HC Deb 20 July 1966 vol 732 cc627-55
The Prime Minister (Mr. Harold Wilson)

With permission, Mr. Speaker, I wish to make a statement.

Sterling has been under pressure for the past two and a half weeks. After improvement in the early weeks of May we were blown off course by the seven-week seamen's strike and when the bill for that strike was presented in terms of the gold and convertible currency figures in June the foreign exchange market reacted adversely. But there were deeper and more fundamental causes. Many have been at home and of these I shall speak in a moment. Several have been overseas. For several weeks past there has been an increasing pressure on liquidity in the world's financial centres.

Action taken by the United States' authorities to strengthen the American balance of payments has led to an acute shortage of dollars and Euro-dollars in world trade and this has led to a progressive rise in interest rates in most financial centres and to the selling of sterling to replenish dollar balances. Last Thursday, action was taken by the Bank of England to raise its discount rate and to double its call on the clearing banks for special deposits. On that day I informed the House that I would shortly be announcing further measures to deal not only with the short-run pressure on sterling, but also with the underlying economic situation.

Action is needed for the purpose of making a direct impact on our payments balance, and particularly on certain parts of our overseas expenditure which, in recent years, has been growing rapidly. Action is needed equally to deal with the problem of internal demand, public and private, and to redeploy resources, both manpower and capacity, according to national priorities, and check inflation.

Exports until the seamen's strike have been rising. By value, in the first five months of this year they were 9 per cent. higher than in the same period last year. By volume, the increase over the same period last year was 6 per cent., a rate of increase higher than that laid down in the National Plan. But abundant market opportunities abroad for British products—which are competitve enough in terms of quality, performance and price—are being lost owing to the shortage of labour. Order books are too long, and delivery dates excessively protracted. Hours of work have been reduced and incomes have been rising faster than productivity.

What is needed is a shake-out which will release the nation's manpower, skilled and unskilled, and lead to a more purposive use of labour for the sake of increasing exports and giving effect to other national priorities. This redeployment can be achieved only by cuts in the present inflated level of demand, both in the private and public sectors. Not until we can get this redeployment through an attack on the problem of demand can we confidently expect growth in industrial production which is needed to realise our economic and social policies.

I will begin with the measures needed to restrain private demand at home. The economy is carrying too heavy a burden of production financed by hire purchase which means that too high a proportion of today's production is being paid for by a mortgage on tomorrow's earnings.

My right hon. Friend the President of the Board of Trade has today made Orders. which will come into effect at midnight tonight, tighteninig up still further the regulations governing hire purchase. The down payment on cars, motor cycles and caravans is raised to 40 per cent. and the repayment period shortened to 24 months. The down payment on furniture is raised to 20 per cent. and the repayment period shortened to 24 months. The down payment on domestic appliances is raised to 33⅓ per cent.; the repayment period remains at 24 months. There is no change in the present regulations for cookers and water heaters. Corresponding changes are made in the regulations governing rental payments. It is estimated that this will cut hire-purchase borrowing by £160 million.

This of itself is not enough. The Government have, therefore, decided to activate the regulator created under Section 9 of the Finance Act of 1961, renewed in successive Finance Acts and given greater flexibility in Section 8 of the Finance Act, 1964.

The 'Treasury has today made an Order the effect of which is to put a surcharge of 10 per cent. on the duties on beer, wines and spirits; on hydrocarbon oils, petrol substitutes and power methylated spirits; and on Purchase Tax.

I wish to make it clear that in the case of Purchase Tax the increase is the equivalent of 10 per cent. of the existing rates. Thus, for goods now chargeable at 10 per cent. the new effective charge will be 11 per cent; for goods chargeable at 15 per cent. it will be 16½ per cent.; and for goods chargeable at 25 per cent. it will be 27½ per cent.

The surcharge will take effect from midnight tonight. Its effect will be further to increase the revenue at the rate of about £150 million in a full year. This is a net figure after allowing for the effect of the hire-purchase proposals and for the additional export rebate which will become payable following the increases in oil duty and Purchase Tax.

The increase in the duty on petrol and derv will, following the precedent set last year, be refunded to bus operators. The necessary administrative arrangements will be made as soon as possible and Parliamentary authority sought in the ordinary way. In addition, a further £20 million will be taken out of the economy as a result of changes announced today by my right hon. Friend the Postmaster-General in certain postal and telecommunications tariffs; parcels, registration and overseas rates will be increased from 3rd October. The telecommunications changes affecting certain call charges will involve no net increase in Post Office revenue, but will be designed to rationalise changes on a basis more closely related to costs. These will take effect from 1st January next. In addition, my right hon. Friend will be requiring a year's rental in advance for new telephones instead of a quarter's rental as at present. This will apply to orders accepted from tomorrow. Details will be published in the OFFICIAL REPORT and are now available in the Vote Office.

In the field of direct taxation the Government propose that a one-year surcharge of 10 per cent. be imposed on Surtax. This will be levied on Surtax liabilities for 1965–66 for payment on 1st September, 1967. The necessary legislation will be introduced in next year's Finance Bill. The extra yield is estimated at £26 million.

These measures on private current expenditure will be reinforced by action to restrain private sector building outside the housing and industrial fields and outside the development areas. The Government have decided to intensify the control on less essential building work and thus to reinforce the priority accorded to building programmes in the fields of housing, schools, hospitals—and new factories.

