ECONOMIC AFFAIRS

HC Deb 07 November 1967 vol 753 cc845-980

Mr. James Dickens (Lewisham, West)

On a point of order, Mr. Speaker. I wish to raise a point of order with you, Sir, as I understand that the Amendment standing in my name, supported by 44 of my hon. Friends, is not to be called today. The matter which I wish to raise with you, Sir, profoundly affects the rights of back benchers on this question on both sides of the House, and I ask for your guidance on two aspects of it.

First, Mr. Speaker, may I, with respect, draw your attention to a Ruling given by your predecessor Mr. Speaker Clifton Brown, during the debate on the King's Speech in November, 1946? Mr. Speaker Clifton Brown was then confronted with an Order Paper which had upon it 31 Amendments for consideration, the official Opposition Amendment, two Liberal Amendments and 28 back-bench Amendments. In the Ruling which Mr. Speaker then gave, on 15th November, 1946—this is cols. 386–7 of the OFFICIAL REPORT—he ruled that he would call the official Opposition Amendment, a Liberal Amendment and no fewer than three back-bench Amendments. The question I have to ask you, Sir, is this: why is it that now, in 1967, 21 years later, it seems to be the practice that the official Opposition Amendment is not only given precedence over all other Amendments but, apparently, precludes consideration of other Amendments?

Further, Mr. Speaker, may I make the point that back benchers are in difficulty when they find themselves unable to agree with what seems to be a broad consensus of view between the two Front Benches on central economic strategy? I wish to make plain to you, Sir, to the House and to the country that, if you should choose to reconsider your decision not to call the Amendment standing in my name and the names of my hon. Friends this evening, we should wish to vote for the Amendment in the Lobby.

May I ask you now, Sir, for your view on the points which I have raised?

Mr. Speaker

I am grateful to the hon. Gentleman for giving me notice, with his characteristic courtesy, that he proposed to raise this point of order. I assume that he is raising it not only in regard to his own Amendment but in regard to the 11 other Amendments on the Order Paper which have not been selected.

I have some sympathy with the point of view which the hon. Gentleman has expressed. There are different groups in the House who hold different reasons for objecting to part of the Queen's Speech or for objecting to omissions from the Queen's Speech. This is the position with which the Chair is faced now, as it is faced every year.

I turn, first, to the precedent in 1946 to which the hon. Gentleman has referred. There was then an unusual occurrence. The debate on the Speech began on Tuesday, 12th November, and it was not concluded until Thursday, 21st November. Thus, instead of there being six days for the debate on the Speech, there were eight days. The facts were as the hon. Gentleman has stated them, that, on that occasion, with two extra days to play with, my predecessor was able to allow in the two extra days three private Members' Amendments and one Liberal Amendment to be debated.

The practice of the House now—there is no reason why I should change it unless instructed by the House—is that we begin the debate on the Queen's Speech on Tuesday, the debate continues until the Friday more or less generally, during which general debate all the viewpoints which are expressed in the various Amendments can be canvassed by hon. Members who catch my eye, and then, on the following Monday and Tuesday, the fifth and sixth days of the debate, it has been the custom over 20 years for my predecessors and myself to select two Amendments tabled by the official Opposition.

As one who zealously wishes to protect the rights of minorities in the House, may I point out that this does not mean that Amendments put down on the Order Paper serve no purpose. Although the occasion does not permit their selection, the viewpoints expressed by those hon. Members and their supporters who put them down are stated on the Order Paper. Hon. Members may follow up those viewpoints in debate if they catch Mr. Speaker's eye. I have tried as far as possible, and I shall try today, to see that every point of view expressed in an Amendment on the Order Paper has an opportunity of expression in debate.

This year, there are in all 12 Amendments apart from the two official Opposition Amendments. These 12 Amendments have been supported by about 100 hon. Members, some of the 100 being catholic enough to support several of the Amendments. At the end of the proceedings on the Queen's Speech, hon. Members have three courses open to them. They may vote for one or other of the Amendments tabled by the official Opposition, they may vote against those Amendments, or they may abstain from voting. These three processes enable the viewpoints of all hon. Members to be expressed and ascertained with as much precision—[HON. MEMBERS: "No."]—Order—with as much precision as is possible in a House in which there are so many divergent points of view. Mr. Michael Foot.

Several Hon. Members rose—

Mr. Speaker

Order. No hon. Member has a pre-emptive right to be called. I called Mr. Michael Foot.

Mr. Michael Foot (Ebbw Vale)

May I ask for your comment, Mr. Speaker, on, as I submit, the serious statement which you have just made? First, is it suggested that, because a practice has arisen and continued over a period, that practice must govern our future conduct?

Second, does it not follow from what you have said that the official Opposition have only to take the precaution of putting down two Amendments directed to the Queen's Speech on two separate matters to exclude others from being successful in having their Amendments called? Would not that be the deduction from your Ruling, if that Ruling were to be sustained?

Third, and most important of all, is it not plain that an abstention on an issue of confidence does not give to hon. Members the same right of presenting their case to the House and having the House vote on their special Amendment? The Ruling which you have given, Mr. Speaker, would preclude hon. Members, particularly back-bench Members on the Government side, from having the right which they did exercise 20 years ago. Therefore, if you are not prepared to accord us this right today—though I still hope that you will reconsider your decision—will you see that this right, which under your Ruling is taken from us, is restored?

Mr. Speaker

The right to which the hon. Gentleman refers does not exist. It has not existed for 20 years. The hon. Gentleman claims as a right something which happened in the exceptional circumstances of 1946. I am seized of the gravity of the problem, but I cannot vary my selection.

Mr. Ian Mikardo (Poplar)

Further to that point of order, Mr. Speaker. Is there not here a question of principle which is not confined to debates on the Gracious Speech but applies on other occasions when there is any statement of Government policy to which the Opposition put down an Amendment? Apart from what has been said by you, Sir, and by others concerning the proceedings of the day, is it not a fact that, for a number of years now, whenever there is an occasion on which there is an official Amendment to a Government Motion of any sort, no other Amendment has been called?

May I put to you, Mr. Speaker, with the greatest respect, that what you have said about the choices available to hon. Members for registering their opinion is not absolutely complete. It is one of the traditions of the House that the vote should follow the voice.

The whole House is very grateful for being reminded of the practice which you have just outlined in trying to make sure, as best you can, that every point of view has a chance of expression, but it does not mean that one is able to follow the voice with the vote.

Taking this out of the realm of today's proceedings and putting it on a general basis, it may well be that the Government put down a Motion or there is a statement of policy and the Opposition puts down an Amendment, the effect of which is to say, "We think that you are going too far." But what about the Members who object on the precisely opposite ground that they think the Government are not going far enough? The only alternative before them is either to support a statement by the Government with which they do not agree, or support, or partially support by abstention, the official Opposition Amendment which says precisely the opposite of what they want to say.

It seems to me that there is, therefore, a considerable deprivation of the rights of hon. Members if it becomes accepted as a general principle, not merely regarding debates on the Queen's Speech, that wherever there is an Opposition Amendment to a Government Motion that is the only one that will be called.

Mr. Selwyn Lloyd (Wirral)

Surely the answer is simple. If the Leader of the House has such bitter and remorseless opposition on his back benches, should he not give two more days to debate it?

Mr. J. J. Mendelson (Penistone)

Further to the point of order raised by my hon. Friend. In your Ruling, Mr. Speaker, have you not excluded practically for all time any opportunity for hon. Members to express their dissension to the country, through voting for their own Amendments in this House, where any Government put forward a certain policy and where the Opposition Front Bench are in agreement with that policy and they are not? For instance, if the Government pursue a policy of deflation and the Opposition Front Bench support a policy of deflation but argue that on technical grounds they have no confidence in the Government pursuing a policy of deflation effectively, are you not, by your Ruling, completely excluding that section of the House that is in favour of a reflationary policy and depriving them of their right to say so to the country?

Mr. Speaker

I can deal with this point quite simply. What the hon. Gentleman has said is something about one of the Amendments on the Order Paper, but that obtains and is just as true about the other 11 Amendments. Hon. Members have an opportunity of explaining in the House, and by signing Motions, their reasons for dissenting either from the Government or the Opposition. There is nothing new in this. This has happened over quite a long time and it is not beyond the wit of hon. Members to explain exactly why they take whatever voting line they do.

Mr. Norman Atkinson (Tottenham)

Further to the Ruling you have just given, Mr. Speaker. It has been the practice in recent years for Government Front Bench spokesmen to explain to the House that they are under no obligation to reply to a debate in the absence of an Amendment being called. This has now become the precedent which is accepted. Therefore, even though we may have the right to put down an Amendment, the Government Front Bench spokesmen seldom feel inclined to reply to the points made in these Amendments unless they are called.

Another point relative to your Ruling is that you have suggested that, in the absence of the House instructing you to take another decision, you are bound by precedent. When either the Select Committee on Procedure or the House itself has tried to discuss these matters, they have always been reluctant to come to a decision and have informed Mr. Speaker of the time that it is up to him to take a decision and to be guided by precedent. So here we are on this merry-go-round, not coming to any conclusion at all, and in the meantime the Government of the day and the Front Bench spokesmen speaking on their behalf have always evaded the points put on the Order Paper in an Amendment by saying that they are under no obligation to reply to the points made.

Mr. Speaker

Most of that is argument and not a point of order. Whether the Government reply to the points which hon. Members make is no matter for Mr. Speaker. I would remind the House that we have a very important debate to come. I have made my decision.

Mr. R. T. Paget (Northampton)

Mr. Speaker, when you said that you would be calling Members to express the substance of 11 Amendments, that would appear to mean that nobody who had not put down an Amendment had a chance of being called. It seems rather a novelty in our procedure. I wonder whether that is your view.

Mr. Speaker

I can allay the hon. and learned Gentleman's apprehensions. Selection is both a science and an art.

Mr. Will Griffiths (Manchester, Exchange)

Returning to the precedent about which you have ruled today, Mr. Speaker, I refer to the occasion of November, 1946, when your predecessor, Mr. Speaker Clifton Brown, called at least two back-bench Amendments, one moved by the present Leader of the House, which had the support of nearly 100 Members, and the other moved by my hon. Friend the Member for Birmingham, Ladywood (Mr. Victor Yates) on conscription, which was carried to a Division.

You have said that on that occasion the Government of the day had given two extra days—two more than we have had since—for the debate on the Address. Are you saying that you are following the precedent of your predecessors, other than Mr. Speaker Clifton Brown, and that you have given your Ruling today entirely because of the amount of time given to the debate on the Address by the Leader of the House? If that is so, it seems that we ought to try to invoke the attitude displayed by the Leader of the House in November, 1946.

Mr. Speaker

I am not unaware of the historical personal reference which the hon. Gentleman has made to the present Leader of the House. I have no power to ask the Government to give more or less time for a debate. That is in the hands of the Government and the House. I have not made any new precedent. I have followed all the precedents on the Queen's Speech except one, and that was the precedent of 1946. I think that we must move on.

4.8 p.m.

Mr. Iain Macleod (Enfield, West)

I beg to move, at the end of the Question to add: but humbly regret that the Gracious Speech contains no proposals likely to provide an effective solution to the grave economic difficulties facing the country. I think that it will be common ground, at least between those who have raised points of order, with which I have some sympathy, and myself, that the economic policy of the Government is in ruins. I doubt whether there will be a single voice, other than that of the Chancellor of the Exchequer, raised in full support of what is happening.

There is no doubt that the solutions will differ, but they will have in common an urgent desire to change course. I should make it clear that I at least am not suggesting that there should be general reflation. I never have done. I do not think that there is a case for that. Indeed, there is plenty of reflationary timber lying around which will have its effect in time.

This is the last day of the Queen's Speech and one looks in the Gracious Speech—in vain—for any sense of purpose in dealing with this particular problem. The Measures, as my right hon. Friend the Leader of the Opposition put it, are drab and dreary and almost frivolously irrelevant to the present economic situation."—[OFFICIAL REPORT, 31st October, 1967; Vol. 753, c. 18.] I mention two to start with, first, what we know about the Industrial Expansion Bill. The Prime Minister treated this very gingerly in his speech, and no doubt he hopes still to persuade the C.B.I. to take a more forthcoming attitude, but the same evening the C.B.I. said: The C.B.I. emphasises its absolute opposition to this unnecessary and damaging measure. I take no doctrinaire view about this proposal. I oppose what we know about the Bill because to me the central proposition, which is that Ministers and civil servants can identify the support worth-while projects which the market is too blind to see, is absurd. This is my attitude. Nor, of course, is it necessary to take an equity interest in the company concerned. The Government already have a 40 per cent. stake, at least, in a successful company, or in its profits.

The House will remember the more cheerful days of the Foreign Secretary when he was at the Department of Economic Affairs, the Declaration of Intent, the National Plan, the Prices and Incomes Board, and all the rest, and how always he was crowing that industry was with him, and that it was only we on this side who were doubtful. We may have been scornful but at least, we turned out to be right, and I fancy that we will again on this issue. I welcome the robust attitude of the C.B.I. to this particular piece of interference.

Secondly, there is the Transport Bill. I hope very much that, while there is time, the Chancellor will look again at what is proposed, particularly in the light of yesterday's debate. I think that hon. Members, certainly on this side, and, I would hope, on the other side as well, were horrified by the Minister's petulant attitude towards top management. It is impossible to run great affairs in this country on the basis of the Minister's approach. This Measure suggests once more that Ministers, or civil servants as the case may be, can judge better than the consumer what sort of transport he should use. The Chancellor should remember that a Bill like this must mean a further weakening of business confidence, and he must be as anxious as we are, and as everybody in the House is, to avoid that happening at the present time.

I feel that I should make some reference, however briefly, in the first major finance debate this Session, to the decision, announced as usual as a leak, to send the Finance Bill to a Committee upstairs. After last year's handling of the experimental agreement, I say that this is a blatant breach of faith by the Leader of the House. My position was made quite clear from what I said during the Third Reading of the Finance Bill. My comment was: This Finance Bill was preceded by a number of dark threats of Business Committees, Guillotines and the rest. I voted against these, not because I am against civilised ways of handling Finance Bills or any other Bills but simply because I thought it wrong to give undertakings to the House which I cannot be certain of carrying out… I made no secret of my intentions and desires. I marked everybody's card with as much enthusiasm as Prince Monolulu used to do. I did it for the Government Front Bench, for the Opposition Front Bench, for back benchers on both sides of the House, and for the servants of the House. I told everyone where we should get to."—[OFFICIAL REPORT, 30th June, 1967; Vol. 749, c. 1110.] Many Members in the House know that that is true. The Chancellor knows that it is. Many of my right hon. and hon. Friends voted against the proposals of the Leader of the House because they felt that they could not trust him in a matter like this. It is a pity that he has given them such clear proof that they were right.

I leave that question to the debate, except to mention two points. Last year, 114 Members took part in the debate, and yet that was a non-controversial Measure by ordinary standards. The normal figure is about 170. Perhaps I might take one particular instance. I do not know what the attitude of the Liberal Party will be. No doubt its members will tell us in due course, but seven Liberals took part in the Committee stage, and their ration for the Committee stage will be one.

Secondly, on the question of the Report stage, unless it is the intention of the Government to extend the financial powers of the House of Lords—and I did not gather that that was in their plans—the Report stage of a Finance Bill is virtually useless, because it is not possible to promise consideration in another place, and unless the Amendment is already so perfectly drafted—which is most unusual in a Finance Bill—that it can be accepted on the nod—and that is unusual, too—the Report stage is simply an opportunity of blowing off steam. I hope very much that the Leader of the House will consider this. I put it to him as a very serious point.

The reason we are doing this is so that we can go to bed earlier. This comes quite clearly from the Report of the Select Committee on Procedure. In my view, the occupation of government is not suitable for office hours. [HON. MEMBERS: "Oh"] I do not think so. Perhaps hon. Members will remember what Harry Truman once said, "If you cannot stand the heat, get out of the kitchen".

I turn now to a pleasanter subject. I hope that the Chancellor of the Exchequer will say something about his meetings and talks in Rio. We are apt to get mesmerised with our short-term problems, and it is a good thing sometimes to be able to look, if we can, towards a solution of the recurring difficulties. The one that is in my mind is that of international liquidity. It is a most perplexing problem. A valuable initiative was taken by my right hon. Friend the Member for Barnet (Mr. Maudling) four or five years ago, and it has been carried on and developed by the Chancellor. I think that the right hon. Gentleman did very well in Rio. I offer him my congratulations and perhaps he will tell us what his hopes are for action in this sphere.

The Chancellor then returned from the applause of the international bankers to the applause of the Labour Party conference, and that is quite an achievement. It was only cynics like the hon. Member for Ebbw Vale (Mr. Michael Foot) who wondered whether the second audience really knew what they were cheering about. Perhaps it would be appropriate to tell them.

We had a rise in the Bank Rate of only ½ per cent. That, as the Chancellor agrees, was the last thing that we needed at that time. It was also the very last thing that we expected after the Chancellor's brave words about the international disarmament of interest rates. I think that the correct comment came from the Sunday Times of 22nd October: Last week's ½ per cent. rise in Bank Rate was not a happy portent. Glumly inevitable it may well have been, in the light of world interest levels. But the thinking behind it, and the sulky behaviour of sterling which followed, merely underlined the degree to which we have lost control of our destinies in the economic world. This question of losing control of our destinies is the whole basis of the argument today, whatever Amendment we may be debating, and it is here that I wish to come straight to the points made by the Governor of the Bank of England in his speech in South America on 5th October. This is of the greatest importance. I regard it as a simple and accurate statement of the position and it has not been repudiated. The Motion to which we have had reference from the hon. Member for Lewisham West (Mr. Dickens) and others tries to link the present Government's policies with the previous Tory ones. I would like to show briefly that that is not true, and that the situation now is a complete break from anything that has happened before under either a Socialist or a Tory Administration.

First, this is quite clear from the words the Governor used, and even clearer, perhaps, from the explanation that he gave on his return. When asked to define full employment, he said: Beveridge thought it was 3 per cent. of unemployed. In the years since the war there has been a very much lower margin. My understanding is that we need a rather larger margin. If my recollection is correct the Chancellor dealt with this in his speech. What the Governor is saying is that there is—and indeed there is; we know it—a new policy here.

I can illustrate this best by giving quickly to the House the figures of the records in respect of unemployment of the two Governments. The Socialist peak was the one of February, 1947, of more than 1,750,000—due entirely to the weather. I make nothing of that. But the Tory peak, in February, 1963, of 878,000—and there were 250,000 temporarily stopped—was equally entirely due to the weather. The figure for December, 1962 of 566,000 is the same as today's figure, with two months of this year still to run. The 250,000 leap came in the next month and disappeared as spring came, or even before that.

The lowest levels are identical. Under the Conservative Government, in July, 1955, the figure was 185,000, and under the Labour Government, in July, 1951, the figure was 186,000. Over the whole period there were four Conservative Administrations under four different Prime Ministers and there have been four Labour Administrations under two Labour Prime Ministers. Taking all the Tory months, the average unemployment figure is 1.8 per cent., and, taking all the Socialist months, the average unemployment figure is again 1.8 cent. The figures are identical to one-tenth of 1 per cent.

We can all make our points on by-election platforms, and I am as good at selective quotations as anybody else. [HON. MEMBERS: "Hear, hear."] I am glad to have the agreement of the House. I take it as a mild compliment. But nobody can seriously argue that when the performance, of both Governments, over all those years, comes out to 1.8 per cent., the Tories have been pursuing policies of heavy unemployment and the Socialists have not. Intellectually, that is simply not a respectable argument to pursue.

I will put it in another way. During all the months from 1951 to 1964 there were eight months in which the level of wholly unemployed—which is the figure which matters—was over 500,000. That is eight months in 13 years. There have been six such months in the calendar year 1967 alone, and we have two more months to go. This Government may well achieve in one year, in terms of unemployment, as many months of that heavy—and I would have thought unacceptable to us all—unemployment as the Tories achieved in 13 years.

I take a good deal of comfort—not too much, because one must not read too much into any one figure—from the October unemployment figures. It is true that they rose, but taking seasonal and other factors into account they are encouraging, and I welcome that trend.

Mr. Mendelson

I do not think that the right hon. Gentleman will disagree when I suggest that he will not be able to sustain his waving aside of short-time working a moment ago. What happened when the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) was Chancellor of the Exchequer was that the trade unions, by strong action, enforced a large number of short-time working agreements. That was nothing but hidden unemployment. The total figure was very high.

Sir Cyril Osborne (Louth)

We find that everywhere we go today.

Mr. Macleod

Yes. As my hon. Friend the Member for Louth (Sir C. Osborne) says, we find that everywhere we go today. I will come shortly to the question of productivity.

What we are seeing—and everybody listening to me knows this to be true—is a break with the past, because we are seeing for the first time a Government putting into action the theories of Professor Phillips and Professor Paish. We all know those, and in my view we have seen enough to base a judgment on them, and to consider whether we should go on with them. The basic theory is that this economy—perhaps any economy—runs best at about 95 per cent. of capacity.

This is often crudely but not very accuratley translated into a figure of 2¼ per cent. unemployment. Its advocates—and they are strong in the Government, and Government Departments—say that when we have become accustomed to that level, growth will be resumed. Its opponents say that when the initial shock has been absorbed inflationary pressures will be renewed and all that will have happened is that we will have sacrificed 5 per cent. of productive potential.

There is no doubt what the Government are doing and what Sir Leslie O'Brien was saying—and, one may add, praising, because he believes this to be right. This is one of the central features of today's debates—to decide whether or not this theory is correct.

I say frankly that I was attracted by the Paish theory some years ago.

Mr. William Hamling (Woolwich, West)

You were in power then.

Mr. Macleod

But we did not do it. I have become increasingly doubtful of its validity, and I will explain why. In the ordinary sense of the word it is not a theory at all; it is an observation. This economy has been at 95 per cent. so rarely—and then when the economy was going up so fast or down so fast—that we cannot draw valid conclusions. Other countries have managed to work much nearer to the ceiling than 5 per cent. and why should not we?

The one thing that is certain is surely that none of the benefits which are supposed to flow from such a doctrine are with us today. We have the worst of all possible worlds. We have heavy unemployment, but it is marching along with a weak £. We have stagnant production, but it is linked with a lack of confidence overseas, and we have deflation, but we have a balance of payments deficit as well. People hoped that when the time came for reflation it would be an export-led reflation. In fact, in all the quarters of this year exports, seasonally adjusted, have fallen.

During the first quarter they amounted to £450 million; in the second they stood at £434 million, and in the third they were £422 million. The latest figures from the motor industry show that between the second and third quarter the production of cars for the home market rose by 7 per cent. while production for export fell by 17 per cent., so it will not be an export-led reflation.

Then it was hoped—and people shared in this hope—that it would be an investment-led reflation. But the President of the Board of Trade's latest survey shows that investment in manufacturing is expected to be about 6 per cent. less in 1967 than it was in 1966. The latest C.B.I. Survey says: A feature of the results is the contrast between the capital goods industries, and the consumer goods industries. The overall failure of business to improve as expected since June is largely due to the experience of the capital goods industries; in both output and new orders consumer goods have been on an improving trend whilst capital goods have been on a downward trend. Therefore, if there is a reflation—and there will be—it will once more be a consumer-led reflation, with all the dangers that we know accompany it in other fields.

The Prime Minister was boasting about productivity. I now return to the point made by the hon. Member for Penistone (Mr. Mendelson) in that connection. It is not true that this is the first squeeze in which productivity has risen. It is true that this time the productivity increase is much greater than in any previous cycle. I say to the Prime Minister, however—I am not certain of this answer, because we will need to see it proved over the next few months—that the work which we have done on this seems to indicate that the recent rise in productivity is the statistical reflection of the drop in the normal working week from 42 to 40 hours, that it started before July, 1966, that it is a temporary phenomenon and that we get no benefit on costs per unit output. As the winter goes on, we will see whether that estimate is right, but I believe it to be so.

