamental change which is needed in that industry. It is generally recognised and accepted that it is unable to do this by an amalgamation merely between firms in the indutry. It perhaps needs some outside assistance, some outside force to bring them together. Here is a fundamental change which is now being tackled.

The right hon. Gentleman himself paid tribute to the National Coal Board, and the way in which fundamental change is taking place there. He paid tribute to its humanity and the way in which the job is being done. We would be in a much better position to accelerate whatever rundown is needed in the coal industry if we had not had to start from scratch with a new programme of advance factories. My right hon. Friend has announced four separate programmes for new advance factories in those areas where the right hon. Gentleman demanded that we should make these fundamental changes. Then he has the impertinence to refer to the need for housing in those areas.

Has he forgotten how hon. Members opposite allowed local authority house building to decline in those areas? Does he not recall that? Does he not remember and does he not know of the considerable injection of public investment being put now into the local authority programme, especially in those areas where coal mining is getting a special preference for housing? Either he has a short memory, or he thinks that we have. He should not put this sort of thing to us when we conside the changes we have had to make after the failure of hon. Members opposite to make them in their time. Take the development of the gas industry. Are not fundamental changes being made there?

Look at the human side, the earnings-related benefit which my right hon. Friend introduced to make for more mobility. Why did the right hon. Gentleman not do that? He spoke of training and paid tribute to the fact that the number of Government training centres has increased. Indeed, it has. When his Government went out of office there were 13, but now there are 31 or 32 and there will be 39 next year. This has had a tremendous effect on the prospects for trained men.

The right hon. Gentleman should not pour scorn on what has been done in relation to training in industry because, in my view and the view of my colleagues, this can play a fundamental part and a bigger part than Government training centres can provide for training. [Interruption.] All right; he did not pour scorn on it. Let me try to put it in another way. When the right hon. Gentleman is putting this picture, he should accept and recognise that the Government training centres are only one small element in the total Government training programme. The other and much bigger element arises from the industrial training boards. This is where the big pivot for industrial training is today.

Since the 1964 Act was passed, 17 boards have been set up. Consultations are proceeding about setting up another three. In addition, three more industries are now in touch with the Ministry of Labour to make some preliminary inquiries. Eventually, we expect that there will be about 30 of these training boards. The present 17 boards cover about 9 million workers.

This is where the training will be done. Some of them are already operating, and they will be operating, on a very big scale. For instance, the Engineering Industry Training Board has a levy income of about £70 million a year. The Construction Industry Training Board has a levy income of about £6 million a year. They have been eligible for Government grants; public money has been made available to them during the first 12 months to help with their administrative costs. Government loans are being made available to these boards and will be made available to them for the acquisition of fixed assets and to provide working capital.

This is where the training for skill, which is so vital for the structural change which the Leader of the Opposition calls for, will be done. We are making the fundamental changes that the Tories should have made, and all the time they are saying to us, "Why do you not make these changes?" and then objecting to them when we start on them. I do not think that the right hon. Gentleman begins to make out a case when he says that we are not making structural changes and that we have not produced the results yet.

Apart from that, the debate has been about three things: the level of employment and future prospects; the working of the prices and incomes policy, the position of development areas, and the extent to which they can be strengthened; and the general economic situation in the Government's plans for the future. My right hon. Friend the President of the Board of Trade dealt with the position of the development areas. I think that there was general acceptance in the House that the additional measures he is now proposing to take will have further effect on shielding these areas from the effects of existing economic policy. When my right hon. Friend the First Secretary winds up tonight, he proposes, in dealing with the general economic situation, to deal also with certain aspects of the prices and incomes policy.

What I should like to do this afternoon is to discuss the overall economic prospects and policies and especially to examine the triple objective of growth, full employment, and a satisfactory balance of payments. In the Government's view, these three must run together. One of them alone cannot for ever be the pivot around which the other two revolve. All of them are essential.

Looking back over the last four or five years, in 1963–64—I state this as a pure matter of history; I think that it will be accepted—all the accent was on growth, with a pretty total neglect of the effect on the balance of payments. That was the essential element which was chosen at the time. It resulted in a substantial degree of growth. It also resulted in a monumental deficit in the balance of payments. Clearly the Tory Party will acknowledge that it did not get those three things—growth, balance of payments and full employment—into balance.

The year 1965 came along. The Labour Government attempted to get a better balance between growth and the balance of payments. It was clear that we could not run on as we had been doing, in view of the massive deficit. We were partly successful in getting a better balance. The deficit on payments—I will take up some of the right hon. Gentleman's figures later; perhaps he will forgive me for the moment—was reduced from about £760 million to £319 million.

In 1966 we hoped for, and I expected, a further considerable improvement. We thought that we were getting the balance right as between the three members of the Troika. That did not materialise. The first sign of this was the seamen's strike. There are other factors which are present in the minds of Members of the House. It was clear by the middle of the year that, having run a deficit for four successive years and as it seemed likely that there would be a further deficit in 1967, the Government would have to get the balance altered once again in order that the balance of payments itself should be first among the three essential elements. I repeat: I do not think that in a healthy society the balance of payments can for ever he the pivot around which everything else revolves. There is a need for full employment and for growth.

Having made this for the time being our primary objective, what is the position? The right hon. Gentleman asked me to give an account fairly to the House. I would resist the implication that we are not giving facts to the House. I could give a great many illustrations of improvements in statistics, material and information made available to the House during the last two years. One of the interesting and valuable things has been the growing desire for more information about these matters. It is enabling us to have better-informed discussions of them. I, for my part, welcome it and I can assure the House that I will always give all the information I can.

The right hon. Gentleman referred to the standing of sterling. It is not very helpful to compare 1961—even though it was the same month—with 1966. There have been very substantial developments in the European capital markets and in the flows of capital, especially in the development of the Euro-dollar market, since 1961, and I would not accept that this makes any comparison very valid.

What cannot be denied, and what is a matter that everyone in the House will welcome, is that there has been a substantial improvement in the standing of sterling since the summer in the exchange markets. The reserves rose in September. They rose in October. There has been a further improvement in November. We have begun to repay a short-term debt to the central banks. In addition, forward commitments of exchange equalisation account to the market have been sharply reduced.

In short, what those figures and facts show is that confidence—this is the word; I come to the reality, as opposed to the intangible—has improved. There can be no doubt about this. Confidence in the capacity of Britain to pay her way has improved so markedly that in terms of sterling we have been able to reduce our liabilities very substantially.

The evidence which I think helps the rest of the world to reach this conclusion is derived from the recent trade figures. One very good month does not make a summer, but it is an indication. As my right hon. Friend the President of the Board of Trade said yesterday, exports this year are up by 6 per cent. There was an all-time record in October. Imports have probably been depressed by the deferment of shipments in anticipation of the end of the temporary import surcharge.

The right hon. Gentleman asked me whether some estimate had been made about this in considering the balance of payments situation next year. The answer is that it has. An attempt has been made to assess the movement in world trade—this is another question he asked me—in order to see what effect that would have. As the right hon. Gentleman knows, it is not usual to publish forecasts of figures, for the very good reason he gave—that the forecasts are always wrong. In trying to make the forecast, some account has been taken of both these elements.

The present quarter should be a great deal better than earlier quarters in terms of balance of payments. But the improvements come too late, being only in the last quarter, to affect substantially the deficit for the year as a whole. I expect that it will be a considerable deficit, although it will, of course, be less than last year and very much less than in 1964. I have no reason to depart from the previous estimates I have given the House, that the overall balance of payments will move into surplus next year, with a healthy surplus over the year as a whole.

Our reserves do not move necessarily in line with the surplus or deficit of the balance of payments. As I said a moment ago, they are affected by movements of short-term capital, and these in their turn are influenced by relative interest rates in the main financial centres. The right hon. Gentleman was right when he said that our difficulties had been increased this year by rising interest rates elsewhere.

No one can predict with confidence how world interest rates will move next year. All it is possible to say is that some slight easing has been perceptible recently, but, in my view and in the opinion of many I have talked to, this will not go very far until some other countries make fiscal policy do some of the work which is now being undertaken by monetary policy. When that happens world interest rates will get a downward push.

As to the future of the balance of payments, the right hon. Gentleman spoke of the surplus which would be needed over the next few years. He is quite right. There will be need to repay the drawings made on the International Monetary Fund. In December 1967, it will be necessary to repay the first drawings made on the I.M.F. and on Switzerland. The figure will be—the right hon. Gentleman is right; this is one of the pieces of information I have given to the House—rather over £300 million, although that depends to some extent on drawings made in the meantime from the I.M.F. by other countries.

By 1970, there will be the liability to repay a further £500 million. I agree with the right hon. Gentleman that that is a difficult task. In a newspaper article on the Common Market which he wrote recently, he said that the Common Market countries would not want to take on a country with a load of debt. I should have welcomed that sentiment more if he had thought about it in 1964. This is the way we have had to finance that deficit, and the largest part of the borrowing is made up by the need to finance that deficit with the borrowings which were then made. But the right hon. Gentleman is quite right, we must aim at a continuing surplus on The balance of payments, and this will make our task quite difficult over the next few years.

I turn now to the internal situation. The right hon. Gentleman said that the country wants to know what is going to happen in a serious situation. I welcome the opportunity which the debate gives of spelling out Government strategy for the next phase of the process of industrial redeployment and reconstruction. What changes are needed in the long-term structure of the economy? I have had a word to say about that already in taking up debating points at the beginning, and I shall come back to it later.

As the House has recognised during this debate, we have moved into a position where there is spare capacity in both industry and in labour. This is more true, incidentally, of unskilled than of skilled labour. There are still many places where skilled labour is in demand, and this emphasises the need for the training to which the right hon. Gentleman referred and which we are getting on with.

In response to what the right hon. Gentleman said, I wish to make clear that we do not aim at a large margin of unused capacity of labour. To do so would be both wasteful and inhuman. I noted what the right hon. Gentleman said about this himself, and I agree. I hope that in our propaganda in the country and on television we shall attain the same high standards in approaching this subject as we are doing in the House of Commons. Neither do we aim to return to a position where there is a constant collision between pressure on our resources and the capacity available to meet that pressure. It was that situation, the collision which we constantly had, which has been responsible, more responsible than anything else, I would say, for the continuing inflation. It erodes the value of wages. It erodes other incomes and the value of savings. It puts prices up.

We have, therefore, reached the conclusion that it is necessary to maintain a situation in which there shall be some margin in order that we are not hitting the ceiling all the time. In the situation which we had, the seller could dictate to the buyer and he did. It has come as an awful shock to some people today to find that we are in a buyer's market. But it is a very useful situation to be in. It has its benefits. It may be very unpleasant for those who believe in private enterprise; they have got to start competing, but I am all in favour of that. That is what private enterprise is there for. As I say, this situation has other benefits. It is at the moment bringing forward some very realistic cost estimates for construction work. There is a greater willingness to tender for work which people were not willing to do before. Firm completion dates are being offered. There is a speeding up in the supply of goods and services. These are real gains to efficiency. It is a very valuable and important result of ensuring that there is some margin.

I wish to make clear, however, that during the present redeployment the margin of unused capacity may well grow larger than we need for permanent purposes, and the question, therefore, which the House and the country want answered is how we fill up that gap between the margin we want to keep and the much lower point that we might reach.

I do not think that it is possible—I agree with the Leader of the Opposition—to state an exact margin of unused capacity of labour. In my view, this is to enthrone arithmetic where it does not belong. One needs constantly to watch the balance between growth, the balance of payments position and employment, trying—I agree—to make small changes to achieve the balance one wants. One of the difficulties of the last two years has been that we have had to make violent swings. We had the deficit of £750 million, and we had to try to haul back £450 million in a year, which we did. Now, this year, we are about stationary, and next year we shall swing over into a large surplus. But this is making changes which are far too big. I hold myself responsible in it, but I am saying that it is something from which we must get away. I agree that we want small movements. But please do not enthrone arithmetic where it has no place.

How to fill the gap? First, we must start with exports. This is not a new thought. It just happens still to be true. The easing of home pressure has made for a keener search for export markets. Very considerable help has been given by the Government—by this Government, let me add—direct to exporters through the Export Credits Guarantee Department Exporters are able to take advantage of the lull at home to meet foreign orders, and I am glad to be able to announce some further help in connection with the export rebate scheme, which, of course, depends on the level of indirect taxation.

A great many exporters have paid tribute to the value of the export rebate scheme, and it is, indeed, worth quite a bit. In this current year, it will involve a rebate to exporters of about £94 million as compared with their fellows who are not exporting. That is a substantial sum of money even today.

The Government have reviewed the rates of rebate to take account of the changes in the level of indirect taxation. My right hon. Friend the President of the Board of Trade proposes to lay a new Order for the approval of Parliament which will have the effect of increasing the rate of rebate for most of the exporting industries.

On the basis of the 1965 level of exports—that is the only basis on which one can do it at the moment—the increased rebate will be worth an additional £5.6 million in a year to industry. This will help manufacturing firms to get costs down when they are going into these fiercely competitive overseas markets.

For example, the rebate to the cotton and man-made fibre industry is now worth £1.7 million and will be increased by another £300,000. In iron and steel, the rebate is worth over £6 million and will be increased by another £600,000. The motor car and cycle industry gets a very substantial benefit from the rebate at the moment and the more it exports the more it will get. Its rebate is about £13 million a year which will be increased by getting on for £2 million. The rebate for aircraft is £2.4 million which will be increased by another £340,000. For radio and telecommunications, the rebate of £2.6 million will be increased by £416,000 while; for precision instruments and jewellery, where the present rebate is £2 million, the increase will be £364,000.

In the case of a number of other industries, the rates will not be changed and for two industries there will be a small reduction in the amount because of the level of taxation. But, overall, the new levels will be a substantial advantage to industry. It is tax that I am very glad to forgo because every penny paid out in rebates represents more exports. It is a rebate that industry I know has appreciated.

Mr. J. Bruce-Gardyne (South Angus)

Can the right hon. Gentleman confirm that the rebates will not apply to exports to E.F.T.A.? Presumably he has also studied whether these new provisions are within the terms of G.A.T.T.

Mr. Callaghan

These rebates do not apply to E.F.T.A. because E.F.T.A. countries will be tariff-free to each other as from 1st January next and therefore our exporters have every incentive to go to these countries. There is no barrier to get over. The subject has been examined from the point of view of G.A.T.T. and it is accepted that the remission of taxation in this way is within the terms of G.A.T.T.

Sir Harmar Nicholls (Peterborough)

This is a very valuable move in the terms I have been pushing for for many years. But it is only a way round G.A.T.T. Are discussions going on with the idea of being able to include such rebates in the Budget in the normal way?

Mr. Callaghan

I cannot go as far as that at the moment. I acknowledge that the hon. Gentleman made a number of speeches when he was on this side of the House pressing his own Government for exactly this scheme. He is in the same old position. He asked his own side to do it—it is we who are doing it.

There are good prospects that the level of world trade will remain high next year. I have been asked whether our share was declining. It has gone down pretty steadily. The estimate we have made for next year depends naturally and this is a forecast—on how well our exporters can do. But we are in a different position from the situation in 1961–62—and this is where the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) had bad luck, if you like. He tried to get an export-led boom going, if that is the right word, by lowering demand in this country. Alas, at that moment, or almost at the same time, the general level of world trade turned down. This is not likely to be the position at the moment.

Mr. John M. Temple (City of Chester) rose——

Mr. Callaghan

I have given way several times.

When we were at the O.E.C.D. last week, I discussed this with my Ministerial colleagues and it was agreed among us that the growth prospects of the major industrial nations of the world look likely to be good even for the rest of the decade and I think that it is fair to say that, although the increase in world trade next year may not be quite as much as the increase was this year, there will be a substantial increase in the level of world trade and this would give our exporters the opportunity they are seeking.

I therefore hope that we shall not find a decline in our share of the level of world trade, but that must depend on the degree to which we are successful. In relation to the primary producing countries, again demand may be better next year than this year. Their reserves have been rising for several years.

Mr. Temple

Has the right hon. Gentleman seen the graph in The Times today by Unilever statisticians forecasting that trade will drop substantially in the next year?

Mr. Callaghan

I have not had time to read The Times today. I was too busy preparing my speech. But I will certainly look at the graph. Unilever is entitled to its opinion but I hope that it is wrong. If it is right, it is going against the general expectation of those who look at these matters in the United States and certainly in the O.E.C.D. countries as a whole. I very much trust that it is wrong and I am sure that the hon. Gentleman wants to look on the bright side and not on the gloomy side.

Sir Cyril Osborne (Louth)

We want to look at the truth.

Mr. Callaghan

There is no truth about this. It is a matter of forecasting. Overall, therefore, I expect to see a healthy rate of growth next year in world trade even though not quite as much as this year. Everyone recognises, and we constantly talk about, the supreme value of exports to our balance of payments. What is not so often acknowledged is that increases in exports—and I point this out to some of my hon. Friends who are pressing for a different type of reflation—have a strong reflationary effect at home. We get a double benefit in the present situation—a help to the balance of payments and a reflationary effect at home. The Government therefore look first to exports, but not only to exports, to help fill up the gap of unused capacity. It would be most healthy if we could see demand grow at home because of increasing exports.

Next, we look to productive investment by industry in new plant and machinery. The right hon. Gentleman said that this was forecast to fall next year and this, indeed, is what is expected. But it is vital to use the present lull in home demand for the improvement of industrial capacity and additions to it and I hope that we shall have his help and the help of everyone else in the House in trying to get this fact understood by industry in places where it is not so understood.

Some people argue that modernisation of plant and machinery will create additional capacity at a time when there is some to spare. Precisely. That is the object of the exercise. It is what we need to do. We need to pave the way for renewed growth. Several times in the past we have tried to grow and have come up against the limitations of capacity, with consequential increases in imports and with exports suffering in the scramble for home markets. The more capacity we create now the sooner and the faster we shall be able to grow.

It was for this reason that my right hon. Friend the President of the Board of Trade announced the bonus system today for firms during the next two years. As is well known, the permanent grants for new plant and machinery begin at 20 per cent. and are 40 per cent. in development areas. For the next two years, there will be a higher rate of grant of 25 per cent. overall with 45 per cent. in the development areas. These grants will apply to machinery and plant for manufacturing industry, construction, bridge-building, ship repairing, vehicles, plastics, petro-chemicals, spinning, weaving, computer plant used for scientific research, mining work—these are only some examples. Agriculture and fisheries will be covered by the special arrangements that my right hon. Friend the Minister of Agriculture will be discussing in due course.

Perhaps I can give a simple example. The new temporary grant will give a substantial bonus on a piece of machinery costing £10,000. The normal cash amount will be £2,000 but for the next two years that sum will be increased by £500. In the development areas during the next two years those who invest in new plant and machinery within the categories set out will be eligible, on a piece of machinery costing £10,000, to a direct grant of as much as £4,500. No one can claim that this will not encourage private manufacturers. Quite clearly it will.

Of course, other things are important. They want to be able to see a market in which they are going to use their new capacity and to see a reasonable return on the capital employed. These things the Government have undertaken to ensure. [HON. MEMBERS: "Oh."] Even if the last point is in dispute, whether for party reasons or not, I do not know, what cannot be in dispute is that the real way for them to get a long-term market is to invest in plant and machinery now. Of that there can be no doubt. If they invest now, they will make possible the next round of expansion and also enable it to keep going once it has happened.

Mr. Terence L. Higgins (Worthing)

Can the right hon. Gentleman confirm that the increase in grants which he has just suggested will increase the rate of return, which is the important factor in making an investment decision, on a product yielding 10 per cent. by only ½ per cent?

Mr. Callaghan

I have looked at this on the discounted cash flow basis. I cannot quite recall the answer now, and I hope that the hon. Gentleman will excuse me, but, so far as I can, I think that it will make a difference of about £3 in £100. That is a substantial figure if I am right, but I would not want to be held to that. Will the hon. Member for Worthing (Mr. Higgins) take all that I have just said as cancelled? If he will put a Question to my right hon. Friend the President of the Board of Trade, he can then have an answer.

The right hon. Gentleman referred to the disadvantage which private manufacturers have been under as a result of a shortage of capital available for investment. I think that he is right and that that has undoubtedly had an effect on the setting back of some investment plans, but I do not go all the way with him when he says that repayments of the premiums which attach to the Selective Employment Tax will not have a substantial effect in overcoming that difficulty. I think that they will, and that is the generally held view. The period of extreme stringency is now coming to an end.

Nor did I think that the right hon. Gentleman was right when he told the Scottish Young Conservatives that, because of the Bank of England, pressure is being put on manufacturing industry by the banks. That is not my experience. I have made many inquiries about this. I have had some complaints about it, but when I have looked into them I have usually found that it is because of the absence of credit worthiness on the part of the borrower rather than any other factor which has resulted in the bank denying credit to a manufacturer or exporter. The right hon. Gentleman will remember that manufacturing and exporting are right at the top of the list of priorities. If the right hon. Gentleman has examples, I will look into them, but I have not had any real complaints that a manufacturing industry which has genuine needs has been kept short of funds. I think that industry is going to be put into funds again.

