DEVELOPMENT AREAS (REGIONAL EMPLOYMENT PREMIUMS)

HC Deb 05 June 1967 vol 747 cc651-752

Mr. Speaker

Before I call the right hon. Member for Fulham (Mr. M. Stewart) to move the Motion which stands in the names of the Prime Minister and his right hon. Friends, may I observe to the House that many hon. Members wish to take part in this debate? It will be impossible for me to call them all and I regret that I will have to disappoint some of them.

All who have sent in their names have very good reasons for wanting to speak in this debate. I shall try to make my selection cover as many areas of the country as I can, and right hon. and hon. Gentlemen can help each other and the debate by making their speeches reasonably brief.

4.25 p.m.

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

I beg to move, That this House takes note of a proposal for a Regional Employment Premium contained in the Command Paper entitled The Development Areas. The House today debates for the first time a Green Paper, a statement by the Government not of policy already determined but of propositions put before the whole nation for discussion. This Green Paper approach, as it has been called, has been generally welcomed and certainly we have received from all quarters the most favourable comment and advice—although, of course, there have been very differing reactions, ranging from the most favourable to the least favourable.

At this stage I wish to tell the House that there are certain aspects of this matter on which the Government feel that it would now be right to express a view. For example, I want to recommend to the House—and express it as the view of the Government—that, as a general principle, we should go ahead with the proposal for regional employment premiums, although it has become clear from the discussion and argument of the last two months that if that is done, it ought to be done with certain modifications and that it should be flanked by certain, what I might call, concomitant policies. We will be extremely anxious to hear the views of hon. Members in all parts of the House about these matters.

In view of the special circumstances which have led to the late opening of the debate, I have explained to the right hon. Member for Argyll (Mr. Noble) that I may have to leave the Chamber for a time, perhaps before he has finished his speech. I hope that he will pardon me. However, I assure him and the House that the Government will listen most carefully to all that is said about this proposal during the debate.

First, let me state what I believe to be the general case for regional employment premiums. Hon. Members will have seen, in Table 2 on page 8 of the Green Paper, the record of rates of wholly unemployed in the development areas, in the rest of Britain and in Britain as a whole. At least one striking fact emerges from this table; that the difference between the percentage of unemployed in the development areas on the one hand and the rest of Great Britain on the other has remained, from 1959 until recently, at about 2 per cent. Whatever the unemployment rate was in the rest of Britain, in the development areas it tended to be 2 per cent. higher—indeed, rising, in 1963, to nearly 3 per cent. higher, although in 1966, because of the great increase in policies directly designed to help the regions, dropping to 1½ per cent. But even allowing for that, it has remained a serious problem. I believe, therefore, that one is justified in saying that although we have a considerable battery of regional policies, this still remains an obstinate problem.

Behind these percentages and figures for the development areas is, as the House knows, a record of human frustration, distress and, indeed, of poverty. The average figure for the development areas as a whole does not immediately reveal the fact that, in certain parts of the development areas, the rate is still very heavy indeed. But to these human considerations one must also add an important economic consideration; that increasingly this country cannot afford to leave manpower in idleness. During the years to come we cannot expect any great increase in the total labour force of the country, but we can expect an increase in the proportion of our population which, by virtue of either youth or of age, is not in the working section of the population. Therefore, wherever we find this exceptional unemployment, there is a pressing economic reason for trying to solve it.

What we have to ask is whether it is possible to stimulate the economy—to reflate regionally, in fact—in such a manner as shall not threaten the balance of payments, as will not add to taxation and as will not require reductions in other items of public expenditure? That is the problem which faces us. The apparent paradox we have been faced with in recent years has been that we have had periods in which the figure of unemployment in the country as a whole was not such as to cause alarm—indeed, that in some parts there might be a tendency to over-heat the economy—and this has existed side by side with sometimes heavy regional unemployment.

If we have endeavoured to take general reflationary measures to help the afflicted regions, this has been done with the danger that it would cause overheating in other parts and threaten the balance of payments. We are seeking a way out of this dilemma.

In regional employment premiums we have an expedient of that kind. I say deliberately "an expedient", because it should be clear straight away that it is not a remedy for all our regional problems. Indeed, reading through the many comments which we have received, I was reminded of an old-fashioned advertisement—"Monkey brand will not wash clothes". Some people have criticised the regional employment premiums on the ground that they will not immediately provide the regions with better communications, a greater supply of skilled labour, and so on. It is not claimed that they will do so. It is claimed that this is one weapon, but a specially valuable weapon, because it will enable us to get what I call regional reflation without threatening the balance of payments.

Why is that so? For many years we have accepted the proposition that the relation between the amount of money spent by the Government and the amount collected in taxes is not the simple balanced budget relationship with which we were familiar during the years before the war. For many years, we have taken the view that the relationship between the money spent by the Government and the money collected by them should be such as to give the fullest possible expansion of resources consistent with a healthy balance of payments, and that when extra expenditure called into use resources which would otherwise have been idle without endangering the balance of payments, it was self-financing expenditure. It did not make a budgetary demand in the way that expenditure which did not call into use resources which would otherwise have been idle would do.

If one applies that test to the regional employment premium, it is certainly clear that it is aimed at calling into use human resources which would otherwise lie idle. Secondly, it can be fairly established that it does so in a way which does not threaten the balance of payments. Our usual anxiety about any reflationary measure is that the rise in economic activity will lead to a sucking in of imports. But because this measure is confined to manufacturing processes it will stimulate both export activity and import-saving activity, which is a set-off against any drawing-in of imports.

It is important to notice that this is true of a regional employment premium scheme which applies to manufactures only. It would not be true of one which applied to all forms of economic activity. If, for example, we did something which stimulated activity for which the demand was purely local, we would not get that result.

A further result of this measure will be that the stimulation of activity in the regions will lead to a stimulation of demand generally, and that expansion of demand will spread to the country as a whole. It might be argued that there is a dangerous and generally inflationary element here. But, to some extent, the effect of the scheme proposed will be a movement of business from the other areas of the country to the areas receiving regional employment premiums, which will broadly offset any increased activity which arises outside the development areas from the spread-over of the increased demand within the development areas.

Mr. Robert Sheldon (Ashton-under-Lyne)

My right hon. Friend has gone on to say that prices are likely to be reduced and that this is the reason why an inflationary element is not introduced by this £100 million. Will he be dealing with the hopes for reducing prices?

Mr. Stewart

Yes; I shall come to that later. What I have said deals with two of the comments which have come from the management side of industry. Some have objected to this proposal on the ground that it should apply to all economic activities in the region and not only to manufacturing. But that overlooks the fact that if it did that we should not get the greater export activity and import-saving activity. We should be in danger of the measure leading to a sucking-in of imports without any countervailing move.

The other objection raised by a number of critics is that, since we are proposing to spend £100 million in this way, would it not be better to spend it on, say, roads and improved communications or on other ways of improving the infrastructure of the development areas? The answer is that these are not alternatives. Spending money in that way would be admirable in itself, but it would not immediately produce that expansion of export activity and import-saving activity which makes this measure of reflation possible. It would produce that effect later. It would not produce it immediately. It would not be a self-financing operation in the way that the regional employment premium is.

We all hope that the general economic and budgetary situation will so improve that the many other necessary measures in the regions will be taken. But the taking of this measure now does not pre-empt £100 million which might have been spent on something else. It is a measure which stands by itself. Therefore, it is not a well-conceived criticism to say that we should have spent this money on something else. The money was not in a bag waiting to be spent on anything. It arises from the operation itself.

Mr. Joel Barnett (Heywood and Royton) rose—

Mr. Stewart

I hope that my hon. Friend will not intervene too often. I do not want to make a long speech.

Mr. Barnett

Surely the argument would be valid only if the present proposal would have an immediate effect. Is my right hon. Friend arguing that it would have an immediate effect?

Mr. Stewart

Not immediately, in a matter of a few months, except for this, that the knowledge that this is being done is likely to affect a number of investment decisions. I do not think that it should be disputed that the effect in time will be very much quicker in a measure of this kind than in, say, the construction of roads in the regions.

I come now to the calculated effect. We believe that in a period of between three and five years, it would reduce the disparity between unemployment in the development areas and in the rest of Britain from 2 to 1 per cent. We should hope with other policies to make a reduction of a further ½ per cent. We are in sight, then, of a position in which this serious disparity, which has caused so much misery and has hampered our economic policies for so long, can be removed.

There is an article in the Journal of the National Institute of Economic and Social Research whose calculations of the number of jobs this would provide fall to some extent short of the Government's calculations, but it goes on to say that there would be certain further indirect effects and we are not left very short of the Government's calculations that this would mean 100,000 jobs. The House should notice also that the increase in employment in the development areas is likely to be substantially greater than the reduction in registered unemployment because one effect will be that people who have temporarily withdrawn from the labour market—older people, married women, and so on—will be drawn in and migration from the development areas will be halted by this process.

Now I wish to refer to the reactions we have had from various parts of the country. The trade union movement expressed its firm approval of this proposal and it naturally and very rightly had in mind its effects on unemployment. The view taken on the management side of industry—I do not attempt to conceal this from the House—has, in general, been critical or hostile. I think it fair to say that this is not a unanimous view. I found on a visit to Newcastle last weekend, in discussing this with industrialists, that they took a rather different view from that expressed by industry as a whole.

Mr. Michael Noble (Argyll)

The only region.

Mr. Stewart

The right hon. Gentleman says it is the only region, but what about the Scottish Council for Development and Industry? It recommended certain changes in the scheme to which I have referred and asked whether more could be done about skilled labour and that the scheme should be prolonged. The Government regard both those changes with favour and I shall develop them.

The Council goes on to say—I am sure the right hon. Gentleman, coming from Scotland, will not want to dispute this—that with these changes R.E.P. could become a most potent addition to regional industrial policy in Britain and do much to produce the transformation which is wanted. I do not want to make too much of this, but although management as a whole has been opposed, it is right to point out that it is by no means a unanimous conclusion.

Mr. Ian MacArthur (Perth and East Perthshire)

The right hon. Gentleman has referred to the Scottish Council Report, but he has quoted only one paragraph. There are 55 paragraphs and most of them are critical.

Mr. Stewart

I could not quote the whole 55 paragraphs. I have drawn attention to what I think is the heart of the point the Council makes. It wants certain changes and we propose to meet it on this point. It says that with those changes the effect would be as I have described.

What are the nature of the management arguments against the proposal? They say, first, that it will tend to lead to a waste of labour. This is a serious argument because one of the evils in our economy today is that all too often labour is not economically used. The fear was that any kind of subsidy on unemployment would result in wasteful use of labour. Against this, we must notice that if a man is paid £20 a week the employer gets a premium of 30s., but he still has to find £18 10s. out of his pocket. That is not exactly something which encourages him to make wasteful use of labour.

Secondly, unhappily, in the development areas labour is not one of our scarcer resources. If we are told that the danger is that we will waste labour, have we not to ask to what extent it is being wasted already? It is a waste of labour in its most depressing form that this proposal is intended to remedy.

In the development areas there is the differential rate of investment grants of 45 per cent., which is a strong incentive to the use of labour-saving machinery. Indeed, it can be argued that since we have free investment grants this exceptional encouragement to capital-intensive industries in the development areas it is reasonable to balance it with something which will give encouragement to labour-intensive industries in the development areas.

Next, it is argued that the whole premium would vanish either in higher wages or higher profits and produce no effect on prices. I think that there may be some confusion here between a higher total wages bill or a higher total sum earned in profits, on the one hand, and the payment of more wages or more profits in return for the same amount of work, on the other. It is certainly true, and this is the point of it, that R.E.P. will produce a rise in the total wages bill and the total amount of profits earned in the development areas. That is what it is intended to do by increasing the amount of economic activity there.

But are there valid grounds for supposing that it will cause more wages to be paid for the same amount of work? In so far as wages are determined by national negotiations this will not be so. In so far as local factors count, we have to notice that the present position of the development areas does not put organised labour in a position to secure a bargain of that kind. Indeed, one looks forward to the time when the difference in bargaining power of labour in different parts of the country will be less than it is, but we have not reached that position today.

The trade union movement, in giving support to this proposal, is very well aware of this. If trade unions or individuals or groups of workers endeavour to make use of the proposal to get more wages for the same amount of work, this would defeat the whole object. They would not get more jobs and the great and powerful interests representing individual men and women in the development areas wish to get more jobs and to increase the wages bill.

The same is basically true of management. There is a greater incentive and a greater prospect of gain by increasing the economic activity than by trying to get a higher profit for the same amount of work. In so far as prices of goods are fixed nationally, or in so far as they are subject to competition, the manufacturer in the development areas is not in a position to put the price at anything he likes. It will be to his advantage to make use of the regional employment premium to lower prices, or possibly to render in one way or another better service to the consumer and so draw a certain amount of business from other parts of the country.

To some extent the arguments against the proposal cancel each other out. The arguments I have quoted say that it will not be effective because all will be swallowed up in higher wages and profits but I have heard arguments from other areas, not the development areas, expressing anxiety about their position. [HON. MEMBERS: "Hear, hear."] I am coming to this; and I understand its importance. The worry there is that it would be too effective.

This also explains the differing responses we received from certain regions. In going round some of the more prosperous regions, and discussing it with them, I found no doubt at all about the effectiveness of this proposal.

Mr. Eric S. Heffer (Liverpool, Walton)

Would not my right hon. Friend agree that it is precisely because there have tended to be higher wages in the non-development areas that many skilled workers have left development areas, thus making the position far worse inside development areas? This new proposal can help towards removing this imbalance in the availability of skilled workers. Will not the new proposal be very useful in keeping skilled workers in these areas?

Mr. Stewart

I differ to some extent from my hon. Friend. What has caused the movement of skilled labour from the development areas has been not so much the difference in the wage rate, although it exists, as the fact that the jobs were not there in the development areas. We have had complaints from employers who have gone to the trouble of training men in the development areas and then the men, when trained, have gone off elsewhere.

One advantage of this proposal is that, by increasing the prospect of a job in the development areas, it makes it more worth while to train men in the development areas. It makes it much easier to ask a trade union to look with good will on accepting trainees into the industry if the union feels that the total amount of employment in the area is rising.

One other objection which has been raised is that the scheme is to run for too short a period to be effective. The Government therefore feel—we shall want to listen to what is said in the debate on this matter—that instead of speaking of the scheme being in full force for five years, after which we shall consider the rate and extent to which it might be taken off, it should be in full force for seven years, with the same consideration thereafter. This was a point made by the Scottish Council and by a number of other critics of the scheme.

Mr. J. Bruce-Gardyne (South Angus)

Does the First Secretary of State consider that, if the scheme is to be extended to seven years, it will automatically be tied to the S.E.T. for seven years, because many people would regard it as a deplorable drawback if it were tied to the S.E.T. for seven years?

Mr. Stewart

This is a point which my right hon. Friend the Chancellor of the Exchequer will be dealing with in more detail. I will merely say that this and S.E.T. do not integrally and inevitably fit together. It is true in form that the one has come out of the other, but they are not necessarily inseparable. My right hon. Friend will be developing this point.

Another argument against the scheme is that it cannot be effective because there is not enough skilled labour in the development areas. I was already suggesting to the House what the answer to that is. There is a shortage of skilled labour in the development areas. In April of this year, for example, whereas in most of the country the number of vacancies for skilled men exceeded the number of unemployed skilled men, in the North and Scotland and Wales together there were 2.6 skilled men unemployed for every vacancy. There is, therefore, a supply of skilled labour in the areas waiting to be used.

It is true—we must accept this point—that some employers say that a round figure like that does not give the whole picture, that they may not be the right type of skills. There is something in this argument. That is why it is necessary to accompany the introduction of R.E.P. by further pressing on with the measures to increase the supply of skilled labour.

We have not been idle in that regard. There are 12 Government training centres in the development areas and two on their fringes; and two-fifths of all the places in Government training centres are in those 14 centres. We shall have another five by 1968. Then, as the House knows, there is a scheme of special help to firms with the cost of training the men when that is done in the development areas.

As a result partly of the working of the Industrial Training Act, of all those young people who left school to take up employment in 1966, 42 per cent. were taking up apprenticeships. This is the highest figure ever recorded. But I was glad to receive, in discussing this matter with the Confederation of British Industry, the suggestion that we should, with the Confederation, further pursue the question of what additional measures can be taken to deal with such shortage of skilled labour as there may be.

The point I have just made about skilled labour illustrates the need for what I call concommitant policies. We noticed the need for that particularly in looking at the reactions we got from the various regions. The House will hardly be surprised to learn that, among the regions, the North, Scotland, Wales and Northern Ireland were firmly in favour of the proposal. More interestingly, but less probably to be expected, the West Midlands, Yorkshire and Humberside, and the East Midlands, agreed with the proposal, though with certain modifications. The North-West agreed in general, though with still more modifications.

Mr. J. T. Price (Westhoughton)

Hear, hear.

Mr. Stewart

The South-West wanted quite other forms of assistance. The South-East was neutral and doubtful. East Anglia was opposed.

Mr. Noble

The First Secretary of State says that these areas are in agreement. He has not told us who in these areas are in agreement.

Mr. Stewart

I should have made that clear. I was referring to the views of the Regional Planning Councils. After all, I have mentioned both sides of industry. The views of individual economists and industrialists are known to the House from the Press. I think that it is reasonable to take note of the Regional Planning Councils' views here.

Mr. J. T. Price

I loudly indicated my agreement with something my right hon. Friend was saying about the North-West. I want to emphasise this point. The highly theoretical statement my right hon. Friend has now made has no real value or relevance whatever to the problems of the North-West, an area which I have the honour to represent in the House. It will further aggravate the discrimination against the grey areas, which are gravely in need of new industry. It will drag labour away from the areas I represent into development areas and further increase the discrimination now represented by 40 per cent. investment allowances in the development areas and only 20 per cent. in the non-development areas. We are gravely alarmed by this policy which has been put forward.

Mr. Stewart

I have listened carefully to my hon. Friend's intervention. I hope that he will now listen to what I say. I am very well aware of his feelings. I had just reached the point in my speech at which I was coming to this very point, having mentioned the regional reactions. It is not reasonable for my hon. Friend to talk about it being a highly theoretical statement, on the one hand, when clearly what is worrying him is the practical results. He at least is not in the ranks of those who say that this is a piece of Keynsian theory that will have no practical effect. What he is worried about is that it will have, from the point of view of the area with which he is concerned, too much effect.

Let us examine this. The first question—

Dame Irene Ward (Tynemouth) rose—

Mr. Stewart

I must get on now.

Dame Irene Ward

The right hon. Gentleman has given way to his own side. What about me?

Mr. Stewart

Let me say at once that the question of the geographical coverage of the scheme is one on which we shall particularly want to listen to the views of the House, which is why I want to be able to sit down quite soon.

Dame Irene Ward rose—

Mr. Stewart

No.

Dame Irene Ward

It is very mean of the right hon. Gentleman.

Mr. Stewart: The first question—

Dame Irene Ward

The right hon. Gentleman came to our area, but would not listen.

Mr. Deputy Speaker (Mr. Sydney Irving)

Order. The hon. Lady is endeavouring to intervene, but it is clear that the right hon. Gentleman is not giving way. She must resume her seat.

Dame Irene Ward

I shall keep on trying. It is not fair.

Mr. Deputy Speaker

Order. I understand the hon. Lady's interest in this matter, but she must wait to catch the eye of the Chair.

Dame Irene Ward

But how can I ask a most important question—[HON. MEMBERS: "Sit down."] The right hon. Gentleman is a "meanie". He came to our part of the country and would not listen.

Mr. Stewart

I think that—

Dame Irene Ward

The right hon. Gentleman does not know—

Mr. Stewart

I think that the hon. Lady is not winning sympathy for her cause, which is probably what she wants to do.

Dame Irene Ward

No. I only want to know—

Hon. Members

Sit down.