When the Building Control Bill, now before Parliament, receives the Royal Assent, the Minister of Public Building and Works will make an Order reducing the cost limit above which a project is subject to control from £100,000 to £50,000. The Order will require an affirmative Resolution in both Houses.

As before, this control will not apply in the development areas as now defined. With a cost limit of £100,000 the control would affect about 500 projects worth £180 million in a year. The lowering of the limit to £50,000 will extend control to cover a total of about 1,000 projects worth £220 million in a year.

This will give the Government more power to adjust the volume of privately-sponsored construction work as the economic situation develops. Hitherto, approval has been withheld from less than 10 per cent. of the projects about which the Minister has been consulted, but it will be necessary to defer a larger proportion of privately-sponsored work in future. The lowering of the limit will give the Minister scope to concentrate the postponement control on less urgent smaller schemes instead of having to rely on deferring some of the larger projects which are more in the public interest. This measure will be supplemented by a tighter control on office building.

My right hon. Friend the President of the Board of Trade has made an Order, coming into force at midnight, extending control of office building to the whole of Britain south of a line from the Wash to the borders of Hampshire and Dorset, by including within the control the whole of the East Midlands, West Midlands and South-East Region. Projects for buildings of more than 3,000 sq. ft. of office space which were not the subject of an application for planning permission at the time the Order comes into operation will require on Office Development Permit. In addition to tightening the control on building, this measure will reinforce those already taken by the Government for the prevention of undue congestion in these parts of the country and will supplement the strict policy which is being applied to the issue of industrial development certificates.

Now I turn to public investment programmes. The investment programmes in the public sector have been reviewed and the Government are introducing a number of deferment measures which will reduce demands on resources in this field by £150 million in 1967–68, though these steps will also lead to significant reductions in demand in the current year. While they will involve forgoing for the present a number of desirable projects, they will be concentrated on those activities which are not vital to our production capacity and for the development of the economy as a whole.

Housing, schools, hospitals, Government financed factories built in develop. ment areas, including advance factories, will not be affected. On investment by central and local government, we are making cuts amounting to £55 million in 1967–68. This will mean cutting back projects designed to contribute to local amenities, but which, in present circumstances, must be postponed without any set back to our major projects. These will cover such items as swimming baths and new local government offices. The Covent Garden Market project will similarly be deferred.

The programme for investment in nationalised industries has also been carefully scrutinised to ensure that essential industrial investment within the public sector shall go on. Nevertheless, the Government are arranging, in consultation with the chairmen of these industries, for a reduction in the total demand on resources made by public industry investment to be reduced by £95 million in 1967–68. This is in addition to programmes which have fallen behind schedule owing to slippage in construction, or in the delivery by contractors of the necessary plant and machinery.

The measures I have so far announced, by reducing the level of demand within the domestic economy, will make a vital contribution to our balance of payments by freeing resources, particularly labour, for work on exports and essential investment. But this, of itself, is not enough. More direct action on the balance of payments is required.

In accordance with the policy foreshadowed in the Defence White Paper, we have been urgently reviewing how far we can make a major saving in overseas Government expenditure without altering the basic lines of external policy on which the Defence Review was founded. We have also reviewed the level of military and economic aid which we can afford next year. The Government have decided on firm programmes which will reduce our overseas Government expenditure, military and civil, by at least £100 million.

I will come, in a moment, to the cost of our forces in Germany. Elsewhere, we are pressing ahead with measures designed to ensure a substantial and early saving compared with the present level of expenditure. Given an end to confrontation, the plans made by my right hon. Friend the Secretary of State for Defence during his recent visit to the area will secure a major contribution towards this saving.

As regards Germany, in the Defence White Paper published in February we said that we thought it right to maintain our ground forces in Germany at about their existing level until satisfactory arms control arrangements had been agreed in Europe, provided, however, that some means was found for meeting the foreign exchange cost of those forces. In my right hon. Friend's Budget statement on 1st May, he made clear our intention to negotiate with the Federal Government a new settlement aimed at eliminating the foreign exchange cost of our troops in Germany.

In a few minutes my right hon. Friend will be leaving for Bonn to continue these negotiations. In the light of these discussions, the Government will immediately consider what, if any, further action is called for, including the question whether this would mean proposing, forthwith through the prescribed N.A.T.C). and W.E.U. procedures, very substantial cuts in our forces in Germany, sufficient to bring the foreign exchange costs down to the level covered by offset and other payments.

The figure of £100 million that I have mentioned includes in addition to the savings on defence expenditure, which, of course, are by far the greater part of it, reductions on military and civil aid expenditure and in the cost of our representation and information services overseas.

Private overseas expenditure must also make its contribution. Expenditure on holiday travel outside the sterling area has been rising rapidly and the deficit on travel account with non-sterling countries has risen from £38 million in 1961 to an estimated figure of £95 million in 1966 and is expected, on current trends, to reach about £105 million next year. We cannot allow this formidable deficit to go on mounting without restric- tion, but the change requires consultation with the International Monetary Fund, which we have initiated.

For the 12 months starting on 1st November next there will be a basic allowance of £50 per person for travel to countries outside the sterling area. This allowance will have to cover all the foreign exchange requirements of the traveller, whether paid for in sterling or a foreign currency, except for fares paid for in sterling. There will be special arrangements for business and health travel and for those who, instead of paying fares abroad, take their cars abroad.