The right hon. Gentleman attacked public investment. He declared war on two things this afternoon and this was the second. It is much more important and significant than he gives credit for and it plays an invaluable rôle in the economy, despite the loud and bitter complaints of hon. Members opposite. I hope that one day I shall persuade them to see where logic and commonsense lie in this matter.

I will give only one example. We all remember that last winter hundreds of firms in the Midlands and thousands of workers lost millions of pounds worth of production because the gas industry was not able to supply them with power. Why? Because there had been a failure to have sufficient investment in the gas industry at the right time.

I know that hon. Members opposite are prejudiced against public investment, but they should not let prejudice go to extreme limits. This is the kind of public investment which is vitally necessary to the country. There are sound economic reasons for making investment in these industries. Is the right hon. Gentleman going to tell me that the gas industry's investment of £15 million in the scheme for importing Algerian methane and distributing it was a bad investment?

Mr. Heath

No.

Mr. Callaghan

But that is the point. His argument is that public investment is bad.

Mr. Heath

No.

Mr. Callaghan

Yes, yes, yes. That is what he said this afternoon. He should go away and read his speech.

Mr. Heath

The right hon. Gentleman need not work himself up like that. I have never attacked all public investment. Good heavens! The right hon. Gentleman should remember the amount of money which we put into the nationalised industries. What I said was that if there were a slow rate of growth but that at least 4¼ per cent. was taken out for public investment, that meant that someone else must be deprived of it. In other words, with a slow rate of growth it is a question of balance.

Mr. Callaghan

I think that when the right hon. Gentleman reads his speech, he will find that he was making a much more general attack on public investment. I wrote this down before he made his speech, because this is the constant cry of hon. Members opposite. They are opposed to public investment and the right hon. Gentleman's comments this afternoon reinforced us in the view that they are always against public investment, although when their short sightedness and the folly of their approach is shown up, they start to crawl out of it.

There have been a number of examples of valuable public investment, which increases public expenditure. For example, last year the Government took up their rights issue in British Petroleum. Good public investment, or bad public investment? Obviously good—obvious to everyone except, perhaps, the right hon. Member for Flint, West (Mr. Birch), who could not see anything good about anything we ever did. The road programme is increasing. Public Investment. Good or bad? Telecommunications in the Post Office; expenditure is increasing. Public investment. Good or bad? Bad on the basis of the approach of hon. Members opposite [HON. MEMBERS: "No."] Oh, it is not bad. It is good, is it? Now we know. At long last! As my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) once said, there has been nothing like it since a Chinese general converted his troops with a hose pipe. They are all in favour of public investment now, every one of them, and they are ready to accept that it is a good thing for public investment to go ahead where it is justified, even if it means increases in expenditure.

Several Hon. Members rose——

Mr. Callaghan

Three hon. Members are now rising to their feet, but I am sure that each will have the opportunity to make a speech in due course. It is foolish to suggest that public investment is not a good thing when it clearly is in so many respects.

I was asked whether the investment programmes were being cut. The answer is that their rates of growth are being pruned to their needs. For example, the amount in the electricity industry is being pruned back, because it is not expected that the needs will be as great as was originally planned; but compared with the amount spent in 1966–67, there will not be an actual reduction in public investment expenditure but an increase in 1967–68, but not as large as the increase originally planned.

The combined effect, therefore, of higher public investment, which, we are all agreed, is necessary, and higher exports will generate renewed expansion at home and hence an increase of personal consumption at home. I expect that this will more than offset the fall in private manufacturing investment which has been forecast and which we hope to arrest as a result of the measures which my right hon. Friend announced today. If they rise, we shall see output rising again. In addition, there will be some stimulation due to the increase in wage rates shortly to take place during the period of severe restraint, and also because of stock building and because there will be some wearing off beginning in the new year of the effects of the present hire-purchase restrictions.

All these factors added together show why in the Government's view it is wrong to have a general reflation at this time. It may become appropriate from time to time to take deliberate and measured steps to encourage the expansion of consumer demand and to help industry to keep down unit costs—I accept what the right hon. Gentleman said about that—especially when those industries are in the export markets. The Government will continue to watch all the aspects of this situation very carefully, but will rely upon the planned reflation which we hope and expect to see, and which we have taken measures to ensure, in exports in productive investment, private manufacturing and in public investment.

Another factor in this situation is the development areas, but I think that I should not spend time on that subject today in view of the substantial speech which my right hon. Friend made last night when he announced further measures.

Mr. Stanley R. McMaster (Belfast, East)

Would the right hon. Gentleman care to say how far the investment grant scheme which he has mentioned will apply to the development area of Northern Ireland?

Mr. Callaghan

The hon. Gentleman knows that the Northern Ireland Government have their own scheme in these matters and that it is a matter entirely for them.

I was asked a question about public expenditure. It would be clear from what I have said that, apart from the expenditure in public investment, which is economically necessary, I do not look to public expenditure as a whole to fill up the margin of unused resources. I made clear that it is not right to restrain public expenditure, especially where it contributes to strengthening the economic basis.

The Departments have been enjoined in preparing their estimates for this year, to scrutinise all items of expenditure carefully, and the pruning process is taking place. Likewise with local authorities. My right hon. Friend the Minister of Housing and Local Government has begun discussions with them and the same injunction will be placed upon them in relation to their services.

The growth of public expenditure next year must be contained within what is tolerable. I understand the natural curiosity and interest of hon. and right hon. Gentlemen opposite in what the level of public expenditure next year will be. I have been pressed to state, in November, what the figure is likely to be. The estimates are not yet ready; it is too early to say.

We shall be looking at public expenditure in connection with the planning operation referred to by the first Secretary on 10th November. It is against this background that we shall be reviewing the 4¼ per cent. for public expenditure increase as a whole. The House will recall that this figure was an annual average for the whole period from 1964 to 1970. It was not tied to a single year. We do not expect to get 4¼ per cent. every year. Last year, for example, the increase, at constant prices, was only 1.8 per cent. Therefore, it would be wrong to expect that rigidity every year, irrespective of the measures we plan, that there is going to be a level of 4½per cent.

I was asked about defence expenditure by some of my hon. Friends. Great pressure is being exerted by them on the Government and the Government are exerting great pressure to reduce overseas defence expenditure. I want to repeat that military strength has little value if it is achieved at the expense of economic health. Our aim is to ensure the right balance between defence responsibility and economic capacity. This is a continuing process and not a once-for-all process. Decisions that have been taken in the Defence Review will significantly reduce the cost of supporting troops overseas. They will cut back the budgetary expenditure foreseen by the Opposition by as much as 10 per cent. by 1969–70. The House knows that work is still going on to achieve the £100 million saving in overseas expenditure that was announced in July. It is our intention to continue to review defence expenditure as a whole in order to achieve a steady reduction in our world-wide burden.

Mr. Stratton Mills (Belfast North)

Is the right hon. Gentleman still confident that the £100 million reduction in overseas Government expenditure will definitely take place during the next financial year?

Mr. Callaghan

That is an unnecessary interruption, because I was asked that question on Tuesday and the hon. Gentleman was here and heard the reply. I do not think that I should spend time on that now.

I was also asked by some of my hon. Friends about the position of sterling. I emphasise again that our position as a reserve currency country brings both benefits and burdens. It would be nice to get rid of the burdens, especially if we could keep the benefits. But, on the whole, there is no rose without a thorn and that is true here. It would be wrong to encourage the thought that the international monetary system which has grown up over so many years can be changed overnight.

It is a vast, complex and delicate mechanism and, badly or roughly handled or interfered with, it could plunge world trade into a deep depression. We have to watch some of the radical proposals, which it is easy to make from some of the editorial chairs, about the changes that can be so suddenly and drastically made. It is my view, and I approached this without any prejudice, that such changes cannot be easily made. It is equally wrong, however, to ignore the fact that the monetary system that we have is changing and modifying all of the time.

We are doing everything that we can to press forward the process of change. Two examples come to my mind. There is the development of the techniques that have taken place during this year to enable the reserve currencies to play their part with less strain on the domestic economy. There is the development of international reserves. In my accidental capacity as chairman of the Group of Ten this year I have invited the deputies of the Group and the I.M.F. to come to London in February in order that we may pursue this project further. In the longer term I am hopeful of substantial changes, but I do not promise spectacular changes tomorrow.

I return to where I started. The problem for this, as for any Government, is to combine a satisfactory balance of payments, with growth and full employment. I agree that future growth—this is part of the Government's policy, we do not have to learn it from anyone else—depends upon the growth of productivity, upon stepping up investment, making full use of the latest technology and the more effective use of manpower.

It is in some ways encouraging and in other ways a sobering thought that, whatever our immediate difficulties may be with the manpower situation, if we get this proper combination of these three elements, then in the long run we will have not a superfluity of manpower but a shortage of it. This implies a continuous process of redevelopment and retraining and that is why there must be mobility and that is why we have taken the measures that we have, with the practical steps in anticipation of this need. This also shows the need to improve the supply, or more particularly the quality, of management on which depends so much the efficiency of British industry.

The Government's policy is based on the principle that we can harness full employment, growth and the balance of payments together. We believe, whatever may be said by hon. Gentlemen opposite, and whatever jibes and sneers may be uttered, that the National Plan is essential to this. The National Plan must play a central part if people are to have confidence in the future and if we are to achieve success.

The First Secretary said that the present Plan is being revised. That does not mean that it is being abandoned. It is more necessary than ever that we should push ahead with the programme of action contained in the Plan, because success must be based upon getting a proper and satisfactory growth rate. I was glad to see that the National Economic Development Council, which is made up of industrialists, trade unionists and the Government recently strongly reaffirmed its belief in the continued value of this kind of planning.

This is supposed to have been a Motion of censure, dealing with lack of confidence. I am bound to say that I much prefer the confidence of these industrialists and these trade unionists to the lack of confidence of the Opposition.

6.8 p.m.

Mr. Nigel Birch (Flint, West)

The right hon. Gentleman had obviously prepared the polemnical parts of his speech before listening to the debate, because he did not hit the bull's eye once. He also pursued a technique which I have noticed many Ministers opposite use when perfect harmony does not reign on their benches, of so overloading their speeches with detail that they become almost impossible to listen to.

This was a long speech, ranging over very many subjects, but not really getting to grips with the real fundamentals of our position, as I shall endeavour to show. One thing which I thought was a little dangerous was the enthusiasm of the right hon. Gentleman for what he calls planned reflation. After enumerating all of these things, I found it difficult to see what was to happen to the balance of payments.

In many ways this debate is rather a sad one, because most hon. Members, wherever they sit in the House, who follow our economic affairs, must feel that our country is trapped in a position from which it will not be easy to get out. The nature of the trap is that on 20th July the Government, out of necessity, were forced to pull out every stop that they had. The result was quite a fair amount of deflation, but contrary to what the Chancellor said, I do not believe that there has been any real international revival of confidence in the £. It certainly has not happened. That puts us in an awkward position.

Why has not this revival of confidence come about as it has after earlier crises? The reason is the length of the crisis. The first run on sterling started more than two years ago, and it was 20 months before effective action was taken. During that time, inflation roared ahead, prices and costs rose, we lost our reserves and incurred enormous debts. Over this long period the nerves of even our most courageous friends became frayed. I think that their nerves are also frayed by a lack of direction in our economic policy which I believe, after listening to the Chancellor of the Exchequer today, is still lacking.

I would say this of the Chancellor. I believe that if he had been allowed to run his Department as previous Chancellors were allowed to run theirs he would have had a much more cheerful story to tell. He would have acted more quickly. But first he had that public nuisance, the Department of Economic Affairs, thrust on him, and it still stinks on his doorstep. He has also had to suffer from a Prime Minister who likes to be his own Chancellor of the Exchequer as well as his own Foreign Secretary and Secretary of State for Commonwealth Relations.

The Prime Minister is becoming increasingly fond of nautical metaphors. We had another one today. I suppose that the sea water gets into the blood of these tough purposive Scilly Islanders. I have no objections to the right hon. Gentleman using these metaphors as long as they are good ones. He shows some familiarity with the technological jargon of the age of sail.

There is, however, one metaphor which I do not think the Prime Minister can get away with. He said that he had been blown off course. "Blown" was perfectly all right; he is blown one way or another practically every day—look at Rhodesia. But the phrase "blown off course" conveys the idea that one was on a course and that one can navigate. I have no doubt that the Prime Minister can chatter very pleasantly about charts, astrolabes and chronometers, but he cannot navigate. That is the basis of our trouble.

Before considering what will happen next, I should like to make two points on what I think will not happen. I do not think that some of the predictions about mass unemployment will be fulfilled. Here I agree with the Chancellor of the Exchequer. Unemployment may be bad, but I do not think that some of the exaggerated forecasts will turn out to be true.

There is one thing which most people think will happen but which I do not think will happen. As a result of what has occurred in the past, the expectation of the public is that after a period of stop—and in this case, owing to the inflationary excesses, it will, perhaps, be a very long period of stop—we shall return to a period of fairly rapid economic expansion. In fact stop-go will recur, as it did in the golden years of Tory rule. [HON. MEMBERS: "Oh."] It worked very well. We have to have "stops" from time to time, and the Conservative Government always had good "go's."

What I think will happen this time is that we shall have a prolonged grey period when we shall lose not only our place in the world but the confidence of the world. I think that the Prime Minister really agrees with that. At the cost of agonising boredom, I listened to his speech at the Labour Party conference in Brighton. At least 15 times in that speech he said that we had got away from stop-go for good. He knew that we were in the middle of the biggest stop in history, and so did his audience. He knew that the audience knew, and the audience knew that he knew. What he really meant was that we had got away from the go; we are just having the stop. I do not think that there will be very desperate unemployment. Expansion will be long delayed and very slow. But, of course, it is difficult to plot the course of a ship which is drifting before the wind.

I have only two points to make on what can be done to help. First, if we are to get the economy working efficiently we must not keep on changing the rules. This is what is happening the whole time. The National Plan was announced, but then, in a few months, it was dumped. Quite a few people believed that as a result of the National Plan something would happen. For those gullible creatures the Foreign Secretary's jape has been very expensive. Then the Government altered the rules by Corporation Tax, Capital Gains Tax, Selective Employment Tax and investment grants.

The trouble about all these measures is that the people who are supposed to work them—the public first—do not understand them. What is even worse is that the officials who are supposed to work them do not understand them either. The amount of confusion, delay and waste of time as a result is frightful. We are all "had for a mug" occasionally, but the Chancellor of the Exchequer has been "had for a mug" four times running, and by the same man. It is quite something. I hope and pray that in the next Budget we shall not have another hideous abortion.

My last point is on public expenditure. The Chancellor said a few words about trying to get control of public expenditure. I am convinced that this will be by far his greatest difficulty, and by far the greatest difficulty of all parties and hon. Members. Public expenditure as a percentage of the gross national product has been rising steadily over the last few years. Now, as a result of the Plan, this rise will be faster still because the expenditure, as Ministers have said, is going on as planned but growth is either non-existent or negligible.

There was a most illuminating pamphlet published the other day written by Professor Sir John Hicks called "After the Boom". He said that we think and talk too much about an incomes policy and not enough about expenditure. He analyses our economy and says that its health depends upon getting the right percentages in the three components of the gross domestic product—that is, consumption, public expenditure, both national and local, and investment. The Chancellor of the Exchequer indicated that he did not think that consumption would go down very much. It is extraordinarily difficult to depress consumption by fiscal means; it never comes off. We can take it that it is fairly fixed.

The other two components are national and local government expenditure and investment. This comes back to the Chancellor of the Exchequer's point about investment. I am making the same point as my right hon. Friend the Leader of the Opposition. In exporting and import saving the private sector is by far the most important, because it is in the private sector that we find the industries which do the exporting and import saving. It is therefore immensely important that their share should be kept up. But it cannot be kept up if the share of the public sector increases. If the share of the public sector increases and investment increases and consumption stays the same, the only way in which the accounts can be balanced is by another balance of payments crisis which we cannot stand.

The growth in public expenditure has been terrifying. Public expenditure on goods and services of central and local government on both current and capital account has increased 50 per cent. in the period 1960–65. National expenditure has gone up by only one-third, but local government expenditure has gone up by no less than two-thirds over that five-year period. I am not going into how it could be controlled. All I am saying is that we cannot possibly get our balance of payments right unless we get control of Government expenditure. Without doing that, we will get straight back into the crisis again.

It is a mathematical question. The laws of arithmetic are inexorable. The Chancellor said that we must not enthrone mathematics, but two and two have a nasty habit of making four. Even 1.5 and 2.5 add up to four. I am certain that unless the Chancellor can get his expenditure under control, we will be in permanent balance of payments difficulty.

I have got to my peroration. My peroration on economics is always the same. I express the hope that the Government's measures will work, but I express the fear that they are not likely to work because the Government cannot navigate.

6.22 p.m.

Mr. Raphael Tuck (Watford)

I was interested to note the sense of affront that seemed to strike the occupants of the Front Bench opposite when my right hon. Friend the Chancellor of the Exchequer accused them of opening a war on the trade unions. Unfortunately, we have memories and we know that the party opposite have promised that if they get back to power they will introduce legislation to reform the trade unions.

We wonder what kind of reform it will be. My memory harks back to 1926, when the party opposite reformed the trade unions with the Trade Disputes Act. It was repressive and harsh reform in 1926. Some hon. Members will not be old enough to remember it, but I am, and we wonder whether this reform of the trade unions which the party opposite promise will not take that shape again.

Despite all the carping criticisms by hon. Members opposite, the fact remains that if both sides of industry had honoured the pledges they made, if they had both kept to the declaration of intent which they signed in 1964, we would not be in the precarious position that we are in now. All honour to my right hon. Friend the Foreign Secretary, who at that time was First Secretary of State and Secretary of State for Economic Affairs, in getting the two sides round the table. They signed the declaration, but they did not keep to it.

Many of our brethren kept to that declaration, but a small minority caused the chaos in which we find ourselves at present. That small minority was keener on personal and sectional interests than the national interest. It was unpatriotic enough to be so. Wages and prices went up and we found ourselves in a spiral. I must stress that when the employers found, for example, that wages went up by 5 per cent., even though the wage bill accounted for only 40 per cent. of the total cost, instead of putting up the price by 40 per cent. of 5 per cent. they put it up by the whole 5 per cent. with no care for the consequences—the Devil take the hindmost! It did not matter to them. Private gain took precedence over public good.

Prices went up, and we have made two innovations, with which I shall deal briefly. With one I am in complete agreement, but with the other I am in complete disagreement. The first thing that we have done is to bring in the Selective Employment Tax, which I might term the senseless employment tax. There is a movement afoot in this House and elsewhere to legalise abortion. I cannot for the life of me understand how we came to legalise this one. It was not even properly conceived. It is called selective. If there is one thing which it is not, it is not selective.

If we want to redeploy labour and to take it from a service industry which is unproductive, like, for example, betting shops—although, I suppose, I should term that a disservice industry—if we want to take labour from an industry which is not productive, like betting shops, and move it to an industry which is productive, by all means let us tax the unproductive industry, and tax it almost out of existence. Let us lay a heavy tax on it, not simply the milk-andwater 12s. 6d. for women and 25s. for men. Let us do it properly and heavily, and one of two things will occur. Either we will get labour moved from unproductive industry and it will be available for productive industry, or the unproductive industry will be so profitable that it will continue and we will get a good amount of taxation out of it. But to lay a blanket tax on laundries and co-ops and small businesses is not selective and can only have the effect of a rise in prices.

In connection with betting, I cannot understand why the Government have not taken the bull by the horns. What are they afraid of? Why have they not taken over the control of casinos? There is a vast untapped amount of wealth to be had from casinos. Monaco is being run on them. In my view, there is no reason why the Government should not tap that source of wealth to the advantage of the community at large.

As to the other measure which has been introduced—a prices and incomes policy—I agree with what my hon. Friend the Member for York (Mr. Alexander W. Lyon) said yesterday when he asked for a permanent compulsory incomes control. If we are to have planned growth—and we want planned growth—we must do one of two things. We can have it either voluntarily or compulsorily. It was tried voluntarily, but it has not worked voluntarily. The only other thing that we can do is scrap it and return to the free-for-all, but that is not our policy. We must therefore make it compulsory.

In that connection, I would go further than my hon. Friend went yesterday. When he said "I would not say that it should apply only to wages", I would go the other way and say that it should apply to every form of prices and incomes, not only wages, but prices and dividends. It will be extremely difficult for the Government to try to persuade trade unions like, for example, the National Union of Railwaymen—the representative of which made a very patriotic, self-denying speech at the Labour Party conference when he said that if it was for the national good they were prepared to take a cut—to feel that they must take cuts when prices and dividends are allowed to go free and to soar.

I know that there is provision in the Prices and Incomes Act about prices, but, on the admission of my right hon. Friend the Minister of Labour himself yesterday, wages have risen by .1 per cent. and prices have risen by .3 per cent. since the summer. Prices are going up more than wages. We are told that it is difficult to control prices and to tell people that they must not go above a certain price. If difficulty is to be the criterion or test as to whether we act, we might as well shut up shop.

