HC Deb 27 July 1966 vol 732 cc1725-857

Order read for resuming adjourned debate on Question [26th July].

That this House has no confidence in the competence of Her Majesty's Government to manage the economic affairs of the nation.

Question again proposed.

3.44 p.m.

The Prime Minister (Mr. Harold Wilson)

This debate about the economic situation is basically about our balance of payments, and it is also about what the world thinks about our balance of payments prospects, because, as past experience has shown, failure to reach an objective by even comparatively small amounts—by £100 million or £200 million, which is only about 1 per cent. of the total figures involved—can rapidly escalate into monetary movements far transcending the actual deficit or the prospective deficit.

Basically, what we are talking about today s the balance of payments and everything bearing upon it. When that is in balance and when the world has confidence that it is going to be in balance and to move into surplus, the sterling confidence factor will be much less of a problem.

But, of course, when we do have difficulties of this kind, psychology, abroad and at home, tends to dwell on much wider aspects of our difficulties than movements in exports or imports or invisibles or capital movements or Government expenditure abroad. It is at such times that psychology gets involved not only with the underlying factors, such as our costs and prices structure and our industrial efficiency, but even with intangible questions such as the mood and determination not only of Government or Parliament, but of the British people as a whole. It is right that this debate should deal with all of these issues.

Before I come to the basic balance-of-payments questions, I think that we should perhaps eliminate from our thoughts the somewhat naive caricature that what has been going on is a machination of some bearded troglodytes deep below ground speculating in foreign currencies for private gain. Of course, there is a speculative element based on the hope of private gain.

But in fact—and our detailed analysis which we carried out of what happened a year ago bears this out—one does not need to look for sinister interpretations. I would distinguish two main elements in the monetary movements. In the first place, we have the large international companies with substantial trade in and with this country which, in periods of doubt, are tempted to reduce their holdings of sterling for purely precautionary reasons—precautionary, not speculative.

We have to recognise that over the past year some of these companies which have American roots have been under the strongest pressure from their own Government as a result of the American balance of payments position to transfer profits more rapidly to the United States and certainly to keep their sterling holdings to a minimum. In a very real sense sterling has been the front line, taking part of the attack which is basically, or at any rate equally, directed against the dollar.

But even more important than the dispositions of some of the big international companies is another feature—the rapid intensification of a problem with which right hon. Gentlemen opposite were painfully familiar, arising from the way in which our trade is financed. The external trade of the United Kingdom alone—quite apart from the rest of the sterling area—is on a massive scale. Our imports in the past year were just under £6,000 million and our exports were just over £5,000 million. But we have to take account of the transactions of the sterling area as well.

If payment for all sterling area imports from the rest of the world for just one week were made one week early this could cost our reserves over £150 million immediately. Of course, there can be an element of speculation in this, but to be realistic I think that the precautionary motive rather than the hope of speculative gain must be the motive we have got to attribute to these transactions.

From the figures I have given it should be seen that if only a very small proportion of future currency transactions were anticipated or deferred in this way it could explain recent movements across the exchanges—most of them obviously, of course, reversible when psychology and when expectations have changed.

It is for this reason that I must reject the argument so much emphasised in the Press of late, and surprisingly restated with the authority of the right hon. Gentleman the Member for Bexley (Mr. Heath) yesterday, that it ought to have been possible to foresee, anticipate and deal in advance with the sudden pressure on sterling.

These movements are incapable of statistical prediction or forecast, as right hon. Gentlemen opposite will recall from their own experience. Indeed, this goes back much earlier than 1951. In 1947, there was the convertability crisis, after which a thorough inquiry which was undertaken showed, as might have been expected, that when there were thousands of holders of convertible sterling against a background of a dollar famine at that time the rate and extent of conversion of sterling into other currencies could be neither measured nor foreseen.

More recently, on 25th July, 1957, the House will recall that we debate inter- national inflationary problem and the then Chancellor was able to give an encouraging picture of the external position and the position of sterling. It was all clear blue skies from the point of view of the international position at that time in 1957. But a week later we were in August, a month in which we lost a fifth of the reserves of the sterling area, showing the speed at which a development of this type can occur. Again, in 1961, the crisis was certainly not foreseen at the time of the Budget of the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), and even in early July of that year I believe that there was not even the faintest perception of what was coming later in the month.

I am saying these things not by way of explanation or excuse, still less recrimination, but because this position is inherent in the facts I have just given to the House; that one week's deferment in the payment of our sterling area trade could knock the monetary situation sideways, just by the size of the figures involved.

The danger is the more acute today, at a time when, as is undoubtedly the case, there is acute pressure on liquidity throughout the world. This imparts the greatest urgency to international action to deal with the liquidity problem, including initiatives taken by Her Majesty's Government and other Governments following on the initiatives taken by the right hon. Member for Barnet (Mr. Maudling) three or four years ago.

However, having said all this, there is one obligation on Britain. This is to see that leads and lags apart—and it is this that can explain rapid movements of this kind—world liquidity apart, we do not, through our economic policy, in other words, through the maintenance of a deficit, allow loose amounts of sterling to be floating around the world, a permanent temptation to those who, for one reason or another, may wish to convert, perhaps at high speed. This is why our vulnerability will not cease as long as we are in deficit, indeed as long as we fail to achieve an adequate surplus in our balance of payments, and it is to this problem that I now turn.

There are three basic sets of factors underlying both the reality of our balance of payments situation and the world's estimate of that reality. Some of the factors that have a larger or smaller impact on the reality may loom very large, perhaps disproportionately large, in the world's calculations about our propects, and, therefore, in the world's willingness to await in patience the results of what we are trying to achieve. However, there are these three basic factors affecting the balance of payments, which is what we are debating, and I will distinguish these three factors. [Interruption.] I hope that hon. Gentlemen opposite are concerned about what we are debating and will listen to this purely factual account which I am giving. If they find it difficult to understand it, they know what they can do.

The first factor is the economic policies pursued by this country directly or indirectly affecting the balance of payments—expenditure abroad, demand and industrial deployment at home. For these economic policies for the past 21 months, we hear full and unequivocal responsibility.

The second factor is the underlying intrinsic industrial pattern, industrial structure, industrial efficiency, and the deployment of British industry so far as its end product is concerned. It is this which, of course, in an underlying sense more than anything else affects our ability to set aside enough goods for export to pay our way. It is this, too, which determines how successful industry is at home in keeping imports down to reasonable levels; and on this second point, industrial efficiency and deployment, both the major parties bear the responsibility, since we have both had the direction of the nation's affairs since the war.

Having said that, the House will agree that there is very little that we could have done in 21 months to build the new factories that are needed, to get them into production—to get modern plant and machinery built and installed—and to create and get into production the new science-based industries that hold the key to the future. [Interruption.] Not in 21 months, though, as I shall show, we have made a real start. Therefore, on this second question, while we have taken full responsibility on the first issue, on the second one right hon. Gentlemen opposite must shoulder a great deal of the responsibility for deficiencies in the layout, structure and deployment of our industry.

The third basic factor is represented by industrial attitudes, attitudes affecting management, investment, labour relations, rewards, incomes, prices and, perhaps above all, attitudes affecting productivity where restrictive practices and insistence on out-of-date manning schedules, or, equally, out-dated attitudes on modern investment and management techniques, are involved. But when we are talking about attitudes in industry, both major parties bear their full share of responsibility, and these responsibilities are not confined to periods of government.

A party in this matter has influence in opposition as well as in power. If hon. Gentlemen opposite have sometimes argued that we in opposition encouraged our supporters, and industrial labour generally, to expect more and more higher incomes without working for them—and I could produce a long record of evidence, from Hugh Gaitskell onwards; indeed, from Sir Stafford Cripps onwards in refutation of this—hon. Gentlemen opposite, whatever may be our views, are entitled to say it.

Equally, though for their part they will deny this, we are entitled to say that, in opposition, they have encouraged irresponsible attitudes among their supporters in the business community, as regards Britain's economic policies, co-operation with the Government, the future of sterling and, more particularly, attitudes to prices and incomes.

I propose to deal briefly with each of these three underlying factors affecting the balance of payments and then to deal with the measures we have proposed for getting the balance of payments right and putting the country on its feet. I begin by taking the topic I just mentioned, the industrial pattern, structure and deployment—the industrial situation, in fact, which we inherited.

First, there was in industry the attitude to investment. Although our gross product was rising less rapidly over the past 10 years than most other countries, year by year over those years, the proportion of the gross national product devoted to investments in fixed assets by manufacturing and construction industries was lower than in all the other main European countries. In the early years, Belgium and France were slightly lower, but they picked up remarkably and, from 1960 onwards, we were below every other country of any importance.

Much the same is shown if we take total investment in machinery and equipment. Significantly, only in mining did we appear high in the league. This inadequate rate of investment, then, has meant a capacity bottleneck and has also meant the wasteful use of labour, so that whenever the economy has got up to full production and full employment there have been serious industrial shortages and a brake on further expansion. We cannot take responsibility for that over the last 21 months.

From the point of view of exports, there have been lengthening delivery dates—indeed, even more serious to our exports, more uncertain delivery dates—and there has been an inability to keep pace in some of the most rapidly expanding sectors in world export trade. It was a commonplace as recently as 1964 to say that many industries which not long before had led the world were moving from a position of a net exporter even to that of a net importer, or, at any rate, showing a diminishing surplus between exports and imports, especially in machine tools and other branches of engineering.

The third factor to which I would draw attention in the matter of our industrial structure—and this was a direct result of lack of modernisation and competitiveness—was our growing dependence on imported manufactures. In 1963, our total imports of manufactured goods rose by 9 per cent.; in 1964, they rose by a further 27 per cent.—in a single year. The range of manufactured goods imports that we were importing on this increasing scale was very wide and included many consumer goods. but the most serious element was in machinery, where in 1964, we were importing at a rate 33 per cent. above that of 1963. This rise was contained with considerable success last year because of the imports Surcharge, but I must tell the House that machinery imports have been rising again this year.

The fourth factor to which I draw attention in connection with the industrial structure and pattern has been the uneven growth within the economy of industries not very relevant to our balance-of-payments problems, but more relevant to meeting the demands of the home market—demands which were themselves frequently artificially fostered and stimulated by the advertising boom. From 1960 to 1964 the numbers employed in this country rose by 850,000. One would like to think that this increase was reflected in manufacturing but, in fact, of that 850,000 increase in employment from 1960 to 1964 only 40,000 net went into manufacturing. The increase in services over those four years was twenty times the increase in manufacturing.

In a world dominated by trade in capital goods of all kinds, and particularly the more sophisticated ones leading the automative revolution, we were in those years losing ground rapidly, and as much because our industrial development was not fully relevant to national needs as to lack of efficiency in the industries concerned.

Comparisons were made yesterday between this country and Germany. In the last five years before we came into office, Britain's productivity in electrical engineering rose by less than 2 per cent. a year against 4 per cent. in Germany; in the motor industry, by 3 per cent. in Britain against 6 per cent. in Germany; in metal goods, by 1½ per cent. against 4½ per cent. in Germany. In shipbuilding, productivity barely rose at all in Britain over the five years while in Germany it rose by 41 per cent. per annum.

This is the explanation of our balance-of-payments problem. This, and our inadequate deployment on these and other key industries explained why, over the period 1958–64, our share of world exports of engineering goods fell from 21 per cent. to 16 per cent.—motor vehicles from 25 per cent. to 21 per cent.—while the Germans were increasing their share from 20 per cent. to 24 per cent.

Those figures are taken from the last six years, but if we went back 13 or 15 years the contrast would be much more marked due to the fact that the hard-centre metal-using industries were expanding in Germany—and in most other Continental countries—far more rapidly. Indeed, in some countries they were expanding at twice the rate at which they were expanding in Britain. So lack of proper deployment is one of the basic problems we have inherited here.

Our attack in the last 21 months—for which we do bear responsibility; what I have been saying is about something for which we do not bear responsibility—on Britain's economic problems has been directed to dealing with these underlying causes of Britain's failure to keep pace. As I have said, in 21 months it would have been impossible to bring about the technological revolution and build the factories needed, and it is too early for anyone to expect to see the real results in terms of exports or completed factories or import substitution. What we have done is this—and it is time the House had this very brief record.

First, Government expenditure on civil research and development has been increased from £142 million a year when we took office to £216 million this year. Second, we have increased the capital available to the N.R.D.C., which we ourselves set up, from £10 million to £26 million, and have made the terms on which it can operate more flexible. The outstanding commitments of N.R.D.C. have risen from £1.4 million when we took office to £10.1 million today. Economic development committees on a partnership basis between Government and private enterprise have been set up for 19 industries, and all of them are concerned with the problems of modernisation, import saving, productivity and exports.

Let us now take individual industries. We have saved the British computer industry. A variety of programmes have been put in hand to assist the development of computers, both hardware and software, including an allocation of £5 million from N.R.D.C. The investment grant scheme makes special provision for the installation of computers. We are providing £30 million to instal computers in universities and for research in the next six years. We have given our manufacturers 23 development contracts in the last 21 months.

I turn to machine tools. The Report of the Economic Development Committee has charted the way ahead to expand production, particularly production of the types, which up to now we have been importing. This, again, is relevant to the balance-of-payments problem. We have given development contracts to a number of go-ahead firms, and are now negotiating pre-production contracts to ensure that the most advanced equipment is in production to increase commercial demand. We have started a scheme whereby numerically-controlled machine tools can be obtained for a trial period on a sale or return basis in order to familiarise industry with this new development. This is very relevant to our balance of payments, and it should have been done before.

We have entirely changed the position in the shipbuilding industry. Demarcation and inter-union disputes have been remarkably reduced due, it is true, partly to our improved credit terms, but also to improved efficiency and better labour relations, which have been remarkable. Our shipyards last year took orders for 1.8 million gross tons of shipping, mostly for export. This is the highest figure in any year since 1956 and it is, again, relevant to our balance-of-payments problem.

As my right hon. Friend the President of the Board of Trade said last night, we are not stopping there, but are going right ahead now with the Geddes Report, designed to put the shipbuilding industry in terms of managerial efficiency, structure and working practices in the forefront of the world's industries.

The House knows what is happening in the docks as a result of the Devlin Report. We also have the Cameron inquiry into restrictive practices in printing. That is what we do—first get the facts, then give them publicity, then take action.

Finally, we are setting up the Industrial Reorganisation Corporation—the House will shortly be debating the necessary Bill—under the chairmanship of Sir Frank Kearton, to deal directly with some of the structural weaknesses which industrial inquiries, including inquiries by E.D.C.s have shown to be putting us at a disadvantage compared with our overseas competitors. A report over a wide range of industries surveyed by the N.E.D.C. showed that there are too many small firms, too many firms not strong enough to provide the management skill or finance needed to compete in the modern world.

There are too many family firms. The I.R.C. will concentrate [Interruption.] Not all the family firms have expanded with that degree of efficiency that others in our industries have shown, and every independent review of our industries has shown that too high a proportion of our output is in small family firms, and the fourth generation hardly rivals the founders of the firms—[Interruption.] We can all throw up the names of individual firms. Pilkington's and Marks and Spencer's will not require the help of the I.R.C., but many small firms will. We shall need mergers and amalgamations between them if we are to have industries on an efficient basis, and become net exporters, not net importers as was the position when we took office. There has never been a stronger board for any Government-sponsored corporation than that of the I.R.C.

In this brief survey of what is my first theme, I have not dealt with the contracts in universities, colleges of advanced technology, colleges of further education, research establishments of all kinds; nor with the mobilisation of research capacity within the Atomic Energy Authority on a wide range of industrial problems going far beyond the Authority's original terms of reference, including import saving and developments overseas. Nor, again, have I dealt with the very significant redeployment of Government research facilities on advanced projects in the civil field. All of this marks a deliberate and purposive reversal of trend. From what I have said it will be seen that it was needed. No degree of efficiency could have shown the results we wanted in 21 months, but in time it will show results in terms of productivity and export and import saving. It is a pity that all this work on reversal of trend was left for so long.

Sir Harry Legge-Bourke (Isle of Ely)

Is the Prime Minister not aware, when he refers to reversal of trend, that during the Conservative period of government the amount spent on research and development by the Government switched from 60 per cent. for defence and 40 per cent. civil to 40 per cent. defence and 60 per cent. civil?

The Prime Minister

Yes, I know that that was going on in the last three or four years, but when talking about reversal of trends I was talking about the reversal of trends in the deployment of our industry and efficiency of industry's skill. As far as the control of military expenditure is concerned, we have continued with what was left very late in the day. I was glad to give way to the hon. Member, although yesterday we had an announcement that there was to be no giving way. Compared with the low rate of productivity and the very adverse deployment of our activity in export and investment goods, I think that the hon. Member will agree that tee reversal was right and that we were right to put it in hand.

Now I turn to my second theme, of the deployment of Government economic policy over the last 21 months. As I have said, in this period we bear responsibility for these policies. The account by the right hon. Member for Bexley yesterday was unrecognisable. I shall give the facts now. We started with a balance of payments deficit which, after taking account of the bisque available to us on repayment of the American loan, amounted to £769 million in 1964. Last year, this was reduced from £769 million to £354 million. Since all we are debating in these two days is balance of payments, it is right that we should analyse these figures.

The improvement was due, first, to an improvement on visible trade, from a deficit of £535 million in 1964 to £265 million in 1965, an improvement of £270 million. This was realised as the result of an improvement in our exports of £308 million offset by slight worsening in imports of £38 million. The net yield from invisible was unchanged between the two years. Long-term capital, official and private, improved mainly as the result of controversial decisions taken by the Government by £145 million. The overall balance therefore improved by £415 million. Indeed, the balance of monetary movements improved by £498 million from 1964 to 1965. When the right hon. Member talked yesterday of putting all the facts before the people during the election, I do not seem to remember any of these figures being quoted by him, although I was rather busy at the time.

So much for 1965. In fact, in the fourth quarter of last year our external payments were completely in balance, though, of course, for exceptional as well as seasonal reasons, this was a favourable quarter. In that quarter all the same, exports were 10 per cent. higher than in the same quarter of 1964 by value and imports were hardly up at all. At the beginning of this year, and, indeed, up till very recently, there was every reason to hope that we should be in balance by the latter part of this year in a real sense, that is, on a seasonally correct basis. It is the disappointment of this expectation during the past few weeks, indeed, since the Budget speech, that more than anything else has caused the situation which we are now facing. Everything we are debating now revolves round expectations on the balance of payments and inevitably the effects in terms of world psychology, world confidence goes far beyond the worsening in the real situation as measured by balance of payments this year.

What are the factors that have led to this worsening in the estimates? I will go through them very frankly and give the Government's understanding of what is happening. [An HON. MEMBER: "The right hon. Gentleman was wrong."] Anyone can be wrong but I shall give the House the facts. If hon. Members will listen they will be able to form their own views on whether these are accurate and explain the situation. The first thing was the publication in June of the balance of payments figures in the first quarter. The trade figures were no better; the capital balance was slightly worse at the beginning of this year.

I think that there is good reason to feel that the failure of the capital balance to improve was caused partly by exceptionally heavy movements from Britain to sterling area countries such as Australia during the first quarter. Certainly, as the Australian Prime Minister has told me, the expected adverse balance of payments for the year ended last March was suddenly reversed and turned into a surplus partly as a result of large capital movements from Britain as well as from the United States. In addition, there was a fall in the first quarter of the capital inflow into Britain.

The second reason why we have had to revise estimates for our balance of payments target for this year was the movement in imports and exports over the first five months of the year—that is, before the seamen's strike threw the export and im- port figures into confusion. In this period exports were 9 per cent. higher than in the same months of 1965. This was nearly double the average rate of increase over the past decade. If all of us on both sides of the House have said that the real test of a country's determination to get its balance of payments right is what it does about export trade, to have achieved in the first five months a rate of exports double the rate of increase in the 10 years previously is a sign of our determination and, to draw a word from the Motion moved by the Opposition, even a sign of competence.

As my right hon. Friend the Chancellor of the Exchequer explained yesterday, there was a worsening in imports over the same period partly through the increase in import prices for raw materials, particularly metals. The rise in our import prices in the first five months of this year, before the seamen's strike, compared with a year ago, was sufficient to cause a worsening in the trade balance at an annual rate of £100 million—serious and significant, though, I think, totally unrelated to the kind of language which the right hon. Gentleman was using yesterday.

In addition to the worsening in the import prices, as I have said there was an increase in imports of certain manufacturing goods, particularly machinery. For the first six months of this year imports of machinery, for example, rose by 23 per cent. over last year, again underlining the urgency of our measures to make the machine industry more competitive. Then, of course, there was the seamen's strike—as my right hon. Friend explained yesterday, although the right hon. Member for Bexley sought, I thought, to discount it. The worst effect of the seamen's strike was in terms of monetary movement, first, through loss of confidence while the strike was on and, second, when the June reserve figures were published showing the effect of that first loss of confidence.

It is still too early to assess the real effect in terms of exports and imports and the shipping account, but undoutedly the strike has had a marked temporary effect—we must hope that it does not go beyond that—and in the frenzied atmosphere of foreign exchange markets this summer an escalated psychological effect resulted from it. Therefore, the cost in terms of sterling pressure has far exceeded the real cost of the strike in terms of trade or shipping income, which was, in any case, mainly temporary.

I turn from the real factors affecting the balance of payments to the monetary movements Britain has been at the receiving end of in the past few weeks. There was, dominating the situation, the pressure on the Euro-dollar market. The American subsidiaries abroad have been raising funds in Europe to reduce finance from America. Higher interest rates have encouraged a movement of short-term funds from Europe. Higher interest rates and the Euro-dollar famine, which put immediate pressure on sterling, have been among the major factors affecting the sterling situation in the past few weeks.

Every hon. Member, whether he is in opposition or whether he sits on this side of the House, who has been in touch with the markets during this period, knows that this squeeze—this Euro-dollar famine, this acute shortage of liquidity in Europe—has been the underlying factor against which all the other factors I have described have had to operate.

Then, as my right hon. Friend the Chancellor of the Exchequer said yesterday, the pressure on the domestic economy during this summer remained unexpectedly high, higher than was forecast at the time of the Budget, for the reasons my right hon. Friend explained yesterday.

These are the basic facts of the situation. When these facts are considered, one can see how irrelevant—indeed, some would say extravagant—were some of the political comments made by the Leader of the Opposition yesterday. I take it that neither he nor any hon. Gentleman will deny any of the facts I have given, either as affecting the 1966 balance of payments or as affecting confidence.

Nor, I think, would the right hon. Gentleman and his hon. Friends deny this. One of the problems here affecting our ability to meet short-term movements is that during the 10 years up to 1964 we lent abroad—in the main, unearned resources, not out of any surplus on our balance of payments—to the tune of £1,400 million and balanced the greater part of this by incurring short-term debts.

Lending long and borrowing short, which is what we were doing for 10 years before last year, leads to vulnerability, especially when one is a world trading currency.

We have been taking sharp action to reverse this trend. One of the problems we have to face is that, when a deterioration of the kind that we have had in the past few weeks takes effect, the questions which are asked about us abroad, when they all start talking about us and phoning up, go far deeper than the statistical or real factors about which I have been talking. These people even set in train queries about the economic and social, even the moral fibre of the British people.

Many articles have been written about that just now, questioning the resolve of the people to deal with the situation, the resolve of the British Government, and the resolve of both sides of industry. We may know how wrong they are in what they have been saying about us abroad recently and what they have been saying at intervals for several years past. However, when there are movements of this kind, we cannot stop these questions from being asked.

I cannot help feeling that our own people, particularly those with strong overseas connections, sometimes allow their prejudices, sometimes even their political prejudices, to get the better of them and to paint, in what they say over the telephone or the Telex, an unrecognisable picture of the Britain we are living in. Hon. Members will have seen some of the reports in the Guardian earlier this year from their Financial Editor. He was reporting from Zurich about the mood there and about what was being said. Referring to a distinguished banker in Zurich, whom he called a "gnome", this is what he said: 'The crisis', said my gnome, 'is of your own making. You headline every fractional change in sterling'"— both parties have done that— 'you even publicise it on the radio … Journalists, I suppose, have to report what is going on … the English are their own worst enemy'. I cannot help feeling that there is a lot of truth in that analysis.

Mr. Maurice Macmillan (Farnham)

Can the Prime Minister distinguish between the overseas sterling area and the non-sterling area in his argument about lending abroad? I was under the impression that over the five years 1958–63 the United Kingdom was a net importer of capital from the non-sterling area and that our export of capital was to the sterling area.

The Prime Minister

It is true that, taking it broadly, over that period—I would not know the exact years—we were net importers, but most of it was imported on short-term, while we were lending abroad on long-term.

Mr. Maurice Macmillan


The Prime Minister

This can be argued in debate.

The point I am trying to put to the hon. Gentleman is that during this period—it came about since the relaxation after the 1959 election—there was a very heavy movement of portfolio investment—I am not talking about capital investment in industry—from Britain to New York, running into very heavy figures indeed. This was mainly on long-term and difficult to get back, while, at the same time, we were attracting from different parts of the world—sterling area and non-sterling area—very considerable amounts of capital on short-term. If the hon. Gentleman wants to pursue this point, no doubt when he catches your eye, Mr. Speaker, he can give his own view.

Mr. Maurice Macmillan rose

The Prime Minister

Yesterday, the right lion. Member for Bexley refused to give way at all to any hon. Member from this side. I have now given way twice. I have given the House the facts. The hon. Gentleman may want to put his own version of them. He is entitled to do that when he speaks. The facts I have given are the facts that we have.

I have just been dealing with the point that, when the arguments about the industrial pattern of the country and about economic policies over the last 21 months have been dealt with, at the end of the day, if there are movements of the kind I have mentioned, people start asking about our basic attitudes. As I have said, these become escalated and exaggerated.

I must ask: what is the charge of the right hon. Gentleman in regard to our policy this year, I having set out these facts? Is the right hon. Gentleman arguing that our policies are responsible for the worsening in our balance of payments prospects? He gave very little evidence to support that yesterday. Is the right hon. Gentleman arguing, for example, that exports have had a miserable increase? I have given the figures.

Is the right hon. Gentleman arguing that the rise in raw material prices is due to the policy of the Government? Is he blaming us for the import of machinery and other manufactured goods? This could have been avoided only by taking action much earlier to make these industries more competitive. Is the right hon. Gentleman saying that we are responsible for the Euro-dollar squeeze? Is he saying—he could argue this if he wanted to—that we were responsible for the seamen's strike? If I remember aright, the right hon. Gentleman was exhorting the Government to stand firm and not give way—and we did.

No, Sir. In so far as the censure Motion relates to the worsening in our real balance of payments, or in so far as it relates to the exaggeration of the balance of payments position in terms of foreign confidence, right hon. Members opposite have, so far at any rate, entirely failed to make their case.

I turn now to the third factor which affects our real balance of payments—attitudes in industry. Both major parties must bear responsibility. Here we have a real problem. Each side of the House can accuse the other of preaching materialism. I think that right hon. Members opposite have been very articulate about this.

I would say for our part, in return, that 13 years in which the philosophy of economic opportunism, of grabbing without any self-restraint everything it was possible to grab, of keeping up with the Joneses, at a time when the advertising drive was pushing up both the Joneses' demands and their neighbours' demands for affluence—I believe that all of these have curbed our economic, and indeed our moral, standards.

It is not tenable to preach the gospel of a free market and of the right to cash in on that market and, at the same time, ask for restraint in personal incomes. If everyone in a seller's market is free to exploit their position, then in a seller's market for labour small wonder if there are those within the labour market who would seek to cash in.