From today up to 31st October the amount of foreign exchange which may be bought for journeys to be started during that period will normally be limited to £50 per person. Special arrangements will, however, be made for people who have already made their holiday bookings to acquire a reasonable amount of foreign exchange, and sterling payments through travel agents may continue to be made as under existing arrangements. The Treasury is announcing full details this afternoon.

On the positive side of encouraging tourist expenditure in this country, the Government have decided to introduce, for an experimental period of one year in the first instance, a scheme under which development loan assistance can be offered for the building, expansion or modernisation of hotels which can show that this will result in a significant increase in their earnings from overseas visitors. The President of the Board of Trade will be making a full announcement on this before the Recess.

There is another field of private overseas expenditure lying between current and capital expenditure, which has imposed an increasing charge on our balance of payments—the remittances of emigrants to non-sterling area countries. In addition to the genuine transfers of capital by emigrants, there has been evidence of evasion of the control of capital movements. We have decided that, while the existing allowance of up to £5,000 in official exchange for each emigrating family should stand, any balance over and above this should be transferred through the investment currency market and not through the security sterling market. Also from today, the total amount which may be sent by way of cash gifts to residents outside the sterling area will be reduced from £250 a year to £50 a year.

The net direct saving on our overseas payments from all these measures, Government and private, amounts to £150 million. This is a direct saving on our overseas outgoings and, therefore, on the balance of payments deficit.

To sum up the measures I have so far outlined. I estimate that they will reduce demand on the domestic economy by more than £500 million. This is in addition to the earlier budgetary measures by this Government, reducing the pressure of demand in the private sector by over £700 million. They are in addition to the monetary policy which has been in force and which was reinforced by the three further measures announced last week. They are in addition, also, to the impact of this year's Finance Bill which is yet to have its effect on the economy, which is due to reduce demand and which will extract a further £300 million from the economy, with all which this means in terms of imports and of redeployment of labour towards exports and other essential industries.

In addition to the measures designed to reduce the domestic pressure, the economies in overseas expenditure, public and private, will, as I have said, make a direct saving of £150 million. But the House will recognise that the whole operation stands or falls on the extent to which we can keep our costs and prices under control. In recent years money incomes have been increasing at a rate far faster than could be justified by increasing production; in 1965, we paid ourselves increases in money incomes of about £1,800 million compared with in the previous year. About £1,300 million of this represented increases in wages and salaries. Over the same period we earned only £600 million by way of increased production. These trends are continuing.

The Declaration of Intent of 16th December, 1964, was a great landmark when, for the first time in our history, employer, trade union and Government signed a compact designed to restrain the growth of incomes to a norm within the national capacity to pay. Yet ever since that time wage increases have outrun the figure allowed for, and pre-empted the amount available for such increases for a considerable period ahead. The time has come to call a halt.

The Government are now calling for a six-month standstill on wages, salaries and other types of income, followed by a further six months of severe restraint, and for a similar standstill on prices.

Where a definite commitment already exists to increase pay or reduce hours, its implementation should be deferred for six months. New commitments should not be implemented during the rest of 1966 and in the following six months only if the grounds for exceptional treatment are particularly compelling. In this way it is intended to secure virtual stability in incomes for a period of six months followed by a limited growth of incomes in accordance with national priorities during the first six months of 1967. Thereafter, it will be essential to secure that the growth of incomes is resumed in an orderly manner in step with national output.

The same principles apply to other types of money income. Companies, for example, must hold down their dividends during the 12-month period. The Government similarly call for a 12-month standstill on prices of all goods and services, except to the limited extent that increases are necessitated by increases in the cost of imported materials, by seasonal factors or by the action of the Government, for example through increased taxation.

It is not our intention to introduce elaborate statutory controls over incomes and prices. This is a situation in which the Government look with confidence to everyone concerned with these matters to act in accordance with the public interest. Many individual salaries and other forms of remuneration are fixed outside the normal process of collective bargaining. Here, too, the same canons of restraint must apply. This applies also to emoluments of directors and high executives: companies will be required to publish details of these fees and salaries with comparable figures for the previous year.

Within the main field of collective bargaining we shall rely in the first instance on voluntary action. Nevertheless, in order to ensure that the selfish do not benefit at the expense of those who cooperate, it is our intention to strengthen the provisions of the Prices and Incomes Bill, to speed its passage through Parliament arid to redefine the role of the National Board for Prices and Incomes. Meanwhile the Government will not hesitate to act within the powers they enjoy, or may further seek, to deal with any actions involving increases outside and beyond this policy.

The Government will be consulting the T.U.C., C.B.I. and other interested organisations on the detailed application of the standstill within the next few days and a White Paper will be issued in the near future.

The House will not under-rate the deep significance of what I have just announced, its implications for industry and the degree of co-operation and restraint which will be required on the part of those affected by it. But, equally, the House, and, I believe, the country, will recognise the urgency of these measures, if we are to get our economy into balance and to keep our costs under control.

I should not feel justified in making this demand on industry, if I did not feel that we had done everything in our power—

Hon. Members


Mr. Speaker

Order. If the right hon. Member for Hexham (Mr. Rippon) wishes to intervene, he must do so in a proper manner.

The Prime Minister

I should not feel justified in making this demand on industry, if I did not feel that we had done everything in our power to secure social justice for the first time in the broader fiscal and social policies of the Government. For no Government have the right to ask for restraint, still less for an effective standstill, unless they have done everything a Government can do to create a climate of social justice, which alone can justify such a policy.