I urge the Government to keep a heavy hand on prices so that they do not go up. I urge them also, as I have tried before, to include dividends as well in this control. If we are to have control, we must have it over the whole economy. About two weeks ago, in a Question to my right hon. Friend the First Secretary, I asked whether he would ensure that the increase in dividends which was not paid this year would not be stored away and then paid out next year when the freeze comes to an end.

Mr. David Webster (Weston-super-Mare)

Would it help the hon. Member's argument if he knew that dividends went down 13.7 per cent. in October and 1.1 per cent. last month?

Mr. Tuck

I am grateful to the hon. Gentleman for giving me those figures. But dividends are not controlled. There has been a voluntary suspension of increases in most dividends, but there is no guarantee to us that, having been salted away, they will not be paid over next year when the freeze is over.

In answer to my Question, my right hon. Friend the First Secretary said that if there were increases in productivity there could be increases in dividends. However, I am thinking of circumstances in which there is no increase in productivity but where an increase in prices results, and I urge the Government to bring in measures now so that dividends are controlled as well.

Unless we can control the whole economy, it will be futile to start trying to control wages. A full control of the whole economy is the only way that we can be sure that the prices and incomes policy succeeds and that the economy is put into better shape in other words full control is vitally necessary to planned growth.

6.30 p.m.

Mr. Paul Dean (Somerset, North)

There is very little time left for back benchers to speak in this debate, so I hope that the hon. Member for Watford (Mr. Raphael Tuck) will forgive me if I do not follow his argument but, instead, go immediately to two specific points which I should like to make.

The first one, which was referred to yesterday by my hon. Friend the Member for Finchley (Mrs. Thatcher), concerns the effect of the White Paper on severe restraint upon occupational pensions. From paragraph 42 of the White Paper, it looks as if there is to be a virtual freeze on any increase in occupational pensions during the period of severe restraint. If that is a correct interpretation of the White Paper, it is most unfair on pensioners, and I believe that it is also unnecessary.

Hon. Members may have seen the reaction to it by the Chairman of the National Association of Pension Funds, who wrote to the Daily Telegraph on 25th November, saying: It is surely one of the most unfortunate features of the White Paper that pensioners of occupational schemes are to be affected by the period of severe restraint, as such pensioners have been the main victims of the inflationary era. That is a very mild comment to make on the White Paper when one remembers that the pension of a single person has already lost something like 6s. in purchasing power since the new rate was introduced in March 1965. That coming from a Government who are pledged to keep pensions and earnings in line is, to say the least, a very great contradiction.

However, that is not the only reason. Another one is that some funds have already held up modest pension increases during the period of the freeze which they were able to give through their services. If they are now to hold them up again, many pensioners who would otherwise be able to have modest increases will suffer.

A third point is that very often pensions are dependent upon earnings during the last few years of service. Inevitably, it means that people nearing retirement who are being affected by the incomes freeze will also be affected in the pensions which they get. Even if the Government decide to insist upon a freeze on pensions, how will it be carried out? It is said in the White Paper that some increases may be justifiable for pensioners getting the smallest pensions. Who is to decide who are the pensioners getting the smallest pensions? How will that be decided, and what will be the position of funds whose trustees are obliged, should there be a modest surplus, to distribute it amongst all pensioners and not try to differentiate between one group and another? I cannot believe that to give a pension fund the power to increase pensions will drive a coach and horses through the severe restraint policy. I hope that the Government will think again about that section of the White Paper.

The second main point which I intend to mention is the effect of the Government's policies over the whole economic held on the development areas and the less prosperous parts of the country. One of the features in speeches by Government spokesmen when the brakes were first clamped on and emphasised time and time again was that the development areas and the less prosperous parts of the country generally would be insulated against the more severe effects of the disinflationary policy. That is one of the things which were emphasised. It has not happened.

If one looks at the West Country, where I come from, one finds that, far from being insulated against the worst effects, the opposite has happened. If one considers the combined effects of Government policy, one finds that the West Country is being hit harder than in almost any other period since the war.

The unemployment figures speak for themselves. I know that they are worse in some parts of the country than they are in the West Country, but there is no doubt that the unemployment figures in the West Country for November show that we have 36,560 people unemployed, which is a percentage of 2.7. That is the highest November unemployment figure for the West Country in any November since the war. That in itself does not suggest that the original policies which the Government talk about are having the desired effect.

It is not only that we have that level of unemployment. It is also that the desire to keep skilled people in the less prosperous parts of the country is working in the reverse direction. I give just one example of a metallurgist in the West Country who was made redundant because of the credit squeeze. He looked for another job in the same area and failed to find one. The result is that that man is now working in London. Here one sees regional policy working in reverse. If our regional policies are to be effective, we need to maintain the skilled manpower in areas of the country which do not share the national prosperity.

The second aspect of this point is the effect of the Selective Employment Tax. The hon. Member for Watford called it the "senseless employment tax", and I agree wholeheartedly with that phrase and that the tax is a thoroughly bad one from start to finish. However, if we are to have a tax of that kind, it should be used in a really selective way to ensure that those parts of the country where there is a predominance of service industries and which are, therefore, the hardest hit at the moment, have a lower rate.

The tax could be used as a useful and very powerful factor in encouraging regional development; yet we find that it is bearing down harder on the West Country than on almost any other part of the country. In introducing a new tax, it is a strange sort of justice which operates it so that it bears down harder on those least able to withstand it.

The figures are quite clear. I have obtained them from a series of Parliamentary Questions which I have put to Ministers, and I shall quote two of the results. The figure for Great Britain as a whole for the premium group is 38 per cent. In the West Country the figure is only 30 per cent. In the tax bearing group the figure for Great Britain as a whole is 35 per cent., whereas for the South-West it is 38 per cent. These figures show quite clearly the burden which this area—one of those least able to bear it—is having to bear under S.E.T.

I sincerely hope that the Government have recognised the strong arguments which have been put forward from both sides of the House about the effect which this tax is having, and I hope that in the next Budget they will bring forward some substantial changes which will ensure that if this tax is to remain it will assist rather than discourage the development of the less prosperous parts of the country.

It is no good the Government saying in one breath that they want to encourage regional development and to introduce measures to try to assist that if in the next breath they introduce measures which have precisely the opposite effect. We shall not feel that the Government mean business in trying to spread employment evenly over the country and in trying to assist the less prosperous parts of it, unless all their policies are geared to this and they are all working towards this end.

6.41 p.m.

Mr. Archie Manuel (Central Ayrshire)

I hope that the hon. Member for Somerset, North (Mr. Dean) will forgive me if I do not follow him in all that he said. I shall, however, like him, to say something about regional problems and some aspects of regional decline, though in relation to Scotland.

I want to deal straight away with some of the things said by the right hon. Gentleman the Leader of the Opposition. Possibly if he had given way to me I would not have had to say this now, but I cannot leave unchallenged the attack which he made on miners and railway men when he said that there was gross overstaffing in these two industries.

Over the past ten years there has been a great depletion of British Railways' staff. Many of the very low paid workers have been moved, and there is no comparison between the number there now and ten years ago, and this has happened with very little outcry. There has been a far greater outcry from much higher paid men in the motor car industry. Whenever there is a shiver in this industry, which is far too big anyway, because of its mushroom growth, there is an outcry which would be much more realistic if it were to come from men earning low wages, such as were earned by many miners and railway men at the time when the Beeching policy was in full blast. I hope that the attacks made on the Minister of Transport will be repudiated as firmly as possible when my right hon. Friend replies to this debate.

We all vividly recall the time when the right hon. Member for Bexley (Mr. Heath) was a major power in the Government. When he was President of the Board of Trade, it was difficult to wring an advance factory from him. Before he would allow one to be built, we had to guarantee a tenant for it, yet we have proved conclusively that if we take advance factories into certain areas they are occupied within a very short time. This has happened in my constituency.

We also remember that when the right hon. Gentleman held a position of power in the Tory Party the unemployment figure in Scotland was 136,000. I am thinking of 1961–62, when we had the highest-ever unemployment figure. I shall have something to say about the present unemployment figure. It is nowhere near that to that which I have just referred, but I am still not pleased with it.

Mr. Iain Macleod (Enfield, West) rose——

Mr. Manuel

Unlike the Leader of the Opposition, I willing give way to the right hon. Gentleman, for whom I have a great deal of respect.

Mr. Iain Macleod

Both the hon. Gentleman and I care a great deal about Scotland. He has compared the present situation there with the situation in 1962–63. He has given the peak figure of 78,000 in February, 1963. Should he not in fairness tell the House that that figure was swollen with 20,000 temporarily out of work, who disappeared from that figure in the next month?

Mr. Manuel

I am willing to admit that, just as I am sure the right hon. Gentleman will admit that a great proportion of the present unemployment figure of 500,000, I think about 120,000, is made up of people who are temporarily stopped, and who will be re-employed within a short time.

Last weekend the Leader of the Opposition was in Scotland. He was there for a few hours, parading about the place. He went to a football match in Edinburgh between two teams who are well known as virile opponents. I understand that they were united for the first time in the welcome which they gave the right hon. Gentleman when he arrived at the park. When the Leader of the Opposition speaks in Scotland, and tries to spread gloom and despondency, he cannot gather all the facts in the few hours while he is there meeting Tory leaders who, by their spleen and non-knowledge, cannot advance his case very far. I understand, however, that the right hon. Gentleman had a pleasant interlude. He kissed a girl from my constituency, and also crowned her the queen of the Young Conservatives.

The right hon. Gentleman does himself and his party no good by making the kind of speech that he did in Scotland against the background of what is actually happening there, and I want to put on record what the business community—the really knowledgeable people—is saying about Scotland's economic situation. "Scotland", the monthly review of Scottish business—and I take it that this being the official organ of the Scottish Council for Development and Industry the Tories read this valuable publication—said in its editorial in the December issue: Looking back over the panorama of 1966 and forward to 1967, the Scottish Council can sum up its impressions in two words: confidence and clarity. Confidence springs first from the performance of Scottish industry. Established industry has continued to expand, new companies have continued to come in. Exports have risen—the recent survey made by the Council gives evidence that Scotland now leads the whole of Britain in export performance. Communications with other countries, vital to expansion, have improved—witness the successful new links to Holland and Germany introduced this year. Publicity has been given to Scottish events and developments by journals and broadcasting organisations on an entirely new scale. Scotland is—at long last—news in the right sense. Confidence springs also from the accumulating evidence of the strength of the Scottish economy. I do not think that there could be a higher tribute than that, no matter how much the hon. Member for Perth and East Perthshire (Mr. MacArthur) would like to puncture it, because these days he tries to create an air of growing gloom, despondency, and despair whenever he can. What is he going to do about this? He will need to look pleased about it even though he is not. Therefore, we have to regard this sort of evidence which we can produce as being very valuable.

I could quote much more. In the November issue of the Midland Bank Review, right on the front page under the heading "Scotland takes the Strain", it says: On balance over the last two years the Scottish economy has made good progress. Output and exports have risen faster than in the United Kingdom as a whole, and more new industries have been attracted to Scotland". That is very good. It is most heartening, and I am delighted about it.

I want now to say something about the Prices and Incomes Act. Some very good friends of mine within the Labour Party and the House of Commons, whom I have known for a very long time, and I separate on this issue. I supported the prices and incomes policy of the Government. The necessity for Part IV of the Act did create a great deal of concern and sadness to Members on this side of the House. I have a great reluctance to be associated with something that is not voluntary. The acceptance of this legislation at the Labour Party conference and at the Trade Union Congress, and the recognition of the need for it, revealed that the last thing that a great many of our people want is the discontinuance of a Labour Government or the weakening in any way of a Labour Government. I want the Government to continue. We have to face up to the realistic situation that all of us are agreed that we want a Labour Government to continue. Therefore, I reluctantly and sadly gave my support to the legislation. I hope we may find that at the end of the day it has been well worthwhile. At least, I sincerely hope so.

I will now deal briefly with the six-months' period of severe restraint which we will soon be entering. If this is to be successful—and I hope my right hon. Friend on the Front Bench will recognise that some of us want it to succeed—my right hon. Friend should recognise that there will need to be strict control of prices. Spiralling prices will kill the Government's objective. The Government cannot, during the next six months, allow prices or rents to rise. This will be one of the most salient points in the success of the Government's policy over the next six months. We have to recognise that many local authorities are poised. They have listened to the Government and they have not increased their rents, but they are prepared to do so in January and February of next year. If that happens and we get the alarming increase in rents about which I have read, it will have a most damaging effect on the situation. The trade unions will be forced—and they will have my complete support—to go forward and wring what they can out of the employers if rent increases are imposed which will reduce the amount of food eaten in many homes and the kind of clothing worn by children in those homes.

Prices and rent increases will need to be controlled. Certain increases will be discussed and allowed for productivity in certain sections of industry. It is also considered that increases will be allowed for lowest-paid workers.

Regarding productivity, I am sure that the Minister of Labour recognises the problem, because I have already put a Question to him on this matter. My hon. Friend should recognise that there are many thousands of workers in this country whose productivity cannot be measured. It is all very well to say that productivity can be measured in certain industries, but there are many workers—and I include railwaymen in this category—whose productivity cannot be measured. They provide a service day in and day out on a very low wage. For instance, we cannot measure the productivity of a signalman at work in his signal box, because he does not decide the number of trains that pass along the track. Also, a locomotive driver does not decide the number of carriages or wagons comprising his train, nor does he have any say about signals which are against him on a particular journey which delay his progress. All these things are out of his control. It has to be recognised that productivity cannot be measured in these grades of railways workers. Many workers in these grades are very low paid, and because their productivity cannot be measured I hope they will not be refused wage increases, because those increases are certainly their due.

My final point concerns unemployment in the development areas. I have already described what is happening in Scotland. Although we are making economic progress, we now have 78,000 unemployed. The Scottish economy has made good progress. Output and exports have risen, as I said, faster than in the United Kingdom as a whole. Although this is very good, every Scottish Member on this side of the House will be concerned that there are 78,000 people unemployed. I hope my hon. Friend will convey to the Ministers responsible that it is our considered opinion that it is time the unemployment figure was reduced. The situation cannot continue, or the picture that I have given of the real recovery that is happening in Scotland will be damaged. It is time that the screw was being loosened a little and unemployment in Scotland steadily reduced. I hope my hon. Friend will convey to those in control of this situation that we have to ensure that Scotland's future, both financially and economically, will not be blurred because of further depopulation arising from the present high unemployment figure. I hope that figure will be substantially reduced in a very short time.

7.0 p.m.

Sir Cyril Osborne (Louth)

The Chancellor of the Exchequer has told us that our major problem is to produce exports at the right price, in adequate quantity, of the right quality and delivered on time. That is the kernel of the problem. He might have added that the exports must be sold at prices that produce profits. Exports sold at a loss harm the economy. He must also remember that those exports will have to be made by the private sector of industry and that he must regain that sector's confidence or he will not get his exports.

The right hon. Gentleman chided my right hon. Friend the Leader of the Opposition for making a speech that was not a sufficiently vicious condemnation to justify a vote of no confidence. It is fair to say, however, that no hon. Member would have believed that eight months after the new Labour Government came to office flushed with victory, with a majority of 100, suffocated with economists—most of whom knew all the answers to all our problems—they could have reduced our national affairs to the present chaos. That is the greatest condemnation of the Government, plus the fact that one-third of hon. Members below the Gangway opposite would, but for the fact that it would destroy their own party, like to murder their Government themselves.

Speaking as a business man who has these problems to solve, I must say that the Ministers give me the impression that they no longer control events and are bewildered and frightened by their problems. On the other hand, we do the nation a disservice if we exaggerate our difficulties. The country is not down and out, and it is not next to broke. Our economic problems are marginal and can be overcome.

The Prime Minister said in New York last year that Britain had £11,000 million or 31 billion dollars of overseas investments. I should like to know, incidentally, whether those investments are still there. Those huge reserves were accumulated during the 13 so-called Tory wasted years, and if we wanted to give the lie to that unworthy smear about wasted years those figures provide it. I hope that the Chancellor of the Exchequer will not give way to pressure from below the Gangway opposite by doing as the "rebel" Amendment demands, selling those investments in order to reflate consumer demand. That would be to eat next year's seed-corn today. He must resist that demand with all his might.

If we have a hard winter that holds up the operations of the building industry, the present figure of half a million unemployed could easily be doubled by next spring. Our trade and industry position is far worse than is generally realised. Confidence in the future has been lost, orders are smaller, profit margins are much lower, overheads have increased, and the general outlook is not good.

Hon. Members opposite who are as concerned as we are on this side about unemployment should remember that it is estimated that about 5 million jobs depend directly upon the exports which the Chancellor of the Exchequer says are vital, but that neither this Government nor any other British Government can compel foreigners to buy British. That means that no Government can guarantee those 5 million jobs. It follows, especially in a country which depends so much on exports in order to purchase food and raw materials, that no Government in a free society can guarantee full employment for everyone all the time, plus a high standard of living. That basic truth must be told to the people.

It is often said that the way round our difficulties is to have regular investment in productive industry. That is true, but, as has been pointed out, if the amount of investment in private industry is reduced because of the amount going into the public sector, the economy can suffer severely. Over the last 20 years, about £8,400 million has been invested in the four major nationalised industries which, between them, have not paid one farthing out of profits in taxation to help maintain the Welfare State, so that the burden of the Welfare State falls disproportionately on the private sector.

I should like at this stage to give one or two figures relating to the Welfare State. The social services have become too great a burden for our present economy. The Beveredge Report estimated the cost in 1945 at £697 million, rising in the year 1965 to £858 million. The actual cost last year was £5,725 million, or 6½ times as much. We need a new investigation into all the social services.

Expenditure on local and national government is higher than we can afford. Central Government expenditure in 1938 was £994 million; in 1946 it was £3,802 million; in 1955 it was £4,837 million, and last year it reached a figure of £9,345 million. In the last ten years it has more than doubled. Local government is proportionately worse. It cost £570 million in 1938; £712 million in 1946; £1,622 million in 1955, and last year it reached the staggering total of £3,989 million. These are the colossal burdens that productive industry has to carry—

Mr. Frank Hooley (Sheffield, Heeley)

Would not the hon. Member agree that, with these colossal burdens, has gone a steadily rising increase in our total national wealth?

Sir C. Osborne

Oh, no. We are in debt to the national bankers to a greater extent than ever before.

The position is made worse by the fact that, since 1964, when hon. Members opposite took over, we have had 26,000 extra civil servants in Central Government and 159,000 extra local government officials. The burden which the Government are placing on industry is too great for it to carry. These expenses have to go on to our costs of production, and they make it more difficult for us to sell in international markets, as the Chancellor demands that we should do.

Things are far grimmer than most people realise. I hope that the Minister will tell his right hon. Friend the Chancellor that industry wants to know what is going to happen after next July, when the period of restraint is over and the freeze is finished. What policy will the Government pursue? What plan have they got? We demand that there shall not be a reduction in our standard of living. We talk about the poverty of the lower-paid workers, but four-fifths of the human race live at less than one-fifth of the standard of living of the lowest of our lower-paid workers. These people will demand more and more for their raw materials. The black, brown and yellow workers are saying, "Why cannot we have a fairer share of the good things of life?" This development will affect us much more seriously than now seems apparent.

I want the Chancellor to tell our people the bitter side of the truth—not the gloomy side, but the bitter side. The people must face the facts. It is because the Government have failed to tell the people the facts, and have failed to tackle the problems before us that the Motion of Censure is justified, and I shall vote for it.

7.12 p.m.

Mr. James Dickens (Lewisham, West)

This debate, following on that of yesterday, takes place against the background of momentous international events, and I want to begin by briefly relating the health of our economy at home to our international views. I make two brief comments upon the Government's attitude towards the future of Southern Rhodesia. First, I very much hope that my right hon. Friend the Prime Minister, in his negotiations with Mr. Smith, will remember that political principle must in every case take precedence over economic expediency, and, secondly, that whilst the effect of British economic sanctions against Rhodesia is a factor in our economic problems, and any intensification of these sanctions will be an additional factor in the months ahead, they must not be exaggerated. They are significant only when seen against the background of a "phoney" balance of payments crisis.

We are debating economic affairs tonight in a year which has witnessed our ninth balance of payments crisis since 1947; this is our fourth attempt since 1955 to resolve the crisis by deflation. It did not work in 1955 under Mr. Butler—as he then was—and it did not work in 1957 under Peter Thorneycroft. It did not work in 1961 under the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd). In each case we found ourselves at the end of the day worse off than any other advanced industrial country in terms of production, productivity, investment, exports and prices. When expansion was resumed we found ourselves comparatively weaker than before.

When shall we learn our lesson? We have tried the solution not once, not twice, but three times in recent years under the Administrations of right hon. and hon. Gentlemen opposite. I see no reason to believe that deflation under a Labour Government will produce a significantly different result.

Hence the need to look for new solutions to our economic problems. These solutions are outlined in the Amendment which stands in the names of myself and 45 of my hon. Friends. It is a moderate, realistic and constructive alternative to the present course of policy which is being carried out by the Government. It might have been very much more radical. It might have contained demands for public ownership. I hope that in the lifetime of the present Parliament, with its majority of 94, the Government will be encouraged to take further steps along that line by fulfilling their election promise to take the water supply industry into public ownership.