The major problem for the Chancellor of the Exchequer is surely that the estimate and the planning for growth are so low. The Leader of the House, in a charming speech at the Small Heath Labour Party dinner on 27th October, said this: When we came into power"— this is like a fairy story— we believed that we could take the economy over and that we would then make it grow faster as it had not been doing in the last 13 years and as a result of the rapid growth we got in the economy we would get extra wealth to pay for the increased social services and all we needed to do was to take it over and the economy would magically grow and we would be able to take the golden eggs from the goose and use them for all the hospitals, houses, schools, and so on… and basically the electorate is as disappointed that it did not happen. The right hon. Gentleman can say that again. It shows the sort of academic dream world in which so many of Her Majesty's Ministers live.

The reality is this. The last six years of Tory Administration produced a growth total of 25.3 per cent. After the present Administration had been in office for one year—they had had time to look at the books; there is no question about the deficit or anything else—they estimated in the National Plan that they could do 25 per cent. in the next six years, a little, but not significantly, worse than we had achieved.

What they have actually done, however, is 1.3 per cent. from 1965 to 1966, an estimated 9 per cent. from 1966 to 1967 and, even if the Chancellor gets 3 per cent. growth from now on, an average to 1970 of 2.2 per cent. The difference between those two figures, between the Government's National Plan and what they are actually doing and will do, is no less than £9,600 million. That is the cost of Socialism in practice over these years.

Mr. Michael Foot

Since the right hon. Gentleman has proved to the House so conclusively, as it appears, that the policy that the Government are pursuing is that of Sir Leslie O'Brien, why does he think that he could characterise it as Socialism?

Mr. Macleod

That is an argument for the other side of the House.

Mr. Mendelson

The right hon. Gentleman should answer it.

Mr. Macleod

That is the question from the hon. Member for Ebbw Vale (Mr. Michael Foot) to the Government Front Bench. [HON. MEMBERS: "To the right hon. Gentleman."] There is no answer to it. I call it Socialism because the rules of Parliamentary behaviour do not allow me to use the appropriate word which otherwise I might use.

I want to take up with the Chancellor a point in which I have an indirect interest, which perhaps I should declare, but it is of great importance. In May, 1965, the Bank of England imposed a 105 per cent. ceiling on the finance houses and it confirmed it in February, 1966. It is still there today. The short point is that while the Treasury and the Bank of England keep the finance houses under that 105 per cent. ceiling, the Board of Trade has, twice in the past six months, lifted terms, with some considerable success, to reflate the motor car industry.

The inevitable result of that, as all the houses of which I know are beginning to push against the ceiling, is that either the Government's policy will be less effective than it ought to be or we may well find in this direction, as we found in car insurance, mushroom firms coming up to help to service the finance for this. Either result would be sad. The finance houses are worried about this position and I invite the Chancellor to say something about it this afternoon.

I turn to the question of what we should do in these circumstances. There are those who go for what I might call the short-term remedies—blood transfusions, devaluation, a floating rate and the rest. The Government have set their faces against this. I make it clear to the Chancellor that I support him in this today as I have done in the past. Equally, I do not believe that a general reflation is right. IF both of those propositions command some assent at least, let us see what the right approach should be.

There are a number of structural changes which should be made, one of them being the abolition of the Department of Economic Affairs. I do not need to press this on the Chancellor. He and I have been in alliance together on this subject for a considerable time.

There is the question of public expenditure. Here, the Chancellor is speaking with two voices—at least, he did in the July debate—because he is able to say to one audience that the National Plan targets are still being maintained at an average rate of 4¼ per cent. This is true if one takes into account the first year period of 7.8 per cent. and adds on for the other years 3 per cent. That comes out at 4¼ per cent.

What is wrong with that is that the Chancellor is keeping the targets of the National Plan for public expenditure although the growth hopes of the plan have long since been abandoned. It is vitally necessary, in such fields as the growth of the Civil Service, on which there were Question, down to the Chancellor today, and the additional burden that al- most every day puts on us, to hold back the increase in public expenditure which was disguised last year and will, I fear, be only too naked next year.

The views of this side of the House on the reform of trade union law are known, and so is the response from the other side of the House. Therefore, I will not go into that matter now. The other main item that I must urge once more upon the Chancellor is the provision of incentives for the people. [HON. MEMBERS: "Which people?".] All those who pay Income Tax and Surtax. That is the short answer, all of them. That is where the wealth of the country comes from and we should recognise it.

The Chancellor of the Exchequer knows very well that the right policy is to balance whatever he can achieve in reductions in public expenditure by reductions in personal and direct taxation. But, instead, we have been proceeding, and I think that we shall go on proceeding, from gimmick to gimmick. We have the centre piece of the Queen's Speech—the reform of the House of Lords. The Prime Minister went dashing off to the North of England the other day and appointed the Chancellor of the Duchy of Lancaster as "Minister of the North". It is said somewhere in the Bible that if you ask for bread and are given a stone, that is harsh treatment. But to ask for help and to be given Fred is absolutely ridiculous.

The Prime Minister has lost his way entirely. He may remember a couplet from Matthew Arnold: Still bent to make some port he knows not where, Still standing for some false impossible shore. Now he has found it—or rather he has found him, and they are in the D.E.A. together for warmth, the lost pilot and the impossible shore.

I do not know how many hon. Members had the experience which I had of speaking at all three of the recent by-elections. Whatever varying enthusiasm there might be for Tory or Liberal or S.N.P. or Communist and the rest, the one thing quite certain is that there was a very fierce dislike and distrust of the Government and that it was deepest where the Labour Party could normally expect to be strongest. There is no question but that that is true. The heart of it is the hatred in the electorate of the Government's economic policy. And yet hon. Members opposite intend to vote for it again tonight. I do not urge them to abstain—not a bit of it. I like seeing my political opponents standing shoulder to shoulder on the burning deck. That is where I like to see them all.

But I say this finally to the Chancellor of the Exchequer. I have a respect for him which I regret that I cannot extend to the junta of superannuated dons who comprise so much of the rest of the Cabinet. There is a time when what has been resolution blurs into obstinacy. He may say that the prescription which I give of less Socialism, less interference and less incentive is an old one. That may be, but it is the right one at the present time. The clearest possible measure of censure came from three different parts of the country in the by-elections. We shall echo this with our votes tonight.

4.43 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

When I heard the right hon. Member for Enfield, West (Mr. Iain Macleod) say that our policy was in ruins, I looked forward with great eagerness to hearing what policy there was to take its place—the policy that would wave the magic wand, send exports booming, reduce imports, increase productivity, increase employment to full employment and increase profitability. These were all the things which I had been waiting to hear from the right hon. Gentleman. But it comes down to a policy of abolishing the Department of Economic Affairs, with a series of selective quotations. There is nothing else.

If, indeed, it were true that the Government's policy is in ruins, then the right hon. Gentleman should be ashamed of posing as an alterative Government on the basis of a speech such as that which he has just made. I will come back later to some of the points which he made, but I should like, first, to deal with some of the questions of which he courteously gave notice.

There is the question of taking the Finance Bill in Committee upstairs. The Lord President of the Council will deal with that matter in his speech. But I wondered, when I listened to the right hon. Gentleman, whether he was speaking for all his party on this matter. On the basis of the previous debates which we have had, I have a feeling that there would not be a universal view on that side of the House that the last defence of our constitutional liberties was to discuss the reform of stock options on the Floor of the House of Commons at two o'clock in the morning.

I will not go into the argument in detail, because we are to have a two-day debate on procedure and the House must make up its own mind how it is to conduct its affairs. But as I shall not have the opportunity of saying so in the debate, I would say that after three years' experience I do not think that there is anything sacrosanct about keeping the Finance Bill on the Floor of the House, provided that there are suitable safeguards for proper consideration. Lord Butler, who had longer experience than any other Chancellor in post-war days, took exactly that view when he gave evidence to the Select Committee, and I agree with him.

It is my personal opinion that it is not possible to segregate—an idea to which some have been attracted—the important from the unimportant issues or the non-controversial from the controversial issues or even the technical from the non-technical issues. There is a great deal to be said, if the House desire it, for taking the Finance Bill upstairs, for trying that out and seeing how we get on, leaving the House freer for other detailed discussions either of matters of general policy or of legislation. if hon. Members so desire. Frankly, I do not see any great constitutional issue here if there are appropriate safeguards, and I am certain that the Government will ensure that there are.

If the Bill goes upstairs, I think that a time table will be needed there—[HON. MEMBERS: "Oh."]—so that we can ensure that the financial procedures of getting the Bill to the House of Lords are met at the appropriate time. There has always been an understanding in the House about it and I think that there would need to be the same kind of timetable, if not a more detailed timetable, if the Finance Bill went upstairs.

It would certainly be a very great convenience to Treasury Ministers if the Finance Bill, when it is considered upstairs—if it is decided to send it there—should be considered in the afternoon and not in the morning. There is a great deal of Treasury work to be done, as my predecessors know. [HON. MEMBERS: "Oh."] It is considered in the afternoon now, I remind the right hon. Gentleman. I am entitled to give exprestion to the view of Treasury Ministers about this, and all I am saying to the House this afternoon is that there is a great deal of work to be done if it is to be carried on in an orderly and proper way; and I suggest that it would be proper, if the Bill is sent upstairs, for it to be considered in the afternoon.

Mr. Geoffrey Hirst (Shipley) rose—

Mr. Callaghan

I apologise to the hon. Member if I trailed my coat, but we are to have a two-day debate on the subject, and perhaps I ought not to enter into discussion with him now about it. I wanted to put on the record my point of view.

Although the right hon. Gentleman did not ask me about it, I should refer to an item in the Queen's Speech concerned with the National Loans Fund, because this is a piece of legislation which I hope will concern the House very shortly. The Bill which has been announced is the direct consequence of the review which I undertook in my Budget speech to make of our financial arrangements. What it will come to in the proposals that we shall make is that all borrowing undertaken by the Government on behalf of themselves as well as on behalf of others, and most of the Government's domestic lending, will be taken out of the Exchequer and included in a separate National Loans Fund.

Thus, the effect of the Bill will be to confine the Exchequer to the Government's ordinary revenue and expenditure transactions—that is, revenue raised by taxation, and so on and expenditure met out of moneys provided by Parliament, plus Consolidated Fund standing services.

There are a number of reasons for this. First, it will make for greater clarity in presenting the Government's financial transactions, still in terms of cash accounts. Secondly, the size of the Government's borrowing and lending, not for this alone but for other bodies—local authorities, nationalised industries, and so on—is now so great in its own right and the significance of these lending transactions in relation to the Government's total borrowing requirements is so large that these issues should be dealt with separately from the revenue and expenditure transactions of the Government. In addition, existing and future national debt will be a charge on the National Loans Fund, but the Bill will be so drafted as to preserve unchanged the security to the lenders.

The Exchequer surpluses at the end of the year on ordinary revenue and expenditure transactions will be transferred to the National Loans Fund. Likewise, Exchequer deficits in a year in which they are running will be met out of the Fund. The Treasury's borrowing powers at the moment are scattered over a variety of statutes. These will be reconstituted and reframed into a separate and single set of provisions and all Treasury borrowing in future will be for the account of the Fund.

The issues and receipts of the Fund—and I wish to emphasise this—will be defined by Statute and the Treasury will be authorised to borrow to meet any excess of issues over receipts of the Fund.

Mr. Selwyn Lloyd rose—

Mr. Callaghan

I will give way to the right hon. and learned Gentleman when I have completed this part of my speech, unless I have covered the point he has in mind.

By themselves, these changes will not affect the present arrangements under which local authorities are able to borrow from the Public Works Loan Board and the market. Nor will they affect borrowing by nationalised industries. But it will make it easier to make these changes in future if they are thought to be desirable. I would like, if the House approves of these changes, to get the Bill approved so that these changes may become effective from the next financial year that is, from 31st March, 1968.

Mr. Selwyn Lloyd

The right hon. Gentleman has partly covered this point: to what extent will he see that the borrowing of local authorities and the nationalised industries falls within this pattern? Is that his intention?

Mr. Callaghan

It is my policy, as it was that of the right hon. and learned Gentleman, that local authorities should be able to borrow more from the Public Works Loan Board in future than they have done in the past. [Interruption.] One of my hon. Friends is as rude as usual. My hon. Friend clearly does not understand the purpose of this borrowing, which is designed to give local authorities a rather cheaper rate of interest. I cannot yet say to the right hon. and learned Gentleman how far it will be possible to proceed along these lines next year. However, it is certainly a change which will make it easier for local authorities to borrow directly from the National Loans Fund—and, therefore, get a preferential rate of interest.

Mr. Iain Macleod

Will it mean that there will be separate Bills for the different nationalised industries?

Mr. Callaghan

No, that will not arise under the Measure. If the nationalised industries are being given authority by Parliament to borrow, then they will come forward under their own steam—under their own title—and this will give the Treasury power to borrow on their behalf, once the sanction has been given to the individual industry. That is really the purpose of it.

The right hon. Member for Enfield, West also gave me notice that he would like me to refer to the International Monetary Fund. I thank him for what he said. The outline of the scheme for new special drawing rights in the International Monetary Fund was finally agreed at Rio following a year of quite tough negotiations and some tense meetings in London during the summer. The House would probably like me to explain the significance of what has been done rather than become too technical. I cannot define it better than in the words of J. M. Keynes, who wrote in his book "National Clearing Union": We need a quantum of international currency which… is governed by the actual current requirements of world commerce, and is also capable of deliberate expansion and contraction to offset deflationary and inflationary tendencies in effective world demand. Our recent agreement has not wholly achieved this, but we are certainly well on the way to it.

Not very much was heard of this problem of liquidity in the 'fifties, for reasons that Keynes would have regarded—indeed, did regard—as unpredictable and irrelevant. He said in his book that it was irrelevant to make world liquidity depend on gold production in South Africa or the U.S.S.R. or on the fact that the United States was running a deficit in its balance of payments.

Keynes was right, and for this reason, in the 'fifties, with record gold production in South Africa and elsewhere, and when the United States was running moderate balance of payments deficits, we heard very little about the liquidity problem. It came to the forefront in the early 'sixties and a number of attempts were made, including the Maudling Plan, to rationalise the existing system.

That was one British initiative but, unfortunately, it did not attract all the attention or support that it deserved at that time. In spite of what the right hon. Gentleman said, we have not adopted it now; this is entirely different from the currency account which he was proposing. The British Government of the day took a series of initiatives, as this country has been doing steadily, to try to get liquidity onto a more sensible and rational footing. During the last few years the world stock of reserves has remained fairly stationary, except for some increase in the reserve positions of countries in the International Monetary Fund.

I should point out, since it is worth noting, just what is Britain's present credit position in the International Monetary Fund. The credit facilities on which we can draw now stand at £420 million. They have not been touched. When we have repaid, reconstituted, our reserves again by the December repayment, that will add another £90 million and we shall then have credit facilities in the Fund—that is, at the end of this month or at the beginning of December—of more than £500 million.

I am doubtful whether one can run a rapidly expanding world economy and world trade on the basis of stationary reserves, and this new scheme is designed to overcome this difficulty. What are the elements of it? The basic element is that it provides for the deliberate creation of reserves without discrimination between countries. They are all on the same footing. This is where we begin to get near to Keynes. There is the deliberate creation of assets, made in accordance with people's views of the level of liquidity and world trade in the ensuing years.

The second basic feature of it—I am trying to isolate what is most important in this—is that these new special drawing rights, when created, will have no strings attached, unlike the International Monetary Fund drawings to which I have referred. There will be a string, to which I will come later, but, in the sense of drawing, there will be no strings attached. They will be unconditional and immediately available. The gold tranche is unconditional, but the rest of the drawing rights are conditional.

It follows from these facts that the new special drawing rights are entitled to be regarded as fully-fledged international reserve assets. They are unconditional and they can be drawn when needed. This is right. They are to be so regarded for another reason to which I shall come. They are entitled, in my view, to be regarded as full, international reserve assets and to stand beside sterling, gold and the dollar. I have indicated, therefore, that I shall show them as part of the United Kingdom's reserves—and other countries will, from what I have heard, undoubtedly follow our lead.

The special drawing rights derive their essential value from the obligation of the countries participating in the scheme to accept them in exchange for their own currency, although the participants' obligation to accept them over and above their allocation is limited to twice that amount. But there is an obligation, where one has a special drawing right, to go to a participant in the scheme and exchange it for the currency of that country.

It is recognised in the scheme that credit creation cannot be done on a short-term basis. It is not so easy to adjust the world economy as some of our domestic economies, and, therefore, an initial basic period before distribution of five years has been fixed, with a distribution of the drawing rights each year—unconditional and unqualified.

Let me give an illustration. It—and this has not yet been agreed—the basis of the distribution—[Interruption.] The hon. Member for Worthing (Mr. Higgins) need not fear. I shall give both sides of it. If the special drawing rights were based on 5 per cent. of the existing quotas of all countries in the International Monetary Fund this would be equivalent to a distribution over the world of about 1 billion dollars each year for five years. For the United Kingdom this would be equivalent to an addition to our reserves of about £41 million a year, or a total of rather more than £200 million in the five-year period. It the quota were 10 per cent., the figure would obviously be doubled.

Two conditions have been inserted. The first is that a country cannot ordinarily make use of more than 70 per cent. of its cumulative allocation averaged out over the five-year period. If it uses 100 per cent. in the early years, it must adjust its position by the end of the period. The second is that an 85 per cent. majority is needed in the International Monetary Fund to activate the scheme. This means that the United States on its own could block activation of the scheme, or the European Economic Community could do so if all the members voted together, but not if they voted differently.

This is still a contingency plan. We agreed at Rio that the legal instrument should be drawn up by 31st March for ratification by Governments. I undertook on behalf of the British Government—and I hope that the House will support me—that if it came before the House after 31st March we would ratify it during the current Session. The United States Government indicated that they would try to do the same. This will, therefore, take time.

The important qualification which has been made, and to which the hon. Gentleman no doubt referred, is that the E.E.C. countries have put forward proposals for reforming other parts of the International Monetary Fund which they regard as important. The London agreement provided that consideration of such reforms should take place in parallel with drawing up the legal instrument for the special drawing rights. But there is no understanding that one should be dependent on the other. The E.E.C. countries put forward various proposals for changes in the rules and practices of the Fund, including, in particular, the voting procedures, which are now going to the Fund's board. I have only just seen them. They are very important and will need very careful consideration and discussion in the Fund.

As regards the special drawing right, there is no doubt that after a very searching year we have made a start on the road that Keynes wished to see the world move along. In the words of J. S. Polak, Economic Councillor of the I.M.F., the new scheme …may well be responsible for the major part of total world reserves before the end of the century. If this forecast should turn out to be true, and I think that there is a likelihood that it will for a number of reasons, it will mean that our successors at the turn of the century will look much less to gold, to dollars and certainly to sterling, and increasingly and almost wholly to the new special drawing rights. This is, therefore, the beginning of a revolution in the concept of world liquidity, and something that we can all feel has taken us a step along the road of world co-operation.

Mr. J. Bruce-Gardyne (South Angus)

After his visit to Rio, could the Chancellor tell us if he thinks that there is a serious possibility of the contingency plan being activated so long as the United States is running a balance of payments deficit?

Mr. Callaghan

No, Sir. I could not give an answer, because I think that there will be not only such political questions as whether the United States is running a deficit in its balance of payments, but also such positive questions as whether the world can get along without the special drawing rights even while the United States is running a deficit. It would be for the Managing Director of the Fund to consider the position and make proposals once they have been ratified, but I do not think that it is possible to speculate on what the position is likely to be in 12 months' time.

Mr. Robert Maclennan (Caithness and Sutherland)

Can my right hon. Friend say whether any attempt has been made to overcome some of the French objections at Rio by giving consideration within the Government, or with his colleagues in Rio, to some of the proposals for linking access to special drawing rights with the contributions of member States of the I.M.F. to funds available for development? I am thinking particularly of the proposals put forward by Professor Streeten in elaboration of the earlier Maxwell Stamp proposals.

Mr. Callaghan

We have heard a speech or two from the French delegates on this subject, but no detailed plans were ever put forward, and it was quite clear to me at an early stage, about 18 months ago, that an attempt to link the special drawing rights with development aid, however desirable it might seem, would have been bound to fail. We could not have carried all the countries concerned along that line. I believe that it is more important now, in connection with aid, that we should get all the countries concerned—I will not specify any, because negotiations have still to be done—to agree to a substantial increase in the level of aid at the moment going to the International Development Association. Her Majesty's Government have put forward their own proposition for doubling the allocation of the last five years. I wish that we could get others to agree.

I now come to the speech for the Opposition by the right hon. Member for Enfield, West. I should have thought that there was almost general agreement now, except perhaps among the Opposition and, as far as I know, even there, that the economy is growing again this autumn, that production is increasing. The signs are clear on every hand. More houses, both public and private, are being built; 498,000 are under construction in Britain, only 2,000 short of 500,000. That is 39,000 houses more than a year ago, and 66,000 more than when we took office.

More cars are being sold; in the three months from July to September new car registrations were 15 per cent. higher than in the preceding quarter. Hire-purchase agreements for new cars from June to October are 50 per cent. up on the average for the preceding five months.

Factory construction has been concentrated on the development areas, where it has increased substantially. Improvements in the first nine months of this year are 5 per cent. above those for 1965, and I shall give more details about this later. Public investment was 13 per cent. higher in the first half of this year than in the first half of 1966.

As to investment in new plant and machinery, the pessimists have taken a real clobbering. I remember all the pessimism a year ago from very distinguished pundits on the other side of the House, as well as the commentators in the Press, about the fall we would see in the level of investment in new plant and machinery. The fact is that it has remained remarkably steady and is now tending to move upwards. Ten million wage earners had an increase in pay in the present year, following the ending of the wage freeze and period of severe restraint.

The increase in consumption is shown by the fact that a number of finance houses are, as the right hon. Gentleman said, now approaching the ceiling of their lending limits. In March, 1965, it was agreed that banks and finance houses and others should not exceed over the following 12 months 105 per cent. of their lending in the previous 12 months. In addition, as he pointed out, finance houses are subject to a terms control through the hire-purchase system. Because the hire-purchase controls have been relaxed pressure has come on them in respect of the 105 per cent. ceiling. I cannot agree that they should now be entirely free of all controls in the matter of the ceiling, for reasons that I shall come to.

The demand cannot be unrestricted. The difficulty that we are having is to find a flexible and fair means of control. We have worked it out for the clearing banks, but because of the varied assets structure of the finance houses and because the finance houses straddle two types of activity—not only hire purchase but bank type lending—it has been difficult to do something that would both be fair and enable us to keep control, but we are now working to see what can be done.

I would add that if any of the finance houses are in difficulty the Bank of England has indicated that it will deal with individual cases where the houses have reached the limit of their lending capacity and wish to exceed it. But let us be clear of the moral of this. The reason why they want to approach the banks is that the economy is expanding and they have reached the limit of their ceiling and are seeking an opportunity to go higher. It is an indicator, among all the other indicators that I have given, showing that an increase in demand is taking place.

Another satisfactory feature is that National Savings are increasing again this year. This year's increase is about £120 million up to last weekend, against, in the previous year, an increase of only £2 million. So there has been a very significant improvement in the total level of National Savings.

