ECONOMIC AFFAIRS

HC Deb 24 July 1967 vol 751 cc68-195

Mr. Speaker

Before I call the spokesman for the Opposition to move the Motion, may I say that I have not selected the Amendment in the names of the hon. Member for Poplar (Mr. Mikardo) and some of his hon. Friends.

4.1 p.m.

Mr. Iain Macleod (Enfield, West)

I beg to move, That this House has no confidence in the economic policies of Her Majesty's Government. I start by treading on a piece of common ground between the Chancellor of the Exchequer and myself. I mention, only to reject, the solution of devaluation, because in my view it is no solution at all. It is idle to pretend that many, and perhaps the majority, of academic economists do not advocate this course. One listens carefully to what they say, but I do not think that devaluation offers us an easy way, or indeed any way, out of our present difficulties. I think, without labouring the point, that the signals of both interest and good faith alike are set against it. I believe this to be the genuine view of both the Treasury Front Bench and the Opposition Front Bench. I therefore state it at the beginning of the debate. No doubt the Chancellor will make some reference to it, when his categorical rejection will certainly be welcomed on this side of the House.

I turn to the Motion of censure. Each July since October, 1964, a debate of this sort has become necessary, because in each July we have seen the failure of the Chancellor's Budget judgment of the spring months. In 1965, he was warned by my right hon. Friend the Leader of the Opposition that he was being too optimistic. The Chancellor protested almost till the end, and then finally brought in a July packet. Last year he was warned by myself on the day after his Budget statement that he was taking a very serious risk with confidence, and even with our reserves, in bringing in his measures so late. In July, we had the most serious economic measures that we have had in peacetime.

This year the qualified euphoria of the Budget speech has been dissipated by events. If there are no July measures, that simply means, in my judgment, that the Chancellor has not yet won the battle that he must win, and which I hope he does win, against mounting Government expenditure.

The phrase "qualified euphoria" is not mine. The words I used on the day after the Budget this year, after analysing in particular the unemployment figures, which I shall do again in a moment, were these: In short—and, I believe, with good reason —I am less able than the Chancellor to take a cheerful or even passive view of the economy."—[OFFICIAL REPORT, 12th April, 1967; Vol. 744, c. 1216.] The phrase "qualified euphoria" was used a few days ago by Mr. Cecil King.

I quote from The Times: Criticising the failure of performance to live up to pre-election promises, Mr. King … declared: 'No industrial country has deflated so savagely as Britain as recently, since the Keynesian principles of economic management came into practice'. Mr. King felt unable to share the 'qualified euphoria' expressed by Mr. Callaghan in his Budget speech. So, whether one takes my judgment or that of Mr. King's, or that of events themselves, I think that for the third time running the Chancellor has to answer the charge in July that his judgment in April—I have conceded that it was a particularly difficult judgment to make this year—has gone wrong.

Let us start by seeing what the original plan was as mapped out by the Prime Minister—not before the election of 1964, although quotations from the speeches he made then are hair raising enough, but from something he said after he had won the election, after he had looked at the books, after he had made the statement of 26th October on the economic situation which said this: The Government have satisfied themselves that, with the facilities available, the strength of sterling can and will be maintained and that so far as the domestic economy in general is concerned there is no undue pressure on resources calling for action. The verdict that the Prime Minister announced in the debate on the Address, when he charted the path that his Government were to follow, was this: … we have learned the hard way that deflation and contraction, so far from making us more efficient and competitive, have the opposite effect—costs rise; essential investment is discouraged; restrictive attitudes on both sides of industry are discouraged; a policy which relates incomes to expanding production is made infinitely harder to achieve … we are not prepared to accept the unemployment and loss of production which economic defeatism of this kind entails."—[OFFICIAL REPORT, 3rd November, 1964; Vol. 70, c. 79.] That is the point from which every hon. Member opposite—each and every one of them—started. Each and every hon. Member who sits on the Government benches, whether he sits on the first or on the fifth bench, was elected to the House on a bonus prospectus.

I turn first, as I have done so often in the House—the House knows my deep interest in this matter and, indeed shares it with me—to the unemployment situation. I have not been, and I will not be today, alarmist about it, but I am deeply concerned that at least now we should have no further illusions about the present position. The papers have been splashing the fact recently that these are the highest figures for July since 1940. Indeed, this was true of June as well, but I do not think that it registered at that time. The trends have been apparent for a very long time. In this country the trends have been masked by the very mildness of the winter that we went through.

July, it is sad to remember, is the last of the good months. From August onwards the figures turn against us—partly for seasonal reasons, of course, but they turn against us from now on. so we should at this moment be at the very peak of the year.

Let us look at some of the figures as they came out a few days ago. The graph to look at is that of wholly unemployed, excluding school leavers. The increase, seasonally adjusted, for the last five months goes as follows: plus 13,000, plus 28,000, plus 10,000, plus 19,000, plus 19,000. These are seasonally adjusted figures. The fall last month in wholly unemployed was 51, but the seasonally adjusted fall should have been 18,500. The difference between those two figures is the measure of the deterioration in that one month.

It is not a question of unemployment alone. We must look at employment as well. We can get some indication of the Government's failure to redeploy labour by the fact that employment in manufacturing industry—it is an almost incredible figure—fell by 339,000 between July, 1966 and May, 1967. Unemployment increased by only 120,000, but employment dropped by 339,000. Compared with May, 1966, in May, 1967 66,000 fewer were employed in engineering and electrical goods, 47,000 fewer in vehicles, 58,000 fewer in textiles, and 71,000 fewer in construction. Among other things, what nonsense this makes of the Selective Employment Tax, which was introduced a year ago to help manufacturing industry.

Look—and this is what worries the House most—at the regions which are beginning to suffer most. The worst hit in July was the North-Western Region. The second was Scotland and the third Wales. Does that suggest nothing to hon. Members on both sides of the House? Does it not suggest that once more we are seeing, as we move into the second year of a cycle, that the older regions which one may have thought had escaped at the beginning are hit worst and that the bite is fiercer as time goes on there?

Let us look, finally, at the graph provided by the Minister of Labour over the years. I hope that every hon. Member will study this graph. It is the graph of wholly unemployed, giving both actual and seasonally-adjusted figures. Of course, the seasonally-adjusted figures are the ones which matter. The graph now, in July, 1967, is within a fraction of the peak reached in February, 1963, and it is climbing very steeply indeed.

I know that the House treats this subject with the utmost gravity, so let us realise where we are. In February, 1963, that peak was touched only for a matter of a few weeks—I think that by the accident of the time at which the count was taken it was for only a few days. Now one sees no break in this relentless climb up to and quite certainly beyond the peak. I do not say beyond the peak in actual numbers for that was the peak of the winter which was the worst for 100 years. We may be lucky again, but let us be quite clear for there is no doubt that we are at the mercy of the weather this winter. If the weather is remotely as bad as it was in 1963, the figures will outstrip those of that year. I do not think that anyone can find comfort from those figures.

I turn to analyse purely factually some other indices. First, the level of industrial production which fell last month is now at 131 points. It was 131 in December, 1964, and it was 131 in May when we had the latest figures for 1967. That is four points below the figure reached in July, 1966. There has been in this year a fall of four points compared with a fall of one point in the comparable cycle of 1961–1963.

The implications for the Government's promises or aims are very serious indeed, because the index needs to average 135 in 1967 indeed, 136 for the last quarter if it is to meet the Treasury's target of a 3 per cent. rise in output. The May figure needed to start at something like five points more than 131 to make this possible. I do not see, in face of that, how the Government can long pretend that their aim remains very much unaltered.

The Index of Retail Prices rose by half a point in June. That brings the increase to 12 points—or 11.1 per cent.—since October, 1964, an annual increase of 4.1 per cent. compared with 2½ per cent. average annual increase during the last six Tory years. The figure for last year was 2.8 per cent., which is much the same as, indeed rather worse than, the average.

During the last six years of Tory government the gross domestic product rose by 25.3 per cent. Her Majesty's Government's plans were for slightly less than that, in spite of their pre-election undertakings-25 per cent. The 25 per cent. is now dead and current estimates are that for these six years it may be 15 per cent. Even this, I think, is questionable. All public expenditure programmes—I shall return to this point and invite the Chancellor to explain it later—were calculated on the basis of 25 per cent. growth rate on which the National Plan was based. They should, therefore, be totally recast.

I have a string of quotations about the balance of payments showing how each year the optimism of the Government has waxed and waned. I give the House only one. The Chancellor of the Exchequer, speaking at the Labour Party conference at Blackpool on 30th September, 1965, said: I have given only one pledge, and that pledge has been made public. It is that we should get ourselves into balance by the end of 1966.… I gave that pledge and the whole Cabinet is, of course, responsible for the pledge too, and it is essential that we should bend and adjust our policies to achieve this end, and I believe the British people understand this and set it against all the Tory yelps about unfulfilled Election promises. The "Tory yelps" had it and they were right. When last we had a major debate on the Budget I acknowledged, and was glad to be able to do so, that sterling had touched parity that day. Recently, it has been rocketing around about 2.784 per cent. I was glad to see this morning that it was rather stronger.

With that analysis behind one, one comes to the question not why some of these things have happened because some were predictable and were planned, but why have all these things happened together? There is no comparable example I can find in modern economic history of all these indicators going wrong at the same time. Of course, we know that we cannot run an economy at 1.1 per cent. or 1.2 per cent. Of course, we know that a Government have to move to correct what is called over-heating, or whatever it may be, in the economy. I am pretty sure that almost every hon. Member on either side of the House loathes the action they have to take, even if—as I have been—one is a party to it.

We need not "kid" ourselves with words. When we talk about redeployment what we mean is that we must put a man out of work so as among other things, to strengthen the £ and to make our foreign balances come right, but why has this not happened? No one could fairly deny the courage of the Chancellor this last year. Whatever we may feel about the vacillations before July, 1966, he has remained absolutely steadfast, on course, since and he has been given a good deal of praise for it. Why, then—this, in many ways, is the central theme of this debate—if we have clobbered, as we have, our home economy have we not put swifty straight our account abroad?

I believe that there are two reasons. On the first, it may well be that I would find some common ground, although for different reasons, with some hon. Members opposite. I think that the Chancellor has been unsuccessful, because I do not think that he believes in the system which he is running. I do not believe that a Socialist Chancellor really understands that profits are the mainspring of the capitalist system. I do not think that he really appreciates what initiative, unhampered as far as may be by Government, can achieve.

About four months ago the C.B.I., in a memorandum, set out what it felt were the reasons for the low level of business confidence, which must worry the Treasury Bench as much as it does me. It referred to the Government's hostility to profits, to fears about nationalisation, to the Government's attitude to smaller businesses, to the prices and incomes policy, to the need for personal incentives, and to the complex burden of administration imposed on industry by the Government's tax and other policies.

Part of the Chancellor's answer was given in his Budget speech. This is a very inept phrase, I think: … I have no intention of killing the goose that lays the golden eggs. I think that it was Colbert who said that the object of fiscal policy should be to pluck the maximum of feathers with the minimum of hissing."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 989.] That is the attitude of the Chancellor towards businesses in this country. He wants as much taxation as he can get away with. He made that alsolutely clear. But business and industry do not look to a couple of soothing phrases in the Budget speech. They look to action and deeds by the Government.

What have they seen since then? They have seen the Budget which did little or nothing—a "lost opportunities Budget", as it was christened by my right hon. Friend the Leader of the Opposition. We have seen another instalment of compulsion on prices and incomes. We have had the Chancellor making it clear that public spending is to go ahead at a rate that was linked to the National Plan, although it has been acknowledged that the National Plan programmes are dead. We have seen the Minister of Transport busily preparing her plans for wholesale transport nationalisation. [HON. MEMBERS: "Hear, hear."] Hon. Members may welcome it, but it is the question of confidence in industry with which we are concerned at the moment. Now we have the Prime Minister telling us that he is preparing a Bill to give power to nationalise, or anyway to increase, State control in new and wide areas.

How can one expect confidence in the face of that record? How can the Government expect business to invest, in spite of the inducements which the Government give them, in a future which for them is so bleak? That is the first answer. I do not believe that the Socialist Government really understand the nature of the system which they are trying to operate.

The second answer is graver, and here I absolve the Chancellor. I believe it to be the responsibility of the Prime Minister. At first, as I showed in a phrase at the opening of my speech, there was no lack of confidence either at home or abroad—not during the election, not when the result of the election was known, not after the election, not indeed until for party political reasons it became convenient for the Prime Minister to emphasise the weakness of this country. It was from that moment that a crisis of confidence began from which we have not yet escaped.

The Prime Minister knew very well that £368 million of the deficit of 1964 was on capital account, and part of the longterm strength of our country. He boasted in New York, in April: It is about time the world realised that a well-run shop does not put all its wares in the window. … Like the United States, the United Kingdom is a country rich in overseas assets. In all, we estimate them conservatively to amount to something like £11,000 million. That was the boast of April. If that boast had been made in the previous November, we would have saved hundreds of millions of pounds for this country.

Again, at the time of the General Election all the talk was of the fourth quarter of 1965 and the current balance profit of £43 million. But, as he spoke, the Prime Minister knew something about the second quarter, did he not? The election was right at the end of March. He knew that he first quarter of 1966 would be seriously in deficit. But he used what was convenient to him and he forgot what was not.

Again, only a few weeks ago, in this year, when he was gibing at us on this side of the House for not feeling enthusiastic about paying our way in the first quarter of 1967, the answer by my right hon. Friend at Carshalton was that we knew very well that this surplus was largely fortuitous and purely temporary. We knew that on capital account it included the purchase of Pye by Philips and Chrysler's money flowing into Rootes. We knew the figures for two months on trading account, showing a deficit of no less than £66 million, and now we have the third, and the deficit is £107 million. The Prime Minister knew these things, too, when he was gibing just to make a small party point across the Floor of the House only a few weeks ago.

The net result has been that we have been on a switchback ride ever since between over confidence—qualified euphoria, if one likes—and gloom when some other figures came out. It was the Prime Minister who coined the phrase "selling Britain short". Well, the cap fits. I do not think that any man has done more to devalue the country's economy and himself than the Prime Minister.

I turn to the task which, I think, the Chancellor of the Exchequer should undertake—and I have paid my tribute to his steadfastness. I deal, first, with the question of taxation. Of course, it is true—this was, indeed, common ground in the many debates that we had on the Finance Bill—that in total we are not, or anything like, the most heavily taxed country in the world. We are not, or anywhere near, the most heavily taxed country so far as companies are concerned. But it is true that our personal direct taxation bites more quickly and more fiercely on some of the people on whom we have to rely most for our standard of living in this country, than in any other country except Sweden.

It is also true that our indirect taxes, being as selective as they are, reach saturation point far too quickly, and we therefore have had to rely on direct personal taxation where the combination of unpopularity and disincentive effect together make a formidable disadvantage. So the Chancellor has had no sea room at all.

Professor Merrett, speaking last week at a seminar over which I presided, said: Director level salaries, therefore, have to double every eight years to offset inflation and double every five years to obtain a 2 per cent. per annum net of tax increase in real income. I realise that many hon. Members opposite, in their pursuit of equality, do not mind that particularly. I think that they are gravely mistaken. Equality, to me, is a dead and disastrous creed. It is as dead as Karl Marx in Highgate Cemetery. We should turn our minds to an entirely different conception—the pursuit not of equality but of excellence.

This means that we should reward those who can contribute most. I am absolutely unmoved when people either in this House or outside it point out that a reduction in taxation is of greatest benefit to those who pay most tax. Of course it is, and so it should be. This is the way towards greater prosperity for all the people of this country. Therefore, I make it clear again, as I have always done—and I do not avoid these issues—that the level of personal direct taxation is too high, and that we intend to reduce it.

Neither am I impressed by the argument that it cannot be done, because during our 13 years tax rates were cut so that £2,000 million less was being collected by 1964 every year than if 1951 rates were still in force, and yet central and local government expenditure at constant prices increased by 39 per cent. in the same period. It can be done. One can have both reduced taxation and what is popularly called the social infrastructure which we all want to see. But much depends on the, level Government expenditure. I am sure that the Chancellor will have a piece about this in his speech, but I wish to put the dilemma squarely to him, as I see it.

First, I remind the right hon. Gentleman of his Budget speech on 6th April, 1965, when he said: The Government have decided that the growth of public expenditure between 1964–65 and 1969–70 will be related to the prospective increase in national production. In the Gov- ernment's present judgment, this means limiting the overall increase in public sector expenditure, excluding the investment of the nationalised industries, and taking one year with another, to 4¼ per cent. a year at constant prices."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 279.] Last Tuesday, at Question Time, the Chancellor made a similar comment, and I then asked him: Would the Chancellor clear up a most important statement …? He said that the Government's intention was that public expenditure should rise by about 4f per cent. per annum. But that was based on growth projections which have now been abandoned by the Government. Do we understand that it still remains?"—[OFFICIAL REPORT, 18th July, 1967; Vol. 750, c. 1690.] The Chancellor's answer, in effect, was "Yes, it does", and it is a matter of political philosophy—I acknowledge this as to how much public and how much personal expenditure there should be out of any given surplus in any given year.

With respect, that is not the point. The point is that, if the right hon. Gentleman planned, as he told us he did, public expenditure programmes on the basis of growth targets adding up to 25 per cent. over six years, or 3.8 per cent. a year, it is simply not possible by juggling between the years to keep those same targets when one's highest ambition now is a 3 per cent. growth rate, and that called seriously in question by almost every commentator.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

The right hon. Gentleman is making an important and interesting point. Will he clear up another one? There are constant demands for more schools, more roads, and, even today, for more benefits and more defence expenditure. What public expenditure would he reduce to balance the budget?

Mr. Macleod

I have not timed it, but I answered that question about four minutes ago. I showed that the rate of those public expenditures went up in real terms by 39 per cent. in our 13 years and that it was possible, at the same time, to make a number of important reductions in taxation.

I ask the Chancellor of the Exchequer to pick up this point of public expenditure and the 4¼ per cent., telling us how he relates it to the new 3 per cent. targets when the older targets of 3.8 per cent are impossible of fulfilment.

Our general approach to economic affairs was given by my right hon. Friend the Leader of the Opposition recently at Carshalton. I take this comment on that diagnosis from the Sunday Times of 9th July: Few people, apart from the obvious vested interests, would quarrel with the value of most of the things he advocates: cutting the tax disincentives; getting some legal force behind productivity and industrial bargains; sharply stepping up the tempo of retraining; taking a cost-effectiveness scythe to the mounting total of Governmental and local authority spending; getting some sense into the way we pay for our social services; generally getting rid of the restrictions and interference which stand in the way of initiative and enterprise in Britain. These are all things which lots of people, including Business News, have frequently pressed for". That may be true, but, with the single exception of the policy of stepping up retraining, on which, no doubt, there is agreement between the two sides of the House, each and every one of those proposals would be fiercely opposed from the Government side. They are in every case distinctive proposals. They may be accepted by people now, but they are the right proposals and the ones which the Tory Party has been putting forward both in the House and in the country.

It is then commented that one does not answer the short-term question of what one would do immediately in the Government's situation if one does not accept the Amendment standing in the name of hon. Gentlemen below the Gangway. But, surely, the point is this. In the early days of resumed growth, a deficit must either be financed or eliminated. The alternative ways of eliminating it are deflation, devaluation or controls, each of which, for different reasons, we would wish to reject, and each of which, I fancy, though for different reasons, perhaps, the Treasury Bench would wish to reject as well.

Thus, one is trying to do something which all Governments, not only in this country, have found very difficult—to achieve growth without inflation, growth without tears. But one may well come to the conclusion in the end that, to use the corniest of all metaphors, one needs both the brake and the accelerator in the car. We have before us all the examples of countries which have looked as though they had solved the problem for a bit and then, apparently, failed. We have had Germany thrown at us so often, where the terrible overheating in 1965 was followed by an over-correction in 1966, and now the economy is laboriously swinging back again. It may well be that one does need both the accelerator and the brake, and one simply needs more skill in driving the car.

Mr. J. J. Mendelson (Penistone)

The right hon. Gentleman said that the Government were lacking in "know-how" of how businessmen behave, and now he talks about skill. When he and his right hon. and hon. Friends were in office, they all knew about businessmen and how they behaved. How did they manage to have, at the same time, a high level of unemployment in 1963 and such a high balance of payments deficit in 1964?

Mr. Macleod

The hon. Gentleman is far too intelligent not to have followed my case. In fact, he has followed it with great care, but he does not like it. It may well be—I was saying this and instancing the example of Germany—that one needs methods for taking the heat out and then pushing the economy forward. But what has gone wrong now is that we have savaged our home economy and we have not got the compensating factor, which the Tories always managed to get, of restoring confidence in our overseas account. That is the point.

We on this side want to see what I have often called an economy of choice. The only way to get this is through the taxation system.

Mr. Joel Barnett (Heywood and Royton) rose— —

Mr. Macleod

No.

We must do it by taxing expenditure rather than income and by taxing costs rather than profits. Then, out of the extra money which would be available to the citizens of the country, one would expect people to pay more for their social services.

I come now to the current controversy that rages not only across the House, but, I dare say, within both sides. It is 16 years since my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) and I wrote a pamphlet called "Needs and Means", which I think was the first challenge to the universality of Beveridge. We heard echoes of that coming, very wisely, from the hon. Member for Brentford and Chiswick (Mr. Barnes) this afternoon.

Let us take the example of what was said by the Minister without Portfolio this afternoon. We heard all the rigmarole about the expenditure of £58 million, but the truth is that there are half a million children in poverty-stricken families. The Government's proposals are to leave half of them—not less than a quarter of a million children—still below the poverty line from next April onwards.

Yet if we concentrated on the needy we could give £1 a week extra to those children for a cost of about £25 million, half what the Government proposed this afternoon. On which side of that scale do hon. Members think that justice really sits? Do they not think that ordinary care about that poverty, which is common ground, should make certain that all those half a million are helped, and not half of them, as is proposed by the Government? We had some extraordinary philosophy from the Minister without Portfolio, who talked about the grave effect on incentives and proposed as a remedy that we should keep the poor poor and should not adopt the line that I believe is not only right but popular.

Mr. Denis Coe (Middleton and Prestwich)

The right hon. Gentleman talked earlier about the level of public spending under the party opposite. Would he not agree that had it been greater during its years in power those children would not be in that position at all?

Mr. Macleod

I do not think that that needs an answer. But I shall make a brief comment on the argument, in which I have been very near the centre for a long time, about National Health Service charges.

The Minister of Health said at the weekend that those who advocated National Health Service charges have not thought the problem through. That seemed to me pretty rough on his right hon. Friend the Member for Sowerby (Mr. Houghton), who has been doing something similar, and to many other people who advocate them. I do not see what is sacred about the figure of 86 per cent. paid for out of general taxation in the National Health Service. I should like to see a better Service, with more money spent on it. I honestly do not believe that any Minister of Health will ever get it out of any Chancellor of the Exchequer, unless we are prepared to face the issue of charges within the Service.

A policy is needed to reduce personal direct taxation, to reduce the number of civil servants, whose weight is on industry, and to replace interference with the decision-makers of this country. We need—and our party stands for—a policy of open private enterprise, in which choice is made by the people and not by officials.

In my view, the true opposition to what I have been putting forward consists of those who signed the Tribune manifesto and who have put down the Amendment. I think that they are my political enemies—though they are not personal enemies in any way; I have excellent relations with many of them. They are the opposition for the simple reason that our present discontents must surely be solved either by a Tory or a Socialist solution, and to this problem the sort of garden suburb Fabians on the Front Bench opposite are absolutely irrelevant.

Therefore, we have put down a considered Motion of no confidence in the Government's economic policies. There is no Amendment from the Government, and that is as significant as the dog not barking in the night. They asked, "How can we amend it? What can we ask all that lot to support us on? There is nothing." They went through the list—prices, unemployment, the strength of sterling and whatever it may be—and the Leader of the House rightly said, "Let us rely on the Patronage Secretary, and just vote the thing down." That is the position.

The Chancellor of the Exchequer did his best last week at the Durham Miners' Gala. He gave a list of what had happened in the first 1,000 days of Labour government compared with the last 1,000 days of Tory government, and came to some remarkable conclusions. He said that many more miles of motorway had been opened. Of course they have. The Minister of Transport spends all her time opening schemes which my right hon.

Friend the Member for Wallasey (Mr. Marples) started. Of course, more miles of motorway were opened in 1967 than in 1957, and there were more in 1957 than there were in 1947, when there were none. I can give the Chancellor of the Exchequer more material. There has been a remarkable increase in the number of colour television sets under the Socialist Government, and a remarkable increase in the number of sonic bangs—if we call that progress.

on Britain's economy, or on the people of

We preferred to put down a simple Britain, but on those who handle the economy. We could have adopted much of the denuciatory part of the Tribune manifesto, for that too is a motion of no confidence. It follows that whatever the result of the vote tonight the Government are in a minority in the House on their economic policies.

We preferred to put down a simple Motion to watch all the anguish and the paper tigers jumping through the paper hoops as the end of the day comes near. Of course, the Government will get their vote. The Patronage Secretary, that sorely tried man, will see to that, and he will be supported by the soft centre of the Labour Party, that massive lump of blancmange which supports the Government in whatever they seek to do. The Government will be victorious in the Lobby, and yet they will be defeated. They will be convicted because they have betrayed their principles and promises and deserve the censure of Parliament and the country.

4.49 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

As the right hon. Member for Enfield, West (Mr. Iain Macleod) said, we have had the traditional Motion moved in its traditional form in the traditional month and, if I may say so, with the traditional speech. If only the right hon. Gentleman had given freer rein to his capacity for invective and stayed off economic discussion it would have been a much more lively and interesting speech for most of us. I really enjoyed the last five minutes.