Mr. Stewart

There are two issues on the geographical aspect of the matter—

Dame Irene Ward

Are you a "Dan smith-ite"?

Mr. Deputy Speaker

Order. The hon. Lady feels strongly on this matter, but so do other hon. Members. She is taking an unfair advantage of other Members if she intervenes now. She must await her opportunity and catch the eye of the Chair.

Mr. Stewart

There are two issues raised by the question of geographical coverage. One is whether the boundaries of the development areas themselves ought to be altered. It would not be right for us to embark—

Dame Irene Ward

The right hon. Gentleman is mean.

Mr. Stewart

—on that project before introducing regional employment premiums. I am sure that the House will agree—

Dame Irene Ward

The right hon. Gentleman is very mean.

Hon. Members

Be quiet.

Mr. Stewart

I am sure that the House will agree that it would be wrong to embark on alterations in the boundaries of the development areas without fairly careful consideration of all that is involved, and that, equally, it would be wrong to postpone the operation of regional employment premiums until such a study had been completed. It is fair to say, also—I recognise the problems of certain areas none the less—that one does not find any broad areas of industrialisation outside the development areas where unemployment is so high as to justify a reclassification. That is one question.

Another and more pressing question is raised by what are sometimes called the grey areas. [HON. MEMBERS: "Hear, hear."] These areas are of different kinds. Some are called grey by virtue of an intermediate figure of unemployment, and one might argue that the proper way to deal with them would be by an intermediate rate of regional employment premium. For others, the problem is not so much pressing unemployment, but that they are too dependent on older industries and are not receiving the influx of newer industries which they would wish. For these, it might be said that there was a case for an intermediate rate of investment grant or a tilting of I.D.C. policy in their direction.

The grey areas are not all the same in their problems, and the kind of help which they need is not all the same in this case. It seems to me, therefore, that the right thing to do when we introduce the regional employment premium is, at the same time, to carry out a proper study of our regional problems and the effect of the whole gamut of regional policies which we have had. Over the years, successive Governments have introduced particular elements of regional policy. It is time now to look at their effect generally and to study particularly the problems of the grey areas, bearing in mind that, while regional employment premiums would help the development areas, one can use I.D.C. policy to prevent what is being done in the development areas from bearing unfairly to the disadvantage of areas which have their own problems although they lie outside the development areas as such.

We have still to listen to the debate, but, perhaps, I should make clear that it is the Government's view that we should go ahead with this policy, with certain modifications and concomitant policies, as I have said, in particular, the lengthening of the period from five to seven years, an increased drive to deal with the skilled labour problem, and the speedy initiation of a study of regional problems, bearing particularly in mind the problem of the grey areas and of the actual boundaries of the development areas themselves.

In one's desire to get a tidy and coherent policy, one can sometimes fall into the error of supposing that one must never do anything until one has made sure that the step being taken is exactly in line with everything else one might do. It is to avoid this error that, in my view, we should go ahead with the regional employment premiums—I hope that the House will deal with that fairly expeditiously—the other matters being considered at the same time. I lay great stress on the importance of speedy examination, as speedy as the depth of the problem allows, of all these other questions. It is in that spirit that I commend the proposal to the House.

Mr. Charles Mapp (Oldham, East) rose—

Mr. Deputy Speaker

Order. Mr. Michael Noble.

5.6 p.m.

Mr. Michael Noble (Argyll)

We have moved from questions of great national and international importance to a subject which is of deep interest to all of us in the country, whether we live in a development area or not. The First Secretary of State spoke fairly shortly, and I shall try to do the same, because, as Mr. Speaker told us, there are many hon. Members wishing to take part. If, in that process, I have to put my arguments somewhat in verbal shorthand, I hope that I shall be forgiven.

The right hon. Gentleman made some kind reference, if I may put it like that, to the Scottish Council (Development and Industry). It said that this was an economist's argument. So it is. I have spent the weekend reading, almost continuously, articles by economists, some praising the regional employment premium and a great many opposing it. In favour of the proposal is the argument, which is now accepted on both sides—I am glad that it is, thought it is the only one that is accepted—that there is a real need in the country for a balance in employment between the development areas and the other areas of the country. Everyone has known this for 20 years. Thank goodness we are at last all agreed on it.

Beyond that point—I have read all the articles with great care—-there is practically no agreement between one set of economists and the other. One side tells us that this new proposal will significantly reduce the costs of production, a view accepted, I think, by the Minister. The Scottish Council, on the other hand, says that this is most unlikely to happen and that anybody who has studied problems of this sort knows that it will not happen. It is supported in that view by a strong band of economists.

The economists on whom the Minister relies tell us that this scheme will be self-generating and that we shall not need to raise extra taxation to provide the money This is a sophisticated economist's argument, and it may well be right, but half the sophisticated economists on the other side say that it will not happen and that the scheme is most unlikely to generate its own steam.

We are told that it will be a powerful extra incentive to firms to move to the development areas, for firms in the development areas to expand, and for firms which have subsidiaries in development areas to expand their production there. But we are also told by many of the people concerned in those areas that this sort of incentive will be valueless, for reasons which the Scottish Council has developed and to which I shall come in a moment.

On the other side, there is a genuine difficulty about which it is very difficult for the House to make up its mind. That is the argument that if the scheme lasted for five years that would be too short for it to have any effect, and that if it is not found to be the right sort of measure and we have nailed our colours to that mast it will be very difficult to take them off if we decide that it should go on for seven years, as was suggested by the Minister, or perhaps 10 years or some other period.

I have not yet seen a single economist on either side who has said that the scheme is good in that it is connected with the Selective Employment Tax. Those against R.E.P. have unanimously said that it perpetuates the worst evils of S.E.T. Those in favour of R.E.P. have remained very silent on the subject.

Lastly, in this particular category of argument, various calculations have been made on the cost per job of R.E.P. to create the jobs that we need in the development areas. The lowest calculation I have seen has been £3,750 and the highest over £10,000 per job. Even if the expenditure is believed to be self-generating, that is very lavish when one thinks in terms of the cost of creating jobs in those areas by the earlier measures, which were supported by both sides when we were in government and by the Government today, and which was running at about £1,000 a job.

The Government's views as expressed by the Minister seem to me a little naive, but not entirely surprising. I shall come to the reasons later. The Minister told us that the reactions he had received were generally favourable. As I said, I have spent the whole weekend reading every Press cutting available on the subject and the reactions there were generally most unfavourable. But the Minister says that he has the support of a large number of his Regional Planning Councils. If he has, those reports should have been made available to the House so that we can see on what basis they are making these judgments.

The Minister did not seem to be entirely honest with the House. That may have been because he was speaking in shorthand, too. I understood him to tell us at the beginning of his speech that the Government had decided to go ahead, but at the end of his speech he said that he would listen to the opinions of the House as to whether to go ahead or not. I read in my newspapers, which are very often wrong, that the Government have already decided to put this into the Finance Bill, and if that is so they must have drafted a Clause for that purpose. I therefore hope that when the Chancellor winds up the debate he will tell us exactly what the Government's decision is.

I think that paragraph 34 of the Green Paper sums up the problem uppermost in the minds of many of us, which is that this can work only if the R.E.P. is not swallowed up in extra wage increases. The Government must be fair to the House and say whether they are prepared to take the necessary action to see that that does not happen, because there is no question that the temptations will be enormous. If the trade unions which negotiate these matters know that employers are being given a large subsidy for employing labour and for nothing else—not for being more productive or efficient—the pressures to get more wages will be considerable. Do the Government intend to control them? Will they take statutory measures under their Prices and Incomes Bill to see that that does not happen? We should be told.

I hope that the Chancellor will tell us that if the House does not like this measure as it stands there are other methods of helping the areas which are also self-generating. I am not a sufficiently experienced economist to know, but I cannot see that expenditure on increased training, for instance, may not be self-generating in exactly the same sense as it is argued that R.E.P. will be.

We can all understand that the Government are in considerable difficulty. In spite of every promise made to the House and the people, we have had the toughest and longest "squeeze" in post-war history. We know that the National Plan produced by the Government's economists—perhaps the people who are now telling us that we should have this scheme—was dead within a few months of being born. We know that the figures for May this year, at least in Scotland, show a trend that is the worst for the whole of this decade.

We know that the Government's record on what might be called instant new ideas in economics and taxation have had the most lamentable record in this House. One has only to look at S.E.T. and ideas on prices and incomes and capital gains ideas that were pushed in without proper thought, debated much too shortly in the House and then had to be drastically changed very soon afterwards. We know all about this record, and it is for that reason that I hope that the Chancellor wil make it absolutely clear to the House that if the newspaper reports are correct and he has already decided to put this measure into the Finance Bill in a new Clause, he will give us a firm guarantee that the whole House will have proper time to think about the very difficult problem and discuss it.

I wish to ask the Chancellor two or three questions to which he will perhaps be able to give us the answers by the end of the debate. Does R.E.P. as it stands conflict with the Treaty of Rome if we go into the Common Market? Secondly, is this measure, intended as an incentive for the development areas, in some degree at least to take the place of the I.D.C. policy? I think that it is generally accepted that if we go into the Common Market the I.D.C. policy, at least as we have known it, will cease to exist, because if one refuses somebody the right to expand in London and tells him that he must go to Glasgow, Manchester or somewhere else, he may say, and very likely will, "I shall go to Holland instead."

Will the Chancellor also make clear to the House, because there is reasonable ground for suspicion, that this scheme was not thought out by the Government purely as a simple method of persuading manufacturing industry to hoard labour through next winter? That is what it may well do, and if that is the reason for the scheme the Government had better admit it straight away.

If the Government have statistics for other regions, I hope that they will soon be able to give them to the House. There is really only one part of the United Kingdom—Scotland—which dislikes being called a region, and I agree with it in that. It is the only part of the country that has pretty accurate independent statistics of what is happening there.

I now wish to turn for a minute or two to what the Minister referred to as the management of industry's views. He was being a little naive. The Confederation of British Industry has asked every region what its individual views are, and only one—the north-east—by the narrowest possible majority did not come out solidly against the scheme. The position is exactly the same with the chambers of commerce.

I do not say that there is any greater certainty that associations of industrialists are right than that the Government are right or that economists are right, but it is a remarkable fact that when industry is offered £100 million extra there is such complete unanimity that industry does not want it in this form. It is a surprising comment to that extent. Of course, there are some industries—we have all had leters from them—which feel that they would benefit from R.E.P. just as there letters from them—which feel that they would not benefit. I have not time to discuss their individual reactions. It is true that the only body which has unanimously backed this form of help is the trade unions, and perhaps it is not unfair to say that that is not least because there is £100 million floating around which may well be available for extra wages.

I should like to look at the main problems of the development areas. As the C.B.I. and the Scottish Council said, the first and most obvious is the problem of training in skill. The most recent survey conducted showed that in the country as a whole out of 200,000 unemployed in the development areas only 33,000 are available for manufacturing industry without training. The figures for Scotland show that only 6,000 are available out of 85,000. No doubt my right hon. Friend the Member for Mitcham (Mr. R. Carr) will develop that theme.

The second problem which is vital is that of expanding and improving communications. I have had a good deal of experience in this from both the political and the industrial side. If we want to bring down the cost of both production and export from most of the development areas, good, quick communication is far more important than the 1 per cent. to 3 per cent. that industry may save by the subsidy on labour. It seems to me, as I am sure it seems to many hon. Members, a little odd that the Government are bringing in this regional employment premium—I understand that they have decided to do so—which will affect production costs by 1 per cent. to 3 per cent. —one can pick the figure according to the industry—within a matter of days of allowing the Electricity Board to put up the cost of electricity by 10 per cent. I have not the exact amount—no doubt the Chancellor has—by which that will increase production costs, for it will vary from industry to industry; but the two actions by the Government seem a little incongruous.

This type of help is rather blunt, because it does not try to reflect the undoubted differences between one development area and another or within a development area. It is a flat subsidy irrespective of whether the factory is in South Wales, the Highlands or anywhere else. It also perpetuates the discrimination between the service and the manufacturing industries. I was more than a little horrified to read paragraph 48 of the Green Paper. In the middle of that paragraph I read: It would be difficult to accept that there should be a narrower tax base in the Development Areas". If the Minister and the Chancellor take that view, I shall profoundly disagree with them. We had a formidable battle with the Treasury trying to kill the sacred cow of equal taxation all over the country, and we beat them over the free depreciation allowance. This paragraph looks as though the Treasury are working their way back and are saying that we cannot have selective taxation which will help development areas. I profoundly disagree with that. As the Chancellor knows, there is a difference between handing out subsidies and insisting that we cannot have different taxation. The Treasury are often quite pleased to hand out a little subsidy here and there, but if he asks them—and I dare say that the Chancellor has—"What about something steady like Is, off the Income Tax for everybody who lives in Scotland?"— which would have some effect—he knows the sort of reaction that he gets.

The third point, which I believe to be entirely wrong in this conception as it stands, is that it will greatly increase the pull of people from the country districts into the big towns. The pattern of manufacturing industry in Scotland, as almost anywhere else, shows that the vast majority of this industry is inevitably in the big towns. If extra money is available, the pull to industry from agriculture, forestry and fishing will undoubtedly be increased by this policy and not decreased.

In the past, the development areas tried as hard as possible to attract to themselves the newer industries of growth and to replace as far as they could the industries which, if not dying, at least were slowly going out of fashion. With that in mind, I turn for a moment to the problems in Scotland. There we certainly have the best available regional statistics. We also have the Scottish Council, which I believe has a record second to none and which has infinitely longer experience than any of the other regional councils which have been set up in the whole problem of how to attract industry and how to get local authorities to develop. The Scottish Council has far more information than is available to any other outside body, very often including the Board of Trade itself, and I regard its views as important. The Minister who opened the debate did not do himself much justice in saying bluntly that the Scottish Council was entirely in favour of this proposal with one or two minor modifications. I have not time to read the 55 paragraphs but there are one or two extracts which certainly cannot be said to agree with the Minister's statement that they agree with R.E.P. in general, with one or two minor modifications—

Mr. George Lawson (Motherwell)

I am concerned that the right hon. Gentleman does not misrepresent the Minister. The Minister did not say that the Council was entirely in favour. It came out in favour with reservations. The important point is that its conclusions were in favour of this method.

Mr. Noble

I do not want to argue about the exact words used. I said that the north-eastern region was unique and the Minister said, "No. The Scottish Council are in favour, but there are reservations". One of the important factors which the Scottish Council has made clear in its report is that the development areas as such are not necessarily uncompetitive as manufacturing bases. I was delighted to hear two or three of the points made recently about the growth of industry in Scotland, because too often we tend to decry the development areas' contribution, which in many respects is very impressive. The fact remains that though we have a better growth rate than England and a better export performance than England, and though in many other ways the manufacturing industries in Scotland have done extremely well, our emigration is rising very sharply and our male employment is falling very sharply. For that reason, there is certainly every need for something extra to be done.

The Scottish Council has pointed out that in the last seven years two-thirds of the growth in Scotland has been in mechanical, electrical and electronic engineering. This has come mostly from old-established firms, though there have been some new ones which have come in and helped. The point the Council makes—and it is important that the House should realise it—is that every sort of industry, if it is to expand, needs engineers for the maintenance and operation of its machinery, equipment and so on. The Scottish Council tells us—and it knows a great deal about this problem—that there is absolutely no hope whatever of R.E.P. having any significant effect in Scotland unless a very large number of extra people are trained in engineering immediately, because the economy cannot expand while there is this acute shortage of skills in this key industry.

It tells us that a great deal of engineering work is having to be sent South because Scotland has not the engineers to do it. Orders are being turned away, and the demand for skills in engineering is such that the wage rates paid in Scotland today are higher than in any other part of the United Kingdom, except the Midlands. Therefore, the argument that if higher wages were paid in the development areas, the skills would flow back, is not true of Scotland.

Mr. James Davidson (Aberdeenshire, West)

When the right hon. Gentleman talks of skills in relation to higher wage rates in Scotland, is he referring to engineering skills?

Mr. Noble

I am. I hope that I made that clear. If I did not, I am grateful to the hon. Gentleman for mentioning it.

To be fair, the Scottish Council stated that this particular criticism of the essential need for more training, particularly in engineering skills, was not a criticism of R.E.P. It says that any expansion which is tried in Scotland will need this problem to be solved, too. It is a criticism of the priorities on which the Government have chosen to spend this money. If the Government would put into the Finance Bill a new Clause giving additional help to industry for training people in the new skills and new ways, then this would be the right priority. To put it on the R.E.P. when the Scottish Council and the C.B.I. and the chambers of commerce say it cannot be used because the skills are not there to develop, shows that the Government priorities are wrong.

The Scottish Council also says in paragraphs 25 to 28 of its paper, which hon. Members have had, that the second priority is not the regional employment premium; it is the need to increase investment. It says that this is complementary and not an alternative to increased investment in machinery. It says that there is practically no under-utilised plant in Scotland at the moment and that if there were increased investment in machinery there would be a better chance of using unskilled people to fill up some of the jobs which will undoubtedly be needed. It says that this is as true in the labour-intensive industries as in others.

Apart from those two, the Scottish Council noted one or two other specific faults. If the Chancellor will accept the Scottish Council's views, then we need not dwell very long upon them. However, it made desperately clear in paragraph 34 the effect of the Selective Employment Tax on the tourist industry: Already much of this growth has been slowed or halted by the exclusion of hotels and services from repayment of the S.E.T. I am sorry that the Secretary of State has gone, because it was only a fortnight ago when he and the Minister of State were saying that this had not had any effect on the tourist industry. It goes on to say: There is no logical defence for this. Perhaps the Chancellor of the Exchequer can help us with that.

Then it says that if manufacturing industries are increased, there is a great deal of service employment which has to move in step with those manufacturing industries. Over 50 per cent. of all the jobs in Scotland are in the service industries and if we are to get our share, our 2 per cent. down in our unemployment rate, it seems to be crazy that the Chancellor of the Exchequer and the Department of Economic Affairs cannot get together and at least be more selective about some of the service industries which should get help.

Mr. Donald Dewar (Aberdeen, South)

I understood the right hon. Gentleman to say that over 50 per cent. of Scottish jobs were in the service industries. Perhaps he would like to look at the recent report of the National Institute of Economic and Social Research, page 27, which gives the figure for Scotland as 46.6 per cent., which is well below the British average.

Mr. Noble

I was quoting the Scottish Council which says that over a million people are employed in service industries, compared with fewer than three-quarters of a million in all manufacturing industries together. If there is some difference of opinion between the Scottish Council and somebody else, they should resolve their differences outside.

Mr. Dewar

The right hon. Gentleman has missed out some jobs, agriculture, mining, for example.

Mr. Noble

They may have taken slightly different bases of comparison. I was quoting what the Scottish Council had said. The Scottish Council makes it abundantly clear that it regards the exclusion of Edinburgh and the Port of Leith as being total and absolute folly if we are to get that part of Scotland moving.

When listening to hon. Members arguing, as the Minister did, the tremendous advantages which were to come out of the regional employment premium, I found it difficult to see where all the money was to come from. There is no doubt that industry needs a good deal of money for retraining. Nobody denies this. It is true that industry needs to invest a great deal more money, even with the Chancellor's 45 per cent., in new equipment. It has also to cover its existing commitments—dividends, wages and so on—and, with prices rising very steeply, profits in almost every industry are being squeezed. Yet the Gov- ernment say, "Here is a small subsidy for you on your wage bill. Out of this small subsidy you have to reduce costs, you have to do a great deal of training, and you have to meet all the other needs of cash flow to expand your industry; so we will give you 45 per cent." But there is another 55 per cent. to come from somewhere.

All this in some extraordinary way is smoothed way, and I have no doubt the Chancellor will tell us, "I have other shots in my locker". He may well have, but we are asked to decide whether this is a good policy and whether we are to support the Government in bringing it in without knowing how industry is to get the money to do the things which it has to do if these jobs are to be created. The Chancellor of the Exchequer has to be a good deal more honest with the House if he is to persuade us that he has the shots in his locker which will meet the gaps in the R.E.P. scheme.