In short, there is a current improvement taking place in production, consumption, investment and savings, and this is happening against a background of steady price levels. Retail prices are increasing at an average annual rate of only ½ per cent. as against an average of 3½ per cent. increase between 1962 and 1966. Food prices—we had an exchange at Question Time about this between the Prime Minister and a number of hon. Members—have been remarkably steady. For whatever reasons one cares to give—it is not the reasons which matter; it is the fact—food prices have been steady. Since the beginning of the year they have gone down. However, I regret to say—but it is true, there is no doubt—that the hold-up in the docks will mean that that record will go very shortly, too.

The other favourable factor is that productivity in manufacturing—this is, output per man hour—is tending to rise. In the first half of 1967 it has been 3 per cent. higher than in the first half of 1966 and nearly 8 per cent. higher than in the first half of 1965. Above all, there is growing evidence that the tide of underlying unemployment is beginning to turn. I have said already—I said it last July—that it will rise to a winter peak next February, but the underlying trend during the next year will be significantly downwards.

Now I come to the question of the Governor of the Bank of England, who made the speech—which I very much doubt many hon. Members have read—

Mr. Dickens

I have.

Mr. Callaghan

—at the Anglo-Argentine Chamber of Commerce in Buenos Aires. It was, I thought, a very good exposition of the nature of this country's problems. I think, for example, of his sentence: It is sometimes quite hard to recognise the strong, rich and inventive country which Britain actually is behind all the shortcomings commentators, politicians and others continually discover. There are many things in the speech with which I agree. When he came to the question of the rate of wage and price inflation, in which he dealt with the question of unused resources, what he said I agree with. He said: it is impossible to manage a large industrial economy with the very small margin of unused manpower and resources that characterised the British economy in the 1940s and 1950s". That is true. I will come to the other points later. We must have a somewhat larger margin of unused capacity than we used to try to keep. That is the truth of the matter. [Interruption.]

Mr. Michael Foot rose—

Mr. Callaghan

No. I have had to put up with a great deal of this, and I want now to make the case as I see it. My hon. Friends can make their cases later when they have the opportunity to do so.

Mr. Mendelson rose—

Mr. Callaghan

No. I want to make my case.

Mr. Mendelson

Will my right hon. Friend give way?

Mr. Callaghan

Not yet; when I have finished I will.

I resent these suggestions that I am nothing but a cipher in the hands of the Governor of the Bank of England, the Treasury or anyone else. The Governor of the Bank of England is carrying out the policy laid down by the Government. That is his job and responsibility. It is also his responsibility to tell me when he disagrees with it and to give me the advice that I expect. But I am responsible under the Cabinet for the policy being followed. Let there be no doubt about that.

What I will not advise the Labour Party or anybody else to get back to is the situation that we had in June, 1966, when there were eight vacancies in the Midlands for every unemployed skilled man. At the present time there is something like a vacancy for every unemployed man. One can make it two and it will not matter very much from that point of view whether one has inflation or not. But what is quite clear is that if we get into a situation where there is such a demand for labour that employers are bidding against each other the whole time in order to attract workers from one firm to another without any regard to the consequences on cost in the domestic market we are bound to get into trouble in regard to both inflation and the balance of payments.

Mr. Mendelson rose—

Mr. Callaghan

I have not finished yet. If my hon. Friend can contain himself in patience, I will give way in due course.

Mr. Mendelson

I will try.

Mr. Callaghan

Yes, try. My hon. Friend has been here long enough.

The real problem of how we increase the resources of this country is to my mind basically a question of the distribution of resources between the regions like Wales, Scotland, the North and the rest of the country. It is not a question of the total level of unemployment that we are concerned with, but the distribution of that unemployment.—[Interruption.] My hon. Friend the Member for Lewisham, West (Mr. Dickens) keeps interrupting me. It is not unemployment in Lewisham even today that is of significance. It is the unemployment in Ebbw Vale and Merthyr that I am concerned about.

Mr. Dickens

What is the Government's policy for that?

Mr. Callaghan

That is what I am coming to, if my hon. Friend will only contain himself in patience. The Government's policy is directed to ensuring that there is a higher level of use of resources in Wales, Scotland, the North West and the North without overheating Lewisham, London the South East and the Midlands, as we have done in the past. This is why I have resisted general reflation. We can float off in some ways the Merthyrs and the Ebbw Vales on the tide of general reflation but it does not deal with their problems and it precipitates the next balance of payments crisis. I will fight for this policy as long as I am here. I therefore refuse to take any further measures of general reflation in present circumstances as long as I am here.

Mr. Mendelson

My right hon. Friend has quoted the relevant passage from the speech of the Governor of the Bank of England, and said that he agreed with it. There is no doubt that he appoints the Governor and makes the policy in these matters. Would he now say whether he accepts or repudiates the Governor's statement that we must have a higher level of permanent unemployment and unemployed resources than we had in the mid-50s? If he accepts it, how does that accord with the Prime Minister's statement to the Labour Party conference that he is opposed to this policy?

Mr. Callaghan

The Governor is carrying out the policy of the Government. This is what he agrees with and what he is doing. He is in full agreement with the manner in which I have put this issue today and he will certainly adjust his financial policies in order to achieve it.

Indeed, I seem to remember that it was at the Governor's suggestion that we gave special credit facilities in development areas in order to try to even up the relationship between the two kinds of area. This is the way in which we shall overcome the problem of having a level of unemployment that is at one and the same time far too low in London. One cannot have a flexible unemployment when it is 0.6 per cent. with six or seven vacancies for every man.

I am not prepared to argue this out theoretically. It is the practical side with which I am concerned. On the practical side we intend to pursue a policy—and this is what the Government's policies are directed to—that will ensure that Scotland, Wales, the North-West, and the North-East have their unemployment reduced. That is what we are aiming to do. That is where attention should be concentrated and that is where we are concentrating it today. I shall come back to this matter later. I wish now to say something else about growth, but let me, incidentally, point out to some of my hon. Friends, because I am in fighting mood today, that our policy was backed by the Labour Party conference.

The House will remember that last April I forecast a growth rate of 3 per cent. by the end of this year. This was dismissed by the pundits but it looks as though, despite the fall in world trade, we shall be very close to that forecast. In July, after consulting other Finance Ministers, I said that I thought it safe to assume that world trade would begin to accelerate in the early winter. Again, this forecast looks like being borne out, and this is all the more welcome because of the serious slow down in world trade which took place at the beginning of this year.

Now I come to the prospects for 1968. Surveys done by a number of independent bodies as well as by the Government seem to point in the same direction—namely, that industry is expecting a better year on nearly every front. It expects export orders to be higher and delivery dates to be improved; a greater use of spare capacity and a higher level of investment; moderation in increased costs and greater profitability than in the current year.

All these things are welcome and, in face of this situation, the next six months will be a critical period. It will be critical because public awareness has not yet caught up with the fact of expansion. There is always a time lag between public understanding and appreciation of these matters and the fact of what is taking place.

The worst thing that the Government could do in present circumstances would be to yield to demands for further general reflation. There is usually a time lag between taking action to reflate and its effect. Any decision to reflate further now would have little impact this winter but maximum impact next spring and summer, when the pressure will be already growing again. It is the Government's aim—we set it out in the Gracious Speech—to try to keep a balance between growth and the economy, a satisfactory balance of payments and a high level of employment.

We have now entered upon a period of controlled expansion in industry. The Government's policy, therefore, is not to create further general reflation. The measures already taken will yield the growth rate that we expect, if, indeed, not more. My disappointment, like that of the right hon. Gentleman, is that this growth rate has not emerged from additional exports. It is emerging from public investment to some extent from private investment, and to some extent from consumption.

Over a year ago, the Government deliberately created a gap in home demand in the expectation that part of it at least would be filled by growing exports. Exports have, in fact, grown in value by 3½ per cent. this year above last year's rate. I would have liked to have seen them grow faster.

Part of the explanation lies in the slowing down of world trade which I have already referred to. The degree of deceleration was almost unprecedented. In recent months, there has been the effect of the interruption in our relations with the Middle East as well as the physical closure of the Suez Canal, which has cost us a very great deal. But I can at least agree with one part of the Amendment to the Gracious Speech put down by the hon. Member for Louth (Sir C. Osborne), who is not here. It is that passage in which he says that …no British Government can compel the foreigner to buy British… I do not agree with the rest of his Amendment but it is true that our exports must be competitive. It is certainly not within the power of the Government to compel sales of British exports. But we can and have removed disabilities in their way.

Industry has a low rate of Corporation Tax—probably lower than in any of its major competitor countries. Big investment grants have been given for new plant and machinery—25 per cent. normally and 45 per cent. in development areas up to the end of 1968, when the figures will become 20 per cent. and 40 per cent. respectively. There is also the export rebate, totalling between £90 million and £100 million a year, together with the favourable credit facilities both through the banks, which have made their own arrangements, and through the Export Credits Guarantee Department.

The conditions exist, both in the intangible and the tangible directions that the Government have given for British exports, for British industry to show that it is competitive abroad and it is more than ever important that it should show it during the next 12 months, when expansion of the economy at home will bring with it the prospects of higher imports as demand grows at home.

Sir Harmar Nicholls (Peterborough)

Could not the right hon. Gentleman add to that help by promising that, in his next Budget, he will give notice under G.A.T.T. that he intends to give extra incentives by a lower rate of tax on export earnings?

Mr. Callaghan

No, Sir. The consequential effects of such a move would have to be very carefully worked out and I am not persuaded that it would be in our favour to break the rules and have an export war. I believe that it would not do this country any good.

The task at home is to press ahead with and expand our policies for the regions—finding new industries while concentrating old ones; training and retraining men; improving communications.

The House will be interested to know the figures of investment grants. Out of the £134 million paid out for new plant and machinery, over £70 million has gone to firms in development areas. This is a very significant figure, considering that development areas only have about 20 per cent. of the insured employees of the country. It also is a very great attraction to firms, as we all know.

The figures for new factories approved show that, in the development areas, more have been approved in the first nine months of 1967 than in many earlier years. In Scotland—and this is rather ironic—the number of new factories approved in the first nine months of the year is bigger than in any previous year—8.6 million square feet. The best year under the Conservative Government was in 1961, when 4.3 million square feet was approved. We have doubled that total.

This improvement is true in different degrees in other regions. In Wales, the figure of approvals of new factories in 1967 is better than in any year except one, 1966. In the first nine months of this year, 4.4 million square feet was approved. Again, the best year under the Conservative Government was 1961, when 2.2 million square feet was approved. We have thus doubled the figure for Wales as well.

For the North, this year has been better than 1961, 1962 and 1963. In the North-West, the figure for factories approved is better than in 1961, 1962, 1963 and 1964. This is what makes the difference. These are the places where the reduction in the level of unemployment is needed and where we have to concentrate.

Sir Tatton Brinton (Kidderminster)

To what extent have the figures of investment grants been influenced by the withholding of investment grants at the discretion of Ministers who have power to do so?

Mr. Callaghan

I should have thought to an almost infinitesimal extent. I do not know to what the hon. Gentleman is referring, but all the claims that have been put in have been met wherever they have satisfied the necessary condition. I do not think that whatever point the hon. Gentleman has in mind can invalidate the very striking comparison of £70 million out of £134 million to the development areas.

British industry must show that it is competitive. This is vital. It must show that it is competitive and able to sell its goods abroad in a period of controlled expansion at home. Secondly, incomes should not shoot ahead, but there should be moderation and restraint. Here I should like to ask both the T.U.C. and the unions to continue their policy in this matter of looking at wage claims and relating them to increased productivity as well as to the needs of the lower-paid worker.

This is the way in which we can keep the economy moving along at a steady rate of expansion. My next preoccupation is that in the latter part of 1968—and it may seem rather odd to say this now—we should not let the economy roar ahead too fast for our basic strategy, nor that we should allow the growth of private consumption to collide with public expenditure. Both these things will have to be watched very carefully during the next six to twelve months in our long-term policies—[Interruption.]—there is no escape from this. There is no magic wand here, and I have never pretended that there was. This was indicated in a speech of the hon. Gentleman the other day. The long-term policy must be pursued steadily and patiently, and this is what we have to do.

The concentration of the older industries, the textiles, the pits, and all the rest of it, the encouragement of new industries to fill the gap that is left, the training and retraining of manpower in its new tasks, increasing the number of skilled men—all these are things that take time to come to fruition, there is no short cut to any of them. They have to be pursued and the Government have to continue their policy in these directions.

I am very glad indeed to see that internal expansion is moving ahead at a rate that is at the moment controllable and sustained. There are other factors that have to be pursued and we are following them. We have moved towards Europe. No one knows what will be the result of our application for entry. We have not turned our backs on the Commonwealth, as I saw from the Commonwealth Finance Ministers' meeting. This is the first opportunity that I have had of saying this, but it seemed to me that, the Commonwealth, having made its own relationships and its own new friends, was now beginning to see, perhaps more than it had done in the past, the value of the links with Britain as a centre-piece of this great trading group.

There is no doubt that we have moved towards Europe, and this is part of the fundamental change that needs to be made. Then there is the change in our overseas defence policy, the reduction in our commitments that are being carried through, starting now and going on right through to the early 1970s. There is the strengthening of the international monetary system to support world trading.

This is an era of change. The Government have instituted a great many changes—some have been forced upon them. But this era of change is necessary. It cannot be avoided, but it must be made tolerable for those who are subjected to the disciplines and difficulties of change. The Labour Government can claim that they have attempted to make this transition and change as tolerable as possible. If we pursue this, if British industry can show that it is competitive in its exports, if we can pursue the other policies patiently, and to a conclusion, there is no doubt that there are great rewards awaiting these islands and our people.

Why do I emphasise this, and get so passionate about it? I will tell the House and my hon. Friend the Member for Lewisham, who disagrees with me so violently. It is because until we get this right we will not be able to get the changes in our basic approach that many of us want in order to achieve some of our Socialistic beliefs. A healthy economy lies at the root of all the changes we want to do. It lies at the root of decent housing, it lies at the root of decent education—[Interruption.]—it lies at the root of obtaining greater equality among men and women. This is why we have to follow a policy for which there are no short cuts, and to which the Opposition have certainly provided no credible alternative.

5.35 p.m.

Sir Ronald Russell (Wembley, South)

I want to make three points during my speech, most of them gathered as a result of conversations with business men and industrialists in my constituency recently. The Chancellor has said that in the months ahead British industry should show that it is competitive. I want to put to him a few examples of how Government policy is making this very difficult. I mean not only the economic policy of the Government but also some of their legislation which is causing stagnation in business and in some cases, clogging up the work of managing directors and other executives.

Things like S.E.T., the Capital Gains Tax, Corporation Tax, and even the Redundancy Payments Act are causing a lot of work inside firms—work which was not required before and which is taking up the time of executives, who would otherwise be overseas, seeking business. I gather that the Redundancy Payments Act is causing malingering in some industries because some of the older workers who have done long service are just waiting for the chance of being sacked in order to claim redundancy payments.

As a typical example of some of the difficulties facing firms may I quote from a letter of a constituent of mine in which he says: I was recently at a conference where 200 of the best financial brains were gathered together to discuss means of coping with and reducing taxation within the law. I found that several other people there were of the same opinion as myself, namely that we have to devote far too much time to the incidence and complexity of taxation. The time I devote to these matters used to be devoted to travelling abroad getting business. I can no longer do that. I am almost completely tied to my office desk and not through matters of my own creating. Until this obstruction is removed British trade will continue to be constipated. That is the opinion of the managing director of a firm making hearing aids in my constituency. It is the feeling of others in my constituency and elsewhere. There is too much detailed work particularly as a result of recent Finance Bills. Executives have to pay great attention to this, when they could well be out doing something more useful. As for the accountancy and legal professions, it is common knowledge that they are clogged up with work as a result of recent Government leglislation.

I hope that in future Finance Bills, if the Chancellor cannot think of ways of putting some of these things right, he will at least refrain from including further burdens for firms.

Unless General de Gaulle is simply bluffing, there does not seem to be very much hope of our application to join the Common Market succeeding. Delay is causing an immense amount of uncertainty in all parts of industry, and I hope that the Government will give a time limit for these negotiations and say that if they do not proceed within that period then the application will be withdrawn and instead we will concentrate on trading arrangements already existing with our Commonwealth and E.F.T.A. partners. I know that the main object of the Government's application to join the Common Market is political, but they are altogether neglecting the economic side of the problem. I see no economic advantage whatever from our joining the Common Market that will not be offset by disadvantages in breaking our arrangements with the Commonwealth.

The Chancellor said just now that we have not turned our backs on the Commonwealth, and I am sure that he has not done so in either thought or intention. If, however, we sign the Treaty of Rome, having left open only the question of New Zealand and the Commonwealth Sugar Agreement, what will happen to our other obligations to the Commonwealth? I do not think that anybody has an answer to that, because I do not believe that there is one. I do not think that there will be any redress if we sign the Treaty of Rome and cannot get the conditions that we want.

All this is causing tremendous uncertainty and I hope that we shall shortly withdraw our application. It is undignified for this country to keep banging at the doors of Europe when there is such a definite refusal, even if only from one country, to admit us and we should concentrate on our partners who have been such good friends from the trading point of view in the past and who are willing so to continue in the future.

I see no opposition in any part of the Commonwealth or by E.F.T.A. to our continuing the trading policies which we have pursued for so long with the Commonwealth, and with E.F.T.A. for about seven o r eight years. We should concentrate on those well-tried trends and develop that policy as far as we can within the economic straitjacket laid down by G.A.T.T. Although I would like to see G.A.T.T. amended, I do not advocate that for the moment. We could do a great deal more good by concentrating on trade with the Commonwealth within the restrictions of G.A.T.T. than we have done in the past few years.

I should like to make a plea for simpler and more intelligible legislation than a great deal of what we had in the last Session and in the previous Parliament. Large parts of Finance Acts, the Land Commission Bill and the Leasehold Reform Bill are unintelligible, certainly to laymen and even to some of my right hon. Friends and to distinguished lawyers. Even a Labour Government, however, can produce financial Measures which are intelligible.

A few weeks ago, I had occasion to look at the Exchange Control Act, 1947, which controls most of our foreign exchange regulations. Much to my surprise and delight, I found that I could understand nearly every word of it. That Act was passed during the Chancellorship of the late Dr. Dalton, who always boomed out his ideas loudly and clearly—on one sad occasion, a little too loudly and clearly. Perhaps, however, his thinking lay behind the Exchange Control Act, or at least he collected and clarified the thoughts of those who inspired that Act. That does not seem to have been the case with the Finance Acts which have been passed in the present Parliament.

Legislation should be intelligible to the public, if possible, and certainly to Members of Parliament, to say nothing of the Press, who have to try to interpret it to the public through the newspapers. Although the Prime Minister is not present, he is the head of the Government and I hope that he will take note of this plea and see that all Ministers do a little better in this respect in the present Session than they have done in the past.

5.44 p.m.

Mr. James Dickens (Lewisham, West)

For the third occasion in rather less than, a year the House is devoting its attention to a debate on the general economic situation. I wish to begin by saying what the Amendment which 45 hon. Members on this side of the House have tabled does not try to do. It is not a panic reaction to recent by-election reversals. It might be useful if I simply summarise briefly and conveniently what those of us who are critical of the Government's policies have been trying to do during the past 15 months.

When, on 20th July, 1966, the Government finally capitulated to pressure from powerful financial interests in the City of London, the Bank of England the Treasury and bankers at home and abroad, that being the culmination of pressures over the period from October, 1964, within five days some 47 of us repudiated the Government's policy of Tory deflation and set out constructive alternative proposals.

These we reaffirmed in debates in the House on 30th November, 1966, and again on 24th July, 1967. Moreover, we published a pamphlet entitled, "Beyond the Freeze", which expanded on some of these proposals. We also issued, with an acute sense of timing, a document entitled "Never Again", on the first anniversary of 20th July, 1966, which again set out precisely and in detail our critique of Government economic policies and our own alternative proposals. Our criticisms of the Government over the past 15 months are now being shown by a much wider audience to be justified.

David Lloyd George said that a tired nation was a Tory nation. Britain today is politically tired. Indeed, in some parts of Britain our people are exasperated, as in the case, for example, in Scotland and Wales. They are tired and exasperated because they are experiencing yet again the self-evident failings of traditional Tory deflationary remedies to resolve Britain's basic economic problems.

This is our fourth attempt at deflation in 12 years. It is our ninth balance of payments crisis since the war. It is true, as the right hon. Member for Enfield, West (Mr. Iain Macleod) pointed out, that each bout of deflation is worse than the one which preceded it. In 1957, Mr. Thorneycroft's deflation was more severe than that of the then Mr. R. A. Butler in 1955. Likewise, the deflationary measures introduced by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) in 1961 were more severe than those introduced by Mr. Thorneycroft. And so it is today that the deflationary steps introduced on 20th July last year by my right hon. Friend the Chancellor were the severest of all.

Mr. Hamling

No.

Mr. Dickens

There is no question that they were far and away the most severe of all. The fact is that with each successive bout of deflation we have a much higher level of permanent unemployment, a much slower rate of economic growth, and a steeper fall in private investment.

I want to begin by looking back to the period between October, 1964, and 1966. Only by doing so can one substantiate the argument that we advance in our Amendment. That argument is that when the Government took office in October, 1964, they were confronted with a daunting prospect: an enormous deficit in the balance of payments and the worst economic crisis since 1931. Initially, they tried to tackle that situation with new policies. They tried at the same time to do six things: first, to defend the £ secondly, to achieve a surplus on balance of payments; third, to keep up an international military rôle; fourth, to ensure full employment; fifth, to bring about a more rapid rate of economic growth than we had been able to achieve hitherto; and, finally, to make some social advance.

Those six policies taken together placed a quite intolerable strain on the economy. Acting under pressure from the Treasury, from the Bank of England and from the banking community in this country and overseas, the Government were pressurised into a position between October, 1964, and July, 1966, where they were ultimately forced to adopt full-blown Tory deflationary steps.

I want to try to substantiate these assertions tonight. I turn first to the role of the Treasury in the economy. My right hon. Friend the Secretary of State for Economic Affairs, when he was Parlia- mentary Private Secretary to the Prime Minister, wrote a book, just two years ago, with the full insight of office, as it were, in which he says, dealing with the Treasury, that The trouble is that again and again in the post-war period the wrong official advice has been supplied. The advice tendered to successive Chancellors by the Treasury has been abysmally inept, as Britain's stop-go record so clearly illustrates. He goes on: A new Government, unfortunately, does not mean a new Civil Service elite. The counsellors of the past decades are, we can be sure, supplying much the same advice to the new Ministers. How true that is. The Treasury is, indeed, the major administrative weakness in the Civil Service, because it has been shown over these past years, particularly since the war, to have completely and wrongly diagnosed the central weaknesses of the economy. Those weaknesses can be briefly stated. They are simply that this country has continued well into the twentieth century its world role as a major banking nation and as a military power. This role is based largely on our former pre-eminence as an economic power which we held for much of the nineteenth century. It is the continuation of this role into the twentieth century and right up into the 'sixties which is at the root of our difficulties today.

The second criticism that we make is of the rôle of the Bank of England in the economy. I shall tackle this in two respects. I shall, first, turn to the rôle of Lord Cromer who was Governor of the Bank between 1964 and 1966. Lord Cromer certainly did not agree with the policy of the Labour Government, whatever the views of Sir Leslie O'Brien may or may not be. Lord Cromer, as we know, from various articles in the Sunday Times which Mr. Henry Brandon contributed last year, tried repeatedly, and ultimately successfully, to urge upon this Government that they should restrict not expand the economy, and, above all, that they should introduce a wage freeze.