Everyone knows—this is under-stated and under-rated abroad, and we have a duty to say more about it—the great change which is taking place in British industry over the past three or four years, the managerial revolution, and equally the responsible attitudes of trade union executives and so many of our shop stewards. It is only the minority who get headlines. The responsible ones get no headlines. All of us know that we need to go a lot further in creating more efficient and more professional management. Change is going on, but there are still outdated attitudes to investment which have not been completely eliminated. For example, there is the classic statement of post-war British industry summarised in one of the Anglo-American productivity reports by one firm that

When times are good we do not need to modernise; when times are bad we can't afford to'. There are still out-dated attitudes to labour management, and a feudal tradition still lingers in some of our less modern firms.

On the other side of industry one finds the "I'm all right Jack" attitude, the minority of "never-sweats", the man who was asked why he only worked four days a week and said that he had to because he could not keep up his standard of living on three days' work. There is the problem of out-dated restrictions on entry to craft unions, and there are conservative and restrictive attitudes in individual plants and among individual trade unionists not only to working practices, but more particularly, as the right hon. Gentleman said yesterday, to the overmanning of individual jobs.

At this point, perhaps I might correct something that I said to the right hon. Gentleman yesterday when I interrupted him on the question of the T.U.C. evidence to the Royal Commission. I thought from what I had read in the Press that that evidence had gone in. [Interruption.] I am correcting a statement. It is in accordance with the traditions of the House that if one inadvertently makes a statement which is wrong one corrects it at the first opportunity. I was basing myself on certain Press reports which I had misread. The fact is that this is now being considered by the T.U.C. General Council. I was wrong to say that it had gone in, and I thought that I should take the earliest possible opportunity of saying this to the right hon. Gentleman. I know that it will never satisfy some hon. Gentlemen.

I was talking just now about the attitudes in industry, particularly as regards over-manning and restrictive practices. Hon. Members who are old enough to remember the depression know the reasons for these attitudes because in the 1930s where work-sharing was possible it was the only way, however uneconomic, of avoiding years on the dole. But what many of our union members, including some who have reached high positions in their branches and perhaps even some on national executives have not yet learnt, is that the only guarantee against unemployment in the 1960s is an insistence on sweeping away these restrictions and this over-manning rather than an insistence on maintaining them. To change these attitudes in industry is the biggest challenge our society is facing. We shall not solve it by speeches or exhortations, and I put it to the right hon. Gentleman that equally it will not be done by legislation.

But if there is one challenge to the political leadership of all of us, every hon. Member—especially those with influence in industry, whether on the management or the trade union side—and if there is a challenge to our great organs of public opinion in the Press and television, it is the need to get across to everyone in industry that what was good enough for grandfather is worse than useless today in the situation we are facing, and the defensive postures of the depression have no relevance to the problems of today.

I have described the measures which have been taken by the industrial Departments, the D.E.A., the Ministry of Technology, the Board of Trade and the others, to make our industry more efficient and to produce a significant redeployment of industry in favour of the hard centre metal-using industries. I hope that the House will not run away with the idea that nothing is being achieved here. The introduction of the 40-hour week has somewhat masked the increase in productivity that has been going on.

If one compares the first quarter of this year, Wirth the first quarter of 1965 one finds that there was an increase in output per man-hour of 3½ per cent., and, contrary to some of the figures stated by the right hon. Gentleman throughout the General. Election and in his well-known and well-worn slogan, in the last three months for which we have figures now, the index for manufacturing output was four points up on the same period of the previous year; not one, but four.

I want now to describe the relevance of last Wednesday's package to what we are trying to do to redeploy our resources in the hard centre metal-using industries and those which can make a contribution to exports. We cannot go on with a situation where only one in every 20 in the expansion of our labour force goes into manufacturing employment. The reduction in consumer expenditure in last Wednesday's package brought about by the intensified hire-purchase restrictions and the use of the regulator is designed to restrain demand and to release labour from the production of goods for the home market to meet the acute shortage of labour in our essential industries, particularly our export firms. Outside the development areas—and even within parts of them—hon. Members on both sides of the House know that the biggest impediment to an immediate increase in exports is a shortage of labour, both skilled and unskilled. I reported to the House last week on the impressive exhibits many of us saw at this year's Moscow Trade Fair. At stand after stand I was told that the biggest limitation on increased exports was the length of the order books and the shortage of labour.

A further restriction through the cuts in the investment programmes of local authorities and of nationalised industries will play a part in increasing the supply of labour for exports and for import saving, but will do more than this. Together with the effects of our tightened building licensing and the extension of the office building control, they will also help to release labour for essential building programmes. It is still true that many projects are being started and not enough are being finished on time. House building, school building, hospital building and factory building, which have been exempted from last Wednesday's an- nouncement, will gain in efficiency and cost by the concentration of more building resources on them by some of the cuts we are making in the less essential sector.

But the other Government policies, all of which involve measures currently before the House—the Finance Bill, the Selective Employment provisions, the investment grants, and the Industrial Reorganisation Corporation—are all designed to secure a redeployment of resources in favour of manufacturing industry against services.

I have referred just now to hire purchase. I believe that the level of hire purchase we have reached in recent years not only puts a strain on our resources at a difficult time when we want to increase exports, but is, in absolute terms, more than the country can afford for some time ahead, for it means that a substantial part of our production is being financed out of future earnings. I believe that if we restrict it now and for a considerable time ahead, we will create a freeing of resources for getting our house in order and for a permanent strengthening of our economy by increasing our investment and our modernisation programmes.

At the end of the day our balance of payments depends more than anything on our manufacturing industries, their efficiency and the extent to which they are deployed on exports or import saving. [An HON. MEMBER: "And our salesmen."] Yes, certainly; we have all said that many times, and I absolutely agree—on the effectiveness of the salesmen and the design teams as well as the actual producers on the factory floor.

This is one of the purposes of the Selective Employment Tax and of the new discrimination introduced into investment grants, to give a bias back now in favour of manufacturing. It is the main purpose of I.R.C., and the measures we have taken to hold back consumer demand are part of the same strategy, in that we are determined to release resources for those industries which have a top national priority to fulfil.

Hon. Members have asked about similarities and differences between what we are doing and the old stop-go economy. Some of the differences are obvious: the sheltering of the development areas; the safeguarding of our housing programme; the school building, hospital building and factory building programmes, all of which were cut; and our decision, contrary to the precedents of 1961 and 1957, to maintain the social services.

But there is another more basic difference. The stop-go economy of 1955–64 was based on a quadrennial cycle of production. After each boom the brakes were slammed on, a hole was created in the economy, production stagnated, investment stagnated, unemployment and short-time working developed—and more in the development areas than elsewhere—and this then persisted for two or three years. As it became increasingly intolerable—or, as those more cynical than myself would suggest, as the election years grew nearer—action was taken. But the action taken was simply to reverse the restrictions in demand. Hire purchase had been cut; hire purchase was restored. Government expenditure had been cut; Government expenditure was increased. We had this in 1958 and 1963.

This is why we say now that the dis-inflationary provisions of my right hon. Friend's successive Budgets, including the present Finance Bill, must create a gap in the economy which must be filled not by a restoration of these cuts, but by a planned expansion of those elements in the economy which can make the biggest contribution to exports and to import saving in industry by all the means which I have mentioned. It is the only basis on which we can get sustained industrial expansion, the only basis on which the National Plan, or any national plan, can be realised, the only basis on which we can look forward to sustained public investment.

I claim, therefore—[Interruption.] I should be glad if some hon. Members would recognise, though they may disagree with the facts I am giving, that we are addressing ourselves to the most important problem the country faces today, our balance of payments. This is not a subject for the frivolity which some hon. Members are exhibiting.

Mr. Victor Goodhew (St. Albans)

On a point of order, Mr. Deputy Speaker. Is it right for the right hon. Gentleman to accuse hon. Members on this side of the House of frivolity—[HON. MEMBERS: "Yes."]—because we are finding it necessary to express our disgust at some of the things the right hon. Gentleman is saying, when he yesterday spent so much time whispering that even the Press commented on it?

Mr. Deputy Speaker (Sir Eric Fletcher)

That is not a point of order. If the right hon. Gentleman feels that incessant conversation is frivolous, he is entitled to say so.

The Prime Minister

I make this concession to the hon. Gentleman. He stopped talking just long enough to hear me give the facts of which he complains.

I claim, therefore, that the measures we announced last week are relevant not only to dealing with the confidence factors abroad, but also for dealing with the issue on which these confidence factors depend, namely, the restoration of Britain's balance of payments position. It is for this reason, equally, that I commend to the House the more direct measures we have taken to put the balance of payments right, the cuts in Government expenditure, in military expenditure and aid expenditure—particularly military—and also the restrictions on tourist expenditure.

Yesterday, the right hon. Gentleman, in company with several hon. Members, suggested that the cuts in military expenditure were no more than a repetition of previously declared targets. He is quite wrong. This figure I have mentioned of £100 million represents a number of carefully formulated plans and carefully formulated options east of Suez and west of Suez adding up in total to a figure considerably in excess of £100 million.

Sir John Rodgers (Sevenoaks) rose

Hon. Members

Sit down.

The Prime Minister

The hon. Gentleman has been laughing and talking for the last half hour. He has not been taking this seriously.

As the House will realise—I think that none would press this point more than right hon. Gentlemen opposite—it is essential, with the options which have been formulated, that we should have consultations with our allies, with our partners in the Commonwealth and in our various alliances before putting these schemes into operation. It is right that we should go through these procedures, but the House must realise, as our allies will, that a cut of not less than £100 million, and preferably more, is essential if we are to make the direct impact on our balance of payments which the situation requires.

This is why, while we shall certainly go through the necessary procedures of consultation, we cannot accept a financial solution which fails to cut overseas Government expenditure by at least £100 million. For military expenditure overseas has been rising year by year, and if our predecessors had taken action from 1959 onwards, as we are now doing, our outlays from 1960 to 1965 would have been—this is on military expenditure alone—about £400 million less, and our resources and reserves in consequence that much stronger.

In addition to the restrictions on home demand, in addition to the cuts in overseas Government expenditure, our problems cannot be solved, nor can the measures we are taking make the impact which must be made abroad, without effective action within the field of prices and incomes. As the House may be aware, the General Council of the Trades Union Congress has this afternoon agreed, by a substantial majority, to co-operate with us. I would not underrate the difficulties involved for those who have to operate this; nor would I underrate the sacrifice, restraint and statesmanship which the Government are calling for on the part of those who will be principally affected.

I do not deny that it will bear heavily in individual cases, that many will have to forgo increases in personal reward to which they feel entitled, that there will be anomalies and, some will say, injustice. But it is essential if we are to solve our economic problems, if we are to get full employment and an orderly growth of incomes. Like several hon. Members, I say that this problem can be solved only by an increase in productivity, but that increase in productivity must be earned and not assumed and spent before we have got it.

I have sought this afternoon to give the House the facts as I see them, not to follow the right hon. Gentleman in the more combative parts of his speech yesterday. He was perfectly entitled to enter upon that part of his speech, and there are abundant precedents for it, but I felt that it was right for me to give the facts as we see them and to leave the facts to speak for themselves.

I have shown what we need in terms of effort and co-operation from our own people to get our balance of payments right. I have said how far this problem would be eased given overseas cooperation in some of the key sectors in our attack on the problem. I hope that we shall get that co-operation. But I am sure that it is the resolve of this House and of the country that our own strength and determination will carry us through.

4.48 p.m.

Mr. Reginald Maudling (Barnet)

This debate is taking place on the Opposition Motion, That this House has no confidence in the competence of Her Majesty's Government to manage the economic affairs of the nation. and I must tell the Prime Minister straight away that nothing in his speech has in any way increased our confidence, or, to judge by the appearance of his rather unhappy supporters, their confidence either.

As my right hon. Friend the Member for Bexley (Mr. Heath) said in opening the debate yesterday, we have reached a watershed in British politics, with the collapse of so many cherished and boosted Labour Party policies, with the repudiation of so many promises, with the appearance of the biggest, toughest and most ruthless "stop" we have yet seen in our economy.

Today, the Prime Minister tried to pretend that we were not in a stop cycle now. I do not always agree with Professor Alan Day, but he put it very well in the Observer on Sunday when he said: Unless the Government is very lucky, go-stop-go will be replaced this time by go-stop-reverse. The Prime Minister confirmed that very clearly this afternoon when he said that not only were these measures introduced in the short-term but they would be persisted in. He had no intention, he said, of making the mistake which we had made of reversing the restraints. [Interruption.] That is what the right hon. Gentleman said. Let him look at HANSARD and see that he made it quite clear that they do not intend to reverse the hire-purchase restrictions or the cuts in Government expenditure. These are the right hon. Gentleman's own words and will be recorded in HANSARD.

We must be clear on the nature of the crisis. First, it is not an attack from overseas. The Prime Minister rather went that way today. In his broadcast the other day he was talking about an attack on our country from overseas. This is sheer nonsense. Overseas bankers have gone the full extent they possibly could to help us and support the present British Government. It is not a question of the gnomes of Zurich. It is not a question of an assault upon this country. The dangers that we are in arise from the faults of our own Government. That is absolutely clear.

The second point is that in economic terms this problem is a marginal one. About 1 per cent. of the national income, the Prime Minister said, is all that is involved, in mathematical terms, between an adequate surplus and a deficit on the balance of payments. Although in economic terms this is marginal, in financial terms it is crucial. This is a crisis of liquidity. It is a crisis of confidence.

The absence of an enemy battering at the gates, the absence of any apparent immediate economic compulsion, makes it all the more difficult to explain the real situation to the public at large. It is all the more essential, therefore, that the Government should be clear and consistent in what they say. Yet they have been absolutely the opposite. They have been full of contradictions, full of disorder. Time and time again they have fallen to the temptation, having introduced tough measures, of trying to pretend that they were not tough at all and that no one would feel them.

As to the causes of the present crisis, I do not agree with the Prime Minister's diagnosis. The prime cause is excess demand at home. That is absolutely clear. It comes out particularly from his speech today. The lengthening of delivery dates, the main holding-back factor in our export trade, is a clear example of excess demand at home. The growing and continuous pressure on imports is another clear proof of excess demand at home.

The Prime Minister said a significant thing when he talked about the course of the balance of payments in the last 21 months. He pointed out, anticipating my intention, that the great improvement in the balance of payments took place in the first few months of the Labour Government, when it could not possibly have been affected by any measures which they took. The improvement, as he said today, had taken place by the first quarter of 1965. There has since then, as the Prime Minister said, been no further improvement in the visible balance of payments.

As for excess demand at home, I think that the Prime Minister would agree that, apart from the special problems of individual areas and a limited number of industries, there was no undue pressure on resources calling for action when the Labour Party became the Government. That was in their White Paper, and they confirmed it by taking no action. The excess pressure on demand has arisen since then, and it has arisen for two reasons. The first was the total collapse of the First Secretary's incomes policy, and the second was the failure of production to rise.

The Prime Minister gave some figures and I will quote two back. The index of industrial production, seasonally adjusted—the latest published figure—stands now no higher than it did in January, 1965. The Prime Minister talked, as the Chancellor did yesterday, of an increase in productivity per man hour worked last year of 3 per cent. But he did not say that in 1964 it was 6 per cent. This is the change that has been brought about. This is the productivity per man hour worked. It has been cut in half by the present Government. The combined effect of the fall in productivity and the rise in demand underlies the present financial difficulties.

The second reason, as the Prime Minister really knows, is the sudden collapse of confidence at home and abroad, in his own capacity and in the capacity of his Ministers. Many excuses are trotted out. Some have some substance, I agree, such as rising import prices. There are great problems. But the fall in import prices last year created opportunities. I think I am right in saying, as my hon. Friend the Member for Norfolk, Central (Mr. Ian Gilmour) said yesterday, that over the period of the life of this Government the terms of trade have moved in their favour. The seamen's strike, of course, had some effect. The shortage of Euro-dollars has also had an effect. But one could foresee the shortage of Euro-dollars years ago. Seeing that A was going to happen, one ought to have foreseen the difficulties. The truth is that the factors that the Prime Minister mentioned have had the effect of making our problems more difficult, but the sudden onset of this particularly acute financial crisis stems from a collapse of confidence at home and abroad in the Government's ability to manage our economic affairs.

The Chancellor of the Exchequer has on more than one occasion contradicted himself on vital matters within only a very short time. When he first put up the Bank Rate he said that he hoped that it would not have any effect on the domestic economy. Each time that he has said that there was no need for further measures of restriction he has had to come along in a short time and produce new measures of restriction. As to the incomes policy, one day in Brussels the Chancellor said that this was a bonus on top of the rest of it, and the next day in the House of Commons he said that it was an essential part of policy. How can one have confidence in Ministers who contradict themselves like this?

Possibly more important was the introduction first of all of the Capital Gains Tax and the Corporation Tax. The announcement that they would be introduced was made at a time when the Chancellor clearly had not the faintest clue how they would work or what their effects would be. This was bad enough. The even more inspired lunacy of the Selective Employment Tax must have done more harm than anything else to the British Government's credit overseas.

The other factor in the collapse of confidence has been the Prime Minister himself. The fact is that the world has rumbled the Prime Minister. His technique of gimmick after gimmick, of covering the failure of one publicity stunt by the noise of the next one, has now been exposed. His latest examples have been some of his worst, such as his weekend expeditions to Moscow and Merseyside, his much-publicised meetings with Mr. Kosygin and Mr. Ken Dodd. The fact that the Prime Minister does these things is one of the major contributing factors to our present crisis of confidence. Another is the excessive use of inspired leaks from No. 10. At one time, "There is going to be no mini-Budget". The next time, "The First Secretary's powers are to be greatly extended". Which of these two did more damage to confidence I do not know.

The worst effort of the Prime Minister was when he said, "We have worked out a prepared package and not one of the old scratching together of panic measures". It could not be possible to say more clearly the opposite of the truth. I am astonished that the Prime Minister should have made the fundamental error of saying this knowing, as he must have done, that it would be openly contradicted by his own statement within a few days of his saying it. We are censuring in this Motion the men in the Government because we believe that there has been a collapse of confidence in them.

I turn from the men to the measures, to the "prepared package" that we have been told about. It is true that the deflationary effect will be sharp of the addition of £500 million, as the Prime Minister said, to the £700 million already withdrawn from the economy. It is a pity that the Chancellor of the Exchequer and the President of the Board of Trade yesterday tried to blur this over. It will waste the effect. If one is taking deflationary measures, they are bound to hurt someone. One reduces demand; one reduces employment: it is mathematically certain. But if the Government try to take the credit for taking bold measures, they destroy the result if at the same time they pretend that the measures will not hurt. So if the Government are not careful the country will get the sacrifices to bear without the psychological benefits.

These proposals are immensely vague. Were the cuts in the nationalised industries a carefully prepared package? I doubt it. With regard to cuts in overseas expenditure, the Prime Minister produced a wide range of possibilities. How long have the Government been considering them? Not long ago the Government had a defence policy that they were to maintain. What is the position now on the incomes policy front? I was glad to hear indeed that the trade unions will support the Government in this matter.

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

Is the right hon. Gentleman pleased?

Mr. Maudling

I have said so.

Mr. Brown

Are they?

Hon. Members


Mr. Maudling

Really, if the First Secretary is going to interrupt he ought first to listen and then stand up.

Mr. Brown

That the right hon. Gentleman is glad, I am sure. What I ask is, are his right hon. and hon. Friends glad?

Sir William Robson Brown (Esher)

Yes, yes, yes.

Mr. Brown

May I draw the right hon. Gentleman's attention to the fact that the right hon. Member for Wolverhampton, South-West (Mr. Powell) still has not answered?

Mr. Maudling

My answer is that at least I am at one with my party.

Our next complaint about the Government's package is that it hits investment far too heavily. I heard the Prime Minister talking this afternoon about the need for investment, and it astonished me that he should do that after all this Government have done to discourage investment. The effect of the Selective Employment Tax will be very severe indeed on investment. It will hit the small man particularly, and it will hit manufacturers who cannot pass on the tax in prices, unlike distributors, obviously, who, within the terms of the Government's own policy, should do so, and it will hit those people who have been enterprising, ploughing all their money back into their business and not hoarding cash. Inevitably the result of the tax at the present level of credit squeeze will be to cut back very severely on investment. If this intention is held to, as the Chancellor announced so recently, investment will be held back at the very time when it should be encouraged.

The Prime Minister said that there would be investment in factories. If he thinks that there will be more investment in factories this year he had better think again. He talked about the share-out of labour and its redeployment in industry. He talked this afternoon about many things which are obviously desirable, but there are obstacles in the way, and I should like to know how the Government intend to deal with them.

What about the effects of short-time working? If people are employed on short time they are not dismissed and they cannot be redeployed. What indications are the Government giving to industry about that? Then there is the retraining which will be needed. I think that one of the obstacles to the retraining of workers has been the attitude of the trade unions and this is one of the difficulties at the moment in this so-called well-prepared package.

Then there are development districts. We have heard the Government say that we did nothing for them and they have shielded them from the effects of their present measures. Of course it is nonsense. They have only to look at the factories built in Wales, Scotland, Merseyside, and the efforts undertaken there by us, and in particular the free depreciation scheme we introduced, which together have revolutionised the situation in the development districts, which are benefiting now from those measures which are a continuation of our own policy. But if the Prime Minister thinks his measures will not affect Merseyside or Scotland, or the North-East he had better think again. The cutbacks on demand and the effects of the hire-purchase arrangements and the increasing taxation will certainly be felt in those development districts. What must not be overlooked are the effects of the Selective Employment Tax which will fall particularly severely on many development districts, in Scotland for example, and the other outlying districts.

All these are criticisms of the so-called well-prepared package and unless we can be shown an answer to some of them we must conclude that, in the Prime Minister's own words, this was a scratching together of measures to meet a crisis.

I think these measures are enough to hold the position of sterling if they are rigorously and bravely carried through.

The technical position of sterling should now be strong. I should think a high proportion of privately-owned sterling balances has already been sold or covered and therefore the opportunities for bear attacks are less than they were.

The Government are right not to devalue, or to adopt the system of import quotas. I think that many hon. Members opposite favour either one or both of those measures. I have always myself been attracted by a form of floating exchange rate. It is of course no substitution for deflation. But it would leave a certain amount of elbow room and have the effect of damping down rises in real demand at a time when money incomes are going up very fast. But it is difficult for a reserve currency such as ours and impossible for us to contemplate, when sterling is weak. Devaluation to a new fixed parity would be entirely wrong, and I am quite certain it could produce no good results. In the first place, our indebtedness in sterling terms becomes much more onerous. In the second place the problem of exports is not helped at all for the problem is not price but delivery. Thirdly, the other countries of the world are not willing to see any devaluation of sterling. Therefore, I support the Government entirely in setting their face against devaluation. As for import controls, they are clumsy, slow to operate and they invite retaliation.

But these are not the full extent of the possible measures. What about the control of import credit? I should like to have the Government's thought on the possibilities here. This is a measure used by other European countries, particularly by the Italians. It must, therefore, I imagine, be consistent with the G.A.T.T. It is a measure which ensures that importers of foreign products have to pay the full amount within a given time, and when the Italians operated it in 1964 and 1965 there was a very sharp reduction in the import of consumer goods, and that was achieved simply by the restriction on import credit.

Have the Government examined this possibility? It seems to me this is one way which could cut down import costs effectively, and apparently without any conflict with our international obligations, and could be applied to consumer goods and not basic raw materials. This seems to me to be an alternative to import quotas, not as a permanent system, but as a temporary system, and it would be legal and could be administered within the present exchange control system. I should like to know the Government's reactions to that suggestion.

I should like them to look again at the system used by the French to encourage exports, whereby export bills can be rediscounted at the Central Bank at a favourable rate of interest.

But my main point is that we should now make a major new attempt to fund the sterling balances. We are the central bankers of the sterling area and we cannot abandon this position—as I think some hon. Members opposite would like to do—for we have taken those people's deposits and we cannot welsh on our obligations. Therefore, we must remain the central banker for the sterling area; and the position of sterling as a currency of exchange is of great value in assisting our invisible exports which are so important and will become more important as the years go by. The trouble, as the Prime Minister hinted, is the composition of our liabilities, the short-term liabilities in relation to the long-term liabilities. The difficulty is to persuade people other than firm holders of sterling to fund their balances. Then take the large debts which have been accumulated in the last 21 months. It is right for the Government to make provision for their repayment on time if they can do so. But it is right for an Opposition spokesman to question whether it is in the general interests for Britain to try to repay them out of current trading surpluses. The result might be a deflationary effect on world trade. It might also mean missing an opportunity for expanding liquidity.

What I mean is this. I contemplated more than once the desirability of medium-term foreign exchange loans to this country. The problem of international liquidity is not solely one of inadequate total amount. It is also one of maldistribution—too much in some places and too little in others. When we find, in the progress made in the Group of Ten, that the basic problem of overall liquidity seems to be stymied by Continental opposition, is not that an opportunity to tackle the other and equally important problem of the distribution of reserves between the main monetary centres. I put the suggestions forward quite seriously, because they seem to be lines of policy which could usefully be adopted in the present circumstances, and which would be valuable both in the immediate situation and in the long-term future as well.

My other suggestions on the external balance relate first to defence and secondly to aid. On defence, should we not look at it along these lines? There is a limit to the amount of overseas defence effort that this country can afford. Where is it best deployed in the interests of the West as a whole? If reductions have to be made, are they best made east of Suez, with the consequences which follow, or in Europe, with the reduction in the land forces available to contain the Communist threat in the European theatre? Surely it should be on that balance of the marginal value of British defence expenditure to the West as a whole that these problems should be solved. The tragedy is that it takes time and thought to do it. In these circumstances, time is very short and I am afraid that thought is sadly lacking.

As I understand, the Government do not propose to cut aid expenditure. I hope that that is so, and I think that it should be so. I know that there is much criticism about overseas aid, and no doubt there is much inefficiency and sometimes corruption in its use. It is infuriating to give aid to people who then treat us badly. But it is the duty of this country and other industrial countries to continue to give aid on the scale which we can afford to the developing countries. The burden on our balance of payments is not so heavy so long as it is tied to the supply of British goods. It only creates a problem in the balance of payments if the economy is overheated. If there is no spare capacity, it means that we do not have a power station to sell to America because we have already sent it to Tanzania as a gift. When the economy is not overheated—if the party opposite is capable of bringing about that situation—then overseas aid tied to sterling goods does not really create problems for our balance of payments from which we should shrink.

I turn to my suggestions for domestic policy, and the first need, clearly, is to restore confidence which has been shattered.

The first thing must be to drop the Iron and Steel Bill. People overseas and impartial people in this country, seeing the Government choosing this time to push ahead with the nationalisation of steel, must think that they have taken leave of their senses. There must be a real attempt to tackle current Government expenditure. It is a great pity that the cuts in Government expenditure announced have been concentrated solely on capital and cutting back capital investment. Does it make sense, in those circumstances, to continue handing out benefits to people in many cases for things which they could perfectly well afford to pay for themselves?

How bitterly the Chancellor of the Exchequer must regret the abolition of prescription charges. Above all, to be proposing still in a few months' time to pay out over £100 million a year in subsidies to employers in manufacturing industry to employ more people only looks like inspired lunacy. We cannot begin to understand it.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

The right hon. Gentleman mentions paying for prescriptions. Is he saying that, by the present methods, people do not have to pay for prescriptions according to their ability through tax? Surely that is the fairest way?

Mr. Maudling

It is a very odd sense of priorities to use large amounts of Government money to provide free services to people who are perfectly capable and in most cases willing to pay for for themselves

My next proposal is to abolish the Department of Economic Affairs. The right hon. Gentleman can well use his great talents elsewhere to better advantage. It has become quite apparent, as we said from the start, that the Government cannot have two separate Departments and two different Ministers trying to run one economy. The only result is that it is landed into the lap of the Prime Minister, and we all know the consequences of that happening.