The economists are certainly divided. I am sure that for every economist in favour, the Chancellor and I could each find one against, and that is not an unusual situation. Industry and commerce are totally against it. The Scottish Council says that the Government have their priorities wrong, and only the Trades Union Congress is solidly in favour of it.

The Government have told us that we must not be too worried and that they cannot do everything at once. I believe that this is their own fault. They deliberately moved away from the system of growth areas to the system of development areas, thereby enormously increasing the areas to be covered by any special help of this sort, and there is no doubt that the money available will not go far enough for these new development areas in view of the many other things which the Government would like to do.

I believe that this is another attempt at instant government, an attempt, which may be partially successful, to get people to hoard labour through the following winter months, but it is in training and in investment and communications, as the Scottish Council thinks, that the major break-through will have to come. There is nothing in this scheme to make industry more competitive or more efficient. There is nothing to encourage technology or automation.

As many hon. Members did, I read The Times today. The Times has been one of the few protagonists of R.E.P. and in its leader in the business section it says today: What is on trial is the collective reluctance or inability of the Government to restore the competitiveness of the British economy …". There is nothing in R.E.P. to do that. Just below that leader, in what might be called the gossip column—and I am sure that The Times has very close relations with all the Whitehall Ministries—it says that the D.E.A. was very much in favour of R.E.P., the Board of Trade against it to a man, and some of the Treasury in favour and some against. If that is true, then even among the Government's own economics experts there is no unanimity about what ought to be done.

Everything in the scheme presented in the Green Paper perpetuates the worst faults of the Selective Employment Tax and if the Government insist on introducing it in this form and adding it to the Finance Bill, as we are told in the newspapers that they have already decided to do, they will not only be throwing away the considerable merit which they rightly earned for saying that they were producing the scheme for people to consider and discuss so that it could be seen how best to use it, but they will have decided to introduce it although the great majority are people who know what will happen are against it.

The Chancellor of the Exchequer (Mr. James Callaghan)

The right hon. Gentleman has very properly spent the whole of his speech discussing the serious views of those who are qualified to have an opinion about this matter. Before he concludes his speech, will he say whether the Conservative Party believes that this measure should be introduced?

Mr. Noble

I can give the right hon. Gentleman the answer to that in one word—no. If the First Secretary, who told us so much about what the regional councils had advised him to do, had made any attempt to publish their views, or to say how they were arrived at and by whom, that might have been a good deal more intersting. My answer to the right hon. Gentleman is, "In this form, no".

Mr. Callaghan

If the right hon. Gentleman would not introduce this scheme, what other measures would he take in order to reduce the differences of the levels of unemployment of the southeast area, the Midlands and London and the rest of the country? All the things which he has mentioned this afternoon—communications, training, investment and so on—are not alternatives to what is being done, but are in addition to what is being done.

Mr. Noble

The right hon. Gentleman obviously wants me to go no speaking for another hour and a half, and I have no intention of doing that. It is perfectly fair for him to argue that these are not alternatives, but there are very clear alternatives. The Chancellor could spend the whole of his £100 million on training and that would be self-financing in exactly the same was as this scheme and would have very much better effects.

However, if the Chancellor has decided to bring in a new Clause to the Finance Bill to introduce regional employment premiums, I hope that he will guarantee to the House that we shall have full time to discuss the many aspects and the very wide variations in the different regions which will need very careful thought.

5.36 p.m.

Mr. J. B. Symonds (Whitehaven)

I shall not say that I will not speak for very long and then speak for three-quarters of an hour, as has already happened this afternoon. I appeal to hon. Members to speak shortly and to allow others a chance to speak. To speak too long is not fair to other back benchers who have important things to say. I hope that that will also be remembered in days to come. This is the best opportunity which I have had of saying it, and I hope that hon. Members will take note of what I have said.

I am glad that a study of regional policies is being undertaken. It is not before time. The regions have been denied their proper place. I shall speak specifically of the northern region and of the hardships which have been suffered there. I know what I am talking about when I speak of what the northern region has gone through. I have memories of the days of 1936 and of years like that and I also remember when a right hon. and learned Gentleman opposite wore a cloth cap and came to Tyne-side and appeared to think that Tyneside was the only area in the northern region. When he was asked what was to be done about the North, especially Cumberland, he said that he was not in a position to have anything done.

When we of the region pursued the matter, and asked the then President of the Board of Trade, now the Leader of the Opposition, to give us more money to publicise Cumberland so as to attract industry to the area, we were turned down flat. Today, we have heard the cry from hon. Members opposite about the taxation which industry has to bear, but during all their 13 years of office right hon. Gentlemen opposite never once gave the bringing employment to the North the importance which it deserved.

Speaking on Tyneside last Saturday, my right hon. Friend the Secretary of State for Economic Affairs said that he was prepared to give a Government pledge to support the North-East Development Council with cash grants so that it could bring industry to the North-East. I wish that right hon. and hon. Members, on both sides, when talking about the northern region, would remember that it does not stop at the Pennine Range, but goes right across the country down as far as Millom.

I appeal to my right hon. Friends the Secretary of State for Economic Affairs, the Chancellor of the Exchequer and the President of the Board of Trade. The areas in Cumberland are in the situation in which they need the development outlined in the White Paper. The unemployment figure for Cumberland itself is 4 per cent., which is a large amount. In part of my constituency, the figure is 10.9 per cent., while in other parts of Cumberland it is 8.9 per cent. In the Millom area, it is 4.5 per cent. Is it wrong to give industry an incentive to go there? Of course it is not.

Have our menfolk to work for the smallest average wage in the country? Are we to be cut off and told "Work out your own salvation", as we heard some years ago from a prominent President of the Board of Trade? I appeal to the Ministers concerned to bring this scheme in. Research departments of the Atomic Energy Authority have been placed there. Let them have more research work. When the Government build factories, as they have done, do not let them stand empty for 12 months or more before they are occupied.

This is the sort of thing which must be done. If this principle in the Green Paper means that more industry will go to development areas, then let it be carried out. But, in Cumberland, towns to reasonable size are about 40 miles apart. One cannot, therefore, claim that putting up an advance factory will benefit a town 40 miles away with 4 per cent. unemployment.

It is on behalf of the people of Cumberland that I speak. They must not be neglected. They must not be cast to one side and told, "You have only 3 per cent. or 4 per cent. unemployment." That does not give them their breakfast tomorrow. It does not stop them from signing on, at the employment exchanges, as they are doing now.

I appeal to members of the Government, whom I have actively supported over the years, to visit Cumberland and see what is happening there and just what industries can be brought there for the benefit not only of the people of Cumberland but of all development areas, whether in Scotland, Lancashire, or the South-West.

Men and women have got to have a good breakfast, a decent home in which to live and earn a good wage. They cannot take the attitude, "I am the boss. How much taxation can I get away with?" If that is to be the thought before men can get jobs, then the Government must say that jobs come first so that men can have an adequate standard of comfort. I say to my right hon. Friends, "Come to Cumberland and see that we are not neglected any more."

5.54 p.m.

Sir Frank Pearson (Clitheroe)

At your request, Mr. Deputy Speaker, I propose to be very brief and to deal only with a relatively narrow point, which has already been mentioned in the debate—the question of how these proposals will affect what have come to be known as the "grey areas" of Lancashire.

I entirely appreciate the circumstances in which the Government have had to rush forward these measures. Expansion in the economy is flagging and a possible 2¼ per cent. level of unemployment is forecast for next winter. All this must make the Government extremely concerned about the position in the development areas and look round for measures which will at any rate hold out some hope of attracting new employment and new industries into these areas.

I believe that the proposals in the Green Paper will in no way make industry in the development areas more competitive. Yet in paragraph 41 that appears to be one of the main stated objectives. What they will do, I have- no doubt, is to provide a very strong additional magnet, drawing new industries and new projects into the development areas and away from other industrial areas.

I am all in favour of the development area principle. I have entirely supported all the measure taken up to date. But I am only too well aware that the measures we have already taken to help the development areas have in many cases brought about an imbalance and a distorted industrial development in other areas. I am not saying that there is not sufficient fat in the Midlands area or the South-East to be able to afford some shedding of industry for development elsewhere. But we are not all in the happy position of the Midlands and the South-East.

Many areas in Lancashire have declining industries, mentioned in paragraph 7 as the justification for development areas. The textile and mining industries are in decline. We have an agricultural industry which, under the Government's own National Plan, was to shed no fewer than 100,000 of its employees over a five-year period.

In addition, we have probably a higher average age in our labour force than in any other area in the country. For a number of years, there has been a consistent and steady drift of younger people away from these old industrial areas of East Lancashire. It is these three factors—the drift of younger people, the high average age level of employees and the gradually dwindling industrial population—which give very great cause for concern indeed to the old industrial areas of East Lancashire.

I was sad that the Secretary of State spent 99 per cent. of his speech trying to justify these proposals and only 1 per cent. explaining what the impact is likely to be on areas outside development areas. I found his programme for approaching this problem extremely unconvincing. What are we to have? Another survey. No practical measures. I cannot help feeling, from certain events that have occurred in the House during recent months, that the Government are hardly aware of the seriousness of the problem in East Lancashire.

I remember the Joint Under-Secretary of State for Economic Affairs answering a recent Adjournment debate which was opened by the hon. Member for Accring-ton (Mr. Arthur Davidson). The Minister dealt for 20 minutes with the problems of North-East Lancashire, but the only solid and atttractive proposal that he was able to put before the House was a suggestion that we might accelerate the smoke clearance scheme.

The other day the President of the Board of Trade announced with great joy that the Government were to set up no fewer than 30 advance factories. I asked him how many of them would help areas which are suffering so much from the decline in the textile and mining industries in East Lancashire. His answer amazed me. He said that one of the factories will be established at St. Helens and that it will give some assistance. Anybody who knew the industrial set-up in East Lancashire would be amazed to hear that a factory established at St. Helens was likely to be of any assistance to the declining industries of East Lancashire.

We had the same kind of thing today. Tremendous reliance was placed on the effectiveness of giving additional I.D.C.s. It is all very well, but what is the good of giving them if people are not applying for them? Also, if people are to be attracted—they are being attracted; it is no good the Minister shaking his head—by excessive assistance for the development areas we shall have stagnation in the old industrial areas.

There is the case of Courtaulds, which is now, I am glad to say, drawing up plans for the establishment for a very large modern textile factory. One might have thought that the factory would be established in the old cotton belt. But it is to be established in the development area at Carlisle. There is also the case of the Nairn-Williamson factory, in the constituency of the hon. Member for Lancaster (Mr. Henig), which closed down the other day. It is not to be reestablished in the old linoleum town of Lancaster, but will be taken up to Kirkcaldy to get all the benefit of the development grants.

If we are to go ahead with very substantial additional attractions in the development areas, the stagnant areas of North-East Lancashire must be dealt with. It is no good saying that we are to have a study more or less on the basis of there being additional I.D.C.s. We want something more solid than that. There must be a partial grant scheme, or we must be given specific priorities for communications, or we must be given additional assistance to renovate the old towns in the old industrial areas. It is not good enough for the Government to say that they are to have another study made. They must have known that these problems have been boiling up for the past 18 months or two years.

Mr. Heffer

A great deal longer than that, during the 13 years of Tory rule.

Sir Frank Pearson

During those 13 years there was a great deal more stability in such areas than there is today. But I do not wish to become political about this issue. What I wish to do is to point to the seriousness of this problem.

During recent weeks a proposal for a great new town in the Preston-Leyland-Chorley area has been published. It is a magnificent concept. I congratulate the Government on it, and I hope that it comes to fruition. But if it should do, then the draw of this new area, with these additional magnets and attractions, will be killing for the towns of North-East Lancashire. I therefore hope that the question of additional incentives and help will be given very serious consideration, and that in the case that I have tried to put today I shall have the support of all Lancashire Members who sit on the other side of the House.

6.5 p.m.

Mr. Ronald Atkins (Preston, North)

I congratulate the Government on the greatly increased help that they are giving to the development areas. When I say "greatly increased" I mean compared with that given by the previous Government. I also congratulate the Government on the good results, because the disparity between the average unemployment in the country and that in the development areas is much less than it was. I also congratulate them on the new proposals which I am sure will help still further to reduce unemployment.

However, I share the apprehension of some of my constituents in a grey area very nearly contiguous with a development area about the future. We fear that the amount of industry that will be diverted from the South-East to the North-West by the new measures will be greatly limited. We feel that the grey areas will suffer in the sense that nearly all the new industry to be diverted will go to the development areas. We feel that this will be almost entirely at the cost of the grey areas contiguous to development areas and not at the cost of the South-East. Lancashire is in a particularly unfortunate position. It is probably the only grey area squeezed between two development areas. There is the development area of Cumberland and Westmorland in the North and that of Merseyside to the South-West.

We are particularly anxious to get new industry at the moment because of the great decline in unemployment in the coal and the cotton industries. I am particularly concerned about the cotton industry where many thousands of textile workers are at the moment unemployed. We fear that many more decisions will be made like the one made by Courtaulds. Cour-taulds has decided to build a very large new textile factory in Carlisle, where, of course, the employment is needed, but it does not seem to us to be sensible to prevent Courtaulds building new factories in the old-established textile areas where there are many unemployed textile workers. This is just one example of the way in which the new measures might hurt the grey areas.

The President of the Board of Trade last week referred to the empty cotton mills of Lancashire as an industrial advantage. Some of them, it is true, are well built and might be used, but I wish he would look at some of them and then he would realise that they are an industrial disadvantage second only to the spoil heaps. The Government would be doing Lancashire a great service if they levelled out the old mills with the spoil heaps and the empty canals. There is so much dereliction in Lancashire that it must be a strong positive disadvantage. If the empty cotton mills were an industrial attraction, one wonders why they have been empty for so long. It is not only that the cotton mills are unattractive; they are hemmed in with dreary terraced houses.

The cotton towns require very special assistance in view of the large pockets of unemployment among textile workers, which are not, however, large enough throughout the area to qualify them as development areas. The problem is still serious. I should like the Government to treat empty cotton factory sites as development areas for the purpose of attractiving new textile industry. There is every reason for this to be done as the cotton labour is there. Much of it cannot be used on other industries.

A large number of unemployed textile workers over 50 years of age are not suitable for, or will not submit to, industrial retraining. It is obviously necessary that new textile industry should be brought to these cotton and textile areas. Very little research seems to have been done on the causes of the drift of industry to the South-East. If such research has been done, the Government do not seem to have taken any notice of it. It is true that they have promised to look further into the matter in future, but they could get some quick answers from industry at very short notice. The could send out questionnaires to some industrialists, and they might even consider referring the matter to some Government Departments.

Many of us still want to know why it has been decided that the new administration of the steel industry shall be in London and not in Sheffield or Middlesbrough, or even in Scotland. We sometimes feel that the Government have not learned the lesson of regional devolution. There are many Departments which do not seem to have learned that lesson, and this applies particularly to social amenities, to which I will refer later.

If research was carried out, it would show that some of the chief reasons for industry drifting from the South-East are that it is pleasant country and has excellent communications. Communications are more important in the location of industries than they have ever been as a result of the lessening importance of natural resources.

In addition, the best social amenities will be found in these areas. Various reports on educational amenities and so many other social amenities continually show this to be so. It is important to remember that the grey areas are usually twilight areas, too. We have been told that one reason for their being grey areas is that they are also social twilight areas.

The Government should act to give the North equal educational opportunities. We are still far from having that, as the reports continue to show. Most disappointing to me is that the Ministry of Education does not seem to be aware of the need to act to give the North equal educational opportunities. A case in point was the White Paper dealing with polytechnics. Instead of giving the North superior advantages, they gave ic inferior advantages compared to the South. It is significant that as regards the proportion of population to the number of polytechnics, the worst case in the country was in the North-West, where there is a great need for higher technical education, in association with industrial retraining.

The Government should get ahead right away with removing the scars of the 18th and 19th century industries. Lancashire should not be blamed for having had this industry—it should be thanked, and the country's thanks should be in some material form to this industrial pioneer.

I cannot emphasise too strongly the need for good and rapid communications. Someone said in support of the new town at Stansted, which is within 30 miles of London, that it should go there because the new town was bound to prosper. That could be said about any area within 30 miles of London, because any such area has excellent communications. That position could not be found in many places in the North.

There is a constant effort by British Railways to reduce rail facilities in the North, whether North Lancashire or Yorkshire as well as in Wales or the South-West. We have had closures again and again. One of the most interesting proposals, which has just reached the newspapers, is that to close the commuter service on the new electrified line—and when I say the new electrified line I mean the proposed electrified line—between Warrington, through Wigan and Preston all the way up to Lancaster and Barrow-in-Furness, and on to the Lake District.

This is remarkaby surprising, and shows that British Railways are not acting in accordance with the Government's regional schemes, as expressed, because this line will go through the new town of Preston, which will be a metropolis requiring a greatly increased commuter service. Yet British Railways go on with closures regardless.

It has already been pointed out that there is a great need for industrial retraining. We must all agree that, although the Government have increased the capacity of the training centres, much needs to be done. Even the First Secretary has said that proposals for immediate grants to the grey areas have been made in many quarters. I can only ask why not? Let us have them soon.

The future prosperity of any region depends not upon small and limited areas, but upon changing the whole image of a large region. We should consider devolution of prosperity to the regions in line with the need to improve the image of the regions as a whole. One thing that I hope that the Government will do is to press ahead with the new town of Preston—Leyland—Chorley. It has been said that this will take industry away from surrounding towns, but I do not think that this is true.

Indeed, nothing could be farther from the truth. The reason the South-East and the Midlands are so prosperous is that prosperity started in the great centre of the London Basin, and affected the towns around. The prosperity was shed on to them. We need such towns in Lancashire and other parts of the country. It need not be Preston, although I naturally have a bias about this. I am sure that the new town development at Preston will be valuable, because it is pointing up the Ribble Valley and will help the areas in that Valley.

I appeal to the Government to go ahead with planning in the regions, to improve the image and to increase the facilities for industry, to improve the communications, the sites and to get everything ready. They must clear up the dirty, derelict areas, improve educational facilities and other amenities, and then there will be the possibility of permanent prosperity in the regions.

6.20 p.m.

Mr. Stanley R. McMaster (Belfast, East)

In addressing myself to the Green Paper, I should like to reflect particularly some views of my constituents in Northern Ireland. I speak on behalf of probably one of the most heavily industrialised constituencies in the whole of the United Kingdom, with industrial interests ranging from shipbuilding, aircraft construction, rope works and heavy engineering to many smaller engineering works.

In Northern Ireland, we have experienced probably one of the highest rates of unemployment of any region in the United Kingdom since the war. Therefore, the proposals set out in the Green Paper are, perhaps, of more interest in Northern Ireland than in any other part of the country. I regret very much that in opening the debate the First Secretary did not pay more attention to the problems of Northern Ireland and the way in which they might be affected by the proposals of the Green Paper. We in Northern Ireland welcome the provisions of the Green Paper which relate to Northern Ireland. Nevertheless, because of our peculiar difficulties there, we in Ulster sometimes feel that we are rather neglected in debates on subjects such as this in the House of Commons.

We have experienced problems not only on the lines outlined in the Green Paper, but problems which are, perhaps, more deep-seated. We have seen a rundown in traditional industries, such as the ship-yards, and also in agriculture. We have suffered from the movement from the land to the city. We also have the difficulty of a more rapidly increasing population with a higher birth rate than any other part of the country.

That means that we have 8 per cent. unemployed in spite of the fact that we are now at midsummer, when one would normally expect unemployment to be at a much lower level. That is merely an average figure, because it reflects 7 per cent. of the women on the register and 9 per cent. or more of the men. In other words, about one person in 10 in Northern Ireland is unemployed.