I had hoped, after hearing about the seminar which the right hon. Gentleman had arranged and to which he had invited us all, including myself—I apologise that I could not go and also apolo- gise on behalf of the City editors who thought it better to go to Lords than to spend the day with him—that after it we might have had a clearer exposition of the alternative credible policies that the right hon. Gentleman would give us. He seems, however, to have been surrounded there with a multitude of opinions and certainly a conflict of advice. But that is not surprising. If he had read what Mr. Stanley Baldwin once said he would have known that this is always the fate of those who conduct seminars of this sort. Stanley Baldwin told us that whenever he got six economists together he always found there were seven opinions. The right hon. Gentleman seems to have rediscovered the truth of that in his discussions last week.

But that in itself is not a subject for scorn, even though I take pleasure at reading, if it is correct, that the right hon. Gentleman was so disgusted with his colleagues that after having given himself 15 minutes in which to wind up at the end of the discussion he confined himself to two minutes and a vote of thanks. The very fact that there are so many opinions and so much conflict of advice about the state of the economy and the solutions that should be followed reflects both the complexity of the problem that the country is confronted with and the difficulty of getting agreement about a solution.

I welcome this discussion. I take no exception to coming here to discuss the Government's policy today—[Laughter.] I apologise if that is misinterpreted; it was not meant in any way except that I welcome the opportunity of coming here. As I was saying, I welcome the discussion, provided that it does not lead to weakness of purpose either in the country or in those who are trying to find solutions to the problem. What I deprecate very strongly is attempts to chop and change our policy at very short intervals before the effects of a given policy have had time to work themselves out.

The Opposition have put down the Motion of no confidence. Some people have indicated or thought that because this is so there is to be a new statement on economic policy. I want to disappoint the House straight away. I want to make clear at the outset that I have no proposals to announce or put forward for modifying the Government's basic approach to economic policy today. I recognise that the setback on our trading account in the second quarter of this year is a cause for legitimate concern. Nevertheless, I point out and remind the House that we had very satisfactory results both in the last quarter of 1966 and the first quarter of the present year both on trading and on invisible account. I want to meet the legitimate concern of those who are worried about the falling away in the second quarter. It is a matter of legitimate concern, but I do not forget that there are some who never accepted the Government's strategy and are using one quarter's figures as an excuse to discredit the whole strategy.

Before I come to a discussion on public expenditure, the balance of payments, the level of employment and economic activity, let me say a word about Government strategy in its broadest sense. The country has faced two necessities in the last three years. We should have faced them before. One has been to find a new place in the world commensurate with our standing and economic strength, and the second to restructure the British industrial system so that it is more flexible, less sluggish and more responsive, and so that it provides a proper standard of life for the British people through both the private and the public sectors of industry.

As to the first, finding a new role for Britain in the world, the new defence policy published last week will during the coming years bring into harmony British economic policy, British foreign policy and British defence policy. The three will march together for the first time since 1945. This dramatic approach, combined with the approach that is being made to the European Economic Community, gives Britain an opportunity to secure aviable position in the world and will enable her to earn her living and exert her influence for world peace.

The new defence policy, as it is carried out, will bring with it a substantial bonus to our economic strength. There will be less strain on the balance of payments. It will mean the release of resources for civilian purposes that are now locked up in military research alit. development. It will mean that increased numbers of scientists and technicians, now engaged in military operational and other warlike research, will become available for civilian research and development; and, although our commitments and our moral responsibilities to people overseas ensure that the process is not being carried out with irresponsible haste, nevertheless the beneficial consequences to Britain's economy will begin to be felt at an early date and with increasing impact in the later 1960s and the early 1970s. Last week's White Paper will, in my view, be regarded as a historical landmark in the success story of the Government's policy to reconcile military and foreign obligations with economic strength.

At home the Government's strategy has been expounded on a number of occasions together with our reasons for believing that it is possible to combine a growth rate of 3 per cent. per annum, the equivalent of £1,000 million a year in real resources, with a healthy balance of payments and an improvement in the standard of life of the people. But in doing so the Government have never attempted to hide the fact that during the years ahead this country will be walking an economic tightrope which needs a cool nerve; and a slip would have serious consequences.

The fact that this should be so and the fact that the margin of safety is so small represent the real crushing indictment of the failure of the party opposite to act in the years between 1951 and 1964. [An HON. MEMBER: "Stand on your own feet."] We are ready to stand on our own feet. It is a pity that hon. Gentlemen opposite did not stand on theirs. It is astonishing that the great Conservative Party should have so allowed this country to drift in the way it did during the 1950s. They failed to act when they had the power. I am not going to debate this, although I must say that it is rarely far from my mind.

However, it is the Government's conviction that the economic strategy on which we are now embarked, together with the change in our defence arrangements, will enable us to follow a successful policy and one that is right; and that it would be frivolous to be deflected from our present course because one quarter's trading figures are not as good as we would like and because the temporary closure of the Suez Canal has worsened our balance of payments. It is a long-term operation that we are engaged in. [An HON. MEMBER: "The Government have been blown off course."] Blown off course? The economy and the £ are much stronger than they were in 1964 to sustain the closure of the Suez Canal—much stronger. When I look back over the last three years I reflect how sterling, for example, has come through the Middle East crisis, and I realise that it could not have done it either in the summer of 1964 or even subsequently, this is a measure of the progress that is being made.

Going back to last winter, our trading results were so good that they led in some unofficial quarters to a much higher degree of optimism than I shared. Unofficial balance of payments forecasts for 1967 were published that even then seemed quite unrealistic. The right hon. Gentleman referred to the pledge that I gave the Labour Party conference in 1965 to obliterate the deficit by the end of 1966. He is right; we failed. [Interruption.] I will go through the figures again. If hon. Gentlemen opposite raise this they will have to have them time after time.

The deficit in 1964 was £761 million. It was reduced in 1965 to £315 million. It was reduced again in 1966 to £189 million. This year I have said up to the time of the Suez Canal temporary closure that we should have a balance. [An HON. MEMBER: "Now the Government will not."]

I do not know how the hon. Gentleman can be so certain about that. But the real question, and the question that I want to discuss in a moment, is how far temporary factors of this sort, which we are now in a much better position to sustain than we were, can be allowed to influence our policy and the economic progress that we are making.

Invisible earnings have been very good in the first quarter of this year. At £80 million—seasonally corrected—they were nearly as much in three months as in the whole of last year. There were exceptional factors at work in both years but even so the level of invisible earnings this year looks like being of considerable help to us.

The export position has been affected in recent months by the level of world trade and that, in turn, has reflected a much lower level of production in the major industrial countries. The right hon. Gentleman pointed out that our industrial production index was stationary and that is true, but he might have gone on to point out—as he did not, I will do so—that the United States' industrial production index has turned substantially downwards and that the German index has also turned downwards. Indeed, a lower level of production is common throughout such important customers of ours as Canada, the United States, France, Germany and the Netherlands. The only two countries in which the turn of production is upwards are Italy and Japan.

Therefore, our recent exports to each other in the O.E.C.D. countries have not risen as strongly as they did in recent years, although I am glad to say that this trend has been offset to some extent by improvements in our exports to the sterling area. Indeed, it seems as if the rise in total demand and output throughout the whole O.E.C.D. area may be only 2 per cent. in the first half of this year, which is a much smaller rate of growth than for some years. The result is that British exports, which started so well, have flattened out during the last two or three months.

The important conclusion for policy here is that this falling away in British exports does not represent a loss of competitive power by British industry. The evidence is to the contrary. Our competitive position and our industrial productivity are both improving substantially. I will give two figures. From the first quarter of 1965 to the first quarter of 1966, output per operative hour in manufacturing increased by a little more than 4 per cent. per year—that is, in productive efficiency. From the first quarter of 1966 to the first quarter of 1967, output again per operative hour in manufacturing rose by a further 3½ per cent.

So there is no reason why we should regard these adventitious factors such as the decline in activity and the lower level of world trade as indicating a worsening of Britain's competitive position, but rather the reverse. We are holding our own despite factors which might otherwise have operated much more significantly against us.

The next important policy question is, does this slow-down of world trade, on which we depend so much, represent a long-term decline or is it no more than a pause? I naturally picked up this question when the Finance Ministers of major countries came here last weekend and we had a number of informal discussions about it. My conviction, and theirs—and it is a reasonable conclusion to all of us—is that we should be able to look for some resumed growth in world industrial activity during the next 12 months—notably and rather sooner in the United States and to a lesser extent and rather later in Germany.

The pace of world trade should be accelerating during 1968 and it is not unreasonable, therefore, in looking at our future progress, to expect a resumed rise in United Kingdom exports by the end of this year, followed by a rise again in 1968. In both 1965 and 1966, reflecting to some extent this substantial and significant increase in productivity, our export increase was well above the average rate for the preceding ten years. In 1965, there was an increase of exports of 7 per cent. over 1964; in 1966, there was a further increase of 7 per cent. over 1965. This compares with the previous decade, when we had an improvement of about 4½ per cent. per year on average.

So the competitive position of Britain is improving and despite the slowing down in world trade during the first half of this year there was a further increase of exports of 5 per cent. over the level of 1966. Therefore, I repeat that there is no reason to believe that our exports have become less competitive.

Imports have been distorted since last autumn because of the effects of the removal of the import surcharge at the end of November. They were low in the fourth quarter of last year and rose considerably in the first half of 1967, although I am glad to say that they are not running now at anything like the level of 1964. The removal of the surcharge has led to an increase in manufactured and semi-manufactured imports and we shall need to watch very carefully this import pattern and be ready to encourage British industry to provide competitive substitutes for imports.

Mr. Ian Mikardo (Poplar)

Why only watch it? Do something about it.

Mr. Callaghan

So far there has been an increase disproportionately large in regard to the rise in demand. It may be that, from now on, a much smaller proportion in the rising demand will be met by imports. My hon. Friend the Member for Shoreditch—for Stepney—[HON. MEMBERS: "Poplar."]—my hon. Friend the Member for Poplar (Mr. Mikardo) interrupted just now. I apologise to Shoreditch and everywhere else.

Mr. Mikardo

You always get it right the third time, Jim.

Mr. Callaghan

I would sooner be right the third time than never be right at all.

Some people advocate putting quotas on imported goods. But quotas would be damaging to our international trading relations and possibly to our exporting progress, and to our long-term interests. I have therefore no proposals to put to the House on that matter.

I should also point out the valuable contribution towards restoring the balances made by the diminished flow of overseas investment. The Government have taken very vigorous action on this aspect through the exchange control, the Control of Borrowing Order and the voluntary programme, together with Corporation Tax. These measures were taken to lessen the burden of overseas investment by the United Kingdom and to encourage investment to come here from overseas. Taking private investment as a whole—and I know this point interests my hon. Friend the Member for Lewisham, West (Mr. Dickens) and others—the deficit of £252 million in our accounts in 1964 was reduced to a deficit of no more than £49 million in 1966 and there was actually a surplus in the first quarter of 1967. In addition, of course, the travel allowance is making a useful contribution towards our overseas balances.

Mr. James Dickens (Lewisham, West)

I draw my right hon. Friend's attention to the table in the Board of Trade Journal for 30th June, which indicated that direct private investment by this country overseas had risen since 1964 from £116 million to £135 million, and I remind him that 1964 was a so-called crisis year. Most of this investment is taking place in South Africa. Why should we invest in a Fascist racialist country to the detriment of employment at home?

Mr. Callaghan

It does not give the complete picture to pick out one figure, as my hon. Friend has done, especially as a great deal of that so-called investment from this country comprises reinvestment of profits which never come back to this country.

Mr. Dickens

It does not.

Mr. Callaghan

My hon. Friend will no doubt have an opportunity to make a speech on the matter. A great many calculations come into this computation. If we take the total balance sheet—and my hon. Friend will not dispute it, for he did not do so when he interrupted me—the fact is that total overseas private investment has declined very dramatically. One must consider both sides of the balance sheet.

Mr. Dickens rose—

Mr. Callaghan

I want to get on now.

I come now to the impact that the present lower rate of growth of world trade is having on economic activity and employment in this country.

Mr. Reginald Maudling (Barnet)

Can the right hon. Gentleman say what contribution to the improvement in the current balances has been made by the adventitious factor of a great improvement in the terms of trade?

Mr. Callaghan

We have been as fortunate as the Conservative Government were in that we have had a movement in our favour of the terms of trade and I hope that this will continue to help us. As a famous predecessor of my right hon. Friend the Prime Minister said, "A little bit of luck does no one any harm".

Mr. Maudling

Can the right hon. Gentleman give the figure?

Mr. Callaghan

No, not offhand. I could not give it without reference, because I do not carry every figure in the whole of the accounts in my head.

I now come to the impact that the present lower rate of growth of world trade is having on the level of economic activity and employment in this country.

The first effect is that expansion in the domestic economy will be coming a little later than I forecast in April. As a result of these factors I would now put the growth of output in 1967 somewhat lower than I did at the time of the Budget. On the other hand, given a recovery in Germany by the end of this year and a fresh acceleration of growth in the United States, I see no reason to alter the expectation that the level of output from now on should grow at about 3 per cent. per annum. This view, in contradistinction to the right hon. Gentleman the Member for Enfield, West, seems to be increasingly held by a number of outside observers who write on these matters.

But, as the right hon. Gentleman himself said, a depressing result of the slowness with which growth is being resumed is its effect on unemployment. The present level is 2.1 per cent. Other countries have also been affected. In Germany it is 2.6 per cent., in the United States it is 3¾ per cent., and France, too, has been adversely affected. Unemployment in this country has risen more steeply than was forecast and, in the light of current developments, I cannot foresee any fall in the months immediately ahead.

The likely course of events is that there will be an increase from the present level during the winter months, with a seasonal peak in January and February when outdoor employment is at its lowest. We should then expect the underlying level of unemployment to fall away during 1968 as expansion returns and exports to overseas countries pick up. Expansionary forces are already at work. Industrially this seems to be true in the motor car industry, and the construction industry, and chemicals are also growing.

There is likely to be an increase in consumer expenditure arising from increases in earnings that flow from agreements already made, and also from the improvements in old age pensions that will take effect in the autumn, together with the increase in family allowances that my right hon. Friend announced today.

Another powerful factor at work in the regions will be the regional employment premium which will come into force on 4th September. At the rate of 30s. per male employee this will strengthen the competitive position of firms in the development areas and should be a powerful stimulus to them. It should enable them to modify and improve designs, to invest in market research and marketing overseas, and other methods of expanding the base of their industries.

In the regions we are pressing the attack by every means and it is having an impact, but it will not show itself over-night. This is bound to be a long-term policy that will need long-term measures before it produces final results.

I will enumerate in two sentences what they are. There is the tightened control by industrial development certificates, office building control, the fact that development areas are exempt from building licensing, the fact that investment grants are given at 45 per cent. as against 25 per cent. elsewhere, that 124 new advance factories are being built, that the Government training system is being implemented, the system of grants for training, the preferential access to the Public Works Loan Board, the clearance of derelict lands grant and aid to the shipbuilding industry. All these, together with the regional employment premium, mean that there is being pumped into these areas sustained aid and finance to the tune of about £200 million a year. That is a substantial figure which, in the long run, will make a tremendous impact on these areas.

I now turn to public expenditure.

Sir Edward Boyle (Birmingham, Handsworth)

The right hon. Gentleman has talked about his revised forecast for future growth and for private consumption, and the effect of the pensions increase. Can he give the House any information about productive investment in manufacturing industry?

Mr. Callaghan

Productive investment in the manufacturing industry will not fall as badly as was forecast last November. The C.B.I. prophesied a figure of 20 to 25 per cent., and the Board of Trade thought it would be about 10 per cent. In fact, 1966 held up extraordinarily well and there was no fall of private manufacturing investment. For 1967 the present forecast is that the fall will be nothing like either the 20–25 per cent. or even the 10 per cent., but will probably be between 6 per cent. and 8 per cent. during the course of the coming year. This is a factor that must be put into the fore- cast on a much better scale than we originally inserted it.

On public expenditure, criticism is made on two fronts. It is common place among many of the Government's critics to say that expenditure is too high and should be cut back. However, there are many others who claim that the demands to be met in the social field are so great that public expenditure should be higher than it is. At the moment the Government are being assailed by both sides. I may say in passing that the Press is recording some mythical defeats and victories in battles in which I have not fought and at meetings at which I certainly was not present and which have never taken place. However, we are faced with legitimate demands for higher public expenditure.

The right hon. Gentleman the Member for Enfield, West said in passing how much they had been able to do—an increase in 13 years of 39 per cent. in the absolute figure on public expenditure. He took some pride in that, so I shall repeat the figures of the Durham Gala to him.

The right hon. Gentleman is proud of his 39 per cent., but let us look at a few other illustrations. First, the number of students in universities. Taking the first three years of the present Government compared with the last three years of the Conservative Government—remember that all was well, we were swimming in prosperity, or so they told us—the number of students at universities has gone up by 29 per cent. The number of teachers in initial training colleges in the first three years of the Labour Government has increased by 56 per cent. over the last three years of the Conservative Government.

Sir E. Boyle rose—

Mr. Callaghan

I have already given way once to the right hon. Gentleman. I will give way again when I have given these figures. The number of schools completed has increased by 44 per cent. compared with the last three years of the Conservative régime. [HON. MEMBERS: "Of course"] It is no use right hon. Gentlemen sniggering and saying "Of course". It depends on what resources are made available whether the schools will be built or whether the students go to the universities. The plain truth is that there has been a dramatic and remarkable increase in all sections of education.

Sir E. Boyle rose—

Mr. Callaghan

I will not give way until I have given all the figures. If the right hon. Gentleman wants to take on the mantle of the whole of the Front Bench he may do so.

I come now to hospitals. The number of new beds completed in the first two years of Labour Government compared with the last two years of the Tory Government shows an increase of 38 per cent. Capital expenditure on hospitals—and right hon. Gentlemen can cheer again if they wish—has increased by 59 per cent. The number of homes built for the elderly and handicapped in the last three years of the Conservative Government was 255. There were 354 built in the first three years of the Labour Government, showing an increase of 35 per cent. in the number of people housed.

There were 24 local health centres built in the 13 years of Tory rule. Since the beginning of 1965, 16 have been opened, 37 are under construction, 34 have had plans approved and 80 are in the planning stage. In the last three years of the Conservative Government, 953,000 houses were built. I beg your pardon, Mr. Speaker; I do right hon. Gentlemen opposite more than justice; it was only 803,000. The number of houses built in the first two and a half years of the Labour Government is 953,000, an increase of nearly 19 per cent.

One could go on all through these figures. There has been an improvement both in the kind of service and in the amount of resources devoted to it, and in the cost to public resources of using these facilities. In other words, during the first three years of Labour Government there has been a continual and substantial improvement in the social and collective standards of our people at a far faster rate than the Tories were increasing it during the last three years of their Government.

Sir E. Boyle

The right hon. Gentleman began that list with universities. Is he not aware that we approved a programme of £48 millions' worth of starts in 1964 compared with a figure of £25 million which is all that the annual programme stands at now? Is he not also aware that there was an increase from £60 million to £80 million in school building in 1964 and that we devoted £60 million to teacher training between 1961 and 1964? Therefore, the figures which he has mentioned are hardly surprising.

Mr. Callaghan

I know that towards the end of his term of office the right hon. Gentleman approved a great many things, but we have found the resources to build them. That is the difference. I get a little impatient with those who, at one and the same time, try to claim credit for all the things which have been done since they left office and call upon us to reduce taxation and public expenditure. That seems to be getting close to hypocrisy.

No one can say that the amount of resources which we have devoted to this kind of provision is not much greater than they devoted in their last few years of office, even though at the same time they were running up the biggest overseas deficit seen in this country for many years, if ever.

I come back to what I was saying before the right hon. Gentleman interrupted me by quoting his own prior record. We are facing legitimate demands for higher public expenditure which no Government could escape. Between 1960 and 1970 the number of vehicles on the roads, to take just one example, will increase from 13 million to 17 million. There will be a large increase in the number of children at school between the ages of 5 and 14 and there will be a large increase in the number of old-age pensioners. The number of houses not worth improvement is growing steadily. Moreover, there will be new needs to be satisfied as the public conscience becomes sensitive to a particular problem.

That means that there is an inexorable tendency for public expenditure to grow at a faster rate every year and to grow in real terms, not just the inflationary effect, but the total amount which is taken in real terms. It is always necessary to look at public expenditure for several years ahead, and this is the exercise which seems to have become publicised in the newspapers and which has been and is being carried on. It is true that I have been spending as much time over the last few weeks on the level of public expenditure in 1970–71 as on the level of expenditure in 1968–69. The task is to keep expenditure, with this inexorable built-in growth rate, within the broad economic and social targets which we have accepted.

Public expenditure and private consumption do not work against each other. They work to support each other and to reinforce each other although it is important to get a proper return on capital invested in whichever sector it happens to be. We have also—and this is a political problem—an important task to reconcile the social needs of the community and the needs which people want to be met with a willingness to accept the consequential burdens of taxation and charges.

Of course, if the country is led to believe that it is grossly overtaxed, then the willingness to assume these social obligations, which everyone in his heart knows ought to be met, will be eroded to that extent. These are different sides of the same penny. I am used to people calling for higher pensions and lower taxes at the same time, or to the Opposition calling for higher defence costs and lower taxes. There are the defence savings which the right hon. Gentleman would not have had in his pocket if he had been Chancellor of the Exchequer, because he would have found that he was surrounded by the brigadiers and air commodores who wanted aircraft carriers and to stay in Aden and all the rest of it. He would not have had the bonus of about £200 million as the saving which will result from our cuts in defence expenditure by 1970–71, and this saving will make an important contribution to keeping public expenditure within reasonable bounds.

To take the current year, 1967–68, a deliberate decision was taken to allow public expenditure to increase at 7.8 per cent. by comparison with last year, and I explained the reasons for that at the time of the Budget. But, clearly, such a rate cannot continue indefinitely if we are to make room for the growth in investment which I expect to see in future years. Therefore, the object of the present exercise is to see, not particularly in relation to 1968–69, but in relation to the later years, 1969–70, 1970–71, 1971–72, how we can get back on the target when private investment, manufacturing investment, will be taking up more of the available resources.

The broad conclusion which I can see, taking the period as a whole, is that, as a result of this long-term review, it now seems that we shall be able to carry out the development of the policies which we originally set ourselves within an average annual rate of increase of 3 per cent. per annum during the period 1967–68 to 1970–71; that is to say, taking 1967–68 at 7.8 per cent. and adding on all the others, the average will come out at 3 per cent. This will bring us back on target. Even so, I do not disguise from the House, any more than my predecessor did, that, without larger economic growth and a higher level of savings, additional taxation will be involved in carrying out these programmes.

Mr. Iain Macleod

The right hon. Gentleman knows that this is important. Do I take him to be saying that for a number of reasons, on which I will not now comment and because of the change in growth expectations and so on, he is substituting 3 per cent. as the long-term average for the 4¼per cent. which was his approach in the 1965 Budget statement?

Mr. Callaghan

What I am saying is that, with the programmes which have been accelerated so far, we shall maintain on average over the period 4¼ per cent.; but this will involve an average rate of increase of 3 percent. over the next three years, and that will enable us to fulfil the programmes set out in the original plan. Is that clear? If not, I will give way again. I think that it is clear.

I agree with the right hon. Gentleman that we need a continuing debate on the manner and way in which we are to channel the available resources in the public sector. It is clear to me that a great deal more help can be given if assistance is concentrated where it is genuinely needed, but it would need to be concentrated in such a way that the humiliating memories of the past were not revived nor essential services denied, and it is for this reason that I ruled out any attempt to reintroduce prescription charges.

Nevertheless, I take note that there are many fields in which income testing now exists and some of them are of recent origin. There is no particular shame about that. Parents with a child at university pay according to their income. Tenants on many council house estates pay differential rents according to their incomes. More than 1 million people receive rebates of their rates according to their incomes. We have a vast task to rebuild the slums, to build new schools to replace unfit houses and to expand the roads and hospitals. The financial requirement is of such an order that we shall need a continuous examination in order to ensure that our methods will give those in real need the benefit that they should have. I hope that the debate on this subject will continue.

I come now to the question of devaluation. I agree with what the right hon. Gentleman the Member for Enfield, West said. It is no way out. I used the phrase many months ago—"It is a flight from reality". The Government's policy is quite clear; it remains exactly as it has always been, namely, that we reject the notion that our economic strategy should include a change in the exchange rate of the £. I should have thought it unnecessary to state this again, but advocacy of devaluation has become very modish among a number of theoretical economists, as well as among some Right-wing and Left-wing thinkers.

The very fact that this is happening could lead to speculation that might be dangerous, and I therefore tread on it very firmly now. Fortunately the Government's position is too well known for this to become a serious matter. The fundamental fact about devaluation as a deliberate act is that it consists in making the product of the labour of our people cheaper while making the product of foreign labour dearer. For every hour's working at home we command less of world resources. The purpose of this is to ensure a sudden and large-scale shift in resources from home use to export. The means by which this can be done is by increasing taxes or reducing Government spending programmes, or both. That is what one has to do to make devaluation work.

Let there be no dodging about this. Those who advocate devaluation are call- ing for a reduction in the wage levels and the real wage standards of every member of the working class of this country. They are doing this, and the economists know it. I do not think that some of my hon. Friends have hard hearts—they are just good men fallen among economists, bad economists. There are good and bad economists.

If there were devaluation in this country, any effort on the part of the organised workers to counteract it by securing higher wages should be ruthlessly resisted. If the benefits of devaluation were to be secured we would need another incomes freeze in circumstances when prices would be going up fast.