We must attack restrictive practices of capital and labour, as the Prime Minister said. Here, the situation is a rather unbalanced one. There is pretty stringent legislation against restrictive practices of capital which is vigorously enforced by the courts. There is no such legislation against restrictive practices of labour, yet they can be equally damaging to output and to the public interest at large. It may be that it is a problem which does not lend itself to legislation at any time. I am not sure. Short of that, at present, a real attack should be made on restrictive practices. The Prime Minister talked about them this afternoon. What does he intend to do about them The right way is through the "Little Neddies", which we set up. The real purpose of those committees was to get rid of obstacles to production. They should be put on to full-time working to get rid of restrictive practices. In the absence of legislation, which may not be the right way, the focussing of public opinion and knowledge upon those practices is precisely the thing to do.

As for unofficial strikes, I doubt whether we can wait long for legislation to reform the law relating to the trade unions and bring it in line with modern conditions. Surely it is becoming more and more urgent to have new legislation which will enforce the sanctity of contracts and agreements. It can only be of benefit to all concerned. We must reshape the social services to concentrate on priorities where need is greatest, encouraging people to stand on their own feet and provide for themselves.

We must encourage investment, and not discourage it by abolishing investment allowances and by this silly little side-swipe at Surtax, which means so little to the economy and so much to people who have to pay it—[Interruption.] It means so much to the people whom the Prime Minister talks about, the technologists, the managers, and the leaders of industry. They are singled out for a deliberate swipe by the Prime Minister who talks so much about the contribution which they can make to the country.

Then, on agriculture, surely the time has come for more measures to increase the contribution which agriculture can make both to import saving and to exports abroad, which are already very great. I do not think that the Prime Minister helps in this regard by the sneers which he constantly addresses to the policy of import levies. That is an essential part of any joining up with Europe, and it could make a big con- tribution to the health, strength and the expansion of our farming industry.

Those are the ways in which we think that the problem should be tackled. I have endeavoured to set out not only our criticisms of the Government and their follies but also some of the practical ways in which we believe that the problem can be tackled. As the Prime Minister hinted, the basic problem which we have to tackle is the problem of attitudes. That is the hardest thing to deal with. It is easier to persuade people to work harder than it is to persuade them to change their minds, practices and old ingrained habits.

I believe that the matters which we must set before the country are, first, the need to have a Government in which people can have confidence and which will be frank, forthright and consistent. Secondly, there must be more incentives to individuals and companies. Thirdly, there must be a recognition of the proper place of profit and achievement in our economy. We must encourage and hack up success and effort and discourage and penalise sloth, failure and incompetence.

It is along those lines that the problem will be solved, but the one fundamental condition to solving any of our problems is the disappearance of this Government.

5.19 p.m.

Mr. Bob Brown (Newcastle-upon-Tyne, West)

I rise today to give general support to the measures announced by the Prime Minister last week. As the representative of a constituency in a development area, I am pleased that the Government are seeking to exempt development areas from the worst effects of these proposals. That makes it possible for me to give general support to these measures.

I appreciate that although the development areas are being exempted as far as possible, they cannot be completely insulated, and our factories, along with others, will be hit by these measures. Having said that, may I now say to the Prime Minister and the Cabinet that, like many other hon. Members who represent constituencies in development areas, I must seek from the Government an assurance that should the effects of these proposals bite harder than we at present think, should they go beyond what we consider to be an acceptable point, such areas will be subject to immediate selective action to ensure that they do not, as they have formerly had to do, bear a much greater crunch than the present more prosperous areas of the country.

I must emphasise that I am not prepared to accept a return to the two nation concept which we knew for so long under successive Conservative Governments. The economic situation of the North-East was like the weather forecasts—north of a line from the Wash—and we are not prepared to accept that sort of thing again.

I hope that any plans which there may be for the clearance of derelict sites in the development areas will not be interfered with. I have in my constituency much dereliction in the wake of a dying coalfield. The Newcastle City Council proposes to landscape one of these derelict sites. The Newburn Urban District Council proposes to treat three of these sites, two for the introduction of new industry, and one for landscaping. I appreciate that man does not live by bread alone, but I sincerely hope that if there are to be any restrictions on the clearance of derelict sites, all the restrictions will be on the landscaping sites, and not on those which will be used for new industry.

The Government must undertake a massive operation of redeployment so that as labour becomes surplus in certain industries it is mopped up pretty quickly and transferred to areas where we know there are labour shortages. This is a task which the Government must tackle with great determination.

The right hon. Member for Barnet (Mr. Maudling) referred to investment in industry. I do not share his gloomy forecasts. I certainly hope, as I am sure many hon. Members in the House do, that he is wrong, because I believe that investment in industry during this period, probably more than ever before, must be maintained, and more so in the development areas than anywhere else in the country. I should like an assurance from the Chancellor of the Exchequer that the Government will be prepared to increase the investment incentive within development areas to 50 per cent. so that we may have an impetus to go forward once again once the freeze is ended. Why should not the planning councils and the planning boards in the development areas play their part in this type of operation?

I further appeal to the Government to seek powers to establish State-owned industries in the advance factories now being built in the development areas. It is not good enough that we simply build the factories and have to wait months for tenants to come along and take them, when there are industries which the Government, like their predecessors, literally prop up as the major source of supply. For instance, the Post Office is one of the biggest purchasers from the electronics and telecommunications industry. Is there any reason why we should not have a share in the production of this industry? We are importing machine tools in large numbers. I could go on quoting manufactures which we are importing, but which we could readily produce in State-owned factories in the development areas. This is a part of Labour Party policy which I hope the Government will get down to implementing pretty quickly. If it cannot be done during the squeeze period, I hope that we will go ahead immediately the squeeze is over.

I am not one of those who believe that our economic ills will be cured, as it were, by the wave of a magic wand if we cut defence expenditure. Nevertheless, I am satisfied that the most famous empire builders of all time, irrespective of nationality, are the "brass-hats". We hear a lot about the need for organisation and methods studies in industry. I often wonder whether Her Majesty's Forces have been subjected to an organisation and methods study. I am satisfied that if we could get in the Armed Forces a close scrutiny on the lines of the industrial type of organisation and methods study, the empire builders would be subjected to considerable cuts, and in this way we would be able to reduce defence expenditure.

Mr. Julian Ridsdale (Harwich)

I assure the hon. Gentleman that during the period of Conservative rule a time and methods study was carried out in the Ministry of Defence, and that as a result many millions of £s were saved.

Mr. Brown

All I can say is that if an organisation and methods study was carried out in the Forces it certainly was not carried out to the extent that it ought to have been.

If I were a German, I should feel inclined to say, "If the British want troops in Germany, let them pay for them". As I understand things, the German Government are very anxious to have the feeling of security given by the presence of British troops, but they are not prepared to pay towards their maintenance. I am grateful to my right hon. Friend the Chancellor of the Exchequer for the assurance that he has given, but I hope that the Government will pursue this issue with great vigour, because I see no reason why we should continue to carry this unfair burden. We are no longer an imperial Power, and I see no purpose in attempting to create the impression that we are.

I have always held the view that the strong should help the weak, and on this basis I welcomed a decision at a Labour Party conference to set aside 1 per cent. of our gross national product, in the ultimate, towards the development of under-developed countries. I still passionately believe that this is the right thing to do, and, indeed, that this can be the greatest prop against Communism if the Western democracies do this on a large scale.

Another old adage is that charity begins at home. In present-day circumstances I could not agree more with the right hon. Member for Barnet that we should have reciprocal arrangements so that we can increase our trade with the nations which are receiving aid from us, but in normal circumstances I think that it would be wrong for us to impose any such conditions on a nation to which we are giving aid.

I propose now to say a few words about the prices and incomes freeze. Whatever the Government do, it will have to be tough, it will have to be unpopular, and it will be riddled with anomalies. No pay freeze can be a just issue. No Front Bench Labour Member wants to kid us differently. The Prime Minister conceded the fact that there will be anomalies. There are bound to be, in any pay freeze. The tragedy of the situation is that the free-for-all scramble for wages in the post-war years has helped to create this situation

Some trade unions have given extremely fine support to the Government while others have done pretty well the reverse. I pay tribute to the Trades Union Congress for being the true patriots of the nation in these extremely difficult circumstances and adopting the statesmanlike decision that it took this morning. My own union—the National Union of General and Municipal Workers—has recently negotiated a wage award for manual workers in the gas industry, who were by no stretch of the imagination overpaid. The wage increase will be about 4 per cent. My union, together with N.A.L.G.O., has recently negotiated a salary award for local government staffs. On both these issues the unions are naturally awaiting anxiously the Government's decision.

The awards were agreed before the Prime Minister's statement, but they are post-dated. I wonder whether, the statement having been made at that time, these awards can be conceded. I hope that they will be because these people are not overpaid.

I want to refer further to the support which the unions have given in the past 12 months. My union, negotiating as the major union for local authority manual workers, recently negotiated a settlement in which it asked the Government to refer the question of manual workers' wages in local authorities to the Prices and Incomes Board. This is an example of the good will we have from the trade unions, which hon. Members opposite tend to deride.

I say with some feeling that if the Government feel it necessary to use statutory powers of any kind in order to restrain those who would deliberately attempt to break the pause they deserve the support of hon. Members on both sides, whether it be on the incomes front, the prices front or the profits front. The Government deserve full support in respect of any measures which they may be forced to take.

I hope that when the sluice gates are opened at the end of the first six months we shall ensure that the first people allowed to trickle through are the lower-paid workers. No hon. Member can feel very happy about a situation in which thousands of workers take home less than what we regard as the basic minimum National Assistance subsistence. We shall all hang our heads in shame at this. If ever there were a case for a self-denying ordinance for some of the stronger sections of industry, this is it.

We have been in the straitjacket of recurring economic crises in every postwar year. If the measures which the Government propose could be a cure-all, once and for all, the price that we are being asked to pay would be small by any standard. But it seems to me—and this view is shared by many of my hon. Friends—that we are not entirely masters in our own house in this respect; outside influences are easily brought to bear upon the economy. To get the balance of payments right and to have a strong reserve is the answer, but we all know that there is an extremely fine margin between being on the right side and being on the wrong side. What worries me is the fact that at any time that we are almost in a position of balance, speculators can bring pressure to bear on the economy. So long as we are a reserve currency this situation will prevail.

I do not suggest that in these circumstances the Government can do anything about it, or that they, as world bankers, should say, "We are finished. We are not going to be world bankers any longer". Nevertheless, this is something which, in the long-term, the Government should think about.

I have already intimated my general approval of the Government's measures. Desperate situations call for desperate measures, and so long as the Government can guarantee that our less fortunate areas will continue to be kept under constant review they will have my support.

I close on the theme that this is a "must" if we are to give future support to the Government. The North-East will never forgive the Tories for the way they treated us under successive Administrations. We should find it extremely difficult to forgive a Labour Government if they allowed the situation to drift too far.

5.37 p.m.

Mr. David Crouch (Canterbury)

During the last election I sensed a new mood among people I met—a mood different from that which I had found in other elections that I have fought. It was a feeling of community rather than selfish ness—of country rather than material personal achievement. It was an awareness of history, and a search for greatness in the future. I had a strong feeling that it was a last cry for leadership—a cry for leadership before it was too late, a cry from people wanting to be led, to be helped, and to be allowed to express their abilities in a thriving and competitive industry once more.

This feeling was not confined to my constituency; the mood existed throughout the country. Politicians and parties were on trial three months ago in the General Election. The decision was given quite clearly in favour of the Labour Party to take hold of our country and lead it towards a new Britain—the new Britain that the party had spoken of so bravely. They were elected to Government and were given a majority to govern strongly. There were no illusions among the electorate about the problems facing the country. They knew that we were in troubled waters, but little did they know that we should be blown off course so soon. Little did they know that the captain of their choice would prove such an uncertain navigator and such a dangerous helmsman.

The mood today has changed, and the high hopes of those who supported the party opposite last April have been dashed. Disillusionment has set in. What an extraordinary tragedy this is for our country, and what a terrible let down for the people that in three short months this politically strong Government should have proved so weak and ineffectual. I do not gloat over the situation. I accept the responsibility which must fall on all hon. Members to recognise that it is the economic survival of our nation that counts. This is more important than party interests. I accept the advice of the leader writer of The Times newspaper yesterday, that Members of Parliament must contribute positively. This is what I hope to do today.

I should like to pay tribute to my predecessor in the House, Sir Leslie Thomas. He was greatly admired and liked throughout my constituency by people of all persuasions and activities. He served the constituency with great zeal, thoroughness and attention. He was greatly respected and loved in the House. He had the special understanding of both sides of the House through a very long association, and he had a very distinguished father who was also a great servant of the House. I mention this to illustrate the special background which Sir Leslie had, which gave him such an acute understanding of the political scene. It was this which enabled him sometimes to take the Chair here and it was this which gave him a very special pride.

Earlier this Session, the Chancellor of the Exchequer gave some advice to new hon. Members about maiden speeches. If I remember rightly, he said that he thought that the tradition that maiden speakers should always speak about their constituencies and should at no time be contentious was of relatively recent origin and that he, a great sportsman in these matters, saw no reason why such traditions should be continued. I should be happy to accept his advice on both counts but I hope that he will excuse me if I am selective and tax myself accordingly. I should like to make reference to my constituency.

The economic state of our country is the affair of my constituents as much as anyone else and they are very concerned about it. How can I not be contentious if I am to speak to the Motion? However, I hope that you, Mr. Deputy Speaker, will correct me if I fail to show respect to all hon. Members, no matter how controversial I find their views.

My constituency is a remarkable mixture. We have a cathedral, the latest and newest university, a coal mine, commuters, and many pensioners. We have oysters and apples. We are the largest apple-growing area in Britain. We have a great retail trading centre which serves the whole of East Kent. I spoke earlier about the mood which I had sensed in this country during the last election. I said that it was a cry for help and a plea for leadership.

Farmers in my constituency want to be free from the shackles of Treasury price support and to move towards a levy system. They ask me at many meetings to press for such a move, so that they can "have a go" at competing with their rivals on the Continent. There is no lack of initiative among these men, no lack of energy, ability or even scientific knowledge. These are the men who will be the spur to the Ministry of Agriculture to research more and to provide more information so that they can increase productivity. This is the word which the farmers use today; they talk of farm planning, farm management and greater productivity. They speak in practical terms of productivity, looking at the achievements of their competitors in Holland, Italy, France and West Germany.

They are confident not only that they can win at home against competition but also that they can gain new markets abroad. One of my constituents with no less than 12 acres under glass—at a capital investment of £20,000 an acre—is already selling flowers to the Italians. He is prepared to sell flowers anywhere else in the world and is seeking opportunities to examine these markets. But such men are caged in a small economy and are forever uncertain whether the Government really want to help them and give them a long-term plan for the future.

Canterbury was savagely bombed in the war, but it has been replanned and rebuilt. The great areas which were laid waste have been developed into a great retail trading centre which serves the whole of East Kent, an area comprising about 200,000 people. The shops there are modern, the car parks are huge and the approach to retailing and distribution is second to none anywhere in the world, including America. This is modern distribution, efficient and labour-saving.

The retail trade today is a highly competitive one. There is no room for inefficient trading or selling or over-high prices. It is a healthy trade because it is a competitive trade. Why should the Chancellor single out this trade—retailing—to carry the heavy burden of the Selective Employment Tax? In the United States, retailing is the vital end of the process of production. Why can we not consider it so here as well? This is where the competition is hottest. Go to Macy's in New York and G.U.M. in Red Square and compare the value. I know that I would prefer the competitive economy any time, having seen both those places.

Perhaps I may make a suggestion to the Chancellor. It is that he should export his S.E.T. to Russia, where it could do a good job in getting rid of labour wastage in department stores; there is over-employment in retail because of the absence of competition.

I have talked in my constituency to many old-age pensioners. My area is one to which people come when they retire to sped their days by the sea in Herne Bay and Whitstable. I have met many old couples earning less than £7 a week through their old-age pension, and they have complained to me that life is hard. I was struck also by their mood. Their greatest interest is the future of our country. These old people are conscious of our great past, but they are still looking forward.

What are we offering them today? What economic future, security and development are we showing them? Canterbury is also the site of our newest university, with 500 students enrolled so far, another 500 arriving in October, and it is planned that, by 1970, there should be 3,000. This is a modern and exciting university and all the students there to whom I have spoken refuse any longer to look backwards. Instead they want to seek new opportunities for Britain. They want a philosophy which accepts the past and yet looks into the future. They are not content to rest on past glories nor are they ready to see Britain lose and give up just because the future may seem difficult or uncertain.

These young people in their first year at university are eager, excited and vigorous and they want to build a new Britain. The Labour Party were right in their election campaign to refer continually to the new Britain which they wanted to build. The tragedy is that we see these promises in ruins because of the ineptitude of their management of our economic affairs. These young students are individuals in search of a philosophy. Idealists they are, of course, but they seek success and they will not forgive failure. The tragedy of the Prime Minister's failure is not only that he has failed the nation and failed the party but, most serious of all, he has failed Parliament.

I am a new and junior Member of the House but I am a servant of the House and of democracy. I am a late arrival. I have been in industry for 20 years. Indeed, I started my industrial life on the factory floor, not as a trainee but to earn my living at £7 a week, starting work at twenty minutes to seven o'clock each morning and going on till six o'clock at night. I regret that the factory in which I worked had not the benefit of trade union supervision and help. I am not a big business man now; indeed I have given up the opportunity in order to come here. But I believe in the greatness of our country's past and the greatness of our people and I still believe in the greatness of our opportunity for our future.

Moreover, I believe in our Parliamentary system, modernised and brought up to date as we go along. I value our party system and treasure our two-party pattern. I ventured to come here because I believe that it is in this Chamber that the centre of power in this country must reside, and in no other place. The procedures of democracy are vital. I do not want to see our country dominated by any other sector of it. The only power that I will acknowledge is the power of political parties by pursuing their policies on the Floor of the House. I will accept power nowhere else, neither in the trade unions nor in the banks nor, indeed, in the board rooms of big industries. All arguments must be centred here, debated freely and voted on by the freely elected representatives of the people.

There is a mood in the country today. It is a mood which has a sense of frustration, I believe, as a result of the Government's continual ineptitude in the handling of our economic affairs. Confidence is ebbing away—slowly to begin with but now, I believe, rapidly. It has ebbed away from the Prime Minister and from all his colleagues. I do not believe that they are any longer entitled to the trust of our people. The banks, the farmers, the manufacturers, the retailers, even the students—none of them is looking to them with trust any longer. The Government have failed them all.

I do not want to see this present frustration with the Government and a political party turn on Parliament itself. I am sorry that the right hon. Member for Nuneaton (Mr. Cousins) felt that he had to leave the Cabinet, because he had greater power and more opportunity in his great trade union. I am sorry that the First Secretary did not stick to his guns and resign, for he has undermined still further public confidence in our system and in the Government.

I have great faith in our country. I believe that we still have the energy, the initiative, the inventiveness and the right spirit to spread wealth and happiness throughout our society, but we must have the leadership and strong Government. We cannot have disunity. Three months ago more than half the nation thought that leadership was what they would get with a Labour Party having a majority of a hundred in the House. The country was prepared for dynamic action and government from the Labour Party. What did they get? They got a series of exhortations from the First Secretary, a series of deflationary retreats from the Chancellor of the Exchequer who tried to make them seem like advances, and a continual cry from the Prime Minister for the Dunkirk spirit. I thank God for Dunkirk, but it was a deliverance of our nation and certainly not a great advance. I am against too great a reliance on divine providence and too great a reliance on help from the Government.

This is what is wrong with the nation today. Our philosophy is wrong. It does not produce the dynamic which we need to survive. We are offering too cosy a reception from cradle to grave. All the time we are offering more and more for less and less. There will be no future for the country, even if the present Government double their majority, if they do not quickly abandon this false philosophy. They underestimate our people and underestimate the abilities of our people. We no longer live in the bad old days and there is no reason, not even now, why we should return to high unemployment, even with the present Government.

The Government must appreciate that welfare today must be earned and that a better way of earning it is for people to pay for it directly rather than for them to be taxed in order to pay for it. I am afraid that the time has come when I for one can see no future for the country under this Government. They are wedded to old-fashioned ideas and outmoded thoughts and solutions. The strength of the country is in our individuals. The Government simply do not understand this and their recent actions have done everything possible to sap the strength of the individual. All the measures which they have taken are restrictive. There have been no incentives at all.

The hon. Member for Newcastle-upon-Tyne, West (Mr. Bob Brown) referred to his trade union, the National Union of General and Municipal Workers. It is a union for which I have high regard. I would tell the First Secretary that I have a very high regard for the trade union movement of this country and for the sense of responsibility of most of the trade union leaders and executives whom I have met. But we live in an age when we must tackle the question of reform of the trade unions. This can no longer remain a cliché to be bandied between the parties, with nothing being done about it.

I do not believe that the party opposite will ever get down to the question of rewriting the rules so that the trade unions become a responsible element in our economic society. Many of the trade union leaders with whom I have spoken agree that they are concerned that there is an over-towering power in their hands, and they, like me, believe that that power should reside here and should not slip away into their hands uncontrolled.

There is today a mood among our people. It is a murmur that is spreading through all walks of life. It is a cry for leadership. Regretfully, the Prime Minister has failed to give that leadership and his whole Cabinet and Government stand condemned with him. I am afraid that I no longer have any confidence in the party opposite to produce the leadership, philosophy, command, reform and education which must be the foundations of a purposeful society and a new Britain.

6.1 p.m.

Mr. John Horner (Oldbury and Halesowen)

I am pleased to have been called to speak following the hon. Member for Canterbury (Mr. Crouch). I am sure that the whole House was delighted by the wide-ranging maiden speech which he made. I confess that when he began by referring to certain advice which my right hon. Friend the Chancellor of the Exchequer had given to maiden speakers, I was not sure whether or not he would follow that advice. It is obvious that he and I are at one in believing that maiden speeches should be controversial.

We are obliged to the hon. Member for the treat he gave us by bringing into his maiden speech so many thoughtful and thought-provoking statements on various subjects, from G.U.M. in Red Square to apple and flower growing in his delightful constituency which, I recall, is the constituency nearest to the Continent of Europe.

Mr. Arthur Lewis (West Ham, North)

And the "Red Dean".

Mr. Horner

In this two-day debate many references have been made to the problems of the trade unions and I am sure that hon. Members will not be surprised when I say that I intend to refer to the problems of my trade union. Within an hour of the Prime Minister resuming his seat in the House last Wednesday afternoon, the general secretary and president of my union were faced with my right hon. Friend the Home Secretary and my hon. Friend the Minister of State for the Department of Economic Affairs.

The representatives of my union had perforce to learn from these Ministers that after nine months during which the union had been engaged in prolonged negotiations with the local authorities for a review of the wage structure in the Fire Service—which was to have operated from 1st August, which is next week; nine months during which the Government had been kept informed, in which this trade union had readily gone to the T.U.C., in which it had fully operated the early warning system and in which this union had willingly agreed with the local authorities that, at the end of the day, before the settlement became operative, the matter should be referred to the Prices and Incomes Board—the negotiations had reached a dead stop.

My union's representatives came away from that painful interview with my right hon. Friend—to use a word sometimes mentioned by members of the Government Front Bench—clobbered. This will mean that the members of this emergency service, who do not have the power and facilities—

Mr. Arthur Lewis

While we sympathise with my hon. Friend about the result of that interview, will he say to what extent he was told whether his union and its members should increase their productivity?

Mr. Horner

The one service which cannot be paid by results is, we are grateful to know, the Fire Service. I do not wish to dwell on this issue, but I must point out that here is an example of the sort of problem that is facing us in the trade union movement.

I am referring to a union which cannot defend itself in the traditional way. It has wholeheartedly and without demur concurred with the early warning system and accepts that the matter should go to the Prices and Incomes Board. Yet we are obliged to tell the members of this union that, in the foreseeable future, there can be no productive results from the many months of negotiation that have taken place.

I would be prepared to go to my old comrades in the Fire Service and local government and my colleagues in the trade union movement and tell them that the urgency of the situation—the simple, dire necessity of the economic position in which Britain finds itself—obliges them to accept the present wage freeze if I could be satisfied that the total package of the proposals we are considering in this debate will do the job we are told they will do.

If, as the Chancellor of the Exchequer has affirmed, these proposals will ensure that the British people are released for good and all from the perpetual burden of economic crisis, if I could believe that this is the last crisis that Britain will have to face, and if I could accept the words of my right hon. Friend the President of the Board of Trade, that when these measures become operative we shall see "soaring exports", then I would be happy to go to my old colleagues in the trade union movement and local government and tell them that, unfortunately, they must remain clobbered. The hon. Member for Canterbury said that these things must be said in this House. I must, therefore, say that I have the gravest doubts about whether the package unfolded last Wednesday will do this job.

Yesterday, the Chancellor said that the deflationary measures alone would be sufficient to get us out of the "red" and that these measures alone would produce a substantial balance of payments improvement. The wage freeze, he said, was an additional element to get the totality of the measures right, and he added: Generally speaking, it is not true that our goods are over-priced in foreign markets."— [OFFICIAL REPORT, 25th July, 1966; Vol 732, c. 1473.]

In saying that, my right hon. Friend blew sky-high once and for all the oft-repeated piece of economic mythology that high wages have priced our goods out of world markets.

If this totality of the deflationary measures would do the trick, and if unemployment and statutorily imposed wage control which the new Prices and Incomes Bill must contain would guarantee the full development of the progress of social and economic advance enshrined in the Labour Party's manifesto—then I would find it possible strongly to contend that my friends in the trade union movement should accept that the wage freeze is an absolute necessity.

I will make my own position clear. supported the voluntary incomes policy. I believed that the early warning system, based on the co-operation of individual anions with the T.U.C., contained the first beginnings of a co-ordinated wages strategy that might finally develop as a rational alternative to the sectional partisan scramble that has characterised the traditional bargaining processes of wage fixing in British industry for so long.

It is hardly possible to exaggerate the significance of the change in trade union thought as exemplified by the early warning system managed by the T.U.C., I am anxious lest that opportunity for change should now be in danger; I am anxious about strain which will be placed on the structure of our industrial relations and on the loyalty of working people to the Government. I am concerned about the potential damage that can flow from a wage squeeze imposed from the top—injust and inequitable as it must be. It is this anxiety that provokes me to speak as I do.

I would defend these measures if I were convinced that the real nub of the problem facing the country was being tackled, but it seems to me that even in this debate my right hon. Friends are still blurring the issue; that the illusions are still clinging. My right hon. Friend the Chancellor of the Exchequer said that the best estimate of unemployment was that if it were spread evenly round the country it would represent little more than the movement of men between jobs.

I do not want to be unfair to my right hon. Friend the President of the Board of Trade, but last night he seemed to me to give the impression that the cuts in home consumption added up to only £500 million—say, a mere 2 per cent.—which was much less than the present annual increase in public consumption. As a consequence, one would be justified in concluding that the measures that have been put to us yesterday and today could almost be defined as part of Socialist planning. The fact is that they were forced on the Government by the total dependency of Britain on the continued support of foreign banks.

In June, the credits from the Bank for International Settlements were renewed to the tune of 1,000 million dollars. It was hoped that that sum would tide us over the next few months. The credits are to be reviewed every three months; Britain has to appear every three months before the Bank of International Settlements. The Bank's annual report on our economy, read in the light of last Wednesday's statement, can be seen to be no more than a preview of what the Prime Minister said.