Lord Cromer certainly was not advocating the policies of this Government when, in February, 1965, on two occasions he publicly attacked Government spending on the social services and the general level of Government expenditure as a whole. Moreover, he urged in July, 1965, the formation of a National Government upon my right hon. Friend the Prime Minister. Looking back, one can only say, as I say now, that Lord Cromer's role as Governor of the Bank of England during the period of 1964 and 1966 was nothing short of a public scandal.

I think, moreover, that this rôle has been continued, at least to a certain extent, by Sir Leslie O'Brien. Sir Leslie made his speech in Buenos Aires on 6th October, in which he said that this country must become accustomed to a much greater margin of unused capacity in manpower and in industry. This seemed to many of us directly to contradict the statement made by my right hon. Friend the Prime Minister to the Scarborough conference of the Labour Party on 5th October, when he reaffirmed the party's determination to maintain full employment.

There can be no ambiguity about this. We either stand for full employment or we do not, and I put it to my right hon. Friend the Chancellor that it simply will not do to come along here and try to muddle the issue, to confuse the question, by talking about regional variations and structural alterations. What we are saying is this. We want to hear from the Government tonight that they are committed to a level of unemployment which, in total, is no higher for this country as a whole than the average prevailing before July, 1966. Nothing short of that will satisfy us.

It certainly is no answer for the Chancellor to come along here and say, in a rather cynical way, that there is no unemployment in Lewisham. We are quite well aware of that, but the level of unemployment in South Wales, in Scotland, and in the North, is high and rising, and the fact of the matter is that the Government are hoping, as previous Governments have hoped, that because this level of unemployment is, so to speak, away from the South-East, they can get through the next three years by keeping this, so to speak, swept under the carpet.

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

While I subscribe to the view which my hon. Friend has expressed about the level of unemployment pre-last 20th July, would my hon. Friend not agree that the pattern of unemployment pre-last 20th July was completely unfair and iniquitous, in that areas like my own had considerable unemployment while other areas had, if anything, over-full employment, and would he not agree that if we get back to the general level of unemployment pre-last July it has to be distributed otherwise than completely unfairly as it has always been?

Mr. Dickens

I entirely accept the proposition made by my hon. Friend that we all stand for a much fairer spread of employment throughout the country. We say in our Amendment that the Government's adherence to the traditional methods of deflation are undermining their regional policies.

Now, the third aspect of the matter is the rôle of the City of London in the British economy. The City of London—or certain unpatriotic elements in the City—have consistently, since 1964, been advising foreign holders of sterling that there is a general lack of confidence in financial circles in this country in the Labour Government. There can be no doubt that this was what was done in the late autumn of 1964, again in the summer of 1965, and again last year. The Bank of England played a rôle then, too.

Mr. Fred Hirsch, in a recent book, "Devaluation—a Polemic" says: If financial opinion is sensitive to disquiet voiced in the City of London generally it is hypersensitive to any suggestion that alarm over Government action and competence is shared by the Bank of England itself. Sir Leslie O'Brien has been the subject of criticism here tonight, and I do not want to use the privilege of speaking in this House to launch a personal attack upon him—[An HON. MEMBER: "Why not?"]—but I want to say this to him: we shall expect him to carry out fully in all his public utterances the policy for which we on this side of the House have secured an electoral mandate; and I give him this word of warning, that if he makes any public utterances which are significantly against Government policy he may expect to find, as he certainly will, a growing volume of criticism and hostility from my hon. Friends. Some of us think that a few sackings—I am not referring to Sir Leslie—in the Treasury and in the Bank of England would be salutary—manpower redeployment, as it were—or a shake-out, as one of my hon. Friends says.

So much, then, for our critique of the rôle of the Bank of England, of the City of London and of the Treasury.

I turn to what now confronts the Government. The position is in no way as optimistic or rosy as the Chancellor pretended earlier this afternoon. One of the basic reasons why we have such dull speeches from the two Front Benches is that, broadly, they are in agreement on the central economic strategy of the Government.

Since 20th July of last year, the Government have not succeeded with their policy of deflation. It has failed. I suggest that the country's economy is weaker in November, 1967, than it was then. We have lost at least £750 million of potential output. Private investment has fallen by at least 6 per cent. from the miserably low level of 1966, and it must be remembered that we have the lowest rate of new capital investment of any major industrial country. Moreover, we are living at a time of high and rising unemployment, the current figure of unemployed being 560,000. I was surprised that my right hon. Friend the Chancellor expressed no regret at the very high level of unemployment. His acceptance of it as a permanent feature of our society in years ahead is significant.

The Government hope to muddle through to 1970, and it seems to me that they have one of two prospects before them. At best, they can hope to walk the tightrope and maintain a level of economic growth which may reach 3 per cent. in 1968 and again in 1969. They may be able to avoid a balance of payments crisis. But for this side of the House and for the country, it will mean that many of our plans for social advance will be considerably delayed. Our country will be comparatively weaker vis-à-vis other industrial countries. At best, the whole prospect is unsatisfactory.

At worst, when the Government are faced with the need to reflate the economy, they cannot proceed seriously to do so when they are still in debt to the tune of £642 million to the I.M.F. and the other central banking institutions. The modest steps of reflation taken so far, unless other corrective measures are taken as well, will involve us in a balance of payments crisis in 1968.

In facing up to the situation, I want us to look at the alternatives contained in the Amendment standing in my name, for I do not think that any intelligent, fair-minded person can argue seriously that we have not tried to be constructive. We say, first, that we must break decisively with this played-out policy of deflating the economy, involving the country in credit restrictions, creating unemployment, cutting back on private investment, and so forth.

The first step which we have to take is to mobilise our immense resources abroad to gain freedom from the restrictionist attitudes of the I.M.F. and the central banking institutions. In the short term, that can be done not by trying to pay our way out of the deficit which we have incurred through a balance of payments surplus, but by liquidating part at least of our overseas portfolio investments which, in all, total £3,200 million, according to the Bank of England calculation at the end of 1966. We should liquidate as much of that sum as is necessary to repay the I.M.F. and our debt to the other central banks much earlier than the Government propose and, at the same time, buy up some of the more speculative sterling balances held in London. It is a tricky exercise, but it can be carried out with careful planning and timing.

Our second proposal is that there should be further restrictions on the outflow of private capital. The Chancellor has taken certain steps along those lines, but more must be done. In particular, we have to cut the outflow of direct private investment to advanced industrial countries. Under the present Government, unfortunately, the net outflow of this type of capital investment has gone up from £116 million in 1964 to £135 million in 1966, which was allegedly a crisis year. Much of this capital is not going to developing countries, but to countries like Australia and South Africa.

The Board of Trade Journal of 30th June last notes that the rate of increase of private capital investment in South Africa has been "quite remarkable". It may be asked why, under a Labour Government, we should continue to allows the export of private capital to build up what is, after all, a Fascist racialist system, at the expense, in part at least, of full employment and economic growth at home. I ask my right hon. Friend to take urgent action in this direction, because the present position is utterly inexcusable.

Thirdly, the Government should introduce import quotas. The steep increase in imports of manufactured and semi-manufactured goods this year must be cut back. They went up 10 per cent. in the first nine months of 1967, compared with the previous year, despite reduced demand at home. We suggest that a 10 per cent. cut would reduce them by something like £250 million.

Fourthly, we want to see the Government make a further attack on the high level of military spending at home and abroad. It is now well known that Great Britain spends more of her gross national product on defence—a figure of 6.5 per cent. per annum—than any other country in Europe outside Soviet Russia. The figure may be compared with the average of 4 per cent. per annum spent by our trading rivals in the E.E.C., and the 1.27 per cent. per annum incurred by Japan. As a first step, we say that the Government should cut back the figure from 6.5 to something like 4 per cent. by 1970. It would mean an end to the east of Suez policy and the British Army of the Rhine by 1970. It would mean serious cuts at home as well.

One of the heaviest burdens on British industry is the high proportion of research and development spending which goes on defence. In a year, the country spends a total of just over £500 million on research and development. Of that, just under half is spent on military research and development, compared with less than 5 per cent. in the case of Japan, which has the highest rate of economic growth of any advanced industrial country.

These are our four major proposals. We supplement them by urging the Government to establish a national investment board whose functions, among others, would be to channel for home consumption some of the frustrated investment going abroad. We urge the Government to produce a new national plan not based upon widely varying forecasts of the private sector of industry, but upon a realistic assessment of the country's needs and potentials and with certain declared social objectives; in short, as part of a general approach to moving the country towards a Socialist society in the 1970s, which is, after all, why we on this side of the House are in this business.

Over the past three years, after an initial endeavour to pursue different policies, the Government have been forced right back on to classical Tory deflation. There can be no getting away from that. There are marginal differences. The Government are trying to shield the regions from unemployment. They are also doing something about industrial retraining, and we are also expanding the social services. But all this has been completely undermined by the effects of deflation. If this is not ended, the prospects for the Government and for British social democracy will be grim in the rest of the 'sixties. I believe that the high ideals of Socialism are worth fighting for, and I will not stand idly by and watch the party and the Government needlessly humiliated at by-elections because of the surrender to the policies of the Treasury and the Bank of England.

I say to those forces in the Government that are for planned expansion, "Stand up and fight for it. Fight against deflation, and adopt at least some of our alternatives." To my hon. Friends who do not go all the way with me in what I say, I commend our alternatives for their consideration. I want the fullest discussion of the alternative policies here and in the country, because I think that our alternative policy is the only one that can rescue the Government. I say to the party membership and to our supporters in the country, "Do not despair. Rally to our alternative policies. Stand firm. Stay in, fight and win."

6.11 p.m.

Mr. David Howell (Guildford)

Even though the hon. Member for Lewisham, West (Mr. Dickens) would not allow me to intervene I derive pleasure from following him, because although it goes without saying that I disagree with the hotchpotch of Socialist prescriptions that he recommends as his alternative, I find that his analysis of our economic difficulties and his comments on the situation as he sees it as convincing as, and in many respects more convincing than, the analysis we had earlier from the Chancellor of the Exchequer.

The real difficulty in making an individual critique of what the Government are doing is that there are so many versions of what the Government are about. We have the Gracious Speech speaking of full employment, and at the Labour Party conference it appeared that full employment was all the rage. Any mention that the Government might be deviating in that respect was greeted with tut tuts, as though the idea had never passed through the Prime Minister's mind. When, just the other day, the hon. Member for Ebbw Vale (Mr. Michael Foot) asked the Prime Minister to repudiate the speech of Sir Leslie O'Brien on the subject of a permanent pool of unemployment, the right hon. Gentleman's answer was that there was no need for repudiation—that the idea was unthinkable.

Then there is the story of the Chancellor of the Exchequer today that expansion is on the way, but all who listened to him must have been impressed by the vehemence of his belief that, nevertheless, it must come about with extreme caution and the retention of a level of unemployment so that expansion can be controlled over the distant part of 1968.

We also have the story that the statistics tell. My right hon. Friend the Member for Enfield. West (Mr. Iain Macleod) put this very clearly when he pointed to the still high unemployment figures, and the fact that the level of private investment, though perhaps not so low as the Jonahs suggested, is still heavily down at a time when it is as important as ever that it should be up, and that new equipment should be going in.

We therefore have a situation in which it is difficult to pin down the true account of what is happening in the economy. But when we have looked at the different accounts, when we have heard that expansion is on the way and that full employment is the real policy, we also know that the Chancellor of the Exchequer put it quite clearly and straightforwardly that the basic policy still is that the balance of payments can be achieved by deflation and unemployment.

However much the Prime Minister may talk of expansion, and however much the Gracious Speech may harp on full employment, the fact is that the received wisdom of Government policy is that if demand is held down by some vague and undefined techniques—and if wages are held down by prices and incomes policy, costs will stabilise, exports will rise, and the currency will be strengthened. Then, the theory goes on, we can begin on the structural change about which everyone is fond of making speeches, and confidence will be restored and expansion can begin.

Then we have the new thinking about the regional idea. This has come forward in Government thinking recently, and it has been brought forward as the answer to this kind of critique. Apparently the answer is that the "differential"—which is the Prime Minister's word, and which is callous when we are considering people's jobs—will narrow between one region and another. I notice that when the Chancellor of the Exchequer spoke of this his hands went up and down; that when his hand went down he meant that unemployment would fall in some areas and that the raising of his hand meant that unemployment would rise in some areas—perhaps in Lewisham, and presumably in my own. We have no unemployment in Guildford, and we do not want any. We do not think that unemployment there would make a jot of contribution to the solution of the problem.

Mr. Atkinson

The stockbrokers of Guildford.

Mr. Howell

This is the basic theory of the present Government, however much it is denied or dressed up. In my analysis I share the view of the hon. Member for Lewisham, West, that the Government's argument is so riddled with fallacies and so flatly contradicted by events before our eyes that it is difficult to know where to begin attacking it.

Three things we know beyond all doubt. The first, emphasised by my right hon. Friend, is that whatever else is happening, the theoretical outcome of rising exports, falling imports, reflation, and so on, is not the outcome of the present policy. Secondly, we know that demand deflation and income restriction are having some effect on holding down the growth of wages although, as the Chancellor of the Exchequer has said, 10 million workers have had wage increases since, as I think he said, the end of the freeze. Even so, wages have been held down a fair amount.

This is held to be a great triumph for the achievement of their policy, but it assumes—and this is where one gets so put out by hearing the man who is meant to be responsible for our economic policies speaking of economic concepts that are defeating this assumption—that wage costs and unit costs are directly related. This is not necessarily so. In many cases it can be shown that the movement of wage costs has no effect on unit costs; that the problem is not that wages are too high but that they are too low, and that the cost of labour does not bring sufficient pressure on managements to instal new equipment and so cut unit costs. That is the second effect flowing from the present situation.

The third effect is the most tragic and difficult of all. It is that, whatever else this policy is supposed to be achieving, we know that it postpones the day when new equipment and new processes are put in; that where, before, a new idea, an innovation, or a proposal to break into a new export market might have required and got some extra finance, such plans are discarded in conditions of unemployment and deflation, when no one is really sure whose view of the economy to trust.

In other words, far from strengthening the economy in preparation for expansion, this policy weakens it further. It pushes indefinitely into the future the day when expansion can begin again. The Chancellor says that we must hold on for expansion, but his present policy is all the time eroding confidence, weakening the situation further and postponing indefinitely into the future a sustained expansion and high growth rate. It is a policy of an oasis mirage which the Chancellor is pursuing and the longer it is continued the weaker the economy will be when expansion is resumed, the less confidence there will be abroad and at home that it can be sustained, and the more quickly—the Chancellor appeared to recognise this—the next crisis will come.

I do not believe that any Government have the right to play about with men's jobs and lives in this way and to aim for bogusly precise levels of unemploy- ment they have not the faintest clue how to achieve or maintain. Every moment that goes by with high unemployment weakens, not strengthens, our economy; it weakens and does not improve the prospects for the future. It means that goods are not being produced and sold which ought to be produced and sold. It means that new ideas and designs which ought to be realised are not being realised and new products and machinery which ought to roll out of the factories are not being made because the new plant to make them will not have been installed. This is the heavy cost of an economic theory of a Government who are running scared and believe that it is the only policy to pursue.

Despite a growing area of agreement that these are wrong policies fundamentally, the Prime Minister and the Chancellor have told us that there are no alternatives and that nothing else can be done. If they mean that it is no alternative simply to take the brakes off and to let public spending boom on the lines of the old National Plan, which is now out of date, I agree that that is no alternative. If they mean that it is no alternative to propose the kind of measures which the hon. Member for Lewisham, West has outlined, I agree that that is no alternative.

What I do not accept is that an alternative is to wait for this miraculous closing of the differential between the regions and to wait until gradually unemployment levels between Newcastle and Birmingham, or wherever it may be, and that on that happy day we can say, "Now we have an economic structure, an economic foundation upon which confidence can be based". Those are not alternatives to economic expansion and the kind of policy which we must have for this country.

The alternative—and here I sharply part company with the hon. Member for Lewisham, West—is a concerted programme of short, medium and long-term measures which commands confidence right from the word "go". That programme must be expansionary from the start and the emphasis must be on private enterprise investment. Of course, no expansion programme will command confidence if it just amounts to a straightforward expansion of Government spending. It is ludicrous to think that anyone is going to underwrite that kind of expansion.

Nor will such a programme cut any ice unless it also embodies at least three ingredients which the hon. Member did not mention. The kernel of the problem is growth in the cost of government. First, we must reject expansion which merely reflects the fact that public spending, its movement and growth, are out of control. The key element must be to cut costs of government in every Department, central and local, at every level through greater efficiency, and to bring new techniques of management into the public sector ensuring that in a sense the private sector comes to the rescue of the public sector. That is an element without which no policy will command confidence.

Secondly, the need is to strengthen our trade union movement after its humiliations against which hon. Members opposite have struggled very valiantly during this phase of prices and incomes legislation and to place it in a position within a new legal framework in which it can cope with problems of restrictive practices and bring higher earnings and better conditions which hon. Member opposite believe in, and rightly so.

The third element is, as my right hon. Friend the Member for Enfield, West rightly said, to remove some of the heavy disincentives on earning income. Last year, the Chancellor of the Exchequer said in this House several times that on the basis of statistics his Department gave him on the whole taxation was not too heavy. Some of his statistical whiz-kids could prove that it was no heavier than in other countries. But the point is that on the basis of what one puts in taxation in this country is higher than anywhere except Sweden. Unless an expansion programme is prepared to build in incentive tax reforms of this kind it will not achieve confidence.

These are the minimum ingredients of a programme that will attract confidence overseas and at home. In contrast to the programme put forward by the hon. Member for Lewisham, West, this is the kind of expansionist policy which will work and will not immediately alarm, drive away and repel the support of those who we want to underpin it. Basically, it is the question of confidence. Without that confidence there will be no expansion programme, and we shall be doomed to the present course of events. But given confidence and an expansion programme which really makes sense in these terms it is possible to go ahead and to correct the present theoretical view which has been disproved by experience.

Given confidence in a Government who really intend to go along these lines and know how to realise their intentions, we could put Britain back into a position of strength. We could do what we on this side believe is necessary in the strengthening, both economic and social, of our country, but it means the sharpest possible break with the policies of Her Majesty's Government and the bringing in of a genuine expansion programme which will command confidence.

6.27 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

In his discourse on the cause and dangers of unemployment the hon. Member for Guildford (Mr. David Howell) has, I think, carried a large number of hon. Members with him. Where I part company with him is in his solutions, which I found a rather trivial ending to what seemed a promising approach to some of the major problems of our time.

I see our main problem in this country not so much coming with the war which impoverished us, but stemming from our loss of Empire. I would call the loss of Empire the cardinal factor in our economic weakness today. It resulted in the decline of our Commonwealth trade. Whereas, in 1956, over 40 per cent. of our exports went to Commonwealth countries, by 1966 the figure had dropped to 26 per cent. Our total trade going to Commonwealth countries had dropped from 40 per cent. to 26 per cent. in 10 years. The cost of this was about £700 million in the loss of foreign exchange earnings. We can see why this happened. It was highlighted in that great African year which was a great watershed in our economic history.

It was clearly because at one time we were able to influence the tariffs of those countries, to influence the economies of those countries, and to influence the trade agreements made by those countries. When Africa became independent—when other countries became independent, but Africa in particular—the ability to influence those decisions in our own favour went from us and the decline became much more marked. To a certain extent I believe we still have some way to go, because purchasing decisions made by people in those countries are to some extent influenced by the background which is still in some way orientated towards this country.

The second main reason was that before the war we got our defence on the cheap. The Commonwealth itself paid for a large part of its own defence. Whereas, before the war, the cost of Government expenditure from 1920 to 1938 averaged less than £4 million a year, today the cost of Government expenditure overseas, a large part of which is on defence, amounts to £472 million. We got defence on the cheap because it was paid for by the Commonwealth which we protected. Nowadays we have not got a Commonwealth which needs protecting in this sort of way, yet we still stick to the same patterns of defence. Even though we are running it down, nevertheless the expenditure is still with us and will stay with us for some little time to come.

There always have been only four real solutions to our economic problems. It is quite a simple list: Government expenditure overseas; a method of controlling imports; the policy of deflation; or a change of the exchange rate. Again and again, we can find only these four credible solutions, unless we want to include the bogus solution of the prices and incomes policy, which might well prove to have some marginal effect. This, in itself, is valuable—valuable for its marginal effect, valuable, too, because of the hope one has for the future.

The trouble is that in this, as in so many other things, we have tried to make long-term measures serve short-term ends. Although this solution could have been extremely valuable, and it would have been admirable to have been thinking in terms of controlling prices or of having an influence on prices in the long run, to be thinking of it as a solution at this time was wholly wrong, because, as we know, the ability to control prices was extremely limited and, because of this, a prices and incomes policy ended up by becoming an incomes policy.

Even the trade union movement, with its massive amount of loyalty, after a long period of gestation realised that this was what it was. The problems and difficulties we had, and which we are still having, with the trade union movement are in some measure due to lack of confidence, arising from disillusionment on one of the basic problems facing the trade union movement today.

So we are back to these four choices. Government expenditure overseas is being reduced. It is obviously being reduced at far too slow a rate, but, nevertheless, the commitment has now been made. We must hope to be able to advance our withdrawals, to advance the reduction of our expenditure, and we will be trying to have some influence in this.

The second choice is import controls. I myself have for a long time been strongly in favour of import quotas. This was one of the measures which I strongly advocated but which was refused by the Government. I do believe, though, that the time came last year when we passed the point of no return, when we were unable to implement a policy of this kind because time had overtaken us. Such a policy would have been extremely valuable in the Government's first year, and still of great value in the Government's second year, but I think that we have now passed the occasion when it could have been of value.

I believe that this is so, first, because of our commitment to enter Europe—such a policy would be a slap in the face for any attempt by us to enter Europe—and, secondly. because, after three years of struggling with our economic problems, the declaration that we were in such difficulties today would be, in my view, only a likely prelude to a devaluation.

So we turn to deflation, the present policy of the Government. This is the old theory of the Treasury that when in difficulty all it needs to do is to bring out its deflationary policy. We know that the Treasury has only one trick which it has learned to master superbly, the ability to bring about a deflationary situation. Like ail old dog that knows only one trick, the Treasury is delighted to show it off on each occasion. The results in unemployment, the results in less efficient working, the results in the credit squeeze, and the results in increased taxes, we know very well, because the Treasury has done it often enough.

The bogus theory behind it is that, as soon as a deflationary policy is introduced, many factories turn to exports because they cannot sell their goods at home. This is the bogus nonsense which is repeated time and time again. The only thing for which we should be grateful in this debate is that no one has had the courage to mention it today so far.

We have all seen time after time that this is not what happens. When a deflationary situation is brought about, in fact exports either reduce or they are increased at a lower rate than before. This occurs for the very simple reason that unit costs increase, uncertainties increase in firms, the worries of unemployment have their effects in each organisation, and all this does not generate any increase in exports.

What happens when a deflation of this kind is brought about is that imports fall. Imports fall for the quite simple reason that people believe that there is no profit to be made; they do not order so much from abroad; and unemployment increases. One of the things about unemployment is that the unemployed person does not spend so much as the person who is in full employment. When he does not spend so much, he does not import so much. One of the few factors about which one can be certain is that in a deflationary period imports fall. This is the first time in a deflationary period when imports have not fallen to anything like the same extent as we have seen before.

Mr. John Hall (Wycombe)

They have risen.

Mr. Sheldon

This, to me, is a pure sign of the basic imbalance of the economy today, because, if there ever is to be any reflation, if my right hon. Friend the Chancellor of the Exchequer is right in saying that we have now passed the lowest point and are moving upwards, the result of this is that, if we are to sell more at home, we will have to import more to make those goods, and the import phase may come next. This will cause the problem later on, if it is so. This would not happen if exports were to increase.