Mr. R. T. Paget (Northampton) rose—

Mr. Callaghan

I am sorry, I will not give way. I know my hon. and learned Friend's views very well, and they have never added anything to my knowledge of the subject.

The T.U.C. has gone on record as being opposed to devaluation. I am not surprised. I notice that no trade union has come out in favour of it, nor do I imagine that any is likely to do so. The C.B.I. today, through the voice of Mr. John Davis, its Director-General, has also made its position clear on this subject.

This is a nostrum among economists who are quite clear-sighted and cold-hearted about its purpose. Unfortunately it has been picked up by a number of people who clamour for devaluation because they believe that it is a way of avoiding other harsh measures. They are deluding themselves. The logical purpose of devaluation is a reduction in the standard of life at home. If it does not mean that, it does not mean anything, because if it does not result in wages being held back, or if wages cannot be held back, and if one reinflates at the same time as one devalues, one loses any arguable benefit of devaluation.

So far I have been talking about the domestic consequences, but we live by international trade and finance as well, and we must have regard to the international consequences of what we do. We should break faith with Governments and private citizens overseas. We would find, if that argument does not appeal, that the cost of meeting our foreign debts would be increased. We might conceivably upset several other currencies and endanger the finance mechanism of the world.

These are pretty serious consequences. It is true that there are circumstances in which a Government has no option but to devalue, namely, when internal costs and prices are so completely out of line with other countries that there is no other way of restoring a viable relationship. That is emphatically not the situation of Britain today. This is shown by our success in bringing our external accounts back into balance; it is shown by the remarkable figures of productivity that I gave earlier in my speech. The problems that we have to tackle, and which we are tackling, are more fundamental. They are such things as restrictive practices, a sluggish attitude to innovation and modernisation, too little attention to customers' needs, better marketing—the list is well known.

All these things call for unremitting long-term effort, year in and year out, and devaluation would not help in this. Indeed, by making profits easier to earn, at any rate in the first two or three years, it could make a permanent improvement more difficult to achieve, because people would feel that the immediate need for reform was over and done with. For all these reasons the Government's position remains unchanged. Devaluation is not the way out of Britain's difficulties.

This discussion is welcome in the way that it has gone on. A year or two ago sterling was in such a situation that I trembled every time I heard it discussed. I think now that this is having a therapeutic value in that the more the problem is being discussed the less obvious have become the advantages of devaluation. What is more, and I did not see this at first, the fact that there has been this public discussion has meant that those abroad recognise that our decision not to devalue is based on a sound appreciation of our own domestic position and requirement, as well as our responsibilities to the international community.

So the Government stand where they did on this. It is not a matter of prestige with me. That is rubbish. I do not regard sterling as being any great symbol. I just do not want either to devalue our own word or to bring down the standard of life of our own people. [An HON. MEMBER: "Well done Jim!"] The Government's strategy does not rest on extravagance or unrealistic assumptions. The policy is that a growth rate of 3 per cent. can be achieved and there is every reason to aim higher if we can sustain it. This is backed by substantial economies in our defence arrangements, by a lower pressure on demand overall in the country, which is offset by the growing impact of the regional policies. We believe that this is consistent with a healthy balance of payments position, and can ensure both a continued improvement in our collective standards of living and a resumed improvement in our personal standards.

I recognise that this is a difficult balance to achieve. I said at the beginning that we were walking an economic tightrope. This is Britain's position, and we cannot escape from it. We have to work our way out of that. An active prices and incomes policy will contribute in an important manner to this. Hence the importance of the work of the T.U.C. in this matter.

While continuing to follow this general strategy there are a number of proposals which my right hon. Friend the President of the Board of Trade will go into this evening, by which we are endeavouring to make the policy more effective. I will not weary the House by going into them now.

In conclusion, there is no magic wand to be waved, no particular remedy that can be advanced, either below the Gangway on either side of the House, or by either Front Bench. We have to face the facts as they stand. It does not invalidate the strategy that we have embarked on if there are temporary setbacks on the way, whether due to events in the Middle East or to a slowing-down of world trade.

The basic fact is that at the moment, as the result of the co-operation of the British people and, I hope and believe, with the policies that the Government have been following, we are leaner and fitter; our competitive position is stronger; our productive potential is greater and is becoming greater rapidly. If I may finish on the old note, we cannot command success, but we will do our best to deserve it.

5.49 p.m.

Mr. R. H. Turton (Thirsk and Malton)

The Commonwealth Industries Association, of which I am Chairman, is at present engaged in a study of the economy. Some of the discoveries which we have made are so disturbing and cast such doubt on the Government's policy that I wish to give them to the House.

May I start with the speech which the Prime Minister made when he inaugurated the glacial period on 20th July last year. 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. In recent years money incomes have been increasing at a rate far faster than could be justified by increasing production; in 1965, we paid ourselves increases in money incomes of about £1,800 million compared with in the previous year. About £1,300 million of this represented increases in wages and salaries. Over the same period we earned only £600 million by way of increased production. These trends are continuing."—[OFFICIAL REPORT, 20th July, 1966; Vol. 732, c. 635.] Those bald facts were shocking and startling. But the figure which the Prime Minister gave for increases in incomes from employment can be seen from the 1966 Blue Book to have been valued at current 1965 prices while the figure for increased production in 1965 had been valued at 1958 prices. It is true that the gross national product, at factor costs and 1958 prices, increased in 1965 by only £649 million compared with the previous year. But valued at current 1965 prices the increase in the gross domestic product was £1,785 million and the increase in income from employment from 1964 to 1965 was £1,429 million.

This shows that the Prime Minister's comparison of prices and incomes and gross domestic product, as if they were valued at the same level when in fact they were not, was misleading to the country and to the House. I find it hard to understand how the right hon. Gentleman, who, at one time, was a lecturer in economics, could have used a false comparison to justify the whole of his prices and incomes policy.

In fact, the proportion of the gross domestic product paid out as income from employment has increased by only 2½ per cent. over the 21 years from 1946 to 1966. This shows how remarkably little variation there has been in the relation- ship between the income from employment and the growth of the gross domestic product. Certainly, I would agree that there was a continuing need for discipline, but let us realise that the variation in this proportion has been caused by the lack of growth in the economy in certain years rather than by any great, sudden increase in income from employment.

During this period, the Index of Retail Prices has been rising at 3.3 per cent. a year. Considering the relationship between incomes from employment, the Index of Retail Prices and the gross domestic product, this country has not been acting in a greedy, irresponsible manner. Therefore, the conclusion which we have reached is that the economic tightrope about which the Chancellor of the Exchequer spoke is not a wage-cost inflation.

If it is not that, what is it? The simple definition of "inflation" is an abnormal increase of the currency, and this is precisely what I suggest this country has suffered from for many years.

In the period 1960–66, when production was increasing at an average of 2.9 per cent. a year, total money supply was increasing at 4.7 per cent. a year—that is, 62 per cent. higher than the rate of production increase. No wages and prices discipline can ever be successful unless it is accompanied by monetary discipline.

Our present world of make-believe is shattered when we look at our overall balance of payments calculated by the International Monetary Fund definition. The Chancellor of the Exchequer used a different calculation on this occasion, but I recall to him the calculation which he used on 9th May this year when he tried to justify the attempt to enter the Common Market. Over the 12¼ years of the Conservative Government, the overall balance of payments showed a net surplus of £201 million, while during the 2¼years of the Labour Government from October, 1964, to December, 1966, the overall balance of payments showed a net deficit of £1,001 million. That is the economic tightrope which the Chancellor of the Exchequer has constructed for himself.

Mr. Harold Wincott, in a most interesting article in the Financial Times of 20th June, showed that in the six years 1961–66 there was an overall deficit on Exchequer account of £1,840 million, but out of this deficit £756 million was financed by printing more currency.

Mr. Callaghan

I am interested in the right hon. Gentleman's figures, especially those concerning the balance of payments deficit. Is he giving the credit or discredit of the whole of 1964, because otherwise how does he get anywhere near that figure?

Mr. Turton

I am using exactly the same calculation as the right hon. Gentleman used on 9th May—that is, taking in the whole position of liquidity with reserves and bringing in drawing rights which were at one time nearly exhausted but which now, thanks to repayment, have arisen again. This information has been published in the Press and the Chancellor of the Exchequer has had a copy of it. Therefore, it is no surprise to him and he has never challenged it.

Mr. Callaghan

It is a little hard to credit me with the deficit because I had to pay for the debts incurred by the Conservative Government.

Mr. Turton

That shows that the right hon. Gentleman did not understand the speech which he made on 9th May, when he was taking in our whole liquidity position. I will send him another copy of the conclusions arrived at by the economists working on this matter.

This is a Rake's Progress which has been caused by an incorrect diagnosis of what is wrong with our economy and by the consequential application of the wrong methods. The Government have made three main mistakes. First, while they should have been encouraging productivity, their freeze has brought the country to stagnation. Second, by discouraging private investment in the sterling area overseas, they have destroyed the goose which used to lay the golden eggs for balancing the accounts. Investments abroad in 1964, the Chancellor said today, amounted to £252 million—my figure is £398 million—whereas the net income from investment for that year was £405 million, which shows that our previous foreign investments helped to balance the accounts.

Third, by increasing the public sector and penalising the private by heavy taxation, they have crippled our ability to recover. During the two years 1964–66, the private sector's contribution to the central Government rose by £2,140 million, or over 25 per cent. A comparable period in this six years from 1961 to 1966 is that of 1961–62, when the increase was £762 million, or 10 per cent.

This is the real reason why we are failing to recover and achieve the required growth to expand the economy and pursue a social policy. This is, therefore, the time to face these facts with resolution and freedom from party prejudice. For industry to flourish, the first requirement is an economic climate which provides the right incentives to encourage and facilitate increased production. These are not my words, but those of men of all parties who this morning put their names to a national recovery programme to try to get the country right. What should be the lines of this programme? I would put forward five points.

First is a recognition that, to ensure expansion without inflation, increases in the supply of money should be limited to the rate of increase of the gross national product. Second is the cutting-back of Government expenditure to a level which will encourage private investment. Third is the remodelling of the tax system to provide incentives to improve the output per person, per machine and per £ sterling invested. Fourth is a social policy which will guarantee a minimum standard of living to the poorest section of the community and encourage the remainder to provide for themselves and their families. Fifth is a revision of our international agreements to secure that more of our requirements are provided from our own soil and that exporters are given fiscal encouragements.

A policy based on these five points would have a dynamic effect on our economy and a delay in making a true assessment of what is wrong with this economy will be disastrous, as I believe that the state of the nation today is very serious.

5.55 p.m.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

It is some time since I took part in an economic debate, but this one is very important. In view of the censure Motion, it is right that those who believe that the Government are carrying on the right policy should make themselves heard.

The right hon. Member for Thirsk and Mahon (Mr. Turton) inferred that this was a national and not a party problem and should be approached from a national point of view, but he fell into that very trap by getting on to the hobby horse of a distinction between public and private enterprise, which is nonsense. The Tories make a fetish of this, but they nationalised far more than Labour; whenever it was economically necessary, they nationalised or municipalised.

For example, tramways were privately owned and the Tories and local authorities municipalised them to keep down fares for workers going to work. This will mean lower labour costs. When the Post Office had the chance of exploiting everyone, the Government of the day nationalised it to stop the exploitation of their fellow capitalists. The same has happened with nationalisation. Labour did not nationalise electricity, gas and transport just on the theory. Every commission on the subject had recognised and recommended the co-ordination of transport as a national organisation. During the war, we had to organise transport as a national service and the Tories did a great deal of disservice to the country by introducing denationalisation, which they had to end because they were breaking up a sensible, integrated transport system.

Nationalisation of electricity was carried through largely on the recommendation of a committee headed, I think, by Sir Harry, later Lord, McGowan, and Mr. Heywood, head of I.C.I., was the chairman of a Committee which practically recommended the nationalisation of gas. Before the war, people like Lord Nuffield were calling for the nationalisation of the iron and steel industry because its profiteering was making it impossible for him to compete in the international market. Thus, the idea that there is a difference or an antagonism between private and public enterprise is not accurate.

In addition, electricity by nationalisation is kept cheap today for private enterprise. Industry gets cheap coal. The miners would tell the right hon. Gentle man that they are complaining bitterly that the profits go to industry because the National Coal Board supplies cheap coal, but does not get the profits. Before the war, our investments abroad were made possible mainly by the starvation of British miners. Cheap coal made exports and foreign investment possible in a way which is not possible today, because we will not tolerate starvation of miners. If we are to subsidise exports, this must not be at the expense of one section, the miners, but by satisfactorily spreading the burden.

The right hon. Member for Enfield, West (Mr. Iain Macleod) spoke of the problem of getting growth without inflation. I am always interested to hear the solutions people have for solving this problem. Being a simple-minded man, I find that people with simple minds often find solutions to the most complex problems. I regret that I cannot find a solution to this one. We can only consume what we produce. We cannot distribute from the national garden more cabbages than grow in it. Simply to issue more tickets to obtain cabbages than there are cabbages does not mean that more cabbages will be growing.

The same can be said of printing money. There is no need to print more money. We can simply reprint £1 notes with a "2" in them and call fivers tenners. Printing notes does not produce more coal, electricity and other essentials. The most stupid way to attempt to increase our standard of living is merely to clamour for more money.

Inflation is an extremely dangerous thing. People nowadays are apt to forget what happens in a period of bad inflation. It might be called a breeder reaction of currency. Just as at Dounreay plutonium produces more plutonium, so one bout of inflation prodces another. Once there is a general trend towards rising prices, a series of reactions occur. The average person says, "Things will be dearer next year. I had better buy this year what I shall need next year". Without more banknotes being printed, people speed up their rate of spending. Inflation has arrived.

An increase in the velocity of currency is the same as the creation of more currency; more banknotes. When prices go up people want more wages. To obtain the money to give them more wages, more banknotes must be printed. This creates the cash basis to enable the banks to make more loans to meet the boom in industry which begins, and then even more banknotes are printed. Prices go up still further and a demand for more wages is made. Inflation goes on feeding on itself and the spiral becomes ever more speedy.

A classic example of inflation occurred in Germany in 1923 and it started in the sort of way in which we are talking now, the dollar was worth between 4 and 5 marks. At the end of 1923 there were 43 thousand million million marks to the dollar. I recall being given a 1 million mark banknote. It was worth less than a piece of toilet paper. I have a photograph of a German going to the cinema and paying with a piece of coal instead of money. His entrance charge would have run into suitcases full of money. That was inflation to the point of absurdity, but it illustrates what can happen once it starts. The last thing that British workers want is galloping inflation because they are the people who suffer.

Britain's gross national production totals about £32,000 million. About £24,000 million goes in personal consumption, about £6,000 million in public expenditure and about £6,000 million in investment. That does not add up to £32 million, but the extra is accounted for by taxation which is deductable. Leaving other items aside, if we consider those three headings under the G.N.P. index, we see that if more money is being spent than there is material and labour to meet the demand, a tendency towards inflation is bound to be there. It is the Government's duty to keep the figures in balance.

Demands have been made today for the Government to spend more on one of the social services. I recall having to introduce three different sets of Estimates. In a housing debate hon. Members clamoured for more houses to he built. In a health debate they wanted more hospitals and health centres. In an education debate they want junior colleges and more schools. A simple calculation had to be made. If we were to provide one health centre we had to sacrifice 120 houses. That was the principle on which we had to work and the same principle applies today.

The building trade can build only a certain number of houses and other buildings. Unless it changes its rate of capacity, when the builders are asked to concentrate on one sector of building, they cannot concentrate on something else. That applies throughout our economy. If, therefore, we are distributing money for personal consumption, we cannot spend it on public expenditure and investment.

When the right hon. Member for Enfield, West spoke about public expenditure I asked him, since the Conservative Party wants to add several millions of pounds to our defence budget, increase the social services and do all sorts of other things, how the nation would pay for that expenditure, but he could not tell me. For the last 20 years we have been asking hon. Gentlemen opposite the same question and they have been unable to give us a reply.

A favourite among hon. Gentlemen opposite is the demand for the Civil Service to be reduced. I recall addressing a meeting of farmers and being asked, "Why do not you get rid of some civil servants" I replied, "If farmers stop sending in forms asking for subsidies, we could get rid of 1,000 civil servants overnight." As long as subsidy forms and other documents are being sent to Ministries, people must be employed to inspect them and do the other necessary work. The Conservatives were in office for 13 years and they did not find a magic way of reducing the number of civil servants.

Since we have been in power we have conducted organisation and methods studies to try to solve this problem. I recall appointing outside business officials to look into this matter. They could not find a way to reduce the Civil Service. I wish that hon. Gentlemen opposite would get back to reality and stop picking will o' the wisps which lead nowhere except to disaster.

While on their hobbyhorse about the Civil Service, hon. Gentlemen opposite point out that we could save £1,000 million or more by putting the National Health Service into private hands. Why cannot they understand that public expenditure on the Health Service would not be reduced if it were transferred in that way? The public would still have to spend money on various health services, even if they paid it into private hands. Indeed, the doctors would probably expect to charge more in a privately organised health service, is one hon. Gentleman opposite willing to say that a modern hospital can depend on charity, as it did before the war?

I recall going to one of our biggest hospitals some years ago. The X-ray expert apologised for the inefficiency of the equipment and invited me to his home where, he said, he had private X-ray equipment that was more efficient. Today, our hospitals are equipped efficiently. I agree with the right hon. Gentleman that even now the Health Service does not get enough money, but that is because we want to spend more on bingo and on other things like that. But when we are ill we are certainly willing to spend the money then.

The sensible idea is to have a good Health Service and maintain it efficiently in peacetime and— —

Mr. John Hall (Wycombe)

My right hon. Friend's point was that the Health Service could be improved by making more money available for it through the introduction of prescription charges.

Mr. Woodburn

When we introduced the Health Service, and I was one of the two Ministers who introduced it, the medical authorities insisted that no barrier should be introduced between doctor and patient, and that the doctor must be entitled to prescribe for the patient according to his illness and not according to his purse. They laid down that principle, and we believe that it is a right principle.

The Labour Government did not introduce prescription charges. They passed a law which made that possible. The charges were introduced by the Conservatives and not by a Labour Government. Even so, nobody could seriously object to a nominal registration of 1s. per prescription, but then it became a 1s. per item and then 2s. per item. Old people were being asked to spend as much as 14s. which they might not have. If they did spend it they might have to go to another village or town for a refund. The Conservatives knew very well that people would often do without rather than do that. That method of economy has existed from the beginning of the Poor Law—one makes the benefits so difficult to get that people do without, and Surtax and other taxpayers are saved from taxation.

To say that some people must pay for prescriptions while others get off is not only to introduce a means test, but to deprive some people of medicine they ought to have. I could introduce the hon. Gentleman to Conservative druggists who would tell him that old-age pensioners and others used to ask, "What can I do without in this prescription?". They asked, because they could not get their pension until the Monday and so could not get what was required for their illness.

The doctors may say that charges would prevent people from asking frivolously for prescriptions, but as it is the rich are not prevented from asking frivolously for prescriptions. It does not bother them. It is all a class distinction. That is quite impossible and unacceptable in a Health Service, and I hope that we will never go back to it. I have never paid for medicine or a doctor, because I was insured in that respect from the age of 12. Prescription charges were a great step backward.

The Health Service cannot be cut. The right hon. Gentleman says that he would like to improve it, but I cannot see how that can be done without more being paid into it. Let us provide better facilities for doctors, and not keep on niggling and criticising the Health Service itself as though it were something of which to be ashamed.

I remember that when the President of the United States of America sent Mr. Ewing to investigate the Health Service in its early stages, Mr. Ewing said, "Mr. Woodburn, we would like to have a Health Service in America, but what you do not understand is that in great parts of America we do not have even elementary hygiene." A Health Service would have been welcomed by the people of America instead of the service they get in hospitals at the moment— —

Mr. Peter Hordern (Horsham)

If that is so, why is it that the Americans spend more on health as a proportion of the gross national product than we do here on the Health Service?

Mr. Woodburn

The hon. Gentleman should know that people there spend more on health because they are charged more. The fact is that compared with America we get our Service on the cheap. If anyone thinks that the British public would want to pay American charges he is suffering from a great misconception.

The biggest item in our expenditure is the wage bill. Of a gross national personal income total of £24,000 million, about £20,000 million represents the wage bill. The Lord must have loved the wage-earners, for He made so many of them. If the wage bill goes up out of proportion to the national product, one gets inflation. There is no doubt it creates inflation in itself. Over the past 10 or 12 years there has been a routine demand for increased wages which has put on the economy a pressure it could not sustain. There may have been some justification for the demand in that dividends were also going up in the Conservative boom—I do not dispute that—but there are more wage-earners than there are dividend earners, and the effect of wage increases on the economy is very disastrous. It is much better to be able to keep a stable economy.

I spent 25 years in the engineering industry, dealing largely with exports. One of the most difficult things when exporting goods at that time was the change in the value of currencies. If one exported to South America, one had to decide whether to be paid in pesos. A peso might look the same one day and the next, but in terms of what it brought to this country it was very much different. The argument, therefore, always was whether payment should be made in pesos or pounds. A firm in this country that could not afford the gamble had to choose to be paid in pounds.

The same problem arises today. An engineering contract may take from 12 to 18 months to complete. It a firm estimates in terms of the present-day £ and the value of the £ changes in the next 18 months because of inflation or some other factor, the firm may go bankrupt and its workers are turned on the street. More than that, the firm has to allow for that possibility. The estimate must be sufficient to cover the gamble, and that very often puts the firm out of court in getting orders. If people abroad can depend on the article they get and the price they must pay, it makes it easier to get orders and, therefore, it benefits our firms.

I cannot see how our workers benefit in any way from inflation, and I have seen a lot of it in my time. There is no point in increasing that wage bill of £20,000 million unless we increase the product, and that can be done only by better and more efficient methods and machinery.

I come back to the right hon. Gentleman's distinction between public and private enterprise. Does anyone doubt that the reason we are so much behind the United States in the production of wealth and in productivity is that there is far more electricity and power behind the elbow of every American worker than there is here? [HON. MEMBERS: "Private enterprise."] That is a bogus comparison. Electricity in this country is cheaper than it is in the United States, and if there is any deficiency it lies in private enterprise not using more of that electricity. But if we are to put up the price of electricity by handing over to private enterprise enabling it to exploit all the engineers, we will make it more difficult for them to compete.

Nationalisation is a method by which a public service is obtained at the cheapest possible price, sometimes too cheaply. Electricity in this country, allowing for the change in the value of money, is the one product which has greatly decreased in price. It is far cheaper relatively according to the value of the money than it was before the war. This is due to the increase in efficiency and technical ability. The same is true of gas and of every public enterprise.

Public enterprise is supplying private enterprise. If some people go on denouncing the two as not being partners and make them into competitors, disaster will follow. The idea that we should stop developing our gas and electricity works and the production of coal simply because these are not private enterprises is silly, because supplies would fail for private enterprise in a few years. What is happening at Fairfields, whether or not it succeeds, is the right policy. The right method is to produce more with less labour, with better methods and with better machinery.

During the term of office of the first Labour Government, Stafford Cripps introduced a scheme in certain Yorkshire mills. The co-operation of worker, employers and financial experts was secured. They were able to produce more wool with less labour at a lower price, with higher wages for workers and higher profits for employers. If we could only get co-operation between all sectors of industry and produce by the most efficient methods, we would need to fear no one.

I congratulate this Government on their courage in tackling the problem of trying to get an incomes and prices policy, because, unless incomes and prices are kept within the range of economic possibility, as the hon. Member for Louth (Sir C. Osborne) said, we are bound to be trying to eat more than we grow or to consume more than we produce; and this is the way to disaster, as even Charles Dickens knew 100 years ago.

Several Hon. Members rose—

Mr. Speaker

Order. I remind the House that everyone now in the Chamber wishes to speak now. I hope that hon. Members will be reasonably brief.

6.22 p.m.

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

If I understood the right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn) aright, his speech revolved round two themes—that so long as we had more nationalisation and more public expenditure all would be well. The trouble about that is that that is exactly what we have been having for the last two or three years. The reason we are having this debate is that all is not well.

I thought, too, that the right hon. Gentleman was singularly unhappy in his selection of arguments. He proclaimed the benefits of electricity under nationalisation. The House will recall that the Electricity Council has recently announced an increase of 10 per cent. in electricity charges and the Government of the day have not thought fit even to refer the increase to the National Board for Prices and Incomes.

I thought that the right hon. Gentleman was quite wrong in saying that under the Conservative Government it was not possible to tackle public expenditure. He cited specifically the case of the size of the Civil Service. If he will go into the Library and consult the quarterly White Paper which sets out the number of non-industrial civil servants, he will see that for the first three years of the Conservative Government—there was a highly efficient Financial Secretary at that time, whose name modesty prevents me from disclosing—the number of civil servants quarter by quarter and year by year came down.

The number came down for the very good reason which the right hon. Gentleman touched on, that we cut away functions which, however useful in a minor degree, did not seem worth while imposing on an over-burdened taxpayer. This could be done again.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)

Will the right hon. Gentleman compare the last three years?

Mr. Boyd-Carpenter

I would with the greatest of pleasure, if I had the figures on me. The Financial Secretary would do better to imitate one of his predecessors than to sneer. I am pointing out that this can be done. The right hon. Member for East Stirlingshire was wrong in saying that it cannot be done. In fact, it was done year after year and unnecessary functions were cut away.

I turn to the Chancellor's speech. I thought that it was a most uphappy one. Even the Chancellor's greatest admirers could not see in it a clarion call for additional effort or a touch of inspiration. His theme, as I understood it, was, "The policy is not working very well". He used the phrase, "The expansion we were expecting will not come quite so soon as we thought"—I thought that that was the understatement of the year—"but we have no other policy and, therefore, we shall persist in it".