It refers to the unduly high level of employment, the high level of public sector expenditure, the ineffectiveness of the incomes policy, the inadequacy of the Chancellor of the Exchequer's fiscal restraints—all these came in for severe strictures from the 12 banks which are now really determining Britain's policy. And I am bound to say that the statutory wage freeze we are being asked to accept is a genuflection made in the direction of the Bank of International Settlements. I ask whether these orthodox schemes now being spelled out in detail will do the job. It is thought that they will give us a breathing space, but every one of us knows that much more than a breathing space is needed. And after the breathing space—what?

I want at this stage to deal with two points that have already been touched on by some of my hon. Friends. The first is the position of sterling as a reserve currency, the problem of freeing ourselves from the historical straitjacket of being banker for nearly half the world's trade and, second, the problem of getting other nations to co-operate in an agreed solution to the problem of international liquidity, about which my right hon. Friend the Prime Minister has talked today.

We all know that this will take time. The Chancellor of the Exchequer has just returned from meeting his colleagues at The Hague, where the Finance Ministers of the 10 richest countries in the world discussed these problems. Almost every one of those other nations is running a credit squeeze designed to reduce its import payments, to control its overseas payments and to cut its investments abroad. All our own main customers are seeking to cut their imports. Deflation, unemployment, sound money—these are the criteria that were being applied at The Hague by the Finance Ministers this week in judging each other's economy. Can we, therefore, assume that the serious measures we are being asked to accept will just give us a breathing-space, after which there will be a surge forward of the nation's economy?

There is a real emergency here. Neither I nor any of my hon. Friends denies the deep-rooted nature of these problems with which we are seeking to grapple. Yesterday, the Chancellor, and today, the Prime Minister, spoke about the control of the export of capital. Yesterday, the Chancellor of the Exchequer said that even in present circumstances that control was adequate, but I put the following point to the Government.

Just before the Labour Government took over in 1964, the Bank of England published an analysis of the overseas holdings of British companies and private individuals. It showed a total of no less than £11,000 million. This had been accumulating over the 10 years prior to 1964 during which period the country was forced to deflate no fewer than three times. Of that total sum, £5,000 million related to subsidiaries of companies in Great Britain. The Bank of England showed a figure of £3,000 million in overseas portfolio investment—well over three times the total amount of our nation's present reserves, every penny of which we accept as being borrowed money.

I ask the Government to consider whether—since this crisis is so grave, and so much is at stake—it is not possible to face the political and economic challenge of nationalising the overseas portfolio investment of individuals. I make no reference to subsidiary companies. I would remind the House that, during the war, measures far more drastic had to be taken. If a cushion three or four times the size of our present reserves can be created, I ask the Chancellor of the Exchequer to consider creating it—

Mr. John Smith (Cities of London and Westminster)

Is the hon. Gentleman aware that it was the earnings in foreign exchange from those foreign investments, built up when we were in office, which have bailed the Government out of their troubles of the last few months?

Mr. Horner

I have taken full account of the alleged earnings from overseas investments. I put this suggestion forward with urgency. I stress that we are, and will remain, hostages of the foreign bankers, to whom we must report every quarter on the way we are running our economy. That being so, no measure should be left untried, and if a cushion to our reserves can be effected in this way, I invite the Government to give the matter serious consideration.

Mr. Stratton Mills (Belfast, North)

The hon. Member referred to alleged earnings. Is he aware that they came to £454 million in the balance of payments in 1965?

Mr. Horner

The earnings would continue.

I come to my last point, which has been emphasised by many hon. Members on both sides of the House, particularly by my hon. Friends below the Gangway. A cut of £100 million in overseas expenditure is totally inadequate. The military saving cannot take place for a year or two. It represents, I understand, only an acceleration of the Defence Review. In this critical position, so grave that we have to deflate, to risk unemployment, to bring about a reduction of the national income—estimated at up to 3 per cent.—to endanger future investment, we shall not have completed the job unless correspondingly we enter into a drastic revision of Britain's rôle in world affairs which, over the recent decade, has been such a drain upon our reserves.

I invite the Government to strip themselves of illusions. We simply cannot afford 220,000 men overseas. We cannot afford an east of Suez policy. We cannot afford to start contemplating spending over £1,000 million buying aeroplanes from America which can be used only at the behest of America in the Far East. No one believes that we can do this cutting tomorrow, or that we can bring the boys home by Sunday week. In this review everyone is expected to make sacrifices. I, with other trade unionists, have been invited to exercise my influence in the trade union movement to get trade unionists to accept the wages freeze. Surely I am entitled to say that I could do this more effectively and with much better heart if I were satisfied that it was a total review and that these measures, also, were under examination.

The Government cannot afford to impose a wages freeze, to allow unemployment to occur, however euphemistically they express it, as a shake-up or shakeout, unless radical steps are taken to regain for us the sovereignty of these islands, where we can carry through Labour's policy. We are told that we are in danger of bankruptcy. In my view, if these dire forebodings were to come true we would have bankrupted ourselves, not because trade unionists were bloody-minded and selfish, not because of unpatriotic city businessmen—that is the system we live in—but because the Labour Government could not rid themselves of the absurd ghost of that rôle of a one-time great Power which still shackles us to the remnant of a foreign policy and so-called defence policy relevant to another age.

Unless we abandon it, it will not only condemn us to continued bondage to the foreign bankers, but it will destroy for us on this side of the House the hopes of realising the social and economic advances and of changing British society for which people voted at the last election and for which so many tens of thousands of rank-and-file workers in the Labour and trade union movement have given their working lives.

I beg the Government to carry this review to its logical conclusion, to win this real independence to give us the chance of real prosperity, to recognise illusions for what they are. Otherwise, this crisis will certainly not be the last which Britain will see. If the Government do not do that, I suggest that they will have both gone too far and not far enough.

6.25 p.m.

Mr. Selwyn Lloyd (Wirral)

I begin by congratulating my hon. Friend the Member for Canterbury (Mr. Crouch) on his maiden speech. We liked very much his graceful tribute to his predecessor, who was very popular in this House. His speech was admirable in form—not exactly uncontroversial, but nevertheless a very powerful reinforcement of our opinions on this side of the House. I am sure that we shall all enjoy listening to him speaking again many times.

I shall try to deal with the Government's present proposals and the future, but it may not surprise hon. Members if, first, I speak about the past. The Government and their supporters are the victims of their own propaganda. I think that they have made things very much more difficult for themselves. They must now realise how wrong they were to describe stop-go as a Tory policy, because in fact it has been the policy forced on all Governments since the war. Sir Stafford Cripps had to do it, Mr. Gaitskell had to do it, and now the present Government have to do it, because in an island like this, as economically vulnerable as we are, it is absolutely impossible to get a steady, even rate of growth year by year. There has to be occasional use of regulators according to the circumstances.

The object is, of course, to avoid the stop being too violent and to avoid the screeching of the brakes. There have been many references to the 1961 measures. The Prime Minister must have blushed a little, if he could, about his reference in 1961 to screeching of the brakes which he applied to my measures. Those measures were successful. They did save the £. Within 12 months we had repaid all the borrowings, £300 million to the central bankers, and £550 million withdrawn from the International Monetary Fund.

Mr. James Dickens (Lewisham, West) rose

Mr. Selwyn Lloyd

I shall give way in due course.

Within nine months the Bank Rate was down to 4½ per cent. and it was possible to begin to reflate not only in regard to Bank Rate, but to release some special deposits, relax hire-purchase and credit controls. Our costs were more competitive and weekly earnings went up in October, 1962, by 3 per cent. compared with 6 per cent. in October, 1960. The reward for that restraint came in the comparatively stable prices of 1963. The way was made clear for the growth of 8 per cent. in the two years 1963 and 1964, an average of 4 per cent., which was the best rate of growth suggested by the planners. Those measures, unpleasant although they were to introduce, did, in fact, work.

I suspect that hon. Members opposite have the word "unemployment" on their tongues. The criticisms about unemployment as a result of my measures were greatly exaggerated. It is right to mention the figures. The critics base their attack on the figures for January and February, 1963–815,000 and 878,000 respectively—but they do not point out that in February of that year 286,000 of those were in the construction industries and that, of those 286,000, 217,000 were temporarily stopped because of the weather. In fact, the monthly average for 1962 was 463,000 and the monthly average for 1963, excepting those two months of exceptionally bad weather, was 520,000. That is just about the Prime Minister's figure, the 2 per cent., his acceptable figure. Even taking the two bad months, it was within or near Mr. Gaitskell's acceptable seasonal peak. That deals with the myth about unemployment.

About investment, on 9th May this year the Chancellor spoke in the House about avoiding the disaster of the calamitous fall in investment between the third quarter of 1961 and the first quarter of 1963, but he did not compare like with like. Allowing for the end of the iron and steel investment programme, as he conceded in his speech on 9th May it was right to do, the difference between the first quarter of 1961 and the first quarter of 1963 was down £9.8 million and between the third quarter of 1961 and the third quarter of 1963 investment was down £17.2 million. I do not call that a calamitous fall.

I do not contend for one minute that the 1961 measures were perfect. It may well be that in the light of experience certain things could have been done in a better way. Nevertheless, their bad consequences have been so grossly exaggerated and their benefits under-esti- mated. I say this because I believe that the Government's authority to deal with this situation has been undermined by the extravagance of their former criticism.

I hope that there is virtual unanimity in the House as to the main purpose of these measures, although it is true that there have been one or two dissentient views. The alternative now, as in 1961, is devaluation. I am utterly opposed to that. There might be a temporary advantage to exports, but that would soon be wiped out by the increased cost of imports. Aid would cost more. International subscriptions, for example, are now running at nearly £40 million a year. They would all be greatly increased as a burden. Overseas defence we know about.

It still is to our general advantage to be a reserve currency. That position would be damaged. We should be breaking faith with those who have deposited their money with us. What is more to the point—a point which has not yet been made—we would start a flurry in all currencies which would damage trade. The business in March, 1961, was all started by the German decision to revalue only to the extent of 5 per cent. That started a wild series of speculations, fluctuations and anxieties with regard to currencies. If we were to do this now, I believe that it would have a similar sort of result, and goodness only knows where it would end. Therefore, devaluation must be prevented. I believe the Government when they say that they mean to prevent it. They are committed to prevent it; and I welcome that fact.

In my view, provided that the Government do not immediately begin to run away—for example, over redeployment of labour, over-manning and things like that—provided the Government do not begin to run away, and there is a heavy responsibility on the First Secretary of State in this regard—these measures will do the trick in the short term.

I come on now to look at the measures themselves. I agree with what the Chancellor of the Exchequer said about import quotas. They are extremely complicated to enforce and any system for putting them into force is very likely to be defeated by forestalling. They would cause great hostility and criticism from our allies after the surcharge. I agree that import quotas should be rejected.

After what was said about the 1961 pay pat, se, I am, naturally, interested in what the Chancellor of the Exchequer described as the temporary standstill in increases in incomes.

Mr. Joel Barnett (Heywood and Royton)

Would the right hon. and learned Gentleman agree with the right hon. Member for Barnet (Mr. Maudling), who earlier suggested, as an alternative to import quotas, the system, adopted in Italy and elsewhere, of taking prior deposits?

Mr. Selwyn Lloyd

Dealing with credit for imports is a quite different proposition. I think that that should be further considered.

Returning to the question of the temporary standstill in increases in incomes, the hon. Member for Newcastle-upon-Tyne, West (Mr. Bob Brown) sensibly pointed out that this cannot be achieved without anomalies. The hon. Member for Oldbury and Halesowen (Mr. Horner) said much the same thing. There are bound to be unfairnesses. If it is carried to the extent of refusing to honour awards which have already been made, it will be very much tougher than the pay pause for which I asked.

I want to say a few words about the future. I believe that it is right to ask for this restraint in increases in personal income as a short-term measure. I hope that the Government will not be discouraged if there are one or two breaks in the line. The difficulty about a norm or a pause, and one which did receive careful consideration before introducing first the pause and then the 2½ per cent., is that any deviation receives the widest possible publicity, but the mass of conformists get no recognition.

In spite of what happened over the electrical workers in November, 1961, and the dockers the following summer, that restraint worked pretty well and there was much more co-operation in it from the unions than anyone has been prepared to admit. I welcome the T.U.C.s decision, which has been announced today, that it will co-operate in seeking to make this standstill effective. It is a negative, temporary policy, but it is necessary in the present circumstances.

Profits and dividends are frequently mentioned. I do not think that these are a problem at the moment, because profits are falling so fast, as they did in 1961, that the apostles of fairness need not worry about them.

The case of the poorer paid workers has been made. It is a strong one. The most disagreeable decision of all the decisions I had to take in 1961 was the decision I took about the M-rate workers. However, the poorer paid workers have the most to gain from the stopping of inflation. Inflation does not harm the rich, the propertied, those with strong economic bargaining power, or those with powerful trade unions behind them. It is the poorest paid, those with the least bargaining power, those on fixed incomes, who suffer from inflation. If these measures halt inflation, it is in the interests of the poorer paid workers. I hope that every means will be taken of putting this point over to them.

Having said that about the present measures, the next question—a question which was foremost in the thinking of the hon. Member for Oldbury and Halesowen—is this: how do we avoid, when we expand again, a repetition of what has happened before? I do not think that there is any easy or simple answer. The Government have learned that lesson. There are certain things which are common ground between us. I think that the Prime Minister was a little unfair in relation to many of the things which had been started before the Labour Government came to power and which are being continued, and in suggesting that there has been a complete change of trend. For example, in the matter of regional development, and so on, many things were done by the Conservative Government.

We can go along with the encouragements to exports, with the aids to mobility of labour, with the retraining schemes, with securing a better balance between the regions, more efficiency, more management training, etc. All these matters are common ground, and we welcome the developments which are being made in them.

I now want to mention one or two matters which can be regarded as rather more controversial. The first is the point made by my right hon. Friend the Member for Barnet (Mr. Maudling) this afternoon. It is essential to get the Government set-up right with regard to the management of the economy. The present set-up must be wrong. The Chancellor of the Exchequer is in control of fiscal and monetary policy and of public spending. The First Secretary of State deals with expansion and economic development.

I have never held up my hands in horror at the idea of planning. I started the five-year forward look at public expenditure. I started N.E.D.C. to examine the obstacles to growth and with a view to expansion. Our set-up was very much better after we had instituted the post of Chief Secretary to relieve the Chancellor of the Exchequer of the burden of arguing with his colleagues about individual items of public expenditure, a process which used to take up a great deal of the time of any Chancellor of the Exchequer.

We created the post of Chief Secretary to relieve the Chancellor of the Exchequer of the burden of keeping day-to-day control on public expenditure and of the task of coping with the endless departmental arguments. We wanted the Chancellor of the Exchequer himself to be freer to deal with general economic policy. That was a much sounder basis. It is nothing to do with personalities. It is the machinery of government. I think that the present set-up is wrong. We had it much better.

The second point is that the Government must exercise firm control of Government expenditure overseas and at home. My right hon. Friend the Member for Flint, West (Mr. Birch) made some suggestions about that yesterday, with which I agree. They were endorsed today by my right hon. Friend the Member for Barnet.

Another thing which must be done, if we are to get the economy sound, is to keep control of the overall borrowing requirement. Only if control is maintained over the overall borrowing requirement shall we be able to get a firm grip on the gilt-edged market and once again get long-term interest rates on the move downwards. That was just beginning to happen in 1962. It was a very important contribution to the well-being of all our citizens, because one of the greatest burdens is a very heavy interest rate going on in perpetuity. Therefore, I believe that strict Government control of the overall borrowing requirement is extremely important.

As for overseas defence, I am all for withdrawing from commitments as quickly as is possible, provided that we do not leave a vacuum behind us when we go which may involve us in added expenditure at a later stage. I very much hope that it will now be possible for us to make substantial economies in the Far East, as it appears that confrontation is ending.

On the question of expenditure in Europe, I do not know whether I speak for all my right hon. and hon. Friends, but I think that the W.E.U. Treaty should be observed. There is clearly a reservation in the treaty about the balance of payments, and when we were worried about that in 1957, I negotiated with our allies a reduction of 23,000 in our forces in Germany. That was done by agreement on balance of payments grounds, and we are entitled, provided that we do not do it as a unilateral decision, but by negotiation, to proceed on those lines, making our allies see that it is important to have an ally with a strong balance of payments. This is more important than having troops actually in Germany. It is my view that, as long as it is a planned operation and does not happen too quickly, it is the sensible thing to do.

Thirdly, the Government must realise the huge complications they have created for trade and industry by their recent and proposed legislation. The consequences of the Capital Gains Tax, Corporation Tax, the new investment allowances, the Land Commission, when it is set up, the Prices and Incomes Bill and the S.E.T. impose a heavy burden on the ordinary business as well as on the machinery of government. The Inland Revenue is grossly overworked. There are not enough valuers to go round, so what will happen about some of the provisions I do not know.

Far too much time is having to be spent by people who should be thinking of increasing productivity and capturing foreign markets in working out where they stand—not to frustrate the provisions—and the consequences of this legislation for their projects. The Government should scrap most of this legislation, or, they will not do that, they should delay it; and while they are delaying it they should clarify some of the things they have introduced or propose to introduce. The measures are major disincentives to investment, effort and initiative.

Fourthly, the Government must do something about providing more incentives for savings. The hon. Member for Lewisham, West (Mr. Dickens) recently talked at Question Time of unearned income as though it was something which stank. How can we get people to save unless they receive some reward for their saving? Perhaps, to deal with some prejudices, the Government might contrive to provide the incentive for new saving, but if somebody denies himself something out of his year's wages or salary so that he can save, he is entitled to adequate reward on that saving.

Mr. Dickens

Is the right hon. and learned Gentleman aware that between 1960 and 1964 productivity in this country rose by 17 per cent., the cost of living rose by 19 per cent., the national wages and salaries bill rose by 38 per cent., and dividend distribution rose by 59 per cent.?

Mr. Selwyn Lloyd

One reason for this was that dividend distribution had been held back at an earlier period. Another reason is that in these calculations there is not taken into account the great increase in capital formation, which vitiates those statistics. The State receives a very large cut on dividends. Dividends depend on profits, and the hon. Member need not be worried on this point because profits are falling very seriously at the present time.

The Government should push on with reform of trade union law. This must be done delicately. One would want to take responsible trade union officials with one on this. [An HON. MEMBER: "And the lawyers."] And the legal profession, certainly. Can it be sensible that strikes should be allowed over demarcation disputes at the present time? I should go along with any proposals the Trades Union Congress brought forward as a means of stopping that sort of thing, whether it was a period of delay, some form of arbitration, or whatever it might be. But I cannot accept that, when our economy is in its present difficulties, demarcation disputes can be allowed to end in strikes.

There is much to be said for the establishment of some sort of industrial court, at all events to examine restrictive practices. There is something to be said for agreements being made legally enforceable in certain cases. I hope that the Government will, whether or not the evidence has yet gone to the Royal Commission, exercise all the pressure upon it that they can to report quickly, and that, if it does not look as though it will do so, will initiate independent action of their own.

Mr. William Molloy (Ealing, North)

I have followed the right hon. Gentleman's speech with very great interest. It is a quite remarkable speech. The right hon. and learned Gentleman earlier made what I thought was a very good point about the co-operation he had received from trade unionists and the T.U.C. when he held the reins of office. I thought of interrupting him then to ask him if it was not ludicrous for his right hon. Friend the Leader of the Opposition to talk about introducing legislation which could only smash up this good co-operation. Would the right hon. Gentleman not agree? I am sure that he must know that the standard of behaviour of British trade unionists with regard to the responsibility of the positions they hold is second to none and that British strike figures, official and otherwise, are lower than any in Europe.

Mr. Selwyn Lloyd

I agree with a great deal of what the hon. Gentleman has said. Leaders of our trade unions are extremely responsible people. I have one criticism about the trade unions and that is that they do not pay these men anything like enough—though I am not suggesting an immediate increase in their emoluments! My sole purpose in supporting any measures to this end would be to strengthen the position of the responsible trade union leader, and if I were convinced that something I put forward would not do that I might change my mind. But I am convinced that it is wrong to have strikes about demarcation disputes, and it is important that just as restrictive practices in management can be brought into the open something similar should happen with regard to restrictive practices of labour.

I think, although some people may disagree with me, that the Government are right to persevere with the idea of the incomes policy. I should like the right hon. Gentleman to look again at the ground rules I laid down in a speech in December, 1961, when, I think, I first used the phrase. It is an essential part of an incomes policy to have the proper handling of demand. If the Government do not maintain the economy at a proper temperature, no incomes policy can possibly succeed.

Part of the incomes policy must also be planning for growth, and it should also consist of education all the time about the facts of economic life. If increases in personal income outrange increases in production, there is bound to be inflation and, in the long run, most people will be worse off. We have to preach restraint, that those who are in a powerful economic bargaining position will serve their own interests better in the long run if they do not push their privileged position to the full, and that restraint benefits the community as a whole. I am against compulsion. If it becomes statutory, it will fail, but we must try to make the whole community more and more aware of the consequences of increases in incomes beyond increases in production. The answer is to increase production and then incomes also can go up.

The Government would be wise to do everything possible to make our trading arrangements and systems and standards accord with those of the Common Market countries, but I shall not develop that point now.

To conclude, the country is in difficulties. They were avoidable. We are entitled to condemn the Government for incompetence in action and arrogance in opposition, but the main problem is to surmount the difficulties. We must unite in our determination to defend sterling. The strength and resilience of the economy is much greater than some of its detractors think.

If the Government want general support, I beg them to understand that they must abandon some of their shibboleths and forgo or postpone irrelevant measures that only add to our difficulties.

6.50 p.m.

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

Having sat here, I feel, almost continuously since half-past two yesterday—though I must have slept and had lunch—I find a great deal of what the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) has called common ground. There are matters on which I agree with many hon. Members on both sides of the House, though I suspect that, before I have finished what I hope will be a brief speech, I shall receive a good deal of criticism from my hon. Friends on the bench immediately in front of me.

In my view, the Government were quite right to assert that, to some extent, the economy has been blown off course. I do not want to go into all the details of the Rhodesia problem, the seamen's strike, the terms of trade, even the resignation of my right hon. Friend the Member for Nuneaton (Mr. Cousins) from his post as Minister of Technology. Neither shall I comment on the complexities of the situation, which were dealt with so adequately by the Prime Minister, in connection with the world decline in liquidity.

In expressing my support for what the Government have done, I add the hope that my hon. Friends will not throw overboard what are regarded as the traditional techniques for controlling the economy. To some extent, my right hon. Friend the Prime Minister has been hoist by his own petard, because he, alas, with his fertile mind, invented the expression "stop-go", giving birth to it on 27th July—July is a fateful month—1961.

I would argue—here, perhaps regretfully, I have common ground with the right hon. and learned Member for Wirral—that it is impossible to conceive of an economy here or, I would add, in Russia, in which one can look forward to uninterrupted, unfluctuating economic growth of either 1 per cent. or 10 per cent., and that what is important, if we are not to sink into a morass of critical discussion, is that we concentrate on the average rate of growth over a period rather than on achieving complete consistency. Let us look at those who are in the fast growth league. Let us look at Japan, Italy, or France and ask ourselves whether their economies behave in this way.

With all respect to those who do not think that we should have any unemployment at all, I think that this may to some extent be a condition of progress. If we can learn to refine our techniques of monetary and fiscal control, if our timing and our quantitative changes are much more precise than they have been in the past, we shall manage our economy much better and bring the wage component much more fully under control.

I do not want to be academic about it, but what is most significant in the wealth of statistics which are quoted is that the real correlation is not between the level of unemployment and the level of wages, it is not that Professor Paish is right in saying that we must have 2½ or 3½ per cent. unemployed, but that changes in the level of employment of resources have a quite significant correlation with incomes.

As my first point, therefore, I plead that we should accept these techniques as part of our total policy and not throw them overboard because they are associated with stop-go. I would support the Government in that respect.

Mr. Dickens

I will bet on that.

Mr. Cant

I hear my hon. Friend say that he bets that I will. All right.

I support what the Government have done in he field of overseas policy. I do not think that we should go any further in the control of capital out-flow. My speech is becoming something of a catalogue, because I am trying to be brief. In my view, the Chancellor is quite right to say that we have gone far enough in this respect. I do not consider that we can do much more in the short term about changes in overseas military expenditure, though we should like to see the economies defined a little more clearly.

What we might do in this connection is accept Mr. McNamara's—if I may mention his name in the Chamber—2 dollar exchange rate which he uses in the United States to make absolutely certain that American defence authorities spend their money in the United States as far as they possibly can, not outside.

I support the Government also in their attitude to import controls. This may be a delightful idea if one wants to think in terms of a siege economy, but I do not equate Socialism with a siege economy. Import controls have some quite serious consequences, which have been talked about from time to time in the House. If we have the right control policies, we shall control imports, and this is the dramatic factor in the whole context of the balance of payments situa- tion. I shall not say more about it. I support what the Government are doing.

Having said that I support the Government along those lines, let me now say what I think they should do in other respects. Here I come to the question of the incomes policy. Having looked at this problem, not in any academic sense, for a very long time, I have come to the conclusion that, if we can get an incomes policy—and we should try—all right; to use the Chancellor's terminology, it is a bonus. But I do not place very much confidence in getting it, and neither do I think that the Government should bring pressure on the trade unions to do it.

If one looks at the rise in wages and salaries last year and asks why there should have been this enormous disproportion between the increase in output and the increase in incomes, the paradoxical answer, in my view, is that it is a consequence of having an incomes policy. Once we institute a norm, it becomes the starting point, and people say, "What shall we get beyond the 3½ per cent.?".

A lot has been said about the freeze, and I accept that it will be extremely difficult to implement—but good luck to those who want to do it. But, once we have done it, we have to start making concessions. In the Financial Times and, more particularly in The Times this morning, we learn that two suggestions are being put forward, that we give special treatment to the lower-paid worker—yes, excellent—but that, to overcome the question which arises in the mind of my hon. Friends in front of me about dividends accumulating and being harvested in the future, we should have a sort of delayed wage and dividend unit trust.

I see that I have taken hon. Members by surprise. Obviously, they do not read The Times as consistently, perhaps, as they should. It is a very ingenious recommendation. All I am saying is that, if we have this situation, we may be led to spend far too much time on all these various methods of avoiding having to do what we want to do.

Let the First Secretary of State concentrate much more on prices. I think that the control of prices, if the French system is any guide, is a much better method of control not only of incomes but of the economy as a whole.

My next point is the Selective Employment Tax. I must move extremely careful here, though I am sure that nothing I say in this Chamber is likely to have the slightest effect. Why do not the Government drop the Selective Employment Tax premium? They are to give £130 million to manufacturers, who, I gather—although it is rather difficult to accept—do not want it. As things are going, the £250 million in Selective Employment Tax which is to be taken from the economy will be eroded by the continuous rise in import prices, and will also be eroded, alas, by the increase in unemployment. Therefore, if the Government are determined on deflation, why do they not make it effective by abolishing the premium? This would cancel out the other developments that I mentioned.

As to my third short-term point, why do the Government not do something about the payment of cash for imports and about the whole question of people in the foreign exchange market seeking cover? We have been lecturing for many years about the leads and lags and the problems that they pose particularly for a reserve economy. Why cannot we come to grips with the problem, because it poses considerable difficulties?

I now come to one or two longer-term suggestions. All that we have said about overseas expenditure and import substitution is important, but I am certain that our economy will not survive, progress and evolve and the dynamism that everybody talks about unless we have much higher investment per head. The vital correlation is growth of national income and investment, if we define it in the right sort of way. I hope that the Government Front Bench will give much more attention to this problem than in the past.

Related to this, as any analysis of our economic situation since 1948 would show, is the inflation that has emerged, whether we call it demand, pull or cost, in this sector of our investment-savings equation. It is not that the banks have gone mad and started turning out too much money in the sense that they are responsible for too much money chasing too few goods at this critical point. Therefore, I would support any hon. Member on the other side of the House or on this side who would say, "Incentives for savings".