This is the key to it all. Some of us refrained from criticism in the hope that there may be some basic export movement which we do not see any grounds for believing in. We have been given assurances that this is to come. So criticism is restrained while we await the figures month by month. Yet, at the same time, we see for ourselves that exports, so far from rising, have had their rate of increase actually reduced.

So we find ourselves at present looking at the last alternative, that of a change in the exchange rate. It is extremely difficult to mention this subject in the House. As soon as one does so, one is faced with the charge, the accusation, of appearing to be disloyal. Yet month after month, when one makes private representations one can see that the course on which we are charted is not getting us anywhere. The valuable long-term measures that the Government have introduced in the form of investment grants, the Capital Gains Tax, the Corporation Tax—I genuinely believe these to be very valuable—and the very valuable work of the Ministry of Technology, should have been additions to, not substitutes for, our basic economic changes.

The crunch came in July, 1966, when we had the choice of carrying on with growth or preserving the £, and we selected the £. The Treasury has invariably remained optimistic about the growth of the economy. The only arguments there have been about devaluation have come, in the main, from the Treasury. These have invariably been shallow, slight in quality, and slender in argument. The grave doubts that we have about the competence of those in the Treasury advising my right hon. Friend, let alone their judgment, increase day by day. The trouble is that they have been allowed to get away with these arguments against devaluation. There has been nobody to refute them because of the wish to avoid the charge of disloyalty.

I think that the time has come to lay some of the misunderstandings—there are a very large number of them—which have been allowed to develop. The first one is the statement by the right hon. Member for Enfield, West (Mr. Iain Macleod) this afternoon that devaluation would be only a short-term answer. I am surprised at this. It could be a short-term answer if the Government just threw up their hands and ceased to govern. Given the deflationary situation we have today, if we were to devalue by 20 per cent. this would allow six years at an extra inflation of 3 per cent.—18 per cent.—before the benefit was lost. Even if inflation were allowed to run riot and if, instead of there being long-term inflation of 3½ per cent. as there was under the Tory Government and as there is under the present Government, it were increased to 6½ per cent., it would allow six years before the benefit was swallowed up.

Mr. John Hall

I take it that the hon. Gentleman's argument is based on the assumption that other countries would do nothing?

Mr. Sheldon

I am coming to that point. This is another of that very large number of misunderstandings.

The second argument is that used by the Chancellor and by many others, that what devaluation really does is to depress standards of living at home, that we make the value of the product of our own worker here lower than it is abroad. In fact, imports account for about one-fifth of what we produce. Therefore, the increase in the cost of living comes to one-fifth multiplied by one-fifth. That is one-twenty-fifth, which is an increase of 4 per cent. in the cost of living. Those who feel that this increase of 4 per cent. in the cost of living could not be acceptable do not understand the alternative of the deflationary system under which we live today.

The third misunderstanding is that there is no certainty of exports rising. There are those who say that the trouble is not the price of our exports, but that we have the wrong products, we have poor salesmanship, inadequate marketing and a low level of productivity. It is also said—and it used to be the argument in the past—that we have long delivery dates. Now we do not have long delivery dates because exports have not risen.

If we have the wrong products, poor salesmanship, inadequate marketing and low levels of productivity, all this should be reflected in part of the price. There are too many people who try to find other solutions when the obvious one is staring them in the face. We have been trying for three years to improve the kind of products we make, the kind of salesman- ship, marketing and productivity. If we cannot do it in three years, I do not see how one can take it for granted that we shall create this change in the next year or two and obtain all the consequent advantages. One can say that if we suffer from those disadvantages—though I am not amongst those who believe that we do—then, like the manufacturer selling goods which are not suited to his market, he has the choice of getting them right or lowering his price. We in government after three years cannot be sure of the way to get it right because I do not think we have all that power and ability to act in all these ways.

The next misunderstanding relates to the value of exports that we have to sell abroad. If one devalues by 20 per cent., one does not have to sell such an increased volume because it would be possible to sell a large number of these goods at a higher price. As an example, there are certain kinds of chemicals which are in effect controlled by world markets. If one were to devalue by 20 per cent., the world market price would still be the same and one would get an extra 20 per cent. in the price. That is, of course, a special example.

What about Scotch whisky? On devaluation, the price would be a little lower, and then it would rise slowly as the manufacturers found that they were able to get the market price in the United States which, after all, has no need to change. Although the benefit of the lower price would immediately be passed on, over a period of time the price would increase to somewhere not too far below the level of current prices in America, bringing us the 20 per cent. extra. When one devalues by 20 per cent., one does not have to increase the volume by 20 per cent. because a lot of these goods go up in price in a devalued sterling. What we have to do is to increase the value of the goods, not the volume, by 20 per cent.—or perhaps a little more; but substantially that is the position.

The next misunderstanding is that which has been referred to earlier when reference was made to retaliation. Clearly, there may be a bit of retaliation. However, we must remember that France has vast gold reserves today. Those who believe that France genuinely wishes to retaliate misunderstand the situation. Germany is extremely unlikely to devalue because, despite her enormous problems at home, the cardinal factor about Germany is that her exports are rising month by month and she is having a higher balance of trade surplus than ever before. I do not think we can expect retaliation there.

The United States is not to dependent on us as she was in 1949. Although it would put her in some position of weakness, we must remember that in 1949 a large number of countries devalued and yet at the same time I believe we had considerable advantages after that devaluation. Admittedly, they were complicated by the Korean War, but that is another matter.

The next misunderstanding, among this whole host of misunderstandings, is that we have not the capacity for the expansion of exports, that if we tried to increase the volume of exports we should get into an inflationary spiral again. Yet we export approximately one-sixth of what we produce. If we were to expand the volume by one-half—and this would place us in a position of enormous power and prestige in the world—this would give an exporting figure of one-twelfth of what we produce. Nobody can think of something as glorious in the economic sense as that. Yet that would be an increase in production of about 8 per cent. One-sixth of what we produce is exported. If we increase it by one-half, that comes to one-twelfth, or about 8 per cent. There is no problem at all about the capacity for expansion.

I come to the next misunderstanding, and I am glad to see that this argument is now in decline. Constantly, Ministers have come to the Dispatch Box and have said that our export performance is good, because we compare ourselves with ourselves. We are an inbred society and we tend to congratulate ourselves if we do better than we did not so long ago. Yet when we look at the figures, we see that for 1961 to 1965 our exports expanded by 25 per cent., whereas world imports—this is the figure with which we should make a comparison, what our customers are doing—amounted to 41 per cent. Yet we patted ourselves on the back.

The next misunderstanding is that the increase in our exports could not be absorbed by world trade. In fact, we know that the growth in world imports is going at a greater rate than our total exports altogether, let alone the increase in our exports. Year by year world imports are increasing at a greater rate than our total exports. There is no problem about finding the market. We need to find the right goods to sell at the right prices. All the talk about national prestige and the position of the country is irrelevant. There is no more prestige attached to fixing the value of the £ than there is prestige attached to a shopkeeper in fixing the value of his goods.

The economic arguments for devaluation are overwhelming. What is stopping it are the political arguments. Undertakings have been given to foreign bankers and foreign Governments, and because of this compensation will have to be arranged. Undertakings have been given to bankers, but so have undertakings been given to our own people. The control of our economy through the creation of unemployment is totally alien to our party. If we stand for anything as a party and a Government, we should stand for full employment. If there are any pledges to be preserved, they should be given to the party and to the people.

Our country's place in the world is a much reduced one. Many people accepted, in a rather splendid way, the loss of our Empire and our status. In a way, I think that the acceptance of those changes should make us proud. But our people may not be prepared to accept so readily the declining economic role which we may be preparing for them.

6.50 p.m.

Mr. Eric Lubbock (Orpington)

If the hon. Member for Ashton-under-Lyne (Mr. Sheldon) will forgive me, I shall not follow him in his discussion of the value of the £, though I think it extremely important that we in the House should be prepared to discuss the subject in the open, not treating it as something which can be brushed under the carpet, as Ministers so often try to persuade us to do, in case it might have some effect on foreign opinion.

The danger is that this Government might be driven into a forced devaluation at some time in the future. If they do not make contingency plans, the consequences for this country could be serious. I do not, therefore, dispute anyone's right to speak openly about the value of the £, as the hon. Gentleman did, and to discuss the possible advantages of devaluation.

I begin with a comment on the question of the Finance Bill going to a Committee. I listened carefully to what the right hon. Member for Enfield, West (Mr. Iain Macleod) said about the disadvantages of adopting this course. When he began to defend the Liberals against the possible consequences which, he said, might arise for us, I became highly suspicious. It was a case of, "Timeo Danaos et dona ferentes". The right hon. Gentleman has not always been so kind to us. I remember that, after the 1962 election, he used to predict that I would lose my seat, and, although he has been disappointed in that prediction, he continued to make it even after the 1964 election. I am not, therefore, greatly worried or impressed by his advice on how we should approach this proposal from the Leader of the House.

I am sorry that the proposal appeared in the Press before it had been discussed here on the Floor, but I do not blame the Leader of the House for that.

Sir Gerald Nabarro (Worcestershire, South)

I do.

The Lord President of the Council and Leader of the House of Commons (Mr. Richard Crossman)

I thought it not discourteous to the House to put a list of the items we proposed in a Written Answer. This was in the Written Answer.

Mr. Lubbock

I see. Then there was no leak, as the right hon. Member for Enfield, West alleged.

But, in any case, my point is that we are prepared to consider the proposals on their merits, not in the light of advice given to us by the right hon. Member for Enfield, West. Something had to be done. We spend an enormous amount of time on this business during the course of the summer. It is a regular experience to stay up all night or very late week after week.

I warn the right hon. Gentleman that it does not impress people outside the House. They say, "You are a fool to stay there till 6 a.m. talking about the duty on beer, and, what is more, when you come back the following day to discuss something which may be far more important, you cannot possibly give it proper attention".

Therefore, anything which would prevent this ridiculous summer process of spending a night a week in the House and getting home at 6 or 7 a.m. is to be commended. But we shall look very very carefully at the detailed proposals which the Leader of the House is to put before us.

I turn now to our present debate on economic affairs. Two weeks ago, on 23rd October, my right hon. Friend the Member for Devon, North (Mr. Thorpe) initiated a debate on this subject. It was a very constructive debate, but, on that occasion, the Tories produced four nobodies, and the only person of any consequence on the Government side was the hon. Member for Swansea, West (Mr. Alan Williams), who was amiable but incoherent. That was all, save for a few honourable exceptions, including the hon. Member for Feltham (Mr. Russell Kerr), who is a regular attender on such occasions.

Our debate today is quite different. We have the ritual party saraband on the Queen's Speech, which occurs every year, and on this occasion all the backwoodsmen and the part-timers come to express their views and take part in the Division. It is a sad comment that, when an important debate is initiated on the first day after the House returns from the Summer Recess, and after the Leader of the Conservative Opposition has only recently made a speech to his party conference in which he said that he would attack the Government night and day, particularly on their economic policy, only four hon. Members from his party can find time to come here on a Monday morning. It shows how many people there are who are ready merely to make party capital out of the economic difficulties into which the country has so sadly fallen and not to apply their minds to helping with constructive solutions, as we should all be doing.

I warn both sides of the House that this is the reason for the extraordinary results at this week's by-elections. People in the constituencies are sick and tired of the congenital inability of politicians to get stuck into the real issues and their corresponding love of sterile and artificial party controversy. I noted with interest the remark of the right hon. Member for Enfield, West that he was as good at selective quotation as anyone. It is this sort of approach which makes people disillusioned with politics. They see it as little more than a party game and not an attempt to get at the real problems and find solutions. There is a large section of opinion which does not trust the Prime Minister, but the opinion polls show that people have an even lower opinion of the Leader of the Conservative Party.

There is a total absence of positive leadership, an abandonment by the party in power of national planning, and a deferment of hopes which were raised unscrupulously by the Labour Party at the General Election 18 months ago. All this, combined with the obvious inability of the Tory Party to provide any alternative, has induced a mood of frustration and bewilderment in the people such as has never been known before in our history.

The Chancellor's speech was fantastic in its complacency. He reminded me of Dr. Pangloss, in "Candide", who used to say that everything was for the best in the best of all possible worlds. If only we would wait, the right hon. Gentleman said, till some time in 1968, we would find that exports were up, there would be better use of capacity, investment would increase, and so on, and then he reached the nadir when, in support of his proposition, he quoted the hon. Member for Louth (Sir C. Osborne). That, coming from a Minister in a so-called Socialist Government, was really the bottom.

The Chancellor's speech suggested no solutions whatever. There was merely an unbelievable complacency and an unacceptable demand that we wait patiently till some time in 1968 when things would get better. No doubt, by then, the Prime Minister and the Chancellor of the Exchequer will between them have thought up some new gimmicks.

The Government's speeches throughout all this debate on the Queen's Speech have reminded me of a passage in King Lear: I will do such things— What they are yet I know not,—but they shall be

The terrors of the earth."

In the meantime, not having thought up what they will do, they stubbornly persist in a policy which is universally loathed—we can see this from the interjections which some of the Chancellor's remarks evoked from his hon. Friends today—in economic restrictions at home and the maintenance of commitments abroad which we cannot possibly afford.

I suggest seriously to the Chancellor that he should get out of his ivory tower in the Treasury, where he listens to opinions like those of Sir Leslie O'Brien, and finds out what people are saying in the pubs, the clubs, the trade union meetings and the factories about the policies of his Government. If he did that, he would lose some of the complacency which has been apparent today.

As the hon. Member for Lewisham, West (Mr. Dickens) said in passing, our commitments abroad are part of the key to the situation. It is shocking that, in spite of the lessons of Aden which are being rammed down our throats at the moment, our forces in the Persian Gulf area are being increased. I have no doubt that millions of pounds are being spent on churches, schools, housing and other monuments of decaying imperialism such as we have always erected just before we left any overseas theatre of operations in the past.

In spite of our balance of payments difficulties, the Government have committed us to spending £336 million on American warplanes which do not work, which are unsuitable and which are far too sophisticated for the European theatre. If the Government mean what they say about our ultimate withdrawal from all bases east of Suez, it is pointless to have these 'planes. The order should be cancelled.

In spite of cutbacks elsewhere, we can apparently still find money to build a fleet of nuclear submarines costing £55 million a piece. One of these was launched last week—and immediately got stuck on a sandbank, just like the rest of the Government's policies. A Navy spokesman announced at the launching ceremony that an order would be placed for a new submarine, an even more expensive one, to be known as "07"until the official naming ceremony. I suggest that, when the time comes for it to be named, it be called "H.M.S. James Bond", since the whole defence policy of the Government is an implausible fantasy.

As some hon. Gentlemen opposite have recognised, the Government's policy on defence is one of the main causes of the economic difficulties which we face. As long as we spend such a large proportion of our wealth on military forces overseas —very much of it in terms of foreign currency—we shall never achieve growth or stability without inflicting serious hardships on the people of Britain. I do not intend to make a demand for general reflation. I agree with what the Chancellor said on this issue. However, I would like to see some sign of the Government taking a more human attitude and recognising the hardships being imposed on some groups of people in this country.

This winter there will be suffering among old people and children in large families. A recent Ministry of Social Security report on the circumstances of families shows that there are 1.1 million children living in families whose resources are below the supplementary benefit scales. The 7s. a week increase just granted for fourth and subsequent children will not touch this problem. While this is the subject for a later debate this week, no discussion of economic affairs is realistic unless we talk about the effects of economic policies on the people.

The Ministry's report shows that 45 per cent. of the children concerned are in families of fewer than four children, so they will not get the 7s. increase. And even those families which get the increase—that is, families with more than four children—will be no better off because it will not be enough to compensate them for the increases which have taken place in the cost of living—which have taken place this year and which will certainly take place in the coming winter.

The First Secretary claimed last week that the rate of increase in the cost of living since June, 1966, had been only at the rate of 1¼ per cent. a year. If this figure is correct—which I find difficult to accept—it conceals a wide varia- tion in the impact of cost of living increases on different households, according to unavoidable differences in expenditure. For example, for the pensioner, rates, rent, electricity and gas represent a much higher proportion of his disposable income than for other families. Therefore, any increase in the cost of these items must fall with particular severity on the elderly.

At my advice bureau recently I interviewed a widow of 71. She told me that already she is having to go to bed in the afternoon because she cannot afford to light her gas fire. How much worse off will she be when the increased fuel bills come along and the really cold weather sets in? A 15 per cent. increase in electricity charges will lead to a serious burden being placed on this widow and will probably swallow up the whole of the miserable 5s. increase in her pension—5s. because she is on supplementary benefit.

It was with stinginess that the Government decided to take away 5s. from her pension increase simply because she is on supplementary benefit. There can be nothing more illogical than to give well off people with other sources of income an increase of 10s. a week and then to say that, because people are drawing the supplementary benefit, half of that increase should be withdrawn.

We appreciate that, in the last resort, any Government must make choices between which types of expenditure should be made out of the limited total resources available. But it is depressing for my hon. Friends and I to find that the plans for expansion are nebulous and unconvincing. There is practically no reference in the Gracious Speech to this subject. There is merely an unilluminating reference to technology and, while the Minister of Technology spoke last night, his comments were limited to the narrow confines of the debate on transport. He touched on aviation, but most of the matters to which he referred were Board of Trade subjects and few of them were within his Departmental responsibility.

I shall accept the Prime Minister's advice and await the publication of the Industrial Expansion Bill before expressing a final opinion on it. However, even if it is a very good Bill, which I doubt, I do not think that it can be an adequate response to the need for using the, technological resources of this country to serve expansion.

For example, it will not deal with the serious problem of the brain drain. The Jones Report, published in July, showed that no less than one-third of the engineers and scientists who have recently qualified are emigrating to foreign countries, particularly to North America. It also showed that since 1963—the last year before the Labour Party took office —the numbers of people going abroad each year increased by over 50 per cent. It was in that year, 1963, that the present Prime Minister said of the brain drain, speaking at the Labour Party conference in Scarborough: We are not even selling the seed corn. We are giving it away. If one is to follow the Prime Minister's metaphor, considering that the brain drain has increased by 50 per cent. since he uttered those words, one must add that in 1967 we are paying the burglars to take it away.

I do not pretend to have the complete answer to the problem which the Jones Committee was asked to investigate. However, most of the emigrants are in the age range 25 to 35. Dr. Jones made it clear that starting salaries in this country are only a quarter to one-fifth of final salaries. In the United States, they are as much as half, and, therefore, the inducement to emigrate is greatest at the beginning of a young man's career, when he has not yet taken on family responsibilities and put down roots which might otherwise pull him in the opposite direction and keep him in this country. Dr. Jones recognised, therefore, that we should adopt a deliberate national policy of higher pay on a selective basis for young engineers, scientists and technologists and other talent in industry.

I am not sure why Dr. Jones confined this view to industry, because it seems to be up to the Government to give a lead in this matter. They could adjust conditions in their research establishments in accordance with this recommendation, and so ensure that industry follows suit. The Government can, therefore, at least do something to stem this drain of talent from Britain to the the United States and elsewhere.

Then there is the position of the N.R.D.C. It is disappointing to note that the Gracious Speech contains no reference to the fact that the annual report of the Corporation, published last March, stated that its borrowing powers were nearly exhausted and would require to be increased.

Another omission from the Gracious Speech is any mention of the European Technological Community, a concept launched with a great fanfare by the Prime Minister some months ago, although never properly defined. If it is as important an idea as he made it sound—for example, when he spoke at Strasbourg last January—it was surprising that he found no place to mention it in his speech to the House last Tuesday.

There is a host of other issues which I should have liked to discuss now, although I would not have expected to find them mentioned in detail in the Queen's Speech. I should like to discuss the question of the Culham Laboratory, which was raised by the hon. Member for Abingdon (Mr. Neave) last week. If we are really to make use of technology and science it is surprising that where we lead the world—in plasma physics and fusion research—we have decided to cut expenditure by 50 per cent. No doubt many of the brilliant engineers and scientists employed at Culham will now find jobs in the United States.

It is surprising that we find no attempt to discuss the application of cheap power to import-saving by large-scale import substitution, which could be an important way of solving our balance of payments problems. As I pointed out to the Minister of Power at Question Time today, the chemical industry estimated that the replacement of naphtha in chemical processes by natural gas would save us £20 million on our balance of payments.

The establishment of an aluminium smelter in this country would save us £60 million on our balance of payments, and yet the imaginative scheme put forward some time ago by R.T.Z. for a nuclear reactor which would supply power both to an aluminium smelter and the enrichment plant operated by the United Kingdom A.E.A. at Capenhurst has gone into limbo. I do not know whether it has been dropped completely, but I should have liked to hear something about a scheme which could be of tremendous importance to our balance of payments. Why stop at aluminium? Many other products which we import in large volume use a great deal of energy in their production, such as copper, titanium, silicon, silicon carbide and graphite, and they could be refined in this country with great benefits to our balance of payments.

I should have liked to discuss the question of Government help to the machine tool industry. I was very disturbed to read in The Times of 24th October a report that the Treasury has blocked a scheme put up by the Ministry of Technology for helping British industry to equip itself with advanced numerically-controlled machine tools to the value of £1 million each year. This is the sort of thing the Ministry should be doing to promote expansion, and I rather agree with the hon. Member who said that in many such cases the Treasury appears to be the bugbear. If this is true—and if it is, it is absolutely shocking—will the Treasury now reconsider? I hope that it will be willing to do so.

I should have liked to discuss the question of Government aid to computer software. At Strasbourg last January the Prime Minister said: In two years we have saved the British computer industry and safeguarded it from foreign domination. The Prime Minister thinks that the computer industry is nothing but hardware. He does not realise—and neither, apparently, do the Ministry of Technology or the Board of Trade—that about 50 per cent. of every computer installation is software and not hardware. It was a great disappointment to me that the Chancellor of the Exchequer did not accept the recommendation of the electronic engineering industry some time ago that software should qualify for investment grants. But perhaps this is not the way to do it. I should at least have liked to hear from the Government that there is some advance in their thinking on the issue.

Those are just a few of the things I should have liked to discuss if there had been a debate on technology at some point in our debates on the Queen's Speech. In view of the importance of technology to the development of our economy it is very unfortunate that not only has there been no debate on it in the whole six days of these debates but that when the Minister appeared he was replying to a debate on transport.

I am not making this accusation particularly of the Government, but there is a complete failure in public life generally in this country to appreciate the importance of science and technology and their potential for stimulating growth in our economy. As long as we can have an important debate like this on the Government's economic policies and ignore the contribution of technology, for so long shall we have to wait for a sensible solution to our difficulties.

7.15 p.m.

Mr. Joel Barnett (Heywood and Royton)

I hope that the hon. Member for Orpington (Mr. Lubbock) will forgive me if I do not comment on the whole breadth of the arguments he advanced.

I do not believe that the Government should change their policies simply because of the by-election reverses. They should change their policies because they are not achieving their objectives. My right hon. Friend the Chancellor of the Exchequer was right to say that there has been an improvement. There is an improvement in certain aspects of the economy, but he knows the tightrope on which he is walking. He knows that, with the continuance of the present policy, if the present reflation continues he will have to hold it back once again, because we shall be back into balance of payments difficulties.

The present policies, above all, are jeopardising the success of the Government's longer-term measures. For example, we are quite rightly intervening in industry to try to bring about selective increases in investment. There are 45 per cent. investment grants in development areas, but they go side by side with a deflationary policy which brings about an overall downturn in investment. So with the deflationary policy we are now clearly jeopardising what we want to see achieved.