This is not a theme which will lend inspiration to a jaded and tired economy. It read very much—"read" is the word—liked a jaded and tired Chancellor. The fact that the right hon. Gentleman felt it necessary to hark back and say that all the troubles were due to Labour's inheritance from the preceding Conservative Government added the tedium of all his speeches on this subject in recent years.

As my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said, a sort of pattern has developed under the Labour Government. We begin early in the year with vague rumours put out that the economic situation is such that there will have to be a very severe Budget. Then comes the Budget. It is never as severe as has been forecast. Everybody who has fallen for the previous propaganda is rather relieved when the Chancellor puts on only another £200 million or £300 million in additional taxation. Then the Chancellor is buoyant; everything is splendid; the economy will be completely in balance by the end of whatever year he happens to be speaking in.

It all goes on very happily; but, curiously, within a matter of days of the Finance Bill becoming law, a crisis develops. We have a crisis debate and we are told of the grave and difficult situation. We have had this every year under the Labour Government. However, this year it is worse in one very savage particular—that is, in respect of unemployment.

I do not know whether the Financial Secretary recalls the Election Manifesto on which he and his colleagues were elected on 31st March last year. It contains a passage which I now recall to his memory. It refers to the past financial triumphs of the Labour Government—that reads a little oddly now, perhaps—and then says: 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. With summer unemployment at its highest level for 27 years, right hon. and hon. Members opposite cannot claim that now. This is a price that the nation now has had to pay, not as the result of a Government coping with the immediate consequences of their predecessors' actions, but after very nearly three years of enjoyment of the blessing of Socialist rule. This is the price that the nation has had to pay, and it is not surprising that some hon. Members below the Gangway opposite, like my hon. Friends, feel real indignation against the Government who have brought things to this pass.

I want to deal, in particular, with public expenditure, because here the Chancellor wallowed in what I can only assume to have been calculated ambiguity. In his Budget speech he was at least perfectly clear. Having said that public expenditure would be up this year—he was right—he said this: But, of course, the corollary of this proposition is that when private investment recovers there should be enough room for it. Private investment will recover—indeed, we have taken many steps to induce such a recovery. This means that public expenditure, which cannot be quickly changed, must be reined back in time. Otherwise, a recovery in private investment superimposed on a continuing rapid increase in public investment could quickly lead to a renewed overload on the economy—unless we were ready to impose swingeing increases in taxation. For these reasons, my approach to the level of public expenditure is not confined to the medium term. We are already focusing particularly on 1968–69, with a view to moderating next year's prospective increase in expenditure".—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 990–1.] What does it all come to? On the 18th of this month I asked the right hon. Gentleman a Question about what was being done to implement the statement in his Budget speech that he would rein back the increasing public expenditure for 1968–69. All he said was: The Government are examining forecasts of Departmental expenditure in 1968–69. … In reply to a supplementary question, he said that I would know from my experience that the examination of Departmental Estimates is now taking place, and will no doubt reach its fruition during the autumn months. Anyone who has had any experience of public expenditure knows, and the Financial Secretary knows perfectly well, that by the time one comes to the Estimates season in the autumn it is far too late to make any substantial changes. One can fiddle about with the minor subheads—indeed, it is the Financial Secretary's job to do so—but one cannot effect real changes because the momentum of expenditure has developed. Undertakings have been given to local authorities and arrangements have been made for investment by the nationalised industries.

Under the Conservative Government we used to publish a White Paper on public investment in November. Issues obviously had to be settled by the late summer. Everyone knows that to be "examining" Estimates for 1968–69 now means that the right hon. Gentleman has abandoned any real intention to tackle the problems of public expenditure for that year although he said in his Budget speech that he would do so.

The right hon. Gentleman also said an astonishing thing in reply to my right hon. Friend the Member for Enfield, West. My right hon. Friend pointed out that the previous 4¼ per cent. annual rise in public expenditure had been based on the national plan forecast of growth projections, but the Chancellor said: There is no particular connection between the growth in public expenditure and the growth in the national product."—[OFFICIAL REPORT, 18th July, 1967; Vol. 750, cc. 1688–89–90.] In other words, the Chancellor has abandoned the whole of the doctrine which for some time has been his that public expenditure was dependent on the growth in the national product.

The right hon. Gentleman said it in particular at Cardiff just before the 1964 election, when he said: Increased social expenditure will be financed out of a growing expansion of British industry. Now he has broken that link, the link which, of course, was the essence of the National Plan, that as the national product grew we could build up the social services. He has broken that link altogether.

I wonder what effect the right hon. Gentleman thinks that kind of thing will have on foreign confidence. All he can do is to say, as he did today, "I am always having urged on me lower taxes and higher pensions". That was exactly what the Conservatives produced. We increased the national product to do this. We reduced Income Tax from 9s. 6d. in the pound to 7s. 9d. in the pound and the top rate of Purchase Tax from 100 per cent. to 25 per cent. At the same time we increased the real value of the standard National Insurance benefits by over 50 per cent. in real terms and certain benefits for widows and children by over 100 per cent. in real terms.

It is intensely depressing to find the right hon. Gentleman dismissing as impracticable a state of affairs which, in fact, the Conservative Government were able to bring about of lower taxes and increased benefits. The right hon. Gentleman cut the link with the national product. I thought that his speech today meant heavier taxation as the only possible conclusion. Does he think that kind of prospect will encourage investment foreign or domestic, or saving, or enterprise, or all the things he and every hon. Member knows are fundamental to a recovery of this nation's economy?

It seemed clear that the right hon. Gentleman, with the forces massed against him in the Cabinet—the Secretary of State for Education and Science gave up his normal hunting of the grammar schools to make a speech last week to the effect that he would not have any cuts and he was followed by the Minister of Health on similar lines—the Chancellor has obviously surrendered to these pressures. This is the only possible conclusion which can be drawn from his speech. It is intensely serious, because it diminishes the gleam of light which we might have thought was at the end of the tunnel and reveals the approach and mentality of the right hon. Member for East Stirlingshire as dominant in the Labour Party. This is the only prospect we have before us.

I mention only one other matter, the foolishness of the Government in maintaining the tourist allowance at £50. This, of course, is lower in real terms than the £35 which we knew under the former Labour Government. All hon. Members who read Lord Cromer's letter in The Times the other day could not but be convinced that he made a powerful case in suggesting that this travel allowance was not, in fact, making any real contribution to our balance of payments problem. There is some question of prestige and confidence. To go on appearing as the paupers of Europe is to rub home to every foreigner whom every British tourist meets that there is something the matter with sterling. To do it at a time when the right hon. Gentleman is claiming a recovery in the economy is to risk retaliation from countries whose tourism is as important to them as ours is to us.

It is peculiarly discriminatory. As Lord Cromer pointed out, there is no restriction whatever on the amount of foreign exchange which the man who has the money can call upon except for going abroad. He can buy his wife expensive dresses from Paris, or he can buy chateaux-bottled claret or, worse still, import Coca-Cola, and use all the money the Chancellor leaves to him to spend foreign exchange in foreign countries for every purpose except actually going to those countries and meeting foreigners. This is nonsense. We have never been told what the saving is. Yet I expect it is as small as the net yield of the Land Levy, because people who do not go abroad and are not allowed to spend abroad will spend their money here on foreign articles imported to be consumed here. There is, therefore, no saving in in that respect of foreign exchange.

I am glad that the Financial Secretary is present. I was surprised at his offhand reply to my supplementary question last Tuesday. I referred to the great authority of Lord Cromer who was Governor of the Bank of England in the earlier years of this Government. The House knows and certainly the President of the Board of Trade knows of his incomparable services to this country after the Labour Government came in in October, 1964, when he brought the bankers of the world together and saved our economy. So his name should be treated with respect. Yet all the Financial Secretary said was that one would expect Lord Cromer to give priority to the need to save foreign exchange. Does he not see that if Lord Cromer takes this view so strongly, he being a man whom the Financial Secretary himself has said will give priority to foreign exchange, that supports the view that foreign exchange is not in substance safeguarded by this mean, degraded little restriction?

It does not affect the rich. They have connections abroad or they can go to their villas in the West Indies, in the sterling area. It does affect a great many whose holiday abroad is the thing for which they work hard throughout the year. I know of many people whose holiday on the Mediterranean Coast in the sun is a thing which impells them to work very hard. Many of them want to spend, not a great deal, but more than £50. Therefore, what we are doing is not really saving any amount of foreign exchange, but we are doing one thing more to diminish the stimuli and incentives that our economy needs.

We are undermining in this small way as well as in many big ways confidence to save, to invest, to plan and to build up. This is what the Government, in their blundering way, have trampled on—the whole spirit of a free enterprise economy; with as my right hon. Friend said, the desire to earn profits and keep some of them to spend on oneself, which is the dynamic of a free enterprise economy.

All this kind of thing and confidence in the future are being undermined by what the Government have done. How do the Government expect people to invest, when the prospect of earning a decent profit on the money that is invested is so dim and, even if it is earned, an ever-increasing proportion of it will be taken in taxation?

The House must face the dilemma which my right hon. Friend put so well. One can run this country as a free enterprise society, in which case one must accept the basic concepts of a free enterprise society which are moderate taxation and the opportunity of profit; or one can run this country under State Socialism on the verges of Communism, which is a method, however repulsive to many of us, which will work. What will not work is the half-way house between the two. That is where the Government are locked.

6.42 p.m.

Mr. Ian Mikardo (Poplar)

I listened with rapt attention to that part of the speech of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) which leant a little, as he told us, on Lord Cromer, who said that there is not much point in stopping a man from spending more than £50 on the cost of a holiday abroad if he can spend £100 in foreign currency drinking imported Coca-Cola or other nauseous muck. I agree with the logic of that argument. Who could disagree with it?

But, of course, I draw the opposite conclusion. If it does not make sense stopping a man from spending more than £50 on his holiday because he will spend £100 on imported rubbish, then let us stop him spending the £100 on imported rubbish. That is the only logical conclusion of the right hon. Gentleman's argument. Perhaps that is not fair, because his argument was logical, too, but may I say that, of the two logical conclusions to that argument, the other one, whose existence neither the right hon. Gentleman nor Lord Cromer were aware of, is at least as valid.

Mr. Speaker, I would not for one moment question your wisdom and discretion in deciding not to call the Amendment in the names of my hon. Friends and myself. However, I know that you will not mind my saying, because I have no ill-feeling in saying it, that I regret that the Amendment was not called, because it would have given me—and I never speak in these matters for anybody than myself—an opportunity at 10 o'clock tonight to reinforce my words without the necessity of getting mixed up with that lot over there—an opportunity of which I am now deprived.

The right hon. Member for Enfield, West (Mr. Lain Macleod) described how the policies which we were advocating are anathema to him. I would have thought there was something wrong with them if they were not. But equally, the alternative economic policy which he was putting forward, in so far as he was putting forward any policy at all and not just uttering at the end of his speech a set of ruderies, is anathema to me. The right hon. Gentleman can call me a paper tiger if he likes, although I think that in his heart of hearts he will recognise that that would not be just. I shall find no difficulty this evening in resisting his invitation to demonstrate that I do not like arsenic by swallowing prussic acid instead.

There was much in the speech of my right hon. Friend the Chancellor of the Exchequer which I applaud. Over the years I have often applauded the speeches of my right hon. Friend the Chancellor. I wince a little, I must say, on those occasions—and they are not infrequent—when he says, as he did today, that he is always right. But I even manage to forgive him for that. I remember so well applauding so loudly his speech at the Labour Party conference in 1961, in which he demonstrated much better than I have ever done—much better than has been done by my hon. Friends the Members for Tottenham (Mr. Atkinson), Liverpool, Walton (Mr. Heffer) and Salford, West (Mr. Orme)—with complete conclusive clarity that any Government who tried to intervene in the normal processes of wage bargaining were off their rockers. It was a marvellous speech, absolutely conclusive. I applauded it very much. That was one occasion when I thought he was right.

Sir Cyril Osborne (Louth)

He has learned since.

Mr. Mikardo

He could not have been right then and also right today.

But I must say that although there was much in his speech that I applauded today, I thought it was complacent. When I listened to him telling us how everything in the garden is not merely lovely, but whiter than white, I asked myself, "What is all the fuss about? Why have we been hearing all this talk from him and his colleagues about economic difficulties? He was even complacent about half a million people being out of work. He said it would be more by January or February. I do not think that he said how many—possibly 700,000. That is not just a figure on a piece of paper. It is 700,000 homes blighted in a way that a home cannot be blighted except by a really foul and malignant disease. He was not worried about it. Of course, he is not unemployed. He has not got the most secure job in the world, but he is not unemployed.

My right hon. Friend goes to the Dispatch Box and reels off a long list of things to prove that he has done better than the Tories, to which my answer is "So what?" If I could not do better than that lot, I would want to be carried out horizontally. Our comparator is not whether he has done better than they have, but whether he has done as well as a Labour Government ought to have done, and whether he has done as well as he and his colleagues, when in opposition, promised to do. That seems to me to be the most important thing.

I do not like this complacency. My right hon. Friend said at the end of a long passage in a sort of roaring crescendo "In 1968, contrary to what some others are saying—get ready to cheer, boys—private investment will fall by 6 per cent. to 8 per cent." He said it as though it were an achievement. We use the comparator of what we expected and what we were brought to expect. It may be that our Amendment is not the right one. If it were not for the danger of its taking too many pages of the Order Paper, I would sooner have put down an Amendment to delete all the words after "House" and to add any one of the Chancellor's or the Prime Minister's speeches on economic affairs made between 1961 and 1964.

When I criticise the Government's policy, and people ask me what my alternative is, I refer them to a document in which it was set out. That document was called "A Four-year Plan for Britain", a very long piece, four pages or so, published in the New Statesman in the spring of 1961. It was written by my right hon. Friend the Prime Minister. It was a marvellous statement of policy, first-class. It was what the right hon. Gentleman opposite called for, a real alternative. If we had been doing it these last two years, we should not have been in the situation in which we are now. It was based on the concept of selective, discriminatory planning and control of the economy, a concept which for all practical purposes has been as readily abandoned by the present Government as it was not adopted by their predecessors.

I can understand a Conservative Government—it is part of their political philosophy—believing that the separate decisions of separate companies, those whom the right hon. Gentleman calls the decision makers, taken without reference to one another and each against the criterion of maximising the welfare of each individual company, will produce an amalgam which maximises the welfare of all. For Conservatives to believe in that process is comprehensible. For a Labour Government to operate on that basis is utterly incomprehensible. But that is what has happened.

What discrimination or selectivity have we had? The word "selective" used to be the Prime Minister's favourite word, until it was replaced by "abrasive". What selectivity have we had in our economic planning? We have had two things. We have had some selectivity in favour of the underdeveloped areas. That is first-class. It has not produced much result yet, but, when the Chancellor says that it will produce results, I am happy to accept it and look forward to those results. Second, we have had the so-called selectivity of the S.E T, by which one distinguishes, in rough terms, between manufacturing and non-manufacturing. This is not really selective at all. It is very much "bull at a gate". Some non-manufacturing industries are vital, some transport industries are vital, some manufacturing industries are froth. [An HON. MEMBER: "Candy floss."] Yes, candy floss, but that is old vocabulary now. The "U" expression now is "plastic flowers".

The four-year plan for Britain to which I referred talked about keeping down imports by discriminatory controls. Now, we are keeping down imports exactly as the right hon. Gentleman used to do, and as he advocates now, by deflation, with a total lack of discrimination. The right hon. Gentleman said that, in a certain economic situation, there are only three ways out—deflation, devaluation, or controls. He rejected devaluation in his first sentence. He sneered about controls in his last passage. Therefore, he accepts deflation as the only non-discriminatory means of keeping down imports, and, of course, here he has the agreement or consensus—let us keep to the modern word—between the two Front Benches to which he referred when he began his speech.

Mr. Iain Macleod

If the hon. Gentleman will read HANSARD tomorrow, he will find that I rejected all three.

Mr. Mikardo

I shall have to think that one out. Now the right hon. Gentleman says that there are only three ways to deal with the crisis, and none of them is any good. "I reject all three", he says.

I recall—this is not going a long way back—the speech which my right hon. Friend the Prime Minister made at Swansea on 25th January, 1964, in which he said: The one lesson of the past few years is that you will not make sterling strong by making the economy weak. To my mind, that sentence ought to be at the head and front of the thinking, planning and work of every Minister, of every Member and of everyone who is concerned in running the economy. I do not understand the present policy. If one went into a manufacturing company to help to put it right because it was a bit groggy, one would not begin by insisting on increasing the percentage of idle time on the shop floor, saying that it must be at least 2½ per cent., or 3 per cent. would be even better.

One would not insist on reducing the totality of output. One would know that, if the totality of output were reduced, with fixed overheads, or a large element of fixed overheads—a nation, like a company, has a large element of overhead costs which cannot be reduced—one would end by putting up unit costs and thereby make the product less saleable. If that applies in a company, it applies just as much to the nation as a whole.

Everyone, the Prime Minister, other Ministers, right hon. Gentlemen opposite, and all of us, when we go to the country at the weekends, say to people, "Whatever we think about the Government's policies—some agree with them, and some disagree—whatever we think individually is the right answer to the problem, let us at least agree on one thing, that we have got to put our backs into it a bit more, and let us agree that, in that, we have got to be willing to be a bit more ready ungrumblingly to take a bit of sacrifice should it come along".

This nation has a wonderful record of rising to an appeal of that sort. Above all, it has a wonderful record, an unparalleled record, of willingness to take sacrifices—but on one condition, that people feel that the burdens and rewards are being fairly shared. Nothing upsets the man in the public bar so much as the feeling that a scrimshanker is getting away with it when he himself is being asked for sacrifices.

We are not doing enough at present to diminish the grossly inegalitarian nature of our society to give ourselves justification for a demand for greater effort and sacrifice. To be justified in doing that, we shall have to do far more to close the gap between the well off and the badly off.

The prices and incomes policy—why we should need it when we are doing as well as the Chancellor told us today, I cannot imagine—has, in practice, hit the productive worker. It has not yet hit a good many others. There is a great demand at present for people called investment analysts. Their wages have gone up 100 per cent. in three years because we cannot get them. The soi-disant quality newspapers are sprouting business sections, so there is a great demand for business journalists. They toil not, neither do they spin, but ther "lolly" has gone up 80 per cent. during the last three Years.

Masked behind the apparent overall stagnation of wages, there are these growing inequalities, with the greatest inequality still existing, and virtually untouched since 1964, of enormous luxury expenditure out of capital gains.

My right hon. Friend the Chancellor ended his speech by saying that we not only seek to do well, though maybe we cannot guarantee that, but seek to deserve it. I say to my right hon. Friend, so long as you have half a million children below the poverty line, and will still have one-quarter of a million of them even after the present policies go into action; so long as you have abandoned—in this the right hon. Gentleman was right—the plea that you can finance social security out of growth; so long as you have the contradistinction between luxury expenditure out of capital gains at one end of the scale and really tight belts at the other; so long as you have all that, you not only will not get the nation behind you—worse still, you will not deserve it.

7.0 p.m.

Mr. Richard Wainwright (Colne Valley)

The hon. Member for Poplar (Mr. Mikardo) made it quite clear at the outset of his significant speech that he would very much like to vote for the Motion of censure. He mentioned only one reason which he says restrains him from doing so—that it would involve him in associating with the Conservative Party. I assure him that it is possible, accepting that the Lobby belongs to no political party, to use the same Lobby as hon. Members on the Conservative benches and yet remain in reasonable health and some political vigour, and even occasionally to have a reassuring and encouraging beam from Dr. Gallup. I therefore hope that if that is literally the only reason which up to now has inhibited the hon. Gentleman from deciding to vote for the Motion, he will think again.

There are two enormous advantages which I believe the nation has on this occasion in facing a period of financial stress compared with the difficulties of both 1962 and 1964. First, we are not forced to approach them this time in an atmosphere of preparation for a General Election; second, owing to the widespread discussion of the devaluation issue during the past 12 to 15 months, foreign banking opinion is much more profoundly aware of our domestic issues. There should be no necessity now for bland and somewhat superficial messages which misinform public opinion at home, but used to be thought necessary to reassure foreign banking opinion.

These two fortuitous advantages seem to me to add up to the possibility of a much franker approach to our difficulties this time, and the possibility of a franker approach should enable the Government to produce to the people a coherent policy and make it brutally and simply clear to them. This the Government have not so far done, either in recent weeks or in today's debate.

For instance, the Chancellor of the Exchequer, in his speech this afternoon, gave clear threats of coming increases in taxation. But they were very imprecise; there was no clue as to where this blow will fall. Therefore, those who take note of the debate, and particularly of his speech, are left with the view that they have nothing but heavier burdens coming to them and no prospect of great additional incentives.

Again, the other day there came from Government sources indications that they might be taking power to increase the whole range of State shareholding. This may not amount to very much. It may be largely party conference talk; but because it is not precise and not part of a coherent policy the majority of the population are left with the view that here is another threat of a general nature overhanging them.

The same is true of the Government's persistently equivocal attitude to our entry into Europe. Nor are the Government successful on the point of clarity. Very often they use the excuse that they must deal with a hostile Press, and that they cannot get their message over convincingly to the working population because most of the Press proprietors are not interested in doing so. But it is no longer just the possibly hostile Press which is not spreading the message of encouragement and incentive from Government circles.

As a result of Government activity since they came to power there is now an enormous army of advisers to Government Departments—and I do not quarrel with this. They are members—often honorary members, which perhaps makes them a little more free to talk out of school—of the innumerable advisory committees which have been appointed to assist in restructuring industry, and so on.

These distinguished people are not in the habit of breaking confidences or revealing explicitly what has taken place in meetings, but naturally, being only human, they tend to breathe the atmosphere which has surrounded them when giving their services to Government. These people are not taking round the country, by and large, the impression of a coherent Government policy which is sufficiently clear to be convincing to industry or the professions. If there is an impression, it is one of confusion, of one Ministry working against another, and of no coherent or determined plan.

I should also like briefly to mention the attitude of those Government Departments, which, because of their responsibilities, are almost the sole customers for certain important manufacturers. Government Departments responsible for public health, public education, many sectors of transport, and so on, hold in their hands the whole trade of a large part of our manufacturing sector. So often, because their plans are not frankly revealed, and, because ambitious targets of public spending are announced and eventually withdrawn, a large section of manufacturing industry conducts its operations on a basis of misinformation. If those Government Departments set a lead and could bring themselves to be more frank with their suppliers in this country we would use a great deal of capacity that is, up to now, wasted.

There must be many hon. Members, including myself, who could take members of the Government into workshops which have been standing, if not idle, at any rate at half-cock, for long periods in the expectation of Government orders. Those orders have never come, not because the workshops were not competitive but because the spending plans had been knocked about and the promises had not been fulfilled. The result of a great deal of this lack of frankness and clearness is that a fatalism gets abroad and a large number of people draw the conclusion, I think entirely wrongly, that we are incapable of competing successfully enough in world markets to earn our present standard of living. I hope that most hon. Members will agree that this is a profound mistake, but I believe that it is an impression which is gaining ground.

The Government should be a little more forthcoming in making clear that at least one advantage of the miseries people have had to put up with during recent months is that we are becoming rather more competitive again in many world markets. I do not see why we should be modest about claiming this. Our competitive position has changed and changed about many times in the past 20 years, and I think that the British people should be disabused of any idea that we are necessarily in some kind of long-term decline.

Finally, there is the question of incentive. In my view, it is largely a waste of time for hon. Members on this side of the House, who have a different philosophy, to lecture the Government side on the supreme virtues of preponderant individual incentives. That is not, we all know, by and large the attitude on the Government side of the House, and a debate here is not likely to change it.

But I wonder whether the Government would consider devising some forms of corporate incentive. There is no reason why regions, in particular, should not be sensitive to some kind of corporate incentive for their efforts. I remember what it is like to be brought up in a big manufacturing city proud of its products and to be told in youth that one reason why the city had always been prosperous and why it had excellent public services is that it conducted conspicuously successful export trade and its products have been known round the world to be good and value for money. I believe that there is a future in expanding this kind of corporate incentive.

I realise that the objection which will be put up immediately to giving an extra share of Government spending in recognition of regional success is that Government spending plans now are worked out so far in advance and the contracts for Government expenditure often placed years in advance. But that is not the whole story. With modern techniques of public building, and earth levelling, and so on, some projects can be executed remarkably quickly. I suggest that it could be a very great stimulus to some regions if they could know that in return for conspicuous services, particularly in the export field, they could see some of their local and visible public amenities coming to fruition earlier than had previously been expected.

Whether there is merit in that or not, I conclude with the point that I sketched out earlier, that there is certainly a duty on the Government, particularly at a time like this, to make absolutely clear to the people the situation in which we find ourselves and not be inhibited in doing so for fear of creating an unfavourable impression on financial opinion abroad. This is no longer a fear to be seriously reckoned with. Frankness is now possible, and it should be exploited to the uttermost.

7.13 p.m.

Mr. David Ginsburg (Dewsbury)

We have had an interesting debate so far, but listening to the hon. Member for Colne Valley (Mr. Richard Wainwright) and the right hon. Member for Enfield, West (Mr. Iain Macleod) I found it very difficult to believe that I was listening to a Motion of censure. The best argument against the fact that we were debating a Motion of censure was a letter that I read yesterday in the Observer by the right hon. Member for Barnet (Mr. Maudling). He believed that his policy for growth needed time and a chance, and I think that the same is true of the policy of the present Chancellor.