I would take issue with the right hon. and learned Member for Wirral for saying that the Chancellor is having too big a net borrowing requirement. My argument with the Chancellor is that his net borrowing requirement is far too small because he is raising far too much in forced saving through taxation.

I do not think that devaluation is in. But I would tell the Government that they might look not at the vague floating exchange rates but, seriously, at something which would be consistent with the I.M.F., and that is the idea of a sliding parity within the existing margins. This is a very fruitful adaptation of the floating exchange rates.

There is a lot more that I could say, but I promised to be reasonably brief, and so I will not launch into discussions of international liquidity, sterling as a reserve currency and so on. But I hope, not with much expectation, that the Government Front Bench will take note of these things even though it may be some time before they fructify.

7.5 p.m.

Mr. John Boyd-Carpenter (Kingston-upon-Thames)

I hope that the hon. Member for Stoke-on-Trent, Central (Mr. Cant) was wrong when he said that anything that he said in this Chamber would be unlikely to have any effect. I thought that a great deal of what he said to his own Front Bench made very good sense, and I hope they will pay some attention to it, though my hope, like the hon. Member's, is perhaps a faint one.

I thought that the hon. Member was dead right when he said that the Government, and the Prime Minister in particular, were in this situation to a great extent prisoners of their own past speeches and their own past attacks on not dissimilar measures. He evidenced the startling phrase "stop-go" and told us that the Prime Minister originated it. I thought he was absolutely right when he said that all Governments will from time to time have to use something like stop-go. Indeed, Mr. Harold Macmillan once commented on this "How else can anybody drive a car?"

I wish that the Chancellor of the Exchequer had had the hon. Member's wisdom in this matter. In his own address at Cardiff in the 1964 General Election he said: The most important protection for the steelworkers, as for everyone else, is that we should escape from successive Conservative 'stop-go' crises … It seems to me that the hon. Member for Stoke-on-Trent, Central knows a good deal more about these matters than the Chancellor did at that time, or than he, I suspect, knows now.

Indeed, there has been a very curious change in the speeches from the Dispatch Box this afternoon compared with what we heard 20 months ago or even three or four months ago. Then all the troubles were due to the "terrible inheritance from the Tories", and they were all going to be put right by purposive planning. [HON. MEMBERS: "Dynamic policy."] Yes, by dynamic policy and purposive planning. [HON. MEMBERS: "Gritty."] I am indebted to my hon. Friends for the supply of adjectives, although I have never been terribly short of them myself.

I quote from the Government's own election manifesto. This illustrates the change. Their last manifesto said: Overseas confidence in sterling has grown steadily as the world has become convinced that we are winning the battle for solvency. The victory was a real one; but so was the price the nation paid. In particular the high interest rates required to strengthen sterling forced up mortgage payments and council house rents. But one price the nation did not have to pay—the deliberate creation of unemployment which our predecessors regarded as inevitable. The Government call it "redeployment" or "shake-up" now, but it hurts the people concerned just as much.

I quote that as showing that at least part of the difficulty which the Government have got themselves into has been the extent to which they have been committing themselves, even up to a few months ago, to opposition to the kind of steps which they are now taking. And I believe that part of the reason for the Chancellor of the Exchequer undertaking what he yesterday admitted to be the gamble of not moving earlier in the matter was a natural and understandable reluctance to go back on so much of what he personally, the Prime Minister and members of his party had been saying by way of criticism of us and by way of general comment on the situation.

It may well be that that delay for that reason—here I agree with the hon. Member for Stoke-on-Trent, Central—has caused these measures to have to be, and to have to appear to be, tougher than they otherwise would have been.

I want to turn to a point which, curiously enough, has had very little indeed said about it today from that Box, and that is the pay freeze, to which the Prime Minister gave very great prominence when he made his statement on 20th July. May I recall to the House what the Prime Minister said? He said: 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. He went on: The Government are 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."—[OFFICIAL REPORT, 20th July, 1966; Vol. 732, c. 636.] He gave that great importance, as, indeed, did the Chancellor in this House, though he has not yet explained to us those curious observations, which my right hon. Friend the Leader of the Opposition quoted from the report in the Financial Times, in which he described this as a bonus. But the Prime Minister put this as being an important step on which the whole thing stood or fell. The Prime Minister in the course of his speech—during which at one moment he seemed likely, I thought, to talk out, or at any rate read out, the debate—never mentioned it at all.

I understand that the First Secretary, however, is going to say something about it in his winding up speech. The House knows that the First Secretary's enthusiasm for these proposals can he restrained within the limits of decorum, though it is sufficient to keep him within the confines of the Cabinet. But I hope he is going to tell us a great deal more about this because I have a number of questions, and I should be obliged if the Minister of State would be courteous enough to take a note of them—a number of questions which I think many hon. Members would like to have answered about this pay freeze when the First Secretary comes to reply. We are dealing, after all, with what the Prime Minister has said—I will repeat it—is the point on which this whole package stands or falls. Many of us want to know how practical this step is, whether, indeed, it is practical, how it will work, and I think our judgment on this must turn very largely on the answers to a number of questions.

First of all, is this to be voluntary or compulsory? Indeed, the word "voluntary" has many meanings. I recall that when I went to school the prospectus observed that membership of the cadet corps, then called the O.T.C., was voluntary, but added the comment that all boys of 15 and over then present in the school were members of it. "Voluntary", therefore, has a certain flexibility of meaning. But is it intended that the threatened or promised amendment of the Prices and Incomes Bill—which none of us has seen, including the Standing Committee engaged on the Bill, and, therefore, I think I am in order in referring to it—is to introduce any measure of compulsion or not?

If not, has the First Secretary, have the Government, contemplated the position in which they are putting employers? What is to be the position of an employer who has promised an increase in wages but not yet put it into operation? Is he to carry the can for declining to carry out his promise on the basis of no more than a request from the Government? Is he to be in the position of facing, perhaps, a strike embittered by accusations of broken faith simply on the basis that the Government have asked him to? What is the position? What is the employer in that position to do? This goes further. There are cases, which the House knows, in which successive increases in pay have been promised in return for advances in productivity. The Esso case is one with which most hon. Members are familiar in which most hon. Members are familiar. There are cases in which increases in pay are agreed, with improvements in productivity in return. Is the employer to withhold or postpone that increase or is he not? And on what authority? Is he to go back to what is in these circumstances his undertaking?

It goes further than this. About 3 million workers in this country are covered by agreements under which their wages rise in accordance with rises in the cost of living. It is common ground that there will be such rises. Indeed, it is the purpose, of this package including the use of the regulator, to effect just that. Are those employers—I want an answer to this, and I hope that the Minister of State will note it—are those employers, or are they not, to honour their agreements during these next six months? These are long-standing, long-running agreements, to which most of them will regard themselves as morally bound. What are they to do? What guidance do they get from the Government?

There is a case of even greater difficulty than this, that of the wages councils. Where there is a wages council award—I speak subject to correction by the Minister of State on the matter—am I not right in saying that the Ministers responsible cannot reject the wages council award; they can only send it back for reconsideration? If in fact the wages council persists the Minister has no option but to accept the award. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), who has been Minister of Labour and who has great familiarity with this, confirms the view I put tentatively. What is to happen? It is my understanding that where a wages council award is put into force it is legally enforceable. Are the Government, through legislation, to relieve them of these legal liabilities and ask the employers to repudiate them?

What about the position of the Agricultural Wages Board? As I understand it, its awards are enforceable. What about an award at arbitration going through now with both parties having accepted the obligation to accept the award whatever it is? What is to happen to an award from the Industrial Court during this period? If we are to be persuaded that this is an effective policy and not a mere empty gesture we really have to be satisfied that the Government have thought this thing through and have positive answers to these questions.

Mr. Arthur Lewis

I am in agreement with every word the right hon. Gentleman has said. Would he add a further one? What is the position where a case goes through the normal channels and which has taken six months to resolve and then is referred to the Prices and Incomes Board? Does the Prices and Incomes Board accept and recommend it? Is it to be told, as I understand is the case, by the Government that those employees cannot have that increase?

Mr. Boyd-Carpenter

I am glad to say that that is for the First Secretary to answer, and not for me but I hope that that question from one of his hon. Friends may be added to the list.

When he made his statement I asked the Prime Minister some of these questions. He merely said that it was a matter for discussion. We really must know a little more tonight.

How are the Government going to act in their own sphere where they have control? In respect of the Civil Service, is the Whitley Council system to be put in cold storage? Are the Government going to override Civil Service awards at arbitration? Hon. Members will remember the ferocious attack made upon my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) for his even more modest efforts in that direction. What are the Government going to do in the sphere of the nationalised industries? It is our experience that, with happy disregard for the profit motive, they have often Jed the way in inflationary wage increases. Are the Government going to give directions to the chairmen that they are not to concede any request in the next six months, and only modest ones thereafter?

Then again, if this is to be voluntary action by private employers, and if private employers are put into the position of great difficulty of the matter being left on a voluntary basis by the Government, they really will expect the Government, if this is their policy, to see this enforced in their own spheres, and the nationalised industries, of course, comprise one of them. What is the direction to the nationalised industries?

I ask the First Secretary to deal with these questions when he replies. Because opinion outside wants to know whether this is to be just one more appeal for moderation—and the First Secretary's appeals for moderation in the last 18 months have been a conspicuous failure. People outside, who think this is only an appeal, will be very much affected by these answers, and in particular they will deduce from these answers whether this policy has really been thought out and whether there is real determination and not just a general hope.

I want to refer to two other matters only, one of which is public expenditure. I agree with the hon. Member for Stoke-on-Trent, Central that one of the casualties of this should be the £130 million premium on the Selective Employment Tax. If other matters are to be cut, it seems to me that this is a very proper cut. However, there are others. I am bound to say that I was disappointed by the fact that the Chief Secretary in a Written Answer yesterday gave an indication of cuts practically all of which are in the field of investment; for example, in the investment in nationalised industries resulting in the postponement of the re-equipment of plant of some of the basic services. There are very few cuts in the field of consumption.

Hon. Members may ask what I suggest. I suggest reversing the Government's decision on prescription charges, and I suggest, too, looking closely at the current expenditure of local authorities. Let me give the Minister of State one positive example, which I have already taken up. The Greater London Council has announced its intention to spend something like £600,000 a year on a new information service, and it proposes to start it at the very moment when the Government are asking people to cut back existing expenditures. I asked the Minister of Housing and Local Government whether he had been consulted about it and what he was going to do. He gave me a written reply, the effect of which was that it was nothing to do with him and he had no powers. Constitutionally, no doubt that is right, but the Chancellor of the Exchequer has powers by legislation to alter the grant to any local authority which indulges in wanton and extravagant expenditure at this moment.

We shall judge the Government's handling of this very strongly by whether they allow this expenditure, because it is an open secret that the real reason for the initiation of an expensive project of this kind at ratepayers' expense to explain to the citizens of London how well they are governed by the G.L.C. is not wholly unconnected with the fact that the G.L.C. has an election next April. Therefore, I suggest that it will be a test of the Government's sincerity to tell the Greater London Council that it will not be entitled to get away with impunity at this time with an extravagant and politically motivated project of that kind.

I come next to the squalid touch of the Surtax surcharge. As the Minister of State knows, it is completely irrelevant. It is the experience of hon. Members that Surtax is not always paid with complete punctuality, but it is not even payable until September of next year. Is that an indication that the Government expect this emergency to last at least that long?

When my hon. Friend the Member for Stratford-on-Avon (Mr. Maude) asked a Question about this yesterday, the Financial Secretary tried to argue that Surtax payers would cut back expenditure now in order to meet this liability. But it is not the habit of any taxpayer to collect money in a little plastic bag labelled "For Jim"—[Interruption.]—to meet tax which will not be payable until 15 months hence. One of my hon. Friends says, "With love", but I doubt that in this case.

Apart from the time factor, is increasing taxation to the level of 19s. 3d. in the £on certain incomes likely to help us out of this emergency, when one remembers that we are already the highest-taxed nation in the world and that the tax falls upon extremely useful members of the community—[Interruption.] I hope that hon. Members opposite do not dispute that, because it falls upon every member of the Cabinet. I will accept that that argument is against me. However, there are a great many other people who are much more useful, such as technicians and executives. It is common experience that, at a certain level, it is difficult to provide additional payments for an executive whom one wants to move to another job because of the problem of compensating him adequately.

Is this or cutting back the travel allowance to £50 a year likely to help give the required incentive? After all, £50 is spent on holidays in Europe by many people of moderate income. It does not affect the rich, because they go to the sterling area, to their houses in the West Indies. It affects the ordinary people who wish to get a touch of sunshine on the Mediterranean, many of whom work hard and save hard throughout the year for their holidays.

The theme which I want to leave with the House is that both the Surtax and the travel allowance indicate that the Government have not yet understood what makes a free economy tick and that the legitimate desire that hard work should produce personal reward for oneself and one's family is the dynamism of a free enterprise society. A Communist State can be run without it, but a State which is 80 per cent. private enterprise cannot be run by damping down and discouraging the most enterprising sections of society from taking on extra work and extra responsibility.

The Prime Minister referred to the effect upon the mood and feeling of the country. It is there, above all, that these measures fail. They offer not the faintest contribution to restoring the zip and dynamism which our economy needs. They simply pile a mass of worthy and respectable but painful and unpleasant burdens on the shoulders of the most heavily taxed people in the world, and then the Government are surprised if our economy is a little slack and sad.

7.27 p.m.

Mr. Russell Kerr (Feltham)

It will be agreed that we have heard a lot of interesting and well-informed speeches from both sides of the House over the past two days. For my money, the most interesting and relevant speeches have come from this side, I regret to say, and two of them came from my hon. Friends the Member for Salford, East (Mr. Frank Allaun) and the Member for Salford, West (Mr. Orme). The third one came from my hon. Friend the Member for Oldbury and Halesowen (Mr. Horner).

The reason why I say that is not because I wish to be partial to friends of mine but because my hon. Friend the Member for Salford, East correctly pointed to the impossibility of providing any permanent solution to our problems unless something drastic is done to the enormous burden of our defence costs, which are running at the rate of over £2,000 million a year.

As to my other two hon. Friends, I say it because they spoke with the authentic voice of the trade union movement in pointing to the irrelevance of many of the present proposals to deal with the wage freeze and that kind of thing.

If I understood my hon. Friends, they all agree that the basic malaise of the British economy is that it is unable to sustain the present level of overseas expenditure, both on the military side and in terms of overseas aid—which runs at the rate of £454 million net a year and, represents about 9 per cent. of what we earn from exports of all types—without a great strain on our balance of payments brought about in large part because of our attempt to hang on to the last vestiges of our Imperial grandeur in maintaining sterling as a reserve trading and exchange currency along with the dollar.

What has emerged most clearly from the debate is that we have not a cat in hell's chance of avoiding stop-go economics so long as sterling plays such a large and over-rated part in international financial affairs. What the ultimate answer should be is difficult to say—perhaps some new reserve currency unit such as the Chancellor was discussing some time ago, or perhaps allowing the dollar to get on with the job alone. All that one can say is that Britain's present economic situation is such that we can no longer afford the luxury of acting as a major world banker, and therefore some other way must be found.

In my opinion this should not worry us unduly. Although precise figures are difficult to come by, the finances of the country, despite what was said this afternoon by the hon. Member for the Cities of London and Westminster (Mr. John Smith), benefit only to a modest extent, perhaps by no more than £100 million a year net, from our international banking rôle, and that benefit is confined largely to the friends and former colleagues of hon. Gentlemen opposite in London E.C.2, rather than helping the more deserving sections of the community.

As against this highly marginal benefit, by retaining sterling as a reserve currency we place the economic well-being of Britain at the whim of a motley collection of E.C.2-type characters, perhaps without the bowler hats, who not only have a pathological fear and hatred of everything Socialist, but react in somewhat similar fashion to anything even expansionist in economic terms.

I regard it as of the utmost importance that Britain—particularly Labour Britain—should begin immediately the urgent task of insulating, by whatever means necessary, our economy from the self-seeking inanities which have become part of the folklore of the international financial community, and against whose disastrous counsels some of us, at least on these benches, are determined to wage war to the finish, or at least until such time as our gnome-like brethren in Zurich—and their friends in London, E.C.2—act in awareness of the biggest single political fact of our time, namely, that more than half of the world's people are at this moment hungry.

In addition, there is another aspect of our economic situation which should be stressed—it was touched on by my hon. Friend the Member for Salford, West in his very interesting and courageous speech yesterday—because in my opinion it affects very much the vexed question of how to avoid imports going up by leaps and bounds when economic expansion takes place, whilst at the same time acting in a way which will avoid retaliatory action by our friends in G.A.T.T., E.F.T.A., and elsewhere, as well as taking account of our international obligations.

I am pleading for selective import controls. I find it very hard indeed to understand the Government's fear at the prospect of introducing such selective controls. No one pretends that there would be no snags or difficulties, but I believe that the way forward in this direction has been pretty carefully mapped out for the Government by an outstanding Cambridge economist of the younger school, Michael Posner, who, happily, is shortly to move to the Ministry of Power as Chief Economic Adviser. He showed the Government the way in an article published on 23rd July last year, entitled, "The Arithmetic of Controls". That was just 52 weeks ago today.

In my opinion Posner's article should be required reading for all Government economic Ministers and their officials. He points out that a system of quantitative restrictions on certain categories of commodities could save about £200 million, whilst leaving 90 per cent. of our imports unaffected, and our trading relations not significantly disturbed.

Excluding from the exercise, for a variety of reasons, such imports as raw materials, most semi-finished manufactures, basic foodstuffs, even also, and alas, chemicals—which at present cost us about £250 million a year—and certain types of machinery, in his article Posner says that we are left with about £40 million being spent on luxury foodstuffs, £250 million being spent on assorted machinery and consumer durables, including £50 million on foreign motor cars, a figure which has risen since he wrote his article, and about £250 million being spent mainly on consumer goods, including things like foreign-made clothes, handbags, cameras, and so on.

A 30 per cent. cut in that total of £540 million would save about £180 million from our import bill, and, along with other measures, including the cut in holiday spending abroad which the Government have announced, and heavier cuts which we should like to see in arms expenditure, as was suggested yesterday by my hon. Friend the Member for Salford, East, together with perhaps even more stringent controls over capital exports and overseas investment, would take us a long step towards financial independence and solvency.

I believe that only vigorous intervention by the Government into the economic and financial affairs of the country—"purposive economic planning" if I may quote a phrase used by the right hon. Member for Kingston-upon-Thames (Mr. Boyd Carpenter)—can take Britain out of the valley of the shadow of economic death, and who better than a Labour Chancellor to lead the way?

7.35 p.m.

Mr. Michael Hamilton (Salisbury)

I enjoyed the speech of the hon. Member for Feltham (Mr. Russell Kerr), as I have enjoyed all the speeches in this two-day debate, and very good they have been, from both sides of the House.

My overriding impression is that throughout this debate the Government have found remarkably few friends. I have the feeling that all the benches in this Chamber, with the exception of the Treasury Bench, are in agreement on the words of the Motion: That this House has no confidence in the competence of Her Majesty's Government … and, of course, if we are honest with ourselves we admit, do we not, that no back bencher in any part of the House has any confidence in any Government? That being so, I think that my suggestion of camaraderie between the back benches during this debate has some merit in it. I hope that this impression may translate itself into results when we go into the Lobbies tonight to divide.

It is exactly a week ago this afternoon that the Prime Minister announced his latest measures. A week has passed. Yet further and more drastic medicine has been given to the patient, and if we are honest with ourselves again we must admit that the patient shows no very healthy reaction. As far as I know—I do not know what happened at closing time—the £today has been drifting, and there is nothing to persuade any of us that these measures have restored confidence. We have all thought very deeply about these measures. We are all conscious of the gravity of the situation, and I wish that my conclusions were rather less controversial than they are.

My first conclusion is that there is nothing surprising about this sterling crisis, nothing unexpected, nothing unforetold. My second conclusion is that this sterling crisis can be dated precisely to October, 1964, when, even while the Labour Party was celebrating its victory, like Belshazzar at the Feast, the writing was on the wall.

Mr. Gwilym Roberts (Bedfordshire, South)


Mr. Hamilton

I should like to give way to the hon. Gentleman, but many of my colleagues wish to take part in the debate. The plain fact is that a Socialist Government cannot hope to make a success of administering a capitalist system, because they do not believe in it. As senior Members know, that was said by Lord Attlee. I thought it a perfect example of a comment on the capitalist system today by the Prime Minister who stigmatised the system and referred to it as "grabbing without any self-restraint".

Another quotation: I cannot imagine the Labour Party coming into office without a first-rate financial crisis. Many hon. Members will recognise the speaker. He was mentioned earlier today—the late Sir Stafford Cripps. There is one more quotation from the former right hon. Member for Dundee, West, the late Mr. John Strachey, who said that if a Labour Government were elected—and this was in the 1950s— the national reserves of gold, dollars and foreign exchange would pour out of the country in a torrent. He was a very distinguished member of the Labour Party.

The Minister of State, Department of Economic Affairs (Mr. Austen Albu)

Is the hon. Gentleman suggesting that we should have one-party government in this country?

Mr. Hamilton

I am giving certain quotations by the hon. Member's former colleagues which I believe to be highly relevant to this crisis. I think that he is capable of following what I am saying.

To me, these brief quotations summarise the present sterling crisis and put the tape measure round it. That is what is so tragic about the crisis; it is self-inflicted. We have brought it upon ourselves. We achieved it at the ballot box. We learn so little and forget so much. We have even forgotten the lessons of recent history—1924, 1929 and 1945. Today we pay for it. We have no more and no less than we deserve. Did the hon. and learned Member for Northampton (Mr. Paget) wish to intervene?

Mr. R. T. Paget (Northampton)

No; I am sorry.

Mr. Hamilton

My conclusion is that the birth of this crisis was in October, 1964. I remember that autumn very well. I remember the First Secretary—I am sorry that he has left the Chamber—coming to my constituency. He spoke in the market place. It was 20th September. I remember that there was a brush with some schoolboys which figured rather prominently in the national Press on the following day. They were very young, and did not understand politics.

The First Secretary said: We must put our economy in order. We must get Britain industrially on its feet again. We must get competitive in the world. Labour's economic plan is the only way we can do this The schoolboys were very young. Labour's economic plan was something which went over their heads—or was it that, fresh from their lessons, they remembered the history of the Labour Governments from 1924 onwards as being a history of promises unfulfilled and hopes disappointed.

We had a lot of very interesting speeches that autumn. I remember the Prime Minister dazzling the citizens of Edinburgh. He told them about the great outside world and about the central bankers of Europe. Since moving into Downing Street he has six times been either to the International Monetary Fund or to the central banks—in November and December, 1964; in February, May and September, 1965, and in June of the present year. He told these Edinburgh citizens: The central bankers will before long be demanding that Britain puts her house in order. How right he was ! How prophetic were those words. Here we are within 20 months, and the world has lost faith in the value of British currency.

Yet no Socalist Government ever started off with a greater fund of good will among the business and financial community. No Government could have dissipated it quite so fast. At home, the small businessman, the small shareholder and the small property owner have been treated as if they were just so many obstacles on the road to State control. Relations between this Government and private enterprise could hardly be more strained. I thought that the remarks of the hon. Member for Feltham about the men who do their work in London, E.C.2, were a good example of this.

Perhaps I may quote another example. I remember that recently the clearing banks responded to a directive from the Bank of England to limit lending and in so doing suggesting that it might be desirable that public expenditure should also be restrained. Immediately they did so some hon. Members opposite tabled a Motion denouncing this—as they called it— blatant and insolent incursion into matters of party political controversy

Hon. Members

Hear, hear.

Mr. Hamilton

I hear, "Hear, hear". The fact remains that this is typical Socialist resentment of criticism. It is typical Socialist hostility to the business community. Who but they could deny that what the clearing banks said was correct?

It needs stressing that it is private enterprise which provides the wages and the employment of the bulk of our population; it is private enterprise which provides the profits and earnings upon which so much of our tax revenue is based, and it is private enterprise which provides nearly 100 per cent of our exports.

I listened last night to the President of the Board of Trade telling the story of our export achievements in recent months—and a very fine story it was. But I could not help feeling, as he was speaking, that we could have done with the lost exports—the Buccaneer contract with South Africa, worth £20 million; the frigate contract with Spain, for £30 million, and the age-long tradition of Portugal buying her warships from this country. Instead we preferred our Socialist theories.

I think that I can claim to have in my constituency the finest memorial to these 20 months of Socialist administration. I was looking at it only a fortnight ago. It is an aircraft, and at the moment there is no room for it in the hangar. It is standing outside in the long grass, not protected from the weather. I noticed a blackbird's nest in the undercarriage. I hope that this aircraft will be allowed to stay there, but it is more likely to be hurried away rather quickly, because it symbolises too much. Until April of last year it was the spearhead of Britain's technological development. Here lies the TSR2; died 6th April, 1965. Here lies the British aircraft industry. Here lies achievement—years ahead of any other country in the world; done to death by a Socialist Government which preferred free prescriptions, and done to death by a Socialist Government whose theories have wrecked the nation's economy.

I see no early solution to this crisis. It will play hell with my constituency, and it will play hell with all Members' constituencies. We endure ever-increasing taxation, ever-deepening austerity and restriction upon restriction. Yet I do not see these latest measures helping, although they may be a palliative. As my right hon. Friend the Leader of the Opposition has pointed out, this crisis is a crisis of confidence in the Labour Government. So long as this Government continue, so long will the crisis continue—[HON. MEMBERS: "Rubbish."] Oh, yes. As yet, we have felt only the first drops of rain. The £is on the dole and our prospects are damaged—this must be faced—for years ahead.

I see only one solution, and that is a return to the ballot box. [HON. MEMBERS: "What, again"?] Yes, again. After that, there will be plenty of time to wear shorts and sandshoes on the Isles of Scilly, plenty of time for writing memoirs. Buy it on the bookstalls—"Our Island Story: From Huyton to St. Helena. Mini-Resignations I Have Known. What Socialism Did to Britain in Twenty Months." Then, as in 1931, as in 1951, the Conservative "Salvage Corps" will have to go in.

7.52 p.m.

Mr. Alan Williams (Swansea, West)

It constantly amazes me that Conservative speakers can in one breath speak tearfully of the plight of the Surtax payer and in the next spit out words of animosity because we do something to help people who are sick and on low incomes. Their numbers in the House would be a little stronger if only they could arouse the same enthusiasm for the needy in our community which they raise for the affluent.

I would ask the indulgence of the House for the speech I am about to make. I came here this afternoon—I notified the hon. Member concerned—specifically to answer a speech made during yesterday's debate. I am sure that many hon. Members—particularly the older ones—have been in a similar predicament, finding that the flow of the debate has drifted away from the point they are interested in. For this reason, I beg the tolerance of the House. I will be particularly brief, but I will make points which I think must be made from the Government side in answer to an attack launched on the Government during the debate yesterday.

Many hon. Members who, like myself, heard the maiden speech made by our most recent Member, the hon. Member for Carmarthen (Mr. Gwynfor Evans) may have felt, as I did, that it would have been an ideal speech had it been delivered in some other place, such as the Welsh Nationalist Summer School, but which was hardly appropriate to the proceedings of this House. We were treated to such diverting gems as the claim that the Welsh people … are treated quite as well as any slaves in history. The hon. Member further aroused himself to enthusiasm when he said that he … can think of only one European nation which is governed as badly as Wales… Those of us who heard this were all agog to know which State was as badly governed as Wales. We wondered whether he was going on to say that it was Eastern Germany, or Hungary, or Spain, or Portugal. It seems, however, that he was referring to Brittany.