The Government have taken great measures since the war to alleviate unemployment. They have spent considerable sums in efforts to attract new industry to Northern Ireland. They have taken courageous steps in improving the infrastructure in Northern Ireland. We have an ambitious road-building scheme and we have improved our hospitals and schools in a way which is sometimes the envy of our neighbours in Scotland and other parts of the United Kingdom. We have also given grants of up to 45 per cent of their capital cost to firms moving into Northern Ireland and we have provided them with tailor-made factories at low rents.

All those measures, however, have not been sufficient to meet our unemployment problem. As is sometimes said, we have been moving as fast as we can in the direction of regional development only to remain motionless because of the other factors which, at the same time, have operated against us, particularly the rundown in traditional industries like shipbuilding, linen and agriculture.

There was hope that by 1964 we were seeing the end of the problem. Unemployment had dropped from the very high level of 10 or 11 per cent. three years previously to about 7 per cent. and was showing signs of further reduction. Unfortunately, just at that time we ran into another period of deflation and squeeze. That deflation and squeeze hampered and hindered the efforts which we were making to create further employment in Ulster. That is the main basis of our problem in Northern Ireland. Clearly, from the facts which I have tried briefly to summarise, something more is needed. That is why I support the proposals which are set out in the Green Paper.

When my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced his payroll tax, during the time of the last Conservative Government, there was considerable argument in the country about the merits of that tax. After a bit of a dogfight, my right hon. and learned Friend agreed to exempt Northern Ireland and it was suggested by economists at the time that one of the best uses of such a payroll tax would be on a selective basis to help development areas. Indeed, I see the proposal of the Green Paper as an extension of that theory and of those proposals.

One of the main problems which has prevented the development areas from expanding their industries and attracting new industry at a sufficient rate to offset the rundown in their established industries is their remoteness from the market. Industrialists may be attracted by the amenities in Northern Ireland—by the good roads, hospitals and schools, for example—but they must always bear in mind the cost of transporting their raw materials across to Northern Ireland and their finished products away from Northern Ireland. The same applies in Scotland, Wales, the North-East and the South-West. Therefore, if one is to meet this problem of remoteness, one must find a way of offsetting the transport costs which those industries have to suffer.

A direct transport subsidy has some attraction, but after studying the matter I believe that it would be almost impossible to administer. In addition, it would run contrary to the provisions of G.A.T.T. and of those relating to the Treaty of Rome, to which reference has already been made. It is not possible to help the development areas in that way.

If, however, as the First Secretary has suggested, the proposals set out in the Green Paper are not contrary to the provisions of the Treaty of Rome, and if they can be applied even if Britain enters the Common Market, the measures outlined in the Green Paper are desirable for the reasons which I have stated.

It is vital that we should attract growing industry to Northern Ireland, and new industries in particular. As another hon. Member has suggested, it is not sufficient simply to boost the dying industries. It is more important for the country to be in the position of expanding new industries and bringing in industries which, perhaps, have never been in the region before, setting them up in new factories and using the most modern methods, so that they can compete and, we would hope, expand and lead the whole country in increasing their production and finding new export markets. It is simply by using the schemes put forward in the Green Paper that that end can be achieved.

A matter of great concern to myself and to many economists has been the speed with which the Japanese have managed to build up their industry in the period since the war. One of the great advantages that the Japanese had was that they were starting, as it were, in virgin fields. The history of shipbuilding and of Sony radio can be cited. The Japanese were able to start with a clean sheet, and factories established in our development areas would benefit from some of those advantages.

We are living in a rapidly developing world. It is important that at least in part of our country industry should be given a chance to start with a clean sheet and show that the benefit of the training and skills which we undoubtedly have, coupled with our ingenuity and ability, can produce goods in competition with any other country. I believe that we have this aptitude. Too many people waste too much time denigrating the British workman's ability and initiative.

It is easy for economists in their armchairs to criticise. Indeed, that is their job. I spent some time reading economics and I know that, in this woolly subject, there is nothing better than to criticise. Any proposal can be pulled to pieces, but when one faces real problems, such as those of Belfast, of unemployed people, one cannot afford to be too lightly critical of proposals like this.

One criticism is that if the money were spent on building up the infrastructure this would meet the needs of the development areas, but providing roads, hospitals, schools and other facilities will not attract industry. We have spent a great deal of money on this in Northern Ireland, for which I am glad, and it has indirectly provided employment and been a very good "relief scheme", but industry will not come for this reason alone.

Another criticism relates to the higher wages and profits. Perhaps some of these payments will be reflected in higher wages; I hope so. One of the problems of development areas is keeping the skilled men. If one cannot offer them higher wages, one will not keep them. That is why one should not worry about some of the extra payments being reflected in higher wages, as they will be spent mainly in the area.

Another criticism has been that service industry will not benefit. But higher wages and profits will go into the service industries in the area and the whole process is a circle. This will lead to an expansion in those industries and further employment, which is the Green Paper's main purpose. It is also suggested that some other industries in the Midlands and the South-East are worried about the effect, but this is a non-sequitur with the other criticisms, as it means that the benefits will be real and will direct industry to the development areas.

I sympathise with the mention of the "grey areas" just outside the development areas, and I hope that these proposals, perhaps to a lesser extent, could be extended to them, particularly if the premium is the higher rate suggested, £2 instead of £1 or £1 10s. This is not a destructive criticism of the principle but a criticism which shows that the proposals will be effective.

There have been other minor criticisms, for example, that of the Scottish Council about the shortage of skilled labour. I hope that the demand for more skilled labour will give rise to more training schemes in development areas and that any Government would attend to the great need for increasing the supply. This is vital, but it is not a substitute for these proposals. First, there has to be industry, and then one trains the skilled men. It is largely purposeless to spend a good deal of taxpayers' money on training large numbers of skilled men where there is no adequate demand for them, which leads to their emigrating.

I speak with some feeling, because of the highly skilled labour of Northern Ireland, instead of becoming what the Minister might like and as was suggested in the National Plan—mobile, moving to where it is needed, in the South-East, for example—has left Northern Ireland and decided to go to America, Australia or elsewhere.

This is a fault of any part of the National Plan based on ideas of mobility of labour as the solution to our problems. It is much better that skilled employment in new industries should be provided in the development areas. Then the skilled men perhaps would not migrate at the present rate from Scotland, the North-East and Northern Ireland. I am referring particularly to the brain drain to the United States and Canada.

These are ambitious and imaginative plans. They are by no means complete and it is not suggested that they are. I believe, with other critics, that their extent is too brief and that an industrialist might not be prepared to set up in an area like Northern Ireland and incur the necessary capital investment if he thinks that he will benefit for only five years. Some industries take two or three years to become established. If would be better if the industrialist knew that these proposals were for at least 10 years and it is right to suggest that they should be. They might be phased-out gradually during the last two or three years, but he should have some longer prospect than the suggested five years.

Other matters, like labour training, general economic expansion, confidence and lower taxes nationally will all add to the incentive to provide work in these new industries. The ideas in the Green Paper, however, are worthy of consideration and acceptance by the House.

6.36 p.m.

Mr. William Hamilton (Fife, West)

I agree with a good deal of what the hon. Member for Belfast, East (Mr. McMaster) said. I doubt, however, whether his own Front Bench would agree—certainly not the right hon. Gentleman the Member for Argyll (Mr. Noble), who tried to back his horse both ways, eventually coming down against the Green Paper's proposition for Scotland, which means that the official Conservative spokesman for the Scottish Tory Party is turning his nose up at £40 million to be channelled into Scotland in addition to the assistance given in the last two or three years—

Mr. MacArthur

Quite wrong.

Mr. Hamilton

The right hon. Gentleman was deliberately asked by the Chancellor whether he was against this proposition and he said categorically "No". Subsequently, he qualified it in its present form, but when asked to specify in what ways he would change it he whittered about the Scottish Council's qualifications but made no specific proposals of his own. Nor is it clear to anyone in Scotland what the alternative is. If it be that which they proposed and put into effect in their 13 years of power, the response of the Scottish people will be the same as it was in the General Elections of 1964 and 1966.

No party has found a complete solution for the problems of regional variations in economic development. Both major parties have employed a combination of sticks and carrots, of fiscal incentives, monetary inducements and even physical incentives in the form of advance factories. But it is interesting that the Conservatives about two or three years ago were violently opposed to the whole principle of building advance factories. I notice that there has been no mention of that in this debate.

Despite all the plans and policies effected by both Governments, the problem still remains intractable, so much so that some have been led to assert that it would be better if we reverted to a complete policy of laissez-faire and let market forces and the laws of supply and demand do what Governments seem incapable of doing. A principal advocate of that doctrine is not on this side but is a Front Bench spokesman for the party opposite. I am referring to the right hon. Member for Wolverhampton, South-West (Mr. Powell). When the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home) was Prime Minister he also took this view. Lord Hinchingbrooke, as he then was, took very much the same view and thought that economic forces alone, without let or hindrance, would solve this problem of regional imbalance.

I do not believe that that view is widely held in the House or the country today. Indeed, there is common agreement that governmental intervention of one kind or another is inevitable and is in some respects desirable, not only on economic but on social and strategic grounds. There may be differences of view between us about the type of assistance or interference—call it what you will—of government and the scope and degree of governmental intervention, but I hope that there are no differences about the principle involved.

Following the example of the hon. Member for Clitheroe (Sir Frank Pearson), and without wishing to be party political about this, it is fair to say that, in the limited period during which the Labour Party has been in Government, we have done more than most previous Governments to tackle this problem of regional imbalance. One can think of the five batches of advance factories, the tougher I.D.C. policies being applied in the South-East and the Midlands, and the wider scheduling of development areas as opposed to development districts. This led the right hon. Member for Argyll to charge us with spreading the jam too thinly. However, he went on to say that we should include Edinburgh and the Port of Leith. Would not that be spreading the jam even more thinly? Today the development areas cover about one-fifth of the total working population.

Enormous financial assistance has been and is still being given—the 40 per cent. investment grant in the development areas compared with the grant of 20 per cent. in other parts of the country. We have also had the 25 per cent. building grant and grants towards labour training costs. There has been a general attempt to shield the development areas from the worse effects of the credit squeeze. There can be no denying the fact that regional disparities, measured in terms of unemployment rates, have been reduced despite the credit squeeze.

Mr. Bruce-Gardyne rose—

Mr. Hamilton

I know what the hon. Gentleman would say if I gave way. I listened with interest to the speech he made when we were debating the Finance Bill the other day, and I assure him that he is wrong. All objective assessments of the situation indicate that, however undesirable the levels of unemployment in Scotland, the South-West and elsewhere may be, the fact remains that the gap between those regions and the more prosperous areas has been reduced.

At the weekend Cabinet spokesmen, the Chancellor of the Exchequer and the Leader of the House, asserted that now was the time for some steady, cautious reflation. The whole point of the exercise is that the greater part of that reflation must take place in the development areas. This must be done if we are not to have a recurrence of stop-go, the policy from which we suffered for so long since the war. This S.E.T. proposal must be seen in that broad context.

The proposal in the Green Paper is open to criticism, by omission or commission, and it is valid to ask whether a study in depth has been made of the £100 million which it is proposed to spend. Could not this have been better spent in the provision of housing and in the rest of the infrastructure proposals that have been made? Although I do not know whether such a study has been conducted, I am sure that the Government have acted on the best advice available to them.

The original idea of S.E.T. was criticised because of its crudeness, its arbitrariness. That criticism must now be somewhat watered down, to the extent that the tax is to be refined and made more selective. I want an assurance that we have not heard the last word in this matter. When the original proposal was introduced I welcomed it, despite its crudeness, largely because I believed it capable of an infinite variety of refinements. I want a categorical assurance that this is only the beginning of this tax being refined. I presume that that was what the Chancellor had in mind when he said at the weekend that he had a lot of other shots in his locker. I hope he meant that S.E.T. will continue to be refined, notably with the development areas in view and particularly the exporting industries in those areas.

I did not agree with many of the remarks of the right hon. Member for Argyll, but I do agree that Scotland's export record is extremely good. The facts and figures are quoted in the Report of the Scottish Council, so I need not repeat them. There is no doubt that the Scottish worker, man for man, is producing more than his counterpart in the rest of the United Kingdom. Because an increased volume of exports is the key to our future prosperity and will enable us to extend the social services in the way we want to see them extended and improved, it follows that Scotland, primarily an exporting country, must be given even more encouragement than it has recently been given.

To say that vast problems still remain is not to denigrate or minimise what has already been done. Consider the investment figures for Scotland. In 1960–61 the figure was £110 million. in 1965–66, the last full year, it was £240 million. In house building, the Scottish Council points out that this important part of the infrastructure of the country must receive more investment if the right industries and jobs are to be attracted to Scotland. However, nearly 53,000 houses were under construction in Scotland at the end of the first quarter of 1967, a figure never before obtained in the history of Scotland. Tenders approved for 1965–66 totalled 62,380, the highest figure for any two years in Scotland's history. The pace of growth in Scotland in recent years has indeed been something of which we can be proud.

When in Opposition my hon. Friends and I used to criticise the use of the phrase, "jobs in the pipeline"—but views change with the geographical situation of the House. The number of I.D.C.s issued in 1965–66 should result in the creation of another 35,000 new jobs, although my right hon. Friend the Secretary of State has a guilty conscience about this.

The Secretary of State for Scotland (Mr. William Ross)

Oh, no.

Mr. Hamilton

He used to be more violent about this sort of thing than even I was.

In view of what I have said, any criticism I may level at the proposal which is before us might appear churlish. Thus, if I make any criticisms, they are based not on the wrongness of the proposition but on the fact that it does not go far enough. It is not selective enough. It may not contribute enough, if at all, to the solution of the fundamental problems of Scotland, such as emigration and the provision of adequate training facilities. We on this side are in a much better position to criticise the inadequacies in training facilities than the right hon. Member for Argyll and his colleagues, in view of their record. The same applies to the, provision of housing.

We can talk about alternative ways of using this money and suggest other means by which we can redress the balance between the respective areas and regions. There are, however, other pieces of machinery which the Government are committed to using. It was said in our election manifesto that we would establish State-owned and controlled industries in development areas. Those of us in the development areas feel very strongly about this and insist that the Government very soon make some specific recommendations along these lines or give us very good reasons why it is not practicable to do so. This is one way in which we could add machinery to that already proposed for development areas.

Another way to help the development areas is to use Government contracts in channelling work and new jobs to development areas. Lastly, have the Government considered making use of differential National Insurance contributions as a weapon for differential development in the development areas?

If I have made criticisms, I hope that they are constructive. They certainly are not criticisms of the principle of the regional employment premium, which I welcome very much.

6.52 p.m.

Mr. James Davidson (Aberdeenshire, West)

My Liberal colleagues and I find ourselves in the not unusual position of being critical of the proposed method but very warmly supporting the objectives of this measure. The objectives are the reduction of unemployment, the reduction of emigration in development areas and the general reduction of the costs element, particularly the labour element, of manufacturing industries in the development areas. We realise that this measure would cut down the labour costs by between 5 and 10 per cent.

Few would criticise these objectives, but although I represent a constituency in a development area with a very high rate of emigration, I feel considerable sympathy for what I call the middle range areas—I do not like the term "grey areas"—such as parts of Yorkshire and Devonshire and the Edinburgh, Leith and Portobello area of Scotland, which are not in the golden triangle but are excluded from Selective Employment Tax premiums and from the proposed regional employment premium.

In our view, the answer to the problems of these areas lies, not in regional employment premiums, but in the abolition of the lethal Selective Employment Tax, which hits vital service industries and misses certain manufacturing industries which are far from essential; an end to the thoroughly time-wasting system of National Insurance stamps; and the institution of a regionally varied social security tax levied on a percentage payroll basis, with possibly two-thirds paid by the employer and one-third paid by the employee, with a minimum of three rates so as to allow for the widely varied economic conditions of each region of Scotland, England, Wales and Northern Ireland.

May I illustrate the point by referring to my constituency. I have no wish to be parochial, but I know this area best. In my constituency, apart from the basic industries of farming, forestry, fishing, quarrying and tourism and the vitally important service industries, we have several important manufacturing industries. There is, for example, a bacon and meat processing factory. There are four paper mills and two woollen textile mills. There is a creamery and a factory manufacturing a composite building material out of granite.

All those manufacturing industries are, or could be, directly ancillary to the basic industries of the area. That is a point which has been missed. For example, paper is ancillary to pulp and indirectly to forestry. The manufacture of bacon, sausages, pies, tinned cream and milk, and even the better quality wool for the textile industry, are directly ancillary to the local farms. The construction material is directly ancillary to the granite quarrying industry. Even the locomotive works in Inverurie is, in a sense, ancillary to a service industry.

Where does one draw the line between eligible manufacturing industries and non-eligible service industries? Why should the employer of the man who kills pigs in a bacon factory get the regional employment premium while the employer of the man who transports the pigs from the farm to the factory and the employer of the man who breeds and rears them—which, incidentally, is the most skilled occupation of the three—do not qualify for it? They are part of the same industry. Incidentally, bacon factories have not been profitable recently largely because of the inadequate supply of their raw material—the native pig.

The points which the Minister made about import-saving activities are surely answered by that illustration. Import-saving activities are intrinsic in these basic industries which are ancillary to the manufacturing industries in areas such as the one which I represent.

I have certain criticisms. I will not dwell on them because many of the points have been made. I hope that I will make my criticisms in a constructive spirit. I accept the Minister's arguments for the regional employment premium, but those against it indicate that a much better method could be adopted. There is a considerable incentive to manufacturing industry to employ more people rather than to automate. In this sense, it is pulling directly against the investment incentive. Perhaps the Minister would consider that point.

In certain circumstances, the regional employment premium may well operate to the advantage of, and come as a windfall to, certain inefficient industries. There is no allowance—and this is vitally important to Scotland—for retraining. Not only that, but the shortage of houses and the lack of certain categories of skilled workers in Scotland are much more inhibitive to the expansion of manufacturing industry than the counter measure which the Government propose to introduce. From where are these manufacturing employees to come? The service industries have been sucked dry of their surplus labour. Undoubtedly, these employees will be drawn from other areas equally lacking in skilled labour. This may well start a scarcity wage spiral in the middle range areas.

Has the Minister considered the possible danger to the wage and costs structure when eventually the regional employment premium is discontinued? Is it to continue for five years or longer? Is five years long enough to give the necessary confidence to industries which they are supposed to draw from this measure?

A point which must be taken into account is that many development areas are not ideal for major expansion of manufacturing industry. Once again we have the arbitrary distinction between service industries and manufacturing industries which I have attempted to illustrate. Surely consultative and advisory offices, training and technical colleges, universities, hotels and tourist enterprises and primary industries should be every bit as eligible for a regional employment premium, if such is to be established, as manufacturing industries.

There is no harm in making again a request to the Minister for an assurance that Selective Employment Tax will not be a permanent institution. If it is, its defects will also be perpetuated. Could it not be used as a transitional arrangement for a value-added tax, which in the long run would probably be a much more appropriate measure? I believe the self-financing forecasting is somewhat optimistic. If it is correct, any scheme which will stimulate economic activity will be equally self-financing even if it covers service industries also.

If the object is to achieve a 2 per cent. increase in employment in Scotland, why exclude the sector which accounts for more than half of the jobs in Scotland? I ask the hon. Member for Aberdeen, South (Mr. Dewar) not to make his point again. I have noted it; obviously there is a discrepancy in the figures. In spite of this, Scotland still exports 18½ per cent of all her manufactures against 15½ per cent. in the whole of the United Kingdom, and they are 14 per cent. more in value per worker. Industrial output is rising twice as fast in Scotland as in the rest of the United Kingdom, but Scotland seems to benefit very little. In the last seven years—I do not apportion blame for this—the total male employment in Scotland has fallen and net emigration continues at an intolerate rate while unemployment is still twice that of the United Kingdom average.