The short-term options were referred to by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and I do not want to go over them again. There were the questions of import restrictions, defence expenditure, the exchange rate and deflation. I believe that we are now well past the point when we could use import restrictions as an answer, as some of my hon. Friends would. That would be tinkering with just one part of the problem, quite apart from the difficulties there would be with E.F.T.A. and the fact that we have so recently concluded the Kennedy Round negotiations, which will be of some little value to us. For a country like Britain, this could be only a temporary policy. We are totally dependent on exports and such a policy of import controls cannot be a longer-term answer. It can only ever have been a temporary answer, and we are now well past the time for temporary answers.

I want to see the Government go faster with defence expenditure cuts and I am sorry that they did not start in 1964. They are at least making a start, but there cannot be any immediate effect here.

On the other hand, some of my hon. Friends have put down an Amendment to the Gracious Speech, containing a suggestion which would have an immediate effect—the selling of the private portfolio investment. I sympathise with the reasons behind the suggestion, but I feel that they are mistaken. It would give some liquidity but would do nothing about our competitive position, which is most important, and this could be positively dangerous. One could compare it with a company which is losing money through inefficiency and inability to compete. If it is given a large influx of capital by loan or gift, it will simply continue as before, without dealing with its fundamental problems, and that is why I disagree with my hon. Friends.

The Government have chosen deflation as their answer. My complaint is not simply that the choice is wrong. I honestly did not think that it was a choice open to a Labour Government. In only one sense was the right hon. Member for Enfield, West (Mr. Iain Macleod) right when he talked about the difference between his Government and the present Government. He was right in that his Government did not dare to say that they would continue to pursue that sort of policy. They would have been led willy-nilly to it, but he will not now confess it. That is why there is disdain on the part of the electorate, because they know that what the Opposition are saying is pure hypocrisy. That is why the public have their present attitude.

For a long time the only other alternative before us in the short term, that of devaluation, has been treated as something of a treason to talk about in public. I believe that the only alternative now taken by the Government, of deflation, is so disastrous that it is time—and vital—that those who think like myself should speak up. In any event, on 24th July in the debate on economic affairs my right hon. Friend the Chancellor of the Exchequer welcomed any talk on this subject. He said that it was not a matter of personal prestige. I believe him. He honestly and sincerely believes that his policy is correct. Equally I believe that his policy is incorrect and feel that it is right that I should say so.

I should like to deal with some of the arguments used by my right hon. Friend. There was the argument that deflation is not the answer to our fundamental problems. Whoever said it was? But is deflation an answer to our fundamental problems? Well we have very much information about deflation. We had a great deal of it prior to 1964, and we know where that led us. As soon as we reflated we were left with a deficit of £800 million. Since 1964 we have had further deflation with ever-increasing intensity. The improvement that we have got in the balance of payments owes very little to that deflation. It comes through our rightly stemming the capital outflow and from an improvement in the terms of trade, for which we should all be grateful. But that improvement in the terms of trade will not always be with us. Whilst I think that the former, the stemming of the capital outflow, is right, I believe equally that it is not a policy that we can carry on for ever.

The most important thing to notice about the economy today is that we are not relying next year on deflation to bring us our success. We are relying upon and hoping for improvements in the balance of payments, on the reopening of the Suez Canal and on an upturn in the West German and French economies, not deflationary policies. So deflation has had little or no effect on our immediate or fundamental economic problems.

But devaluation would deal with our price problem. It is not a question of solving fundamental problems. It is a question of whether, having taken the decision to do it, we prevent the advantage from being dissipated too quickly. In this direction at least it lies in the hands of the Government to control it. But, we are told, price is not really the problem. Of course it is not price alone which is the problem. The problems include delivery dates, quality of goods and the sheer hard grind of selling abroad. Selling abroad is not fun. But can anybody doubt that cheaper prices will enable us to sell more? If so, I would refer them to some of the things written about it and some of the research done.

In July, 1965, the International Monetary Fund found from its research that if it were not for the prices structure here we could have expected an increase of about £1,000 million a year in our exports. Then it is argued it is not a problem of competitive prices as we are already exporting £5,000 million—£6,000 million a year. That is true, but it misses the point. Nobody can say that our prices and goods are so bad that we cannot sell. A company on the verge of bankruptcy is still selling, but the trouble is that it is not selling enough to meet its costs, or its prices are wrong, or both.

With devaluation of about 20 per cent. —less would be to get the worst of all worlds—we could expect an increase in exports. The amount would depend on the assumptions. There are many assumptions that one can make, but nobody can dispute that there would be a considerable increase. We should get it not only from a reduction in prices but also because not all of it would be passed on. We are always being told, with some justification from my experience of manufacturers and their costs, that one of the reasons why they do not go for exports is the very small margin of profit that they make. With devaluation there would be opportunities for them to take a bigger profit. With this incentive we could expect to see increased exports.

We are told that other countries would devalue with us and we should have no benefits. But this is to have it both ways. First, we are told that there is no real benefit, and then when those who say that agree that there would be a benefit, they say that other countries would wipe away the benefit completely.

Mr. John Hall

Perhaps the hon. Gentleman would do me the honour of quoting me correctly. I said that his hon. Friend must have been basing his calculations on the assumption that other countries would do nothing.

Mr. Barnett

I cannot speak for my hon. Friend and what assumptions he was making. I am talking about whether or not any benefit from devaluation would be dissipated by other countries doing the same. The important countries to consider are France, West Germany and the United States. France and West Germany have revalued recently and it is unlikely that they will do so again. As to the United States, we exaggerate our importance in this context. Of course, the United States would not like us to devalue. I have no doubt that it has made appropriate representations, but that is still only one factor, and a very small one, in the many and complex factors which would go into the making of a decision by the United States.

The greatest argument for devaluation is the effect of the alternative deflationary policy that we have got. I referred to the question of investment. This is at the heart of it. It is ruining our long-term prospects. The Prime Minister told us the other day that manufacturing investment would drop by only 6 per cent. over last year. He scoffed at the gloom from the Opposition. He is right. It is not as bad as it seemed likely to be. But I hope that we have not forgotten that in the National Plan we said that we needed a 7 per cent. increase in manufacturing investment to get an average growth rate of 3.8 per cent. So we shall not get even the 3 per cent. growth that we are hoping to achieve on the basis of a 6 per cent. drop in investment, and it should be remembered that it is a 6 per cent. drop starting from a very low figure. We shall need a very much higher rate of increase in investment in the future if we are not to fail in our longer-term objectives. Devaluation would meet this need.

It is important to make clear that when we talk about the need for deflation too with a devaluation we mean deflation of domestic spending, not deflation of growth, full employment and investment. This is the important consideration. But the clinching argument that we always hear is that we must keep faith with the foreign investors who show their faith in sterling. Does anybody now believe that people invest here out of some form of patriotism? It is not long ago that we had a Bank Rate Tribunal which showed that British citizens with some reasons to be patriotic advised other British citizens to put the £ second. So it is not unreasonable to assume that foreign investors put their money here for the high interest rate that they get and take a carefully calculated risk about it. But this argument ought really to be exposed for the nonsense that it is, because if one accepts the argument one accepts the exchange rate for all time. I cannot believe that there is anybody in this country or in this House who really believes that the exchange rate must be kept inviolable for all time.

I have no desire to harm foreign investors. I should like to keep faith with them. But I want first to keep faith with the British people, and I believe that we have a better chance of doing that with devaluation now, though I emphasise I do not see this as any easy way out. We cannot and should not have an all-round immediate increase in our standard of living. But it will enable us to get away from the cautious, timid approach to our economic problems. Above all, it will give us full employment, increased investment and growth. It will allow us to get to grips with pockets of poverty at home and do more to remove starvation and misery abroad.

7.30 p.m.

Mr. John Biffen (Oswestry)

The hon. Members for Heywood and Royton (Mr. Barnett) and Ashton-under-Lyne (Mr. Sheldon) devoted the main burden of their speeches to the problem of the exchange rate and I am sure that they were right to do so. The validity of the choice of their subjects is supported by the fact that we have applied for membership of the E.E.C. and anyone weighing the evidence made available of the response to our initiative realises that both the worldwide rôle of sterling and its present parity are being questioned by many of those with whom we have to negotiate.

These two aspects of the sterling problem are quite distinct. Although there will be universal acknowledgment that the world rôle of sterling would be transformed, and should be, were we to be- come members of the E.E.C., it does not follow that there is a similar acceptance of the view that the present parity of sterling is necessarily an impediment to membership.

Those of us on the back benches are entitled to ask that we should hear from the Front Bench spokesmen their own view on these subjects, namely, the two distinct aspects of the sterling problem. I think that, although there is a general willingness to discuss the changes which must take place in the world rôle of sterling amongst the most distinguished of our parliamentarians, there is a reluctance to discuss the parity of sterling.

I do not intend to follow the hon. Members for Heywood and Royton and Ashton-under-Lyne, not because I feel intimidated from talking about the subject but because I choose not to talk about it tonight. Rather would I address myself to what seems to me to be the real clash in the debate—between those who have argued that there is at this point no general case for reflation and those who have argued with great vehemence exactly the opposite.

The case for no general reflation is dignified by the most distinguished group of assenters. The hon. Member for Orpington (Mr. Lubbock), my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) and the Chancellor have all said that there is no general case for reflation. I do not wish to dilute such distinguished company, but I would add my own voice to that advice. In particular, I welcome the sterling and forceful speech of the Chancellor in rebutting what seem to be insidious and destructive calls for reflation from below the Gangway opposite.

Mr. Frank Hooley (Sheffield, Heeley)

The hon. Gentleman has used the wrong phrase. The phrase was, "no case for general reflation", which is slightly different from the phrase he has used.

Mr. Biffen

I thought that I had noted down that the phrase was that there was no general case for reflation. I am happy to ally myself with my right hon. Friend and with the Chancellor in saying that there is no case for general reflation. Now that we have this small matter of terminology straight, no doubt the hon. Member for Sheffield, Heeley (Mr. Hooley) is happy and we can proceed.

The reasons which particularly lead me to endorse the Chancellor's remarks turn upon the time scale within which we can assess whether or not the squeeze measures of July, 1966, are working. It was his proposition that we do not yet generally or publicly perceive the elements of reflation which are at work and I believe that he is right. I believe that there are substantial reflationary elements at work in the economy which would make it extremely hazardous for the Government to embark on the course advocated with such strength and, I suspect, with very considerable underlying strength, on the benches opposite.

I want to take up the cudgels on the Chancellor's behalf in the area where it is largely assumed that he is weakest—namely, that the recovery, when it comes, at least will not come in exports. I say that the case may be a little stronger than seems at first sight because nearly all our analysis naturally proceeds on examination of export dispatches, whereas, alas, we have much less evidence on the rate of booking of export orders. Yet this is the rate which, over the last six months or so, is a far better guide to the success of the Government's policy in generating symptoms of recovery in our exports than the level of dispatches, which may often refer to orders booked at the time when manufacturers had to compete with particularly buoyant levels of home demand.

We are necessarily limited because of the sparsity of evidence. I make no complaint about that. Clearly, the amount of evidence the Government's statistical machine can collect about orders is bound to be limited and of a sketchy and provisional nature. Nevertheless, one index is provided—the index of the engineering industries, which account for about 25 per cent. of our total exports.

For the first six months of 1967, as compared with 1966, there has been an increase in the volume of net new engineering export orders of 12½ per cent. I am not given to quoting figures beneficial to the Government and the Government would not usually accuse me of doing so, but this is a point to be borne in mind by those who have argued that the Chancellor was right to take the squeeze measures and that Sir Leslie O'Brien made a fair and accurate assessment of what economic policy in general should be followed in so far as it concerns unemployment and demand. As evidence to suport that, the figures of the volume of engineering export orders are particularly relevant.

When we think of the other area of rising demand at work in the economy, there will be much more general acceptance that this is an area where there is incontrovertible evidence of a rising level of activity. This stems, of course, from public expenditure—not only from capital expenditure but also from the whole series of increased social security benefits which will come into effect fairly shortly. Therefore, I think that there is quite substantial evidence of a rising public expenditure, both in capital and current terms, which will affect the level of demand during the first half of 1968.

The third point is the unemployment, which has been mentioned repeatedly. It would be wholly inconsistent if I did not stand by the arguments I have advanced in the past—that I believe that the level of demand brought about by the July measures is broadly correct and that the analysis of Sir Leslie O'Brien is one to which I assent.

I am conscious of the terrific challenge that it presents in terms of unemployment. I hope I will not be thought to be one shred less compassionate than other hon. Members if I point out that the social hardships implicit in any economic policy are not just confined to the problem of unemployment which might result from deflation. There are also the social hardships which particularly affect elderly people on fixed incomes and which flow from inflation.

It is always a delicate and detestably difficult job for any Government to balance wherein lies the greater social hardship. A great deal of discussion has proceeded on the assumption that social hardship can only conceivably lie in the areas of unemployment by pursuing the policy that the Government have set out upon since the squeeze measures of July, 1966.

I still remain of the opinion that the balance of social hardship is certainly no greater, with employment levels as they are today, if the alternative is inflation of the order of 3 per cent., 4 per cent. or 5 per cent. with the consequence that has for many elderly people on fixed incomes.

I have spoken almost in a language of consensus since my arguments could be construed to support the Chancellor. It occurred to me that he needed a little support. I agree with hon. Members opposite that the Chancellor shows signs of making a better Tory than I would ever be a good Socialist.

In case it is thought that this spirit burns too brightly, let me turn to the other point that I wish to raise. That is the extent to which the possibly good work of the Chancellor might be seriously undermined by the activities of the Prime Minister. This deserves very serious attention. The Prime Minister has left Olympus and descended to the Department of Economic Affairs, and this could be dangerous. It may be irrelevant, and one hopes so, but it could be dangerous. The Prime Minister is no stranger to economic affairs and has never been reluctant, certainly not in the period before 1964, to inform the House of his opinions as to how the country should emerge from whatever economic difficulties have confronted it from time to time.

The right hon. Gentleman must, in part at least, have inspired much of the thinking behind the Amendment proposed by the hon. Member for Lewisham, West (Mr. Dickens). In doing a modest amount of homework I thought that I would refresh myself with the article written by the Prime Minister for the New Statesman of 24th March, 1961.

When in opposition, the Prime Minister wrote with great verve and spoke with great eloquence on the whole range of political intervention which he thought was indispensable for a Labour Government's management of the economy. In the New Statesman he spoke of A National Investment Board should be set up to work out for each major industry, public and private, the rate of expansion needed. Then, when I turned to the Amendment moved by the hon. Member for Lewisham, West, I read that he was proposing the establishing of a national investment board as one of his remedies. I wonder whether this is what one calls a probing Amendment, hoping that one will get satisfactory answers. Naturally, they will not come this evening since the Amendment is directed to the Treasury, but there is the hope that possibly the Department of Economic Affairs can engage in some kind of aggressive countervailing nonsense which will neutralise the activities of the Treasury. This clearly is the hope, often expressed, of the hon. Member and, who knows, it may be that he has an ally, knowing that the Prime Minister wishes to be so personally identified with the Department of Economic Affairs.

It is in this context that one's greatest apprehensions are aroused. We have had something like two years of active interference with industry by Government in the name of planning. It cannot reasonably be called planning, but it would certainly be called interference. We had the postponement of the closures of coalmines. This was personally identified with the Prime Minister, it was one of his first actions on taking on the new rôle. Possibly, in his capacity as the modernising and technologically-minded Prime Minister, he wished to perpetuate the production of a fuel for which there was no evident consumer demand. There was a time when, as we on these benches were often reminded, there was a disposition on the part of many in the business community to believe that perhaps some closer partnership with Government might be beneficial to all.

This was called the honeymoon period, but it is sadly over and proceedings must be before the Probate, Divorce and Admiralty Division. A number of prominent businessmen have recently contributed to a book called "Growth Through Industry", in which they have given their own sad and sorrowing experiences of close association with Government. There are names which would command very wide respect on both sides of the House.

Let me quote the chairman of what is perhaps one of the most successful British companies, and certainly one of the most successful British companies in overseas trade and exports, namely, Mr. H. G. Lazell, Chairman of Beechams. He said: In recent years the environment in which business operates has been seriously affected by the nature and scope of government intervention. Clearly government must have to take a close interest in the efficiency of the economy but it is debatable if much of its action was contributed in any way to efficiency. Many government measures—for example the Selective Employment Tax, the Capital Gains Tax, the Prices and Incomes Act, were badly drafted and prepared without any real thought about their long-term applications. That comes dangerously near to a charge of gimmickry. I am not accusing the Prime Minister of being a trader in gimmicks, although many others might wish to make that accusation and they might come from both sides of the House. What I do say is that already there are clear signs that the clash between the D.E.A. and the Treasury, which characterised a great deal of the mismanagement of the economy in the early days of the Labour Government, is likely to be perpetuated. In support of that, let me quote a short sentence of the recent editorial in the Financial Times following the publication of the White Paper on Nationalised Industries. It said: There could hardly be a greater contrast than the Prime Minister's professed doctrine of selective physical intervention and the Treasury's new White Paper on the nationalised industries. I am pleased to say that the burden of the Financial Times article was to support the Treasury view and to reject the Prime Minister's appetite for physical intervention. I conclude in the hope that the traditional Treasury advice and the analysis supported by the Governor of the Bank of England will receive stout support from the benches opposite. I have my doubts, but hon. Members opposite should not be deflected by the existence of the Prime Minister in the Department of Economic Affairs. The best hope for an economic recovery must be the triumph of the Treasury over the Department of Economic Affairs and, above all, the triumph of the Treasury over the Prime Minister.

7.47 p.m.

Mr. David Marquand (Ashfield)

It is a commentary on the "Alice in Wonderland" picture of this debate that the Chancellor's most fervent supporter should be the hon. Member for Oswestry (Mr. Biffen). I felt that even he went a little far when he said that the hardship caused by inflation was, on balance, probably as large or perhaps greater than the hardship caused by deflation.

The issue that we are debating is the waste of productive resources caused by an inflationary policy which means that year after year, as long as this policy is persisted in. we are producing £750 million worth of real wealth less than we would otherwise produce. One of the oddest features of the debate has been the frenzied alarm exhibited by the Opposition Front Bench about the rather timid interventionist policies suggested in the Gracious Speech by my right hon. Friend. There has been an attempt to dictate to the ravening Socialist tiger a meek interventionist mouse.

I believe that the policies implied in the Industrial Expansion Bill, which the Government have been carrying out since they came to power in 1964—the policies of regional discrimination, for example, and greater intervention by means of the little "Neddies"—offer in the long term the only hope of fundamental structural industrial reform. Those policies were begun by the party opposite. They are in no sense Socialist policies. They are policies of intelligent management of the capitalist society. The same kind of policies are followed in every other major industrial country in Western Europe. They are simply a matter of using public power to restrict the base of the country's economy. In the long run they offer the only hope that the country can get on its industrial feet.

I urge my right hon. Friends on the Front Bench, however, not to believe that those policies are a substitute for the correct management of demand in the economy as a whole. To put it in the form of a slogan, micro-economic intervention is not a substitute for macroeconomic management.

I believe that the structural reforms introduced by the Government, and which I support, can work only if they are introduced in the right environment and if, in the long run, business men, trade unionists, consumers and the public in general want them to work. They cannot be forced upon a reluctant economy. They will work only if there is a climate of expansion and confidence. A climate of confidence and expansion cannot simply be ordered by Government fiat in the face of sluggish demand and high unemployment. That is the crux of my disagreement with the Government on this issue. They believe that modernisation and structural reform has to come first, before growth. I believe that we can get structural reform only if we first have growth and expansion.

Mr. Hooley

Is it not a fact that in the past we had growth before structural reform and we were then back in square one?

Mr. Marquand

We did not actively pursue policies of that kind in the periods of economic expansion in the 1950s. This is a genuine disagreement between the two parties. It is a credit to the Government that they have pursued these policies. They will not work, however, unless the Government accompany them with a change in the management of the economy as a whole so as to have greater demand and higher growth. That is the essence of the argument.

There has been a lot of talk in this debate about the level of unemployment and what will happen this winter and next year. My right hon. Friend the Chancellor of the Exchequer was quite right in saying that there is nothing that the Government can now do to alter the level of unemployment this winter. For that reason, I am not one of those who wants at present a general consumer reflation. It would be lunatic folly for us to engage on further measures of reflation at this moment. It would not do anything to help unemployment this winter and it would damage our position in the coming year, as the Chancellor said.

I agree with my right hon. Friend that all the present indications are that the underlying level of unemployment is going down. All the indications are that the economy is picking up. That is the implication of the latest C.B.I. survey of industrial trends and of most independent surveys of the economy from outside sources such as the London and Cambridge Economic Bulletin.

The real problem, however, is that on every previous occasion when the economy has picked up in this way, we have faced sooner or later another balance of payments problem. That was what happened throughout the 1950s and the early 1960s. The Government believe that this time it will not happen again, that they have found the magic secret which eluded all previous Governments and that it will be possible to have reflation and no balance of payments problem next year. The Government believe that they will avoid the difficulty because of the effect of the structural reforms which they have already carried out and because of the expansion which they look for in our markets in West Germany and the United States. I very much hope and pray that they are right.

If, however, my right hon. Friends on the Front Bench turn out to be wrong, if we have not escaped from the fundamental structural imbalance of the past and if we still face the same dilemma that we faced on every previous similar occasion, they should not think that they can escape from it another time by introducing further measures of deflation, because I do not believe that the party or the country would stand for it another time.

Therefore, if the Government's hopes—and my hopes—turn out to be false, if next year the forecasts of the London and Cambridge Economic Bulletin and of other commentators turn out to be true and we find ourselves, which God forbid, in balance of payment problems yet again, the Government will this time have to pursue and continue at home a policy of full employment and to take direct action to protect the balance of payments.

I do not want to go into all the arguments about the merits and demerits of devaluation, import controls and the rest. My view is that devaluation is by far the most appropriate of the choices which have been put forward. The Government may feel that the pledges which they have given to foreign countries rule out devaluation. If they rule it out, let them use import controls rather than another bout of deflation if that situation arises.

I know that a vast number of my hon. Friends wish to speak, but I want to make just one other point on a different issue. One of the points which is stressed in the Queen's Speech is the Government's commitment to the prices and incomes policy. I part company from most of my hon. Friends below the Gangway who have spoken in that I have always been, and still am, a fervent supporter of the incomes policy. I believe that the incomes policy is an indispensable part of the structural revision in industry which the Government have introduced. I think it has got to be a permanent feature of our economic landscape.

However, I have supported the incomes policy because I see it not only as an economic instrument but as a weapon to achieve greater social justice in this country. I believe that if the Government are to convince the people of Britain that it actually is an instrument of social justice they must take action in this Session of Parliament to introduce a minimum wage. I do not believe that they will be able to carry conviction, to keep behind the incomes policy the support of the rank and file of the Labour movement who have, on the whole, supported it, unless they can demonstrate to them that their promises that the policy would lead to greater social justice will in fact be fulfilled.

I see that the Government's difficulties in introducing a minimum wage are very great, and very well known, and I do not want this evening to go on at great length about the precise figure which should be adopted. It may well be a figure of £15 a week, which has been suggested by the Transport and General Workers' Union, and which at the moment would involve an intolerable escalation in our industrial costs. That may be so, but at least let the Government introduce this year a minimum wage of £12 10s. That would not be anything like as expensive in terms of industrial costs. Let them make a commitment that, by a given period of years, they intend to reach the £15 limit.