It is argued that our alternatives are not realistic; that they have no immediate bearing on the balance of payments crisis. Let us consider some of the 20th July measures and see how relevant they were to the immediate problem of meeting the requirements of our balance of payments situation.

The restriction on office building, the further restriction on new private commercial developments, and the reduction of £150 million in public sector spending—these three things in themselves may have merits or demerits, but they have no immediate short-term effect on the balance of payments problem. The increased Surtax rates, while welcome to this side of the House, will not be payable before September, 1967.

The Government's steps of 20th July last were, of course, a mixture of short-term and long-term measures. Was the advice given to the Government at that critical juncture sound advice which we can test against the experience of the recent past?

My hon. Friend the Member for Stepney (Mr. Shore), who was formerly Parliamentary Private Secretary to my right hon. Friend the Prime Minister, was in no doubt about the quality of the advice being served up to previous Governments and the present Government from certain circles. In his stimulating little book "Entitled to Know", he said: The trouble is that, again and again, in the post-war period the wrong official advice has been supplied. … The advice tendered to successive Chancellors by the Treasury has been abysmally inept, as Britain's stop-go record so clearly illustrates. … A new Government, unhappily, doe not mean a new Civil Service elite. The counsellors of the past decade are, we can be sure, serving up much the same advice to the new Ministers. In view of the policy of the present Government, there can be no doubt that this analysis is accurate.

Many of my hon. Friends are becoming increasingly critical of the advice being tendered to the Chancellor from high circles not only in the Civil Service, through the Treasury, but in the Bank of England. I go on record as saying that more and more of us demand that the Bank should be held more rigorously to the account of this House in its conduct, and especially in the public pronouncements of leading members of that institution. For we regard their advice to continue with a policy of deflation—a policy that has been carried out in the past and is being carried out now—as a stale, played-out remedy.

I now want to examine some of the basic problems confronting our economy and to put forward solutions in a flexible, almost a pragmatic, way, as one might say. It is argued that this country has a serious balance of payments problem. But the balance of payments problem in 1965 on current deficit was £104 million, after the Government had spent over £500 million abroad, of which about £278 million was the result of Government overseas military spending. To that £104 million must be added £215 million, the balance of long-term capital outflow; containing gross outflow of private investment abroad—when 1965 was allegedly a crisis year—of £312 million.

Against this background, two basic reasons for the balance of payments crisis become obvious. As Mr. Fred Catherwood, Director-General of the National Economic Development Council recently reminded us, one is the heavy expenditure on overseas defence and the outflow of capital. Another is the chronic inadequacy of the rates of new capital formation. For example, this country between 1955 and 1964 invested 12.7 per cent. of the gross national product, excluding new dwellings, in new capital expenditure. Japan spends 21.5 per cent. of her gross national product, Germany 18.4 per cent., Italy 15.6 per cent. and Sweden 17.4 per cent. Thus, ours is one of the lowest figures of any advanced industrial country.

It is riot just that we are spending, in the current financial year, almost £300 million in foreign exchange, maintaining overseas bases from Gibraltar to Hong Kong, which are far in excess of our resources, but rather that defence is a high and rising burden on the economy. This was made clear in chapter 19 of the National Plan which set out the impact of defence on industry: … at home, the defence effort pre-empts a large part of the productive potential of some of the most important and technologically advanced industrial resources and is a large user of skilled and unskilled manpower. To be precise, the defence programme takes 7 per cent. of our national output at factor cost. It requires the services of 1¼ million men for manning and equipping. We spend as much on defence as we do on investment in industrial plant and machinery and more than we spend on durable consumer goods. Almost 40 per cent. of our total national research and development expenditure goes on defence, which also employs one in five of all our qualified scientists and technologists. Apart, therefore, from the burden on the foreign exchange, the weight of defence on industry is a major hindrance to economic growth.

We spend 6.7 per cent. of our gross national product on defence. The Chancellor, in his disappointing and complacent speech this afternoon, seemed to regard the level contained in the Defence Review as reasonable. We regard this as highly unsatisfactory and want an early, and a real, significant reduction. The Common Market countries on average spend 4.7 per cent. of their cumulative gross national product on defence. This means that they, vis-à-vis this country, have a bonus each year of about £500 million to £600 million to spend on investment and the modernisation of industry. This obviously must be taken into account in discussing the balance of payments problem.

I want the Armed Forces, by 1970, to number no more than 300,000 men. I want us to have left Malaysia. Singapore, the Persian Gulf and Western Germany and to see our overseas commitments confined to modest garrisons in Hong Kong, Gibraltar and West Berlin. We on this side expect to see defence spending at not more than £1,750 million in 1970, at 1964 prices.

The second aspect of the problem is the outflow of capital. This is, of course, a grave handicap to domestic economic growth. Just over £11,000 million worth of British overseas investments is often described by right hon. and hon. Gentlemen opposite as of a great benefit to this country. It is assuredly a benefit, but the National Plan puts the balance of benefit very well: it said that it yields for Great Britain a return which is on average … considerably less, from the point of view of the national economy, than the return on home investments. Clearly, the seed corn does not rest abroad but here at home, and it is here that we have to build it up.

Despite this view in the National Plan, between 1954 and 1964 this country invested £2,700 million abroad, notwithstanding the fact that during that decade we had to thrice deflate the economy to meet short-term balance of payments problems. In 1965, no significant improvement was made, because in that year—again allegedly a crisis year—we exported £312 million of scarce capital abroad. In the first six months of this year, the figures show only a fractional improvement, from £169 million to £167 million, over the first six months of 1965. Indeed, the figures for the second quarter of 1965, at £87 million, were some £18 million higher than the equivalent quarter of 1964. This must stop. These figures are appalling, and I hope that there will be a drastic reduction in the second half of 1966.

The Amendment also proposes that we should liquidate a section of our overseas portfolio investment and has excited some interest. It was mentioned yesterday and today by right hon. and hon. Gentlemen opposite. Perhaps it is not too much to expect a Government statement on this point in the winding up speech tonight. Certainly, it is not enough to dismiss this notion as irresponsible. It has been advanced by Mr. Andrew Schonfield, a noted economist, for the past eight years. It does not mean that we unload £11,000 million of British owned foreign securities tomorrow. We say that some of this portfolio section, totalling £3,600 million at the end of 1964 and which may be considerably higher now, could be sold and turned into foreign exchange.

It is a modest suggestion. We put it to the House that we should start to repay our debts, which total £900 million—a quarter of this figure—from this source. The first payment of our debt is due this year and the remainder over the period to 1970. We say that it is infinitely preferable to realise a quarter of these immense assets which are rapidly appreciating than to indulge in the stale, played-out, moth-eaten policy of deflation at home.

We say that we should decide to pay these debts by acquiring, at the going market price in sterling, some of these securities—I put the figure of £900 million—which our private citizens own abroad, and gradually and selectively we should sell them. This means that we take due regard of prevailing market conditions in the countries where they are held. The Government have shown how simple this can be, for they have recently sold off a few hundred million dollars' worth of American securities.

It has been argued in the debate that this would be destroying a valuable foreign asset. Mr. Schonfield took this up in the Sunday Times on 18th September last when he said: The reactions to this proposal are predictable—final confession of moral defeat, killing the goose that lays the golden eggs, eating the seed corn. Not a bit of it. The real seed corn is British investment in renovating the physical structure of our own country here at home. It is this which is now being thrown away to pay foreign debts. It is also worth making the point in passing that between 1962 and 1964 the capital value of these securities appreciated by £1,150 million or £250 million more than our total outstanding international debts. This suggestion should be seriously examined by the Government. I look forward to hearing a considered reply to it tonight. This is where we stand on this question.

There are many other aspects of the present crisis which are dealt with in the Amendment. The First Secretary said to me yesterday that I should pay attention to the fact that in this country the level of unearned income is a determining factor in the level of private investment. That may be true, but there is no necessary correlation between them. The House will remember that, between 1960 and 1964, the amount of money paid out in dividends rose by 60 per cent., which was far and away the highest level in any country of Western Europe and over three times the rate of increase in national productivity.

Despite this, the rate of new net capital formation in this country over the same period was the lowest in Western Europe. There is certainly no necessary relationship between high dividends and high investment. Quite the opposite. Many of the dividends were going abroad during that period. The solution to this problem is to set up a National Investment Board with wide powers over investment in the private sector. This would mean taking supervisory powers over investment, particularly by insurance companies which, as Professor Richard Titmus reminded us, are acting in a socially irresponsible way. Unfortunately I have no time to develop that point in detail tonight.

Among the other suggestions outlined in the Amendment is that we should review the rôle of sterling as an international reserve currency. We regard this as a played-out relic of British imperialism, a factor which has continued from the nineteenth century into the twentieth century. Its rôle is finished. I know that there are serious technical problems to be solved in arriving at a new international currency but we hope that the Government are taking every step to move towards transforming the International Monetary Fund into a new international central bank.

We have suggested measures of income distribution which we hope will not be lost on the Chancellor. I leave the Chief Secretary to the Treasury with this point. A wealth tax, as he is well aware, is a commonplace in Western Europe. There is ample room for one in this country. The Economist in January estimated that 7 per cent. of all taxpayers in the country are responsible for 84 per cent. of the country's wealth and 88 per cent. of the taxpayers possessed slightly over £100 each on average. A wealth tax in Britain of 1 per cent. on estates of £20,000 and above would bring into the Revenue a sum of £175 million. This would be a modest start. Denmark does this at 2½ per cent. at a much lower level, but we could improve on the 1 per cent. on estates of £20,000 and above in later years.

The imperative need in the present situation is to end this policy of deflation with its high and rising level of unemployment. Not only is unemployment creating needless distress to thousands, but in the view of many of us it is shortsighted and most socially undesirable as a way of trying to resolve a problem which could be resolved by other methods. We want to see the Government ending the policy of deflation and embarking now, as a matter of urgency, on planned reflation of the economy.

These measures, taken overall, constitute a constructive alternative to the Government's policy. Of course they assume a change of attitude within the Government. They assume that the Government will stop their present timidity in economic affairs and adopt a new, bold, and much more decisive attitude in the months ahead.

7.36 p.m.

Mr. Ian MacArthur (Perth and East Perthshire)

The House will have heard the hon. Member for Lewisham, West (Mr. Dickens) with interest, particularly as he speaks for such a large section of the party opposite, but his quarrel is with his own leaders. I hope he will forgive me if I do not follow him, in the belief that it might be improper for me to intervene in that quarrel.

I want to move on, because time is pressing, to call attention to a large and, I think, significant anomaly which arises from the White Paper, Cmnd. 3150. This is the anomaly which was touched on by my hon. Friend the Member for Finchley (Mrs. Thatcher) last night. Some anomalies are unavoidable in this policy of restraint. That, I fear, we must accept. They are the consequences of the Government's incompetence and panic which have plunged our economy into the sorry state of today. Just as the Prime Minister's statement on 20th July was hurriedly put together, so at least some sections of this White Paper show all the signs of slipshod construction and insufficient thought despite the unconscionable time which it took a-hatching.

If some anomalies are unavoidable, others could and should have been avoided. One is the distinction drawn by the Government between salaries which have a built-in annual increment and salaries which have no contractual element of that kind. In many industries, particularly in the service sector, salary increases are related to experience, talent and performance. These increases, which are loosely described now as merit increases, are not to be allowed. By contrast, incremental increases are allowed, although they may relate to length of service and experience alone, without any relationship at all to talent or ability. No matter how small the contribution of the individual concerned, he will receive his increase, provided that he is able to hold on to his job. This, I suppose, indicates a sudden regard for the sanctity of contract which the Government until recently were so ready to ignore and erode in their economic policy.

This conversion is welcome, but there is a strong case, and it is not only a case in equity, for considering the problems which will arise from this distinction. In a large section of industry there is a clear understanding that what amounts to an annual increment will be paid to, and can be expected by, people whose work and talent surpass the ordinary and who thus make a large and identifiable contribution to the efficiency of the business.

I do not suggest for a moment that discretionary increases of this kind should be made this year as they would be made in a normal year. But I do suggest that the argument for allowing certain selective increases is strong and that the refusal to accept it will lead to possibly severe, and certainly to unsettling, consequences.

The debate has already emphasised the falling investment in manufacturing industry. The Government hope that this trend will be reversed. We heard what the President of the Board of Trade said about this today. The matter was also referred to by the Chancellor of the Exchequer. In the service industries, and on the service side of manufacturing industry itself, there are very few tangible assets in terms of equipment. Their assets are people. Their critical new investment is not in machines, but in men, and particularly in those who possess rare qualities of imagination, enterprise and outstanding ability. If they are not to be allowed to reward these people on a very selective basis, several consequences may, and I think will, follow, all of them undesirable.

First, the very able young executive whose rare qualities are in demand will be tempted to look elsewhere for his employment, because the only real prospect he can have of an increased income is to move to the equivalent job elsewhere at a higher salary. Secondly, and worse, he may be tempted to seek the offer of other employment simply to give his present employer the opportunity of increasing his salary. In a circumstance of this kind, the Government have made it clear that the employer himself must decide the appropriate action. The appropriate action will surely be to pay the higher salary offered in order to retain the individual's services. These consequences, I believe, will have the effect of undermining the personal relations between employer and employee which are critically important in employment of this kind and, indeed, in any form of employment.

The Government may say that the solution to this problem is to promote the individual and so make him eligible for extra rewards. But many industries are not hierarchical in their structure. They do not have the clearly defined ladder of promotion that exists, for example, in the Civil Service. Promotion for them is more often a progress forwards than a clearly defined advance up the rungs of a ladder. This question arises because of the Government's complete failure to understand how a large part of industry works, particularly in the service sector, and their refusal to recognise the damaging consequences of this policy.

Next I ask the right hon. Gentleman to explain the qualified approval given in paragraph 27 of the White Paper to increases … on grounds of contribution to productivity". Here again, the familiar phrase "the national interest" appears. Who is to be the arbiter? Who will decide which kind of work is in the national interest and which kind of work is not in the national interest? I suspect that here again we see the strange distinction made by the Government between manufacturing and service industries, a distinction which is made by no other country in the free world.

Hon. Members opposite often seem to think that it is noble to produce but somehow ignoble to sell the product. On occasion we have heard attempts to divide manufacturing industry into arbitrary groups—some desirable, some undesirable. I remember very well the Prime Minister, when he was in opposition, making some contemptuous remark about the manufacturers of striped toothpaste—an observation which seems more absurd today when we see the Prime Minister paying 7s. 6d. a week premium in respect of the man who puts in the stripe.

I trust that within the context of paragraph 27 the phrase "the national interest" will include increased productivity in the service industries. It is probably more difficult in service industry than anywhere else to produce a yardstick indication, a yardstick measurement, of increased productivity. Increased productivity in the service industries makes a direct contribution to the greater efficiency of the nation and to the better standards of the people. Market research, marketing, advertising, product development, which together make a field in which I declare my interest, are among the services which are the essential and developing tools of manufacturing industry, and which ought not to be separated artificially from the process of manufacture. These very services are at the heart of the competitive spirit which the Chancellor of the Exchequer welcomed earlier today.

One other point of interpretation which would be helpful. Paragraph 38 of the White Paper contains a reference to the need to notify increases proposed for 200 employees and more. I should be grateful if the right hon. Gentleman would indicate, because I understand this has caused some confusion, whether this paragraph refers to what I can describe as blanket awards covering 200 people or more in a single group, or whether it is intended also to cover individual awards which may differ between one person and another and which happen to occur in the same concern. I have in mind a large concern employing many thousands of people. It may well find 200 employees for whom increases are justified within the terms of the White Paper. Is it necessary in that case for the firm to give notification?

Earlier today the hon. Member for Central Ayrshire (Mr. Manuel) gave a robust defence of Government policy in Scotland. I turn to that matter for the last few minutes of my speech. I listened to the hon. Gentleman with some astonishment. I remember how much he used to mock at the "pipeline" when the Conservatives were in power. He mocked then, but now he rejoices in the jobs that have poured out of the end of that pipeline. I say that, because the march forward in the diversification and extent of Scottish industry over the last few years until this year is the direct result of the measures introduced during the Conservative period in office and continued by this Government until early this year.

The hon. Gentleman rightly paid a tribute to the great record of Scottish industry. I join him in calling attention to that. We have broken many records. However, this Government have not helped. While the hon. Gentleman was speaking, I was thinking of some of the things which the Government have done in Scotland. I recalled how they scrapped the investment allowances, which has had such a serious effect on the service industries and on the tourist industry. I recalled how they scrapped free depreciation and the structure of the Local Employments Acts which provided £70 million by 1964 for developing industry in Scotland.

I remember now how in place of this they have introduced a system of grants with a lower total value spread over a much larger total area. It would perhaps have completed the picture if the hon. Gentleman had referred to the unparalleled burden of taxation now carried by the people of Scotland, and in particular to the crowning folly of the Selective Employment Tax, which has had a most grievous effect on the Scottish economy. I can illustrate this by calling attention to the area of Scotland in which the tax has had the greatest effect, the Highland counties. Only 10 per cent. of those who work in the Highland counties are in manufacturing industry. The cost of the Selective Employment Tax to this large area with a small population will be over £2 million in a full year.

The Government take great credit for the aid put into Scotland through the Highlands and Islands Development Board. It is welcome aid. This year it will amount to £320,000. Thus, while the Secretary of State for Scotland pumps £320,000 into the Highlands, the Chancellor of the Exchequer siphons off eight times as much, over £2 million, by way of a tax which is completely inapplicable and irrelevant to the Highland economy.

We called attention to all this in the very first days of this monstrous proposal. My right hon. Friend the Member for Argyll (Mr. Noble) and many of my hon. Friends tabled Amendment after Amendment calling the attention of the Government to the problem which the tax would create for the development of the Scottish economy. Soon afterwards, the Chancellor, in a letter to me and, I believe, in a letter to others of my hon. Friends, said that he was prepared to consider refining the tax later when he had had a chance to see how it operated.

If he accepted that there was a possible case for refining the tax soon, why on earth did he not refine it at the beginning? Why wait until the harm has been done to change a tax which should never have been introduced? Why, with this thought in his mind, did not the right hon. Gentleman allow us to debate the Amendments? Why did he allow the Leader of the House to have a Guillotine on the very Bill on which, so we were assured, there would be adequate debate of all these matters? The Government's record in their administration of Parliamentary business and their conduct on the Selective Employment Tax, their excuses and vacillations, is monstrous and will not be forgotten in Scotland. That I can guarantee.

Why will not the Government tell us what the tax will cost? I have calculated that the figure in the Highlands will be much nearer £3 million than £2 million. A sum of this order may sound little in relation to the total economy, but it is a very serious sum for the economy of the Highlands. How were the Government able to give the £2 million estimate originally? Why do they refuse to recalculate it now that the tax is being paid and the repayment process is under way? If they continue in their constant refusal to answer Questions about it, they will be accused of concealing the figure because it is uncomfortably higher than their own first estimate.

We have heard today about the disappointment of the development areas. In Scotland, we were promised shelter from the effect of the Government's economic measures. I am not impressed by the quality of the "shelter", a word dreamed up by the Prime Minister and endorsed by the President of the Board of Trade. The shelter is a sham.

Public investment has been cut back by £3½ million, affecting the very services which are critical for the country's economic development. I was appalled to learn from an Answer given two days ago, to my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell)—the Government had not disclosed it before—that investment in the nationalised industries in Scotland is to be cut back by £6 million. What splendid shelter all this provides.

Virtually all the other elements of the squeeze affect the Scottish economy just as much as anywhere else. In many ways they affect it more seriously, because the squeeze has a particular impact on certain costs which have an importance larger in Scotland than elsewhere. The latest increase in the fuel duty, for example, put up costs in Scotland by over £5½ million. The trend in private investment has turned abruptly for the worse, and the situation will deteriorate further over the next few months and beyond as employment prospects are depressed by the sharp fall in the forecast level of investment.

I implore the Government to give more consideration to the rôle of agriculture in Scotland. Agriculture is critical to the economy of large areas of Scotland, and it is now in a state of depression and lost confidence. I ask the right hon. Gentleman to tell us that the Government realise that no real progress can be achieved in Scotland until the rôle of agriculture in the economy is recognised and positive steps are taken to promote expansion.

Finally, I call attention to the impact of the squeeze on emigration. Average earnings in Scotland are about 6 per cent. less than in the United Kingdom as a whole. This means that, in order to have the opportunity of a higher wage today, under the freeze, a man may well decide to move south where the level of unemployment is lower, where the chance of a job is better, and where the prospect of higher pay is certain. Here is another example of the Government saying one thing and doing another. They say that they will stem emigration, but they take action, not once but over and over again, which drives our young people away. Many more feet are joining the march south, and one consequence of the Government's careless regard for Scotland will be to swell this sad and growing drift.

7.56 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

The Chancellor referred today to his Budget statement and his calling for the triple objective of a strong £ a steadily growing industrial strength and full employment. In the measures of 20th July the impossibility of doing all three together was faced, and what was sacrificed to the impossibility of reconciling them was full employment. Unemployment is one of the solutions to a balance of payments difficulty, of course. But it is, largely, the solution which has been chosen, we must examine it, see why it is necessary and what it does.