These are some of the reasons why the Liberal Party has advocated a regionally varied payroll tax with no discrimination against service industry. Our ideas have the support of the Association of British Chambers of Commerce, I should like the Minister to take that into account. Such a tax would have notable advantages. We could have a minimum of three rates. It would be adaptable to different economic circumstances in different regions and, if necessary, it could be changed annually. If one region was going ahead rapidly while in another general prosperity was dropping, it would be possible to vary the rates from year to year within the general premium. There would be far less danger of pressure on wages in the middle areas. It would be far more effective in mitigating unemployment in different areas by being tailored for specific conditions.

By reducing the wasteful system of National Insurance stamps and thousands of people every week licking stamps and sticking them on to cards, many hours of time and irritation caused by carrying out such operations could be washed out entirely. Staff would be released for administering the scheme as a multi-purpose social security tax both to stimulate economic activity and reduce unemployment where necessary and to cover the whole cost of the social security services. A regionally varied payroll tax is an altogether better method of obtaining the admirable objectives of a regional employment premium such as the Government propose. To requote the effect of a sentence already quoted in the debate from the report by the Scottish Council, why would it be difficult to accept that there should be a narrower tax base in the development areas? I should like the Minister to answer that question.

7.5 p.m.

Mr. Alec Jones (Rhondda, West)

It is both a pleasure and a duty to speak in today's debate, since I live in a constituency in a development area in Wales which is urgently in need of assistance such as that outlined in the Green Paper. Forced unemployment for any length of time has destructive effects on those who experience it, quite apart from its consequences for the economy. So runs a sentence in the Green Paper. If there is any need to justify the Green Paper, to justify our discussion of it or the proposals it contains, it is found in that sentence, for unemployment is the one disease which is the curse of all development areas. Behind the cold hard figures of unemployment lies a sorry and ugly picture of human hardship and suffering. Rhondda's unemployment of 9 per cent' hides an ugly picture of unemployment which affects not only the unemployed persons themselves but their wives and children. Because I believe the proposals contained in the Green Paper can help to reduce this level of unemployment in the development areas, I welcome them.

In welcoming the Green Paper, however, I am not making any claim that the selective employment premium will be the answer to all the problems in all the regions. It is not a perfect nor a complete tool. I have come to the conclusion that one is unlikely to obtain any form of perfection in this world. To use a phrase which the Chancellor and many hon. and right hon. Members on both sides of the House have used, many more shots will be needed to be fired from the Chancellor's locker before the problems of the development areas are solved in their entirety.

A feeling exists among many of my colleagues that the proposals in the Green Paper do nothing for the more rural areas of Wales in which there are a relatively small number of people engaged in manufacturing industry. Although in the Rhondda Valley we do not have many rural pursuits, I have the greatest sympathy for this view. I look forward to hearing much more from the Government of their proposals for dealing with this problem. There are proposals vaguely discussed in paragraph 51 of the Green Paper, which says: The potential of other primarily rural parts of the Development Areas … is being carefully examined by the departments concerned. That is an admirable target for some of those extra shots that the Chancellor spoke about.

I hope hon. Members will forgive me if I spend some time dealing with some local matters as they affect my constituency. We have in the Rhondda two factories which have been empty for some months. We have two advance factories in the pipeline. Last Friday we heard with great pleasure from the President of the Board of Trade that a third advance factory is to be allocated to Rhondda. Although I fell foul of the conventions of this House on Friday, perhaps I may be allowed to take the opportunity of saying that we in the Rhondda think this extremely good news and that we were very pleased to hear it.

While it is desirable that we should have a planned programme of factory construction, it is equally if not more important and certainly more urgent to have a strongly planned programme for the occupation of those factories so that not only will they be built but they will be occupied and brought into production as soon as possible. Because the selective employment premium can help to bring those factories into active work, I support it. Despite the views expressed to the contrary, I quote the words of the Regional Secretary of the Confederation of British Industry, who said of these proposals: There is no doubt they will attract new industry to development areas such as Wales. In the Rhondda there are a number of firms whch are well pleased with the conditions there. They are satisfied with the adaptability of the labour force. They are anxious to make and are planning new expansions and devlopments. A Selective Employment Premium as outlined in the Green Paper would materially assist such firms during the teething troubles of their period of reconstruction and expansion, when the difficulties which they are likely to meet are greatest.

Although I support the concept of a Selective Employment Premium, I ask the Government to consider whether it could be made more selective and hence, from their point of view, provide greater value for money. The very serious imbalance which exists between the levels of unemployment in the development areas and areas outside them is obvious to everyone, otherwise we should not be debating this project today. In addition to this imbalance, there is a very serious imbalance within the development areas themselves.

Such a situation merits either a differential in the amount of premium payable, according to the level of unemployment, or a possible restriction on the size of the area in which the premium is payable. I am advocating that we try to concentrate most of the aid in areas where it is most needed—that is, those black spots with the highest levels of unemployment.

The people of the Rhondda welcome the Green Paper, because we believe that it contains a sincere and practical attempt on the part of the Government to move towards a solution to what would otherwise be an intractable problems. The message I have for the Government from the people of the Rhondda is this: "Implement these proposals. Improve them if you can, but for the sake of our 9 per cent. unemployed act quickly and get on with it".

7.12 p.m.

Mr. Peter Mills (Torrington)

I welcome the opportunity of speaking in this debate, because these proposals will have a considerable effect on the Southwest and also because my constituency will be in a peculiar position, half in a development area and half out. It is one of the rare constituencies which sees both sides of the fence.

I am against these proposals. I am certainly not against the aims. I do not go as far as the South-West C.B.I., which recently described these proposals as dangerous, ill-advised, and a misuse of the Government function. I do not think that that is fair. However, I think that these proposals are ill-advised and that any money which is available could be used to better advantage.

I will state my reasons for opposing these proposals. First, they build on to an already unsatisfactory tax— S.E.T. I have never accepted S.E.T. By that I mean that I do not like it. It has done considerable harm to the South-West, which is a service area. Millions of £s have gone out of the South-West into other production areas. Thus S.E.T. has had an adverse effect on the South-West.

Secondly, these proposals fail to take into account one of our basic industries—tourism. It is one of our largest and the one we are most suitable for. These proposals will not help that industry.

Thirdly, these proposals will further increase the anomalies which already exist. This is true of areas just outside a development area. I cannot count the number of times that I have mentioned the problems of small towns and areas outside a development area, particularly those in my constituency—Okehampton and Winkleigh. One has only got to see the effect in those areas to realise how serious the position is. The effect could be multiplied many times as one gets close to a development area. What is happening is a sorry picture. I regret to say that the situation is deteriorating. These proposals will make this type of area and these towns 1,000 times worse. I believe that it would crucify areas such as that which I have mentioned. [HON. MEMBERS: "Why."] I am trying to explain why.

Fourthly, the economic damage which would be done to these areas would be great. Already firms which want to expand close to a development area border are packing up and moving across the border into the development area. The adverse effect on the towns so affected can be seen by everyone. Towns flourish in the development area, yet a mile or two away firms are in serious trouble.

Fifthly, these proposals would not help agriculture, which is one of our major industries, which is a natural industry for the South-West, and which is an industry in which we can do well. The implementation of these proposals would speed up the drift from our farms and villages. Competition for labour would become acute. If we ever join the Common Market—the whole purpose of our doing so as regards agriculture is that we should produce more of our own agricultural needs—we shall need to continue with our present labour force. We do not want to see our workers drifting out of rural areas into towns.

These are formidable reasons which should persuade the Minister to think again. My suggestion—it is one which has been rather laughed at tonight—is that any money which is available would be better spent on the infrastructure of any region. The most valuable expenditure would be any made on the communications. This may be a long-term proposition, but we shall not solve these problems in a year or two. We must look many years ahead. The only way of solving the problems of the South-West is by better communications. If £100 million is available, I estimate that on the basis of the number of people employed in productive industry in the South-West £2 million would come our way. The expenditure of such an amount would do much to improve communications in the South-West.

Greatly improved communications would change the whole character of the South-West. Industry would naturally come to an area where there were better communications. This would help to stop depopulation. The holiday industry would flourish if there were better roads. Better communications would overcome a problem which I foresee will arise when North Sea gas becomes readily available, when the Channel tunnel is built, and when and if we join the Common Market, because all these eventualities will greatly aggravate the situation in the South-West.

What else could be done? I recognise that it is no good merely criticising these proposals. We should continue the excellent help which has been given in the past by grants and by the establishment of advance factories. We welcome the new ones which are coming to the South-West, but we want more. We must encourage industry to make a move. The Government can help by dealing much more expeditiously with industry's requirements and problems. Many manufacturers have said to me that it is all such a business, so much has to be gone into, there are so many forms, and so on. One recognises that it is necessary to have a thorough check, but I believe that the Board of Trade could help many firms, particularly the smaller ones which are rather frightened of all that is necessary, by making the process much easier for them.

Next, we need more mobility in what we do. For example, in my own constituency areas such as Bideford and Barnstaple will, in a year or two, probably have enough factories and enough help. In such circumstances, when we have dealt with one area, let us move on to the next which still desperately needs it.

The Minister should consider a system for the scaling down of help. The boundaries ought not to be so rigid as they are, very much a matter of black and white. I know the results of this very well in my own constituency, half of which is in a development area and half out. The differences are apparent to all.

I question the accuracy of our unemployment figures. I am sure that a lot is hidden in the returns. Do we know all we should about the permanently unemployed? I am sure that we can have false figures for unemployed. For example, there are the elderly, retired bank managers, insurance managers and others, who come to my area. They are unemployed for a certain time, and, if they are shown as unemployed, the figures give a false picture of the situation in the area. Moreover, the figures do not tell us anything about the drift, the depopulation which is going on, or about the number of school leavers who go away, good material which should be retained in the area. If we are to tackle the problem seriously, we should have a far more accurate picture of what the unemployment figures represent.

We must help ourselves in the development areas. It is not right to leave everything to the Government, although it is up to the Government to create the right climate and give encouragement. It greatly distresses me when, for example, authorities in a development area do not place orders with firms in the development area. Only the other day, we had a particularly unsatisfactory case. The order for the new Saltash ferry, which could be built by Appledore shipbuilders—the price was lower, and I understand that the time was right—went out of the development area. This is no way to help our own area. In my view, the authority concerned was wrong. I understand that it was influenced by its consultants. I suggest the Cornwall County Council should change its consultants and have someone who is interested in the development area. We should jolly well see to it that, if there are orders going, they are placed within the development area itself, in order to help relieve unemployment.

I hope that the Minister will consider carefully the reasons which I have expressed for my opposition to his proposal. As I have explained, I am not opposed to the aims, but I am opposed to the proposal itself. I want him to think again particularly about its effect on towns and villages which border a development area because it is this business of being either in or out which has a serious effect on such areas.

7.24 p.m.

Mr, Stanley Henig (Lancaster)

Sometimes, the economic Departments act rather like conjurers producing rabbits out of a hat, but one of the troubles is that the rabbits which they produce, if I may so put it, tend to be justified on all sorts of criteria not all of which, to put it mildly, seem equally valid. I hope that, after listening to the debate, the Government's economic spokesmen will do what they said they would at the beginning, that is, consider carefully the arguments which are put and adopt a flexible approach to them. A serious case can be made against their whole proposal.

Though saying that, I wish to make clear that, for my part, I do not object to paramount consideration being given to the development areas. All these areas have had a long history of terrible problems of unemployment, stagnation and the rest, and it would be wrong if a Socialist Government did not now give them top priority. But, in doing that, any Government have an obligation to make sure that the effect of what they are doing is not spread unequally throughout the rest of the country.

Before coming to the problem which concerns me most, the problem of the grey areas, I wish to raise one or two preliminary points. First, the question of cost. I should like my right hon. Friend the Chancellor of the Exchequer to tell us exactly what he expects the cost to be, in round terms, of each job which is to be created in the development areas. We have had from the First Secretary of State the figure of 100,000 jobs likely to be created. I should have thought that that was rather optimistic—for instance, in 1966 there were only 119,000 unemployed in the development areas altogether—but I may have misunderstood something there. However, it still seems to me that the cost over seven years will be about £7,000 per job. Is that figure right?

If that figure is correct, are we spending the money, the £100 million a year for seven years, in the best way? Is there a danger—this is what I fear—that by not only giving premiums to employers to create new jobs but also by giving them to employers for their existing employees we may help to swell profits? That is a distinct possibility.

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

Will my hon. Friend make clear to the Chancellor of the Exchequer that he wants to know not only the financial cost but the opportunity cost of providing these extra jobs?

Mr. Henig

I am sure that, by his intervention, my hon. Friend has made the point clear to my right hon. Friend the Chancellor of the Exchequer.

Next, the question of efficiency. I cannot see how the giving of a simple subsidy on the employment of labour will itself help to create the efficiency which is the sine qua nonfor increased exports. The First Secretary of State said today that he did not think that paying employers £2 per employee per week would make them employ labour which they did not really want. Put as starkly as that, yes, but let us consider the point further. Last year, when the Selective Employment Tax was introduced, we were told that the effect of the tax— 25s. per man and 12s. 6d. per woman—on the service industries would be to make them release labour which they did not want. If the effect works in that way in that case, why does not a similar effect work the other way when the sum involved, in this case £2, is rather larger? The point here is that we are not considering this matter in absolute terms; we are considering it at the margin. If there is a labour subsidy of that kind, it must at the margin induce employers to hold on to labour which they otherwise might not need.

Another argument which I cannot understand is this. If our investment allowance policy amounts to a kind of subsidy to capital-intensive industries, I do not see how, by giving this new subsidy and thus helping labour-intensive industries, we restore the balance. The two seem to cancel one another out. I should be glad to have my right hon. Friend's comments on that.

It has been suggested that one of the repercussions of the regional employment premium will be to lead to some sort of regional devaluation, with prices falling. I should like to know a little more about the mechanism of this. Somewhat conflictingly, it has also been said from the Front Bench that it was not very likely to lead to a rise in wages. If an employer is receiving a certain sum of money for all employees, and if he is hesitating before changing his prices, the trade unions, which do not always do these things nationally—least of all in Scotland, perhaps, where the bargaining is often done on a separate Scottish basis—might, quite reasonably from many points of view, ask for higher wages. Thus the employment premium will lead to higher wages rather than lower prices.

If we are helping these areas, I do not see why we should concentrate the help on manufacturing industries, when in at least some of the development regions—certainly in the Highlands of Scotland and in the Lake District—the most important industry to be developed is tourism. That industry has been adversely affected by the S.E.T. and will not be helped by the regional employment premium. In terms of long-run economic development of the country, I cannot see the point of trying to re-industrialise all parts, regardless of whether manufacturing industry is the most suitable thing for them.

I want to move on now to the problems of the grey areas. Representing the Lancaster constituency I feel most strongly about them, and I hope that I shall be forgiven if I take one or two minutes to explain the problems we have had in Lancaster, and how the proposed R.E.P. is likely to affect us. We in Lancaster are not typical of Lancashire, in that we have old-fashioned businesses which must gradually adapt themselves to new and changing circumstances. One of the most normal ways in which they adapt is to merge into larger groups, and at this moment only one of the large employers of labour in Lancaster is a Lancaster-controlled firm. All the others are in wider groups, and that is very important. The second thing is that Lancaster is near Morecambe, and Morecambe has a high rate of unemployment already. Lancaster may very soon acquire one, and that again is a reason for looking specially at this area.

The particular industrial problem of Nairn-Williamson was recently referred to in the House. Not always having been run in the most efficient way in the past two or three years, it sought to rationalise. In seeking to do so, the firm had the option of expanding in Lancaster and contracting in Kirkcaldy or vice versa. Kirkcaldy is in a development area, and given that the Government were going to help the firm at all, and faced with that choice, Nairn-Williamson naturally decided to expand in Kirkcaldy. Good luck to Kirkcaldy. I am glad that it will have more employment, but Nairn-Williamson will lay off 1,500 men in Lancaster which will bring unemployment up to 7 per cent.

The Board of Trade has been mentioned today. When these points were put to it, the Department said, "Other jobs will be created. We can help with industrial development certificates". It is true that it could help with industrial development certificates. Only one thing worries me—it can only help with them if firms apply to develop in the area in the first place. There is good reason for suggesting that firms may very well not do that. If it is a choice of going to, say, Birmingham or a development area in the Highlands of Scotland, Birmingham has many advantages. The Highlands of Scotland have the advantages of invest- ment allowances, and, shortly, will perhaps have the advantage of the R.E.P. Those are powerful factors.

Therefore, a balance can be struck and perhaps Birmingham loses something to the development areas. I suspect that Birmingham may be able to afford it. But what about Lancaster and North Lancashire in general? What natural advantages do those areas have? As a representative of them, I should like to say that we have lots of natural advantages, but I should not be telling the truth. I do not think that we have those advantages. If we have, I should like somebody to tell me what they are. What will happen is that the brunt of supporting the development areas will be borne by the grey areas. Paragraph 46 of the Green Paper says: The potential effects on industry generally outside the Development Areas should not be exaggerated. It adds that the unemployment could be reduced in 20 per cent. of the country and the load would be spread over the remaining 80 per cent. But the whole point is that the load will not be spread equally over the remaining 80 per cent. The brunt will be borne by those areas which have the least advantages.

The Government may very well have hit upon a possible idea for industrial development, despite all those drawbacks. But what we particularly want to see in our areas is the refinement of the idea. Given the conflicting industrial and economic needs of various parts of the country, it can no longer match realities to put the development areas on the one hand and all the rest of the country on the other. How can one say that the West Midlands and the South-East have the same kind of economic and industrial problems, which shall be treated in the same kind of way, as the North-West, whose traditional industries—particularly cotton and to some extent coal—have both been declining, and which face the kind of problems I have indicated that we in Lancaster particularly face?

What we want to see is some form of gradation, but also something else. Like others, I am not at all happy with the piecemeal manner in which the Government have approached the problem of development. What sort of country do we want to see? Do we want to see industrial development in the middle of the Lake District, for example; tourism in the Highlands moved further south to the traditional cotton areas of Lancashire? I do not know. Do the Government know? What is the master plan behind all these things?

Are we trying to move manufacturing industry into these areas? Have we any ideas about migration patterns from one part of the country to the other for the future? It seems to me more and more that the R.E.P. is a sort of reflex device to meet a particular situation, but not fully thought out in a way which will avoid creating other problems.

What many of us in Lancashire would like the Government to do is as follows—and I hope that this point will be passed on to my right hon. Friend for him to deal with when he winds up. We understand that the Government feel that they need to help development areas. One has a feeling that the general debate today will replace the Second Reading debate and a number of Amendments will be put down to the Finance Bill. If that is the case, so be it. But if the proposal has now reached the stage where the Government must go ahead without essentially modifying it, it is possible to do other things.

It would be possible for preliminary action to be taken immediately, without waiting, to give some kind of assistance to the grey areas. It might be a redefinition of existing boundaries of development areas, or, better still, a look at the problem of gradation which I have already mentioned. But, either way, I hope that before the evening is out we in those areas will have a pledge from the Government. I ask that because consistently over the past few months I have returned to my constituency and heard tales of woe, having industrialists and others tell me, "You cannot expect us to develop here. The arguments for going elsewhere are so great." Hearing the concern about the new R.E.P., I always told them that the Government were considering these problems, and that they could be quite certain that the Government would look after the problems and had an economic policy to deal with them.

The situation has now been reached, with this debate and the announcement that the Government are going ahead with R.E.P., where I have doubts whether my word will go far enough in saying these things. If the Government are not able to announce immediately policies to help the grey areas, we should like a pledge from them that as soon as they have got through this piece of legislation and put the R.E.P. into practice their next and chief priority will be to find ways and means of ensuring that the burden of helping the development areas does not fall unequally, and particularly heavily on those remaining areas which are least able to sustain the burden.

7.40 p.m.