Referring to the letter by the right hon. Gentleman, I do not want to nark back too long on the question of the inheritance which the present Government had, but the right hon. Member for Barnet confirmed his support for a General Election in the spring of 1964. I think that one can say that it was a costly decision for the country to let the election be delayed another five months. Many of the balance of payments problems that we are confronting today stem from a decision which put party interests before national interests at that time.

I want to make a very brief speech, and I propose to deal with two topics which are running through this debate. The first is the balance of payments: how serious is the present crisis, is the Government's broad strategy right or should additional or even very different measures be taken? Secondly, do we face a crisis in regard to full employment, or will the position in the economy correct itself soon?

I begin by looking at the balance of payments. It is by common consent the most crucial area. But we should also face it in this House that it is a concept which seems somewhat elusive and academic to the man in the street. Indeed, the more hon. Members on both sides get alarmist about it the more the general public tend to get bored with it all because we seem to have been here many times before. There is an inevitable diminishing return in the public's response to a crisis.

Last year, the British people were willing to make a response to Governmental exhortation. They are less likely to do so this year, especially if they think either that the Government have made needless mistakes in the interim or that the Opposition or the Government's critics on this side of the House are over-painting the present crisis. I find it difficult to agree with those who take a cataclysmic and critical view of the balance of payments at the present moment. I do not think that is the problem. Progress may be slower than we would like, but there has been progress. Our balance of payments on current account, seasonally corrected, for the last quarter of 1966 showed a surplus of £142 million and for the first quarter of this year the figure was £41 million. It is true that the balance of payments account for the second quarter is likely to show a deterioration in those figures, but what the critics at home and overseas forget is that an improvement on last year's balance of payment's figures is still in progress.

June this year is supposed to have been a very bad month, but I calculate that even for June the improvement on the visible balance of trade has been to the tune of £15 million compared with last June, and that is a sizeable sum for the year as a whole. Since July last year was a very bad month, the improvement this month could be even more marked, because it is of the nature of these trading figures that they fluctuate very violently from month to month and a bad month tends to be succeeded by a good one. We have heard from the Chancellor that in 1967 exports are 5 per cent. up on those for 1966 and that there is no reason to believe that the increase in exports will not continue.

The Government have stated that they will not devalue and that strong defences exist to buttress the rate of exchange. The Opposition have stressed in the House and outside that they, too, are opposed to devaluation. What, then, is the problem on the balance of payments that we are debating? The Suez Canal may remain blocked for many months, and I would urge the Government to assume the worst here and to make the necessary contingency planning. This will be an extra burden on the balance of payments. However, again, as the Chancellor has indicated, this is not a critical problem.

The critical problem on the balance of payments is, and it was with the previous Government, the question of imports. It is inevitable, it seems to me, that with the removal of the surcharge there must be an increase in manufactured imports, as is happening at the moment. This need not matter so long as the totality of imports does not grow too much. Indeed, as we have already heard today, some imports are falling in price, and it need not matter if the totality does not grow more rapidly than our exports. The Government's measures to moderate demand should keep the import bill down. Therefore, there should be no need to devalue. The fact that stocks are having to be built up and, therefore, imports are increasing for that reason, is again, it seems to me, no reason for devaluation.

There might, of course—and we should face this—be a situation in which devaluation was justifiable and where it would be right for us to undertake the painful process of paying more for imports and getting less for exports and, as my right hon. Friend said, dealing shabbily and in bad faith with certain countries, very often the poorest. But that situation would only arise if Britain's cost structure were really out of line.

I ask some of my hon. Friends who, apparently, have been favouring devaluation whether they really can claim that our exports are not selling because they are too dear or that our imports are flooding in at the moment because they are too cheap? Of course, if it ever became apparent that there was a fundamental disequilibrium in Britain's price structure, devaluation would be necessary as part of the long-term strategy.

Mr. Barnett

Has my hon. Friend seen the statement of the International Monetary Fund for 1965 that, if it were not for our price structure, there would have been an increase in our exports of about £1,000 million?

Mr. Ginsburg

Yes. But I have also seen the figures of recent cost changes in the prices of our exports, and our exports are competitive in the world as a whole.

Mr. John Hall

Has the hon. Gentleman seen the recent statement by the Board of Trade that our exports are less favourably placed now than 12 months ago?

Mr. Ginsburg

It depends on which countries one is comparing with. If one compares our exports with those of Germany and other E.E.C. countries, we are not unfavourably placed. At this stage, it is far from proven that we face a runaway import bill which only import controls or devaluation would stem, failing, of course, a savage deflation, which would be unthinkable.

If, therefore, there is no need for devaluation, and the £ is sufficiently strong and the balance of payments is coming right, although it will take time, what about the other and perhaps more pressing problem of growth and employment? The question is, "Have the Government pushed their medicine and policy too far? Is unemployment likely to rise too fast and too high before it begins to come down again?" The Chancellor is perfectly right to avoid additional measures that will prematurely expand the economy too fast next year. There will be an upturn, starting in the autumn, and it will gather pace next year anyway. But the danger is, so it seems, purely over the next six months.

The question is whether the economy could do with some extra reflation at this moment. National output, as far as I can see, is not at present rising at a 3 per cent. growth rate per annum and the Chancellor would be unwise to rely on the stimulus that could come from a breakdown of incomes policy in, say, a few months' time. After all, he wants the incomes policy to make a positive contribution and if, therefore, there has to be some limit in the growth of incomes in the months ahead, it also follows that we need a small but essentially quick working stimulus to the economy not next year, but at this moment.

For obvious reasons, it should be small and it should be quick-working, because we do not want unemployment to rise too fast and too high over the winter months before it begins to come down again as recovery gets under way. If such unemployment can be avoided, it should be. One small but important stimulus would be to bring in the increased social security benefits to the unemployed right away. I believe that this would be administratively practicable. It would concentrate help not only to those who need it most, the longer-term unemployed; but also to those areas that need it and it would be a short-term concession, since the benefits would be assimilated into the wider changes which will be taking place at the end of October. It would be a very small stimulus in money terms.

The other stimulus could come from a partial use of the Purchase Tax regulator, downwards of course. This would operate quickly and the extra imports generated would be sufficiently small for the balance of payments to contain. I believe it to be correct that a relaxation with the Purchase Tax regulator of about £75 million would at worst—and this is probably an over-estimate—involve extra imports of about £15 million on the balance of payments over the whole year. But I think that the economy is strong enough to stand it. Indeed, the use of the regulator, the beauty of it, is that having used it and when the other measures that the Government are taking are having effect next year, it would be easy if necessary to remove this concession when it had had its desired effect.

There has been some mention in the debate of public expenditure and the where possible to moderate public ex-Chancellor has been rightly concerned penditure in the future. But there is one opportunity that he missed of applying, as it were, a neutral curb to public expenditure and it is one which I think would commend itself to many of my hon. Friends. The Selective Employment Tax is correctly regarded as a tax which makes for a more rigorous scrutiny of resources in the private section. It cannot be, and has not been, entirely passed on.

The same principle could apply in central and local government. I do not accept the argument for treating central and local government services as neutral for S.E.T. S.E.T. should be levied on Government Departments with a directive from the Chancellor that it must be absorbed through greater efficiency without the need for them to come back to this House for Supplementary Estimates. It might not be possible to do this everywhere and all along the line, but even a modest success in this area would release scarce resources, and this would be a valuable gain once the economy returned to a higher level of activity, as I am sure it will next year. I hope that my right hon. Friend the president of the Board of Trade will comment on this idea.

The Chancellor gave a buoyant forecast for 1968. He said that we must take a long-term view of the Government's measures. He was rightly against chops and changes in policy and, subject to what I have just said about unemployment, I agree with him. In that sense, he is entitled to the support of the House.

7.29 p.m.

Sir Arthur Vere Harvey (Macclesfield)

The hon. Member for Dewsbury (Mr. Ginsburg) gave me the impression of making a speech which was almost identical to that of the Chancellor of the Exchequer—one of great complacency with no alarm or real concern about what is going on in the country. The Chancellor touched on the unemployment situation for two or three sentences. He expressed no sorrow or real regret and gave no indication of what the figure might be this winter or where we are going in this direction. This is not good enough.

As the hon. Member for Poplar (Mr. Mikardo) has said, to have 700,000 households affected in this year in an economy like Britain's is not a good thing. The Government have frequently referred to 13 wasted years. But they wasted 13 years in opposition in not doing their homework. They seem to have learnt nothing by experience even during the last three years.

Mr. Arthur Lewis (West Ham, North)

But my hon. Friend the Member for Poplar (Mr. Mikardo) pointed out that we did do our homework and that the Prime Minister drew up a plan. The trouble is that the Government are not implementing that plan.

Sir A. V. Harvey

I will not involve myself in the civil war on the benches opposite. Hon. Members must figure it out for themselves. If 71 Tories had made the suggestion that hon. Members opposite have made, we should be accused of rocking the boat, but hardly a word has been said to them for what they have done.

I agree with my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) who asked what was the point of devaluation. Devaluation on its own is absolutely useless. Our prices are competitive with world prices. One only devalues when prices are out of line with those of foreign Powers, and ours are not out of line. The disease in Britain, if I may call it that, goes much deeper. There are deep-rooted problems affecting our economy. The Government put on the surcharge and encouraged the wrath of all the E.F.T.A. countries. First, they put on 15 per cent. They eventually got away with it and the E.F.T.A countries became used to it.

What then did they do? In April last year they announced that on 1st December, 1966, they were to take off the surcharge. They gave the world seven or eight months' notice that it would come off. It was a crazy thing to do. I was told by an international banker the other day that, having got away with it with the E.F.T.A. countries, because of the state of our economy at the end of last year we should have kept it on. However, the Government could not do that because they had announced eight months earlier that they were to take it off. How can one run a country with a Government who make decisions of that sort? It is incredible.

Our economy is far more serious than the country is prepared to believe at the present time. Why are 54 million skilled people—probably the most skilled in the world—in this situation? Long-term remedies are needed, but for 20 years Britain has lived on the edge of a precipice. A ½per cent. either way on exports or imports seems to tip the balance against us. This is a precarious way to run an economy. The Government are trying to have it both ways. The Prime Minister behaves like a president, but he does not believe in free enterprise, and hon. Members opposite want a complete Socialist State. They cannot one moment encourage free enterprise—the goose that lays the gold eggs—and the next moment give it a kick in the pants. It does not help; it does not fit in. Britain is essentially a free enterprise country. We have to bring about systems and schemes which will help free enterprise to make profits. There is nothing shameful in the word "profits".

The Government had a problem in October, 1964, which we have had for 20 years. When they came to power in October, 1964, they turned that problem into a real crisis, and we all know why. With a majority of three the Prime Minister had his eye on the next General Election. He tried to convince the electorate of Britain what a terrible legacy he had taken over. In doing so he also convinced the foreign bankers. They understood him and took him at face value. Of course, nobody, including some of his own colleagues, takes the Prime Minister at face value today.

The Health Service has been talked about. We all want to see an efficient Health Service, but my fear is that it is failing for many reasons. Replacement of the hospital in my constituency, Macclesfield, which was originally built as a workhouse in 1835–40, has twice been delayed by this Government since they came into power.

The cost of dropping the 2s. prescription charge has been mentioned and the right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn) has talked about the old age pensioners having to pay. It is surely not beyond the wit of a man or a Minister to devise a scheme whereby the chronic sick, the disabled and pensioners, could go to their doctor or the chemist and get their prescriptions without going through the business of making a claim. They could have tabs in their pension books. I am sure that something could be done to exclude them from having to pay prescription charges. But why should Members of Parliament and others have free prescriptions costing about £25 million a year by the loss of the 2s. charge and probably another £20 million or £25 million a year in extra consumption of drugs?

Mr. Christopher Rowland (Meriden) rose— —

Sir A. V. Harvey

I will give way when I have finished. I am not saying that all these drugs are not necessary, but a great number are not.

Mr. Rowland

Would the hon. Member tell us how many hospitals were built under the Conservative Government and what prescription charges were charged in that period?

Sir A. V. Harvey

The hon. Member is deploying the argument of the Chancellor who referred to the number of universities in the last two years, the number of students, schools and teachers. Many of these things were planned in the days of the Conservative Government. Aircraft exports, which the Minister is always boasting were £200 million last year were also brought about during the lifetime of the Tory Government. The hon. Member cannot get away with that. It will be some time before the Government get credit for that type of thing.

Prescription charges involve a total of £45 million to £50 million a year. Excluding the chronic sick, the disabled and old-age pensioners, it is wrong for the rest of the people of Britain to get them free, because the money could be deployed in building another eight or nine hospitals a year. It is wrong for young people who are earning good wages to be taught that they can get most things for nothing. It is not the best way to educate young people.

In July last year the Government lost their heads completely. Selective Employment Tax today is a miserable failure. Why do not the Government admit it? Every time they are questioned they say that a long time is needed to assess how successful it has been. When my right hon. Friend gave the figures earlier he pointed out that the number of men in manufacturing industries has decreased and those industries which ought to be turning out exports are not doing so. It is a ghastly failure. If the Government must raise money, would it not be best to have a 4s. or 5s. pay-roll tax on every individual in the country rather than have this vicious tax which was originally inflicted even on the agricultural industry?

Much has been said about the Civil Service. According to my researches, the number of civil servants since October, 1964, has risen to 39,100 at a cost of £40 million to £50 million a year and they occupy valuable office space. Industry has been implored by the Government to set about putting its house in order to bring in experts—McKinseys and others—to put a fine tooth-comb through the business. Shell, I.C.I. and Courtaulds have had this. Why not the Government? I am connected with a company which has disposed to 2,500 people in the last 18 months—every company in British is having to do it today to make itself more efficient—to try to get these valuable people into other export industries. Why not in Government Departments and why not in local government?

I am far from convinced when the Prime Minister says at the Dispatch Box, "If hon. Gentlemen opposite want new hospitals, etc., they must have extra civil servants". I do not accept that. The Conservative Government reduced the numbers over a period of time and they reduced taxation at the same time. This will not do. Whereas the Labour Government think that they have convinced the country how all-powerful they are and that they are in office for a great many years, I warn right hon. and hon. Gentlemen opposite that the Prime Minister's image has been severely dented and the Labour Government are rapidly becoming discredited. Something will have to be done by the rank and file of the party opposite. [Laughter.] Hon. Member opposite may laugh, but they will not laugh at the next General Election.

Mr. Russell Kerr (Feltham)

Come over here.

Sir A. V. Harvey

If the hon. Gentleman wants to interrupt my speech he should stand up. Can we be told what is being done to bring about economies in Whitehall and in local government? Can we have a clear answer about what is being done and about the Government's intention? In diagnosing the problems of the economy we have also to consider confidence—[Interruption.] I wish that the hon. Member for West Ham, North (Mr. Arthur Lewis), who is so rarely aroused, would stop chattering.

Mr. Arthur Lewis

I said that Dr. Kaldor had resigned, which was one 50 per cent. reduction. I was helping the hon. Gentleman.

Sir A. V. Harvey

I am glad to have the hon. Gentleman's support. I hope that he will make his own speech. If he does, I will stay to listen.

Confidence throughout the country is now at a low ebb. Private industry is now investing 8 per cent. or 9 per cent. less than it did last year. People are not in industry for fun, but to make a go of it. They are not always there even to make profits; they are in industry because it is their life's work. But now there is a lack of confidence and they are not certain whether the decisions which they now have to take are right.

If industry is to be encouraged, from the people running it right down to the man on the bench, more incentives must be provided. Why are savings down more than £200 million on last year? It is because people are spending their money. They are buying furniture or pictures rather than invest in good equity shares, and this is because they are frightened of the future, because they completely lack confidence.

Under the Labour Government we have had numerous Budgets which have so complicated the taxation system that many responsible people in industry have to spend a great deal of time with accountants and lawyers trying to unravel the meaning VL successive Finance Acts. In my own business I have recently had dealings with a large British concern which might earn a considerable amount of foreign currency. We spent most of last week with lawyers and accountants and we still do not have the answer to how the taxation may work out vis-á-vis an American company. Our legislation must be simplified so that firms do not spend so much of their time getting advice from top lawyers and accountants.

I agree with the Chancellor of the Exchequer that world trade is not helping Britain. There has been a mild recession in the United States and a certain mild recession in France and Germany, but this country has no fat on which it can fall back, because taxation is too high. The cost of living continues to go up. For the twelve months during the freeze, it was not too bad, but as from 1st July everyone in this country, it seems, is to get a rise, except the staff of the House of Commons for whom, we were told at Question Time, the date of any increases is uncertain. I do not know why they should be excepted from the general rule.

The trade figures for June are bad and they do not take account of the closing of the Suez Canal. The Suez Canal may be closed for years rather than months, and I would not reckon on its being open next year. However it is regarded, the performance for June was bad.

Taking the value of the £ in October, 1964, as 20s., in June this year it was worth 18s., a decrease of 2s. despite a year's standstill in prices. According to the Ministry of Labour Family Survey, where the average family spent £19 10s. a week in 1964, to buy the same things at 1967 prices would cost £21 13s. 4d. I am fearful for the 500,000 people of whom the Minister without Portfolio spoke today. They are in a desperate situation. There are many people in Britain who still earn about £12 a week, some of them on the railways. How are these people with these miserable wages to face vast increases in costs?

There is not much wrong with British industry. It must be given incentives and it must pay far more attention to delivery dates and adhere more strictly to them. I am constantly told that, while quality is good, deliveries are not made on time. But a successful export business is impossible without a good home market to back it up, and that is true of textiles, motor cars or chemicals. There must be a thriving home market and that is why it is necessary to inflate the economy to some extent.

Most of the responsibility for our present position rests with the Prime Minister. I do not like the politics of South Africa, but there are many countries in Eastern Europe whose politics I do not like, but with whom we have to trade to live. We have a favourable trade balance with South Africa of nearly £70 million and we are glad to be able to use its ports now that the Suez Canal is closed. But in the last few years the Prime Minister and others have gone out of their way to insult South Africa and to refuse to supply it with this and that. The same is true of Spain. Our trade with Spain is on a lesser scale, but we still have a very good balance of payments with Spain. We all know that the Rhodesian situation is probably costing us £100 million a year, and yet last week I read that the Rhodesian budget has been practically balanced and that Rhodesia's standard of living is going up. We have done our best to ruin our trade with many overseas customers, and it is about time that we patched up these differences.

What can we do to encourage home industry? Last week we were told that there was to be more nationalisation, although we were not told how or when. We did not hear much about the Industrial Reorganisation Corporation which was set up last November and which was supposed to have all the powers needed to acquire industrial equities by the back door. We are now told that there is to be more legislation of this kind. If industry is to do its stuff—and it is in industry where the solutions to our problems lie—it must be given a square deal.

I can well understand the Prime Minister's dilemma. He is constantly looking over his shoulder to his Left wing which he has to pacify. Last week he did it with the Defence White Paper. He is looking ahead to the Scarborough Conference by which time he has to get the climate right. He is trying to satisfy three or four different parties behind him. A country cannot be run like that, when 80 or 90 of his supporters are prepared to stab the Prime Minister in the back at the slightest provocation.

Britain's stock abroad is extremely low, and I am not surprised when the readers of Continental newspapers can discover that 71 Labour Members are putting forward proposals which are contrary to Government policy. The Prime Minister has boasted about his 1,000 days, but they have been the most miserable thousand days that Britain has had since the war. The Government have been rumbled by the British public, and it is only a question of time before the public has the lot out, lock, stock and barrel.

7.48 p.m.

Mr. Russell Kerr (Feltham)

Having listened to the remarks of the hon. Member for Macclesfield (Sir A. V. Harvey), I am tempted to tear up my speech notes and spend my limited time dealing with some of the points with which he has entertained the House. I was particularly moved by his eloquent plea on behalf of the £12-a-week people in our midst, and I hope that this new-found conversion to advocating on behalf of the poor in our community will not be short-lived.

I also admired the hon. Gentleman's courage in pleading for Government encouragement of private enterprise. As a prominent member of the aircraft industry, which has had about £4,000 million of public money lavished upon it since 1950, sheer simple gratitude should have given him pause on this occasion.

Sir A. V. Harvey

I have not been connected with the aircraft industry for more than 10 years.

Mr. Kerr

I apologise. The hon. Gentleman's eloquent pleadings on behalf of that industry must have misled me.

However, tonight we are discussing more important things, and as one of the Government's occasional critics, especially of their economic policy, it gives me no pleasure to have to take such a strongly critical line as I feel bound to take this evening. Of course, I recognise that a sizeable part of the difficulties which my right hon. Friends have encountered has been bequeathed to them by right hon. Gentlemen opposite, and it therefore hardly lies in the mouths of the Opposition to criticise the Government.

Their own prodigies of mismanagement, particularly during the period when all considerations of national welfare were being subordinated to a desperate attempt to hang on to power at all costs, was equalled only by the "brass" with which they have sought to deny it ever since. The truth is that, whether or not hon. Gentlemen opposite have confidence in the Government's economic policies is of very little consequence—of no more importance than whether the teen-agers are these days screaming for John or Paul or Ringo, or for that matter my hon. Friend the Member for Smethwick (Mr. Faulds).

As the right hon. Member for Enfield, West (Mr. Iain Macleod) was kind enough to imply, although he did not specifically say it, the real argument in this debate is between the Government and the 70 or so of my hon. Friends who signed the much-mentioned Tribune manifesto, some of whom, including myself, are the sponsors of the Amendment to the Motion before us, which Mr. Speaker, in his wisdom, though no doubt impressed by the cogency of the argument and the percipience of its analysis, felt unable to call.

May I take as my starting point the draconic measures announced by the Prime Minister just over 12 months ago, and which descended on this country like a bolt from the blue. Despite denials at the time, there is now little doubt that the savage deflationary measures announced were owed almost wholly to a panic desire to placate international banking opinion in general and the United States Treasury in particular, to ensure that loans would be forthcoming from international sources to shore up a badly threatened £-sterling.

Some little while afterwards the line changed and Government spokesmen suddenly discovered that these measures, far from being a hypersensitive reaction to admittedly difficult circumstances, were designed as part of a plan to lay the groundwork for more rapid growth—or something like that. This claim has been repeated many times since in one form or another.

Coupled with this claim, particularly in recent months, has been the confident assertion by a number of Treasury and economic Minister, to the effect that happy days are here again, and that the economy is again back on course. The basic balance of payments problem has now been solved, and according to the Chancellor at least, we are moving steadily ahead, on and on and up and up, as a former distinguished Member of this House would, I am sure, have put it.

This view is, to put it mildly, out of accord with the facts. Even if it were true that the deficit on our current account was being steadily reduced, which is not the case as I see it, such a development would have been achieved only at the quite unacceptable cost of sacrificing economic growth, of deliberately creating unemployment, and of cutting overseas aid—in short, by embracing all of the dreary, fly-blown, discredited policies of Professor Paish, whose resurrection from a Tory grave by a Labour Government has had no parallel for nearly 2,000 years.

Certainly, the economic philosophy of this vastly over-rated economist ought to have had no part in the plans of a Labour Government, except perhaps by way of illustrating where our predecessors in office went wrong. Presumably, as a result of pressures from the Bourbons of the Treasury, yesterday's bad joke seems to have become today's considered wisdom, so that the worthy Professor Paish, from being a name to avoid mentioning in polite Socialist society, is today apparently being given the Hallelujah treatment across the way at the Treasury.

As my right hon. Friend the hon. Member for Belper (Mr. George Brown) would put it "Brothers, we have come a long way." I bear no personal animosity to either the Chancellor or the worthy Professor Paish in saying this, but the fact is that the economic policies associated with this gentleman's name are likely to prove no less than disastrous for this country, and no amount of sunshine talk by our Chancellor will alter that fact. In our present situation there is no solution along this road. The fact is that we can have a supposedly "healthy" balance of payments surplus of this kind only by having a basically unhealthy economy.

In the words of the Tribune manifesto, signed by over 70 of my hon. Friends: Only when we can maintain a payment surplus, full employment and economic growth, all at the same time, will our economic problem be solved. I heartily agree with those sentiments.

Looking again at the ill-conceived July measures of a year ago, it is obvious that they won us no more than a temporary respite, by holding back imports as production levelled off and unemployment rose. Certainly, if the Chancellor were to change his mind and to begin to reflate the economy to any serious extent, as the hon. Member for Macclesfield has just been recommending, and I agree with him on that one point, there is no doubt that another payments crisis would be the almost immediate result.

The fact that our economy now has built-in into it the assumption that a permanent level of over half a million unemployed, in other words, about 2 per cent. plus of the total labour force of the country, is quite acceptable, is a further indication of the Government's retreat from the pledges made to the people prior to our election, and the abandonment of our commitment to a policy of full employment.

Perhaps the most serious criticism of the July measures is that far from improving our overall economic situation, they have actually made it much worse. As the party opposite demonstrated on many occasions during their period of office, every time that they have resorted to these deflationary bouts, the inevitable result has been the raising of unit costs and an increase in unemployment, coupled with a step up in our export prices, which is what has happened as a result of these July measures.

Perhaps the most important casualty of Paishism has been its effect on industrial investment, which has dipped quite alarmingly during the past year, with the result that the modernisation of our industrial structure, on which so much of our economic future depends, has been still further retarded. At a time when investment in our future screams out for priority, the Government seem to have turned common sense on its head by giving priority not to the things that matter, in other words investment in things like technical education and scientific research as well as in modernisation, but to the sacred cow of maintaining an exchange rate of 2 dollars 80 cents to the £ sterling.

The present economic policies of the Government provide no kind of a permanent policy for getting the economy of the country out of its present stagnation. We are deluding ourselves if we imagine that our commitments to the people who put us in Government is adequately discharged by our obtaining a so-called balance of our international payments.