I feel that the voters of Wales and the voters of Carmarthenshire might care to bear in mind that their new representative in this House finds Fascist and Communist dictatorships preferable to the form of government which we have at the moment, or, apparently, which we had under our predecessors.

The hon. Member's contribution was made to the economic debate. Here again, he took perhaps a predictable line of approach. In effect, he washed his hands of it. He said: This is an English crisis"— Many of us may feel that we would like to get out of it as easily as that— but as usual, the Welsh people have to pay more than their share of the price."—[OFFICIAL REPORT, 26th July, 1966; Vol. 732, c. 1498, 1501, 1500.] Looked at in realistic terms, we could ask, even if Wales had a form of government of its own, even if it were independent, does the hon. Member seriously think that an economy like that of Wales, geared so much to producing goods for the economy of Britain as a whole could avoid the backwash simply—

Mr. T. L. Iremonger (Ilford, North)

On a point of order. Would it be in order to inquire whether the hon. Member for Swansea, West (Mr. Alan Williams) has given notice to the hon. Member—

Mr. Williams

I did.

Mr. Iremonger

—who made a maiden speech? Is it customary in this House to launch a personal attack on an hon. Member, even if he has been given notice, who is not in his place, and who has made a maiden speech?

Mr. Deputy Speaker

It is not customary to criticise a maiden speech at any length, but certainly not unless the maiden speaker has been given notice of that intention.

Mr. Williams

As I said earlier in my speech, when I explained the position to the House—I am sure that most hon. Members heard me—I sent a note to the hon. Member for Carmarthen to tell him personally of my intentions; he was in the House at one time. I have, therefore, done everything in my power. I think that the House will bear in mind that I have not done as the hon. Member for Ilford, North (Mr. Iremonger) said, and made a personal attack. This I have not done and would not do, because I have a great personal regard for the hon. Member, whom I know well and who is a particularly nice person—

Mr. William Price (Rugby)

On a point of order. Was it not made clear that if maiden speakers indulge in controversy, they can expect to take the consequences? This, as I understand it, is exactly what the hon. Member for Carmarthen (Mr. Gwynfor Evans) did.

Mr. Deputy Speaker

That does not raise a point of order. This matter resides in the conventions of the House. Since the hon. Member for Swansea, West (Mr. Alan Williams) has said that he gave notice to the hon. Member for Carmarthen (Mr. Gwynfor Evans) I think that that complies with the conventions of the House.

Mr. Williams

In any case, I believe that it is our attitude to help a maiden speaker during his speech by not interrupting. But that does not mean that he is absolutely free from criticism for anything said during that speech. I am sure that the hon. Member for Carmarthen would not want to be free from criticism, any more than any of us would.

Let us look at the point of view of the Welsh people, who have to bear "more than their share of the price", of this "English" economic crisis. Even if there were this elusive Parliament for Wales, that country still could not escape these economic facts. The hon. Member quoted, for example, the Selective Employment Tax. In Wales, the employers of 30 per cent. of the insured population will not be receiving the rebate, compared with nearly 35 per cent. in the country as a whole. On this point, the hon. Member does not have a valid argument.

In any case, virtually the whole of Wales is a development area. This is a particularly important part of the Government's present policy, in that exemption from restrictions is given to these development areas, the very areas which most need aid and employment. We are arguing that development areas may be in a fairly strong position, particularly the more established ones, to defend themselves. Many of them have the more recent factories.

I know that it is commonly argued the opposite way, that it is the subsidiaries which suffer, but it could be that because the subsidiaries have more up-to-date plant than the large national firm, they may survive these attacks even without special treatment.

The hon. Member said that unemployment in Wales is three or four times as high as in the South-East of England, but many hon. Gentlemen who represent English constituencies could probably say the same. It is not fair to take the area with the highest employment in England, which is admitted to have over-full employment, and try to treat it as the norm, which is what the hon. Member was trying to do. Surely it is because we recognise that the South-East of England is receiving an undue proportion of resources that we have proposed restrictions. The more relevant fact is that in Wales 98 out of every 100 of the insured population already have jobs. In every 100 insured workers in Wales, there is one fewer at work than in England. That puts the matter more in perspective.

I said that I would be brief, and I should have been even briefer but for the points of order that have been raised. Confronted with a position in which there could be unemployment and redundancies in the coal mines and redundancies in the steel industry as the result of techno- logical change, there are two possible approaches. The hon. Member for Carmarthen took one when he virtually implied that we should not allow these technological changes to take place because they mean redundancy. But this is the surest way to long-term unemployment.

The other solution, which is the choice of the Government, is to ensure that adequate alternative work is available for those who will be redundant. This, surely, is the sensible solution, as I think both major parties accept. Over the first 12 months of office we created in Wales 60 per cent. more new jobs than had been created on the average of the 13 years that hon. Members opposite formed the Government. Last year there were 31 new firms and 15 extensions. During the first six months of the year—and these are significant statistics for Wales—5 million square feet of factory space have been subject to industrial development certificates. This is more in six months than in the years 1961, 1962 and 1963 all taken together.

On this basis I claim that Government policy is Wales is extremely relevant. The prospects for Wales are extremely good, and I am sure that all Welsh hon. Members, perhaps with one exception, see that we are approaching this problem in the correct way.

8.3 p.m.

Mr. David Howell (Guildford)

Although I am of Welsh ancestry, I feel that, reluctantly, I must drag the House away from this fascinating quarrel in the Principality and back to the main theme of the discussion. I interpret the main theme as one which has concentrated—and this is very encouraging—on where we go now rather than how we have got here. We have heard much analysis of the past from some hon. Members, but most of the valuable contributions from speaker after speaker have concerned the question: what do we do now in the economic crisis? It is heartening to see how constructive they have all been, and constructive in a direction which is contrary to that taken by the Government Front Bench.

Indeed, it is extraordinary how every one appears to be out of step except the Government Front Bench. The public is out of step, hon. Members on both sides of the House are out of step, commentators in the Press are out of step and the Government, such as they are, are right. I feel that they could be left with a motto from Edmund Burke—that we have a very good Ministry and a very bad people.

It is not surprising that a number of hon. Members have said that there is this almost universal line-up against the proposals which the Government Front Bench have put forward because, in essence, in looking to where we go now, what the Government have put forward is the same as before. We have reached a major turning point, a watershed, in politics and in public debate about economic matters—a time when a great deal of new thinking is coming forward, many valuable contributions to economic debates are being made and many hon. Members on both sides of the House have some genuine, new ideas to contribute to the management of a modern full-employment economy, combining that with other economic aims.

At such a time the Government Front Bench have come forward with two main proposals which are, in essence, along the old lines. The first is for a primitive, overall restriction, an attempt to hit demand on the head. I personally believe—I may not speak for all my hon. Friends—that this is a discredited approach to the management of a full-employment economy. The second idea is a development of the incomes policy carried to its logical next step, a wage freeze. This, too, is a discredited approach. It has no relevance either to the question of short-term economic management and to the longer-term question of trying to bring flexibility and a reformist element into our wage and salary structure. It does not surprise rite that we have had almost all-round opposition to the two main ideas which inspire the latest dose of Government measures.

Nor do I think that it is of any great value for us to suggest that some other instant 10-point package or alternative remedy can solve our problems at present. In a sense we have had enough instant policy and enough superficial 10-point packages. It could be argued that it is precisely this kind of approach, this "off-the-cuff" thinking which has led the country into the present difficulty.

The point which I regarded as particularly interesting and important in the speech of my right hon. Friend the Member for Barnet (Mr. Maudling) was that there was a need for calmer and deeper thought on these very complicated questions, that we must get away from imagining that it could be done by packages and 10-point policies trotted out by any hon. Member or by any expert outside who cares to try to command a platform.

Now may I put before the House two points on which, to my mind, deeper thought is particularly necessary and in which some intellectual break-through must be made if we are to make an effective contribution as politicians to the resolution of our economic problems? The first is that our aims are varied and diverse. Perhaps it is rather obvious to say that we have many economic goals, such as the management of a full-employment economy, the achievement of cost-price stability and the whole question of raising low incomes. But this does mean that we must approach the problem sensibly. It is no good coming before the House or the public with economic policies contained in slogans.

The slogan and the banner which have been waved before us for some months is that the whole issue is one of incomes policy versus widespread unemployment. I always thought that this was very dangerous and silly. Now that we have an incomes policy of a developed kind and prospects of unemployment, it looks sillier still that this choice should ever have been offered to us.

It is even more absurd that the Government have embarked on a policy in which an essential element is unemployment, or an increase in labour reserves. Yet, because they regard this as a "horrific and unthinkable" alternative, they are totally unprepared to operate an economic policy which has this element in it. The retraining facilities required for the kind of policy on which they are embarked do not exist. The attitudes, the facilities, the redirecting and redeploying of labour all require very careful and very detailed planning measures. These do not exist, because until a few days ago the Government had put the whole question of unemployment in the emotive and unthinkable category. Hence they are caught in a very dangerous position.

It is incredible, but I have never seen a set of generals or staff officers proceed on a campaign with so little information, so few statistics, so few maps of where they are going or the terrain which they will cross, or so little knowledge of the kind of enemy they will encounter or the objectives of the campaign. That is what we are now embarking on—a Government policy in which the Government have taken no precautions and have ruled out of their thinking the need for precautions and facilities to assist the implementation of the policy.

What it all amounts to is that the two words "incomes policy", which have so freely been thrown about by many people on both sides of politics, are no substitute for detailed fiscal and monetary management, which is a much more difficult concept to grasp. Everyone has learned Part One economics—the familiar aggregates, incomes policy, wages, unemployment, Budget surpluses, and so on—because these are relatively easy things to grasp. I have no doubt that even right hon. Gentlemen opposite were able to learn those prior to the 1964 election.

When we move on to the Part Two economics, so to speak, things become more difficult because one must learn about sophisticated ideas of controlling demand through time; about such things as the timing and structure of measures to control demand. This is a far more difficult and complex task and the more one listens to members of the Front Bench opposite the more it becomes clear that a good deal is lacking in their absorption of the economic ideas contained in Part Two economics, some of which I gather, was rather hurriedly learned prior to the 1964 election. It seems that they stopped dead at the end of the easy part—about aggregates, wages, unemployment, and so on—without finishing the course and moving on to Part Two.

The hon. Member for Stoke-on-Trent, Central (Mr. Cant) made this point with lucidity. I thought that his speech represented a ray of sense and clarity from the benches opposite as he went over some of the economic policies which the Government should be pursuing if they are to achieve the objectives which we all desire to see.

Now, I have outlined the first fundamental point which it is important for the Government to grasp and I move on to the second. It is that if, as politicians, we want to be effective in contributing to the nation's economic recovery—which must be made, and of which this country is perfectly capable—we must come out of our ideological foxholes.

I will give two examples of what I have in mind. The first concerns the public sector, about which a great deal of debate in the House and outside is now raging. But it is being conducted in sadly primitive terms. One group is saying that public spending is all perfect while the other group is saying that it is all bad, and that is about as far as the argument goes. But it is no good, in a mixed economy, having such dogmatic attitudes about public spending, saying that it is good and that anyone who opposes it is evil and that we must leave the present state of the public sector as it is.

The problem of public spending lies at the heart of both our short and medium-term difficulties. We must inject into the public sector, as well as private, some radically new thinking. After all, the public sector is the one sector of the economy that has been growing during the past year and will, apparently, go on growing in the coming year. By my calculation, it will take up to 1½ per cent. to 2 per cent. more of the gross national product, which itself will be stagnating, if not contracting.

In other words, all the extra resources that we have, after the Government's measures are enforced, will go into this sector of the economy. Yet this is the one area where the rays of managerial enlightenment have hardly penetrated, to judge from what has happened so far. They have hardly penetrated the primitive, dark forests of Whitehall where all sorts of activities go on under the name of "management". It really is essential to look coolly and long at the public sector and apply the techniques to it which are available and which could score colossal savings and increases in national efficiency.

The second place where we need to come out of our present prison of ideas concerns the private sector. Here, too, it is no good looking at the general question in terms of it being either good or bad. Hon. Gentlemen opposite may have views on how big or small a private sector they want. Some say that it should be much smaller than it is, while others say that it should disappear altogether. But once they have decided on the size of private sector they want they must be prepared to pursue policies which will make that part of the economy left in the private sector really work well.

It is no good merely having private sector and unless, at the same time, you introduce policies which will make it efficient. If we are to have a vibrant, efficient and enterprising private sector—and I personally believe that it should be considerably larger than it is at present—it is absolutely essential that the Government pursue policies to make that possible and not policies which can only make it impossible.

It may be said that this is a simple point. However, it is fundamental to our difficulties. Because until we make up our minds about the relative size of the public and private sectors and pursue policies to make both perform with the maximum efficiency, a great deal of muddle will permanently undermine the country's efficiency and condemn us to limp from one crisis to another.

If those two fundamental thoughts are grasped bravely by the Government, it would be possible to combine effective and active Government—remembering that the days of passive Government have gone—with free and highly efficient private enterprise, instead of having rather feeble Government trying desperately to sit on free enterprise and then complaining that it is not doing its job.

It has been said that any revolution of attitudes, which is what we require if we are to get out of our economic difficulties, must be preceded by a revolution in the dictionary. I suggest that our first task, if we are to get on the road which leads to an expansionist economy, is to clear away some of the mumbo-jumbo surrounding what was called "new thinking" when Labour came to power. This is now utterly discredited and is out of line with the kind of thoughts and idea which we should be developing.

Unless the Government realise—although, perhaps, the present Government never will—that slogans are not economic policy and that phrases like "incomes policy" and "purposive planning" repre- sent escape routes from the realities of modern economic management, they will never be in the position in which the real obstacles can be faced and we will never escape from the mists of all this verbiage. We will never achieve the momentum we require.

Perhaps I am being staggeringly obvious in saying that we do not have a labour shortage. We certainly have the problem of overmanning, but this represents a labour surplus. It has been going on for a considerable time. If we solved this problem we could bypass the whole question of the dangers of overheating, with the need continuously to cut back demand. This should appeal to hon. Gentlemen opposite, because if we could solve this problem it would benefit all concerned. Certainly, we should attempt to solve it rather than continuing to argue about unemployment or about being unfair to trade unions.

We should concentrate on the question of overmanning but, with it, we must consider the question of the present low incentives to save and work. Tremendous emotions are roused when this topic is discussed, but we must face the fact that there is a lack of incentives, monetary and others, to high wage earning, high saving and the sort of stimulus we want to see. The third obstacle is the one to which I have referred, efficiency in the public sector. This problem is not insoluble. It is a question of applying the best managerial techniques to public spending.

Above all, however, the real obstacle, which has become sadly apparent in the last few days, is the fact that right hon. Gentlemen opposite have failed to grasp the techniques of demand management, techniques without which the chances of getting out of our present difficulties for more than a few months at a time are very slight indeed.

If ever there was a need for a cool and calm look to be taken at the question of economic policies it is now. We must get away from the cry, "Either this package will do, or there must be alternatives; either it is a 10-point plan, or we must think of something else." Until the Government realise that all the 10-point plans in the world cannot take the place of real policies, we shall continue with a debate which, while interesting and sometimes amusing, in terms of the public interest and of a strong British economy is not particularly valuable.

8.19 p.m.

Mr. Norman Buchan (Renfrew, West)

But for the speech of the hon. Member for Guildford (Mr. David Howell), I would have started by saying that the most marked feature of this two-day debate has been the total irrelevancy of the speeches from the other side. The hon. Member's speech has been the distinguished exception. Hon. Members opposite have in general been talking of the debate going on on this side of the Chamber, above and below the Gangway, but the real point that emerges therefore is that it is there that the debate is going on; that it is within the Labour movement and the Labour Party that the real debate is taking place, and the Tory Party has nothing except irrelevancies to contribute to the present discussion.

We have listened to one or two interesting things, and one or two curious examples of Tory failure to understand English. The hon. Member who quoted John Strachey seemed to think that the crisis that might face the Labour Government—an outflow of capital, and so on—was in some way an indictment of the Labour Government. He did not understand that it was an indictment of the people whom he sought to defend. It was the business section which was referred to in that quotation.

There is, therefore, every reason for this debate to be conducted on the Floor of the House with real srength on this side. Even where we feel compelled to disagree with our own Front Bench that is not a sign of disunity, but a sign, rather, of our unity of intention and purpose to get the country out of the mess created by the party opposite. When I make one or two critical points, therefore, I hope that that fact will be kept in mind.

I should like, first of all, to raise one or two points on the general background. There has been a tendency on the part of one or two of my hon. Friends to feel that this crisis is entirely phoney. I do not think that that is so—although in every financial crisis there is a mixture of the phoney and the real; as soon as our financial stability depends on how people react to certain events, we get of course a touch of unpredictability and unreality.

The real background is the problem of dealing with full employment. I do not believe that we on this side have solved that problem any more than the other side has—although I think that we have the tools to do so, which that party has not. There is also the imbalance, the permanent crisis of the balance of payments, but the astonishing thing is that, in real terms this country is in balance when we include the invisibles—a fact that seems to be continually forgotten.

What has caused these recurring crises—the crisis that gave us the "Selwyn squeeze" of 1961, and the present squeeze? In a sense, the real crisis stems from the nature of our reaction to it. The biggest single cause that is bleeding away so much of our financial strength—and I know that this will be said to be the old record, but it is worth playing again—is the country's colossal defence expenditure in sterling—about £2,000 million plus, and the £270 million east of Suez. That is the kind of cost we have to bear.

The Government have shed a lot of illusions—and the party opposite has not shed any—but they have not shed the final illusion; they believe that we still have a vast military rôle to perform. I heard a colleague criticising the speech of the hon. Member for Carmarthen (Mr. Gwynfor Evans) but I confess that to some extent I responded to the Welsh Nationalist Member when he said, "This is not the fault of Wales, but of English imperialism." In a way, I could understand that statement—we in Scotland also have to face that kind of treatment. The key question, therefore, is not a financial question, but a question of foreign policy and defence policy; it is a question of cutting down our overseas expenditure.

Here I should like to draw attention to a report which appeared in the Financial Times on the morning when the Government statement was issued—Wednesday, 20th July. The report itself was from Washington, and was dated 19th July. It stated: From the American point of view, three things stand out as immediately essential:

  1. (1) There must be more deflation in the British economy …
  2. (2) There must be … a more vigorous attempt to control incomes and wages.
  3. 1825
  4. (3) Any cuts in overseas military commitments must be kept to a minimum …"
We have only to read the speech made in this House on that subject last Wednesday to see how closely our involvement in the American alliance is dictating or, at any rate, affecting, policies taken here. I therefore state that we must first look closely at our defence commitments—at the actual alliances we are making and the commitments we are undertaking.

The second point is that we are not discussing this subject in merely technical terms—though I enjoyed the speech of the hon. Member for Guildford—but are dealing with human beings. When I hear the terms "redeployment" I wince. I know what that means on Clydeside. It is all very well talking about a "shakeout" and redeployment. Redeployment in the South-East and the Midlands may mean a person losing his job for a week or so and then going into another. But I know that process of deflation going on unchanged will mean a cutting back, perhaps for years to come, of the beginnings we have been making—and we have started to make them, which is more than the party opposite did—to pull Scotland out of its previous state.

The deflationary process we had in 1961, which was somewhat less than is now envisaged, put 137,000 people out of work in a few months. In that spring, in my own constituency and around it, in the area of Greenock and Port Glasgow, there was an unemployment figure of 11 per cent. That is not redeployment—it is one man in ten unemployed. These are human beings. We cannot any longer allow ourselves to have the handling of our society dictated by external financial problems created by our own illusions of our military rôle. It is that fact that we must get down to. I therefore have to give warning that I shall do anything I can to resist this redeployment, this deflation, this shake-up, as it affects the people of Clydeside and Scotland.

The third point is selective import controls. I have been told that we cannot have selective import controls—G.A.T.T. would not like it, and E.F.T.A. would not like it. I understand the difficulties. I do not think we have had sufficient answer to our argument in favour of selective import controls, but I see the difficulties. I wonder whether the Gov- ernment would consider looking at import controls—very selective specific import controls—geared to assisting our productive needs, remembering the warnings about cushioning, and the rest, for our our productive and manufacturing industry, but selective import controls in association, as of now, with tariff reductions.

Tariff reductions are coming in future between E.F.T.A. and ourselves. Why not do it now? We are dealing also with a short-term crisis. I believe that E.F.T.A. would be willing to accept selective import controls if they were associated with tariff reductions. I cannot see that we should be cutting across E.F.T.A. or G.A.T.T. agreements by using physical measures, but if it could not be done in that way we should use fiscal measures by the method of prior deposits so that we are not loaning money to increase our imports. I am trying to be constructive here. The Government Front Bench will know the point I am making and I do not need to labour it, but it is very important. Have they considered it?

The second big factor along with military expenditure is the big bill for imports to this country. I have looked at some of the figures and discovered that the squeeze in 1961–62 reduced the intake of imports only by 2.1 per cent. at the highest and by 1.2 per cent. at the lowest over those years. In other words, using the sledge hammer of deflation at home with all the consequent social effects of 130,000 unemployed in Scotland, we dropped the total figure by only between one and two points. The moment it was removed the figure shot up to 125 points within the 12 months by the year 1964.

We have to control manufacturing imports. We find that in 1961–62 they fluctuated between 98.4 and 101.3, but immediately the squeeze was taken off in the usual pre-election boom it shot up to 141 points by 1964. Therefore, this is not effective and does not work. We headed straight into boom and overheating the moment that it was removed. It was inefficient. It is inefficient because we are not getting the direct ratio effect of one to one. The inefficiency figure is something like 6 to 1 so that £1,200 million deflation might save only £200 million in imports. The social cost is too much and it is an efficient weapon. Therefore, we should look closely at the question of import quotas in conjunction with selective import controls, plus a reduction in tariffs,

Thirdly, we should look at controls over overseas investment We have by no means completely squeezed that sponge, particularly as regards overseas development in the Mediterranean countries and the West Indies. The hon. Member for Guildford dealt extremely well with the question of prices and incomes policy. It will be very difficult, despite any decisions reached today, to get the right kind of agreement on a wages freeze or wage restraint when at the same time deflation is taking place. It would have been possible—indeed some of my hon. Friends may be surprised to know that I was advocating an incomes freeze—without deflation, not in conjunction with deflation. It could be done when involved with an expansionist programme, but not otherwise.

If the Government are to bring in a wage freeze or wage restraint I am all in favour of wage restraint on some groups. We must not forget that incomes in the top 6 per cent. are equivalent to those in the bottom 40 per cent. In other words, nearly half the people are earning only as much as the top 6 per cent. are receiving. I am all in favour of a wage freeze on the top 6 per cent. The Government should think in terms of social justice, for that is the only way to get a response and to put a floor in the construction of the policy.

We could say that there should be no wage restraint below, say, £20 or £25 a week but above that level we would consider a wage freeze. This would bring back social justice into the situation and it would also help under-developed regions. One of the economic problems is the imbalance of the regions. This would mean that the lowest paid workers would continue to have their incomes rising and would bring necessary money into the under-developed regions such as Scotland, the North-East and the North-West and thereby increase the economic efficiency of the country at the same time.

In order to get a response to an incomes policy there should be a lowering of the Surtax level. I am sorry that the right hon. Member for Kingston-upon Thames (Mr. Boyd-Carpenter) is not present. I think that he said that it was terrible to lower the level of Surtax and that that, with the controls on travel allowance, would prevent ordinary people having two or three weeks' well-earned holidays in the South of France. He should say that to my shipyard workers, because not many of them get two or three weeks of sunshine in the South of France.

I am in favour of lowering the level at which Surtax begins. I shall be told that this will reduce incentives. I do not believe that the incentives that matter work in this way. Those who are contributing to the manufacturing industries are not the top earners in the firms. The top earners are those who manipulate the shares and the bonds. The incentives of those who produce the machine tools, the new methods, the productive machinery, are not on that kind of level. They are incentives on the kind of level which would be hit if a wages policy of the type advocated by some right hon. Members opposite were adopted. The real incentive is on the more personal level of a man doing a worthwhile job. The wages of such a man and his fellows should be negotiated and increased along with a productivity agreement.

I am alarmed to think that there is a danger at present of creating another class of injustice if an incorrect wages policy is operated. If dividends are allowed to go scot-free, there is a danger that dividends, profits, and the like will be deferred for 12 months and then distributed as a bonanza. This cannot be tolerated. Perhaps the machinery of the Corporation Tax could be used. Could we strengthen that machinery so that, if there is any holding back of dividends in the meantime in the hope of getting a bonanza, they are creamed or soaked off?

If I am told that this would reduce investment, that people are moved only by the profit motive, as hon. Members opposite think, that the reduction in the Surtax starting point and the creaming off of dividends would reduce private investment, there is a very good answer, namely, public investment. It is time we had more public investment. It is time we had the science-based industry which we talked about in relation in my area and in other areas. There is an old-fashioned answer. We used to call it "Socialism".

From the cheer it seems that some hon. Members think it surprising to mention the word "Socialism" in the House nowadays. I hope that the Front Bench will remember it.

8.37 p.m.

Mr. Stratton Mills (Belfast, North)

I shall not follow the hon. Member for Renfrew, West (Mr. Buchan) in his argument, because at this time of night there is an obligation on those taking part in the debate to be brief so that others can participate. Hon. Members will, therefore, understand that I shall be reluctant to give way.

Neither the Chancellor of the Exchequer yesterday nor the Prime Minister this afternoon attempted to respond to the Motion of censure, the most serious Motion which can be tabled by any Opposition. The speeches of the Chancellor and the Prime Minister were more of the type of a five-day teach-in, keeping the temperature down with a long statistical lecture.

Little attempt was made to answer the accusation that the real reason for the crisis is not the gnomes of Zurich, nor the buying of gold by the Chinese. The blame rests firmly on the shoulders of the occupants of the Treasury Bench, who, by their mismanagement, have contributed excessively to the crisis.

Another point which has struck me is that there have been precious few speeches from Labour Members supporting the actions of the Prime Minister and the Chancellor of the Exchequer. People have compared the Prime Minister with Ramsay MacDonald. That comparison is not entirely accurate.

Mr. Iremonger

It is over-generous.

Mr. Stratton Mills

A closer comparison is a comparison with David Lloyd George, who, by his oratory and brilliant mind, bewitched the electorate and won a classic victory in 1919. But eventually people saw through him, and that is what is happening now to the right hon. Gentleman. As my right hon. Friend the Member for Barnet (Mr. Maudling) said, people are rumbling him. Hon. Members opposite must realise that the Prime Minister is now repudiating everything in which their party has believed for two generations.

My right hon. Friend the Member for Flint, West (Mr. Birch) is entirely right to say that these measures are the greatest deflation in this country's history. I read this morning some of the speeches made by right hon. and hon. Members on the Treasury Bench when they were in opposition. I shall not repeat them to the House this evening, but the complete world of unreality that they built up when in opposition can be seen in those HANSARD reports and in their election speeches. They are now saddled with those speeches. Part of the reason why they are having such great difficulty in removing those shackles is that their history is sitting on their shoulder and is particularly difficult for them to move.

Why have we had this crisis of confidence and why, in the past week following the greatest deflation in history, has the not recovered as sharply as one would have expected? The reasons are complicated. What frightens me most is that the Government could put up Bank Rate to 10 per cent. and could take another £1,000 million of purchasing power out of the economy, but it would have no great effect on overseas holders of sterling, because they have now reached the stage at which they do not have complete trust and faith in the Prime Minister because they recognise his financial schizophrenia. Unless this situation is recognised, we shall drift on and on, and we shall be merely postponing yet another crisis.