First, a high level of unemployment brings down the level of consumption. This is obvious. People consume less—as they consume less, they import less, and there is a direct import saving as a result of a high level of unemployment. The second consequence of a high level of unemployment is a general reduction of confidence. Today and yesterday, we heard a number of hon. Members calling for a growth in confidence. Clearly, this is precisely what one does not want. One wants this reduction in confidence so that people become a little apprehensive about the future, they consume less, they save a little more, and industry allows their stocks to run down so that imports are reduced.

What is needed is an increase in long-term confidence, but this is a very difficult subject for discrimination, to make sure that one maintains long-term confidence while denying short-term confidence.

The third consequence of a high level of unemployment is to convince foreign bankers of our real intentions. These foreign bankers are not the crude deflationists of the 1930s. They have all read their Keynes. They know that the long-term needs of this country are a rise in productivity, a growth of exports, and so on. But they know about our difficulties and problems, and to them the fact that we are prepared to accept so unpalatable a measure of unemployment is one of the surest signs that the Government are determined to carry out their pledge and maintain the strong £ which is the guarantee they most want in leaving their money in this country.

The fourth element of the result of unemployment is that pay increases are hard to obtain and so inflation is kept down. There again, imports are limited. These are the results and the actuality of what we get when we increase unemployment.

What is claimed for it is rather more dubious. It is claimed, first, that there is a shake out, which means that overmanning is reduced. If this were true, a rise in unemployment would have little effect on production. But the production index seasonably adjusted fell from 135 to 131 at a time when unemployment rose. The percentage fall in production is greater than the percentage rise in unemployment. If it were true that only surplus labour was being dismissed then the production index might be expected to fall a certain amount due to certain dislocations but not by this amount.

The second factor claimed as a result of unemployment is the redeployment into export industries. But if one examines the economic crisis of September, 1957, we see that, in the year following, exports did not rise. They fell. The year 1958, which was the year following the extreme economic crisis of 1957, was one of the few years since the war when exports actually fell. Much the same applied to the economic crisis of 1961. Our exports rose in the following year less than in the years before or after.

So we do not see an increase in exports arising from an increase in unemployment. What we do see—and this is most relevant—is a considerable decline in the amount of imports. That is the real result of a deflationary policy, and the reason is not hard to see.

Exports are difficult to increase suddenly. Industry has no preferences. It does not deny certain markets to itself. It sells where it can. If it finds itself with surplus labour, it cannot simply allocate goods intended for the home market to the export markets. That is not how industry runs. It will sell in markets anywhere in the world and if one market closes it is not sure that another will open. It has to work hard for the markets it has and that will continue to be the case.

Often the Government and all of us in this House are apt to blame exporters. During a visit to the United States this year I found that even an American Treasury official was saying that American exporters had gone soft. But we must not expect too much from exporters. The increase that has been taking place is commendable and there are other factors here with which I would like to deal.

Before 20th July, when hopes were entertained for the prices and incomes policy at a time when, if successful, it would have had a massive effect on the economy, producing the triple crown required by the Chancellor—success in keeping the £strong, a high level of employment and growth—I was not so optimistic about the effect of the Act. I thought that, if we could get a reduction of 1 or 2 per cent. in the rate of inflation, this was as much as one could hope for. Together with other factors, this might have given growing control over the economy. My suspicion is that the results of the last few months have set back such an increase in the control over the economy for some time to come.

The Chancellor of the Exchequer agreed that the prices and incomes policy was a bonus. We know that it is deflation that is mainly responsible for price stability, as goods are unsold and remain on the shelves. It is deflation that is mainly responsible for income stability as unemployment rises and people are unable to negotiate wage increases.

But something can be obtained from the prices and incomes policy. We are fortunate if we can get 1 to 2 per cent. a year out of it. If it continued over three or four years, we could get a 3 to 5 per cent. advantage over our competitors. But this would mean retaining the policy for three years or so and such a period of stagnation is unacceptable to us. There is a danger of regarding the prices and incomes policy as the solution. It can help but only in a limited way.

However, I am a long-term optimist. I believe that eventually our export difficulties will resolve themselves. I base this on two main reasons. The first is the decline in Commonwealth trade. From 1956 to 1964 our Commonwealth trade as a proportion of our total exports declined from 40 per cent. to 29 per cent. while our exports to Western Europe in particular, where the most competitive markets are to be found, increased from 28 to 38 per cent. So the exports lost to Commonwealth countries have largely been made up by exports to Western Europe.

A decline in the cohesion of the Commonwealth has brought in its wake less trade which has not been due to a decline in total exports because we have been able to sell to these competitive countries of Western Europe. The decline in our Commonwealth trade means that we are now approaching the position where the curve should level out, with benefit to our economy.

The second factor which gives rise to a more modest degree of optimism is the massive spending on defence. In the inter-war years, the cost of Government expenditure overseas in foreign exchange was on average under £3 million a year. It is now running at a rate net of £500 million. This massive increase is becoming more and more unacceptable. As this realisation takes effect—and I believe that it is working even in Government circles—I am sure that there will be a growing demand that this expenditure must be reduced.

Up to 10th November, when it was announced that we were to make an approach to the Common Market, my solution, such as it was, would have been control of imports in one way or the other, followed by defence cuts, then by measures through technology and the I.R.C. and by success in the Kennedy Round, which are our long term hopes for exports. I would have proposed control for perhaps two or three years, followed by the defence cuts. This would have given us an interval during which our long-term plans could come into effect.

But the decision to go into Europe ruled out any chance of import quotas. The whole purpose of the Common Market is the reduction of quotas and tariffs and their imposition now is clearly impossible. I believe on the other hand that East of Suez defence expenditure can be cut even more than the Government are doing at present. Here again, the door is slightly ajar and we are just pushing it a little further open.

Our problems are essentially short and medium term. When my right hon. Friend the Chancellor of the Exchequer mentioned again his triple objectives today, he did not put them in any form of priority. I myself have come to accept that full employment and growth have been sacrificed to the £. Therefore, we must not be surprised if this priority does not come up for re-examination.

The great argument against devaluation in October, 1964, was that industry was near the limit of its capacity, which limited its possibility of expanding to produce the exports required. In order to provide the surplus capacity, a level of deflation and high unemployment would have been necessary in October, 1964, which at that time all of us regarded as totally unacceptable. But, as the Chancellor said this afternoon, now we have and shall be having this spare capacity, and if the orders were there, there would be no difficulty in fulfilling the amount of exports.

As a matter of historical record, we know that, following the devaluation of September, 1949, exports from this country rose in 1950 by 21 per cent. and in 1951, as compared with 1949, by 47 per cent. There was a massive increase in exports, which was not surprising considering the large amount of offers which exporters make all over the world, a small proportion of which result in sales. The advantages of selling cheaply means a higher success rate from offers and the possibility of a massive expansion of exports.

And so in 1950 we had an improvement in the balance of payments of £306 million and, leaving out the 1951 accounts, because of the incidence of Korea and the upset which that caused, the surplus of balance of payments on average through the years 1952, 1953 and 1954 was £150 million, which was largely the reason why the Tory Government were able to claim the success which they had. It was because of the devaluation by the Labour Government in 1949.

This is not the only comparison which one can make. In France the devaluation in December, 1958, meant that in 1960 French exports went up by 21 per cent. over 1959 while in the five years from 1959 to 1964 French exports increased by 59 per cent. The present strength of the economy of a moderate sized country like France, which is able to embarrass a massive industrial and economic Power like the United States, is one indication of the value of that devaluation to the French economy. The Germans have had the benefit of an undervalued currency up to the last year or two, and the fact that their currency was under-valued enabled them to find markets all over the world.

We know that at present all of this is an academic argument, but it is more likely to become relevant when we think about entering Europe. The economic purpose of entering Europe is to increase exports. Our exports are too low at present, perhaps too low by £300 million, but if we enter the European Economic Community, if we get the right terms, we shall see a massive rise of imports, and the Treasury and the Board of Trade have consistently underestimated the rise of imports. To offset that rise will need an increase in exports higher than we now consider necessary.

It is no good relying on deflation until exports rise further, because if imports rise higher, we will need a measure of deflation even greater than we now have or are likely to have in the next few months. Any hope of controlling imports by import quotas or other means is a denial of the fundamental purpose of the European Economic Community. If we entered Europe with the wrong exchange rate, this would be gross economic mismanagement. We would then be unable to take advantage of going into Europe and with the further deflation necessary we would be the stagnant partner of the European Community.

The opportunity which we have of entering Europe gives us what is likely to be our only chance of the export-orientated boom which we need in order to stimulate our exporters to discover further markets and to start a boom in the only way in which a boom should come to this country—by means of our exports. These are the possibilities, and I hope that at some time in the future we will take them.

8.15 p.m.

Mr. David Webster (Weston-super-Mare)

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) has given us a very thoughtful and wide-ranging review of the economic situation as he sees it. Hon. Members of both sides of the House will, with him, acquit me if I do not comment on all his argument, because several hon. Members still wish to speak.

He spoke with some anxiety about wage restraint and about a three-year period of restraint. I share that anxiety, because in Holland, where wage restraint has been practised for a longer period, the main export has become workers to other countries where they can get better rates of pay. That is one of the effects which we are already seeing in our economy with the freeze on incomes.

I was glad that the hon. Gentleman stood up for exporters, because the exporters are often blamed for the situation in which they find themselves. One of the stupidest and craziest things about the 15 per cent., or, as it later became, the 10 per cent. surcharge, was that it stirred up resentment in our markets abroad and in addition made it 15 per cent. more profitable not to bother to export. Now that that surcharge has at last been removed, possibly without adequate precautions and without adequate foresight of what the consequences might be, let us hope that it will be thought much more profitable to attempt to export, as is so thoroughly necessary.

The Prime Minister is the person who should be standing in the dock today. The Prime Minister is a constant inspiration to us all. The Prime Minister produces a gritty saying for each week for us to enjoy and with which we can refresh ourselves. We remember this week's saying, the gritty saying of the week—"Too many firms are squealing before they are hurt".

The gritty saying just before the measures of 20th July was delivered before a foreign Prime Minister, as usual at a dinner outside the House, when the Prime Minister said that he had no time for the dismal Jennies—and the Press was singled out for particular praise in this respect—who were running down the economy of this country. With that he swanned off to Moscow while the sterling balance streamed out of the ears of this country, and he came back and on the following Wednesday had to announce a series of panic measures so ill-digested and so ill-thought-out as to give to the Chancellor the bonus of an increasingly unnecessary amount of unemployment. Some unemployment there had to be. There was far too little slack in our economy at the time, but it is the careless and callous way in which it has been brought about which has caused distress to every hon. Member who has spoken on the subject.

One of the things which we see from this vacuous White Paper is that there is no clear indication of what the Government propose to do when next July comes. The tragedy is that the breathing space which they have gained at the price of so much suffering is not to be used for the definite purposive policy which the Prime Minister is always talking about.

There has been talk of changes in the investment grant and we have had some welcome news from the President of the Board of Trade today, but these things will only make it less of a loss for industrialists to operate. They will not make operations that much more profitable.

One of the reasons why I am glad that Parliament is not being televised is that if foreign businessmen had been able to watch the hullabaloo by hon. Members opposite in the House yesterday against the notion of profits and against profitability in the capitalist system, they would take everything they possibly could out of the country's economy. Ministers are a little better informed. The Minister of Technology, for instance, has said that, after all, profits are not so evil, but that it depends on how they are distributed, and he did not see why profits should go to investors. The Chancellor is always shouting for more investment, pleading for more savings, and penalising the people who put up the money to make our industry go round.

The private investor is struck with every blow. When one thinks of the Prime Minister's gritty saying, about businessmen squealing before they have been hurt, and sees the trend of profits and dividends in the last few years which have dropped to minus 5 per cent. from 20 per cent. one sees an overall swing of 25 per cent., and it looks as if the businessmen have already been hurt. One sees, again, the horrifying spectacle, when the State-controlled countries are at last appreciating the benefit of private investment and of the profit motive, that we are moving away from this and going the other way. This is the danger.

How are we to obtain investment from overseas if all the time we are penalising it? How are we to persuade overseas countries to assist us in shoring up our economy if they see the dangers which the Government's supporters are pressing all the time? We are told that the public sector will increase by 4¼ per cent. this year and that it might even go up to 6 per cent. in real terms. We will have to watch this. We are told that it will go up by more in the following year. There will be no scope for profits in that increasing sector of the economy. This means that there is no adequate criterion of efficiency in a growing sector of the industry. This is my great argument against public ownership. With the best will in the world there is no known criterion of efficiency with public control of Government spending Departments and with the increase in the nationalised industries.

Mr. Hooley

Would not the hon. Gentleman agree that there are perfectly good scientific methods in the production of gas and electricity to enable one to judge how the system is being used?

Mr. Webster

I will give the hon. Gentleman his point. The other day we were debating inland waterways and were told that the new Waterways Board had, with great care capitalised, amortised and worked out the need of profitability on the assets to be used. It can be done in certain sectors but if one takes the railways, the railway workshops, the mining industry and other vast sectors of our nationalised economy, there is no known criterion of efficiency. In addition, the nationalised industries are not able to export.

Even if there were an ability to export, as there is no adequate criterion of efficiency and competition. They would not be able to compete against overseas firms. This is one of the greatest dangers and the more that we swing to this type of economy, without an efficient and satisfactory yardstick, the more we run down the effective cost evaluation of our economy and its competitiveness. At the same time we see intimidation of businessmen by White Paper and by Government statement without any legislative backing. This is a dangerous thing which must be resisted. The C.B.I. has not resisted this sufficiently, but it is at last beginning to do so.

It is time for businessmen and those who work for them and with them to resist this type of cajolery, because not only is it dangerous in itself, but it is being backed by a larger source of patronage than ever before. It has the increasing patronage of the increasing size of the Civil Service; it has the increasing patronage of the increasing size of the nationalised sector of our economy, with its growing buying departments. One has the feeling that with a Socialist Government, if an industrialist of prominence stood up and said "Up with this I will not put" there would be a suspicion, if he is supplying the nationalised industries, that he might well lose the contract upon which his firm depends.

As the public sector grows faster this industrial and commercial judgment is withered away and this is a danger to the economy. We see another retrograde action envisaged. We are to have more people, with no experience of industry, dictating to industry what it is to do. We are to have morning sittings of this House so that Members cannot have contact with industry. The hon. Member for Louth (Sir C. Osborne) spoke about his first-hand business contacts. One will not be able to go out to get the reactions of business people to the consequences of our acts in this House. This is a disastrous thing because we must have this reaction from businessmen, coming back to this House so that we can contribute from first-hand experience.

A number of other people, among them the hon. Member for Ashton-under-Lyne, who I regret to say has disappeared—no doubt to join the Common Market—spoke of this institution.

I had devoutly hoped that we should get into the Common Market on adequate terms. My fear is that, in his heart of hearts, the Prime Minister does not really believe in it. He likes a tight-knit little island. He wants a siege economy which he can control and if he goes into the Common Market, as his right hon. Friend the Minister of Transport has said, he will not be able to control the economy of the country. That is his anxiety and he does not really want to go any further than a smokescreen. I heard him speaking of the Treaty of Rome and his refusal to accept that Article 38 of the Treaty was signed and had been negotiated for years. He was saying that the agricultural aspect of this would have to be negotiated again. I cannot believe that he is willing to open this country's economy to the floodgates of competition and I cannot believe that, under him or this Government, the country's economy will be able to deal with that competition. It is for that reason that I lack any confidence at all in their handling of our economy.

8.21 p.m.

Mr. George Rogers (Kensington, North)

The House will be glad to know that I propose to keep my remarks very short, primarily because the Front Benches took a disproportionate amount of the time available. It is time that we stopped having eight Front Bench speeches in a two-day debate so that on the second day back benchers do not begin to speak until 6 p.m. When one considers that there are hundreds of us and only a handful on the Front Benches, one realises that the time allowed for them is disproportionate and that it is time that we did something about it.

I sat here all day yesterdey and all day today, without proper food or comforts of any kind. When one gets to this stage, as we all know, one does not care whether one makes a speech or not, especially when all the best bits have been said by other hon. Members and when one has had to eliminate all the profound arguments which one had carefully prepared because they have already been used.

One is left with a runt of a good speech which has become just a tattered relic of what might have been. It does not matter very much, because we all know that at this hour our speeches are never reported and the only use that they are put to is in our local papers. I want to make a couple of remarks about the speeches from the Opposition Front Bench. My old Parliamentary colleague on the other side of the House, the hon. Gentleman the Member for Weston-super-Mare (Mr. Webster), is as ungrateful as the right hon. Gentleman the Member for Flint, West (Mr. Birch) to the nationalised industries. The right hon. Member for Flint, West, in attacking the investment of too much capital in the public industries, spoke of the superior importance of private enterprise because it was responsible for exports which have the final bearing on the financial and economic position of the country.

However, what both Members forget is that private enterprise has the great advantage of a group of service industries owned by the State providing services at prices which are, in general, lower than any in Europe. The cheap gas, electricity and coal and other services provided by State-owned industries are profoundly important in the prices which private enterprise is able to quote when it tries to secure exports abroad. This is a fact which is too often forgotten by those who are prejudiced against public ownership.

The hon. Member for Weston-super-Mare said that there was no measure of efficiency in the nationalised industries. I believe that our coal industry still provides the cheapest coal in Europe. We have no need to be ashamed of the example set to private enterprise by the work of our public undertakings. It is because they provide such a good service to private enterprise that capital investment is important in the public industries. If they are not kept up to date and adequate, then, as the Chancellor of the Exchequer said, they will not provide that service to private enterprise which alone enables that sector of our economy to function satisfactorily.

Yesterday, the hon. Member for Worcester (Mr. Peter Walker) made a vigorous, partisan speech, unlike the speech today of the Leader of the Opposition, which I enjoyed much better. The hon. Gentleman gave us one of his usual lively, competent but very much to be anticipated speeches in attacking the Government.

One of the things which makes honest debate in the House difficult is the fact that each party, once it is in opposition, pretends that everything was perfect when it was in power and that everything is imperfect when the other party is in power. The trouble with industry and Parliament today is that the Tories only believe in one-party government, like the African leaders. They do not believe in democracy, because when democracy returns other than a Conservative Government they do not want to work with it. This applies to the Conservative Party and to businessmen throughout the country who are Tories. There is, therefore, to a large extent, a quite unnecessary loss of confidence among businessmen when the Labour Party comes to power because they are disgruntled at the fact that their party did not win the election.

The hon. Member for Worcester said that production was rising fast two years ago when the Conservative Party left office. Does anyone here remember that production was rising fast when the Conservatives left office? The hon. Gentleman quoted the league tables to show our low position in productivity rates. It was precisely because productivity was so bad when the Tories were in power that the present Prime Minister was able to quote so effectively against them at the time. It does not help debate in the House to make statements of that sort which are so demonstrably false.

The hon. Member for Worcester made one remarkable statement. I do not think that the House noticed it. It was very unusual, coming from a Conservative. He said, "Workers do not work harder when there is the fear of unemployment." Many of my friends in business have said to me recently and in past years that the workers need the big stick of unemployment to make them work. It is not as simple as that. If workers in offices or factories know that work is diminishing, it is true that they slow down in order to spread the work out and avoid the possibility of dismissal.

There are not many of us in the House these days who know what pre-war unemployment was like. Some hon. Members have never known what it is to go through a period of unemployment such as we had then. We know perfectly well that the threat of the big stick worked, because employers threatened many workers with the sack and told them, "There are hundreds of thousands waiting outside for your jobs." It was undoubtedly the cruellest of all disciplines. It works in many ways.

We have all observed that recently there has been a diminution in unofficial strikes. The fact that the economic situation is worsening and the possibility of getting jobs is not so easy nowadays has, I think, had an influence on those irresponsible characters who have made the work of the Labour Government much more difficult since they came into power.

There was an interesting article in The Times this morning by Sir Leon Bagrit about automation, a subject which has not been dealt with very much in the debate. He points out that we have as much knowledge of the techniques of automation as the Americans have, and that this is something which we should not forget. Although the National Research Development Corporation has done something to develop automation, the process is still far too slow. He points out that in a small market such as we cater for, automation provides an answer to the need for reducing costs.

I think that one of the things on which the Government should concentrate is the development of rapid automation. In factories which I have visited recently, I have seen three examples where the whole processes could be automated without great expense and certainly with not much technical difficulty. A great deal of wage and labour costs—a difficult thing to say at the moment—could be eliminated by the process of automation.

One of the sad things about the present situation is this. I have referred to the fact that many in this House have never known what it was to be unemployed. We had produced a generation which does not know unemployment. We were getting rid of the psychology of unemployment that held us back before the war and has held us back since the war. Unfortunately, however, the present unemployment is giving a rebirth to that fear. This will make it harder to get efficiency, which means the reduction of labour and the introduction of automation in our plants, because through that old fear many workers will resist it.