Inevitably, today I have dealt with measures which, taken by themselves, involve restriction and restraint. But the House will realise that their whole purpose is to provide industry with the opportunity to achieve a major increase in productivity by streamlining production and labour utilisation. They must be seen against a background of policies designed to speed the application of scientific methods and techniques— already well-known to progressive managers—to increase efficiency in private industry and in the public sector.

Industry by industry, the Economic Development Committees are tackling the practical problems of raising efficiency and spreading knowledge of how performance can be improved in individual companies. Industry by industry—shipbuilding, printing, the docks, rail transport—the Government are engaged in urgent discussions designed to increase productivity and to eliminate overmanning and restrictive practices. We have sought to proceed by voluntary agreement. Where this is not forthcoming, other action must be taken. The Government have indicated to all concerned their determination that the freight liner train services shall go ahead on the basis of open terminals.

The problems with which I have been dealing are problems that have beset Britain's economy virtually since the end of the war. The unsung achievements of keen executives and of hard-working, responsible trade unionists, of inventive scientists and creative designers are all too often overshadowed by attitudes of selfishness and indifference, of indolence and indiscipline on both sides of industry.

For while the Government can and must do all in their power to create conditions to lay down the rules within which the economy must operate, the determination and resolve which today's measures demonstrate must be matched by effort and endeavour on the part of the whole British people.

Mr. Heath

The long statement which the Prime Minister has just made, so far-reaching in its scope and affecting every man, woman and family in the country, recognises, albeit belatedly, the gravity of the present situation, which is all the more serious because of the delay in announcing the measures which the Government have now decided to take, measures which, on the first hearing of this statement, contain nothing new in type but a combination of all those measures which the right hon. Gentleman and his colleagues have so repeatedly condemned in the past and, when others have put them forward, they have so repeatedly maligned.

Is the Prime Minister aware that Her Majesty's Opposition have always pledged support for measures which they believed to be properly designed to protect the £? That remains our position, but it does not exempt us from the duty of exposing the weakness, the vacillation and the incompetence which have brought the country to its present position.

Does the Prime Minister recognise that it is fundamentally a crisis of confidence in himself and his Administration? It is now no longer the words of the Government which matter, but their actions; and this is particularly true of the concluding part of the Prime Minister's statement. We shall judge this statement, when we have had time to examine it, on the extent to which these measures deal with the long-term position, as well as the immediate problem, the extent to which the balance—

Mr. Michael Foot

On a point of order. Mr. Speaker, would you tell us whether there is a Motion before the House?

Hon. Members

Sit down.

Mr. Speaker

Order. Noise makes no useful contribution to the discussion

Mr. Michael Foot

On a point of order. On many occasions during the war, when statements were made—[HoN. MEMBERS: "The hon. Gentleman was not here. I was not here, but I have studied the affairs of the House of Commons. On many occasions during the war, when a statement was made by the Prime Minister of that day, Mr. Speaker ruled that spokesmen in other parts of the House were not entitled to follow with statements or speeches of their own.

What I am asking, Mr. Speaker, is that you should rule in that sense. If the Opposition wish to have a debate, they can call for a debate. All they are entitled to do now, which is what other Members are entitled to do, is to put questions to my right hon. Friend.

Mr. Speaker

The query I accept, obviously, as a point of order from the hon. Gentleman, but the Chair will rule and make its own decision on ruling. It is the custom—the hon. Gentleman is perfectly right—that when a statement is made elucidatory questions may be asked by Members of the House of the Minister who has made the statement. How- ever, I give some latitude to the Leader of the Opposition, who is in a special position.

Mr. Heath rose

Mr. Rankin

Further to that point of order—

Hon. Members

Sit down.

Mr. Speaker

Order. There are differences of opinion in the House, but we ought to be able to hear each other without making just silly noises.

Mr. Rankin

Further to that point of order and to what my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) has said. Are you aware, Sir, that opposite us there is the Official Opposition, there is the Liberal Opposition, and now there is a third opposition on the other side? Are the leaders of these oppositions to be granted the same privilege as that being granted to the Leader of the Official Opposition?

Mr. Speaker

Order. The hon. Gentleman should know that the Chair is aware of the political complexions of various Members of the House. He must leave the Chair to decide this issue.

Mr. Selwyn Lloyd

Further to that point of order. You, Mr. Speaker, will remember that when I made my statement on 25th July, 1961, the comments and questions of the right hon. Gentleman the present Prime Minister occupied a column and a half in HANSARD.

Mr. Speaker

Order. I am grateful to the right hon. and learned Gentleman for his support. May I say, very kindly, that I do not need it?

Mr. Heath

Is the Prime Minister aware that we shall judge these matters, after careful consideration, on the extent to which they maintain the balance between the immediate requirements and the longer term, especially in the context of the Selective Employment Tax, on the balance between the private sector and the public sector, and the extent to which they maintain justice between individuals? Is the Prime Minister aware that the House has noted that at last he has recognised the need for keeping demand in check? This is to be welcomed.

Finally, is the Prime Minister aware, in this context, that the measures which he has announced are more serious than they need have been even 10 days ago, let alone 10 months ago? In this respect, we regret the fact that he has not announced in the longer term effective action to deal with restrictive practices or to drop nationalisation of steel, both of which are important factors in overseas opinion., which he is trying to bolster. Is the Prime Minister aware that for many months Her Majesty's Opposition have warned the Government of this situation and of the need to take action, that he has repeatedly failed to heed those warnings, that he is accountable to the House and to the country, and that we shall want to debate it all at the earliest possible moment?