The other frightening thing is the way that overseas opinion is concerned about the failure of public opinion in the country to recognise how difficult and tight is the situation facing the Government today. Hon. Members can go out of the House and ask people in their constituencies—people do not yet really believe the true basic seriousness of the crisis. It has not come home to ordinary people; they do not believe it. The Prime Minister has helped in the past to create the myth that by verbal sides-stepping one can deal with economic problems. There is a duty on all hon. Members to impress on the people in their constituencies the great seriousness of the situation and the need to face up to it and to the changes which the Government are making.

I was horrified this afternoon by the Prime Minister's suggestion that the nation had been caught by surprise by this economic crisis. That suggestion does not bear examination. I read the newspapers, and it had been clear since at least the beginning of this year that an economic blizzard was approaching. Anyone reading the Press and examining the level of the gilt-edged market would have seen all the danger signals. They were accumulating, and by the beginning of July they must have been sitting around the Treasury door in squadrons, because they were there to be seen.

The Prime Minister said that they caught him by surprise. The real trouble was that he saw them coming early in the year and rushed a General Election at the end of March because he knew that after the measures which were presented last week he could not have faced the country this autumn. The Prime Minister's argument that perhaps, he was naïve and a little simple and that it was a bit of bad luck simply does not wash. The right hon. Gentleman has been caught out on this occasion, and the electorate will not forget it when their next opportunity comes to express dissatisfaction through the ballot box.

I come now to the Prime Minister's handling of Press relations during the crisis. Hon. Members will recall that, on the Saturday, 9th and Sunday, 10th July the Press was very bleak as the crisis blew up, and it was quite clear—I shall not read all the cuttings—on Monday 11th July that guidance had been given from an official source to the Press as to the Government's interpretation of the crisis. I invite hon. Members to look at the newspapers for Monday, 11th July; they all told the same story. The best summary of what had happened appeared in the "Insight" column of the Sunday Times on 24th July: Trevor Lloyd Hughes, Wilson's Press officer, issued strong denials that the situation needed such measures…. But thrughout Monday the guidance to journalists from No. 10 remained sanguine: no mini-budget, no need for deflation. The article adds that dealers in foreign exchange had gradually ceased to believe what the Government were putting out.

It is justifiable for the Government Press Office to put out guidance to the Press on certain issues, but, in order to be clear about the composition of the crisis, it is essential that we be given the facts. I want the First Secretary of State to tell us exactly what was done by the Government Press officer on this occasion and to give us his judgment of its effect upon the development of the crisis.

Now, the rôle of the Chancellor of the Exchequer. We often see the right hon. Gentleman in the House, smiling and confident—and virtually always wrong. History will say that his judgment is so bad that he must go down as the most complacent and incompetent Chancellor of the century. I shall not quote them to the House, but I invite hon. Members opposite to look through the economic predictions of the Chancellor of the Exchequer since he took office. Virtually invariably, his judgment has been wrong. Overseas opinion has very little faith in anything he says.

There is a strong case now for the Prime Minister to get rid of him and appoint a new Chancellor of the Exchequer. This could be a vital factor in helping to restore foreign confidence. Moreover, the Prime Minister must give an assurance that he will not for ever be sitting on the desk of the new Chancellor. Let us have a strong Chancellor and one who is not dictated to by the Prime Minister.

There is much more I should like to add, but I conclude in this way. The Prime Minister's statement means, inevitably, a cut in investment. This is so clear that I need not elaborate the point. It will mean unemployment in areas like Northern Ireland and in the development areas. It is a fact that men will be thrown out of jobs, whether or not the Prime Minister calls it redeployment or uses the old-fashioned word "unemployment". This, together with the Selective Employment Tax, will increase our difficulties in Northern Ireland.

Yet the right hon. Gentleman talked today of sheltering the development areas. This is hypocrisy, for the combined effect of the Selective Employment Tax and the rundown of industrial investment will be fewer jobs in areas of that kind. The right hon. Gentleman promised us other things at the election. When the next election comes in Northern Ireland, his record will be remembered. The measures he introduced will be remembered. His incompetence and mismanagement of the economy will be remembered. He will go down in history as one of the worst Prime Ministers of the century.

8.50 p.m.

Mr. Alan Lee Williams (Hornchurch)

We have had today an atmosphere of Alice is Wonderland, with the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) making a political comeback. He need only justify his record over Suez and he can retire with full honours.

I shall concentrate principally on measures that I believe ought to be taken for the future. We have heard, in my view, too much about the past, and have had to:) many party points from hon. Members opposite in attempting to justify their record. On this side of the House, we have tended to concentrate upon obvious things and to say that this or that reason is the one reason why we are in our present predicament.

I believe that the matter is far deeper than that and that the time has arrived for reckoning our economic capabilities. If we do not take advantage of this challenge the country will deteriorate economically until we become just an interesting museum with toy soldiers guarding Buckingham Palace. We need to get down to the question of modern economic planning.

I do not believe that the crisis has in any way discredited the concept of planning. My complaint is that the planning that we have had to date has been on the optimistic side and has failed to take into consideration fundamental reforms on both sides of industry, including the trade unions. We still have far too many trade unions. In various industries and crafts we are still seriously overmanned. On the other side of industry, we still have amateur business men, and people are promoted for the wrong reasons—their connections at school or in high places. This is one of the reasons why we find ourselves in our current position. So we have the present tiresome process.

I came into politics round about the crisis of 1951 when we had the nearly disastrous arms budget. Since then Governments have pared the cost of arms. In fact, the proportion of the gross national product spent on arms today is less than in 1951, but the burden is still far too heavy. I believe that Britain still has an important peace-keeping rôle and I would not favour sweeping cuts which would impair that rôle. Nevertheless, we are spending too much on unnecessary military preparations. I am sure that there is a great area for contraction here, particularly in respect of support costs in Germany, and I also believe that now that the confrontation in South-East Asia has, we hope, ended we can save some costs there, but not, I emphasise at the expense of Britain's peace-keeping rôle.

One of the most disturbing things we have had in the past few years and which, I think, has shown itself very clearly in the last few months, is that the economic crises we have faced generally have been of a psychological nature. We seem to have lost confidence in ourselves. Although the recent economic situation was a serious one, I cannot help saying that the hysterical leader writers in various newspapers contributed very seriously to the subsequent difficulties. The fact is that we are blown off course by a series of quite superficial reportings and a lack of fundamental understanding of the British economy.

It has been said by my hon. Friends, and I say again, that basically Britain's economic position is one which can be marshalled provided we can get down to a planned growth economy, and what this crisis has indicated, in my view, is the need for us to strengthen the positive sides of planning. I do not know, any more than you do, Mr. Deputy Speaker, the differences which occurred between the Treasury and the Department of Economic Affairs, but I want to go on record as saying that I myself am very much in favour of a high-wage economy and expansion, but I do not believe that the restrictive, recessionary moves the Government have taken necessarily mean that we have been permanently blown off this course of expansion.

With patience, particularly with patience, if I may say so, on the other side of the House, and with support in the country, these measures which we have been forced to take will enable us soon—the sooner the better—to get on the course of purposeful planning which I myself believe not to be mere claptrap but to be part of our armoury as democratic Socialists to make sure that this country goes forward with increasing standards of living for everybody.

8.57 p.m.

Mr. Iain Macleod (Enfield, West)

I am grateful to the hon. Member for Hornchurch (Mr. Alan Lee Williams) for telescoping his speech. As the last backbench speaker in the two-days' debate, he made what I think was in these two days the only back-bench speech which was wholly uncritical of the Government's measures.

I ought to start by paying a tribute, which I gladly do, to the two maiden speeches, one by the hon. Member for Carmarthen (Mr. Gwynfor Evans), and one by my hon. Friend the Member for Canterbury (Mr. Crouch), both of whom succeeded hon. Members who had friends on both sides of the House; and we were very glad to hear those hon. Members' speeches, and the tributes they paid to them.

Even two days, or many days, would not be enough for this traumatic debate. I am sorry that a number of hon. Members on both sides have not been able to make their speeches.

The reason why the announcement of last Wednesday is such a watershed in British politics was given by my right hon. Friend the Leader of the Opposition yesterday, when he said that it exploded every myth, and shattered every illusion, which had been nurtured by the Left for years and foisted on the people."—[OFFICIAL REPORT, 26th July, 1966; Vol. 732, c. 1451.] We have come a long way in 21 months, because on 11th November, 1964, the present Chancellor of the Exchequer, condemning the 1961 approach of my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), said that the balance of payments had led him to a credit squeeze, a pay pause and other measures which led to the slowing down of British industry and a high level of unemployment. On our first weekend, when the present Prime Minister formed his Administration, we determined that we would not tread that path again."—[OFFICIAL REPORT, 11th November, 1964; Vol. 701, c. 1023.] They are treading it now, and it is a rougher and a harsher road than any that the British people have ever previously been asked to walk.

It is for that reason that there has been so much criticism, not just from this side of the House and from the Liberal benches but from the Government benches as well. The dialogue—it has been almost pleading with each other—has followed the same sort of course as it did on the Prices and Incomes Bill.

Last night, when the President of the Board of Trade wound up, at one point in his speech he was picked up by an hon. Member who spoke from the Government benches when he started to play down these measures to show how small this vast sum of £500 million in domestic demand was. As he talked about relaxation, I murmured some comment which I am happy to see does not appear in the OFFICIAL REPORT, and the right hon. Gentleman asked me if I was alarmed. The answer is that I was, and perhaps I might tell the House why.

It is a great boast of the Government that their unemployment figures are the lowest for 10 years. I well remember the time 10 years ago, because I was then at the Ministry of Labour. Those particular figures, which really I inherited from Sir Walter Monckton, were one of the many signs which we could see at the time were leading us into inflation and into a balance of payments crisis, which came in 1957.

As my right hon. Friend the Member for Wirral said, inflation hurts the poor, the unorganised and those on fixed incomes. Those who are organised are all right, Jack; they can organise themselves out of it, in ordinary circumstances. Anyone who has been at the Ministry of Labour as long as I have—and I was longer there than anyone on either side of the House—has an attitude towards unemployment which, I am happy to say, he never loses. I never think of unemployment figures in terms of percentages, because it makes little difference to an unemployed man who sit at Westminster and on which side they sit. If a man is unemployed, for him it is a tragedy.

I loath seeing the planning of recession and the planning of unemployment, whoever the Government may be who plan it. I loath one thing even more—and that was the purpose of my silent intervention in HANSARD last night—and that is infirmity of purpose. That is why on Thursday, 14th July, a date to which I shall return, after the Prime Minister had made his statement, and winding up the Prices and Incomes Bill Second Reading debate, I said in the course of a very brief speech: I therefore urge the First Secretary to plead with the Prime Minister to do it soon—and this time please can we have no double talk to accompany it. Do it and say it and mean it, for there is no other way and indeed I do not believe that there is any other hope."—[OFFICIAL REPORT, 14th July, 1966; Vol. 731, c. 1840–1.] What has happened so often in the past 21 months is that we have had action watered down by words, so that further action had to be piled upon it, all to the suffering of the people of this country.

If I might give one example—and there are scores of them—The Guardian had this to say on 5th February, 1965: Mr. Wilson's message to a private meeting of the Parliamentary Labour Party yesterday was one of good cheer. He told his followers that things would now begin to improve. The economic crisis, with the unpopular measures it had demanded, was now virtually over. The future was bright with promise. It is that sort of remark made for that sort of purpose at a private meeting of the Parliamentary Labour Party that, all the time, has led those who hold and deal in sterling to doubt the intensity of purpose of Her Majesty's Government. We have had all the other illustrations that we know so well—the Chancellor saying that the 7 per cent. Bank Rate would not work through to the domestic economy, the measures in July, 1965, which he was going to resist, and which he resisted for a total of a fortnight before he brought them in, and so on. The right hon. Gentleman knows that these measures will hurt. They are meant to hurt, but it will be much less painful if we do not wrap reality in illusion.

There is another illusion which is being fostered by speeches which we have heard from that Dispatch Box, and that is that there is some magic recipe for sheltering the development areas from disinflation of the economy. This is simply not true. All the measures which operate to create unemployment operate in the development areas. The regulator operates in the development areas. Hire-purchase restrictions operate in the development areas, so do Post Office charges, and so does the 10 per cent. on Surtax. So, too, do the various restrictions on holidays, and next year is World Tourist Year. What a wonderful contribution we have made to that institution by the measures announced last Wednesday.

All this would be bad enough for the development areas, but it comes on top of the Selective Employment Tax. This tax will deal hammer blows to the remote areas of this country, where there is so little industry, and where they depend so much on services. It is, therefore, an illusion that we can somehow protect them. I wish that we could, and to some extent the measures which both sides have united in bringing in since 1961 may help, but they will help only marginally, and we should not try to create the illusion that unemployment will not rise fiercely in the development areas if these measures are to succeed.

I want, now, to say a word about the one measure which was announced by the President of the Board of Trade last night in relation to hotels. It is an absolutely worthless proposal which the Government are putting forward. Let us consider what this industry has suffered in recent months. It has suffered the imposition of the Selective Employment Tax. It has had to put up with the withdrawal of investment allowances. It has had to put up with increased Purchase Tax on its essential equipment, and some of its products and goods are now going up in price. The effect of the S.E.T. alone will put up hotel costs by about £20 million a year.

What are they offered? They are offered a loan at, I presume the going rate to be about 7½ per cent., for 15 years. It simply is not good enough to offer a loan as a substitute for the money which has been withdrawn from this industry in extra taxation, and these proposals, which have not been discussed with the British Hotels and Restaurants Association, are a useless exchange for the damage which the Government have done to this industry in recent months.

The Motion concentrates on the incompetence of three men whom we regard as guilty—the Chancellor of the Exchequer, the First Secretary and the Prime Minister. The Chancellor yesterday made an admission that his Budget judgment was wrong. He was quite cheerful about this. He said, "Yes, I was wrong, and you were right", and on that he was prepared almost to leave the point. But the right hon. Gentleman gambled, as he gambled last year, with the economy of the country, and because he lost we are having this debate, and the people of this country will have to suffer the unemployment which is coming.

Of course it was a difficult judgment to make. It always is, and I acknowledged in my Budget speech that it was a particularly difficult judgment this year, but the criticism which has come from this side of the House has been consistent. In all our speeches it has been almost a dialogue with the Chancellor since the day of his Budget. I put it the very day after his Budget. He will remember it. I talked about the danger of a soft and a hard Budget, or one that might be thought to be, and I said that the great danger seemed to me to be that the proposals did not operate on demand until the autumn. On 9th May the Chancellor replied to this point. He said: If I understood his argument aright, it was that he would have preferred me to reduce purchasing power in the economy straight away rather than wait until September, when the Selective Employment Tax comes into operation. It is an arguable case; but I think the right hon. Gentleman is neglecting two points which I put forward and adhere to."—[OFFICIAL REPORT. 9th May, 1966; Vol. 728. c. 163.] He went on to say that the first point was the check in demand that was supposed to come over the next few months. This was the only economic forecast—this check on demand, following the Budget—that the Chancellor offered to us, and it was wrong. Demand was not checked; demand went on. It is no good saying, as the right hon. Gentleman said yesterday, that this was unforeseen. In the Second Reading debate on the Finance Bill, having rehearsed exactly the same argument about the timing of the Chancellor's proposals, I said that the Chancellor justified this on what seemed to me to be a very strange argument about the course of demand anticipating the Budget. This can only be a trifling factor in the ordinary course of demand. It is far too slender a base on which to hang as much as the Chancellor has chosen to do".—[OFFICIAL REPORT, 25th May, 1966; Vol. 729, c. 632.] He was challenged at once on that, even in detail, and he was wrong and we on this side were right.

He then produced the excuse about commodity prices. Anybody who has read the newspapers and knows what has happened in Rhodesia and Vietnam knew what was happening and what would happen to commodity prices. Then the Chancellor produced the question of import prices, which have risen—but so have export prices. The point was very efficiently dealt with by my hon. Friend the Member for Norfolk, Central (Mr. Ian Gilmour) in his speech yesterday. Although the price of imports has risen by 3 per cent. since January, the price of exports has risen by 2 per cent., and they have had the benefit of favourable terms of trade throughout the period since October, 1964.

Finally, the last argument they produced, which the Prime Minister relied on again today, and relied on in his telecast to the nation, was the seaman's strike. They were blown off course. That is the alibi that they now put forward. I want to put two simple questions on this point. If it was the seaman's strike, which lasted all that time, which blew them off course why was there no planning, and why was there no plan when we came to 20th July? Secondly, if our economy is really to be blown off course because of one strike, how on earth does the First Secretary hope to mount a prices and incomes policy on the lines that he has been indicating? Does he hope, magically, that there will be no strikes at all—or is it to be that every time there is a serious strike we are to be blown off course?

The Chancellor of the Exchequer, who has made various forecasts about the balance of payments, knows that those, too, were challenged at once when he made them so optimistically just before the election on 1st March, and he knows that what we said proved right and his estimate proved wrong.

All this led up to his conclusion, at the end of the Budget, as the House will remember, when he considered all the possibilities of taxation and put them all on one side. He said: I therefore put all of them on one side. There will be no increase in the rates of Income Tax, Surtax, Purchase Tax, vehicle licence duty or other Customs and Excise revenue duties".—[OFFICIAL REPORT, 3rd May, 1966; Vol. 728, c. 1453.] But we have them all now. We have the Selective Employment Tax, and the duty on beer has gone up; the duty on petrol has gone up; Purchase Tax has gone up, and hire-purchase restrictions have been imposed. These were put forward to the House at the time of the Budget as alternatives, not as additions which could be piled on at some appropriate later date. The Prime Minister this afternoon said that this crisis came out of the blue. Anybody with any experience of Government knows that that is absolute nonsense. These things do not happen like that. The First Secretary might like to deal with this point.

How comes it that, on all these points—as I have shown—the Chancellor, with all the resources of Government and the Treasury, was wrong and the Opposition, on all these points and in detail, were right? How comes it that there was no contingency planning at all in the Treasury, just in case the Chancellor was not right, just in case some of the things which were being said from this Dispatch Box and by my right hon. and hon. Friends behind me turned out to be right? The Chancellor—he admitted this yesterday—has been proved to be comprehensively and massively wrong in July, 1966, as he was in July, 1965, as he was in November, 1964.

I turn to the First Secretary of State. I agree with my right hon. and learned Friend the Member for the Wirral. The right hon. Gentleman had, in one sense at least, a hopeless task. I believe that it would be right to scrap the Department of Economic Affairs, because I do not believe that two people can be in charge of this country's economic direction.

This can be put quite simply. The wage bill of this country is about £20,000 million a year. One per cent. of that is £200 million and 2 per cent. of that, £400 million, unrelated to productivity, would be a massive deflation in itself and would cancel out and has cancelled out many of the efforts—

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


Mr. Macleod

No; massive inflation which would cancel out the deflation which the Chancellor of the Exchequer, in successive Budgets, has tried to produce.

I can understand the feelings of the First Secretary of State. I read in the paper that I am supposed to bully him about his resignation. I have no intention of doing that. But he is the apostle of growth, and Wednesday must have been a poignant time for him. He knows now that his National Plan is so much waste paper, that all those targets have now gone. He has led the House into a ridiculous position in relation to the Prices and Incomes Bill. We had hardly given a Second Reading to the Bill when we were told in the paper—it has not appeared upstairs, but it is in order to refer to it briefly—that we gave a Second Reading to a quite different Bill from that which is now in the mind of the First Secretary of State.

I said during that Second Reading that what we were engaged in was not a Second Reading, it was a burial service. What the right hon. Gentleman has tried to do in introducing a new part of this Bill is to give the corpse the kiss of life. But one cannot do that. The prices and incomes policy as enunciated by the First Secretary is dead.

Let us consider for a moment, because this is a matter which affects the whole House, the shambles which Government business is in at present, as we move towards the Summer Recess. Tomorrow, we are to have the Third Reading of the Finance Bill. But the Finance Bill is out of date now. It has no relevance whatever to this debate or to the measures which were produced before[Interruption—.] they were not. His right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said that much of this appeared—this was a masterly understatement—less relevant than it did at the time. That Bill has been slain by its parent, by the Chancellor of the Exchequer.

Then we have the Prices and Incomes Bill. We are about to have a new Bill. I understand—there is no time to do anything else—that we are to have a danse macabre of the other place, with both of us simultaneously debating different prints of the same Bill and moving Amendments across intervals so that somebody can presumably meet in the middle and try to put the two together.

On top of this we have the Selective Employment Payments Bill. That guillotined torso is still twitching. I put this in a neutral manner, Mr. Speaker, because the decision is yours, but heaven knows what will happen if the Leader of the House was right and the Selective Employment Payments Bill in fact is not a Money Bill and one that can be discussed and can be amended, as the Leader of the House told us, in another place, because in that case farce really will reign supreme. The utter slaughterhouse shambles to which Gov-'Lent business has been reduced by the sheer incompetence of the Treasury Bench deserves a Motion of censure of its own.

To the First Secretary let me say that I am very glad indeed—I mean this sincerely—to hear that, however many qualifications and however many reservations there may be, the T.U.C. will give support to the Government's plan. No doubt he will tell us more about this. But I ask him, would he please learn from the experience of the Declaration of Intent? Would he please not boast too much and would he please not sneer at us too much? Because the Declaration of Intent of which he was so proud a year ago went wrong—and we know it; and one of the reasons why it went wrong was the way that the right hon. Gentleman made it at once a party issue in this House.

I hope that the First Secretary of State was given notice of the questions put by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) about the operation of the wage freeze. They were extraordinarily cogent and important questions. Indeed, at one point the hon. Member for West Ham, North (Mr. Arthur Lewis) said that he agreed with every word that my right hon. Friend was saying, which startled me as much as it startled him. It worried us. We thought we might be wrong.

Would the First Secretary tell us what is to happen to those workers—I believe there are 3 million of them—whose wages are tied to the retail prices index? What is to happen to agreements which have already been signed, sealed and delivered on productivity or some other basis stretching out into the future? What is to happen to those industries protected by wages councils, where the Minister of Labour stands, as he knows, in a very special position? I do not think that he can answer the next question off the cuff, but what is to happen in such cases as the doctors' pay award where, if the award is frozen and somebody retires, then from the time that it is frozen the whole of that man's pension will be affected? Shall we be told in a comprehensive White Paper the answers to these and 50 other questions, because until we are it is impossible for the House to make up its mind on these issues.

I have one last question to the First Secretary. He thought it right to bring himself to the brink of resignation and then not to resign. We know what he thinks. I guess he still thinks it. If as First Secretary, as economic C-in-C, he has no confidence in these measures, why on earth should we have confidence in them? If he, as First Secretary and economic C-in-C, has no confidence in these measures, how does he expect foreign opinion to be impressed by them? I was delighted to hear that on his return from Germany, when he was asked his views on the Chief Secretary's withdrawn resignation, the Chancellor of the Exchequer said that he was pleased that he had withdrawn his resignation as he did not wish to change a winning team. Would the First Secretary please, for heaven's sake, tell us what they are winning?

The third guilty man is, in our view, the Prime Minister.—[HON. MEMBERS: "Where is he?"]—Never mind. I wish that he had heard the speech of my right hon. and learned Friend the Member for Wirral this afternoon. He might have remembered his own comment on 25th July, 1961, when he said: Perhaps it will take the smirk off the Prime Minister's face if he is reminded that the boasts of prosperity on which he won the last General Election are now being sustained by borrowing sixteen years after the war."—[OFFICIAL REPORT, 25th July, 1961; Vol. 645, c. 229.] Some chickens come home to roost, do they not? The truth of my right hon. and learned Friend's proposals was that they took £210 million out of the economy, which at present prices would be £250 million. This Government and this Prime Minister are embarked on a course twice as severe as that put forward by my right hon. and learned Friend in 1961. And the reason why they have to make it twice as severe is because in 1961, when the present Prime Minister spoke, my right hon. and learned Friend was believed, but nobody believes this Government. Both Peter Thorneycroft—[HON. MEMBERS: "Where is he?"]—If Peter Thorneycroft had fought his election after last Wednesday, he would still be in this House. He said it, and my right hon. and learned Friend the Member for Wirral said it, and they meant it.

I think that one day we may be able to find out what was the cost of the Prime Minister's Moscow visit. I do not mean the cost of the entourage. I do not attack him on that sort of thing. I am talking about the sheer cost to our reserves of the inept delay which took place. Let us briefly run through that week. Sunday, 10th July, various articles in the Sunday Press; Monday, guidance given to the Financial Times and other newspapers, officially given from No. 10 Downing Street; Tuesday, that impromptu speech to the Prime Minister of Australia; Wednesday, the trade figures; and, Friday, that absurd performance of the Prime Minister in the House of Commons when he came to tell us that he was going to do something, that he was not sure what, and that now he was going off to Moscow for two days while other people worked out this particular battle.

Now the Prime Minister goes to Washington. In an interesting editorial in the New York Times

Several Hon. Members rose

Mr. Speaker


Mr. E. Shinwell (Easington)

Anything wrong?

Mr. Speaker

Order. The right hon. Member for Easington (Mr. Shinwell) must contain himself.

Mr. Shinwell

On a point of order. Have you observed, Mr. Speaker, that for the past 20 minutes the right hon. Member for Enfield, West (Mr. Iain Macleod) has indulged in a long sneer, and are we not entitled to reply to him?

Mr. Speaker

The right hon. Gentleman must reply in a Parliamentary way.

Mr. Macleod

In an editorial in that famous newspaper, the New York Times, two days ago, this was stated: In the near term, Mr. Wilson's urgent needs are to stabilise the pound and to restore his personal credit with other world leaders. I said that we brought charges against three men whom we regard as guilty. The charge against the Chancellor of the Exchequer, which he has already conceded, is not just that he was wrong but was improvident in his planning and that that has been very expensive indeed for the people of this country. The charge we bring against the First Secretary is that, for all his passionate beliefs in his own policies, those policies have been disastrous to our economy. The charge we bring against the Prime Minister is a simpler and a graver one. It is that, as long as he sits in this House, on whichever side he sits, my hon. and right hon. Friends do not feel that we will ever be able to trust him again.

9.30 p.m.

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

Wherever Conservative Party propaganada speeches are regarded as valuable the speech of the right hon. Member for Enfield, West (Mr. Iain Macleod) will earn its reward, but in the country as a whole, which at this moment in our history has absolutely no such regard, it will be looked on as one of the most disastrous speeches that the right hon. Gentleman has ever made.

I have now heard during this debate three allegedly major speeches from that side—[Interruption.] I must tell the Opposition their Chief Whip assured me that I would get a hearing tonight. As I say, I have heard three major speeches from that side of the House during this debate. They were made by the Leader of the Opposition, the right hon. Gentleman the Member for Enfield, West and his right hon. Friend the Member for Barnet (Mr. Maudling).

The Leader of the Opposition and the right hon. Member for Enfield, West occupied themselves wholly with scoring the kind of party points one would expect them to score in this situation. The right hon. Member for Barnet distinguished himself by doing all that—and, if I may say so, doing it rather better than the other two—but in the middle of his speech there were 10 minutes of real constructive thought.

Not one-third of the hon. Members opposite who are now present heard the 2G2 right hon. Gentleman—[HON. MEMBERS: "Rubbish."] I advise the other two-thirds to read his speech. As for myself, as a Minister, clearly I cannot espouse it, but I must say that members of the Conservative Party ought to read what he said and decide whether they can go along with him.

The froth we can push aside. The country outside is not the least interested —[HON. MEMBERS: "Oh!"]—in the kind of party points—[Interruption.]which was all the Leader of the Opposition and the right hon. Member for Enfield, West thought they only had to make, but the country is interested in that 10 minutes in the middle of the speech of the right hon. Member for Barnet.