If my right hon. Friends fail to do this I believe the incomes policy will come crashing down about their ears, and they will have destroyed one of the most valuable weapons the Socialist Government have ever possessed. I really do believe this is urgent, and I think that this sentiment is echoed throughout those sections of the Labour movement which have supported this policy loyally up to now.

8.2 p.m.

Mr. John Hall (Wycombe)

I have listened to most of the debate this afternoon and I have been unable to rid myself of the feeling that I was really listening to a private debate between the Treasury Bench and the back benches behind. So I apologise for intervening.

I rather regret the criticism which has been levelled from all parts of the House against the Government in so far as it affects that part of the Gracious Speech which refers to economic matters. I regret it because we have a Government today who, when the great majority of people think they are wrong, think themselves right, and it would be a tragedy if the Government assumed from the criticism of their policies that they were right and continued on the same lines as they have hitherto continued.

It is not for me to recite an indictment of the present Government. I would have thought that all the events through the years which have followed since the General Election in 1964 were indictment enough without my adding to it. In any case, on an occasion like this criticism of the Government is a sterile occupation. Perhaps it may be useful as a form of blood letting in place of a leech. I am sure that large numbers of business men from time to time save themselves from a stroke by giving vent to their exasperation at Government action by violent criticism either in private or public, but this does not really achieve very much, and I am not proposing to take any time tonight criticising the Government for commission or omission.

If all the millions of words spoken in this House since October, 1964, about our economic ills and possible solutions to them could be turned into gold bars we would not have any problem whatever about the balance of payments. All the words which have been spoken have had no effect; dissertations about economic principles have had no effect. Therefore, I am going to try to concentrate on a few simple, practical suggestions which I hope the Government may take some note of and which I trust, though with no great optimism, may affect their thinking before the next Budget.

I think it true to say that no Government since the war have really succeeded in curing what has been called the "English disease." I define the "English disease" as a tendency for increasing material comfort, to cause physical, moral and spiritual flabbiness. But it is also true to say that no party has produced any solution at all for this disease. As has been pointed out already, large numbers of words have been spoken about it but it does not really help us very much.

The present Government measures, harsh as some people think they may be, have not succeeded. I remember that not very long ago I forecast that we might see an economic recovery developing in the latter part of 1968 which would probably carry into 1969, and indeed I went so far as to suggest that the economic recovery might carry sufficient momentum as to enable the Government to do a few electorally popular things and that we might then see the Government going to the country in the latter part of 1969 or the early part of 1970.

I venture to think that the economic revival which I forecast is beginning to take shape at the present moment, although it cannot be one which brings any joy to the Chancellor's heart because it is based on an increase in consumer expenditure, and we are going to have a consumer-led recovery, if recovery is the right word in that connection. The unfortunate aspect of this is that we find that production and new orders for capital goods are falling whilst demand for consumer goods is increasing, which cannot be a tendency the Chancellor can welcome.

I do not pretend to know the answers to this. Three hon. Members opposite have suggested devaluation. I am not personally necessarily opposed to looking at devaluation as a possible solution. I think that in this House we should be able to discuss it without being accused of being disloyal or of stabbing the economy in the back—a curiously mixed metaphor, but hon. Members know what I mean. But I think we should discuss it. I do not happen to believe that it is necessarily the right solution, but it is one we ought to examine and to examine very closely indeed.

I want to make some other suggestions quite apart from devaluation, although I must say that I again forecast—I hope I am wrong here—that the result of Government policy will force us into devaluation whether we want to devalue of not. But I want to make some other suggestions.

We are preoccupied and have been for a considerable time, ever since the Government came to power, about the balance of payments problem. I think it is true to say—I can be corrected if I am wrong in this—that since 1850 or thereabouts this country ran a deficit which was covered by our invisible earnings. It would seem that in 1914 we ran a deficit which on current prices was somewhere between £20 million and £115 million per annum. This was at a time when Great Britain was a major manufacturing country of the world, responsible for a third of the world's manufactured exports. Up to 1939 our invisible income accounted for or covered about 25 per cent. of our import bill. There is no doubt that our invisibles have fallen since that time, but they are still of very great importance to us—about 40 per cent. of our gross earnings.

The remarkable thing is that they get nothing like the same attention as do our visible exports; by no means the same amount of discussion in this House is devoted to our invisible earnings, and the way in which we can stimulate our invisible earnings, which, indeed, by some recent actions of the Government, have been handicapped. A number of our firms responsible for invisible exports are regarded as service industries and charged S.E.T. Really, it is absurd, and I suggest that the Government must concentrate on how best to encourage our invisible earnings and stimulate them further.

Coming to our visible exports, we know that the greater part of them are made by the major industrial companies, plus those firms engaged in invisibles to which I have referred already. But there are still a large number of small and medium size companies who could play a greater part in our export drive. They are discouraged by a lack of understanding of the complexities of exporting and marketing in other countries and by the mass of documentation required, with which Treasury Ministers are only too familiar.

I suggest that one way to help our smaller firms to enter the export market is for the Board of Trade to have representatives in the regions or areas who deliberately will seek out firms which are producing the kinds of goods for which there will be a ready market overseas. Such firms should be approached in an effort to persuade them either to begin exporting or to increase their present export efforts. It means direct contact, with Board of Trade representatives seeking out companies, and not just waiting for them to ask for advice.

As for stimulating industrial efficiency, many speeches have been made recently about the problems of strikes and relations between trade unions and management. I am the first to agree that, quite frequently, strikes in industry are the fault of management or can be held to be the responsibility of management in the first place because of bad communication. In the case of an industry which has frequent strikes, one should not automatically hold to blame the trade unions or the Communist threat to which the Prime Minister so fondly refers. All too often, the fault lies in personnel management.

In one of my own companies not long ago, I had experience of a minor strike, the first for many years. I am willing to take the blame for it and say that it was the fault of management not making certain that the cause of the strike did not arise.

Having said that, I suggest that, as a method of settling industrial disputes, strikes are as outdated as the dodo. We should endeavour to settle disputes within the rule of law. Strikes and similar forms of industrial action rarely, if ever, benefit those who take part in them. They create social injustice to the innocent and do great harm to the nation. A civilised country should find other means of solving disputes between management and men.

In the Gracious Speech, reference is made to the Report of the Royal Commission. This is urgently required. Equally urgent is the action which should follow it. I am disquieted about the way in which the Royal Commission's Report is mentioned in the Gracious Speech. It sounds as if there is no real intention to treat it as a matter of urgency, whereas it is a matter of the gravest urgency. The nation cannot afford the kind of disruptive strikes which we have experienced in the past.

As regards the efficient use of manpower, over many years the complaint has been that we have not had sufficient manpower to carry out all the jobs which confront us; that is, until recently, when Government policy produced a certain slackening in the demand for manpower. This is nonsense.

No doubt many hon. Members on both sides of the House will have read an article by Professor Flanders which appeared in the Sunday Times in February of last year, in which he estimated that overmanning in industry in the country was approaching 40 per cent. It is probably rather less now, but it is still too high, and the Government's policy of introducing S.E.T. and the Regional Employment Premiums encourage the hoarding of labour. If one receives a premium of 7s. 6d. for each employee in a manufacturing industry, and, in addition, one gets a regional employment premium advantage by employing more people, one is not encouraged to streamline and modernise one's works and make do with less labour.

Not only was S.E.T. a mistake. The R.E.P. was a mistake, too. It would have been much better to use the available money to improve communications, roads, amenities and general services in the areas which one wished to develop. Industries should have been attracted there in that way, rather than giving an artificial grant to keep them in the area for a certain period of time, especially when one remembers that firms already in a development area receive the same grant, for which they have no need.

Personal incentive is a subject which always arouses a good deal of interest. In a book published recently called "Inflation, Taxation and Executive Remuneration", by Professor Merrick and Mr. Monk, both of the London Business School, some interesting comparisons are made between appointments in this country and in the United States. The examples are taken of managing directors and chief accountants of companies in both countries. They find that a managing director in the United States is earning 125 per cent. more, net of tax, than his opposite number in Great Britain, and that a chief accountant in the United States is earning 145 per cent. more, net of tax, than his opposite number in this country.

In addition, they find that, under the present tax system, a manual worker in this country must press for wage increases of 8.4 per cent. per annum to maintain a 3.4 per cent. net increase. Someone earning £13,000 a year or more getting a mere 8 per cent. increase per annum goes backwards steadily in real purchasing power after tax.

Those are factors which destroy incentive in this country. One hears about the brain drain, but it must be remembered that people do not leave the country if they are in the high Surtax bracket, because they have their roots here and are not likely to go abroad for more money. The people going overseas are the energetic, intelligent men and women who believe that they are capable of earning incomes in the Surtax bracket, and they are the people we must do our best to keep.

Turning to the system of taxing profits, I believe that we should change our form of taxation and have a tax on costs rather than on profits, like an added value tax. It is a greater incentive to a company to be taxed on its costs than it is to be taxed on its profits at the end of the day, and it is more likely to result in greater efficiency.

An effort should be made to improve the incentive to save. The Chancellor has said today that savings have been on the increase, and they need to be when one considers how they have fallen since the present Government came into office. We must do more than at present to encourage saving. We must look again at the present system of taxing unearned income, which, after all, arises from savings out of highly taxed income which has been earned before.

We must simplify the Capital Gains Tax system. I appreciate that Capital Gains Tax is here to stay, and that it was introduced by a Conservative Government in the first place—

Mr. Hamling

Would the hon. Gentleman tell us why his party voted against us on this issue when we introduced it?

Mr. Hall

That was before the Capital Gains Tax introduced by the party opposite, which is a much more complicated and far-reaching tax. That has involved the Inland Revenue in a vast amount of work with which it cannot cope and which has necessarily, when further tax changes have been made, involved other Departments because the Inland Revenue was quite over-loaded. The Government really must simplify the Capital Gains Tax, which yields little revenue and which certainly provides no incentive to anyone.

Whatever we do to improve efficiency, increase wage and salary earnings and the profitability of companies is of no avail if, in the end, the Government insist on taking an ever-increasing proportion of the gross national product for their own expenditure, much of which seems to be wasteful and extravagant. If the Government are to save money and help the balance of payments position by cutting our Forces overseas, it is not much good, taking the overall picture, to increase the Civil Service by even more than the number of men in the Forces it is proposed to cut.

It is not very much good the Chancellor of the Exchequer discouraging overseas investment on the ground that we cannot invest out of a deficit whilst, at the same time, urging that we should increase our overseas aid. It is not very much good either—and here I am sure that I shall carry with me every hon. Member opposite—to continue to maintain overseas defence commitments for which there is no apparent necessity and which are a tremendous drain on our balance of payments.

If we are to arouse the people we must prove to them that the fruits of their greater efforts will not be wasted by the Government in merely taking the proceeds of a greater gross national product. Above all, we must restore the nation's confidence in itself, which is a task of leadership. When I look at the present leadership it rather appals me, but the task is one of leadership, nevertheless.

People are becoming increasingly cynical about Governments and politicians. One has only to look at the results of recent elections to find support for that view. If one were to put on a tombstone today, "Here lies a politician and an honest man" one would immediately be asked, "Why bury two men in one grave?" That is the extent to which our reputation, such as it was, has fallen in the eyes of the public. People no longer believe what they are told by politicians, especially those opposite, and who is to blame them when in this debate we have heard a succession of backbenchers opposite denouncing the Government for not carrying out their election pledges?

I do not suppose that any Socialists understood that when they voted Labour at the last two elections they would get this kind of action by this Government. Had they known what this Government would Jo I doubt very much whether they would have voted for such an Administration. I do not know how they would have voted—perhaps Scottish Nationalist or Welsh Nationalist. There is no doubt that the Government got in on a false prospectus, so one cannot wonder that people are completely cynical about politicians as a whole.

Mr. Ted Leadbitter (The Hartlepools)

The hon. Gentleman has talked about leadership and policy, but is he not aware that, if he is not very careful, in a few minutes' time he will probably be sitting alone on that side of the Chamber? There are only three of his hon. Friends present at the moment.

Mr. Hall

I am quite sure that the hon. Member, who was here when I started, will remember that I said that we on this side felt rather as though we were intervening in a private debate, and I am certain that it is that feeling that has affected our attendance. None of us would wish to intervene too much in the debate that is going on opposite.

The recent protest that has been manifested when electors have voted Welsh Nationalist or Scottish Nationalist shows that the people, despite their antagonism to the established great parties, still have considerable spirit. It is time that, despite the lack of leadership, we snapped out of it as a country. It is time we took ourselves off the psychiatrist's couch. It is time we stopped always analysing what is wrong with the economy, why the balance of payments is not better than it is and why the reserves are going up and down. It is time that we, as a nation, stopped taking our pulse.

This country is still capable of tremendous efforts. I have the utmost confidence in our ability, in the genius of the people, in our adaptability and our inventiveness. I am certain that if the people are set free to get a reasonable reward for their enterprise, initiative and hard work, we can see the rest of the world off. I only hope that the Government will let us make the best of our gifts so that we really can see the rest of the world off.

8.25 p.m.

Mr. William Hamling (Woolwich, West)

I am very glad to see that we still have with us three, or perhaps three and a half, members of the Opposition. The Conservative Party conference promised us that the Opposition would later deliver a terrible onslaught on the Government. If today's debate is any example of the tremendous onslaught, it is apparent that the members of the Opposition could not burst a paper bag between them.

The right hon. Member for Enfield, West (Mr. Iain Macleod) was in a very subdued mood today. He cracked a couple of very agreeable jokes, at which we all laughed, and was very polite to my right hon. Friend the Chancellor of the Exchequer, but, apart from that, he made a few rude comments that seemed to have no relevance to or connection with any other part of his speech. Then, at the end of a speech that lasted for over half an hour—or it seemed to be that long to me—he made one or two very tentative remarks about what the Conservative Opposition would do if they had power.

We have had from the hon. Member for Wycombe (Mr. John Hall) a slightly expanded version of the gospel according to "Mack the Knocker". We used to have a right hon. Member called "Mack the Knife"; we now have as a leading spokesman on the Opposition Front Bench "Mack the Knocker". As I say, we have just had an extended version of some of the right hon. Gentleman's views: that Government expenditure ought to be cut, but not on military aeroplanes, not on aircraft carriers, not on the Territorial Army, that glorious Saturday night ornament in various parts of the country—

Mr. John Hall

If the hon. Member is quoting the gospel according to Hall, he might recognise that one of the things I said was that, where seen not to be justified, our overseas military expenditure should be cut.

Mr. Hamling

I am very glad to have that gloss put on the speeches which have come from the Front Bench opposite on all the matters to which I have just referred. On military expenditure overseas, on naval squadrons in the Far East, we have been asked for more money by the Front Bench opposite. They have asked for more expenditure on roads, a vast expenditure. Yesterday, an hon. Member opposite was getting himself into a terrible lather of indignation over the refusal of Her Majesty's Government to increase substantially the amount of money spent on roads.

We are asked to spend money on all sorts of objects by the Front Bench opposite. Where would they cut? They talk about the Civil Service. The right hon. Gentleman mentioned this, but he did not quote a figure showing by how much the Civil Service has increased under this Government. He did not quote a figure as to how many civil servants he would sack, nor say where they would be diverted.

Would hon. Members opposite, for example, reduce the number of civil servants in the Ministry of Social Security? That is one of the Ministries which has increased by 20,000 since we came to power. Would they reduce the number of people working for the Post Office? They are clamouring for more money for telephones and for all aspects of postal services. Would they reduce that number?

It is a very fashionable kind of minor criticism of any Government to say, "We are increasing the number of public officials", but where is the fundamental alternative to the policy of Her Majesty's Government if it is being offered it in tonight's debate? We should make no mistake that this is a censure Amendment by the Opposition. It is a censure on Her Majesty's Government. We are told that we should have more incentives, but we are not told what is the taxation policy of the Opposition. I shall quote facts about what the Tories did on taxes when they had power. We shall not get those facts from the Tory Front Bench in this debate.

Hon. Members opposite say that they would close the Department of Economic Affairs. How much would they save by that? No one could be blamed after listening to this weak attack by the Opposition for assuming that the real opposition in this House comes from the "shadow opposition" on these benches. That certainly made me wonder when I looked at the selection of speakers, because it seemed that it was one for this opposition and one for the Opposition opposite. Now, at half-past eight, it is one for those above the Gangway on the Government side.

Mr. Deputy Speaker (Mr. Sydney Irving)

I hope that the hon. Member will not say anything that will reflect on the choice by the Chair.

Mr. Hamling

I would not dream of it, Mr. Deputy Speaker.

I wish to refer to the Amendment, which has not been moved, but which was referred to by my hon. Friend the Member for Lewisham, West (Mr. Dickens). I hope that I am quoting him aright. He said that he could not distinguish between Her Majesty's Government and previous Conservative Governments. I do not know where he has been living for the last three years. I point out to him many fundamental ways in which this Government in economic policy differ profoundly from every Conservative Government we have had in my lifetime—I have been working in elections in this country since 1920.

What have the Government done during the last three years? They have spent more on education since they came to power, both in current and capital expenditure, than any previous Government in the history of this country. This has been at a time when there is supposed to be what my hon. Friend called "the severest classical deflation since the war." What Tory Government ever increased educational expenditure when they were exercising deflation? Yet my hon. Friend talks about "the severest classical deflation since the war." I said it was rubbish when he made that statement and I say it is rubbish now.

The Government have spent more on the Health Service, both in current and capital expenditure, than any other Government in the history of this country. Did the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) increase expenditure on the Health Service when he was Chancellor of the Exchequer and deflating the economy? He did not. This Government have abolished the Health Service charges.

Have my hon. Friends seen no difference here? I ask hon. Members to recall how the Labour Government have increased social insurance payments to a greater extent than has occurred since the Labour Government were in office between 1945 and 1951. During the last three years social benefits have been substantially increased. When did any Tory Government ever do that in a period of deflation? Never.

The Labour Government have substantially increased public investment on roads. They have substantially increased help to development areas. A considerable amount of money has been handed to private industry in the last three years to encourage business people to invest capital. Can that be called "the severest classical deflation ever"? If words have any meaning, the contention that this Government can be in any way mistaken for a Conservative Government is absolute nonsense.

Is the shift in housing policy from building houses for profit to houses for need Tory policy? It is no wonder that people outside make mistakes in elections when right hon. and hon. Members make mistakes. If Members in the House abstain because they cannot support a real Labour as opposed to a Tory Government, they cannot wonder if people outside abstain. There must be some leadership here, and there must be some recognition by right hon. and hon. Members on this side of the virtues of the Government as well as of their vices. We can all see the beams in others' eyes. Let us sometimes see their virtues as well.

What Tory Government ever gave rates rebates to the tune that this Government have done in a period of deflation, or even in a period of inflation? They never did. These are vast improvements in economic policy and social policy that have been carried out by the Labour Government during a very difficult period.

Some people are apt to forget that average weekly earnings have risen by 25.3 points since October, 1964, whereas retail prices have risen by only 14.1 points. That is a contrast that people should consider. If the Government were as wicked as the Tory Government, surely the figures ought to be reversed; but they are not. Wages have increased, and they go on increasing.

Let us look at the other side. I ask my hon. Friends who have tabled the Amendment whether they have considered the realities of political power. If Wilson goes out, Heath comes in. My hon. Friend the Member for Lewisham, West will not become Prime Minister or Chancellor of the Exchequer or Government Chief Whip or whatever. The right hon. Member for Bexley (Mr. Heath) will take over if the Prime Minister loses the next election. The Tories will return. Let us look at the political realities for a change. What sort of economic policy will the Tories introduce? Will they increase pensions when economic conditions are bad, as we have done? We know that they will not. Will they abolish health charges when things are difficult? We know that they will not. Will they put them back? Will they reverse the drift to the South-East, as this Government have done? We know that they will not.

The hon. Member for Worthing (Mr. Higgins) grins. The hon. Member for Guildford (Mr. David Howell) bemoaned unemployment and spoke of the deplorable record of this Government as opposed to that of the Tory Government. When the Tories were in power, there were 134,000 unemployed in Scotland.

Mr. Terence L. Higgins (Worthing)

I was not grinning. I was merely taking exception to the hon. Gentleman's statement that this Government have reversed the trend to the South-East.

Mr. Hamling

We have started on it. [Laughter.] The hon. Member for Folkestone and Hythe (Mr. Costain), who is a builder, is giggling about this. Does he think that he can build a house in five minutes? He is a great builder. We cannot reverse in five minutes a Tory policy that has gone back 100 years. The history of this country in the last 60 years has been of drift from the industrial North to the South-East and the investment of more and more wealth in an already wealthy area, with the starvation of the poorer areas in Durham, Scotland, Blyth, Wales and Liverpool. That is the story of the Tory record, and this is what we are reversing.

My right hon. Friends on the Treasury Bench ought to be congratulated for taking these difficult decisions, instead of being attacked. These are things that should be said, and said more often. Our people deserve to know the facts of what Her Majesty's Government are doing to help them and to help their sons and daughters to find work in the future.

I went to see my right hon. Friend the Member for Belper (Mr. George Brown), when he was at the Department of Economic Affairs, about Woolwich Arsenal. I asked him about building Government factories in Woolwich. He said, "Bill, I cannot do it. I cannot go back to our chaps in Durham and Scotland and say that we are going to build Government factories in Woolwich. We have got to build them in those other parts of the country."

Mr. Peter Mahon (Preston, South)

My hon. Friend is a Liverpudlian, as well.

Mr. Hamling

Of course, I am. Blood is thicker than water. I have got to think of my comrades up North, the ones who had the unemployment. The Government are determined to reverse the trend. They have not got the result, but it is coming. But it will never come from the lot on the other side of the House. It will come from my right hon. Friends. True, they have many faults, but let us for once talk about their virtues and let us discuss whether an alternative is reasonable.

Now I come to the question of taxation, and Tory taxation policy. There was a constant drift from progressive taxation policies to regressive taxation policies during the Tories' 13 years. When the Tories were in power £800 million extra taxation came from the Front Bench, apart from the Budgets, increasing the burden of social insurance contributions—as regressive a tax as any tax I have ever come across—reducing the amount that the Treasury gives towards pensions and taking more out of the pockets of the poor to help to pay pensions. That is Tory taxation policy. In 1951, the Exchequer paid 27 per cent. of the cost. It was estimated by the Tory Government before 1964 that by 1981–82 it would be 14.2 per cent. if they continued their policies.

That is Tory taxation policy, transferring the burden from those who can pay to those who cannot. They increased National Health contributions, making the sick the burden on the poor and not on the wealthy. The 1963 Budget, the last Tory Budget worth talking about, gave a £4 9s. tax concession to the £1,000 a year man and charged him a £2 16s. increase in flat-rate insurance contributions. That is Tory taxation policy.

Those are the incentives that some hon. Members opposite have been talking about today—well, two of them; there are not so many of them here. What did they do? They abolished subsidies. They made the taxation system less progressive in that respect. They diminished the value of Income Tax allowances. They failed to take any notice of capital gains and what big fortunes were made by tax speculators.

Let us consider Income Tax. Income Tax paid under P.A.Y.E. is tax paid by the ordinary working man, by the poor. In 1954–55, from a total of £9,400 million income subject to P.A.Y.E., £657 million was deducted in tax, representing 6.9 per cent. of workers' income. By 1963–64, the last year of the Tories, this class of taxpayer was paying 9.1 per cent. of his income in Income Tax. In other words, the tax burden on P.A.Y.E. Income Tax payers was up by nearly 50 per cent. on what it had been. Similarly, between those years, 1954–55 and 1963–64, the income of people paying under P.A.Y.E. increased by 44 per cent., from £9,400 million to £16,800 million, but their tax went up by 57 per cent. That is Tory taxation policy, shifting the burden from the wealthy to the poor.