Surely for a Labour Government, as opposed to the party opposite, which inevitably talks through its pocket on economic matters, this matter of sterling and the balance of payments ought to be a problem which we take vigorous steps to solve in the shortest possible time, using such methods as are judged necessary to effect a permanent solution to our difficulties.

There are some Jeremiahs on both sides of the House who say that the situation is now beyond recall and that Britain is now so heavily in pawn to the United States and the international banking community that we no longer have sufficient elbow-room to work our way free of our present difficulties, and so achieve the economic autonomy which is the necessary pre-condition of our political independence.

I imagine that the logic of their position is that we should pack the game in internationally and make early application to become the 51st State of the American Union. I regard this kind of talk as a counsel of despair. Though our present economic and financial difficulties are by no means under-estimated, I believe that they are perfectly capable of solution, provided that they are tackled with the courage and resolution that the people expect of a Labour Government, and provided that we are prepared to throw out of the window some of the imaginative, discredited advice which Professor Paish and his friends at the Treasury have been selling to the Treasury during the past year and to his predecessors during the years before.

I will not weary the House with a detailed recitation of the steps which I believe to be necessary to escape from the present dilemma in which we find ourselves. They have been outlined both in the Amendment standing in the name of my hon. Friends and myself and at somewhat greater length in the excellent Tribune manifesto signed by more than 70 of my hon. Friends last week and which has become "required reading" for Members on both sides of the House who aspire to an understanding of the present situation.

I should like briefly to draw attention to only two of the suggestions which we make in that publication. First, we advocate measures, to use an expression beloved of my hon. Friend the Member for Lewisham, West (Mr. Dickens), to "get the bankers off our backs", and to that end we ask that the nation should immediately acquire, with fair compensation to those affected, a suitable selection of our overseas portfolio investments so that a large proportion of the present international debts can be quickly repaid. Although this proposal is unlikely to cause the City of London to hang out the flags in unrestrained joy, none the less it would go a long way towards giving us the financial elbow room which we so conspicuously lack.

The second proposal to which I should like particularly to draw attention is our suggestion that selective import controls —I say this despite what the Chancellor of the Exchequer said today—should be one of the economic weapons to which the Government resort during the difficult months ahead. I am well aware that this is an idea which finds, or at least used to find, little favour in Treasury circles, but the objections raised by the Paishites have already, and very effectively, been answered by a person who is now, most happily, "one of their own".

I refer to a very brilliant economist of the younger school, Mr. Michael Posner, who has recently been appointed economic adviser to the Chancellor of the Exchequer and who, more importantly, set out in an article in the New Statesman, just two years ago, the means whereby, with the very minimum of economic retaliation, it is possible for this country to save well above £300 million on the balance of payments by the institution of selective import controls. Any hon. Member who doubts the wisdom of Mr. Posner—and on this point that may, on this one point, even include the Chancellor of the Exchequer—should acquaint himself with this article which, like the Tribune manifesto of last week, should be required reading for those of us interested in economic matters.

What I am pleading for is a new national plan based on national economic priorities and not on the often misleading forecasts of the business community. Surely the main problem afflicting British industry is that our national supply of capital is being channelled to the wrong places, into the wrong areas of the country and into providing things of low rather than high economic and social priority—in other words, into making luxury goods instead of into building schools and hospitals.

Surely we now need a frontal attack, using the weapons of Socialist planning, to eliminate from our midst, with all speed, the gross inequalities of wealth and income which still distort and disfigure our society. Surely the ordinary people of this country have a right to expect their own Labour Government, to which they gave a massive mandate for change 15 months ago, to show them the way and to lead them from the present valley of despair into the better and fairer society which was not the least of the reasons for which people placed their trust in this Government a year or so ago.

8.5 p.m.

Sir Cyril Osborne (Louth)

I hope that hon. Members will allow me to remind them that we are discussing a Motion of censure which says: That this House has no confidence in the economic policies of Her Majesty's Government. The hon. Member for Poplar (Mr. Mikardo) made a brilliant speech in support of the Motion. He slaughtered the Government with his arguments and only regretted that he could not come into the Division Lobby with us to support his arguments. Then we had the speech of the hon. Member for Dewsbury (Mr. Ginsburg) who made the extraordinary statement that we do not want unemployment to rise too sharply or too soon. Of course we do not. But how are we to stop it?

What the hon. Member for Dewsbury does not seem to realise is that roughly 5 million jobs depend on exports, and since no Government of any party can compel the foreigner to buy British, how can any Government guarantee full employment to the people who have elected them? How can we stop unemployment in a free society? One can guarantee full employment only in a prison or in a concentration camp. In a free society in which one-third of the manufacturing jobs depend on the foreigner buying the goods, it is utterly impossible to guarantee full employment. This is what I beg the Government honestly to tell the people.

The speech of the Chancellor of the Exchequer today was extremely disap- pointing. He painted such a rosy picture that I wondered what all the fuss was about. Why have we such a large number of unemployed? Why do we have a freeze policy? Why are 70 of the right hon. Gentleman's supporters ready to stab him in the back over his economic policy? Why has there been a run on sterling? According to the Chancellor of the Exchequer, everything in the garden is rosy; we have to wait only another three or four months and it will be self-evident to us all.

The Chancellor has said that to us over three successive years and every time he has been wrong. But why should we believe him now when he has been proved to have been wrong before? This is why his hon. Friends, who have been more honest with the electors about economic affairs than he has, have been driven to revolt. But for the fact that they would drag the Government down, they would vote against him tonight.

Mr. Russell Kerr

Not with the hon. Gentleman.

Sir C. Osborne

I am treating the hon. Gentleman as an honest and sensible person. He may not be, but I am trying to treat him as one.

Hon. Members opposite would vote with us, because of their own arguments. Nobody put the case more forcefully than the hon. Member for Poplar.

One extraordinary omission in the speech of the Chancellor of the Exchequer was that he never once uttered the word "exports". We live on exports. By our exports we pay for all the raw materials which keep us employed. Every third bite of food which we have is paid for by exports. Yet the right hon. Gentleman never once mentioned exports, which are the key to our whole position. What is the good of manufacturing articles which we cannot sell. I hope that the President of the Board of Trade will say something about this matter. About 30 per cent., or one in three, of the articles which we produce must be sold abroad, and they can be sold only on quality, price and delivery. No Government can guarantee those three things. If we have inflation, we shall price ourselves completely out of the market.

I was hoping for better things from the Chancellor of the Exchequer. I regard him as the most honest man in a disreputable Government. But today he disappointed me. He did not say what I expected from him and I do not know why. It gives me no pleasure to see my country's affairs in this mess or to support the Motion. If there were a free vote, we would have a majority of 100, and if there were a secret ballot and no political consequences, we would have a majority of 200. Otherwise the Amendment signed by the Tribune rebels does not mean what it says. They would have to vote for us.

Any hon. Member who talks to the ordinary people in his constituency will have to admit that they have no confidence in the Government's economic policy. They are bewildered by it. It is not the policy which they were promised and which won the Labour Party votes. Speaking as a businessman, and not as a politician, I would warn the House—I was trying to deal with the difficult problem of exports across the Iron Curtain, where we are making great efforts, in a factory this morning—that the outlook today is worse than at any time since the 1930s—[Interruption.] I am speaking for myself. I am not like the hon. Gentleman, who thinks he knows everything.

I am connected with quite a number of businesses—[AN HON. MEMBER: "Oh."] I am proud of it. I am proud of being successful. I leave it to the hon. Members opposite to be proud of being failures. An accountant who has specialised in bankruptcies for many years told me recently that his office is beginning to remind him of the bankruptcies of the 1930s—[Laughter.] Stupid empty-heads will bring empty bellies in the end, if they are not careful. As you must know from your personal experience, Mr. Deputy Speaker, there is a lack of confidence in the future in industry. Anyone in trade and business knows that turnover is down, Profit margins are smaller, overheads, over which we have no control, have increased, and management is working harder than ever. It is running hard to stand where it was.

I believe that if we have a hard winter this winter, instead of a mild one as we had last, unemployment will top 1 million. The figure of half a million today is only of those who are fully unemployed and does not take into account those who are under-employed and working short-time or those who were previously working overtime and are not now and are suffering the consequences. The position in industry and trade is much worse than the figure suggests. Whoever is in power, the problem is to increase the national wealth by greater, longer, more efficient work and by offering rewards to those who work. I asked a manufacturer this morning, "Are they coming in on Saturday morning to work?", and he answered, "If they make a couple of pounds and pay 18s. in tax, they are not so keen." Of course they are not.

We are over-taxed and over-governed and there is no incentive, which is why our economy is in its present bad state. The Government's economic policy stands condemned largely because they have failed to make the ordinary people understand the problems and how to solve them and the consequences of not solving them. They have failed in public relations. When we talk or the economists write clever articles about the terms of trade, the overseas trade balance or sterling convertibility, these mean nothing to the man on the shop floor and he does not care. All he is bothered about is his job and his wage. The Government have failed to tell the industrial worker that, unless production increases considerably, the quality of our goods is raised and prices come down, their jobs will be at stake.

I condemn the Government for not having said this brutally. I have told the Chancellor several times that, collectively and individually, we are living above our means, spending more than we are earning, and this cannot go on. In terms that the ordinary people would understand, we are eating and drinking, smoking and gambling, spending on sport more than we are earning—

Mr. Russell Kerr

Speak for yourself.

Sir C. Osborne

I am speaking for myself. The Chancellor has admitted this once or twice, but he has failed to find the cure. We are faced with this alternative: either the nation accepts a considerably lower standard of living or it must work much harder— —

Mr. Arthur Lewis

Did the hon. Gentleman hear his hon. Friend the Member for Macclesfield (Sir A. V. Harvey) say earlier that thousands of workers in his constituency get only £12 a week? How can they gamble and drink as the hon. Gentleman says?

Sir C. Osborne

The £12 limit does not apply to the hon. Gentleman, and there are many like him. On the whole, we are spending roughly £3,000 million a year in the way I have indicated which we are not fully earning. We should tell our workpeople and ourselves: either we cut down or the foreigner will cut it down for us. The Chancellor was like Gracie Fields, "Painting the Clouds with Sunshine"—[Laughter.] Hon. Members may giggle, but we still face the possibility of petrol rationing, which is the first thing which will jerk the country to its senses. Unless we can sell more abroad, we may be faced with wartime rationing again on everything. The world will not give us a living. We must earn it and at present we are not.

This is why I have no confidence in the Government's economic policy. The policy is wrong, they have failed to explain it to the country and thus they stand condemned. I shall gladly vote against them tonight.

8.20 p.m

Mr. Charles Mapp (Oldham, East)

This has been a good debate. The speech of the right hon. Member for Enfield, West (Mr. lain Macleod) was an extremely effective debating one, but not much more. It was a speech for the Tory Party. The speech of my right hon. Friend the Chancellor of the Exchequer was a good holding operation, but not much more. Many of the speeches of hon. Gentlemen opposite have been directed to the Tory Party. Many of the speeches of my hon. Friends have been directed to the Labour Party conference. Although my right hon. Friend conducted a holding operation on the economy, I will not comment on whether that should be in a holding or developing position.

Had I been writing the Opposition Motion, and thinking in terms of the North-West, I would have used the words: That this House has not much confidence in the economic policies of Her Majesty's Government. I will explain why I would have used that phraseology. Certainly, in the North-West there is restrained confidence, if that is the right way to put it, in the Government. It is apparent that the phrase "grey areas" has reached Whitehall only during recent weeks. But Yorkshire and the North-West have been constantly nearly at the bottom of every table of useful criteria when judging employment, factories and all other forms of job provision. While Scotland, Wales and the North-East might have been at the bottom, Yorkshire and the North-West have never been far from it. These areas have been getting the worst of both worlds all the time.

The Lancashire and Merseyside Development Association, an unpolitical body—in that it is comprised of members of the three political parties—has been trying for the last three years to discover why, with the industrial background and history of this part of the country, it has not shared in the industrial growth of Britain. This matter has for a considerable time been causing serious concern to hon. Members who represent North-West constituencies.

I say openly that the Government have been remiss because they have spent months listening to the case being made by this area, but only a few weeks ago have they recognised its validity. They have they recognised the need to channel new blood into the development areas, even though this means causing a haemorrhage in some of the more affluent areas. In Stoke and Yorkshire, too, it is being discovered that most of the blood letting to the development areas is not taking place in the Midlands and the South-East, but at the expense of the older industrial areas. I regret that it has taken the Government so long to recognise what is happening.

I was seriously disturbed the other day when I met representatives of both sides of industry in Manchester and discovered that there is a possibility that this study group might be comprised of groups of civil servants. I trust that the Government have not made any such decision, even though I understand that the chairman's name has been announced. I understand that he comes from the West Midlands. If the Government appreciate the thinking of the older industrial areas, they will decide that studies of this kind must comprise representatives of these areas. I could quote many examples to show how the North-West is haemorrhaging in the interests of the development areas, and I am sure that this is not the intention of the Government.

Mr. Charles Fletcher-Cooke (Darwen)

I agree with everything the hon. Gentleman is saying. Does he think that any further study is necessary? Are not the facts already well known?

Mr. Mapp

I agree that many of the facts are known. I am not impatient. I appreciate the need for a study. However, I would have thought that an inquiry lasting six to eight months would be adequate to discover the facts that are not known.

I am speaking of a problem that affects not only the North-West, but all the older industrial areas. I have with me a document which is appropriate to Lancashire and which contains many figures relating to the cotton and coal mining industries. These figures, which apply to manpower in the last 16 years, show what has been happening. In 1951, the cotton industry employed 314,000 people. By the end of 1966 it employed 191,000. During those 16 years the coal mining industry lost 10,000 people. These figures apply to the North-West and the years are in no way political. They reveal the facts. They show that during 16 years 214,000 jobs were lost in the North-West in coal mining and textiles. Has any other industry in any other part of Britain suffered equally in those 16 years?

The figures of the employment population in those 16 years are equally significant. In London and the South-East the employee population increased by 20.9 per cent. In the south-western area it increased by 27.8 per cent. In the Midlands and the East and West Riding it increased by 14.7 per cent., while in the Northern area, Scotland and Wales it increased by 7.6 per cent., 4.2 per cent., and 9.3 per cent. respectively. Instead of the North-West being somewhere towards the bottom of the table, it went down even lower because its employee population increased by only 3.7 per cent. Therefore, the Government's economic policies do not at present very much commend themselves to the North-West.

I hope that the President of the Board of Trade will not overlook what was said in a document issued by the Economist on 1st July to Connection with this Lancashire study. The last words read: The object of this brief "— meaning the article— has not been to suggest what, if anything, should be done about this. It has merely tried to show what can happen when economic change takes place very quickly. Nationally, we are committed to economic growth, and therefore change. But we should be aware of the price—and who pays it. The policy of Governments for the textile industry for the last X number of years is open to a grave charge. I have no financial interest in the industry, but I have a cotton interest electorally, as have 30 other hon. Members. Of those 30 Members, 27 are on this side of the House. Having acted at times in some advisory capacity to those hon. Members, I know that they are very critical of the action of the President of the Board of Trade in connection with the textile industry. The confidence of those hon. Members in Government policy, which is now so low, will certainly not be raised if, when we return in October, very little has been done to change what is now taking place.

It would bore the House if I were to go into the technicalities of the industry, but it seems that an impasse has been reached. On the one hand, the Government say that the root cause of the industry's problem is not imports, and I think they are right if "root cause" has its literal meaning. On the other hand, the industry believes that the biggest cause of the problem is imports. There is a strong case within the industry for that argument, but both sides cannot be right.

A very large measure of reform is required in the industry. It has more than enough inefficiency, but it also has highly efficient firms which are being exposed to short-term working when their efficiency could compete with anything on the Continent or in America. If such firms are exposed to conditions like this, there must be something wrong in Government policy. Equally, there is something wrong when 13,500 operatives have left the industry since the turn of the year. None of us is prepared to defend inefficiency in the textile industry, but when so many men are leaving month by month we must look to the Government to try to deal with inefficiency where it exists.

Some little time ago I attended a seminar in Manchester, when I and the hon. Member for Clitheroe (Sir Frank Pearson), who is not with us at present, put the views of the two sides of the House. I was very proud to find acceptance of the view of the 27 textile industry Members on this side that what was needed to resolve the difficulty was a deep, quick and effective study. An internal study on productivity and efficiency is now going on within the industry, but I do not believe that it can make the close, deep diagnosis that is wanted, nor can an industrial study of itself be credible to the House and the country.

In our present economic climate as a whole the Government will ignore at their own peril the old industrial areas, and think of the problem all in terms of black and white. It is nothing like that at all. No fewer than one-eighth of the people and workers are in the North-West alone, and their voice is not often heard here. It is being heard tonight, I think, in a very firm and definite way. I do not align myself with either 51 or 71, but in terms of the prosperity of the county I am proud of I do not find any inconsistency in my being a Socialist and demanding that in the 'seventies the textile industry should be viable, and beneficial to all engaged in it.

8.35 p.m.

Mr. John Hall (Wycombe)

One of the principal things about this debate is the fact that hon. Members opposite who have spoken so far have been divided into two classes—those who, with some difficulty, have tried to come to the defence of the Chancellor of the Exchequer—after his speech he needed some defending—and those who have spoken very strongly and with conviction and eloquence against the Chancellor and all the policies he stands for. An impartial listener to this debate would undoubtedly give the voting to those who have spoken against the Chancellor, because their arguments have carried far more conviction than the arguments of those who have tried to defend the right hon. Gentleman.

The debate is the latest in a series of debates which have all been basically concerned with the failure of Governments to break out of the stop-go cycle and find a formula which can ensure eco- nomic expansion without galloping inflation and without first running into balance of payments difficulties. No postwar Chancellor of the Exchequer has succeeded in finding a lasting answer to this problem, although my right hon. Friend the Member for Barnet (Mr. Maudling) made a very brave attempt which might well have succeeded if the electorate had not completely misjudged the situation in October, 1964.

The hon. Member for Dewsbury (Mr. Ginsburg) was more than a little unfair to my right hon. Friend the Member for Barnet in quoting a letter my right hon. Friend wrote to the Observer, because my right hon. Friend said in that letter that he had advocated a spring election because he realised that his policy would be at its height getting on towards the autumn and that an election coming at the same time as that would create considerable complications and difficulties. That occurred. The difficulties were made much worse by the fact that the wrong Government were returned to office.

The problem facing this or any other Government is very easy to state, and it has been stated by many economists many times. It can be summed up by saying that as a nation with few natural resources we have been trying to increase our standard of living, trying to expand our overseas investment, trying to aid under-developed countries, trying to maintain those overseas defence bases which are still left to us, and at the same time trying to maintain sterling as a reserve currency and to maintain our position as international bankers. We have been trying to do all that with liquid reserves which are quite inadequate for the purpose, even with the borrowing facilities which are available to us. Our liquid reserves are inadequate partly because over the long term our economy seems unable to expand and increase its foreign earnings in step with our demands on foreign resources.

It must be remembered that Britain has run a visible deficit of trade since about 1850. It was running at about £150 million per annum, at current values, in the ten years up to 1914. This was at a time when Britain was the major manufacturing country in the world, accounting for one-third of the world's exports of manufactured goods. Our invisibles at that time more than covered the balance. Indeed, up to 1939 our invisible earnings covered about 25 per cent. of our import bill. In 1964, our invisible earnings covered no more than 4 per cent. of our import bill, and I imagine that they cover very little more today.

To build up satisfactory reserves to do all that we are trying to do, and particularly to maintain our commitments overseas, we would have to average a surplus on current account of about £300 million per annum. I think that the N.E.D.C. put the figure at £300 million and reduced it afterwards to £225 million. I suggest that we need £300 million to build up satisfactory reserves to do all we want to do. From 1955 to date the surplus has averaged about £30 million a year. How do we build up the kind of reserves we must have if we are to maintain, much less to improve, our standard of living and carry all the responsibilities to which I have referred?

As the Chancellor said this afternoon, economists tend to differ. He should have had much experience in that respect because he has been advised by a number of apparently differing economists. An hon. Member opposite complained that the Government appear to be advised by Professor Paish. The Government have gone part of the way towards the Paise doctrine, but only part of the way. They have created unemployment of about 2 per cent., but when Professor Paish pointed out that if competitive conditions were enforced the margin of unutilised capacity need be only 2 per cent., he meant that we have to do away with restrictive practices so that we have a genuine 2 per cent. unemployed after that. At present, we have not a genuine 2 per cent., because nearly 1 per cent. of the present unemployed figure is a fixed unemployed percentage which we cannot get rid of because they are unemployable. The real figure is perhaps 1 per cent. or 1.2 per cent.

Whatever the Government have in mind, and whether they intended to follow all Professor Paish's policies, I think, is coincidental, for their policies have resulted in stagnant production and growing unemployment. I forecast in the autumn of last year that by the end of 1967 we should have at least ¾ million unemployed. Other hon. Members in this debate have put the figure even higher. I do not want to be over-pessimistic, but I think it safe to say that there will be ¾ million by the end of the year. I noticed that when the Chancellor forecast an increase in unemployment he was careful not to give an estimate of the number.

One must pay tribute to the Chancellor's courage, but it is rather like paying tribute to the courage of the Light Brigade charging at Balaclava. They were charging at the wrong objectives. One is almost tempted to make the same remark and to say that this is magnificent but it is not economics. The situation is becoming far too serious to be a matter of party points bandied across the Floor of the House. It is not a question of whether we choose devaluation as a possible means of overcoming present difficulties; if we are not careful present policies will force devaluation upon us. If we do not take advantage of whatever limited opportunity that devaluation may bring, we shall be facing this problem again and again.

The Prime Minister may be the last to want this. He was very intimately concerned with the last devaluation, in 1949. I am certain that he would do everything possible to ensure that we did not go through the same again, but I find it very hard to understand how we can avoid it if the Government persist in their present policies. Nothing the Chancellor said this afternoon gave any hope that we were likely to follow policies which would improve the economic conditions of the country.

The problems which face the country are made more difficult because we have a mixed economy. The salutary and stimulating effect of restoring truly competitive conditions is offset by the fact that a very large part of the economy, the public sector, is insulated from the effect of competition. Therefore, there is a problem in trying to introduce the more traditional methods of stimulating efficiency. Nevertheless, I still believe that the answer to our problem is a revival of competitive conditions.

After all, this is what the Government are hoping for in applying for entry to the E.E.C. They hope that entry will force on the country the kind of competitive conditions which they think will stimulate industry to become more efficient and which they are reluctant to impose themselves because that would be against their political philosophy.

The introduction of competitive conditions means more than the abolition of restrictive practices. It means such things as not subsidising dying industries. It means providing far better retraining facilities and encouraging much greater mobility amongst labour of all kinds. It means having a different housing policy with the availability of far more rented accommodation. It means also a change in the Rent Acts to encourage private owners as well as councils to provide rented accommodation.

It means recasting the tax system, abolishing S.E.T. and changing the form of the regional employment premium. Above all, it means remembering that economics are, in the long run, about people. We sometimes forget this when we are involved in policies and formulae which are designed to affect the livelihoods and activities of thousands of people. These policies will not work unless we get the people to support them.

I am not attempting to provide a blueprint, which everybody has failed to provide over many years, for dealing with our problems, but, speaking as an industrialist, I should like to mention some things that I should like to happen. I should like to see S.E.T. abolished. It encourages manufacturers and industry to hoard labour, which is just the thing they should not do. It discourages some of the so-called service industries, which are playing a considerable part in earning foreign currency.

I should like to see industry streamlined far more effectively than it is now. S.E.T. and R.E.P. have the opposite effect. One should be encouraging industry to disgorge unproductive labour, because labour is a valuable commodity and should not be shut up in a firm merely because that firm wants a large source of labour in case it should run short at any time.

Firms should be encouraged to disgorge labour which they do not require. We could do one of two things to encourage them to do that. We should either introduce a small tax per head over the whole of industry, without any rebates at all, or, alternatively, and to my mind far better, we could place on industry a far greater proportion of the burden of social insurance. This would mean that every employee would carry a much higher on-cost of social insurance than he does at the moment. This would encourage firms not to keep labour which they do not require.

We should replace the regional employment premium by a form of expanded tax concession for plant and machinery for businesses setting up in the development areas. The present system of giving a premium to firms already there to keep labour they have already got seems to me to be economic nonsense. We must also have a much greater supervision of public expenditure by Parliament. This is a job we should do, but are not doing. The value of fiscal weapons which the Government use to soak up what is called surplus spending power is now offset by the fact that that money is spent by the Government in other forms, thus recreating the inflationary pressures which they have been trying to avoid.

I could continue with many ideas of this kind. We must have much greater tax incentives to work and to save. Much scorn has been poured on the effect of tax reductions as an incentive to work. Curiously enough, experience in industry shows that at the moment it is the kind of incentive that works best, especially if one has a tax incentive that encourages a man to save. If we could do far more to provide tax-free benefits to people to save money, this more than anything else would encourage people to work harder and save.

I come back to a point that I made earlier. We must remember that in dealing with economic policies, we are dealing with human beings. It is no use applying a policy which does not get the wholehearted support of employer and employee—indeed, of the country as a whole. Otherwise, that policy will fail lamentably, and will deserve to do so.

We must try to change attitudes of mind throughout the whole of industry. In the various studies which have been made, particularly in the United States, comparing industries there with similar industries in this country, it has been found time and again that the difference in productivity per individual or per productive team has depended entirely on a complete difference of attitude between the American team and a similar team in this country—a difference of attitude to the earning of money, to the part which the individual plays as a member of the team or firm, a difference of attitude towards restrictive practices, and so on. All these things have played a part in increasing the productivity of some of our industrial rivals.