The Prime Minister

The right hon. Gentleman—and, of course, I do not cornplain—has made his political points, which might have carried more weight if they had not come from a party which, three months ago, promised to increase, not cut, Government expenditure by £900 million and reduce taxation at the same time. I agree with the right hon. Gentleman that what the country and the world will judge us all by now will be, not words, but actions. I believe that my statement today contained notice of some very resolute actions which I would hope that the whole House can support.

I would say to the right hon. Gentleman, because I know that he is looking at these problems with a great deal more seriousness than some of those sitting behind him, that I believe that both the Opposition and the Government will be judged by the country on the extent to which support is given to measures which, however unpopular, have to be taken.

Mr. Grimond

Will the Prime Minister agree that his statement shows an entirely different view of the economy from that expressed by the Government only a week or two ago? Will he agree that what he is now doing is simply to return to those policies of deflation, about which he used to be so scathing in the days of the Tory Government?

Has the Prime Minister any estimate of the amount of extra unemployment which INC may expect next winter? Which of his measures will do anything to in. crease competition, efficiency or produc- tivity in British industry? Finally, since the Prime Minister has now recognised the importance of the hotel industry to the tourist trade, why does he not drop not only the Iron and Steel Bill, but also the more ludicrous provisions of the Selective Employment Payments Bill?

The Prime Minister

I am grateful to the right hon. Gentleman for his questions. [HON. MEMBERS: "Answer them, then."] In relation to the old policies of deflation which we used to debate in the House—and may I say to the Leader of the Opposition that on 25th July, 1961, the column and a half of HANSARD was made up of questions, not a speech—the difference today, as the right hon. Gentleman the Leader of the Liberal Party will be the first to realise, is that we have exempted, as the Tories never exempted, from the necessary steps which have had to be taken, all the development areas — [Interruption.]

Mr. Speaker

Order. I do not wish to have to call attention by name to hon. Members who persistently and consistently interrupt from a sedentary position.

The Prime Minister

—instead of driving these areas into an intolerable level of unemployment and causing a deep gap between the more prosperous parts of the country and the areas of unemployment. What we have done is to bring the unemployment figures of the two parts of the country much closer together and our policies will ensure that the policies that we have been following for the development areas will continue. The same is true of the other priority areas we have exempted in housing, education and hospital building.

On the question of making the economy more streamlined and more competitive in the sense meant by the right hon. Gentleman, I believe that the shake-out that will result and the redeployment of labour will greatly help to do this both at home and overseas. Unemployment has been running for some months at a total of about .1 per cent. We believe that the effect of our measures would not be to increase it to a level that will be considered by any hon. Member to be intolerable. What we intend to see is that we do not have a situation where it is 0.7 per cent. in half the country and 12 per cent. in other areas.

Mr. Hooson

On a point of order Mr. Speaker. Would it be possible for us to have an interpretation of the word "shake-out", which, I think, is new in Parliamentary language?

Mr. Speaker

Order. The hon. and learned Gentleman knows that that is not a point of order.

Mr. Bellenger

Whatever may be said at 'this time by way of recrimination from the Opposition parties, the Liberals included, will my right hon. Friend be assured that he will be supported in these measures at least on this side of the House? Is he confident, however, that the measures he has announced today will, from a longer-term point of view, settle our balance of payments problem?

The Prime Minister

Yes, Sir, and this is a point that I should have referred to when the right hon. Gentleman the Leader of the Opposition mentioned it. He surprised me by saying that the measures required today are much greater and more substantial than would have been required only 10 days ago. There has been no change in the basic underlying economic position in those 10 days.

Either the right hon. Gentleman thinks that these measures are required or he does not. If he thinks that I have gone too far by making them today, and not 10 days ago, he had better say which of these measures are not required. I should have thought that he would have felt, especially since he now claims that he has been asking for these measures for months, that the measures are right, adequate and relevant.

Mr. Maudling

The Prime Minister will be aware that his statement has been of measures that are wholly negative and restrictive. Is it not a fact that, apart from a passing reference to liner trains, the only contribution to further productivity is to talk about a shake-out, which, presumably, means more unemployment? Does he not recognise that this emphasis on restriction and ignoring the question of productivity and efficiency will create a most deplorable effect?

The Prime Minister

I do not remember that the right hon. Gentleman, over two and a half years, did very much of a character designed to increase efficiency. I recognise that he set on foot a great election boom that run us into an £800 million deficit. The right hon. Gentleman knows that if he is referring, as I think he may well be, to the need for special incentives for exports and for the saving of imports by increasing the competitiveness of our import-saving industries, I fully agree with him about the importance of that. I have told the House of the steps we are taking at the moment in the matter of export incentives. He knows the difficulty. He will remember that he turned down the "tax on value added" proposals. I have said that we are re-examining them. This is a difficult question, but, certainly, if it is possible to have an export incentive that is viable and legal under G.A.T.T. and E.F.T.A. we shall introduce it.

Mr. Shinwell

Would my right hon. Friend agree that it will be to the advantage of the House and the country if an opportunity is afforded at a very early date to enable the Opposition, including the Liberal Opposition, to state whether they are prepared to support the policy of the Government? That would be in the interests of the House and the country.