Mr. Ian MacArthur (Perth and East Perthshire)

The hon. Member for Lancaster (Mr. Henig) regarded the Green Paper as a rabbit which was rather hard to justify. I agree with a great deal of what he said. Perhaps he would agree with me in feeling that the rabbit should be put smartly back into the hat from which it was drawn just before the Budget, partly, I think, as a diversionary activity.

I was disappointed with the opening speech today of the First Secretary of State and Secretary of State for Economic Affairs. When the right hon. Gentleman made his statement on 5th April, I welcomed the fact that there were to be discussions with representative groups throughout the country and he assured us that there would be full discussion so that an informed House would be able to debate the proposal later on. His speech today was a severe disappointment in view of that statement. Certainly, opinions have been sought and tendered to the Government. Surely, however, the right hon. Gentleman should have gone into much more detail than he did about the nature of some of that information, particularly that given privately. We would have a better informed House later on if he could have given an undertaking that the evidence given to the Government would be published, so that we could be truly fully informed.

Secondly, the modifications he proposed today were insufficient. I am glad that he has decided to extend the proposal for the premium from five to seven years. That improves it in a direction in which the Scottish Council wants it to go. But what else was there? Nothing. That was the only modification he proposed today. If that is all he can produce after these two months of consultation, in the face of all the opposition and constructive criticism that there has been, the whole process of consultation has been little more than a sham.

I accept that something of this kind has a rôle to play in the development areas. It is obvious that £100 million has a rôle to play. I am not sure, however, that this is the form in which additional help should be directed to the development areas. If the midway figure were to be the ultimate one, I understand that the £100 million would break down into about £40 million for the Scottish Development Area and about £60 million for the other areas. No doubt the Government will try and present this as a gift to development areas from a benevolent Government, but the fact is that it is simply a return of part of a tax which should never have been levied on development areas in the first place.

Even if this £100 million comes in the guise of a gift, it is never attractive for anyone to look a gift horse too closely in the mouth. As the right hon. Gentleman knows, those concerned with industry in Scotland who have studied the proposal carefully find that there is a good deal in the horse's mouth which disturbs them. I do not say that this raises the question of the integrity of the horse trader, but it casts doubt upon the commercial and economic competence of the Government.

The aim which the right hon. Gentleman set out at the beginning of the debate and which is made clear throughout the Green Paper is one that we all accept—to reduce, in time, the disparity between unemployment levels in the development areas and those in the rest of the country. As he was realistic enough to recognise, this is still a very big problem and one which has been returned to time and again during the debate, notably by the hon. Member for Fife, West (Mr. William Hamilton).

The hon. Member for Fife, West with others, made the strange claim that the position is better now than it ever was. I call his attention to the fact that, if one considers the two comparable years 1961–62 and 1966–67, one finds that the proportionate balance between the development areas and the rest of the country has worsened against the development areas. It has not improved. I do not want to make claims and counterclaims in this connection, but it is right that the record should be straight.

Unemployment in development areas is still, despite all that has been done by successive Governments, running at about twice the average rate for the country. The Government have been precipitated into taking this action by fear of what is lying ahead for them next winter. The unemployment prospects are grim, as the Government must realise, and this is also underlined by the very disturbing trend in the unemployment figures in Scotland recently. There, the fall in unemployment between January and May has been very small indeed—only 6.8 per cent.—by far the lowest fall over these months at any time in this decade.

This suggests that the hard core of unemployment is very much higher than we could possibly want it to be. Alas, it is from that base that we shall see it build up to the unemployment peak which I fear will be reached this coming winter.

If this proposal were to help us cut unemployment in Scotland and the other development areas, or at least ease it, I should welcome it, but I fear that it is designed to meet a situation which no longer exists or has at least changed considerably. This is a point to which the Scottish Council returned again and again in the paper which the right hon. Gentleman referred to briefly. If one studies that paper and looks at the trend of unemployment in Scotland and the economic scene generally there, one must ask oneself two questions before determining what to do about this new proposal. First, what is the nature of unemployment in Scotland and, secondly, what is the direction that it is proposed the premium should take?

The first point which arises is that the nature of unemployment in Scotland has changed. It is still double the United Kingdom rate despite the shelter that the Government promised to Scotland last year. An alarmingly high proportion of the unemployment figure in Scotland consists of unskilled people. There was some discussion earlier in the debate about how many skilled unemployed there were. I understood the right hon. Gentleman to say that there were 2.6 skilled men for every skilled vacancy in Scotland and Wales combined. I do not question that, but I recognise the reality which industrialists find confronting them—that it is becoming harder and harder, and in some parts of Scotland impossible, to find the skilled labour on which the expansion of growth industry depends.

If we want to see long-term industrial development in Scotland, we obviously want to see an even more rapid development in the growth industries than there has been over the last years. This will only happen if skilled labour is either available or in prospect. But I understand that not a sufficient number of skilled men are available and certainly the prospect of having a sufficient number in future is dim. So I question whether the climate of present unemployment is appropriate for this kind of remedy.

This is where I believe the Green Paper falls short. There have been references to a comment in the Scottish Council's Paper calling attention to the fact that weekly earnings in engineering are higher in Scotland than in London and the South-East, thus emphasising that, in that industry at least, the shortages there used to be in Scotland—shortages of employment—have eased. But this picture is not quite correct. I do not dispute the general trend of the comment, but I think the correct position is that weekly earnings in engineering in Scotland are still somewhat lower than in London and the South-East, certainly if one consults the latest Ministry of Labour Gazette. The figure the Council perhaps had in mind was that of last October for electrical and engineering trades combined. But whichever figure one takes, the position in Scotland is not one of a large pool of available skilled labour.

The Scottish Council Report goes on to call attention to the fact that in a recent survey the Ministry of Labour reckoned that less than 6,000 people in the whole of Scotland were immediately available for work in industry without retraining or moving house. I found that a staggering comment. I had not previously seen the figure. It underlines, if any further underlining were needed, that the unemployment pattern in Scotland is different from the pattern that existed some years back. Has the change in this pattern been taken note of by the Government? I doubt it, because there is not one reference to shortage of labour or to the changing pattern of unemployment throughout the whole of the Green Paper.

Clearly, we are not going to get the development and the growth we need unless skill is available or the prospect of skill is in view. However, skill is not the only consideration. There is the physical availablity of labour to consider, and we know that housing is of paramount importance. The right hon. Gentleman the Secretary of State for Scotland, in a speech in Dundee not long ago, called attention to the critical nature of the housing problem in Scotland as a factor in emigration. He said then, and I agree, that one of the main reasons for so many young people emigrating from Scotland—a figure going up year by year under this Government—is that they are unable to get houses. One of the reasons why labour is not available where it is needed is because of the solidification of the Scottish housing scene.

Industrial growth depends on many factors other than the ones which the Green Paper attempts to tackle. That raises the question about the direction of the R.E.P. proposal which, after all, is a form of wages subsidy. I fear that if we were to go ahead with this proposal as it stands we might find ourselves perpetuating the need for subsidy of this kind and not getting at the root of the problem which has to be tackled if we are to see growth of self-generating employment in Scotland in the long term. The R.E.P. proposal will do nothing to help industrial investment. Yet it is industrial investment which, above all, Scotland needs, and the Government know the depressing outlook there is in terms of private investment. The proposal will not help that in the least.

There is a crying need for more retraining facilities. The righ hon. Gentleman made an obeisance to that need in his speech, but he had no proposal to make to the House. There are no new policies. There is no new investment in retraining and, although the right hon. Gentleman made claim that there are so many retraining centres, it would be interesting if, in the Chancellor's reply, we could be told how many places there are in the development areas and how this relates to the retraining needs which exist in those areas.

The housing need, which I referred to a moment ago, is one of the critical needs in Scotland to stem emigration and help to maintain the provision of labour, but nothing in housing would be affected by this proposal.

There is a need for better communications, which my right hon. Friend the Member for Argyll (Mr. Noble) and other hon. Gentleman have referred to. These would not be affected. There is a need for better environmental services generally, but these would not be affected. One point which has not been raised and which would speed development in Scotland more than many other measures is a movement of the centres of decision into the development areas so that more one-the-spot decisions could be taken.

I accept the point made by the Chancellor earlier that all these are separate issues, but these are the issues that really matter; these are the things that we have to concentrate on if we want to see growth and speedier development in Scotland.

We have been told during this debate that R.E.P. should be regarded as separate from S.E.T., but I submit that the two are inextricably linked. Before the Government go ahead with this scheme I hope they will look again at the whole structure of the Selective Employment Tax and will bear in mind that the impact of S.E.T. on the service industries and on the remoter part of the development areas will be all the greater if the R.E.P. proposal goes through as it is, because the differentials will be made that much wider. There is a need to end the absurd distinction which the Government draw between manufacturing industries and service industries. In the first place, it is a very questionable philosophy and, secondly, there is the practical point that, whatever the hon. Member for Aberdeen, South (Mr. Dewar) may say, rather more than half the people who work in Scotland are employed in the service industries.

Mr. Dewar

Would the hon. Member not agree that this would be a valid point if there was a much larger proportion than in Britain. The proportion in the service industries in Scotland is less than in Britain as a whole, which com- pletely destroys the validity of his argument.

Mr. MacArthur

I question what the hon. Gentleman says. The hon. Gentleman was quoting the wrong figures earlier. In the White Paper on Scottish economy all the figures are laid down. Excluding agriculture, employment in the service industries far exceeds that of other industries in Scotland.

Mr. Dewar

This is what the hon. Gentleman says.

Mr. MacArthur

This is what was said by the Government Front Bench. If the hon. Gentleman wants to quarrel with his own Front Bench, let him do it; it is not an argument for me.

The practical point is that more than half the people at work in Scotland work in the service industries. If the hon. Gentleman the Member for Aberdeen, South, will consult the Secretary of State for Scotland and the White Paper he will see that just over a year ago, when the White Paper on the development of Scottish economy was published, the Government had in prospect an increase in jobs in Scotland by 1970 of 50,000 in manufacturing industries and 80,000 in the service industries, including the construction industry. That was before Selective Employment Tax came and knocked firmly on the head estimates of that kind. That is the way the right hon. Gentleman the Secretary of State was thinking just over a year ago. That shows yet again the importance of the service industries in Scotland. It is there that the major part of our employment growth will lie, and they are the industries which are hit hard over the head by the Selective Employment Tax as it stands.

In the Green Paper there is a reference to the difficulty of adjusting the Selective Employment Tax in the development areas, although the Chancellor of the Exchequer wrote to me last July saying that the workings of the tax would be kept under review so that it could be refined for the development areas in due course, if necessary. The Green Paper, however, states in paragraph 48: It would be difficult to accept that there should be a narrower tax base in the development areas. The incidence of the tax on the development areas taken together is much the same as on the country as a whole … That may be so, but the incidence of the tax on the remoter parts of the development areas is very much greater than it is in this country as a whole. This is why the tax makes such utter nonsense from every point of view when applied to the Highlands and Islands of Scotland, to the remoter parts of Aberdeenshire, to the remoter parts of Perthshire and to those parts of Scotland—and there are very many—which depend almost exclusively on the service industries for their employment and growth. I remind the Government that if the present proposal goes through, and succeeds, even with the one or two modifications which have been hinted at, the impact of Selective Employment Tax on these areas will be that much greater, because the magnetic attraction of the manufacturing industries within the development areas would be that much greater.

I ask the right hon. Gentleman to relate the R.E.P. proposals to the S.E.T. more than he has done. I would be very much obliged to him if he would study the possibility of applying at least some part of this £100 million to the easement of certain industries which are gravely hit by the Selective Employment Tax, the growth industries, industries which could provide a much greater part of the growing employment which is needed in Scotland. The obvious industry to quote is tourism. The tourist industry meets all the requirements which the First Secretary set out. It provides employment in some of the hardest hit parts of the development areas, the Highlands and Islands for example, and it provides much growth prospect in those areas as well.

The right hon. Gentleman is naturally anxious that the R.E.P. proposals should not promote general inflation. Some particular aid to the tourist industry through the easement of S.E.T. would certainly not promote general inflation, but it would help to reflate the local economy because of the local ramifications of the tourist industry. It would have a localised effect, which is precisely what the right hon. Gentleman is striving for.

The Government are also looking for the development of proposals which would make no demands on our balance of payments position. That would certainly be the case if tourism were helped in this way. Indeed, the balance of payments position would be eased partly from the diversion of people from holidays abroad to holidaying at home and partly by the attractions which a better tourist industry could provide to the growing number of foreign visitors bringing foreign exchange with them.

In short, I welcome the proposal, as would anyone else, that £100 million should be put into the development areas. I do not welcome the proposal that it should be done by means of this half-baked R.E.P. idea, which is simply a partial reimbursement of tax which should never have been introduced in the first place. I do not welcome either the shape or direction of the present proposals. There are many other things in the development areas to which the Government should give higher priority if they are genuine in their wish to improve employment prospects and to speed development.

8.3 p.m.

Dr. John Dunwoody (Falmouth and Camborne)

I wish to speak from the point of view of the South-West Development Area where one can see an extension, a heightening, of the problems being faced to a greater or lesser extent in all the development areas of Great Britain. In particular, in the far South-West, in Cornwall and the north of Devon, we have the problem of constant and high unemployment, high unemployment which in a society like ours is a crime. It is wrong that men who are able, skilled and capable should be lounging around the streets or sitting idly at home when they want to be working and when the country needs them to be working. One can take it further than the individual and consider the community which all too easily becomes demoralised when there are high rates of unemployment over a long period.

In the far South-West. particularly in Cornwall, we have the injustice of having the lowest wage rates in England combined with some of the highest costs. The prices which we pay for gas, electricity, coal, petrol and many other items are higher than the prices paid elsewhere in the land, and yet the average wage rates are the lowest in the United Kingdom. Combined with this we have antiquated social conditions, Victorian housing, slum schools, inadequate communications, a whole environment which drives away so many of our more able young people.

I want to underline some of the special problems being faced in this development area. These special problems are different from those being faced in the other four development areas, in Scotland, Wales, the north of England and Merseyside. I also want to mention some of our problems with the Selective Employment Tax. I have been one of those who have supported S.E.T.— I did so when it was first introduced—although I have been critical of certain aspects, particularly the rigidity and inflexibility of this form of taxation. For that reason I have asked for the introduction of an element of selectivity. Believing that we need an element of selectivity in this tax mechanism to favour development areas, I welcome the R.E.P. proposals, although with some misgivings and provisos and some suggestions which I hope to make.

I said that our problems in the Southwest Development Area were special and different, and to some extent they are unique. I regret that in the Green Paper those differences are hardly mentioned and that the development areas are treated rather as a whole. Reading this document, one tends to forget that there are major differences between one area and another.

First, in the South-West there is a considerable historical difference. Every other development area has recently been dependent on heavy industry, on coal mining, or iron founding, or shipbuilding, or the textile industry, industries which have all declined in comparatively recent years, mostly in the last 10 to 15 years. In the South-West the industrial decline took place much longer ago and our problems are much more longstanding. A much earlier rundown took place in industries like tin mining and textiles not 10 or 15, but 30 or even 60 years ago. There was a time when the far South-West was the industrial area of Great Britain. It was in my constituency that the steam engine was invented, and yet there has been industrial depression in this area for many years.

Another difference between us and the other development areas is that of size. The South-West area contains just over 180,000 working population and the next smallest is in Wales and that is more than five times larger. We are dealing with a peculiarly circumscribed and small area with very special problems.

A third distinction is that, taking the whole area, the South-West is especially dependent on agriculture and tourism, industries which are more readily vulnerable to economic crises than are other parts of the country, and our agriculture is plagued with the problem of small farms and distance from major markets.

A fourth major problem in the South-West is geographical isolation combined with inadequate transport. The problem of transport has been raised time and again during the debate and I must admit that these proposals will not have any significant effect on transport. Nevertheless, it is right that we should remind ourselves that the more isolated development areas are desperately dependent on communications and in the South-West communications are grossly inadequate. Our road links are bad. Our first-class roads, particularly those going directly into the development area, are grossly inadequate, narrow and little more than twisting lanes. We have no motorways, either now or projected, either in or near the area.

Main line rail services are among the slowest in the country and we are threatened with branch line closures. All this is happening in an area with high unemployment rates. The air links which are enjoyed by most other development areas do not exist and there are no commercial air flights regularly in and out of the South-West.

I hope that I have demonstrated that the problems of the development areas, the problems within these huge areas—and we should remind ourselves that, in terms of area, development areas form more than half of Great Britain—vary enormously from place to place. This must mean that any eventual solution must depend on varying measures and that we are naive and searching for the impossible if we imagine that there is one single measure which will solve all the problems of the development areas.

This brings me to an anxiety which I feel about the present proposals and which has been expressed by a number of hon. Members on both sides of the House. It is an anxiety about the lack of selectivity of this proposal and the suggestion that R.E.P. will be applied like a blanket to every development area throughout Great Britain. I believe that that is a mistaken view and that we should attempt to introduce an element of flexibility, of some variation between area and area, an element of graduation in this premium. We should do this in order to try to ensure that the aid from the Government to the development areas is directly proportional to the needs of those areas.

I am prepared to take these individual areas right down to Ministry of Labour employment enchange areas. This is not easy to achieve in our search for selectivity in the method of aiding the less fortunate parts of our country; it is one of the most difficult problems which successive Governments have had to meet. But why should we always look at the problem in terms of black and white? Again and again in the debate we have heard the dreadful term "grey areas".

We do not do this in other fields. When we are talking about Government assistance to local authorities, nobody suggests that local authorities should be categorised into two groups—those which will get a block form of assistance directly related to a particular feature, such as population, and those which will get no assistance. Various forms of central Government assistance to local authorities are worked out by a formula related to a number of variable factors, such as population or density of population or the size of the local authority area. In my opinion, we should be thinking very seriously in our search to introduce more sophistication into the method of aid. We should be prepared to use new techniques, to use computers and other more skilled and advanced forms of equipment which are available.

We read in the Green Paper that the extra premium will be within a range of £1 to £3. I suggest that it should vary within the range, that the Government should not plump simply for one amount but should seriously consider trying to arrive at a formula so that they can vary the premium in direct proportion to the needs of each area within the range which they have set. In devising a formula they should consider such factors as local unemployment, the existence of industry within an area, the industrial potential of an area and such matters as transport and social amenities.

If this could be achieved, and if a development index of some kind could be found in this way, we should have an objective criterion related to the needs of the area, and this would overcome many of the objections which have quite legitimately been put forward by hon. Members representing grey areas which are just outside development areas. Moreover, it would go a long way towards solving the most difficult problem of all—that of the hard core of development areas, which are to be found in certain parts of the South-West development area and in one or two parts of Northern Ireland, parts of the country which consistently have a very high unemployment rate, far above the figures quoted in the Green Book for development areas as a whole. If this could be done we should be taking a very big step forward.

One small point arises towards the end of the Report where we are told, about the hard core problem development areas, It is more constructive to look at the problems of these areas with a view to making most of the kind of resources and potentialities which they do possess. The rôle of the Highlands and Islands Development Board is brought out. This may well be a valid point to be made about the North of Scotland, but I am unhappy when looking at the proposal in respect of the South-West, representing, as I do, an industrial area in Cornwall. The Report adds: The potential of other primarily rural parts of the Development Areas throughout the country, including the scope for further development of the facilities for tourism, is being carefully examined by the Department concerned. This can be linked with a suggestion from the South-Western Regional Council of the C.B.I. which, commenting on this proposal, states that A significant number of the council members saw the future of the area as one zoned for agricultural and tourist development. A long-term view of expanding industrial conurbations in Britain might suggest that the greatest welfare of the country as a whole lay in the provision of Devon and Cornwall as a tourist resort. That may be so, but it is not in the interests of the population of Devon and Cornwall to be condemned to be a purely agricultural and tourist area. This is a concept which all of us in Cornwall would reject utterly.