May I come to our position—[HON. MEMBERS: "Get on with it."] If this is one of those silly nights—all right. I tell hon. and right hon. Members opposite that if it is one of those silly nights it is not the night I am fighting. They can have it their way, but if they want to listen to a serious argument I should like to deploy it. I shall come to our position, I shall come to my own position. There are things to argue about in this situation, things which only the right hon. Member for Barnet raised today and, of course, it takes of lot of decision to decide where one is to stand at the end of the argument. We have decided.

Any right hon. Member opposite could say that he would have chosen radically different decisions from the ones we have chosen. No right hon. Member opposite has said that except the right hon. Member for Barnet who raised it en passant, in the middle of his speech. The Leader of the Opposition did not raise it and the right hon. Member for Enfield, West did not raise it. If they do not raise it, and are not willing to raise it, they cannot attack us for what we are now doing. They have to discuss how we handle the situation, given what we want to do. I want to pose a question which the country, I think, would like all of us to answer. I pose it by stating our position. We want to manage the economy while keeping people at work, while using all our resources and yet, at the same time, to get the mobility of labour and investment in the industries which we need.

Right hon. Members opposite know what they really believe. They think that the only way they could do this is to put a lot of people out of work and not use lost of factories, whereas we still believe that the economy can be managed. I now speak to my trade union friends as clearly as I speak to management. For almost two years now we have tried to manage the economy in a way that no economy has been managed before. [Interruption.]

Mr. Speaker

Order. The Government side heard the Opposition spokesman with courtesy and silence. We must have the same treatment of both Front Bench spokesmen by both sides.

Mr. Brown

May I read something that I did not write myself, something that was written by a great statesman from another country, a great capitalist country. This is what he wrote an hour ago in this very building: No free democratic society has solved the problem of achieving simultaneously four basic economic objectives: first, a rapidly expanding economy; secondly, full employment; thirdly, reasonable price stability; fourthly, equilibrium in the balance of international payments. No, nobody has yet solved it and when hon. and right hon. Members opposite giggled so hard just now it was because for two years we have been trying to solve those four things which no free democratic society in the world has ever yet solved. By their very giggles they showed that they do not even know what the problem is. I repeat that that was written an hour ago by a very great statesman from a very great country.

Added to that problem, to which all of us should be addressing ourselves, there is another problem, which we alone, in a way, share. Right hon. and hon. Members opposite must make up their minds about this, whether they are for it or against it. The additional problem is whether we are to maintain the rôle we play in the world, partly by our physical presence in some places, partly by the banking facilities we make available.

It is easy, if one does not have to answer this question—[Interruption.] The right hon. Member for Streatham (Mr. Sandys) should shut up or get up, whichever he likes. He thinks that we must keep our presence all round the world. There are other right hon. Gentlemen who do not believe that at all. The Opposition must make up their mind, just as we have had to make up ours. We have made our mind up. [Interruption.] This is not the night I am fighting. I am trying to develop an argument. If the Opposition do not want to hear it, I am not fighting. They make up their own mind.

We have made our mind up. It is no secret from anybody, in the House or outside the House, that I had a lot of trouble—[Laughter.]—in deciding whether we were right. If any hon. Member opposite facing these problems could make up his mind just like that, he must be an idiot. [Interruption.] That is not worthy of the Leader of the Opposition. It is all right for the rest of them.

Mr. Edward Heath (Bexley)

I did not say anything.

Mr. Brown

Yes, the right hon. Gentleman did. I heard him.

Mr. Heath

I ask the right hon. Gentleman to withdraw that statement. I have said absolutely nothing in the whole course of his speech.

Mr. Brown

Then it must have been "Charlie McCarthy", but it sounded very like the right hon. Gentleman. I withdraw it if it was not him, but I thought it was.

May I make it plain that we have made up our minds? We, the Government, have made up our mind, and we present this package of measures to the House, having made up our mind.

One thing I am constantly asked about—that is, when hon. Members opposite are sufficiently steady to ask me anything at all—is: how does this affect the National Plan? I will be absolutely frank with the House. It means that the rate of growth we intended to get, and were set to get, and on the basis of which we predicated all other things for 1970, is no longer available. Therefore, I must sit down again with my advisers, with industry, with the men who used to pay for the Conservative Party, but no longer do so—[Interruption.]—and with the trade unions, and have a new look at the rate at which we now think we can go, and the changes we now think we can make. But it does not destroy the idea of a plan to which the Government are committed—[An HON. MEMBER: "It is beyond me."] All the things that we set down in the plan may well be beyond the hon. Member, in which case he can go out. He does not have to stay. He can go, and we will send him a child's guide tomorrow.

Both sides of industry and the City want to know what we do from here on. We go on with the Plan. In the light of this, we rewrite the figures and the time scale, but the check list of action of things to be done by industry, management, the unions and Government become more important than ever, not less important.

At some stage—I am not really concerned which party is on this side of the House when it happens, nor is the right hon. Gentleman and certainly not the right hon. Member for Barnet—the country must go forward again into expansion, into growth, and all the things set out in the Plan must have been done by then if we are to do so.

I say to the country that management, unions, commerce and the banks must understand that this is not an evening for washing their hands of it. It is an evening for picking up their responsibilities and getting on with it, and they know what they must get on with. Nobody outside the House is interested in party political points; the world is not interested in our having a party political game. People are interested in knowing whether we can somehow stimulate people into taking up the yoke and getting on and pulling the cart behind them. This is what we should be telling them about.

Now I come to prices and incomes. How many times have I been taunted by hon. Members opposite that it would fail? Some, like the right hon. Member for Wolverhampton, South-West (Mr. Powell) hoped that it would fail.

Mr. Powell

I knew.

Mr. Brown

All right. The right hon. Gentleman knew that it would fail and has taken a lot of pleasure—

Mr. Powell

No, I knew.

Mr. Brown

But this afternoon the right hon. Member for Barnet regretted that it had failed, and when I interrupted him at his express wish, and asked whether the right hon. Member for Wolverhampton, South-West went along with him, I was jeered at by hon. Members opposite for daring to ask such a silly question. We now have an answer, almost 12 hours later—[Interruption.] All right, eight hours later.

For goodness' sake—cannot the Tory Opposition grow up? The difference between the right hon. Member for Barnet and the right hon. Member for Wolverhampton, South-West is far more than seven hours or whatever it is; it is a whole circle, the whole world. The right hon. Member for Barnet wishes it had worked. He told us that. The right hon. Member for Wolverhampton, South-West knew it would fail and is glad it failed.

Mr. Powell

I did not say that.

Mr. Brown

He knew it would fail and is glad it would fail; and behind him there are benches of men who did not care whether it succeeded or failed.

Whatever the Opposition may feel, if this country is ever to expand, to grow, to export, to join Europe—not join Europe; we have been in Europe for 2,000 years—if we are ever to join the Common Market—if we are ever to do any of these things, the prices and incomes policy is inescapable. The one man over there who knows that is the one who tried very hard to get it, and may well have been let down. I shall not comment on that. But the rest of them over there have not yet got the understanding.

We shall go on trying to get it. We shall work for a prices and incomes policy which can work by voluntary acceptance and agreement because, at the end of the day, that is the only way it will. [An HON. MEMBER: "NO compulsion?".] The unions and employers, the T.U.C. and the C.B.I., both know this. We are going to work for it. The hon. Gentleman who has no constructive rôle to play says, "No compulsion?". To get through the immediate problems, I am prepared, with my right hon. Friend's support, to say to the unions that there will have to be some compulsion in the meantime, and I am prepared, with my right hon. Friend's support, to say to the price fixers, to the manufacturers, that there will have to be some compulsion in the meantime, so as to give us what everyone opposite knows we must have—a breathing space.

We must have a period while we get rid of what has been going on. [An HON. MEMBER: "Who is 'we'?"] The nation. I happen to be a Britisher. I do not know what you are, but I happen to be a Britisher. Ask the nation. I mean we the nation.

Mr. Speaker

Order. I hope that the right hon. Gentleman is not casting any doubts on my nationality.

Mr. Brown

I include you, Sir. I was a bit doubtful about some of them over there. We, the nation, need a period in which we can recover from things that people, good people, have done last year not quite realising what they were doing. So we shall face the trade unions, the manufacturers and everybody else with the need to enforce, I trust by voluntary agreement, a standstill while we recover from what has been done this year. [Laughter.] People do not read the giggles of hon. Gentlemen opposite. Some day we shall have television cameras in the House and then they will see them.

The interesting thing this afternoon was that when it was announced that the T.U.C. had decided to give us, to give the Government, not really the Government but the country, its co-operation in something that must have gone very deep to its heart, something which means tremendous interference with all its traditional thoughts, habits, beliefs and makeup, we did not get even the thinnest of sounds from the Opposition. [Interruption.] I trust that right hon. Gentlemen opposite will ensure that we get the same forthcoming noises from the C.B.I. tomorrow. We have not had them yet. The T.U.C., not for the first time, is ahead in saying, "We will surrender for the good of the country". This is what this party and this movement is always doing. We are always ahead. [Interruption.]

Speaking in this House late at night, Mr. Speaker, is always a problem, because of reasons we all know. I want to tell you, Sir, that at the end of this pause which we have to have, at the end of these measures which we have to take and which we shall ask the country to support us in—I get around the country as much as most people and I am pretty sure that the country will support us in them; I have no doubt about that —I want all our policies to be in a position where they can move ahead from there. I want the Plan to go on.

Mr. Geoffrey Hirst (Shipley)

Leave the Plan alone.

Mr. George Brown

Only somebody like the hon. Member for Shipley (Mr. Hirst), who does not care about this nation, would want it to fail.

It has to go on. We have to improve our industrial efficiency, get rid of restrictive practices, encourage the "little Neddies"—as has been said by the right hon. Member for Barnet, the only mem-

ber of the Opposition to understand the problem—to go on doing their work, and ensure that we can pick up a prices and incomes policy still in being at the end of the day.

Right hon. and hon. Gentlemen opposite have had their day of giggling and jeering. They can vote against us for all we care. We know that they are irrelevant, and that we are speaking for the nation at this moment.

Question put:—

The House divided: Ayes 246, Noes 325.

Division No. 147.] AYES [10.0 p.m.
Alison, Michael (Barkston Ash) Errington, Sir Eric Joseph, Rt. Hn. Sir Keith
Allason, James (Hemel Hempstead) Eyre, Reginald Kaherry, Sir Donald
Astor, John Evans, Gwynfor (Carmarthen) Kerby, Capt. Henry
Atkins, Humphrey (M't'n & M'd'n) Farr, John Kershaw, Anthony
Awdry, Daniel Fisher, Nigel Kimball, Marcus
Baker, W. H. K. Fletcher-Cooke, Charles King, Evelyn (Dorset, S.)
Batsford, Brian Fortescue, Tim Kirk, Peter
Beamish, Col. Sir Tufton Foster, Sir John Kitson, Timothy
Bell, Ronald Fraser, Rt. Hn. Hugh (St'fford & Stone) Knight, Mrs. Jill
Bennett, Sir Frederic (Torquay) Galbraith, Hn. T. G. Lambton, Viscount
Berry, Hn. Anthony Gibson-Watt, David Lancaster, Col. C. G.
Bitten, John Giles, Rear-Adm. Morgan Langford-Holt, Sir John
Birch, Rt. Nigel Gilmour, Ian (Norfolk, C.) Legge-Bourke, Sir Harry
Black, Sir Cyril Glover, Sir Douglas Lewis, Kenneth (Rutland)
Blaker, Peter Glyn, Sir Richard Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)
Body, Richard Godber, Rt. Hn. J. B. Lloyd, Ian (P'tsm'th, Langstone)
Bossom, Sir Clive Goodhart, Philip Lloyd, Rt. Hn. Selwyn (Wirral)
Boyd-Carpenter, Rt. Hn. John Goodhew, Victor Longden, Gilbert
Boyle, Rt. Hn. Sir Edward Gower, Raymond Loveys, W. H.
Braine, Bernard Grant, Anthony Lubbock, Eric
Brewis, John Grant-Ferris, R. MacArthur, Ian
Brinton, Sir Tatton Gresham Cooke, R. Mackenzie, Alasdair (Ross & Crom'ty)
Bromley-Davenport, Lt. Col. Sir Walter Griffiths, Eldon (Bury St. Edmunds) Maclean, Sir Fitzroy
Brown, Sir Edward (Bath) Grimond, Rt. Hn. J. Macleod, Rt. Hn. Iain
Bruce-Gardyne, J. Gurden, Harold McMaster, Stanley
Bryan, Paul Hall, John (Wycombe) Macmillan. Maurice (Farnham)
Buchanan-Smith, Alick (Angus, N & M) Hall-Davis, A. G. F. Maddan, Martin
Buck, Antony (Colchester) Hamilton, Michael (Salisbury) Maginnis, John E.
Bullus, Sir Eric Harris, Frederic (Croydon, N.W.) Marples, Rt. Hn. Ernest
Campbell, Gordon Harris, Reader (Heston) Marten, Neil
Carlisle, Mark Harrison, Brian (Maldon) Mathew, Robert
Carr, Rt. Hn. Robert Harrison, Col. Sir Harwood (Eye) Maude, Angus
Cary, Sir Robert Harvey, Sir Arthur Vere Maudling, Rt. Hn. Reginald
Channon, H. P. G. Harvie Anderson, Miss Mawby, Ray
Chichester-Clark, R. Hastings, Stephen Maxwell-Hyslop, R. J.
Clark, Henry Hawkins, Paul Maydon, Lt.-Cmdr. S. L. C.
Clegg, Walter Hay, John Mills, Peter (Torrington)
Cooke, Robert Heald, Rt. Hn. Sir Lionel Mills, Stratton (Belfast, N.)
Cooper-Key, Sir Neill Heath, Rt. Hn. Edward Miscampbell, Norman
Cordle, John Heseltine, Michael Mitchell, David (Basingstoke)
Corfield, F. V. Higgins, Terence L. Monro, Hector
Costain, A. P. Hiley, Joseph More, Jasper
Craddock, Sir Beresford (Spelthorne) Hill, J. E. B. Morgan, W. G. (Denbigh)
Crawley, Aldan Hirst, Geoffrey Morrison, Charles (Devizes)
Crouch, David Hobson, Rt. Hn. Sir John Mott-Radclyffe, Sir Charles
Crowder, F. P. Hogg, Rt. Hn. Quintin Munro-Lucas-Tooth, Sir Hugh
Cunningham, Sir Knox Holland, Philip Murton, Oscar
Currie, G. B. H. Hobson, Emlyn Nabarro, Sir Gerald
Dalkeith, Earl of Dance, James Hordern, Peter Neave, Airey
Davidson, James (Aberdeenshire, W.) Hornby, Richard Nicholls, Sir Harmar
d'Avigdor-Gildsmid, Sir Henry Howell, David (Guildford) Noble, Rt. Hn. Michael
Dean, Paul (Somerset, N.) Hutchison, Michael Clark Nott, John
Deedes, Rt. Hn. W. F. (Ashford) Iremonger, T. L. Onslow, Cranley
Dodds-Parker, Douglas Irvine, Bryant Godman (Rye) Orr, Capt. L. P. S.
Doughty, Charles Jenkin, Patrick (Woodford) Orr-Ewing, Sir Ian
Drayson, G. B. Jennings, J. C. (Burton) Osborn, John (Hallam)
du Cann, Rt. Hn. Edward Johnson Smith, G. (E. Grinstead) Osborne, Sir Cyril (Louth)
Eden, Sir John Johnston, Russell (Inverness) Page, Graham (Crosby)
Elliot, Capt. Walter (Carshalton) Jones, Arthur (Northants, S.) Page, John (Harrow, W.)
Jopling, Michael Pardoe, John
Pearson, Sir Frank (Clitheroe) Sandys, Rt. Hn. D. Vickers, Dame Joan
Peel, John Scott, Nicholas Wainwright, Richard (Colne Valley)
Percival, Ian Sharpies, Richard Walker, Peter (Worcester)
Pike, Miss Mervyn Shaw, Michael (Sc'b'gh & Whitby) Walker-Smith, Rt. Hn. Sir Derek
Pink, R. Bonner Sinclair, Sir George Wall, Patrick
Pounder, Batton Smith, John Walters, Dennis
Powell, Rt. Hn. J. Enoch Stainton, Keith Ward, Dame Irene
Price, David (Eastleigh) Steel, David (Roxburgh) Weatherill, Bernard
Prior, J. M. L. Stodart, Anthony Webster, David
Quennell, Miss J. M. Summers, Sir Spencer Wells, John (Maidstone)
Rawlinson, Rt. Hn. Sir Peter Talbot, John E. Whitelaw, William
Rees-Davies, W. R. Tapsell, Peter Wills, Sir Gerald (Bridgwater)
Renton, Rt. Hn. Sir David Taylor, Sir Charles (Eastbourne) Wilson, Geoffrey (Truro)
Ridley, Hn. Nicholas Taylor, Edward M. (G'gow, Cathcart) Winstanley, Dr. M. P.
Ridsdale, Julian Taylor, Frank (Moss Side) Wolrige-Gordon, Patrick
Rippers, Rt. Hn. Geoffrey Teeling, Sir William Wood, Rt. Hn. Richard
Robson Brown, Sir William Temple, John M. Woodnutt, Mark
Rodgers, Sir John (Sevenoaks) Thatcher, Mrs. Margaret Worstey, Marcus
Roots, William Thorpe, Jeremy Wylie, N. R.
Rossi, Hugh (Hornsey) Tilney, John Younger, Hn. George
Royle, Anthony Turton, Rt. Hn. R. H.
Russell, Sir Ronald van Straubenzee, W. R. TELLERS FOR THE AYES:
St. John-Stevas, Norman Vaughan-Morgan, Rt. Hn. Sir John Mr. Francis Pym and
Mr. R. W. Elliott.
Abse, Leo Crawshaw, Richard Ginsburg, David
Albu, Austen Cronin, John Gordon Walker, Rt. Hn. P. C.
Allaun, Frank (Salford, E.) Crosland, Rt. Hn. Anthony Gourlay, Harry
Alldritt, Walter Grossman, Rt. Hn. Richard Gray, Dr. Hugh (Yarmouth)
Allen, Scholefield Cullen, Mrs. Alice Greenwood, Rt. Hn. Anthony
Anderson, Donald Dalyell, Tam Gregory, Arnold
Archer, Peter Darling, Rt. Hn. George Griffiths, David (Rother Valley)
Armstrong, Ernest Davidson, Arthur (Accrington) Griffiths, Rt. Hn. James (Llanelly)
Ashley, Jack Davies, Dr. Ernest (Stretford) Griffiths, Will (Exchange)
Atkins, Ronald (Preston, N.) Davies, G. Elfed (Rhondda, E.) Gunter, Rt. Hn. R. J.
Atkinson, Norman (Tottenham) Davies, Ednyfed Hudson (Conway) Hamilton, James (Bothwell)
Bacon, Rt. Hn. Alice Davies, Harold (Leek) Hamilton, Marquess of (Fermanagh)
Bagier, Gordon A. T. Davies, Mir (Gower) Hamling, William
Barnes, Michael Davies, Robert (Cambridge) Hannan, William
Barnett, Joel Davies, S. O. (Merthyr) Harper, Joseph
Baxter, William de Freitas, Sir Geoffrey Harrison, Walter (Wakefield)
Beaney, Alan Delargy, Hugh Hart, Mrs. Judith
Bellenger, Rt. Hn. F. J. Dell, Edmund Haseldine, Norman
Bence, Cyril Dempsey, James Hattersley, Roy
Benn, Rt. Hn. Anthony Wedgwood Dewar, Donald Hazell, Bert
Bennett, James (G'gow, Bridgeton) Diamond, Rt. Hn. John Healey, Rt. Hn. Denis
Bidwell, Sydney Dickens, James Henig, Stanley
Binns, John Dobson, Ray Herbison, Rt. Hn. Margaret
Bishop, E. S. Doig, Peter Hilton, W. S.
Blackburn, F. Donnelly, Desmond Hooley, Frank
Blenkinsop, Arthur Driberg, Tom Horner, John
Boardman, H. Dunn, James A. Houghton, Rt. Hn. Douglas
Booth, Albert Dunnett, Jack Howarth, Harry (Wellingborough)
Boston, Terence Dunwoody, Mrs. Gwyneth (Exeter) Howarth, Robert (Bolton, E.)
Bottomley, Rt. Hn. Arthur Eadie, Alex Howell, Denis (Small Heath)
Bowden, Rt. Hn. Herbert Edwards, Robert (Bilston) Howie, W.
Boyden, James Edwards, William (Merioneth) Hoy, James
Braddock, Mrs. E. M. Ells, John Hughes, Rt. Hn. Cledwyn (Anglesey)
Bradley, Tom English, Michael Hughes, Emrys (Ayrshire, S.)
Bray, Dr. Jeremy Ennals, David Hughes, Hector (Aberdeen, N.)
Brooks, Edwin Evans, Albert (Islington, S.W.) Hughes, Roy (Newport)
Broughton, Dr. A. D. D. Evans, Ioan L. (Birm'h'm, Yardley) Hunter, Adam
Brown, Rt. Hn. George (Belper) Faulds, Andrew Hynd, John
Brown, Hugh D. (G'gow, Provan) Fernyhough, E. Irvine, A. J. (Edge Hill)
Brown, Bob (N'c'tle-upon-Tyne, W) Finch, Harold Jackson, Colin (B'h'se & Spenb'gh)
Brown, R. W. (Shoreditch & F'bury) Fitch, Alan (Wigan) Jackson, Peter M. (High Peak)
Buchan, Norman Fitt, Gerard (Belfast, W.) Janner, Sir Barnett
Buchanan, Richard (G'gow, Sp'burn) Fletcher, Raymond (Ilkeston) Jay, Rt. Hn. Douglas
Butler, Herbert (Hackney, C.) Fletcher, Ted (Darlington) Jeger, George (Goole)
Butler, Mrs. Joyce (Wood Green) Floud, Bernard Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)
Callaghan, Rt. Hn. James Foley, Maurice Jenkins, Hugh (Putney)
Cant, R. B. Foot, Sir Dingle (Ipswich) Jenkins, Rt. Hn. Roy (Stechford)
Carmichael, Neil Foot, Michael (Ebbw Vale) Johnson, Carol (Lewisham, S.)
Carter-Jones, Lewis Ford, Ben Johnson, James (K'ston-on-Hull, W.)
Castle, Rt. Hn. Barbara Forrester, John Jones, Dan (Burnley)
Chapman, Donald Fowler, Gerry Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)
Coe, Denis Fraser, John (Norwood) Jones, J. Idwal (Wrexham)
Coleman, Donald Fraser, Rt. Hn. Tom (Hamilton) Judd, Frank
Concannon, J. D. Freeson, Reginald Kelley, Richard
Conlan, Bernard Gardner, A. J. Kenyon, Clifford
Corbet, Mrs. Freda Garrett, W. E. Kerr, Mrs. Anne (R'ter & Chatham)
Craddock, George (Bradford, S.) Darrow, Alex Kerr, Russell (Feltham)
Leadbitter, Ted Oakes, Gordon Skeffington, Arthur
Ledger, Ron Ogden, Eric Slater, Joseph
Lee, Rt. Hn. Frederick (Newton) O'Malley, Brian Small, William
Lee, Rt. Hn. Jennie (Cannock) Oram, Albert E. Snow, Julian
Lee, John (Reading) Orbach, Maurice Spriggs, Leslie
Lestor, Miss Joan Orme, Stanley Steele, Thomas (Dunbartonshire, W.)
Lever, Harold (Cheetham) Oswald, Thomas Stonehouse, John
Lever, L. M. (Ardwick) Owen, Dr. David (Plymouth, S'tn) Strauss, Rt. Hn. G. R.
Lewis, Ron (Carlisle) Owen, Will (Morpeth) Summerskill, Hn. Dr. Shirley
Lipton, Marcus Page, Derek (King's Lynn) Swain, Thomas
Lomas, Kenneth Paget, R. T. Swingler, Stephen
Loughlin, Charles Palmer, Arthur Symonds, J. B.
Luard, Evan Pannell, Rt. Hn. Charles Taveme, Dick
Lyon, Alexander W. (York) Park, Trevor Thomas, George (Cardiff, W.)
Lyons, Edward (Bradford, E.) Parker, John (Dagenham) Thomas, Iorwerth (Rhondda, W.)
Mabon, Dr. J. Dickson Parkyn, Brian (Bedford) Thomson, Rt. Hn. George
McBride, Neil Pearson, Arthur (Pontypridd) Thornton, Ernest
McCann, John Peart, Rt. Hn. Fred Tinn, James
MacColl, James Pentland, Norman Tomney, Frank
MacDermot, Niall Perry, Ernest G. (Battersea, S.) Tuck, Raphael
McGuire, Michael Prentice, Rt. Hn. R. E. Urwin, T. W.
McKay, Mrs. Margaret Price, Christopher (Perry Barr) Parley, Eric G.
Mackenzie, Gregor (Rutherglen) Price, Thomas (Westhoughton) Wainwright, Edwin (Dearne Valley)
Mackie, John Price, William (Rugby) Walden, Brian (All Saints)
Mackintosh, John P. Probert, Arthur Walker, Harold (Donenter)
Maclennan, Robert Pursey, Cmdr. Harry Wallace, George
McMillan, Tom (Glasgow, C.) Rankin, John Watkins, David (Consett)
McNamara J. Kevin Redhead, Edward Weitzman, David
MacPherson, Malcolm Rees, Merlyn Wellbeloved, James
Mallalieu, E. L. (Brigg) Reynolds, G. W. Wells, William (Walsall, N.)
Mallalieu, J.P. W. (Huddersfield, E.) Rhodes, Geoffrey Whitaker, Ben
Manuel, Archie Richard, Ivor Whitlock, William
Mapp, Charles Roberts, Goronwy (Caernarvon) Wigg, Rt. Hn. George
Marquand, David Roberts, Gwilym (Bedfordshire, S.) Willey, Rt. Hn. Frederick
Marsh, Rt. Hn. Richard Robertson, John (Paisley) Williams, Alan (Swansea, W.)
Mason, Roy Robinson, Rt. Hn. Kenneth (St. P'c'as) Williams, Alan Lee (Hornchurch)
Mayhew, Christopher Robinson, W. O. J. (Walth'stow, E.) Williams, Clifford (Abertillery)
Mellish, Robert Rodgers, William (Stockton) Williams, Mrs. Shirley (Hitchin)
Mendelson, J. J. Roebuck, Roy Williams, W. T. (Warrington)
Mikardo, Ian Rose, Paul Willis, George (Edinburgh, E.)
Millan, Bruce Ross, Rt. Hn. William Wilson, Rt. Hn. Harold (Huyton)
Miller, Dr. M. S. Rowland, Christopher (Meriden) Wilson, William (Coventry, S.)
Mitchell, R. C. (S'th'pton, Test) Ryan, John Winnick, David
Molloy, William Shaw, Arnold (Ilford, S.) Winterbottom, R. E.
Morgan, Elystan (Cardiganshire) Sheldon, Robert Woodburn, Rt. Hn. A.
Morris, Alfred (Wythenshawe) Shinwell, Rt. Hn. E. Woof, Robert
Morris, Charles R. (Openshaw) Shore, Peter (Stepney) Wyatt, Woodrow
Morris, John (Aberavon) Short, Rt. Hn. Edward (N'c'tle-u-Tyne) Yates, Victor
Moyle, Roland Short, Mrs. Renée (W'hampton, N.E.)
Murray, Albert Silkin, John (Deptford) TELLERS FOR THE NOES:
Neal, Harold Silkin. S. C. (Dulwich) Mr. Charles Grey and
Newer's, Stan Silverman, Julius (Aston) Mr. George Lawson.
Noel-Baker, Francis (Swindon) Silverman, Sydney (Nelson)