We must through every propaganda means at our disposal try to change attitudes of mind. Responsibility for this lies largely with management. We must ensure that advantage is taken of all the management schemes for young executives and other members of management teams so as to get the best out of the people who are employed.

I apologise for having taken longer than I intended. I have cut a good deal out of what I had in mind to say in order to let impatient hon. Members opposite have a chance to get in.

8.57 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

I am grateful to the hon. Member for Wycombe (Mr. John Hall) for keeping his speech so short. Mine will have to be kept short by the clock.

I turn at once to certain aspects of the prices and incomes policy. I am interested in this because, as I see it, one of the great disadvantages is that our present prices and incomes policy has diverted us from some of the real solutions which might have been attempted over the past 12 months. I believe that the Government cannot be neutral about prices and incomes. Just as they cannot be neutral about the economy, just as they cannot he neutral shout the level of manufacturing investment, and just as they cannot be neutral about imports and exports, so they cannot afford to, be neutral about prices and incomes. If they are unable to control them, at least they are entitled to make a move towards understanding them and learning to control them in the long run.

A policy of this kind would have been admirable, but, faced with the economic difficulties of last July, the Government have tried to make long-term solutions serve short-term ends. There has, therefore, been too much emphasis, with con- sequent damage to our longer hopes, on the prices and incomes policy. I have always held that the most we could hope for from a prices and incomes policy, at least in the short term, was a marginal reduction in the level of inflation by about ½ to 1 per cent. of what it would otherwise be, and I have always regarded this as valuable if limited.

The attempt to control prices, however, has led us into a difficulty. It is not too difficult to control the prices of certain basic commodities, but they are now becoming a smaller proportion of all goods sold, as goods become more complex, and, if prices were to be set too low, either these goods would disappear from the shops or there would be quality changes in the goods which would justify higher prices.

A further difficulty in controlling prices is that prices are intimately linked with profits, and, whatever we may wish, at present it is profits which make the private sector work. It is profits which decide the level of manufacturing investment. Therefore, as we control prices and as we control profits so we also, unfortunately, reduce the level of manufacturing investment and defer the modernisation of industry which we sorely need.

For those reasons, the control of prices can be only marginal, and we cannot affect the situation very much. When we come to the control of incomes, however, with its consequent unfairnesses and, in certain individual cases, quite shameful results, from the purely narrow point of view of the economy it does produce benefit. It produces benefit as inflation is reduced and costs are held down.

Thus, although price control is impracticable, income control is beneficial to the economy, and, for this reason, by an inexorable process a prices and incomes policy becomes in the end an incomes policy. It has not taken a large section of the trade union movement long, and it will not take the rest of the movement long, to realise the inequity of this, with consequent grave effect on our chances of ultimately having a working prices and incomes policy.

During the next few minutes I should like to deal with certain misunderstandings about devaluation as I see them. My right hon. Friend the Chancellor of the Exchequer said that he would welcome more discussion about sterling, saying that because of its present strong position nothing can damage it. I accept this. But we must remember that one of the most important reasons for avoiding devaluation is political and not economic. If the position changed in the future, the economic case should be rather better understood than perhaps appears from what we have heard here today.

The first misunderstanding with which I should like to deal is that devaluation is a short-term answer. Given a hypothetical devaluation of 20 per cent., even an inflation of an extra 3 per cent. a year for seven years would mean that the effects of a 20 per cent. devaluation would last seven years. That rate of inflation would be economic madness, because obviously devaluation would have to be coupled with the deflationary measures, but even in that extreme circumstance it could last seven years and, therefore, it is not just a short-term answer.

Second, there is the fear of retaliation. France has extremely large gold reserves, so large that they have caused embarrassment to many other countries. Germany, despite problems at home, still has a higher balance of payments surplus than ever. I do not believe that the United States is so dependent on us as to be so much guided by what we do. If it did not follow us in 1949, it is probably as unlikely to follow us now. These are three countries which could well set the standard for no widespread retaliation.

The other point is the question of our prices being competitive. Speaker after speaker has said that our prices are broadly competitive with those overseas. If a factory cannot pay its way, cannot sell the goods it requires to sell, I would call it uncompetitive in its pricing. I should have thought that a reasonable definition of prices being uncompetitive is that the country concerned is unable to sell enough of its goods. This is our position.

Another misunderstanding is that devaluation depresses living standards at home. If we consider £6,000 million of imports against £30,000 million of G.N.P., we see that we have a ratio of about one to five of imports to what is produced in goods and services at home. A devalua- tion of 20 per cent. would mean that the cost of living would rise by one-fifth of that 20 per cent., or about 4 per cent. There would be a rise in the cost of living of about 4 per cent., which we should not be particularly worried about in view of similar recent rises. This is borne out by what happened in 1949. Following the devaluation then of 30 per cent., we had a rise in the cost of living of about 6 per cent. There again, the ratio was much the same.

The next point of misunderstanding is the lack of certainty of exports rising. Here, I am on much less sure ground. I believe that there is, roughly, an elasticity of two in the matter. That means that if we devalue and drop our prices by about 20 per cent. our exports will rise by 40 per cent. This may be only a guess of mine, and I should not be prepared to ask anybody to let me carry him with me on this.

I suggest that those who pressed that things like delivery dates were more important should remember that with the present degree of deflation delivery dates have been vastly improved, but that we have not had the increase of exports that might have justified the argument that delivery dates were one of the important factors preventing our exports from rising.

The last misunderstanding that I have time to deal with is that we may not have the capacity to produce the expansion of exports required to pay for the quantity of imports. In fact, if we increased exports by 40 per cent. this would lead to an increase of gross domestic product of about one-sixth of 40 per cent., that is, 6½ per cent. in two years. I do not consider that that is a particularly startling increase to expect. This is also brought out by comparison with the 1949 situation.

In view of the assurances that we have received all this is academic at the present time, but it is important for the House to understand the economic reasons as opposed to the other reasons—the reasons of undertakings and trust that have been advanced. I do not believe that either party can talk with very much pride of its economic performance. Both have underestimated the deep-seated problems with which we have been faced. But ours has been the much harsher inheritance. Because of this, and because of the useful reforms that the Government have initiated in the economic field, I believe that the Government still have the support of the people of the country, and that they must now show themselves fully worthy of that support.

9.0 p.m.

Mr. Edward Heath (Bexley)

No one in this debate has challenged the fundamental seriousness of the present position. In this respect the debate has reflected the anxiety now prevalent in the country. The Chancellor of the Exchequer very fairly said that he thought there were justifiable reasons for understandable anxiety about aspects of the economy. It was exactly this seriousness of the situation that I analysed in the first half of the speech that I made recently at Carshalton.

The Chancellor of the Exchequer immediately stepped in to repeat publicly that the Labour Party is the party of high taxation, wants it, likes it, believes in it and is going to make certain that everybody else likes it whether they want it or not. But the Chancellor was very careful in his intervention two hours after my speech not to challenge one single part of the analysis of the present economic situation. Nor in his speech today has he challenged any single item in it. Nor do I believe that the President of the Board of Trade, when he winds up—it is perhaps a little strange that the First Secretary is not even here, let alone winding-up—can challenge any part of it.

I can summarise it very briefly by saying that the trend of unemployment is still steadily upwards, with the highest figure for July for nearly 30 years. The winter is to be at a very high level. Then the Prime Minister's specious comparisons with the figures for 1962 will stand him in precious little stead. Production is back to 1964 and still falling, although productivity may be rising.

But if the Chancellor had really wanted to talk about productivity he ought also to have admitted that in 1963 and 1964, the years which he was criticising, productivity was rising even faster and total production—the total wealth of the country—was rising faster whereas now there is no increase in wealth at all. Private industrial investment is down and still falling. Prices are up and still rising—the largest jump between May and June since 1962. The most Astonishing fact of all is that in the nearly three years in which the Labour Government have been in power real incomes—the real incomes for the people of the country—have fallen, and where people are maintaining their standard of living they are doing it by drawing on savings. I do not believe that anybody in the House can recall any period since the war in which real incomes throughout such a period were falling. These are the results of nearly three years of the Labour Government.

But there might be some who would say that this was being done for two purposes and that if the purposes were successful then it could all be borne. The purposes were to secure a surplus on the balance of payments and to keep sterling strong. The plain fact today is that the policy has not succeeded in either of those two purposes, and that is the fundamental cause of the anxiety in the House and outside it. The Government's policies have been costly and they have not achieved their purpose.

So we have put down this Motion of no confidence in those policies and the hon. Member for Poplar (Mr. Mikardo) has put down an Amendment of no confidence in them. Whatever happens in the Lobbies tonight, the plain fact is that the Government and their supporters do not have a majority in this House of confidence in their policies. The Chancellor today conceded the case of those who have put down the Motion and the Amendment. He told us that unemployment will rise to fresh peaks in January. What will the figure be? He did not say. Will it be 750,000 or more, with the commensurate loss of production as a whole?

The right hon. Gentleman said that the growth rate of 3 per cent. will not be reached this year. He is now being frank. He has admitted the misjudgment. He set out to get 3 per cent. and is not going to get it. He has conceded the case.

Nor is the right hon. Gentleman going to get his expected surplus on the balance of payments this year. He may not get a surplus at all, and he knows it. First, it was to be a balance of payments surplus in 1966. Then it was to be a surplus by the end of 1966. Then it was to be a surplus in 1967 of £200 million. Now it is to be a surplus in 1968 without a surplus in 1967. Always tomorrow and never today.

What is more, the fault is always somebody else's. Last time, in the Prime Minister's dramatic words, the Government were "blown off course" by the non-existent ships in the shipping strike. This time the Government are stranded in the Suez Canal. But the Chancellor knows full well that before the Middle East crisis could have any effect his balance of payments surplus had gone and that the deficit on current account for the first six months of this year was greater than the total deficit on current account for the whole of last year; that is, on trading account.

This is the latest of the list of illusions under which the Government have laboured for three years. It all started, as my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) pointed out, when the Government, having taken over and looked at the books, said that there was no undue pressure on resources calling for action. Then, in 1965, the Prime Minister said that the decks had been cleared for action—another dramatic naval metaphor. This was before the Government were blown off course.

Then the present Foreign Secretary said, "We are winning through". Later he said, "The decline is over". Not to be outdone, in February, the Prime Minister said that the economic crisis was over. What have we been debating for three years? He added: Production is now picking up again. The Chancellor's finest hour was when he said to the nation, I think that we are round the corner. A moment later, he added: At least, turning the corner. Then the Prime Minister again: The economy is getting better … Britain is on the move again. The Prime Minister castigated the Press for its "defeatist cries", "wet editorials" and as "moaning Minnies".

The Prime Minister (Mr. Harold Wilson)

Hear, hear.

Mr. Heath

Just ten days later he introduced his 20th July package. Of course, the Press did not pay attention to what he said over that weekend and were proved to be right.

Then, a month ago, the Chancellor said, with real panache, The standstill is finished. … From now on we can begin to reap the benefits. There was not much about benefits in his speech today. He said, in one breath, "Production is falling", and in the other breath, "Expansionary forces are beginning to work". These are illusions. The Government are just a gang of addicts suffering the effects of hallucinatory drugs—the Chancellor from an overdose of £s. d. These are the ones that the Home Secretary ought to be after if he were not so preoccupied preparing for his own takeover bid to carry out remedial treatment on his colleagues.

We have heard a speech—and I am sorry that it should have been so—from a weary and disillusioned, almost punch-drunk, Chancellor. I have every sympathy with him, because no Chancellor for a long time has been in as weak a position as that Chancellor of the Exchequer. He has been pipped at the post by the First Secretary, who takes priority over him. How he has paid for that premature bid for power last July! He is defied now in public by all the spending Ministers at the same time as he is trying to deal with Government expenditure and he is defied in public by the Secretary of State for Education and even by the Minister of Health outside the Cabinet. Why? Because he has not got the support of his Prime Minister.

But the Chancellor's failure is not his alone. It is that of the Government and in particular that of the Prime Minister. He was prepared to come to the Box and take the credit for the measures. The Press was to write how courageous of the Prime Minister to make this dramatic announcement, how courageous to knock the trade unions over the head, how courageous to see all these things through, but he is not prepared to answer this debate, those policies having failed to achieve their purposes.

In the seriousness of the situation what does the Chancellor of the Exchequer announce that he proposes to do? He comes to the Dispatch Box and the first thing that he says is that he proposes to do absolutely nothing. He started his speech by saying that he had no economic proposals of any kind to make in the seriousness of this situation. He has rejected devaluation. I have always said—and I disagree with the hon. Member for Ashton-under-Lyne (Mr. Sheldon)—that there is no rational justification for devaluation. Nor do I believe that a floating rate is the solution for Britain in the modern world. Certainly we cannot enter the European Economic Community with a floating rate. The Chancellor of the Exchequer welcomed the discussion on this subject. I think he called it therapeutic. I suggested to him two years ago that much the best way of dealing with the problem was to discuss it frankly and set out the reasons why he rejected it. We were immediately accused of selling Britain short, which was then the parrot cry of the right hon. Gentleman. It is a pity that he did not follow our advice earlier, together with much else that we have said.

He has rejected import controls. He has said that it is not in keeping with our international obligations and it demands more deflation. He is right. He has rejected more deflation. What is more, he has said that there is no hope of reducing taxation. Indeed, the right hon. Gentleman, with extraordinary frankness, went much further, because he said that unless there is increased growth or increased savings it will be necessary to increase taxation. Probably the most serious thing which the Chancellor of the Exchequer said in his speech today for the future of this country is that under the present Administration there is no hope of reduced taxation and, indeed, that there may well be increased taxation. That is the most serious thing he could have said on the proposals which he put forward for Government expenditure.

Let us glance at them for a moment. He said that expenditure this year would go up by 7.8 per cent. When asked if he would adhere to the 4¼ per cent. increase per year in Government expenditure he said that he would, because each of the three years afterwards was to be at 3 per cent. increase. So we have a simple sum: 7.8 plus three times three—nine—gives 16.8 which, divided by four, comes to 4¼ per cent. It is just too simple. We shall believe it only when we see it. The right hon. Gentleman said that the Government are to cut growth expenditure to a 3 per cent. increase a year, and, after their previous performance, only when we see that cutback shall we believe that the Chancellor is in earnest.

Today he has rejected all possibilities of incentives to companies or to individuals in the years of the Labour Government, and that is fundamentally the future of the British economy. What the right hon. Gentleman has done today is to repeat his closing Budget sentence—"Steady as she goes", those immortal words, except that she is not all that steady. Two men gave that order last April—the Chancellor of the Exchequer and the master of the "Torrey Canyon". On the second occasion the Government were saved by the wind, but the Chancellor had better not rely on the wind.

To emphasise the seriousness of the occasion and to say that he proposes to do nothing about it is not good enough, and I will tell the right hon. Gentleman why. Neither he nor the Government have faced the facts of the situation as they affect the balance of payments today. When the Chancellor says that he is to have a growth rate of 3 per cent. and a surplus of £200 million, which was his original objective— —

Mr. Callaghan

I never said that.

Mr. Heath

If he is to have a growth rate of 3 per cent., he has to have a surplus of £200 million and if he has to have a surplus at all, it has to be an increase on that. The Chancellor has never explained how, on past history with only the small changes which have been made, he has any possibility of achieving those figures.

Mr. Callaghan

Like my predecessor, I have consistently refused to give any balance of payments forecasts, because they are known to be inaccurate, and I should therefore like the right hon. Gentleman to make it clear that he is taking responsibility for the figure of £200 million which is not a figure which I have ever used.

Mr. Heath

I accept entirely that the Chancellor has never publicly announced that figure. It has always been the figure generally discussed for 1967. But what I am saying is that if he is to have a growth rate of 3 per cent., then he will have to have an increase of imports of, broadly speaking, £200 million, which he has to cover and he has never shown how that is to be achieved.

The second fact which he has never faced is that he has never acknowledged the benefits which he and the Government and the country have received from the improvement in the terms of trade. He had to be challenged by my right hon. Friend the Member for Barnet (Mr. Maudling) this afternoon before he even mentioned it in his analysis, and when asked for the figure he said that he could not carry such figures in his head. What an extraordinary situation that is, when the figure is £250 million, when it almost entirely accounts for the improvement in the trade position under that Government, the improvement in the terms of trade, combined with the lack of stockpiling because the country has been using up stocks which were accumulated under my right hon. Friend in 1964. So the right hon. Gentleman has not faced the second fact that the real benefit in the trade balance has come from the improvement in the terms of trade. They are fortuitous factors.

On the other hand, the fundamental position of exports has changed only for the worse. This has been stated by the President of the Board of Trade in answer to a Question when he said that exports under that Government were ½ per cent. less than they could have been expected to be under the performance of the last ten years. That is an official statement from the Board of Trade and that is the basic fact about the country's export position.

This afternoon, the Chancellor blamed the situation on the United States and Germany and gave that as the reason why exports were not expanding and why a surplus was not accumulating. Of course, neither he nor the Prime Minister gave Germany and the United States credit when exports were increasing. That, they said, was of course due to Government policy. Now that exports are declining they say that it is all due to the situation in those other countries.

What was the situation when exports increased and the Prime Minister boasted of them increasing in the United States? He said that our exports went up by 50 per cent. The imports of manufactured goods into the United States went up by 59 per cent. as a whole, so that we got less than our share of the improved imports into the United States. That is the situation on imports.

These are the basic facts. One question that I want to ask is why, when we do have deflation, our exports do not expand in the same way as they do for example in the Federal Republic or Italy? This is one of the problems to which the Government ought to give more attention. One of the reasons is that manufacturers do not take account of the reduction in unit costs which can be brought about by increasing exports. The second reason, much more important, is that they have not got the export organisation in other countries to take advantage of the situation arising from deflation. They have not got the finance at their disposal to organise that export system. This is fundamental, and this is the reason why we have not gained, as have other countries, over deflation.

Looking at the other side of the coin, imports remain high. Imports remain high without an expanding economy. That is the seriousness of the situation. We always used to hear a great deal of what the Prime Minister would do in order to put this right, to remove the taint of the candy-floss society. He said: If I were President of the Board of Trade I should sit down and work out in detail from the Trade Returns all those imports which rise sharply when production increases. Then each would be examined to see whether we could, economically and competitively, find means of producing them in our own factories. It is very interesting, because I have been looking at the figures for the imports, at which no doubt the Prime Minister or the President of the Board of Trade has been looking, in order to deal with this. What do I find? Without expansion, in the first two years of Labour Government, which was the import which trebled in quantity? It was flavoured and coloured sugar! Candy floss itself. There sits the master of the new candy-floss economy.

So, the problems which face the Chancellor and to which he has to produce an answer are first, whatever the level of spending at home, too high a proportion is covered by imports. Secondly, whatever the level of world trade, too small a share of it is gained by our exports. These are still the fundamental problems. Thirdly, whatever the demands for labour, costs of labour still rise too rapidly compared with productivity. Fourthly, whatever the demand for goods in this country, the prices rise too quickly and are still doing so. Fifthly, whatever the growth here, too little comes from increased productivity.

These are the problems which the Chancellor is facing, which he has not analysed, and to which he has put forward no solution. The Government now find themselves faced with two different ways of handling the economy. There is the Amendment on the Order Paper and there is the Tribune declaration, signed by 70 members of the party opposite.

What those hon. Members want is quite clear. They want nationalisation and sale of overseas private holdings; they want import controls, capital controls, heavier taxation, more nationalisation at home, less and less defence and they question the parity of the £. That is the very clear policy of the 70 hon. Gentlemen opposite.

The alternative is to follow the policy which we have put forward continuously on this side of the House. [Interruption.] This is an entirely different approach from that of the Government and of hon. Gentlemen below the Gangway. Are the Government to sit there doing nothing in this situation, or are they to move and in which case, in which direction? If past history means anything at all, it is quite clear in which direction they will go.

The defence policy announced last Thursday was nothing to do with the commitments of this country or with the defence forces which this country can justifiably support. It was connected only with 60 abstentions on the Government benches. If hon. Members below the Gangway opposite have the courage to abstain tonight they will find the Government moving in their direction faster than they think. I, for one, hope that the Chief Whip will be effective and that they will be in the Lobby, because the thought of moving towards that policy I believe would do more damage to this country than anything else I can think of. The Prime Minister himself has already done damage by his statement last week that the Government in- tend to take powers under an enabling Bill for the Government to go into any sector of British industry into which they want to go. Again, there was the statement made this afternoon by the Minister without Portfolio and its impact on Government expenditure.

I believe that the proposals put forward below the Gangway are wrong and that what is essential to deal with the problems which I have outlined to the Chancellor is a new framework for the economy of this country, and it is one which I believe will enable us to achieve our objectives. The first point in it is the reduction of taxation. We have said so constantly and repeatedly, but the Chancellor and the Government have now completely rejected it.

The argument of the Secretary of State for Education deserves examination, but it is a mistaken argument. He said that the Conservative Party believe that all private expenditure is better than public expenditure. That is a gross distortion of the argument. But what we do believe is that we must give individual people reasonable expectations in order to persuade them to make the effort which will allow greater public benefits to become possible. That is what we believe, and it is because the Government flatly refuse to recognise this fact—though individual hon. Members opposite recognise it—that they are unable to get the growth they want and therefore will not be able to carry out the social service policies to which they are committed.

There are others who say—as the Minister without Portfolio said—that this is only a question of Surtax payers. I ask the right hon. Gentleman to go and look at industry for himself. There he will find that this goes right down the line. In fact, it is those who are paying Surtax and running the great companies who say that much the most important thing is that the tax on those who are just taking on responsibilities, who are asked to be foremen or who are asked to move about the country on promotion, should be reduced. They, and the young technicians and the young executives, are working out what their expectation of income can be after taxation at certain ages and comparing it with what they would get in other countries, and they are forming part of the brain drain as a result. This is what underlines the whole of this policy.

Continuing on the subject of taxation for a moment, I recognise that the Chancellor of the Exchequer must have room for manoeuvre to reduce taxation—if he were willing to do so. He can get that through selectivity of social service benefits. What an extraordinary argument we heard this afternoon from the Minister without Portfolio—almost unbelievable coming from a member of the Treasury Bench of a Labour Government. It was the argument that the poor should not be helped because otherwise they would not go to work. In which century are we living with the right hon. Gentleman? It is Mr. Gradgrind all over again. Here we have the right hon. Gentleman, a hard-faced gentleman who has done well out of the Labour Party.

Look at the three years' work done by himself and his predecessor. What a fascinating account the Leader of the House will be able to give of it in his autobiography when it is published. What has this work produced? A further instalment of a universal increase of family allowances and more free school meals and free welfare milk for those who do not need it. That is what it has produced, costing the Chancellor of the Exchequer £83 million—nearly £60 million altogether—whereas children who are in real poverty could have been helped with £1 each at a cost of £23 million. The impact on those watching this country of the Prime Ministers' statement about further nationalisation and the Minister without Portfolio's statement of another £60 million on public expenditure at this time is indeed grave, and they are responsible.

This new framework must also include a reform of industrial relations and of trade union law in an industrial context, as well as a massive retraining of management and those who are redeployed, and, of course, a new machinery in Government contracting. Those are all things which are not being tackled by the Government.

So we see tonight that the Chancellor of the Exchequer refuses to change or to adapt his policies. He holds out no hope to this country for the future. The hon. Gentlemen below the Gangway do want to change and they know the direction that they want to move and I pray that the Prime Minister will not follow them. We on this side are prepared to put forward a new framework, but the Government will not accept that and therefore they can offer no way out of the serious situation which now faces this country. I recognise that a short-term solution is just as necessary as a medium-term one, but what the Chancellor ought to realise is that he will get his best short-term solution when he can give confidence to those abroad that the five fundamental problems which I have outlined are being tackled by the Government.

When the Prime Minister came back from the "Tiger" talks, he told the world, "God knows, we have tried." They have tried. They have tried on Rhodesia, they have tried to get economic growth, they have tried to keep down the cost of living, they have tried the National Plan and they have tried inflation. They have tried them all, and God knows, they have failed. That is why we are censuring them tonight.

9.32 p.m.

The President of the Board of Trade (Mr. Douglas Jay)

Of all the July economic debates to which I have listened, and that is quite a few, I can remember none in which so lamentably few suggestions for any practical policy have come from the Opposition Front Bench. Indeed, the right hon. Member for Enfield, West (Mr. Iain Macleod) told us that he was opposed to any practical policy whatever and after the two speeches which we have heard from right of Gentlemen opposite the country will have no reason for believing that, if they had the chance, they would lead our economy in future anywhere other than they led it in the autumn of 1964.

It is, of course, extremely easy to say, "Let us have a balance of payments surplus and expansion at the same time," or, alternatively—this is what right hon. Gentlemen have been saying today—"Let us cut Government expenditure and taxation, but let us also spend more both on the social services and on defence." The right hon. Gentleman implied that he was opposed to the economies which the Government propose in defence east of Suez. The hon. Lady the member for Melton (Miss Pike), responding to the announcement today on family allowances, said that they were mean and inadequate; and, presumably, she intends to spend more. No one inside the House or outside, will be deceived into thinking that that is a serious attitude to the nation's problems.

Yet there are serious lessons to be learned from the experience of the last year, and there are facts which must be clearly understood if we are to steer through the difficulties ahead. The first fact is that a marked pause has occurred this year in the economic expansion of the great industrial countries, notably the United States and Germany, which has slowed down the rise in world trade during the last few months and affected the demand for our exports.