We seem a long way from the time when my right hon. Friend the Prime Minister a year or two ago talked about the day not being too far distant when it would be a privilege for us to work, when slave machines would do all the production for us. None the less, despite that, we can provide for people in different ways and we ought to proceed with automation to bring down our competitive costs as quickly as possible, not only for that purpose, but to increase our wealth to the extent we need.

In the last few minutes of my speech, I want to deal with the psychological factors in this situation. This is something that receives very little attention. Almost our entire problem is one of psychology. It is the psychology of management and the psychology of the workers. It is the psychology that produces bad motor cars and shoddy workmanship. It is the psychology that makes inspectors necessary in our factories when, for example, the Volkswagen factory has no inspectors, yet with inspectors in our factories shoddy work is still being produced by our motor factories. One has only to talk to importers of our cars abroad and our own retailers, who constantly complain of the amount of work they have to do on the cars before they are saleable when they are delivered to them by the manufacturers.

It is the psychology of the employer who will not work with his men. It is the psychology of the employer who has no initiative or leadership, or of the worker who prefers to be opposite his employer so that they are on two sides of the table rather than seated round the table. It is the psychology of the worker who is bloody-minded at a time when the nation knows that we need all his help, at a time when the Labour Government are in power, and he is the man who put them there; yet during the first eight months we were in office we had more strikes than in the preceding 12 months. That is the kind of problem to which we have to find a solution.

I will give one example of a case concerning employers. A very important country in the world sent an agent here to look for a supplier of steel products. It was a very large order amounting, if my memory serves me correctly, to 12,000 tons a month over four years. I had some connection with it in a rather loose way. The representative went to the steel firm and said, "What you sell seems to be all right, but it will be necessary for you to consult our technical expert. Unfortunately, he is in Geneva at the moment. Could you send someone over to see him to discuss the specifications?" The firm's export manager said, "Yes, certainly. I will go over to see him." However, next day, the chairman of the company turned up. He is a very powerful character. He was told about it and said, "No. You are not going to Geneva. If they want to buy British goods, they can come over here." The result was that the huge order for British steel products was lost, partly because of that attitude, though not entirely, because the credit facilities granted by us were not sufficient, in contrast with the facilities available from elsewhere, to tempt that country.

My second example is a case concerning workers, and it is an interesting slant on the psychology. A short time ago, some friends of mine asked me to try and settle a labour dispute in one of their factories. It arose from the introduction of a bonus scheme. They had been paying the highest wages in their industry. As a result, they were losing orders to other firms which were paying lower wages. Being good people, they decided that they did not want to reduce the wages which they were paying. Instead, to get higher output, they brought into operation a carefully designed bonus scheme. No matter what they did, they could not get their men to work the scheme or even to give it a fair trial. I went along to their factory and, in the end, I said, "Now, come clean. What is this about?" One of the oldest men there said, "To tell you the truth, we would rather be given the sack so that we can draw redundancy pay and go to other jobs in the town." At that time, there were plenty of jobs, and it is a strange result of the temptation of large redundancy pay to men who have been in a firm for a good many years. It offers them a capital sum, and it means that, in periods of full employment, a man can find another job easily and put by a lump sum payment. The psychology of the things that we do has a very important bearing on the attitude of workers today.

I am greatly concerned about the failure to do anything to find a solution to what has been called the national malaise. I do not think that the Government have made their case clear to the workers, who do not understand what the Government are trying to do. Some of us think that we understand what it is. We understand that they are trying to change the whole psychology of the people by linking productivity with incomes. That is fairly simple. We understand that they are trying to stop illusory gains in wages to the workers and to replace them with substantial rises in real wages when the economy of the country has been reorganised. However, that is not understood in the factories and shops, where there is almost a hatred of some of the Labour leaders because of their wage freeze policy.

It is clear that we are not getting it over to the people, and the Government ought to embark in several ways upon an attempt in more simple terms to explain their policy and how ultimately they believe it will benefit the people by giving them real increases in their standard of living.

We all know how much the boredom of workers in their occupations affects productivity. I believe that all the factors of modern civilised life also have a bearing on this boredom of the worker and this lack of joy. The old pride of craftsmanship has gone. The flat dwelling and the city dwelling has something to do with it, and so has noise in factories. Where there is a noisy factory, the workers are more likely to be bloody-minded because of the nervous strain of constant noise. One sometimes finds that where the workers come to work by car and traffic is heavy, the nervous strain sometimes helps to cause trouble.

I remember that at the Austin Motor factory just after the war, when I was a P.P.S. in the Ministry of Supply, a certain gentleman was chairman of the company. One of the managers said that he always gave 1,000 men notice on Monday morning because he came in with a weekend hangover, and took them back on Friday. He did this to get rid of his spleen. There is no doubt that this works the other way as well. Sometimes when conditions get on workers' nerves, unofficial strikes result, and I think that the Government ought to go in for a serious study of the psychological factors. It has never been properly done, and I think that research into why it is that people are not enjoying life today would produce some interesting results, and might suggest the solution.

I think that we need leadership on a much higher level than we have had. During the war it was relatively easy for Sir Winston Churchill to unite the nation because he was in a situation of high drama, the ultimate drama of life and death. Men and women felt drawn out of themselves into a great effort which had all the colour and drama of a great struggle. We cannot do that now.

I had hoped that the Government would have a more idealistic attitude towards entry into Europe. This could have been a great adventure. It could have been something which roused our people, but it has been presented in the prosaic manner of the Economist. It is sometimes said that an economist is a man who fears the truth because he thinks that it blinds him to the facts. Certainly sometimes it is conversely true that he cannot see the trees for the wood, and sometimes I think that too many Members in the House today have facts but no vision.

It was not Marxist facts which built up Socialism in this country. It was the men of vision, and the men who had passion who were prepared to put up with victimisation and persecution. They were the people who led the mass of our nation out of the degradation of capitalist wage slavery and brought them to where they are today, and this unification of men and women which Europe represents in the ultimate could be presented to our people as a great adventure. It is an act of faith. We do not want to go in without risk. The English people like risk. It has been presented in far too prosaic a manner, and the opportunity to change the psychology of our nation at this time has been lost.

8.49 p.m.

Mr. Stanley R. McMaster (Belfast, East)

I should like to use the remaining minutes available for back benchers to discuss the effects of the Government's measures on my part of the country. Northern Ireland appears to have been almost completely forgotten by the Government. Before the election in March of this year, and indeed before the election in 1964, the Government were full of promises about what they would do for areas such as Northern Ireland, and other development areas in the United Kingdom.

Northern Ireland is a marginal area. The result of the Labour Party's success in the last election has meant that a great depression has set in there. The effect of the deflationary policy, severe as it is with its freeze on wages, and more serious the squeeze on credit and the high interest rates, has been to cause a fall in confidence throughout the United Kingdom.

This has brought a very sharp rise in unemployment in Northern Ireland. Unemployment has risen in the past month by 2,500—this in a small area with a small community. There have been protests throughout this debate about areas with an unemployment figure of 2 per cent. or 2½ per cent. I have seen unemployment in my area rise from 6½ per cent. to 7½ per cent. in one month. That is the average rate of unemployment for men and women. This means, in practice, that one man in ten faces this Christmas without work.

The Government in Northern Ireland have been exerting themselves ever since the war to attract new industries to Northern Ireland. During the period of the Conservative Government they were extremely successful. Many firms were attracted to Northern Ireland, and they helped us to bring down our average rate of unemployment from 11 per cent, to 4 or 5 per cent. We were getting very near the national average, and we seemed at last to be seeing the light at the end of the tunnel; but the result of the Labour victory is that our major industries—industries such as farming, shipbuilding and linen—are all facing depression. Within the past week 500 men have been given notice by Harland and Wolff—500 men out of a work force of some 10,000; a work force which seven years ago was as high as 20,000 or 22,000.

That is the kind of run-down in a vital industry which has occurred under Labour's rule. Hon. Members opposite may smile at this. They may say "What is the importance of the shipbuilding industry?", but I would remind them that this is a maritime nation. Our shipyards are vital to our economy and our defence.

What have the Government done? They set up the Geddes Committee. They urged it to report in great haste on the future of the shipbuilding industry. They gave high hopes to shipyard workers not only in Northern Ireland, but also on the Clyde, which I visited last week, on Tyneside, and in other parts of the United Kingdom. Immediately the Government received the Report, what action was taken to put it into effect? What action are the Government taking to bring our shipyards up to date, to help us to compete with highly modern and efficient countries such as Sweden, Germany, the Far East and Japan? Nothing at all.

Sir Knox Cunningham (Antrim, South)

Would my hon. Friend draw the attention of the House to something which is very important, namely, the effect it is having on the farming community, and particularly on small farmers in Northern Ireland? The United Kingdom Government measures are having a disastrous effect on them.

Mr. McMaster

I am grateful to my hon. and learned Friend who represents Antrim, South, a farming constituency. Although I speak with great feeling on behalf of my own constituency of Belfast, East, which is mainly an industrial constituency, I am well aware that the major industry of Northern Ireland is still farming, and I am very well aware of the worries of the farming community, the effect of the Selective Employment Tax, and the Government's announced plan of entry into the Common Market—a worry which is shared by all in this area of high unemployment. The Government have failed completely to fulfil their promises to our industries in Northern Ireland.

The Prime Minister promised that the development areas would be sheltered from the effect of the squeeze; but what can be done to help the development areas when confidence generally is at such a low ebb? In Northern Ireland the men who are made redundant on the farms by mechanisation, and those who are leaving the shipyards and the linen industry, will be dependant on our attracting new industries. But new industries are not coming to Northern Ireland. Why? Because of the lack of confidence throughout the United Kingdom as the result of the Government's squeeze.

That is no way to make the economy of Britain efficient. It is no way to step up our exports. I suggest to the Treasury Bench that they reconsider their plans. What Britain needs today is much more incentives for her industries, not the heavy hand of Government control, and not the vast amount of public expenditure on such things as new town halls in Britain.

The Government need to give the country the lead. They need to encourage industry and investment, ensure that industrialists have an expanding market and can set up factories in Northern Ireland where we have the available labour force. That would help our heavy redundancy, particularly in the shipyards and in the aircraft industry, which have fears for the future.

That is the way to tackle the problem. It cannot be tackled by cancelling aircraft orders and buying from the United States instead, or by expecting shipowners to buy their ships in Germany, Sweden or the Far East. British shipowners must be encouraged to buy in British yards, and industry must be encouraged to expand and to start new factories in the development areas. That is what is required. That is where the Government are failing the nation.

8.57 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

Because of the small amount of time available to me, I want to condense a brilliant speech, consisting of an affirmation of Government policy and principle, to four out of ten suggestions that I would otherwise have offered.

It is quite wrong for hon. Members on either side to suggest that a stop-go policy is something discreditable. We can see quite clearly that the nations that have progressed fastest have, in effect, had some controls. For a period they have gone forward but have then had to go more slowly. I am quite optimistic about the future. I do not think we shall plunge into the deep gloom that some hon. Members have suggested for a long time. I still think, as I did in July, that unemployment will reach 700,000 in February but that by the second quarter of 1967 we shall have moved out. We shall not have an export-orientated, or an investment-orientated or a consumer-orientated reflation, but a public consumption orientation.

In connection with this critical area of the balance of payments, we have to turn our backs on import controls, but the Government should look at suggestions made from all sides on a number of occasions with regard to advance deposits for imports. If we can get rid of U.D.I., I hope that we shall examine A.D.I., because I think that it is compatible with international obligations. Let the Chancellor of the Exchequer talk to the Japanese. Other countries have found this out recently.

I have a note here on great financial assistance to exporters, but that has been settled.

We should definitely go in for selective consumer reflation in the motor car industry, which is vital to our export future. Already Japan is moving into third place. This is a growth industry, and it depends on long runs. The motor car industry is probably more important to our economy than it is in the United States, where it produces five times more cars than we do with 31 per cent. more manpower.

Having applied the very effective shock remedy of the July measures, and, in particular, Part IV, the Government should accept that after July this year they should let the trade unions and the C.D.I. approach the whole business on a voluntary basis.

9.0 p.m.

Mr. Iain Macleod (Enfield, West)

I am sorry that the hon. Member for Stoke-on-Trent, Central (Mr. Cant) had to reduce his ten points to four. I would very much like to hear the other six at some time, because, as I remember writing recently, he is the only one of the tribe of university lecturers on the other side of the House who makes any sense to me. That is perhaps because I regard him as being on the extreme right wing of the party opposite.

We are coming to the end of a two-days' debate. It seems the custom to have two-day debates in the House in these days. We are to have another one next week. When I was Leader of the House I never thought them a good idea. I certainly find it twice as difficult to wind up a two-day debate as I do to wind up an ordinary debate, because there is so much to take into account.

I am sorry that so many Members on both sides of the House were not able to be called. There cannot be anything more depressing than waiting for a long time to make a speech and then, on being called, to make it to an audience the members of whom are only looking for one to sit down so that they can make their own speeches. I am in the position of having only the First Secretary to follow me. He asked if he could have 35 minutes, so the House will understand if I push on very quickly with my speech.

The two main themes that have dominated the debate—apart from the general economic survey which the Chancellor gave us this afternoon and to which I shall refer, in part—have been the White Paper on severe restraint and the question of unemployment and everything that that means.

It is a pity that we have to submit the mangled corpse of the White Paper to one final post mortem, especially as I find that my reactions to it now are very much the same as my impromptu reactions to the statement made by the First Secretary on 22nd November. The White Paper has two main aims in establishing criteria for the period of severe restraint. In my view both are worthy, and both are nonsense, in the terms that they are dealt with in the White Paper. I take, first, the advances for the lowest-paid workers. Everybody asked the simple question: who are the lowest-paid?—and answer there came none. There came none in two senses. Not only was no answer given to the question; it became abundantly clear that the lowest-paid workers have no comfort to find in this White Paper.

First of all, the largest group of lowest-paid workers in this country are women. The average male wage is £20 a week, whereas the average female wage is £10 a week. It is not in the Government's thought that this White Paper should be the lead-in to an advance in pay directed particularly to women. Secondly, there is the question of the Wages Council, which has been established for many years under the supervision of successive Ministers of Labour to look after the wages of those who are thought to be, at any rate, amongst the poorest paid in our community.

I ask the First Secretary whether he will repeal, or anyway make no further use of, Section 31 of the Prices and Incomes Act. He did not directly refer to that point. I am glad to see that some pressure has been brought to bear upon the Minister of Labour and that he has yielded to some of the representations made to him. He would be well advised not to use the powers available to him under Section 31 in this period of severe restraint. If he does, I cannot see how the Government can claim that they are protecting the lowest-paid workers.

What has happened is something more important; the Labour Party's dream of freedom and social justice—which is something with which anybody can sympathise—has come into conflict with the T.U.C.'s reality of the rate for the job. These two forces are in direct collision in the White Paper. Poverty does not arise primarily from wages but from family or other considerations which affect the wage earner. It follows that the solution cannot be found in wage negotiation or structure but is one for the social policies of the Government, particularly for the Minister without Portfolio and the Minister of Social Security.

Like the Government, we have been making a careful study of the problems of poverty, with particular relation to the circumstances of the family. My right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) has been devoting a great deal of time to this. At an appropriate time we would wish to take a Supply Day, before or after Christmas, to discuss the particular problems of the family and poverty as they affect the wage earner. I hope that I carry the House with me in suggesting that it is not within the structure of this White Paper to put those problems right.

Indeed, the First Secretary almost unnecessarily went out of his way in replying to me to show what a charade this was, when he said: The right hon. Gentleman has suggested that a wage agreement of that kind is very unlikely"— That is to say, one for only the lowest-paid worker. This is now a matter for those in industry to consider. But the trade union movement was very anxious that account should be taken of this criteria and if, as a result, we find agreements put before us which help the lowest paid and those alone it would be possible to say 'Yes' to them. If, in the event, no such agreements can be devised this criterion would not come into play."—[OFFICIAL REPORT, 22nd November, 1966; Vol. 736, c. 1153–4.] So it is fairly clear that the lowest-paid workers have little to hope for from this White Paper. Indeed, wage negotiations from my experience are often, in theory, negotiated for the lowest paid but, in practice, on a very different basis.

It is common practice for unions which are really seeking an advance for people who may be more highly paid to make their claim first for a basic wage for the lower-paid workers and then, by the pyramid of differentials and so on which we know about, to bring up the structure throughout the industry. We all know that this is what happens. The Minister of Labour is nodding in agreement with me. This is really how wage drift starts.

The First Secretary thinks that he can take care of those inevitable consequences by a lengthy process of Orders under Part IV. I simply do not believe that this is possible. Apart from any other reasons, it is not possible because it would put an intolerable strain on the House of Commons if we had to debate an endless series of Orders, all of which were subject to negative Resolution in this form.

I turn now to productivity. Again, it seems clear enough if we break it down. Of course we all want to see increased productivity, but it seems a hopeless task for the Government on any rational basis to decide, particularly with reference to a vague phrase like "the national interest", which productivity agreements are in the national interest and which should be allowed.

My hon. Friend the Member for Oswestry (Mr. Biffen), in a very penetrating speech, pointed out that I.C.I. had starred with the idea of a productivity increase and had had to abandon it. The complexities are so obvious. One of them was put forward by the hon. Member for Central Ayrshire (Mr. Manuel) when he rightly said that, in the industry which he knows best and in many others, productivity is simply not related—or not necessarily—to the work that people do.

A typical problem would be that which arose if O and M staff decided that a certain job could be done vastly more swiftly. The productivity of that worker would go up, but the same study might reveal that the man working next to him was working as efficiently as he possibly could. Clearly, on that basis, that man's wage would stay where it was. We will face a whole complex of anomalies on this basis throughout every firm and in every industry.

It is riot an answer to say that we spread productivity over the work force, because that again brings in great problems of who comprises the work force, whether it includes foremen, office workers and the rest. The only true answer is that an agreement is a good agreement, or should be, if it suits both sides. People have said much about the Esso agreement and about buying the rule book. The reason why that was a good bargain was that it was good for both sides. The employers got rid of a lot of restrictive practices, work went forward and the workers benefited vastly from the increase in their wage packets. It does not need Governments to do that but sensible negotiating between employers and employees.

The Government should recognise that after next June, although they have in the national interest to study what the position will be overall, they should not attempt to concern themselves with the details of wage negotiations. My hon. Friend the Member for Finchley (Mrs. Thatcher) was absolutely right when she said that merit had no part in this White Paper, and that was a most severe criticism of it. I hope the First Secretary of State will look at the point which was made also by my hon. Friend the Member for Somerset, North (Mr. Dean) about the effect on pensions. It would be most unhappy if as a result of what, we hope, will be a temporary economic situation those who retire in future may for many years of retirement have their end pension affected by what the Government are doing at present. I am sure that a way can and should be found round this.

The First Secretary of State claimed in proof of the success of his policies that prices from June to October had gone up by only one-quarter of 1 per cent. and the wage rate index had gone up by only two-thirds of 1 per cent. He claims too much. In relation to prices his claim is actually worse than usual over the last 10 years. In the R.P.I. series of 1956 to 1962, seven years—comparing like with like, June to October—two show nil and the others cancel each other out by going up three points and down three points. The total was nil, and in that case it was better than the performance of what the Government are so proud today. In the more recent years, 1963–64–65, the average was almost identical with the claim which the right hon. Gentleman made. There is nothing in the claim about prices. As the Minister of Labour knows well, this is always the easiest time of the year for prices and this is reflected in the index.

The same is true of wages. It is true that wages increases are slightly less than last year, but how much is due to freeze and how much to squeeze is a matter for debate, because deflation affects wage rates. Many people have done some scientific or economic work on this. Professor Phillips has calculated that a rise in unemployment from 1 per cent. to 2 per cent. reduces the rate of wage increases from 9 per cent. to 3 per cent. per annum. That is what is happening. If we have further and more severe unemployment from 2 per cent. to 3 per cent. we reduce wages rates on what is called the Phillips curve from 3 per cent. to 1 per cent. per annum. The Government are creating unemployment and, as a result, it is not surprising that the wage rate is more stable for this particular time of year.

I wish this was the last of the dreary series of White Papers we have had, but I am afraid that Government by White Paper is here to stay and that next year we shall have another as thoughtless and as useless as this. I turn to the question of unemployment. This afternoon the Chancellor gave us a lengthy, but useful, account of the general economic position. I had intended to cover that and many other subjects as well, but I changed my mind after what I am afraid I must regard as an absolutely deplorable speech by the Minister of Labour when opening this debate.

It is becoming too tedious to say that the right hon. Gentleman is a very nice chap, which he is, and that he hates his job, or at any rate the present circumstances of the job, which must be true. What was abundantly clear yesterday was not only that he did not know what to do but, more seriously still, that he did not know what the real position was; and, until we analyse that, it simply is not possible to decide on such matters as future reflation. This is the reality of the debate.

For four years I was Minister of Labour, which is longer than anyone on either side of the House has held that office. In that time I saw it all. Until recently hon. Members opposite used to boast that they had the best figures for ten years. It was in 1956 that I was at the Ministry of Labour. They talk and worry about the figures now, but I can remember an almost comparable curve in 1958 and 1959 when I was Minister of Labour.