Reference has been made to the need for action. May I have an assurance from my right hon. Friend that he intends with resolution and determination to push this policy through, irrespective of opposition from any quarter?

The Prime Minister

Yes, Sir. We intend to push this policy through. I have taken some heart this afternoon from the fact that the right hon. Gentleman the Leader of the Opposition says that time will be required to study what I know was a lengthy and complicated statement, before the Opposition can state their attitude to the various measures that have been proposed. I have no doubt that there will be discussions through the usual channels about a debate. We shall then see how far there is general agreement on these measures.

Mr. Tapsell

Would the Prime Minister accept that however blameworthy many of us may feel that he is for the present situation, we all very much hope that the measures which he has announced this afternoon will take the pressure off sterling? I believe that they will. But will he tell the House whether the grave measures he has just announced carry with them the unanimous support of all his Cabinet colleagues?

The Prime Minister

I thank the hon. Gentleman for his good wishes. I was slightly concerned about the preamble with which he introduced them. What I have announced is the policy of the Cabinet.

Mr. Michael Foot

Will the Prime Minister recognise that many hon. Members on this side of the House have been pressing for a very long time for a direct and stringent attack on the balance of payments, and that although we welcome the moves made in this direction now we do not think that the cuts in defence expenditure go anything like far enough?

Will the Prime Minister further recognise that, whereas we wish to ensure that the situation is overcome, we bitterly oppose a massive, masochistic deflation partially dictated by persons who, apparently, do not understand the real strength of the economy of the country, and that, therefore, we shall judge his measures primarily by their effects on maintaining the employment levels of the people?

The Prime Minister

My hon. Friend will have seen, in connection with defence cuts, that I said that there is a direct attack on overseas expenditure—not an indirect attack through the measures on internal demand—to the extent of £150 million. This is a very substantial part of the deficit against which we are fighting. I know that many of my hon. Friends would like to have seen still further cuts, but I believe that it would not have been possible to make a bigger impact on this.

On my hon. Friend's second point, believe that this will be seen at home and abroad as providing adequate and relevant measures for dealing with the balance of payments problem, which lies at the heart of all our economic difficulties and which has dominated the economic life of the country and debates in the House now for he past 15 years. I believe that it is by their relevance to the balance of payments that the measures will be judged in the country and the world.

Sir D. Glover

May I put to the Prime Minister two questions? He has so far wriggled out of the expression "a big shake-out". He and the Cabinet must have some idea of what—

Hon. Members


Mr. Speaker

Order. I gathered that the hon. Gentleman was coming to his question.

Sir D. Glover

I said that I wanted to ask the Prime Minister two questions. The Cabinet must have some estimate of the figure for unemployment. What does the Prime Minister expect as a result of the measures he has announced? Does he expect a total of 500,000, 600,000, or 700,000? If he does not know, he has not worked these things out.

My second question is this. As the right hon. Gentleman has made this budgetary statement, has he taken over the Chancellorship of the Exchequer? What is the position of his right hon. Friend sitting next to him?

The Prime Minister

I can give the hon. Gentleman an assurance that we do do not seek any policies of the kind he used to vote for that brought unemployment to over 800,000 in this country.

In my view, and in the Government's view, the situation at the moment is that there are still large unsatisfied demands for labour, particularly in our export industries, and that any labour released, redeployed or shaken out from other employment by the measures which I have announced today will be readily absorbed; and it is certainly very heavily needed, whether skilled or unskilled, in essential work, whether for exports, in the construction sector for housing, and the rest. We believe, therefore, that it will be possible to have a very big redeployment without a marked increase in unemployment.

As for the unemployment figures, I said that these must be judged by the spread between the extremes in one part of the country and another. We shall ensure that the unemployment level will he more equally patterned over the country than has been the case in the past. I referred to a tolerable figure of unemployment. If the figure of unemployment were, after all the reabsorption, after all the redeployment and after the measures for regional distribution, to rise to a figure between 1½ and 2 per cent., I do not believe that the House as a whole would consider that unacceptable.

Mr. Mayhew

The House will have noted the contrast between the Prime Minister's statement today and the ambitious world military rôle which he outlined in his speech on 22nd June. Will he give an assurance that the defence reductions which he has outlined will relate to cuts in commitments and will not simply increase the strain on our forces and our dependence on the Americans? Can a world military role be sustained by a country which, apparently, will have to count its centimes before crossing the Channel?

The Prime Minister

I welcome the ingenuity and single-mindedness with which my hon. Friend on any and every occasion comes back to the subject he was pursuing with so little support some time ago. [HoN. MEMBERS: "Cheap."] I made it clear to him and to all my hon. Friends some weeks ago that we would carry out our defence commitments and obligations, that we would hope to do so with substantial reductions, substantial economies in costs, particularly as we are able to become more mobile, for reasons which my hon. Friend knows all about. We shall be able to do it, therefore, more cheaply in the future than in the past.

I should be very surprised if my hon. Friend were to put forward as a reason for his defence policy the fact that we have now set a limit on tourist expenditure which is considerably above the average tourist expenditure of everyone leaving our shores for holidays.

Mr. John Hynd

On a point of order, Mr. Speaker. May I ask whether there is any possibility of questions being asked by back benchers apart from Privy Councillors and ex-Ministers?

Mr. Speaker

Order, That is an inaccurate comment on what has happened so far.