We have a right in our part of the country to share fully in the industrial development that should be Britain's in the years to come. We have a right to raise our standard of living to something approaching that of the rest of the country. We have a right, more than anything else, to work—and there are many people in my constituency only too pleased to exercise that right if they are given the opportunity. We are not content to be a new depressed area, to be the Deep South of Great Britain, as it were. We will not allow ourselves to become second-class citizens in a second-class region.

8.16 p.m.

Dame Joan Vickers (Plymouth, Devonport)

I am glad to follow the hon. Member for Falmouth and Camborne (Dr. John Dunwoody) in the debate because I face many of the same problems, but as time is short I will not go into the details which I had hoped to discuss.

When the Chancellor of the Exchequer told us that he had shots in his locker, I thought that it would be more apt to say that he had shocks in his locker, because this is a very big shock for Plymouth. When the Secretary of State for Economic Affairs opened the debate he asked us to look at page 8 giving the unemployment rate. I cannot understand how he can leave out certain areas such as the district of Plymouth. I am afraid that because of the time I must be rather parochial, but I should like to draw attention to the fact that the unemployment rate in Plymouth is 35 per cent. and that it has been as high as 4.9 per cent. When it reached 4.9 per cent. in 1959, the Government of the day introduced the Local Employment Act. Between 1959 and 1964, 33,000 new jobs were created in the West as a whole and 822 industrial development certificates were issued.

Now Plymouth is to be left out of the provisions. Already one factory has left the Plymouth district and another may have to leave. This is very serious. The right hon. Gentleman talks about human frustration and poverty. I can assure him that frustration is growing in the Plymouth district, the wages there are about £3 below the national average.

I should also like to comment on training in the Government training centres. A centre was recently opened by a junior Minister to the Ministry of Labour, and it was stated that it cost about £1,200 to train a man. I have a newspaper headline here, "The trained man nobody wants." I hope that the hon. Member will take this point seriously. This is a newspaper report which has been confirmed, and I was telephoned about it. This man stated "The dockyard would not take us", and the private firm he went to see did not want him once they knew that he had come from a training centre. Firms seem reluctant to take Government-centre trained people, and a local official of the Ministry of Labour said that the position is very difficult.

We have an additional worry in that the Americans are coming over here and starting a recruitment drive. They are offering to interview people at both Newton Abbot and Plymouth, and they intend to offer them £80 a week if they will do a 60-hour week. This will be a further drain on our skilled labour, which is becoming very short. A real effort should be made to get firms and trade unions to accept people who are trained at the Government training centres. They should realise that this is in many ways one of the best forms of training. In my opinion, the apprenticeship period in many cases is too long, except in the skilled trades such as toolmakers. This type of training, with changing types of machine, many of them being automatic, is very good and should be supported.

It will be a great waste of Government money if these trainees are not accepted in industry. I recently went to Taranto in Italy, and there I discovered the great extent to which they go to get people in employment. The hon. Member for Lancaster (Mr. Henig) asked how much it would cost per man in this country. I discovered in Taranto that the cost was 70 million lire per head to get a job. What is this scheme going to cost?

We have to ensure that the money is spent wisely. As about 80 per cent. of the firms employ fewer than 200 persons, I do not think that the money will be a great deal of use to them except perhaps in encouraging them to hoard labour. Therefore, I am not in favour of the tax, but if the Government are determined to bring it in, I think that it should be given to all areas with high unemployment figures. I should be glad if the Government would look into this.

The arbitrary boundaries that have been drawn now make life extremely difficult. Instead of our having a sudden boundary between districts—between those who are entitled to the premium and those who are excepted from it— I think that assistance should be extended to neighbouring areas scaled down a step at a time, thus avoiding the discrimination which appears to exist as between the Plymouth area and its neighbours. Grants should also be varied periodically in proportion to the rise or fall in unemployment.

One of the difficulties at the moment is that we are not pressing on with the grey areas. What is needed rather than this type of Government aid is some plan whereby smaller firms can invest in machinery. It is by having modern machinery that we get better exports. Furthermore, in an area such as the South-West—this happens in Scotland as well—far too many factories have to send their products to Birmingham or other Midland towns for certain processes to be done. For instance, we cannot get casting, silk screen printing and plating done in the Plymouth area. So certain products have to go to the Midlands and then come back again to be made into finished products, which makes it all extremely expensive.

I hope we may be told why certain areas with high unemployment figures have not been made into development areas. I should have thought that the Chancellor could have been flexible in this respect. When the Plymouth area came under the Local Employment Act, it was taken out as and when the employment figures went down to the national average. Now that they are above the national average, I hope that the Government will not look upon the development areas as arbitrary areas shown on a map but will be flexible and that areas with high unemployment will be included. I should like to know why the Chancellor has made these arbitrary distinctions between areas which may have unemployment figures as high as areas which are now considered as development areas.

There is also a drain of young people away because of the lower wages in the area. I mentioned an American firm offering very high rates of pay. One factory in the area has already closed down, and another is likely to move away because of its difficulty in keeping down costs as a result of transport difficulties.

I should like an assurance from the Chancellor that he will be flexible in regard to the development areas so that an area like Plymouth in the South-West does not become completely drained of all its skilled labour, which might easily happen. We need to encourage people to stay in the South-West. We have a very high proportion of elderly people there, and so it is all the more important to retain there all the young people we can. If they are tempted away because we cannot give them the extra that they need from the factories in our area, it will be extremely serious. With the possible running down of the Dockyard as a result of having a smaller Navy, the Plymouth area may become a very distressed area if something is not done in the very near future.

8.26 p.m.

Mr. Arthur Blenkinsop (South Shields)

I will not follow the hon. Lady the Member for Plymouth, Devonport (Dame Joan Vickers), although I fully appreciate the problem that she has put to the House in regard to areas like her constituency and others mentioned by several of my hon. Friends who represent areas where there are old industries decaying and where we certainly want to introduce new opportunities, as we do, of course, in the development areas.

What I find rather surprising is that those who have expressed these criticisms should have regarded this as good reason for opposing these proposals. It seems to me that these proposals are not to be seen in isolation but are part of a whole range of actions that the Government have been taking over a period of years. It is, therefore, rather foolish of certain hon. Members who have made criticisms to suggest that this was the only proposal that the Government were bringing forward to deal with the deep-set problems of unemployment in many areas, not only development areas.

I am delighted that my right hon. Friend the Secretary of State for Economic Affairs had such a welcoming reception in my area of the North-East, where he was able to say—I am sure it is right—that the proposals are welcomed not only by the trade unions but also by industry in that area.

I am glad that one of my hon. Friends referred to the need for selectivity in the use of this kind of machinery. I am sorry that some have not welcomed the fact that these proposals are an attempt by the Government to use and develop from the Selective Employment Tax a more selective form of attack upon some of our problems. I certainly hope that this is not the end of the day, or of the series of recommendations that they will make.

Some form of graduation might be a very good thing if it could be worked out, but I doubt whether the kind of proposal put forward would be practicable to work out in these terms. In an area like the North-East, although this is not exclusively a North-East problem, one difficulty that we face is the need to attract work for some of the most highly trained engineers and technicians, not just for the skilled labour, for whom possibilities are now improving.

We find that more industries are coming to the area, and we welcome this, but many of these, particularly those involved in electronics, do not bring their major design and planning development staff to the area. They remain in the South and elsewhere, near to the main research centres. I am sure that it is true that in our regional policy we want to try to do something specifically to encourage as broad a range of opportunities for the people in the region as we possibly can.

Mr. Alfred Morris (Manchester, Wythenshawe) rose—

Mr. Blenkinsop

I cannot give way, I only have five minutes, it is quite impossible. It is right that we should stress the importance for all our own development regions of trying to get that kind of range of occupation, and for that reason we should look at the training facilities in our areas to see that for the more highly skilled technicians and technologists there are chances of development.

Like the hon. Lady the Member for Devonport, I was recently in Southern Italy looking at some of the exciting developments taking place under the guid- ance of the Italian Government. While it is perfectly correct for her to comment on the cost of some of the developments, such as the steel works in Sorrento and elsewhere, what was fascinating was the extremely wide range of direct action taken by the Italian Government.

I echo some of the points made by my hon. Friends, and I hope that Her Majesty's Government do not regard these proposals as the last set of proposals to make. I am most anxious that we should have as wide a range of proposals to operate as we can, and that we should include within them the kind of action taken by the Italian Government, such as tax-free holidays in other countries, in the Common Market and elsewhere. They also make provision requiring that Government Departments and nationalised industries must order at least 30 per cent. of their requirements from the development areas, in their case in Southern Italy. These are proposals that we still have not used in Britain.

I very much approve of the comment made by my hon. Friend the Member for Fife, West (Mr. William Hamilton) that we still need to ensure that we are prepared to use direct Government action and are prepared to install Government industries in certain cases to ensure the kind of economic balance that is needed. I hope that when he comes to wind up my right hon. Friend will make clear that none of these proposals that have proved their value in other countries are excluded from our range of possible action.

Mr. Kevin McNamara (Kingston upon Hull, North)

On a point of order. I wonder if you could inform the House what criteria you use regionally for the selection of speakers today—[HON. MEMBERS: "Oh."]—because—

Mr. Deputy Speaker (Sir Eric Fletcher)

No. Hon. Members are not allowed to criticise the selection by the Chair of those who address the House.

Mr. Heffer

Further to that point of order. It was stated by Mr. Speaker at the beginning of this debate that there would be an attempt to make certain that every development area was represented in the debate. I would like to point out that there have been four speakers from Scotland, three from the South-West, and speakers from every other area, except the Merseyside district, which has one of the most serious under-development problems in the country. I would like to ask whether this problem could be looked at again in relation to further debates on this question.

Mr. Deputy Speaker

What the hon. Member has said will appear in HANSARD and, no doubt, Mr. Speaker will read it, but nothing must be said which implies any criticism of the Chair for the way in which hon. Members are selected to take part in the debate.

Mr. Alfred Morris

Further to that point of order. This is not in any way a criticism of the Chair. At the beginning of the debate, as at the beginning of many other debates, Mr. Speaker requested right hon. and hon. Members to be as brief as possible in making their speeches. May I ask, Mr. Deputy Speaker, whether we could receive any progress report, as it were, on the success of those wise and useful appeals from Mr. Speaker?

Mr. Deputy Speaker

As the hon. Member knows, that is not a matter for me. Appeals have repeatedly been made from the Chair to hon. Members to keep their speeches as brief as possible. It is obvious that the number of hon. Members who can take part in any debate is governed very largely by the length of speeches which other hon. Members make. Hon. Members have this entirely within their own control.

8.35 p.m.

Mr. Robert Carr (Mitcham)

This is a debate which is of vital interest to many areas and, therefore, to many hon. Members. If I have kept the tally right, I am no less than the sixteenth hon. Member to speak in this debate.Considering the inevitable delays as the beginning of the debate, which we all understand, that is not a bad performance for the House.

The subject is of profound importance both economically and socially. Before I come to the substance of the matter, I wish to make a plea to the Chancellor. If, when he winds up the debate, he tells us that the Government have definitely decided to go ahead with the scheme, whatever we may say about it or against it, and if they are determined to go ahead with it by inserting a Clause in the Finance Bill, I ask the right hon. Gentleman seriously to ensure that the House has adequate time to discuss it when we reach that stage. That will be the opportunity when many more hon. Members, in all quarters of the House, can put the points which they need to put on behalf of their areas and in general argument.

That is particularly important, because it was obvious from the reception and the comments which the First Secretary received during his speech that doubts and, indeed, opposition to the scheme are by no means confined to this side of the House. I hope, therefore, that the Chancellor will respond in a generous and constructive way to that request.

I stress at the outset that the Opposition are wholly in sympathy with the purpose of the proposals contained in the Green Paper. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) made that clear in his initial reaction to the announcement of the Green Paper at the beginning of April and my right hon. Friend the Member for Argyll (Mr. Noble) also made that clear in opening the debate from this side today.

To underline the point further, I should like to quote two short passages from the Green Paper which we wholeheartedly endorse. The first is the last sentence of paragraph 13: There is therefore every reason for wanting to reduce this disparity in economic activity between the development areas and the rest of Britain. My second quotation is from the beginning of paragraph 22: … the efficient management of the economy and the optimum use of manpower require major new measures to be taken to produce a more even distribution of industrial development as between the different regions, and as a result to secure a further substantial narrowing of the unemployment gap between the development areas and the rest of Britain. With both those fundamental quotations from the Green Paper we wholeheartedly agree.

We can, therefore, say that the whole House is agreed about ends. I think that the whole House is also agreed that this is the time when major new action should be taken to secure those ends. Where we do not agree, however, is with the means proposed by the Government in the Green Paper. As my right hon. Friend made categorically clear in opening the debate from this side of the House, we shall oppose these proposals when the time comes, for the reasons which I shall give.

The proposal for a regional employment premium is one of considerable economic ingenuity, but we feel that it is one of those highly theoretical concepts thought up in an economist's ivory tower, remote from the realities of the industrial firing line and lacking that touch of practical experience about what makes things tick in industry in relation to decisions about investment, prices and wages. We have had experience of a number of such "clever-clever" schemes in the last two and a half year. It is white elephant from an ivory tower. It reminds me of the story of the vicar who was rash enough to ask rhetorically from the pulpit, "And who wants a white elephant?", to which one less reverent member of the congregation replied, "Another white elephant". That is what we feel is happening to Government policy.

We are confirmed in this scepticism about the translation of theory into practice by what I think, despite what the First Secretary said, is the almost unanimous view of the management organisations of industry and of practical industrialists who have expressed their views to the Government—including, interestingly enough, even those most concerned with the development areas, who also, one might note, stand to profit most from their greater prosperity. Even the General Secretary of the Scottish T.U.C., after beginning by welcoming these proposals wholeheartedly, subsequently had second thoughts and expressed grave anxiety about how they might work in practice.

Industry, naturally, is not disinclined to pick up a cheque for £100 million from any Government. Its instinctive reaction is to accept gratefully and not look such a gift horse too closely in the mouth. The fact that industry has so unanimously expressed so many doubts and objections about this proposal should, therefore, be taken all the more seriously by the Government, who should consider these arguments extremely fully before charging ahead. Although I hope that this will not be the last word in development policy, one practical certainty about which we can surely all agree as realists is that no Government in the next few years are likely to embark on more than one new policy initiative of this scale. It would, therefore, be a great tragedy if, through acting too hastily, we got our choice wrong.

We do not dispute, and nor does industry, that the prolonged application of regional employment premiums would raise the level of activity in the development areas relative to the rest of the country, but the emphasis must be on the word "prolonged". In our opinion and that of industry, to obtain the payoff, the premiums would have to operate for very much longer not only than the five years mentioned in the Green Paper, but also than the seven years to which the First Secretary extended the period today.

It is also essential that it should be known from the start that this was to be the case, because to introduce this system to last only seven years would mean that we should suffer nearly all its disadvantages while gaining few of its potential benefits.

What is in dispute in our judgment of this proposal is the magic which the Government claim for it, which is in two parts. The first is that it is self-financing, that this is a method by which as much as £100 million a year can be injected into the development areas with no compensating increase in taxation. The second is that, in as short a period as three to five years, it could narrow the employment gap very substantially, perhaps, according to the Green Paper, paragraph 27, to the extent … that the average disparity between unemployment in the Development Areas and the country as a whole might be reduced by something like one half … over and above the degree of success expected from existing programmes. It seems to us conceivable that the scheme might achieve both of those things in the really long run, but it is almost certain not to achieve them in a period as short as the next three years or so.

In the short run, we do not believe that exports from the development areas to either foreign countries or other regions of the United Kingdom are likely to rise by any measurable extent. A large part of the extra demand generated in the development areas by R.E.P.— by higher wages or lower prices—is likely to spill over into other regions and/or result in a demand for more imports. In our view, and in that of industry, a significant part of the annual £100 million would be eaten up in higher earnings, particularly in view of the acute shortage of skilled labour in the development areas. Nobody can be certain exactly how much that would be, but it is significant that the C.B.I., which is not without great experience in these matters, thinks that as much as 50 per cent. could be eaten up in this way—and that, as the Green Paper makes clear, must not happen if this proposal is to be successful.

In the short run, also, we do not believe that R.E.P. will be a sufficient incentive, either to existing firms in the development areas to expand or to new firms to come in and establish themselves on a scale anything like sufficient to achieve the reduction in unemployment mentioned in the Green Paper, particularly if there is the slightest feeling that the premiums might be removed after a period as short as seven years.

It is for all these reasons that the short-term magic claimed for R.E.P. is, we believe, utterly illusory. And if these claims are illusory, then the undoubted objections to the proposal and the superior claims of other forms of expenditure in the development areas become paramount. That is the basis of our opposition to this scheme.

What are the main requirements of a successful policy for the development areas? As we see it, first it should attract new firms to these areas and attract firms already in them to expand. Secondly—and this is extremely important—the sort of expansion encouraged should be based on higher productivity and efficiency and on activities which have a long industrial future ahead of them so that the induced expansion forms the basis of self-sustaining growth in these areas for the future.

We believe that once one removes the magic of this proposal R.E.P. fails on both of those counts.

While R.E.P. will certainly increase the attractiveness of the development areas, it will not do so as much, or at least as quickly, as other measures which I shall mention. Far from encouraging higher efficiency and productivity, it will be a direct incentive to the inefficient use of manpower in all manufacturing industries. It will place a heavy burden on the service industries, certainly in the first stage; industries which are so vital to the prosperity and export-earning capacity of large parts of the development areas.

What, then, would be the main bad effects of R.E.P., in more detail, which we strongly fear? First and above all, as we said in the debate when we discussed these problems on 24th April, it compounds and magnifies the grave faults and distortions of S.E.T. itself. It is wrong, in our view, in principle to pay a premium for employing labour in manufacturing industry, because to do so create a pressure which is the very opposite of the one which this country requires.

It is perverse and wrong in principle that all employment in manufacturing should be subsidised and all employment in service industries should be taxed. It is particularly damaging for large parts of Scotland and the development areas, such as large areas of Wales and the south-west of England. To take the example of Scotland, as the Scottish Council made clear in its submission to the Government, more than 1 million people in Scotland are employed in service industries and less than three-quarters of a million in all manufacturing industry. It is crazy to create a deterrent rather than an incentive to employment in the service industries when we have conditions like that.

Moreover, not only the prosperity of the people in those areas but the balance of payments is at stake. While I take the point of the hon. Member for Falmouth and Camborne (Dr. John Dunwoody) that the people in these areas do not wish to be entirely dependent on service industries and tourism and want as great a share of industry as they can get, we must be realists and accept that these are extremely important tourist parts of the country and that to give a stimulus to tourism in these large areas of Scotland and the development regions is at least as likely, and probably more likely, to produce as much impetus to foreign exchange earnings in the short-term as can possibly be obtained from manufacturing industry.

Our second major objection to the R.E.P. is that so much of the extra money which will be pumped into these areas will go to support activities already established. It will go to firms already there for continuing to do what they are already doing. Surely, in principle, money would be more effectively spent on pump-priming new activity rather than on subsidising what exists already.

Our third objection—and it is closely linked to the last-mentioned objection—is this. Just as we should be encouraging the new rather than subsidising the old, so we should be giving an incentive to productivity and efficiency. This is exactly what the Selective Employment Tax does not do, and now in much magnified form what the R.E.P. would not do.

We have heard from a number of hon. Members on both sides of the House, including my hon. Friend the Member for Clitheroe (Sir Frank Pearson), and we saw it also in the interruptions suffered by the First Secretary—concern about what are called the "grey areas" It is true that any system of scheduling development areas creates aribtrary geographical lines, and one is unlucky if one is on the wrong side of the line. This is, to some extent, inescapable. But there is all the difference in the world between pump-priming aid and a continuing subsidy. The sort of differentiation which would be created in this scheme between the development areas and the grey areas is very much greater and more serious than the differentiation which existed before.

Those are our major objections. Let me come to the positive side. How could we spend extra money more effectively? This is the key to the question. I shall not go into this matter at great length because we outlined in the debate on 24th April what we believed to be the main ways in which extra money should be spent.