The one thing I am certain about is that it is not the absolute figure of unemployment which worries people. It is the trend and the sharpness of the line on the graph. This is what is causing so much worry at present. While there is fear in the country, we are wasting our breath talking about restrictive labour practices; we are wasting our breath talking about demarcation disputes; and we are even wasting our breath talking about a voluntary incomes policy. These things will not happen until fear goes. The surest way of dispelling fear is to try to analyse the situation and to put before the House, which the Minister of Labour signally failed to do yesterday, an accurate account of the position and a forecast of what will happen.

In the last two months unemployment has risen by 200,000. That is an increase of 59.2 per cent. Let me make it quite clear that I am absolutely certain that there is no question whatever of a return to the days of the 1930s or the 1920s, if only because our knowledge of techniques and of central bank co-operation are so much superior now. However, it remains a fact—I have here the figures for 50 years going back to the end of the First World War; I have been through all these figures carefully—that only once, and that was in 1921, has the increase over the same two months been higher than it is now. In only one year—1920, 46 years ago—was the percentage higher than the 59.2 per cent. increase which has just occurred. In 1920 the increase was 66.1 per cent.

The point is—I ask the Minister of Labour to take this up—that at a similar time in a cycle, when on 17th November, 1958, unemployment was running at 536,000, almost exactly where it is today, I made a prophecy to the House. Having analysed the position and having given the special reasons—the Christmas trends, the weather, and the peak leap in January, I said: even if I assume that the figures for the next few months"— I was saying this in November— will be rather worse than the normal seasonal decline—which I am assuming—on the evidence present before me I expect that the unemployment figure will not be as much as 3 per cent. in the early months of next year. Indeed, if today I had to forecast the figure I would put it at 2.8 per cent. after the big increase in January has taken place."—[OFFICIAL REPORT, 3rd November. 1958; Vol. 594, c. 732.] When January came the figure was exactly 2.8 per cent. The Chancellor of the Exchequer knows very well from his experience of getting estimates right, if he ever does—it is extremely difficult—that it is usually the result of two wrong guesses which correct themselves. In this case the underlying trend was slightly better than I had thought and the weather turned out to be slightly worse.

It made an enormous difference to confidence at that time, because it is only the unknown that people fear. If the Minister of Labour would take his courage in his hands and give us a proper and adequate analysis of the figures and tell us where he thinks the trend, disturbing as it is, will go, he would do a great deal to restore the confidence that is so lacking in industry at the moment. The very lack of that confidence, in the absence of such a statement from the Minister of Labour, will snowball the unemployment figures as people's plans move against them.

There are two possible causes of this catastrophic rise. First, there is the question of the relation of output to unemployment. I shall not go into the arguments, but there is a recognisable and assessable link between output and the level of unemployment. There is even a formula which one can, if necessary, use. I assume that the volume of output has stopped rising. Indeed, I assume that it has fallen by 1 per cent. But even this fall cannot begin to account for the great leap in unemployment. One would have had to have a fall in output of about 5 per cent., but that is fantastic and has not happened.

It follows that there is another major factor at work. It could be that a once-for-all shake-out has taken place. If so, the future rises in unemployment will be very moderate. It could be, on the other hand, that there has been an appalling slide in confidence, in which case the normal analysis is of little value, and, if this is so, future rises could be unacceptable—unacceptable, I mean, to both sides of the House, which are equally pledged to full employment.

It is a difficult matter to decide. It is easy to go wrong, but that is no excuse for not trying. I do not take too gloomy a view. I share the view of my right hon. Friend the Member for Flint, West (Mr. Birch). I do not talk in terms of unemployment at seven figures. But I am sure that the Government have consistently underestimated the loss of confidence in our economic affairs.

I believe that pressures are forcing industry to use wastage as a means of reducing its labour force. It looks to me, therefore, if for that reason alone, that unemployment will go up more than would be accounted for by seasonal factors.

I am by no means as pessimistic as many people who have studied this matter with full knowledge are, but having said that, I strongly urge—indeed, I challenge—the Minister of Labour to take me up on this and follow the lead which I gave in 1958. If I may counsel him, he should not ask his officials because they will advise him against it, as they advised me against it in 1958. If he would tell the people of this country what is happening, it would have a great and steadying effect upon confidence and upon the level of unemployment.

Very swiftly, because of the time, I turn to one or two other factors. We know what has happened to production. The only comparable fall came between December 1962 and January 1963, during the most severe winter for 100 years.

We know what is happening to investment. Whether we take the Board of Trade estimate or the C.B.I. estimate, the position is gloomy. I heard with interest what the President of the Board of Trade had to say this afternoon. It may be of help—I am not niggling here—to say that I believe that the hon. Member for Bosworth (Mr. Wyatt) put his finger on the difficulty. It is no good offering someone a loss of £95 as against a loss of £100, which, basically, is what the offer amounts to, because he is not interested in either until he can see a profit, and he will not see a profit until there is confidence. This is why the word "confidence" has come ringing through all the speeches in these two days. Business plans will remain in the pending tray until confidence returns.

We know the situation in regard to growth. As my hon. Friend the Member for Worcester (Mr. Peter Walker) said yesterday, we are at the bottom of the league table.

There is a somewhat brighter side. The Chancellor of the Exchequer has been wrong in the past in his balance of payments forecasts, and I do not want to twit him about that. I think and hope that he will be in surplus next year on the balance of payments. But at what a price. He is going to achieve strength through stagnation. We have had two years of stagnating and, indeed, declining production, and unemployment has soared up.

The Chancellor speaks of the strength of sterling, and there may well be special factors at work. But, even so, with all the help it has had, for sterling to be at 2.79 and a fraction—one-16th I think—is very depressing. There are two bullish factors. One is exports, and we are delighted to see the good performance in exports. We welcome it very much. The other is the question of public expenditure. I do not want to go into that, because I must hurry to a conclusion for the first Secretary of State.

The Chancellor is wrong, however, in twitting us with being against public expenditure. Some of it is exempt—for example, expenditure on roads, docks and many other things, too. But public expenditure is, I am certain, one of the greatest worries of the Chancellor at the present time.

One word has dominated this debate—confidence. This is not just because it is in the Motion, but because every single crisis is, in the last resort, about confidence. The Chancellor is somewhat surprised that my right hon. Friend was not more violent in moving the Motion of censure. If he is surprised at that, he must be astounded at the moderation of my speech. But there is very good reason. Both my right hon. Friend and I have been Minister of Labour, and if one is Minister of Labour in a particularly sombre time and dealing with unemployment it is not possible to discuss this except in terms of utter seriousness, which I have tried to do tonight.

I do not wish to go into all the points that have been made, but ever since November, 1964, we have basically been in a crisis of confidence. There was no crisis of confidence either in sterling or in this country during the election—not even when it seemed likely that the Socialists would win, and not even when they did win. Not until a month after did these special factors of confidence, of which the Prime Minister then spoke, come. Basically, ever since then, because of the incompetence of the Government, we have been in this particular crisis. There is all too little confidence in the Government abroad, there is all too little confidence in the Government at home, and the Opposition wish to record by our vote tonight our utter lack of confidence in the Government.

9.28 p.m.

The First Secretary of State and Secretary of State for Economic Affairs (Mr. Michael Stewart)

The right hon. Member for Enfield, West (Mr. Iain Macleod), like the hon. Member for Worcester (Mr. Peter Walker) and the right hon. Gentleman the Leader of the Opposition, has, as he said, delivered a serious speech and he took some pride in the fact that it was not too polemical. But one of the reasons for that emerged in the last remarks he made, when he referred to events immediately before the 1964 election. He said that there was no crisis of confidence. [Interruption.] No—there was a mounting deficit accompanied, as it mounted, by a series—[Interruption.]

Mr. Speaker

Order. I hope that the hon. Gentleman who has not listened to the debate will listen to the final speeches.

Mr. Stewart

—accompanied, as it mounted, by a series of progressively more euphoric statements from members of the last Government. It was not only that inheritance of a deficit, mention of which naturally so vexes the party opposite. There was the inheritance also of a totally uncontrolled defence programme. Do right hon. and hon. Members opposite really suggest that there would be the least chance of balancing our balance of payments and therefore providing the conditions of growth if anyone had attempted to go on with anything like the defence programme with which they left us?

If right hon. and hon. Members opposite make a virtue of not being too polemical, we must remember that it is partly their past memories and even their consciences that inhibit them in moving the Motion.

The debate has ranged in subject over the whole financial and economic field and in time back at least to 1964 and sometimes to the 'twenties. But, recognising the susceptibilities of hon. Members opposite to the mention of the period prior to October, 1964, I will make a start on what I have to say with the July measures. They included measures of deflation, of reduction of demand, and measures to control prices and incomes. The necessity for these measures at that time has not been seriously disputed during the debate.

It is true that the right hon. Gentleman the Leader of the Opposition seemed to criticise the control of prices. If the measures were meant to be deflationary, he asked, why control prices. But surely he is not suggesting that it would have been right or possible to impose any kind of freeze or restraint on incomes without at least something comparable on prices. Indeed, if there had not been control of prices, one would not have secured the confidence abroad which was so essential at that time.

It is true that some of the deflationary measures were in themselves of a nature which would put up prices, and that was made clear at the time. The effect of the Selective Employment Tax and certain other measures it was known must cause some prices to rise—and this is a matter which the right hon. Member for Enfield, West left out of his calculations when he was trying to belittle the degree of control over prices, despite these measures, which has been secured during this period.

But now what we are rightly asked is what course we pursue from here. The right hon. Member for Flint, West (Mr. Birch) made very merry with nautical metaphors and explained that we did not know how to navigate. When we remembered how he got on with his own shipmates in the Conservative Government, it was a little like listening to a lecture on navigation from the prophet Jonah.

Clearly, the course which we pursue from here must be one, as the Chancellor of the Exchequer said this afternoon, which combines a proper care for the balance of payments with a proper care for growth and a proper care for the maintenance of employment. I heartily agreed with the Leader of the Opposition when he pointed out that if we were to do this, there had to be structural changes in industry. He rightly argued that the extent to which we could be successful in reconciling growth and balance of payments and a tolerable figure of unemployment depended on the structure of the economy. He pointed out that it varied from one nation to another and that to get the right answer one must seek to remove certain blocks and obstructions which prevented one from reconciling balance of payments, growth and employment.

I will give the House just one figure which illustrates how serious is the need for these structural changes. In the making of transport equipment it takes two men in this country to produce the result which is produced by one man in Sweden. One gets similar alarming figures in comparisons with many industries in a good many industrial countries.

This situation is not the result of anything which may be held against the Government who have held power for the last two years. These figures are plainly the result of years of failure to understand and neglect of opportunity and of closing one's eyes to a problem. The right hon. Member for Enfield, West took up the tale begun by the hon. Member for Worcester by referring to the O.E.C.D. league figures and complaining, not unnaturally, of our position in them. But if both the right hon. Gentleman and his hon. Friend had read the report a little further and looked not only at the figures, but the reasons affecting growth which the report gives, they would have found that it was pointed out that one of the reasons was the comparatively low level of investment in this country. When? During the last decade.

One must heartily agree with the Leader of the Opposition that there is need for structural change. This means that in our course from here we have to combine steps which must he carefully timed with an eye on the balance of payments, steps which will be capable first of restraining and then of reversing the down-turn, both of investment and employment that we have seen.

Next we must, simultaneously with this judgment of the prior timing of particular steps to meet the present investment and employment situation, combine with that the steady and continuous promotion of structural change. Thirdly, we must combine both of these things with a prices and incomes policy. Prices and incomes policy at the moment means standstill. It will shortly mean severe restraint. In future it should mean planned growth, recognising the connection of prices and incomes to productivity.

It is those things with which I want successively to deal. First, there are the timed steps to deal with the situation over investment and employment: secondly, there is the steady promotion of structural change and, thirdly, I want to deal with the prices and incomes policy. All of the steps it will be necessary to take but it is unwise to anticipate them or to set dates in advance because they have to be taken with an eye to the balance of payments.

One of the first measures is to arrest the down-turn in investment. An important statement on that was made by my right hon. Friend the President of the Board of Trade just before today's debate. It is interesting to notice what the reactions of industry are to this. A spokesman for the C.B.I. points out that it had previously asked for investment incentives. It says without qualification that it welcomes the 5 per cent. increase in cash grants, which should be worth about £100 million to the industry over the next two years. It goes on to indicate that this is the right kind of step to take and not the step of an immediate demand reflation. The T.U.C. says that it welcomes the announcement of the grant and adds: Apart from the direct effects that this will have upon stimulating investment it provides reassuring evidence that the Government does not intend to let the economic situation deteriorate. The decision should therefore help to maintain general confidence among businessmen and trade unionists and prepare the way for renewed economic expansion. I contrast those comments which come from the people who will do the work in industry with the rather niggling complaints which came from the benches opposite when this statement was made. The Leader of the Opposition argued: can a man in two years plan an investment, get the assets installed and therefore get any benefit out of this? That is not the point. What we have to look at immediately are decisions which are on the point of being made, decisions whether to go ahead as previously planned or to postpone action.

There can be no doubt that the statement is a valuable help in seeing that those decisions are made in the right way. In addition to that statement there is the recognition in the White Paper on Prices and Incomes that in handling prices we must have regard to the need for enterprises to be able to maintain investment. It cannot be said that our treatment of the matter in the White Paper is in any way a discouragement to investment.

There is the question of getting such immediate redeployment as one can where unemployment has occurred. Here, the Department of my right hon. Friend the Minister of Labour has been at work. Large numbers of vacancies which had not previously been notified were discovered as a result of the Ministry's work and many men were able to be directed to jobs. My hon. Friend the Member for West Lothian (Mr. Dalyell), who has been much concerned about Bathgate, will know that even in that difficult area the situation has been markedly improved recently.

Next, we must consider how all this works out with regard to regional policy. The House is aware of what has been done to ensure that in a generally difficult time the more vulnerable areas of the country are not too seriously hit. Provisions have been made about investment grants, building controls, different instructions to banks and advance factories. All these have helped the regions. Also, there is what was said by my right hon. Friend the President of the Board of Trade yesterday evening when he indicated further ways under, for example, the Local Employment Acts in which regional unemployment could, at any rate pending a general recovery, be alleviated. As the House knows, further measures which may help the regions are now actively under consideration.

In addition to investment, immediate redeployment and regional policy, there is the promotion of exports. Today the House heard a statement of my right hon. Friend the Chancellor of the Exchequer about export rebates. The House will be aware—I referred to it during Question Time today—of the special concern which the little "Neddies" have over activities which will help the balance of payments either by promoting exports or by saving imports.

There is, further, the declared intention of the Government to seek entry to the Common Market. Industry has laid great stress on this as a factor promoting confidence. When the Prime Minister made his announcement about Europe the Front Bench leaders of the Conservative Party said that the Government would have the great advantage of an Opposition who were solidly behind them. But every mention of Europe today and yesterday from the benches opposite has been one of hostility to and denigration of what the Government are trying to do. On this as on other matters there is a widening gap between the leadership of the Conservative Party and some of its back-bench Members.

I turn to the structural changes which the Leader of the Opposition mentioned and which, in my judgment as in his, lie at the heart of the problem. It will not be enough merely by timed immediate measures to move from recession to reflation unless, during the process, we have taken the more fundamental steps which will make the economy permanently more healthy. It is that which this country has failed to do during previous periods of stop-go.

I want to take some of the measures of structural change which the Leader of the Opposition mentioned and to add others to the list. He spoke first of retraining and redeployment—what one might call permanent redeployment, the training of a man in a new skill or to acquire a greater degree of skill so that he is permanently in a position in which he can be of more value to the economy.

The right hon. Gentleman said that this was crucial to the whole question, and so it is. What we find, however, is that, although so much still remains to be done about this, the present Government have done more about retraining in two years that the last Government did in 10 years. The Leader of the Opposition says, "This is crucial. I have always said so." I am sure that he always said so. Why did not his colleagues listen to him? It is no good his saying that they have always said so. They have never done so.

I do not dispute that this matter cannot be handled—no one thinks that it can be handled—by an increase in the number of places in Government training centres alone. They are important. They may well be the pacemakers and example setters for the process of retraining, but a great deal has to be done in industry. That is why we have been promoting the industrial training boards. Let it be noticed, however, that to get industry to co-operate in this means increasing partnership between Government and industry. It means people in industry being willing to do what the hon. Member for Ealing, South (Mr. Batsford) so bitterly reproaches them for doing—being willing to serve with the Government on committees in order to solve important national problems.

It is no good the leader of the Opposition calling for retraining and for other measures which require increasing partnership between the Government and industry if the back-benchers are to say of every industrialist who will work in partnership with the Government that he is somebody who is betraying a cause in which they believe.

Similarly, the Leader of the Opposition urged a faster running-down of the number of men employed in coal mining. I do not know whether the rate could be accelerated. What is not in doubt is that the National Coal Board has done an extremely good job in this difficult task. Those of us who remember the run-down of men in the coal industry in the 'thirties, when the industry was privately owned, will contrast the way in which the two processes were carried out. It could not have been carried out with the humanity that has accompanied it at this time if it had not been in public ownership and if it had not been assisted by a publicly provided housing programme.

Another structural change is to get in industry as far as we can the right pattern of firms—not the growth of great monopolies, or of industries fragmented into so many firms that none can afford proper research and training. The instrument to that end, however, an instrument that would have helped this process of structural change, was the Industrial Reorganisation Corporation. When it came to the point, the party opposite voted against it.

Another form of structural change will be to pay greater attention to management education. There are in colleges of further education some 50,000 people taking courses in management. The extent to which this country took the matter seriously in the past can be judged by the fact that we know the present figure of 50,000 as a result of a special survey but we just do not know the comparable figures in the past. They are not available. In the last few years, however, both at universities and colleges of further education, there has been a very gratifying advance in the number of people undertaking these studies.

Above all, what are called the "Little Neddies" will be our main instrument for structural change. They are important both for the discovery of methods of efficiency and, what is perhaps still more needed, the spread of knowledge about discoveries which have been made, whether the discoveries are administrative in the way of better control over stocks, whether they are more technical in the way of the reduction of unnecessary varieties of product so that we can get standardisation, or whether they are, as they are in building, the discovery of new methods of construction.

When one considers the record of the valuable work being done by the "Little Neddies" now, one is obliged to ask time and time again why this was not in train 10 years ago when there was no grave economic or financial reason that would have made it impossible.

If the party opposite do not care to have that charge made against them, if they accept their leader's doctrine of the importance of structural change, and if they know, as they must if they have studied the facts, the valuable work being done by the "Little Neddies", why is it that my colleagues and I at the Department of Economic Affairs, week after week, have had to answer questions from the party opposite, each one of which was designed to denigrate the "Little Neddies" and make mischief about them?

All of these measures require public expenditure and increasing co-operation between the State and private industry, which is exactly the point to which the hon. Member for Weston-super-Mare (Mr. Webster) took such strong exception in his speech. It is no good the party opposite talking about public expenditure as if it was either bad in itself or, in its nature, worse than private expenditure. What one has to ask about public expenditure at present is whether it contributes to help the country out of its difficulties, and public expenditure on technical education and on Government training centres is valid.

The criticism that has been made from the party opposite all the time has been to talk about public expenditure as if the growth of it were bad in itself, without asking on what the money is spent.

Sir Edward Boyle (Birmingham, Handsworth)

Why did the party opposite cut expenditure on technical college and university building last year? So far from supporting them, we took the earliest opportunity of debating it.

Mr. Stewart

The party opposite will always demand—[HON. MEMBERS: "Answer."] Those reductions were made because, quite clearly, the total amount of public expenditure has to be related to the total growth of wealth. The point which I was making is that the continual demands for reduced public expenditure by the party opposite are not consistent with a modern State, and it is here that the gap between the Leader of the Opposition and his followers becomes most apparent.

The Leader of the Opposition is a civilised man—

Hon. Members

Oh.

Mr. Speaker

Order. When compliments are exchanged across the Floor of the House, I hope that no one will object.

Mr. Stewart

With time and patience, he will become a modern man. But he leads a horde of Vandals and Visigoths. "Visigoth" was the name applied to himself by one of the hon. Members opposite.

They complain that we are trying to manage a private enterprise system in which we do not believe. The truth is that they have not yet learnt that they are living in a mixed economy. Until they grasp that the general abuse of public expenditure and public enterprise on which they were brought up has no relevance to the twentieth century, we shall get nowhere on the process—[Interruption.]

On the prices and incomes policy, my hon. Friend the Member for Huddersfield, West (Mr. Lomas) was worried about the public sector. He will find that, wherever there are comparable cases, public and private sectors are treated alike, but certain instances arise where things occur in the public sector which have no true parallel in the private sectors—for example long-term restrospection—and on these matters it is clearly necessary to state what will be done with these particular problems, but in no case where the things are comparable has there been discrimination.

The hon. Lady the Member for Finchley (Mrs. Thatcher) was concerned about pensions. I would only say that either one of my colleagues at the Department, or myself, will be meeting representatives of the National Association of Pension Funds. I cannot at present say more than that, or promise anything more, but I note what she said.