Mr. Barber

The Prime Minister is having some difficulty in giving straight answers to the simple questions which have been put to him. Will he answer this question clearly and specifically: what contribution to the balance of payments and the strength of sterling does he think will be made by the nationalisation of steel?

The Prime Minister

I shall certainly answer that. The nationalisation of steel is being undertaken for the sake of increasing efficiency in the steel industry —[HON. MEMBERS: "Oh."]—which is highly relevant to our balance of payments. Few industries have led to bigger increases of imports in recent years because of their own inadequacy. Few industries have invited more criticism, even from right hon. Gentlemen opposite, by its pricing policies, because it is not a competitive industry.

As the right hon. Gentleman will know, at the present time, though it is admittedly a relatively small one in quantity, one of the reasons for the increase in imports recently is that this country—I hope that I can get the right hon. Gentleman to believe this, as it happens to be a fact—with the steel industry as at present organised, is actually importing pig iron because it is cheaper than what can be produced in this country or sold on present pricing policies within that industry.

Mr. Palmer

Does my right hon. Friend appreciate that an economic policy founded upon the deliberate creation of unemployment is opposed to everything for which the Labour movement has always stood? Will he do something to remove our misgivings?

The Prime Minister

I have already explained that, I thought, with rather lengthy answers this afternoon. I have explained that what we want is a redeployment of labour, that this is urgently needed, and that it is the necessary condition for increased production and economic growth in this country. What I have said is that we are not going back to the policies which led to very heavy unemployment in the development areas and over-congestion in the rest.

Mr. Gresham Cooke

With regard to the increase in unemployment which will undoubtedly come about by the reduction of £500 million in demand on top of the £700 million brought about by previous measures, the Selective Employment Tax, and so on, has the Prime Minister estimated by how much Government staffs and civil servants will be increased by the implementation of the complicated measures he has announced today?

The Prime Minister

I think that it will lead to very little increase, if any, in Government staffs to implement the particular policies to which I have referred. When the hon. Gentleman says, with such apparent enthusiasm—perhaps it is just his way of speaking—that there will be an increase in unemployment as a result of the measures—[HoN. MEMBERS: "Cheap."] We can see the hon. Gentleman.

Mr. Ridley

On a point of order, Mr. Speaker. Is it in order for the Prime Minister to imply that my hon. Friend used words which he never used? Will you ask him to withdraw?

Mr. Speaker

Order. The hon. Gentleman is unduly sensitive.

The Prime Minister

I did not put any words into the hon. Gentleman's mouth. I referred to the expression on his face, and we can see it.

If the hon. Gentleman thinks that there will be substantial unemployment as a result of these measures, he will recall that it has been the policy of his own party to press for some time for more stringent measures to reduce employment. We do not believe that they will have the effect which some hon. Members opposite seem to expect.

Mr. Maxwell

As is well known, one of the causes of our serious balance of payments crisis has been the considerable increase in imports. Will my right hon. Friend tell the House why he did not think it necessary to introduce physical import controls?

The Prime Minister

We considered this very carefully indeed. It has been considered by successive Governments. I know that it was considered by our predecessors. I have a lot of experience of administering import controls. [Laughter.] I have a lot of experience of administering import controls, and I probably know quite a bit about them. I got rid of a lot, and was very glad to do so.

I was saying that we considered this very carefully indeed, but, having regard to our commitments not only under the G.A.T.T., the I.M.F. but more particularly under the E.F.T.A., and the powers, possibilities and likelihood of retaliation, we reached the conclusion, after studying it very carefully—as I think our pre- decessors would have done—that this was not the right policy in the circumstances. I believe that it is necessary for us to try to get the maximum economy in the use of imported raw materials, in, for example, cutting out waste in some of them—this could be done—and in reducing the call on certain imported raw materials in favour of indigenous materials produced in this country.

Mr. Boyd-Carpenter

Can the Prime Minister confirm that the pay freeze proposals will involve overriding arbitration awards, wages councils awards and wages cost-of-living agreements? Does the proposed amendment to the Prices and Incomes Bill which he foreshadowed involve taking legal powers to this end?

The Prime Minister

Where there are agreements providing for an increase during the six months that I have referred to, where there is a once-for-all agreement due to come into force in the six months, or, for example, a continuing cost of living agreement, it will mean that these will have to be set aside.

The exact position of wages councils and arbitrations is a matter on which I am sure the right hon. Gentleman will feel we have to see both sides of industry—this we are doing—to discuss with them the least harmful way, to them, in which the policy that we have announced, and are determined to put through, shall be carried out. I cannot at this stage anticipate the exact wording of the amendment to the Prices and Incomes Bill.

Mr. Park

Would my right hon. Friend agree that the real cause of our present economic situation is that we have been attempting to perform two roles at once in the sense of trying to improve living standards and social services at home and, at the same time, maintaining an expensive outdated imperial presence abroad? Has not the time come to make the final choice, to cut down much more drastically than the Prime Minister has proposed today our arms expenditure abroad?

The Prime Minister

It is not only two rôles that we are carrying out. This country must carry out far more rôles than two. A further one concerns measures necessary to increase our efficiency and to invest in British industry. There is also the role that we have, and shall continue to have, of providing economic assistance to poorer countries, which I am sure my hon. Friend is not asking me to cut even though it is extremely costly in terms of foreign exchange.