In the United States, expansion of demand and output has slowed in 1967 to under 2 per cent. a year and in Germany there has been an absolute fall. Indeed, total German exports have been falling for most of the year. The first quarter of this year was the worst in O.E.C.D. history for growth in the O.E.C.D. area. Both the United States and the United Kingdom have been compelled, by the inadequacy of the world credit system, to protect their reserves; and world trade, which had been rising by about 9 per cent. a year in value in 1965 and 1966, showed in the first quarter of 1967 a rise at an annual rate of only about 6 per cent. This, together with the temporary effect of the Middle East crisis, must inevitably—and we must face this—with higher oil costs, postpone full recovery in the United Kingdom balance of payments.

Secondly, we have learned in recent years that, until the United Kingdom economy is more thoroughly reorganised and we are exporting an even greater share of our output, uncontrolled expansion is bound to push up rapidly into deficit again. If one adopted today the policy the Opposition followed in the spring and summer of 1964, one would again plunge the country, in a matter of months, into a deficit from which it would take years to recover.

Thirdly, we have learned during the last four years that, though a too-deflated economy is not good for exports because unit costs rise, it is also true that excessive home demand can hold exports back. The right balance between these two hazards is exceedingly hard to achieve. But I have no doubt, on the evidence, that in the summers of 1964 and 1966 home demand reached an excessive level which was certainly frustrating exports. If people still question whether this can happen, they should study the experience of Germany in the past year, where a sharp disinflation, which has brought output down, has also generated a startling visible export surplus running in January-May of this year at an annual rate of about £1,500 million.

Fourthly, we should have learned that long-term growth, which is the Government's firm declared aim, can only be combined with an overseas surplus if the share of our output sold in export markets is steadily increased and the power to compete with imports steadily grows. More vigorous export promotion has already yielded results, and genuine import-saving is a long term aim of N.E.D.C., the "Little Neddies", the work of the Ministry of Technology, the support given to the shipbuilding computer and a host of other measures.

We must, therefore, stick resolutely to all those policies which are likely to achieve this basic improvement, and not be deterred by temporary checks in the growth in world trade, still less by erratic monthly movements in our own trade returns—such as the surprisingly good export figure of last December and January or the disappointing ones of last month. And industry must be prepared to innovate even more vigorously and find out what the outside world wants and go out to sell it—not just wait for others to buy what we produce.

Over the whole period since the war, Britain's overall export record is far better than many have yet realised. This record justifies the confident belief that, if present strategies are vigorously pursued, the rise will again be resumed as the upswing in the U.S. economy gains force this autumn. In 1966, British exports were two and a half times higher in volume than they had been in the first post-war year or in 1938—even though there had been no rise between 1900 and 1938. We are exporting today a higher proportion of our national output than any great industrial country except West Germany; and our exports per head are twice those of the United States and nearly three times those of Japan.

During the past two and a half years the Government have introduced a whole series of new export incentives, services and promotion measures, from the export rebate and far better E.C.G.D. facilities, which have been particularly valuable to ships and aircraft exports, to the rising programme of export missions, store promotions, British weeks and sales efforts of all kinds all over the world. We are still intensifying these, and will continue to do so. Thirty per cent. of our exports today are now covered by E.C.G.D.: and the total cover has risen from £1,081 million in 1963–64 to £1,576 million in 1966–67.

Thanks to all these measures and an excellent response by British industry, our exports, both in 1965 and 1966, increased by 7 per cent. in value and in the first half of 1967, despite the slower rise in world trade—exports have been 5 per cent. in value higher again than the average rate for 1966. It is also perfectly clear from the figures that since 1964 our exports have not merely done better absolutely, but better in relation to the rise in world trade than they did before. In 1964, world trade rose by 12½ per cent. in value, but British export by only 5 per cent. In the two years 1965 and 1966 world trade rose by 9 per cent. a year and British exports by 7 per cent. a year.

In the first half of this year, our exports have actually been 20 per cent. higher than in the disastrous six months of May-October 1964. This is equal— —

Sir C. Osborne

Are we exporting enough to pay our way? If we are, why have we got this crisis?

Mr. Jay

The hon. Gentleman knows perfectly well that we want to export at a greater rate than at present. I shall come to that point, but I am now giving the facts.

We are now exporting 20 per cent. more than in 1964, and that is equal to a rise in exports at a rate of about £1,000 million a year since three years ago. Our exports to Canada this year, for instance, have been 23 per cent. higher than they were in the six months to October, 1964; to the E.F.T.A. countries, 26 per cent. higher; to Japan, 30 per cent. higher; to the United States, 54 per cent. higher, and to both the Soviet Union and Eastern Europe 65 per cent. higher. Our exports to South Africa this year—and this may surprise some hon. and right hon. Members opposite—are actually 17 per cent. higher than the average rate for last year, and are an easy all-time record. Therefore, ever since the right hon. Gentleman the Leader of the Opposition left the Board of Trade, our exports have been rising faster than at any time when he was there, although world trade has been rising more slowly.

Let us look at some other aspects of the right hon. Gentleman's record. He told us in his economic speech at Carshalton on 8th July—which, I am sure, we have all been studying—that when he was at the Board of Trade he pursued what he called The first nation-wide programme of regional development … and promised that he would pursue in future a … proper programme of regional development". Here, again, actions speak louder than words. It is, therefore, worth comparing the right hon. Gentleman's performance here with our own, for in my view it is vital to our economic future that employment should be spread out more evenly over the whole country.

Let us, therefore, look at the facts, and, first, at the balance of I.D.C. approvals in different parts of the country, since these are almost wholly under the control of the Board of Trade. During the three years up to October, 1964, the five underemployed regions—Scotland, the North-East, the North-West, Wales and the South-West—got about 40 per cent. of the total new development. During the year ended June, 1967, they got nearly 50 per cent. The Midlands and the South-East got about 50 per cent. in the year before October, 1964, and only 35 per cent. in the year up to June, 1967. The total of new factory space approved in Scotland, Wales, the North-East, the North-West and the South-West has actually been 35 per cent. greater—that is absolutely, in square feet—in the past year than under the right hon. Gentleman's administration at the Board of Trade.

Mr. Michael Heseltine (Tavistock) rose— —

Hon. Members

Sit down.

Mr. Jay

In Scotland, Mr. Deputy Speaker— —

Mr. Deputy Speaker (Mr. Sydney Irving)

Order. The right hon. Gentleman is obviously not giving way, so the hon. Gentleman must not persist.

Mr. Jay

In Scotland, since the right hon. Gentleman's time, the total has doubled, and in Wales it has actually trebled. Or take Board of Trade factory building alone, which is even more completely under the Government's control. [Interruption.]

Mr. Deputy Speaker

Order. The House gave an uninterrupted hearing to the Leader of the Opposition. I hope that it will extend the same courtesy to the right hon. Gentleman.

Mr. Jay

Hon. Members opposite do not like facts, as I have always known.

I was about to ask the House to consider Board of Trade factory building alone, which is even more completely under the Government's control. The total started in development areas in the year ended 30th September, 1964, was 1,483,500 sq. ft. and the total in the year ended 30th June, 1967, was 2,742,750 sq. ft. This is a rise of 85 per cent. since the right hon. Gentleman was responsible. We have done 85 per cent. better than him, even though I think that his Ministerial title was about three times as long.

Take the advance factory programmes, which we have cited particularly in coal mining areas. During the 13 years under Tory control, the total of advance factories launched in development areas was 49, or fewer than four a year. Over the past two and a half year the total has been, 124, or 50 a year, of which 35 have already been completed, 45 are now building, and 28 are already allocated.

Take the right hon. Gentleman's figure of capital expenditure on factory building and industrial estate development in development areas. The total for 1964–65, including grants for private factory building, was £11.3 million. The total expenditure last year was £24.1 million, and already for the first quarter of the present financial year it has been £7.7 million, or a rate of about £30 million a year.

These enlightening facts will show what the right hon. Gentleman means by "proper programme of regional development".

Mr. Stanley R. McMaster (Belfast, East) rose—

Hon. Members

Sit down.

Mr. Jay

The best tribute—

Mr. McMaster: On a point of order.

Mr. Jay

The best tribute—

Mr. Deputy Speaker

Order. I hope that the hon. Member for Belfast, East (Mr. McMaster) will bring himself into order before he raises a point of order.

Mr. McMaster

On a point of order, Mr. Deputy Speaker. I have sat right through this debate, as have my hon. Friends representing divisions in Scotland and Northern Ireland, where unemployment is deplorably high. Is it to be assumed that we are accepting these facts?

Mr. Deputy Speaker

That is not a point of order. I hope that the hon. Gentleman will listen to the debate.

Mr. Jay

I was saying, Mr. Deputy Speaker, that the best tribute to our regional policies is that, despite a rapid decline in coal mining employment, which has been just over 70,000 down in the past three years in Scotland, the North-East, and Wales alone, unemployment since July a year ago has risen much less in the five Northern and Western Regions than in the Midlands and the South-East.

Actually, from July last year to July this year the rise in the five Northern and Western Regions was, as a percentage, only about half that in the Midlands and the South-East. The fact is that, but for the policies pursued in the past three years, the drop of just over 70 per cent. in mining employment would have meant a really disastrous rise in unemployment in these areas.

Nor have right hon. Members opposite much to boast about if their record on social services and public investment is compared with the record of the past two and a half years, for the truth is that, simultaneously with the improvement in the balance of payments since 1964, a far larger expansion of social expenditure and investment has been achieved than seems yet to be fully realised, perhaps even in the House.

So far from there having been any general cut, there has been a most remarkable increase. The total of all social security payments has risen from £2,047 million in the financial year 1964–65 to £2,826 million in 1967–68—a rise of nearly £800 million, or 40 per cent. in the three years. This increase of £800 million includes all pensions, family allowances, national assistance and supplementary benefits, and industrial injury benefits.

Look at housing. During the two and a half years up to October, 1964, 850,000 houses were completed. During the same period since October, 1964, 1 million houses have been completed. The right hon. Member for Birmingham, Handsworth (Sir E. Boyle) this afternoon claimed that he and his right hon. Friends had approved various programmes just before the General Election. What we have done is to put programmes into effect. I therefore give now some figures not of programmes approved, but of results actually achieved.

Take education. During the academic year 1963–64 there were 141,000 students in universities and colleges of advanced technology. This year there are 187,000. The number of primary schools completed has risen from 343 in 1963, to 472 in 1966, and the number of teachers in initial training from 64,370 in 1963–64 to 97,658 in the present academic year.

So, also, with health and hospitals. Capital expenditure on hospitals has risen from £162 million in the three years ending 1964–65 to £257 million in the current three years, and the number of hospital beds completed has risen from 6,797 in the two years before September, 1964, to 9,375 in the two years since that date.

As part of those improvements to date, the standard rate of all National Insurance, pensions and benefits is, as the House knows, to be raised this autumn by a further 10s. This means a total rise since October, 1964, from 67s. 6d. to 90s., which is far greater than the rise in the cost of living over the period.

Not all of this seems to be realised by those who have been talking and writing somewhat wildly in the last week or two about what they call "cuts" in social service expenditure. Not merely have there been no general cuts in services: but none is in prospect. All that is in discussion is whether, in the period between now and 1971, Government expenditure shall rise at this or that rate and what shall be the rate of increase of the individual services.

We all know that if the country is to pay its way in the world, and balance its overseas payments, and if personal consumption is to rise now, obviously any rational policy must relate the annual rise in Government expenditure both to the resources we have got, and to the priority needs of the different claimants.

After listening to the two right hon. Gentlemen opposite, what sort of alternative policy is the Opposition offering to us? First, all direct taxes are to be reduced; and all sorts of social expenditure, as well as the defence bill—including aircraft carriers—are to be increased at the same time.

I quote from the speech of the Leader of the Opposition at Carshalton on 8th July: We will seek to reduce all direct tax rates". But apparently not increase indirect tax rates. And the right hon. Gentleman "will cut public expenditure". But, at the same time, he says that he will improve the infrastructure of the regions by more effective communications, better housing, schools and public works, together with greater facilities for retraining manpower etc. More expenditure, but lower taxes is the policy of the Opposition.

On incomes and prices, the Opposition's new policy is to apply a squeeze to the public sector and leave the private sector to chance—which, of course, is grossly unfair. This is precisely what was so much resented in the policy of the right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd).

On import control, the Opposition's record is as follows. They prepared the import surcharge while they were in power. When we first introduced it, the right hon. Gentleman the Member for Barnet (Mr. Maudling) approved it. Then the right hon. Gentleman the Member for Bexley (Mr. Heath) condemned it. Then they said that it was having no effect on imports at all; and in his Carshalton speech this month the right hon. Gentleman the Leader of the Opposition told us that its removal is one cause of the rise in imports this year.

Finally, on export promotion, the Opposition have put forward absolutely no shred or iota of a practical idea, either today or at any other time. I have searched the right hon. Gentleman's exceedingly important Charshalton speech, right through the copies sent out by the Conservative Central Office, in vain for any suggestion of export promotion whatever. So much for the utter failure of right hon. Gentlemen opposite to contribute anything practical to the serious debate about this country's economic future.

To those others who have expressed anxiety today about the real prospect for the months immediately ahead. I would say this. I think that they underrate the effects of the whole series of reflationary measures already taken by the Government since last autumn. Since then, there have been three reduction in Bank Rate, a rise in the rate of investment grant for the whole country, two accelerations in the payment of investment grant, a Budget which increased expenditure without increasing taxation and, most important of all, a major relaxation last month in the hire-purchase restrictions on motor car sales. The latter represented the complete reversal of the most potent single restraint imposed by the measures of July a year ago.

On investment grants. £58 million has already been paid to industry by 20th July, £28 million of it in development areas. The full effect of all these measures, particularly the last hire-purchase relaxation, has not yet been felt, but it is bound to be felt over the coming months. At the same time, public investment has risen strongly and is likely to be 10 per cent. higher this financial year than last,

and local authority house building has actually been over 20 per cent. greater in real terms this year than the 1964 monthly average. The rise in both pensions and family allowances this autumn will add to purchasing power and demand still further, and so will the regional employment premium.

With these internal measures directed both to investment and consumer spending, strong expansionary forces will be working at home in the coming months, and, with the recovery in the United States economy this autumn foreseen by O.E.C.D., we can reasonably expect the rise in exports of the past two years to be resumed. Over a longer period the Kennedy Round tariff cut of 30 per cent. so so over a very wide field offers a tremendous opportunity to British exports, which it is essential to seize because they offer an opportunity to imports, also.

Mr. Heath

I am grateful to the right hon. Gentleman for giving way. The Chancellor of the Exchequer said that the President of the Board of Trade would announce new economic measures. May we be told when we shall hear them?

Mr. Jay

In addition to what I have already said, I will say this. As a Government, we shall keep up the export promotion campaign by every possible method and take further measures to stimulate domestic demand as and when they are needed. But we shall not return to the free-for-all slide into deficit and disaster which temporarily damaged the country and permanently discredited the Tory Party back in 1964. [Interruption.]

Mr. Speaker

Order. It is not end of term yet.

Question put:—

That this House has no confidence in the economic policies of Her Majesty's Government.

The House divided: Ayes 240, Noes 333.

Division No. 484.]	AYES	[10.0 p.m.
Alison, Michael (Barkston Ash)	Beamish, Col. Sir Tufton	Bossom, Sir Clive
Allason, James (Hemel Hempstead)	Bell, Ronald	Boyd-Carpenter, Rt. Hn. John
Astor, John	Bennett, Sir Frederic (Torquay)	Boyle, Rt. Hn. Sir Edward
Atkins, Humphrey (M't'n & M'd'n)	Bennett, Dr. Reginald (Gos. & Fhm)	Braine, Bernard
Awdry, Daniel	Berry, Hn. Anthony	Brewis, John
Baker, W. H. K.	Biffen, John	Brinton, Sir Tatton
Balniel, Lord	Birch, Rt. Hn. Nigel	Bromley-Davenport, Lt.-Col. Sir Walter
Barber, Rt. Hn. Anthony	Black, Sir Cyril	Brown, Sir Edward (Bath)
Batsford, Brian	Body, Richard	Bruce-Gardyne, J.
Bryan, Paul	Heath, Rt. Hn. Edward	Osborn, John (Hallam)
Buchanan-Smith, Alick (Angus, N & M)	Heseltine, Michael	Osborne, Sir Cyril (Louth)
Buck, Antony (Colchester)	Higgins, Terence L.	Page, Graham (Crosby)
Bullus, Sir Eric	Hiley, Joseph	Page, John (Harrow, W.)
Campbell, Gordon	Hill, J. E. B.	Pardoe, John
Carlisle, Mark	Hirst, Geoffrey	Pearson, Sir Frank (Clitheroe)
Carr, Rt. Hn. Robert	Hobson, Rt. Hn. Sir John	Percival, Ian
Cary, Sir Robert	Hogg, Rt. Hn. Quintin	Peyton, John
Channon, H. P. G.	Holland, Philip	Pike, Miss Mervyn
Chichester-Clark, R.	Hordern, Peter	Pink, R. Bonner
Clegg, Walter	Hornby, Richard	Pounder, Rafton
Cooke, Robert	Hunt, John	Powell, Rt. Hn. J. Enoch
Cooper-Key, Sir Neill	Hutchison, Michael Clark	Price, David (EastNeigh)
Cordle, John	Iremonger, T. L.	Prior, J. M. L.
Corfield, F. V.	Irvine, Bryant Godman (Rye)	Pym, Francis
Costain, A. P.	Jenkin, Patrick (Woodford)	Quennell, Miss J. M.
Craddock, Sir Beresford (Spelthorne)	Jennings, J. C. (Burton)	Ramsden, Rt. Hn. James
Crawley, Aidan	Johnson Smith, G. (E. Grinstead)	Rawlinson, Rt. Hn. Sir Peter
Crouch, David	Jones, Arthur (Northants, S.)	Rees-Davies, W. R.
Crowder, F. P.	Jopling, Michael	Renton, Rt. Hn. Sir David
Cunningham, Sir Knox	Joseph, Rt. Hn. Sir Keith	Ridley, Hn. Nicholas
Currie, G. B. H.	Kaberry, Sir Donald	Ridsdale, Julian
Dalkeith, Earl of	Kershaw, Anthony	Rippon, Rt. Hn. Geoffrey
Dance, James	Kimball, Marcus	Robson Brown, Sir William
d'Avigdor-Goldsmid, Sir Henry	King, Evelyn (Dorset, S.)	Rodgers, Sir John (Sevenoaks)
Dean, Paul (Somerset, N.)	Kirk, Peter	Rossi, Hugh (Hornsey)
Deedes, Rt. Hn. W. F. (Ashford)	Kitson, Timothy	Royle, Anthony
Digby, Simon Wingfield	Knight, Mrs. Jill	Russell, Sir Ronald
Dodds-Parker, Douglas	Lambton, Viscount	St. John-Stevas, Norman
Doughty, Charles	Lancaster, Col. C. G.	Sandys, Rt. Hn. D.
Douglas-Home, Rt. Hn. Sir Alec	Langford-Holt, Sir John	Scott, Nicholas
Drayson, G. B.	Legge-Bourke, Sir Harry	Sharples, Richard
du Cann, Rt. Hn. Edward	Lewis, Kenneth (Rutland)	Shaw, Michael (Sc'b'gh & Whitby)
Eden, Sir John	Lloyd, Rt. Hn. Geoffrey (Sut'n C'd field)	Smith, John
Emery, Peter	Lloyd, Ian (P'tsm'th, Langstone)	Stainton, Keith
Errington, Sir Eric	Longden, Gilbert	Steel, David (Roxburgh)
Eyre, Reginald	Loveys, W. H.	Stodart, Anthony
Farr, John	Lubbock, Eric	Stoddart-Scott, Col. Sir M. (Ripon)
Fisher, Nigel	McAdden, Sir Stephen	Summers, Sir Spencer
Fletcher-Cooke, Charles	MacArthur, Ian	Tapsell, Peter
Fortescue, Tim	Maclean, Sir Fitzroy	Taylor, Sir Charles (Eastbourne)
Foster, Sir John	Macleod, Rt. Hn. Iain	Taylor, Edward M.(G'gow, Cathcart)
Fraser, Rt. Hn. Hugh (St'fford & Stone)	McMaster, Stanley	Teeling, Sir William
Galbraith, Hon. T. G.	Macmillan, Maurice (Farnham)	Temple, John M.
Giles, Rear-Adm. Morgan	Maddan, Martin	Thatcher, Mrs. Margaret
Gilmour, Sir John (Fife, E.)	Maginnis, John E.	Thorpe, Rt. Hn. Jeremy
Glover, Sir Douglas	Marples, Rt. Hn. Ernest	Tilney, John
Glyn, Sir Richard	Marten, Neil	Turton, Rt. Hn. R. H.
Godber, Rt. Hn. J. B.	Maude, Angus	van Straubenzee, W. R.
Goodhew, Victor	Maudling, Rt. Hn. Reginald	Vaughan-Morgan, Rt. Hn. Sir John
Gower, Raymond	Mawby, Ray	Vickers, Dame Joan
Grant, Anthony	Maxwell-Hyslop, R. J.	Wainwright, Richard (Colne Valley)
Grant-Ferris, R.	Maydon, Lt.-Cmdr. S. L. C.	Walker, Peter (Worcester)
Gresham Cooke, R.	Mills, Peter (Torrington)	Walker-Smith, Rt. Hn. Sir Derek
Grieve, Percy	Mills, Stratton (Belfast, N.)	Wall, Patrick
Griffiths, Eldon (Bury St. Edmunds)	Miscampbell, Norman	Ward, Dame Irene
Grimond, Rt. Hn. J.	Mitchell, David (Basingstoke)	Weatherill, Bernard
Gurden, Harold	Monro, Hector	Webster, David
Hall, John (Wycombe)	Montgomery, Fergus	Wells, John (Maidstone)
Hall-Davis, A. G. F.	Morgan, Geraint (Denbigh)	Whitelaw, Rt. Hn. William
Hamilton, Marquess of (Fermanagh)	Morrison, Charles (Devizes)	Wills, Sir Gerald (Bridgwater)
Hamilton, Michael (Salisbury)	Mott-Radclyffe, Sir Charles	Wilson, Geoffrey (Truro)
Harris, Frederic (Croydon, N. W.)	Munro-Lucas-Tooth, Sir Hugh	Wolrige-Gordon, Patrick
Harris, Reader (Heston)	Murton, Oscar	Wood, Rt. Hn. Richard
Harrison, Brian (Maldon)	Nabarro, Sir Gerald	Woodnutt, Mark
Harrison, Col. Sir Harwood (Eye)	Neave, Airey	Worsley, Marcus
Harvey, Sir Arthur Vere	Nicholls, Sir Harmar	Wright, Esmond
Harvie Anderson, Miss	Noble, Rt. Hn. Michael	Wylie, N. R.
Hastings, Stephen	Nott, John	Younger, Hn. George
Hawkins, Paul	Onslow, Cranley
Hay, John	Orr, Capt. L. P. S.	TELLERS FOR THE AYES:
Heald, Rt. Hn. Sir Llonel	Orr-Ewing, Sir Ian	Mr. R. W. Elliott and
		Mr. Jasper More.
NOES
Abse, Leo	Ashley, Jack	Beaney, Alan
Albu, Austen	Atkins, Ronald (Preston, N.)	Bellenger, Rt. Hn. F. J.
Allaun, Frank (Salford, E.)	Atkinson, Norman (Tottenham)	Bence, Cyril
Alldritt, Walter	Bacon, Rt. Hn. Alice	Benn, Rt. Hn. Anthony Wedgwood
Allen, Scholefield	Bagier, Gordon A. T.	Bennett, James (G'gow. Bridgeton)
Anderson, Donald	Barnes, Michael	Bidwell, Sydney
Archer, Peter	Barnett, Joel	Binns, John
Armstrong, Ernest	Baxter, William	Bishop, E. S.

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

Shore, Peter (Stepney)	Taverne, Dick	Wigg, Rt. Hn. George
Short, Rt. Hn. Edward (N'c'tle-u-Tyne)	Thomas, George (Cardiff, W.)	Wilkins, W. A.
Short, Mrs. Renée (W'hampton, N. E.)	Thomson, Rt. Hn. George	Willey, Rt. Hn. Frederick
Silkin, Rt. Hn. John (Deptford)	Thornton, Ernest	Williams, Alan (Swansea, W.)
Silkin, Hn. S. C. (Dulwich)	Tinn, James	Williams, Alan Lee (Hornchurch)
Silverman, Julius (Aston)	Tomney, Frank	Williams, Clifford (Abertillery)
Silverman, Sydney (Nelson)	Tuck, Raphael	Williams, Mrs. Shirley (Hitchin)
Skeffington, Arthur	Urwin, T. W.	Willis, George (Edinburgh, E.)
Slater, Joseph	Wainwright, Edwin (Dearne Valley)	Wilson, Rt. Hn. Harold (Huyton)
Small, William	Walden, Brian (Alf Saints)	Wilson, William (Coventry, S.)
Snow, Julian	Walker, Harold (Doncaster)	Winnick, David
Spriggs, Leslie	Wallace, George	Winterbottom, R. E.
Steele, Thomas (Dunbartonshire, W.)	Watkins, David (Consett)	Woodburn, Rt. Hn. A.
Stewart, Rt. Hn. Michael	Watkins, Tudor (Brecon & Radnor)	Woof, Robert
Stonehouse, John	Weitzman, David	Wyatt, Woodrow
Strauss, Rt. Hn. G. R.	Wellbeloved, James	Yates, Victor
Summerskill, Hn. Dr. Shirley	Wells, William (Walsall, N.)
Swain, Thomas	Whitaker, Ben	TELLERS FOR THE NOES:
Swingler, Stephen	White, Mrs. Eirene	Mr. William Howie and
Symonds, J. B.	Whitlock, William	Mr. John McCann.