Dealing next with productivity agreements, I think that the right hon. Member for Enfield, West tried to prove too much. Of course it is difficult to say exactly who is contributing to productivity, and who is not, but this difficulty is there whether one is framing a productivity agreement in time of severe restraint, or at any other time. If the right hon. Gentleman's argument were conclusive, we would never frame them at all, but the policy is not discouraging them. I know already of firms and local authorities which are vigorously pursuing the establishment of genuine productivity agreements. The House should notice that there could be a producitvity agreement where productivity was obtained at such a price that the unit cost of the product at the end was higher. That shows clearly what would be meant by not considering the national interest.

Mr. Iain Macleod

I think that the right hon. Gentleman has missed by point. Of course we want to see productivity agreements. My point is that this is a matter which employers and employees can judge, and a matter which it is impossible for the Government to judge in relation to all the issues involved.

Mr. Stewart

On that I would say—and this applies to the whole future of prices and incomes policy—that in a period of standstill or severe restraint clearly the Government must judge, and the more successful we are in getting to a period of growth, then the whole administration of prices and incomes policy, though still difficult, becomes a great deal more manageable, and I would say that as a general rule for prices and incomes policy it will always be necessary for the Government to state what they believe the norm of increase

should be, and that must be related to productivity.

Secondly, we must have advance notice of proposed increases. There must, where necessary, be the possibility of challenge, the necessity to justify claimed increases, and there must be continuous consultation between Government, management, trade unions, and the National Board for Prices and Incomes.

It is those general principles which we have to hammer into a definite code of conduct in the discussions which I am pledged to undertake in the coming months.

Sir C. Osborne rose——

Mr. Stewart

I cannot give way.

Finally, I propose to say just a word about the two words which vexed the Leader of the Opposition so much—social justice. Here again is something which the party opposite has not understood. If we try to live in a modern society, it is not enough merely to talk about the size of men's material incomes. We are trying to get men and women to live in a changing society, and change involves for us all greater risks than a purely static society does.

To get people to accept those risks, and to accept change, they must believe that the general out turn will be socially just. That means that the gap between the richest and the poorest must not be too wide. That in my view justified the Surtax increase. Secondly, differences in income from one man to another must be functionally justified.

Mr. Brian Batsford (Ealing, South)

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 246, Noes 329.

Division No. 217.]	AYES	[10.0 p.m.
Alison, Michael (Barkston Ash)	Bennett, Sir Frederic (Torquay)	Boyd-Carpenter, Rt. Hn. John
Allason, James (Hemel Hempstead)	Bennett, Dr. Reginald (Gos. & Fhm)	Boyle, Rt. Hn. Sir Edward
Astor, John	Berry, Hn. Anthony	Braine, Bernard
Atkins, Humphrey (M't'n & M'd'n)	Bessell, Peter	Brewis, John
Awdry, Daniel	Biffen, John	Brinton, Sir Tatton
Baker, W. H. K.	Biggs-Davison, John	Bromley-Davenport, Lt. Col. Sir Walter
Balniel, Lord	Birch, Rt. Hn. Nigel	Brown, Sir Edward (Bath)
Barber, Rt. Hn. Anthony	Black, Sir Cyril	Bruce-Gardyne, J.
Batsford, Brian	Blaker, Peter	Bryan, Paul
Beamish, Col. Sir Tufton	Body, Richard	Buchanan-Smith, Alick (Angus, N&M)
Bell, Ronald	Bossom, Sir Clive	Buck, Antony (Colchester)
Bullus, Sir Eric	Hawkins, Paul	Orr, Capt. L. P. S.
Burden, F. A.	Hay, John	Osborn, John (Hallam)
Campbell, Gordon	Heald, Rt. Hn. Sir Lionel	Osborne, Sir Cyril (Louth)
Carlisle, Mark	Heath, Rt. Hn. Edward	Page, Graham (Crosby)
Carr, Rt. Hn. Robert	Heseltine, Michael	Page, John (Harrow, W.)
Cary, Sir Robert	Higgins, Terence L.	Pardoe, John
Channon, H. P. G.	Hiley, Joseph	Pearson, Sir Frank (Clitheroe)
Chichester-Clark, R.	Hill, J. E. B.	Peel, John
Clark, Henry	Hirst, Geoffrey	Percival, Ian
Clegg, Walter	Hobson, Rt. Hn. Sir John	Peyton, John
Cooke, Robert	Hogg, Rt. Hn. Quintin	Pink, R. Bonner
Cooper-Key, Sir Neill	Holland, Philip	Pounder, Rafton
Cordle, John	Hooson, Emlyn	Powell, Rt. Hn. J. Enoch
Corfield, F. V.	Hordern, Peter	Price, David (Eastleigh)
Costain, A. p.	Hornby, Richard	Prior, J. M. L.
Craddock, Sir Beresford (Spelthorne)	Howell, David (Guildford)	Pym, Francis
Crawley, Aidan	Hunt, John	Ramsden, Rt. Hn. James
Crosthwaite-Eyre, Sir Oliver	Hutchison, Michael Clark	Rawlinson, Rt. Hn. Sir Peter
Crouch, David	Iremonger, T. L.	Rees-Davies, W. R.
Crowder, F. P.	Irvine, Bryant Godman (Rye)	Renton, Rt. Hn. Sir David
Cunningham, Sir Knox	Jenkin, Patrick (Woodford)	Ridley, Hn. Nicholas
Currie, G. B. H,	Jennings, J. C. (Burton)	Ridsdale, Julian
Dalkeith, Earl of	Johnson Smith, G. (E. Grinstead)	Rippon, Rt. Hn. Geoffrey
Dance, James	Jones, Arthur (Northants, S.)	Rodgers, Sir John (Sevenoaks)
Davidson, James (Aberdeenshire, W.)	Jopling, Michael	Roots, William
d'Avigdor-Goldsmid, Sir Henry	Joseph, Rt. Hn. Sir Keith	Rossi, Hugh (Hornsey)
Dean, Paul (Somerset, N.)	Kerby, Capt. Henry	Royle, Anthony
Deedes, Rt. Hn. W. F. (Ashford)	Kershaw, Anthony	Russell, Sir Ronald
Doughty, Charles	Kimball, Marcus	St. John-Stevas, Norman
Douglas-Home, Rt. Hn. Sir Alec	King, Evelyn (Dorset, S.)	Scott, Nicholas
Drayson, G. B.	Kirk, Peter	Sharples, Richard
du Cann, Rt. Hn. Edward	Kitson, Timothy	Shaw, Michael (Sc'b'gh & Whitby)
Eden, Sir John	Knight, Mrs. Jill	Sinclair, Sir George
Elliot, Capt. Walter (Carshalton)	Lambton, Viscount	Smith, John
Errington, Sir Eric	Lancaster, Col. C. G.	Stainton, Keith
Eyre, Reginald	Langford-Holt, Sir John	Steel, David (Roxburgh)
Farr, John	Legge-Bourke, Sir Harry	Stodart, Anthony
Fisher, Nigel	Lewis, Kenneth (Rutland)	Stoddart-Scott, Col, Sir M. (Ripon)
Fletcher-Cooke, Charles	Lloyd, Ian (P'tsm'th, Langstone)	Summers, Sir Spencer
Forrest, George	Lloyd, Rt. Hn. Selwyn (Wirral)	Talbot, John E.
Fortescue, Tim	Longden, Gilbert	Tapsell, Peter
Foster, Sir John	Loveys, W. H.	Taylor, Sir Charles (Eastbourne)
Fraser, Rt.Hn. Hugh (St'fford & Stone)	Lubbock, Eric	Taylor, Edward M. (G'gow, Cathcart)
Galbraith, Hn. T. G.	McAdden, Sir Stephen	Taylor, Frank (Moss Side)
Gibson-Watt, David	MacArthur, Ian	Teeling, Sir William
Giles, Rear-Adm. Morgan	Maclean, Sir Fitzroy	Temple, John M.
Gilmour, Ian (Norfolk, C.)	Macleod, Rt. Hn. Iain	Thatcher, Mrs. Margaret
Gilmour, Sir John (Fife, E.)	McMaster, Stanley	Thorpe, Jeremy
Glover, Sir Douglas	Macmillan, Maurice (Farnham)	Tilney, John
Glyn, Sir Richard	Maddan, Martin	Turton, Rt. Hn. R. H.
Godber, Rt. Hn. J. B.	Maginnis, John E.	van Straubenzee, W. R.
Goodhart, Philip	Marples, Rt. Hn. Ernest	Vaughan-Morgan, Rt. Hn. Sir John
Goodhew, Victor	Mathew, Robert	Vickers, Dame Joan
Gower, Raymond	Maude, Angus	Walker, Peter (Worcester)
Grant, Anthony	Maudling, Rt. Hn. Reginald	Walker-Smith, Rt. Hn. Sir Derek
Grant-Ferris, R.	Mawby, Ray	Wall, Patrick
Gresham Cooke, R.	Mills, Peter (Torrington)	Walters, Dennis
Grieve, Percy	Mills, Stratton (Belfast, N.)	Weatherill, Bernard
Griffiths, Eldon (Bury St. Edmunds)	Miscampbell, Norman	Webster, David
Grimond, Rt. Hon. J.	Mitchell, David (Basingstoke)	Wells, John (Maidstone)
Gurden, Harold	Monro, Hector	Whitelaw, William
Hall, John (Wycombe)	Morgan, Geraint (Denbigh)	Wills, Sir Gerald (Bridgwater)
Hall-Davis, A. G. F.	Morrison, Charles (Devizes)	Wilson, Geoffrey (Truro)
Hamilton, Marquess of (Fermanagh)	Mott-Radclyffe, Sir Charles	Wolrige-Gordon, Patrick
Hamilton, Michael (Salisbury)	Munro-Lucas-Tooth, Sir Hugh	Wood, Rt. Hn. Richard
Harris, Frederic (Croydon, N.W.)	Murton, Oscar	Woodnutt, Mark
Harris, Reader (Heston)	Nabarro, Sir Gerald	Worsley, Marcus
Harrison, Brian (Maldon)	Neave, Airey	Wylie, N. R.
Harrison, Col. Sir Harwood (Eye)	Nicholls, Sir Harmar	Younger, Hn. George
Harvey, Sir Arthur Vere	Noble, Rt. Hn. Michael
Harvie Anderson, Miss	Nott, John	TELLERS FOR THE AYES:
Hastings, Stephen	Onslow, Cranley	Mr. R. W. Elliott and
		Mr. More
NOES
Abse, Leo	Atkins, Ronald (Preston, N.)	Benn, Rt. Hn. Anthony Wedgwood
Albu, Austen	Atkinson, Norman (Tottenham)	Bennett, James (G'gow, Bridgeton)
Allaun, Frank (Salford, E.)	Bacon, Rt. Hn. Alice	Bidwell, Sydney
Alldritt, Walter	Bagier, Gordon A. T.	Binns, John
Allen, Scholefield	Barnes, Michael	Bishop, E. S.
Anderson, Donald	Barnett, Joel	Blackburn, F.
Archer, Peter	Baxter, William	Blenkinsop, Arthur
Armstrong, Ernest	Beaney, Alan	Boardman, H.
Ashley, Jack	Bence, Cyril	Booth, Albert

Boston, Terence	Gray, Dr. Hugh (Yarmouth)	Manuel, Archie
Boyden, James	Greenwood, Rt. Hn. Anthony	Mapp, Charles
Braddock, Mrs. E. M.	Gregory, Arnold	Marquand, David
Bradley, Tom	Griffiths David (Rother Valley)	Marsh, Rt. Hn. Richard
Bray, Dr, Jeremy	Griffiths, Rt. Hn. James (Llanelly)	Mason, Roy
Brooks, Edwin	Griffiths, Will (Exchange)	Maxwell, Robert
Broughton, Dr. A. D. D.	Gunter, Rt. Hn. R. J.	Mayhew, Christopher
Brown, Rt. Hn. George (Belper)	Hale, Leslie (Oldham, W.)	Mellish, Robert
Brown, Hugh D. (G'gow, Provan)	Hamilton, James (Bothwell)	Mendelson, J. J.
Brown, Bob (N'c'tle-upon-Tyne, W.)	Hamilton, William (Fife, W.)	Mikardo, Ian
Brown, R. W. (Shoreditch & F'bury)	Hamling, William	Millan, Bruce
Buchan, Norman	Hannan, William	Milne, Edward (Blyth)
Buchanan, Richard (G'gow, Sp'burn)	Harrison, Walter (Wakefield)	Mitchell, R. C. (S'th'pton, Test)
Butler, Herbert (Hackney, C.)	Hart, Mrs. Judith	Molloy, William
Butler, Mrs. Joyce (Wood Green)	Haseldine, Norman	Moonman, Eric
Callaghan, Rt. Hn. James	Hattersley, Roy	Morgan, Elystan (Cardiganshire)
Cant, R. B.	Hazell, Bert	Morris, Alfred (Wythenshawe)
Carmichael, Neil	Healey, Rt. Hn. Denis	Morris, Charles R. (Openshaw)
Carter-Jones, Lewis	Heffer, Eric S.	Morris, John (Aberavon)
Castle, Rt. Hn. Barbara	Henig, Stanley	Moyle, Roland
Chapman, Donald	Herbison, Rt. Hn. Margaret	Mulley, Rt. Hn. Frederick
Coe, Denis.	Hilton, W. S.	Murray, Albert
Coleman, Donald	Hooley, Frank	Neal, Harold
Concannon, J. D.	Horner, John	Newens, Stan
Conlan, Bernard	Houghton, Rt. Hn. Douglas	Noel-Baker, Francis (Swindon)
Corbet, Mrs. Freda	Howarth, Harry (Wellingborough)	Norwood, Christopher
Craddock, George (Bradford, S.)	Howarth, Robert (Bolton, E.)	Oakes, Gordon
Crawshaw, Richard	Howell, Denis (Small Heath)	Ogden, Eric
Cronin, John	Howie W.	O'Malley, Brian
Crosland, Rt. Hn. Anthony	Hoy, James	Oram, Albert E.
Crossman, Rt. Hn. Richard	Hughes, Rt. Hn. Cledwyn (Anglesey)	Orbach, Maurice
Cullen, Mrs. Alice	Hughes, Emrys (Ayrshire, S.)	Orme, Stanley
Dalyell, Tim	Hughes, Hector (Aberdeen, N.)	Oswald, Thomas
Darling, Rt. Hn. George	Hughes, Roy (Newport)	Owen, Dr. David (Plymouth, S'tn)
Davidson, Arthur (Accrington)	Hunter, Adam	Owen, Will (Morpeth)
Davies, Dr. Ernest (Stretford)	Irvine, A. J. (Edge Hill)	Padley, Walter
Davies, G. Elfed (Rhondda, E.)	Jackson, Colin (B'h'se & Spenb'gh)	Page, Derek (King's Lynn)
Davies, Ednyfed Hudson (Conway)	Jackson, Peter M. (High Peak)	Paget, R. T.
Davies, Harold (Leek)	Janner, Sir Barnett	Palmer, Arthur
Davies, Ifor (Gower)	Jay, Rt. Hn. Douglas	Pannell, Rt. Hn. Charles
Davies, S. O. (Merthyr)	Jeger, George (Goole)	Park, Trevor
Delargy, Hugh	Jeger, Mrs. Lena (H'b'n&St.P'cras,S.)	Parker, John (Dagenham)
Dell, Edmund	Jenkins, Hugh (Putney)	Parkin, Ben (Paddington, N.)
Dempsey, James	Jenkins, Rt. Hn. Roy (Stechford)	Parkyn, Brian (Bedford)
Dewar, Donald	Johnson, Carol (Lewisham, S.)	Pavitt Laurence
Diamond, Rt. Hn. John	Johnson, James (K'ston-on-Hull, W.)	Pearson, Arthur (Pontypridd)
Dickens, James	Jones, Dan (Burnley)	Peart, Rt. Hn. Fred
Dobson, Ray	Judd, Frank	Pentland, Norman
Doig, Peter	Kelley, Richard	Perry, Ernest G. (Battersea, S.)
Donnelly, Desmond	Kenyon, Clifford	Perry, George H. (Nottingham, S.)
Dunn, James A.	Kerr, Mrs. Anne (R'ter & Chatham)	Prentice, Rt. Hn. R. E.
Dunnett, Jack	Kerr, Russell (Feltham)	Price, Christopher (Perry Barr)
Dunwoody, Mrs. Gwyneth (Exeter)	Leadbitter, Ted	Price, Thomas (Westhoughton)
Dunwoody, Dr. John (F'th & C'b'e)	Ledger, Ron	Price, William (Rugby)
Eadie, Alex	Lee, Rt. Hn. Jennie (Cannock)	Probert, Arthur
Edelman, Maurice	Lee, John (Reading)	Pursey, Cmdr. Harry
Edwards, Robert (Bilston)	Lestor, Miss Joan	Randall, Harry
Edwards, William (Merioneth)	Lever, Harold (Cheetham)	Rankin, John
Ellis, John	Lever, L. M. (Ardwick)	Redhead, Edward
English, Michael	Lewis, Arthur (W. Ham, N.)	Rees, Merlyn
Ennals, David	Lewis, Ron (Carlisle)	Rhodes, Geoffrey
Ensor, David	Lipton, Marcus	Richard, Ivor
Evans, Albert (Islington, S.W.)	Lomas, Kenneth	Roberts, Albert (Normanton)
Evans, Ioan L. (Birm'h'm, Yardley)	Loughlin, Charles	Roberts, Goronwy (Caernarvon)
Fernyhough, E.	Luard, Evan	Roberts, Gwilym (Bedfordshire, S.)
Finch, Harold	Lyon, Alexander W. (York)	Robertson, John (Paisley)
Fitch, Alan (Wigan)	Lyons Edward (Bradford, E.)	Robinson, Rt. Hn. Kenneth (St. P'c'as)
Fletcher, Raymond (Ilkeston)	Mabon, Dr. J. Dickson	Robinson, W. O. J. (Walth'stow, E.)
Fletcher, Ted (Darlington)	McBride, Neil	Rodgers, William (Stockton)
Floud, Bernard	McCann, John	Roebuck, Roy
Foley, Maurice	MacColl, James	Rogers, George (Kensington, N.)
Foot, Michael (Ebbw Vale)	MacDermot, Niall	Rose, Paul
Ford, Ben	Macdonald, A. H.	Ross, Rt. Hn. William
Forrester, John	McGuire, Michael	Rowland, Christopher (Meriden)
Fowler, Gerry	McKay, Mrs. Margaret	Rowlands, E. (Cardiff, N.)
Fraser, John (Norwood)	Mackie, John	Ryan, John
Fraser, Rt. Hn. Tom (Hamilton)	Mackintosh, John P.	Shaw, Arnold (Ilford, S.)
Freeson, Reginald	Maclennan, Robert	Sheldon, Robert
Galpern, Sir Myer	McMillan, Tom (Glasgow, C.)	Shinwell, Rt. Hn. E.
Gardner, Tony	McNamara, J. Kevin	Shore, Peter (Stepney)
Garrett, W. E.	MacPherson, Malcolm	Short, Mrs. Renée (W'hampton, N.E.)
Garrow, Alex	Mahon, Peter (Preston, S.)	Silkin, Rt. Hn. John (Deptford)
Ginsburg, David	Mahon, Simon (Bootle)	Silkin, Hn. S. C. (Dulwich)
Gordon Walker, Rt. Hn. P. C.	Mallalieu, E. L. (Brigg)	Silver-man, Julius (Aston)
Gourlay, Harry	Mallalieu, J.P.W. (Huddersfie1d, E.)	Silverman, Sydney (Nelson)

Skeffington, Arthur	Tuck, Raphael	Williams, Alan (Swansea, W.)
Slater, Joseph	Urwin, T. W.	Williams, Alan Lee (Hornchurch)
Small, William	Varley, Eric G.	Williams, Clifford (Abertillery)
Snow, Julian	Wainwright, Edwin (Dearne Valley)	Williams, Mrs. Shirley (Hitchin)
Steel, Thomas (Dunbartonshire, W.)	Walden, Brian (All Saints)	Williams, W. T. (Warrington)
Stewart, Rt. Hn. Michael	Walker, Harold (Doncaster)	Willis, George (Edinburgh, E.)
Stonehouse, John	Wallace, George	Wilson, William (Coventry, S.)
Strauss, Rt. Hn. G. R.	Watkins, David (Consett)	Winnick, David
Swain, Thomas	Watkins, Tudor (Brecon & Radnor)	Woodburn, Rt. Hn. A.
Swingler, Stephen	Weitzman, David	Woof, Robert
Taverne, Dick	Wellbeloved, James	Wyatt, Woodrow
Thomas, George (Cardiff, w.)	Wells, William (Walsall, N.)	Yates, Victor
Thomas, Iorwerth (Rhondda, W.)	Whitaker, Ben	Zilliacus, K.
Thomson, Rt. Hn. George	White, Mrs. Eirene
Thornton, Ernest	Whitlock, William	TELLERS FOR THE NOES:
Tinn, James	Wigg, Rt. Hn. George	Mr. Lawson and Mr. Grey.
Tomney, Frank	Willey, Rt. Hn. Frederick