First, and above all others, we believe that more money should be spent on facilities for and the encouragement of the training and retraining of young people and adult workers of all ages. We know that much is being done and we do not want to belittle it, but we believe that still more should be done, and it is more important to do more in this field than to indulge in expenditure on R.E.P.

We also believe that expenditure in this field would be just as self-sustaining as expenditure in the form of the R.E.P. My right hon. Friend the Member for Argyll pointed out that of the 200,000unemployed in Scotland and development regions only 33,000, according to the Ministry of Labour, are immediately available for employment in manufacturing industry, and in Scotland, according to the Scottish Council quoting figures from the Ministry of Labour, 6,000 out of the 85,000 are immediately available and suitable for manufacturing employment. It is the certainty of the availability of sufficient skilled manpower which above everything else is the resource which industrialists look for if they are to go to development areas. So we say that spending money on even more training and retraining is priority No. 1."

Priority No. 2 is the economic infrastructure, and particularly communications by road, rail and air. No doubt the House will think that I am biased in talking about aviation matters, but let us look ahead a little to the time when people in this country think of air travel as they already do in the United States and, I fear, in Europe more than in Britain, and realise that a little money spent in encouraging good facilities for air travel might be a powerful help in opening up the development areas.

Thirdly, there is the social infrastructure—better housing, schools, hospitals and recreational facilities and clearing up the relics of an old industrial age. We have to be human about this. When we are thinking of new firms coming to these areas, whether they are branch factories of firms in this country or of foreign firms coming from abroad, we must remember that the people who make the decisions and whose senior colleagues have to manage and man those factories and the key workers who have to be brought in to start things up are very much influenced by the living attractions or otherwise of the area to which they come.

As we said on 24th April, we believe that we were right in the last year or two of our 13 years to concentrate on growth points and that that is where the money should be spent. We should get away from the idea of spreading the jam all over the bread as the present Government try to do. There should also be a return to our system of encouraging investment by the removal of present investment grants, and a return to investment allowances coupled with free depreciation. It is interesting to find that Mr. Bird and Mr. Thurlwall have made an analysis which is published in this month's edition of the District Bank Review which shows that the degree of fiscal discrimination today in favour of investing in development areas is less than that which existed in 1963. That is the substance of the last proposal I have made.

These are the sorts of ways in which extra money could be spent more effectively in development areas and in Scotland and Northern Ireland. The First Secretary of State and Secretary of State for Economic Affairs said that the effects of expenditure on infrastructure are slow to mature, but so will be the effects of R.E.P. He admitted that this afternoon. We shall also be told that the sort of expenditure I have suggested is not an alternative. That is what the First Secretary told us today. He said that the money is not available for the extra expenditure of the kind I have been talking about. We simply do not accept that proposition. The Chancellor may chuckle if he likes; but let him answer the argument in a few moments. We have already exposed what we regard as the fallacy of the self-financing aspect of this proposal—at least in the first few years. I think even the Chancellor will not be able to deny that a significant part of the £100 million a year proposed for R.E.P. will not be self-financing. In the sort of field about which I have been talking a great deal extra could be done with an annual additional expenditure of very much less than £100 million.

Moreover, we believe in any case that, even with the R.E.P., if it is to be effective extra expenditure will be needed on training and on economic and social infrastructure of the sort I have mentioned. We think that will be needed in any case.

Further, regional employment premiums are not the only possible form of self-financing payment to the development regions. They are not the only way of working the magic—if effective magic it be—in improving a region's balance of payments with the rest of the country. If employment is to be subsidised, there are other and, in our view, probably better things to be subsidised than the total numbers employed.

I want, therefore, to put forward for tentative consideration what I might call the proposals which would go into an Opposition "Green Paper". First, subsidise training expenditure by firms in development areas to a much greater extent than at present. Secondly, subsidise research and development expenditure in development areas. This would attract science-based firms which have the quality which I spoke about earlier of a long-term industrial future. Thirdly, abolish, as the hon. Member for Aberdeenshire, West (Mr. James Davidson) called it, this lethal S.E.T., which we have opposed from the very beginning, and replace it with a non-discriminatory employment tax with varying regional rates.

All these would be subsidies on current costs, just as much self-generating, just as much a system which does not require taxation, as the R.E.P. proposal itself. I suggest that the trio of measures which I have just mentioned would be more effective, more quickly acting, would promote productivity and efficiency, and would alter the balance of payments position as between the regions and the rest of the country.

In conclusion, I ask the Chancellor this question: have the sort of ideas I have just been putting forward been considered by the Government? Has industry been asked about them? If not, why not? If so, what were the views of the Government about them? And what were the views of industry about them? What is against the proposals I have just put forward? It is farcical for the Government to put out on 5th April a radical new idea with a great fanfare of publicity to the effect that everybody would be asked for their views about it so that we could all share in this decision together, and then come to the House a bare two months later—two months to the day actually—with closed minds and having already taken an irrevocable decision.

In any case, why the hurry? Is not this another bit of instant government, just another gimmick? Paragraph 27 of the Green Paper says that the R.E.P.: proposal is not advanced as a short-term contracyclical measure". But is it not as a contracyclical measure that the Chancellor is in fact rushing it forward? Is he not now only too aware that, as we told him at the time of the Budget, his economic analysis was wholly wrong? For this purpose, as a contra-cyclical measure, it is, in our view, bad. It is bad because it will have little or no reflatonary effect in 1967, when there is some room for reflation, and it will begin to take effect in 1968, when there will be much less room for reflation, if any room at all.

I end where I began. We are wholeheartedly in sympathy with the purpose proclaimed in this Green Paper and we have put forward alternative proposals to what appears in this Green Paper as well as disagreeing with the proposal in the Green Paper. Let the Chancellor not only defend his proposals here but let him answer the objections to them, objections which he has had from every quarter in industry, and let him also consider and answer the alternative proposals which we have put forward. Until we hear far more effective arguments than have as yet been given to the House or the country, we shall oppose this proposal.

9.5 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

I am very glad to take part in this debate because I have represented a constituency in South Wales for 22 years now—

Sir Douglas Glover (Ormskirk)

Too long.

Mr. Callaghan

The hon. Member for Ormskirk interrupts me in his usual fatuous and sedentary manner. Fortunately, the electors of Cardiff, South-East do not agree. What I have seen in travelling up and down the valleys of Wales during that time convinces me, at least, of one thing, which the right hon. Member for Mitcham (Mr. R. Carr) stated only to contradict, that the time for some new action has come.

I have no doubt whatever that this bold and novel proposal is as dramatic a proposal as anything which has been put forward for the development areas since the original introduction of the development area concept itself. The problem must be seen—I say this to those of my hon. Friends who represent other areas—in its historical context. What we are dealing with here, and what this proposal is designed to deal with, is the special problem of the old original industrial areas of the country whose major industries are suffering from the transition caused by the second industrial revolution.

Up to the Second World War, Scotland relied on coal and shipbuilding. Wales relied on coal and steel. Since the Second World War, we have seen increasingly the growth and development of manufacturing industries in both those countries, and also in the north-east and northwest regions. But that is not in itself enough, because the first Industrial Revolution concentrated in particular areas, and for particular purposes, whole communities with deep roots going down into the soil of the valleys in which they lived. They have now been left behind, stranded, as it were, by the tide as it receded.

We are dealing here, also, with a difficult problem, the problem of—I use the word now, hoping never to use it again—the so-called grey areas. What is to be the future of these communities? There are those who say—the right hon. Gentleman himself said it—that we need more time. This is not a last-minute proposition. When my right hon. Friend the First Secretary of State put it forward at the beginning of April, he said that he hoped that discussion could be concluded in a matter of weeks—that was the phrase he used—so that we could get on with it. It has nothing to do with any change in the assessment of the economic situation. I realise that the right hon. Gentleman has to make that sort of point, but it has nothing whatever to do with that situation. I understand the difficulties in opposition; I spent long enough in it myself. In fact, there is nothing in this great proposal—it is a great proposal—which relates to the situation either of the economy today or of the economy next winter. It is a major initiative designed to overcome, as far as we can, the problems of our great industrial areas.

We have done a great deal, starting in 1945 and working on throughout the last 20 years or so. Communications have been improved, and I shall return to that point later. Training has been improved—very much more so in the past two or three years than when the right hon. Gentleman had responsibility. The infrastructure has been improved. I am not speaking theoretically. I have seen the improvements; I have seen what is happening in these areas now, and the measures we have taken have had their impact.

But a great many problems still remain. Let us take the problem of coal, for example. The coal industry has a great future before it. I have no doubt of that, and the Government certainly intend to ensure that it has an economic future, one that will give great employment and a future to those engaged in it. But let us look at what has been happening as the coal mines have closed down. The coal industry was a heartless, soulless industry when it was under private ownership. The National Coal Board is attacked for a great many things, but let there be no doubt about this—and my hon. Friends from mining constituencies know it: it has accepted more social responsibility than any private owner ever did, or thought of doing.

But what has happened? As a social responsibility, the Coal Board—[Interruption.]—I do not care if the hon. Gentleman sniggers—accepted the employment of people who were the human debris of the coal industry. It has employed them and kept them in jobs. No other employer could have done that. But when the pit closes down, what happens? One cannot expect another employer to take them on. He does not have the responsibility that the Coal Board has felt that it has had and has exercised.

One of the problems of the Rhondda Valley, as my hon. Friends the Members for Rhondda, East (Mr. G. Elfed Davies) and Rhondda, West (Mr. Alec Jones) know, is the number of disabled men. I do not say that the proposition with which we are now dealing will necessarily help those men, but a social responsibility lies on us to help them, and we cannot accept defeat there. I ask my hon. Friends from other areas to understand that the proposition is designed to overcome the deficiencies in our industrial system as a result of the contraction of the coal industry and the changes in the shipbuilding and steel industries. That is one of the reasons why we must press ahead with it, even though many hon. Members would like to see refinements to it. That is the background to the proposal—I shall not give way to my hon. Friend the Member for Westhough-ton (Mr. J. T. Price) I can see him teetering on the edge of his seat, but I have had experience of him before.

That is why the proposition is put forward, and why I believe that it will succeed. Its purpose, if it is carried through will be to create about 100,000 new jobs in these areas. It will reduce the number of unemployed by 50,000. That will be a tremendous surge forward, if the programme is carried through in the way we have designed and for the period that we want to discuss.

I was asked about procedure. My right hon. Friend the First Secretary was quite clear. He said that as a result of all the opinions we have received and that have been canvassed, we have decided in principle to go ahead with the proposition, and it is something that will redound to the credit of the Labour Government in years to come, in those valleys, in Scotland and in the North-East. Let there be no doubt about that.

We intend very shortly to publish a White Paper. We wanted to listen to the debate and hear some of the criticisms that were put forward and some of the alternative ideas that might be suggested in relation to the scheme. We would then propose to add a new Clause to the Finance Bill. A new Clause will find its place among all the remaining new Clauses in the Finance Bill and, no doubt, it will receive the appropriate attention and be discussed properly under your guidance, Mr. Deputy Speaker, when you are in the Chair.

That is the procedure which we want to follow. What do the right hon. Gentleman and the Liberal Party suggest? They are all in favour in principle, but not of doing it in this way. They say, "Let us do something else". It is the old, old story. The right hon. Gentleman seemed to be backing his white elephant both ways. He does not want to appear in Scotland and Wales, and no more do the Scottish Tory Members—there are very few Welsh Tory Members—as having opposed the proposal when it will bring such great benefits to those areas. They say that they are in favour of the principle, but when it comes to detail they are utterly opposed. I always thought that that was the Liberal approach, but the Tories seem to have taken it over.

We intend to proceed, therefore, along these lines. If we followed the proposals put by both the Conservative and Liberal spokesmen, how long do they think it would take to turn over to the new kinds of taxation they are talking about—to draft the measures to get them through? I would say that it certainly could not be done this year. I suppose that it might be done in another 12 months, perhaps in the Finance Bill, 1968, but we would have lost yet another 12 months in trying to tackle this problem at its roots. What the right hon. Gentleman proposed on procedure alone, leaving the merits to one side, would delay the implementation of this proposal, which is going to bring such considerable benefit.

The right hon. Member for Argyll (Mr. Noble) asked whether what we were doing would conflict with the Treaty of Rome. We have looked at the international aspect. In our view, the proposal does not conflict either with the General Agreement on Tariffs and Trade or with the E.F.T.A. requirements under which we are working. We have been getting a lot of information about policies in the European Economic Community and also about the actual working out of those policies, which sometimes is rather different from the theory.

We take the view that, whilst our procedures under this kind of proposal will undoubtedly be examined, they are not a barrier at the present time, that they can be implemented and that we would have very good grounds for arguing, on the basis of what is done by existing members of the Community, that they are not ultra viresthe Treaty of Rome, certainly not in the application of policies.

The right hon. Members for Argyll and Mitcham asked, "Why do you not do more training, build more schools, more hospitals and more new roads?" But this proposal is not an alternative. It is in addition. All these things are being done already. We are building more roads and more schools in these areas.

Mr. MacArthur

Not in Scotland.

Mr. Callaghan

I will give the hon. Gentleman the figures. He should know them as a Scottish Member. In 1963–64 the expenditure on new construction of roads in Scotland was £22 million. This year it is £36 million—nearly two-thirds greater.

Mr. MacArthur rose—

Mr. Callaghan

The hon. Gentleman did not think that I had the figures—and I have.

Mr. Noble

Will the Chancellor also remember that in the Government's plan for expansion in Scotland the rate of development for Scotland is slower than the rate planned before?

Mr. Callaghan

The Opposition try to ride off on one argument, having been defeated on another. The right hon. Gentleman says that the rate of development is lower than they planned. They planned with an £800 million deficit per annum. Any one can plan on that basis. I could devise wonderful schemes on that basis and leave my successor to pick up the check. The truth is that the Tories know, despite their propaganda in their Scottish constituencies, that more in real terms is being spent on roads, schools, hospitals and housing under this Government than was spent under them.

Mr. MacArthur rose—

Mr. Callaghan

No.

Mr. MacArthur rose—

Mr. Speaker

Order. The Chancellor of the Exchequer is obviously not giving way.

Mr. Callaghan

I have not much time. I do not complain, but I shall not give way.

I come back to my point. These are not alternatives. What is happening is that the Labour Government are increasing their expenditure on these subjects that the Opposition are now so keen on, and, in addition, they intend to add the regional employment premiums on top of that. That is the truth of the situation.

I say to the right hon. Member for Mitcham that it is not obvious to me that we can build new schools and houses and roads without using resources. One of the features of this proposal, and what we want to do—the right hon. Gentleman was suggesting we could—is to try to ensure that in putting this scheme into effect we do not involve the country in extra taxation. If we build new schools, roads and houses, they make a call upon resources which would have to be met by additional taxation.

Sir D. Glover

They can be met by growth and by savings.

Mr. Callaghan

Of course, they can be met by growth and by savings and, no doubt, will be partially met by growth and savings but there comes a limit to all of these things. In the state of the economy which we shall be running, in in which there is full employment—98 per cent. of people at work—and in which there is growth and pressure of demand, adding to these programmes beyond a certain limit—the right hon. Gentleman must understand this—would clearly mean that there would have to be increased taxation on ordinary citizens.

The merit of these proposals is that they are designed in such a way that they will not require additional taxation to be raised in order to meet them, so it is no use saying to me, "If only you will spend more on roads and houses and all the rest of it, you will do the same thing much better." Apart from there being a difference of view about it, it does not happen to be the same sum. I agree with the hon. Member for Belfast, East (Mr. McMaster) and many others who have practical experience of these areas, that it is not enough to build communications, to have the social infrastructure. They are necessary, desirable and important and I agree with all that has been said about them. All these things are important, but they are not enough, and we have shown this by all the efforts which have been made by the Government, by our predecessors and by the Labour Government of 1945–51. We have not cured this sore by these methods. Therefore, it is vital that we should try out this new system which we are now undertaking.

I should like to refer again to this problem of the so-called grey areas. I ask my hon. Friends who come from those areas to agree that if I promise not to use the term again, they will not do so. Can we not find a better term than that? It is a dreary description. [HON. MEMBERS: "They are dreary."] This is a rather different problem. It is one in which there has not been this great concentration upon two or three major industries which have now been circumscribed and whose function has changed. The problem is one where there does not seem to be growth at the rate which my hon. Friends and hon. Gentlemen opposite would like and where population is moving away. It may well be susceptible to a different solution.

Whereas in development areas we have had 30 to 40 years to find the facts—there are no new facts to be known about the development areas; we all know that story well enough; we have lived through it and seen it—in these new areas it is worth making a study to see what is needed, then, if necessary, taking the appropriate action to ensure that they are given the same opportunity as any other area. That is the proposal and the way in which the Government want to tackle this problem.

The fact that there is a relatively new problem in these areas should not deter any of my hon. Friends from allowing the Government to go forward with this proposition for helping the long-standing canker of the development areas. I can tell my hon. Friends from other areas that we shall proceed on that basis.

I now come to the question of timing. The proposal in the White Paper was for a five-year period. The right hon. Member for Mitcham thought that that was not sufficient and spoke in terms of a three-year or five-year period. The Government have considered the matter again and have listened to the representations which have been made. In our view it is right, as my right hon. Friend said, that the scheme should exist in full for seven years and that it should then begin to phase out—obviously a review will be made nearer to the time to see how it is going, but this is our present intention—coming to an end theoretically after 10 years or so, because we could take two or three years to phase it out. We are therefore dealing with a long-term scheme.

The Opposition seem to be divided among themselves, between those who say that this scheme will have no impact, which is roughly the position of the Opposition Front Bench, and those who come from the so-called grey areas and who say that it will be the most powerful magnet ever seen. Obviously, both cannot be right. I can only say from my own experience and my own contacts with industrialists that when this proposal goes through, it is likely to have the most profound effect on their thinking about their new investment programme. [HON. MEMBERS: "Rubbish."] Hon. Gentlemen are always ready to interrupt, but I can tell them that I have had contacts with industrialists and discussed their future investment programmes with them, and it is my considered opinion that a premium equivalent to about 7½ per cent. of labour costs—and that is what it means—will have a remarkable effect upon their thinking. It is 7½ per cent. on labour costs and 2½ per cent. on total costs.

Mr. Iain Macleod (Enfield, West)

Why are they against it?

Mr. Callaghan

They are not. Many of the trade associations are against it and many of the spokesmen are against it. But if the right hon. Gentleman talks to industrialists in the development areas he will see that that is an entirely different proposition and that they are not against it. I have talked to them; I do not know whether the right hon. Gentleman has done so. He represents a prosperous London suburb, but I have talked to the people in South Wales, and I know that they are not against it and that many of them will welcome the proposal and will find it of great assistance to them.

I think that I have covered the major issues which have been raised in the debate, although there are many other, not smaller but different, points to be made. Perhaps I should say something about the steel industry and about boundaries. First, it is clear that problems will be caused to areas on the edges of development areas. I should know; I represent one of them—Cardiff—and so hon. Members cannot say anything to me about it which I do not know. Nevertheless, I am willing to put my weight behind this proposal, because, whatever disabilities areas may suffer, there is no doubt that this proposal will bring great benefit to the other areas inside the development area boundaries. However, boundaries can be looked at and revised from time to time and I give the pledge that that will certainly be our intention.

We have naturally considered the future of the steel industry after nationalisation and have decided to continue investment grants and to bring the steel industry into the scheme on the same basis as at present, the nationalised and non-nationalised sectors alike. This is a manufacturing industry and we think it right to give it those advantages.

I conclude by saying that this is one of the boldest and most dramatic gestures to have been made in these areas in the last 40 years. It deserves the support of the House and will bring great encouragement to the areas themselves.

Question put and agreed to.

Resolved, That this House takes note of a proposal for a Regional Employment Premium contained in the Command Paper entitled The Development Areas.