We have debated the defence rôle on many occasions. We have a peace-keeping rôle abroad. We have obligations abroad. It is no good hon. Members in any part of the House urging on us the fulfilment of a peace-keeping rôle through the United Nations, the Commonwealth or our alliances unless we are prepared to maintain the necessary means of getting our forces to the areas where they are needed.

Mr. Stodart

The right hon. Gentleman referred to a freeze on prices. Is he aware that before he made his announcement the electricity board in Scotland announced an increase of 6 per cent. next week? Will he put a stop on that, because it will have the gravest effects on costs of fuel in the development areas?

The Prime Minister

The freeze is to start today. I will certainly look into the case that the hon. Gentleman has mentioned. I had read about it. We intend there to be a six months' freeze from the present time.

Mr. Paget

With regard to the military cuts, and with regard to Germany first of all, will my right hon. Friend tell us whether any estimate has been made of the cost of rehousing the troops and their dependants, who outnumber them two to one, if they are brought home? Secondly, with regard to the overseas cuts of £100 million without reducing commitments, what does my right hon. Friend mean when he says that this will be achieved by increasing mobility? The idea that increased mobility is an economy comes as rather a shock to military planners.

The Prime Minister

It does not come as a shock to those who have been concerned with the Defence Review. The most expensive way, as we have found, of honouring military commitments is to get very large forces locked up in bases where they are not wanted and where one has to use half one's forces and resources to hold down the local population. Mobility on the lines that I have described is the right way to deal with the question.

As to the question about Germany, I hope that my right hon. Friend the Chancellor will, when he gets to Bonn this afternoon, be able to negotiate a satisfactory arrangement to cover the foreign exchange costs. If not, I have said that we must go to W.E.U. and N.A.T.O. with the procedures necessary to ensure that we do not go on bearing this additional cost, whether it means withdrawal of troops or any other course of action.

Mr. Maude

Would the right hon. Gentleman seriously reconsider whether it makes sense to evolve yet a new system for injecting into the hotel industry the investment incentives which the Government have deliberately destroyed? Would it not make more sense simply to restore the investment allowances and perhaps relieve the industry from the Selective Employment Tax?

The Prime Minister

Many ideas have been considered in the past. I remember the selective relief from Purchase Tax for visitors to dollar-earning hotels. Many of these have been tried. We believe that the important thing is to give help for the construction, modernisation or rebuilding of hotels which particularly cater for overseas visitors, and that there must be some selection in the matter. That is why we are proposing help on a selective basis in this way.

Mr. Heath

May I ask the Prime Minister to deal with two specific points which have arisen this afternoon before we discuss through the usual channels the question of what I hope will be a very full debate on these matters?

The first point concerns development areas. Is it not a correct deduction from the statement that the right hon. Gentleman has made that the major measures affecting demand at home—in other words, hire purchase, the regulator and the Post Office charges, as well as the individual matters of the holiday travel allowance and Surtax—will affect everybody in the development areas and that the restriction on demand in the country as a whole will also have its impact on development areas? We must be clear about this.

Secondly, will the right hon. Gentleman deal with what I think is one of the most important statements that he has made today, and, if I may say so, do so without impugning the motives of those opposite him? He said that the Government believe that after redeployment the level of unemployment will be between 1½ and 2 per cent. and that, therefore, will be the level on which the Government intend in future to operate the economy—in other words, I suppose, an upper limit of 500,000 to 600,000. Will the right hon. Gentleman be quite clear about this, because this is one of the most important statements that he has made and obviously governs the attitude of the House and the country and people overseas to the whole of these measures?

The Prime Minister

I was not suggesting that those who are living in development areas will be exempt from the increased postal charges or tourist control. I was referring to the restrictions on capital investment—office building, for example, and the building licensing restrictions. Of course, it is true that anything affecting the general level of demand seeps through to particular areas. This is why we are pushing on with and not suspending or slowing up the action necessary to get more factories into the development areas, so that they do not suffer from the policies that are being followed.

On the question of the unemployment figures, I think that the right hon. Gentleman—I am certainly not impugning him in any way—when he looks at HANSARD tomorrow, will find perhaps that he did not exactly reproduce what I was trying to say to the House.

I do not know—no one knows—exactly how many vacancies there will be and what redeployment is possible. Every

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time we have taken disinflationary measures over the last two years there has been widespread expectation of heavy unemployment. It has been forecast from the Opposition Front Bench with unfailing regularity. I think that they, and to some extent we ourselves, have been surprised that unemployment now is very much lower than it was a few months or a year ago. We do not know how big is the absorptive capacity for the labour that will be made available by the measures.

I said that if unemployment rises, as it will be likely to rise, it will not be allowed to rise to a figure which the House would consider intolerable. I was asked what the figure was. I said that I do not think any Member of the House will consider a figure between 1½ and 2 per cent. to be intolerable in our present circumstances, but that is quite different from saying that we should want to keep that level of unemployment for all time.

Several Hon. Members rose

Mr. Speaker

Order. I cannot call all right hon. and hon. Gentlemen who wish to be called.

Mr. Frederic Harris

On a point of order, Mr. Speaker. I have never been called on a Ministerial statement. How does one ever get into the position of asking such a question?

Mr. Speaker

Order. I too was never called on a Ministerial statement in my life as a backbencher. It is something that happens to almost every hon. Member. The most difficult task the Chair has is to select. All I can say is that the Chair tries to select impartially and fairly.

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