What was the Tory contribution to reductions in taxation?—on two notable occasions, reductions of tax for the Surtax payer. Surtax payers were the ones to benefit from successive Tory Budgets. In 1951, property paid 13.8 per cent. of all tax—Surtax, Profits Tax and Estate Duty. By 1964, the proportion had dropped to 10.3 per cent. That is Tory taxation policy. My hon. Friends say that they cannot see any difference between them and this Government. Borrow my glasses. That is one of the significant differences, apart from all the others. Under the Tories, property paid less tax.

The great cause of complaint from the Opposition against recent Budgets was that this Government were introducing the Corporation Tax and making changes in the Capital Gains Tax. Were those the actions of a Tory Government? How can my hon. Friend say that they cannot see the difference. I see that one of them has gone out; he is taking spiritual sustenance.

In these debates, we ought to recognise a little political reality. This is the political reality This Government took over—we need not apologise for saying it too often—at a most difficult time. They have wrestled with the difficulties, and they have brought about tremendous social improvements for the people. Why should not we say so? Do we need the steady drip of denigration of Her Majesty's Government from these benches, time after time? It is no surprise that people in the country wonder where our Government are going. Who will stand up and defend them? The Opposition will not, and we cannot expect them to. But there is an obligation on us here to tell the truth as we see it. Let us make our criticisms, but let us also defend the right. That is what we came here for.

8.50 p.m.

Mr. J. Bruce-Gardyne (South Angus)

The hon. Member for Woolwich, West (Mr. Hamling) was a little unfair to his right hen. Friend the Chancellor of the Exchequer, because he was not the only hon. Member to have offered the Chancellor some support. My hon. Friend the Member for Oswestry (Mr. Biffen) did the same, although their viewpoints of support were somewhat different.

The Chancellor's contribution earlier was, I thought, at a lower level than most of the others we have heard today. His message seemed to be "Steady as she goes"— the same as we had in his Budget speech. Where were we going then? It subsequently transpired that we were heading towards one of the largest seasonally adjusted current deficits ever recorded. It happened in the second quarter of this year. The Chancellor repeated that message today and it is interesting to compare successive Gracious Speech. From 1964 onwards the pattern is invariably the same. The November, 1964, Gracious Speech contained the passage: At home, my Government's first concern will he to maintain the strength of sterling by dealing with the short-term balance of payments difficulties". Note the words "short term". They are still with us and the Government are still trying to deal with them.

Unlike many of my hon. Friends, I do not believe that we can solve our long-term balance of payments problems by a course of deflation. If hon. Members doubt this, they should read the comments of the Brussels Commission of the European Community on the performance of the British economy this year. The Commission's Report, made on our application for membership of the E.E.C., stated: …a familiar and ominous pattern is being reproduced: payments difficulties due at least in part to inadequate expansion of productive capacity have again forced the authorities to pursue a policy, one effect of which has been to jeopardise expansion in the longer term and so to strengthen the propensity to import". As the hon. Member for Woolwich, West pointed out, there is a difference between the policies pursued by the present Government and those pursued by previous Conservative Governments. The difference is that on this occasion the Labour Government have entirely failed to solve, even in the short-term, the basic problem. It is interesting to compare the comparable situation in 1962, 18 months after the application of deflationary measures in 1961. On 31st October, 1962, The Times published an article which stated, among other things: For the first time since the Dalton era the British economy has been able to look forward to falling interest rates Today, we have rising interest rates with the highest associated levels of unemployment since the war and the prospect which everybody anticipates is not lower interest rates, but still higher ones. The £ in October, 1962, was standing at 2.80 to 2.80¼ dollars on the spot marker. Today it is nudging 2.78¼ dollars, with the Bank of England trying to keep it there. That is the total measure of the failure of the party opposite, even in the short term, due to the course adopted by the Government.

It is not clear now how the Government propose to deal with this situation. I thought that there was a rather ominous reference in the Chancellor's speech to the reconstitution of our I.M.F. credits —the £420 million plus the £90 million to be added early in January. Is he thinking now, so soon, of drawing on these credits? Is he aware that these credits are not freely available and that reasonable questions may be asked—about the possibilities of success for the economic policies being pursued by Her Majesty's Government—before any such credits are made available to us?

The Chancellor referred to the new agreement reached in the I.M.F. discussions at Rio this autumn. If he seriously thinks that this will contribute to the solution of our balance of payments difficulties, his naivety is almost beyond understanding. He admitted that the sort of sums being considered—say, £40 million in the first year for this country—are the amounts that run out on the exchanges in a single day's heavy dealing against the £. It is totally irrelevant in the context of carrying our economy forward to a better rate of growth.

But underlying the Chancellor's approach, as my hon. Friend the Member for Oswestry noted with approval, was the theme of a permanent pool of unemployment. Hon. Members opposite should study carefully the Prime Minister's comments on this in last Tuesday's debate, when he produced the following splendid statement: …there is no need to talk of a reserve of labour, a pool of unemployment…and any question of the need for any kind of pool beyond what I have mentioned—the frictional, seasonal and structural—becomes unnecessary."—[OFFICIAL REPORT, 31st October, Vol. 753, c. 45.] "Newspeak" could hardly be carried further.

What we know, particularly in Scotland, is that the pool of unemployment is stagnant, and it stinks. The message from the Hamilton by-election for the Government is not that people are now converted to the idea of home rule as a solution of our problems; it is a protest that people in Scotland have suffered too long from a standard of living appreciably lower than that enjoyed by the rest of the country. We can only solve the problem by steady and sustained expansion for the economy as a whole.

The hon. Member for Woolwich, West spoke about the Government's success in correcting the drift to the South-East. He is right. They have corrected that drift from Scotland, because nobody in Scotland can see any purpose is going down to the South-East to endure under Socialism there the same problems and sufferances that they must endure in Scotland under Socialism. The significant point is that emigration from Scotland is still running at a record level, but that people are going abroad and not to the South-East, and are being lost to the Scottish economy for good.

The message which seems to me to be doubly important in the Report of the Commission of the European Communities on our application for membership of the E.E.C. is that even if the Government were taken at their word—and by inference the Commission find that hard to do—and would not invoke the financial support of our partners in the Community to bail us out or impose import quotas or direct restrictions to correct the balance of payments—it would not be enough. The prospect would be that we would try to run the economy at a rate of growth which the Community as a whole would regard as totally inadequate and likely to drag down its rate of growth. That is what it is not prepared to accept. We must show our ability to maintain a sustained rate of rapid industrial expantion before we are regarded as acceptable entrants to the Community.

Various hon. Members have suggested ways in which we can achieve a more sustained rate of growth. I find it difficult to refute the suggestion by the hon. Members for Heywood and Royton (Mr. Barnett) and Ashton-under-Lyne (Mr. Sheldon) of tackling the problem directly through the exchange rate. The only question that remains is that which was raised by inference by the hon. Member for Ashton-under-Lyne, who said that devalution was only a short-term answer if one stood around and did nothing about it. The trouble is, I suggest, that we have no reason for thinking that right hon. Gentlemen opposite would do other than stand around and do nothing about it. That is why one must be very hesitant to recommend that solution at this time.

However, I believe that unless we can achieve and maintain a much better rate of growth, at least as good as we did under the last Tory Government, and even rather better, not only can we never solve the regional problems which are pressing increasingly acutely on this House and all the political parties in it, but we can never qualify, as I believe we must, for membership of the European Community.

9.0 p.m.

Mr. Reginald Maudling (Barnet)

We come to the concluding stages of the debate on the Address, and our Amendment today, though dealing specifically with economic problems, is, of course, couched in terms of a Motion of censure and, as is traditional, the Leader of the House will be responding at the end of this long debate explaining to the House why hon. Members should still have confidence in Her Majesty's Government. I do not envy his task very much this evening, as was so pertinently said by the hon. Member for Woolwich, West (Mr. Hamling), who, I think, was the first hon. Member to support the Government today. If the votes should follow the voices we shall have a very strange result in the Lobby, but no doubt that will not happen and hon. Members opposite will do the usual thing.

Mr. Hamling

The right hon. Gentleman is in danger of criticising the Chair for unfair selection of speakers.

Mr. Maudling

I could never be accused of being unfair for repeating what was said by the hon. Gentleman.

But the reflection of no confidence in the Government in this House today merely follows the very clear verdict of the entire country in the last few weeks. Seldom, if ever, has there been such a total collapse of public confidence in a Government in this country. Following the massive movements in our favour in the municipal elections, there were the catastrophic by-election results for the Government at Cambridge and Waltham-stow, repeated on several occasions last week. All of this adds up to a clear vote of no confidence in the present Government by the people of the country.

The reasons are not very difficult to see. First is the long tale of flagrant breach of promises and pledges on a scale this country has never seen. Second is the conduct of Ministers in their offices, increasingly dictatorial, increasingly blaming everyone else for their own follies and weaknesses. Third is their total failure to run our economy. I want to say a little on each of these, and first on the broken promises, because I believe that the scale on which the Government have been guilty of broken promises is serious not only for the future of the Socialist Party, about which I care very little, but for the future of Parliamentary institutions in general in this country. There is cynicism on a very wide scale.

Look at stop-go, for example. On 1st May, 1966, the Prime Minister said: We have rejected the stop-go economy—the proposition that you can only pay your way through cutting imports and increasing exports the hard way, through deflation, unemployment and short-time working. How many of his hon. Friends agree that he was then telling the country the truth about what we were facing?

Look at the position about taxation. At the General Elections of 1964 and 1966 hon. Members opposite were elected on the basis that they were not expecting any general increase in taxation. The Prime Minister said in 1964: Over the period of a Parliament I believe we can do our programme certainly without any general increase in taxation". As recently as March, 1966, the Chancellor was saying once again that he could see no reason for any severe increase in taxes.

Look at the compulsory freeze. The Prime Minister, at the General Election in 1966, said: once you have a law prescribing wages I think you are on a very slippery slope. He was quite right there. He is quite an expert on these things. He added: It would be repugnant…to all parties in this country. That was at the election at which his party was returned to office. Even in July, 1966, the Prime Minister was saying: It is not our intention to introduce elaborate statutory controls over incomes and prices."—[OFFICIAL REPORT, 20th July, 1966; Vol. 732, c. 636.] These are clear and persistent examples of undertakings given which have been totally overthrown.

Today, the Chancellor of the Exchequer said some remarkable things about unemployment. I recall how, at the 1966 election, the Prime Minister, in response to my right hon. Friend the Leader of the Opposition, said that he saw no reason why unemployment should rise at all apart from seasonal changes. Yet, today, the Chancellor said that we could not possibly go back to the levels of unemployment of 1966. How does he reconcile that with what the Prime Minister said? How could it be right for the Prime Minister to say at the election that unemployment need not rise at all and for the Chancellor to say today that we could not go back to the levels of unemployment of 1966 because these were intolerable for the regular running of the economy?

Throughout all these subjects—stop-go, taxation, the compulsory freeze and levels of unemployment—time and again we have seen the Government holding out to the electorate prospects and promises which have been totally falsified, and this is the basic reason for the by-election defeats and for the Opposition Amendment, to which so many hon. Members opposite have alluded with support. The Labour Party voters in the country feel that they have been let down by the Government and they are absolutely right.

Secondly, there has been the growing feeling in the country that, in the conduct of their offices, Ministers have been debasing steadily the standards of public life. [Interruption.] I am not referring now to personal activities but to the conduct of their offices, their increasingly dictatorial attitude to individual rights and liberties, their increasing use of double-talk and gimmicks and their increasing tendency to blame others. In all of these tendencies, the Prime Minister has given himself a notable lead.

I will give the examples of dictatorial government. First, there is the question of Stansted Airport. Whatever we may think about the merits of the decision, the way in which it was handled and imposed has left a lasting scar on public opinion. Only today we saw a criticism of a most scathing kind by the Government's own appointed advisers, I understand, of the way in which the Government handled this problem.

After Stansted came Enfield. Perhaps the Prime Minister would like to laugh that one off. We know that the Secretary of State for Education and Science is accident-prone and we are sorry about it, but it was surely more than an accident that he should incur from the courts a censure on the scale no Minister, to my knowledge, has ever received before.

Now the Secretary of State is in trouble again about the British Museum. Those of us who have read Lord Radcliffe's letter in The Times will have seen once again how much the Government ride roughshod over the rights of individuals and how little time they have for consultation in the proper sense. [Interruption.] I can understand why hon. Members opposite do not like to hear these facts but every one is an example of the way in which the Government have undermined the Labour Party's position in the country.

Then there is the double-talk and the blaming of others, of which the Prime Minister is a notable exponent. There have been the famous D Notice episode, the "tightly knit group of politically motivated men" who have disappeared with the others, the incident of the "Torrey Canyon"—[HON. MEMBERS:"Oh."]—and the smears on the tanker owners for which the Prime Minister refused to produce any evidence. All these are examples and the latest, I suppose, we can call the "Chalfont affair". We cannot allow this to rest where it is on the basis of what the Prime Minister has said. Journalists have been accused of betraying a confidence, and those of us on both sides of the House who, over many years, have dealt with Lobby journalists and others know that they do not betray confidences. That is the one thing in their profession, above all, which they will never do.

The Prime Minister's explanation of this was very strange. He said that the famous interview with the Press was off the record and non-attributable. It cannot be both. If it was off the record there could be no question of attribution. If one did not attribute it, one must have intended to put it without attribution. We are still not satisfied with the Prime Minister's answer, nor with the Prime Minister's part in this episode. We want to hear from the Leader of the House what is the truth about the story in The Times that the Prime Minister informed journalists of the Government's intention to go for the strengthening of E.F.T.A. That story was subsequently denied by the President of the Board of Trade and was apparently unknown to the Foreign Secretary when I questioned him in this House.

We want to know more about this news-management operation by the Prime Minister, because what he and his Ministers are doing in this way is reducing the credibility of the Government and the credibility of this country overseas. If one thinks of only one example of an overseas problem there is Rhodesia.

The Prime Minister (Mr. Harold Wilson)

Hear, hear.

Mr. Maudling

I am glad that the Prime Minister says "Hear, hear", because I am glad he thinks this is important, and I will refer to what he said in the debate. What is absolutely clear is that the main reason why there was not agreement on the "Tiger" Constitution —and regret that there was not; I urged Mr. Smith to agree—was because the people in Rhodesia would not trust the Prime Minister.

Mr. Ivor Richard (Barons Court)

Prove it.

Mr. Maudling

How often has the Prime Minister misjudged the Rhodesian situation, how often has he failed to appreciate the temper and spirit of people in this country? How foolish he was with his initial statement about weeks not months, and how unwise he was to get entangled in the commitment to Nibmar, which is now hanging like a tremendous millstone around the neck of the Commonwealth Secretary when he seeks to negotiate with Mr. Smith.

The Prime Minister

Since the right hon. Gentleman has given his own explanation of why the "Tiger" settlement was not accepted by the extremist fringe of the Rhodesian régime—there were no other people in Rhodesia consulted at all, most of them wanted a settlement—is he simply saying that the reason why, when Mr. Smith and I had reached agreement, it was turned down by the extremist wing was because the extremist wing did not trust me, and does he support the extremist wing?

Mr. Maudling

I do not support the extremist wing, as the Prime Minister knows, because I appealed to Mr. Smith to accept the settlement. Where I do agree with the Prime Minister is that the reason why the thing was turned down was because people did not trust him. Now, with the situation he has reached with Nibmar, he is in the unfortunate position where his friends behind him, if I may use the phrase, are suspicious that he will welsh on Nibmar, whereas the people in Rhodesia are suspicious that he will not.

Mr. F. J. Bellenger (Bassetlaw)

On a point of order. The debate is supposed to be related to the Address, and the Opposition are censuring or attempting to censure the Government on the grave economic problems facing the country. It would appear that we are now embarking on a discussion on Rhodesia. I should like to take part in it. Is this in order?

Mr. Deputy Speaker

Nothing that I have heard so far is out of order.

Mr. Maudling

It is traditional for the Leader of the House in winding up to deal with the whole debate, and it is also traditional for the final speech on this side to do the same. The right hon. Gentleman will be relieved to hear that I now propose to turn to the economic situation, because, as hon. Members opposite have shown this afternoon, this is the root of all the trouble in the present Government, and the root of the troubles facing the country. Of course, they have the excuse that they have been dining out after many years on the £800 million deficit which they talk about, but I imagine that the number of invitations which they receive on that basis has been dwindling somewhat recently.

Let us see how much improvement the Government have made in our balance of payments in these years. The improvement on current account has been pretty small when one takes into account the wholly fortuitous improvement in the terms of trade of between £250 million and £300 million—some may not agree with with the London and Cambridge Economic Survey, but those figures are not far out—and when one takes account also of the stock building, which was very high in 1964 and of which the Government have subsequently had the benefit. Despite all that, in the second quarter of this year the current deficit was, I think I am right in saying, still at a record level. Despite all that the Government boast about, there has been no substantial improvement in the current balance of trade apart from that arising from the fortuitous change in the prices of our imports and exports.

The other side of the balance of payments is the capital account. Certainly, on capital account things are substantially different from what they were. There has been a new inflow of American capital for North Sea gas, for one thing. The main change in capital account, however, is the severe cutting back of overseas investment which matters so much to this country. [An HON. MEMBER: "Not severe enough."] That is an interesting observation.

The Chancellor will have seen the recent report of Mr. William Clark and the Committee on Invisibles showing that in only 7 of the last 175 years have we had a surplus on visible account. During all those years we depended, and we depend more and more now, on our invisible income, the biggest single source of which is the overseas investments which we make. Therefore, if the capital account shows a lesser outflow than in 1964, it is not a deficit in the true sense; it is a cutting back in our investment in productive ventures overseas. All this is what we are supposed to get, little though it is, for the stagnation of our economy during the last three years.

As my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) said, on previous occasions when we have had a cut-back and restraint in the economy, at least we had a substantial and rapid improvement in the balance-of-payment position. When my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced his restraint, within a year he had repaid all borrowings from the International Monetary Fund. When the Italians did the same thing, rapidly and in a short time their whole balance of payments changed. Yet we have had the stagnation of the last three years without any improvement in the balance of payments.

Unemployment has been referred to many times today. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) pointed out how much more serious it is than it was in the years of so-called Tory misrule. What is most important is that there has been no real redeployment of labour.

We were told that the growth of unemployment would lead to a redeployment of labour into more productive export-conscious industries. Is there any evidence of that? I believe that the Leader of the House, in reply to the debate, will say something about economics. I hope that if he does, he will say something on the extremely important point of whether the substantial and damaging unemployment is yielding any of the dividends in the way of redeployment of labour into more productive activities which the Government claimed that it would.

The Government appeared delighted today about the situation concerning investment. They said, "Investment in manufacturing industry has fallen by only 6 per cent. How well we have done." As the hon. Member for Heywood and Royton (Mr. Barnett) pointed out, in their own plan to maintain a 3 per cent. expansion the Government need a 7 per cent. annual increase. Against a 7 per cent. annual increase, they are getting a 6 per cent. absolute decrease. All these are examples of the stagnation which has fallen over the economy, as a result of which we should have had a very substantial improvement in our balance of payments. As I pointed out earlier, however, the improvement in the balance of payments is very much less than we should have expected or could have hoped for.

Now, the economic situation—[HON. MEMBERS:"Hear, hear."]—I am glad to have that approval—the economic situation, as my right hon. Friend pointed out in opening the debate on our side, is a very serious one indeed. If I may say so to the Chancellor, I do not think his speech this afternoon fully reflected the seriousness of the situation he is facing. It is true that some upturn is now seen in the economy, but it is a cyclical movement which is bound to take place. Secondly, and more important, it is largely led by the consumer goods industries. The Prime Minister used so often in the past to inveigh against these consumer goods booms which he talked about. What is happening now? Is it not a fact that this morning's figures about the retail trade improvements that we are seeing in industry and production at the present moment arise from a consumer goods boom? Does it not mean that absolutely inevitably quite shortly we shall be pressed up hard against a balance of payments position?

This, I believe, is the serious position, far more serious than the lack or loss of production. As we know, in the last three years we have made no real, long-term fundamental improvement in the strength of the economy, and once again, if this consumer-led boom goes ahead, we shall find ourselves, next year, against a serious balance of payments position.

In these circumstances I noted how many Members opposite were advocating devaluation. I think that the majority of speeches on the other side were in favour of devaluation. I would, if I may, say a word or two to the Chancellor about this. As he knows, I have always supported him entirely in his opposition to devaluation. In public speeches, in private advice, I have always said the Government do not intend to devalue and that they have the resources for preventing devaluation and there should be no doubt about this whatever.

Moreover, there was no case for devaluation in the speeches made this afternoon. It is all very well to say we shall sell more exports if we devalue, but we should have to sell a lot more exports in the first place to gain the same amount of foreign exchange. It is all very well for hon. Members to say that this country is a place in which people invest their money because they get a high interest rate; but they also invest their money here on the solemn assurance of the Chancellor of the Exchequer that Government policy is not to devalue, and this is very important indeed. The Chancellor must not in any way under-estimate the pressure which is developing in some quarters.

He has, if I may say so, been extremely courageous in the line he has consistently taken. He has also been consistently optimistic—sometimes, I think, a little too optimistic—but the time may come when courage and optimism combined are not in themselves a sufficient guarantee of success, and it may be that he will find it necessary to bring his policies more in line with the courageous words he has been uttering.

But I would say that devaluation is no solution to this country's problems and certainly, above all, I would say that those hon. Members opposite who think de- valuation is an alternative to deflation are totally wrong, because the only way of making devaluation effective would be to have even tougher deflation.

Another point which has been raised from the other side of the House is about the sequestrating of private holdings of dollar securities. I ask the Chancellor once again, and whoever is to wind up the debate, to turn this down flat. It is not a good idea. On the contrary, it is a very bad idea. It would have very serious effects on confidence overseas. It would have the reverse effect from that which those who advocate it seek, from the point of view of sterling. I would point out to the Chancellor that, as he knows, large deposits of foreign exchange are kept in London and are part of the invisible earnings of this country. Anything which implied that this Government might be contemplating sequestrating foreign exchange in this country would be very bad indeed for the invisible earnings capacity of this country, and I hope that the Chancellor will be absolutely firm on this point as well.

In this context of a serious economic situation, in this context of a situation where time and time again the happy forecasts of the Chancellor about the balance of payments improvements have been falsified, what is there in the Gracious Speech which has any relevance at all to our economic problems? This is the basis for our Amendment this evening, and the main reason for our censure of the Government tonight. Apart for some worthy sentiments, and some useful measures of only a minor character, the only major economic measures in the Gracious Speech are the nationalisation of transport and the Industrial Expansion Bill, both, in our view, entirely damaging to the country's economic prospects.

When every other Socialist Party in Europe abandoned the idea of nationalisation as old-fashioned years ago, in the face of the malaise in the coal industry, in the face of price increases in electricity and gas, in the face of the railway deficit, to press ahead with nationalisation in our present circumstances in the face of all these facts about nationalisation shows an attitude to our real economic problems which is frivolous, as my right hon. Friend described it when he opened the debate.

As for the Industrial Expansion Bill, that has gone through a change since it emerged from the Department of Economic Affairs as a new major step forward in Socialism and Socialist Government in this country. It is clear from the Prime Minister's speech that all that the Government proposes is to make money available to companies to invest in their undertakings only if they cannot get their own bankers to advance them the money. That does not seem to be a very good investment from the taxpayers' point of view. If a company cannot get money for investment and expansion, there are probably good reasons why. However, the Prime Minister's proposal is to provide money to "lame duck" companies, and that does not sound as if it will lead to economic progress.

Those were the only economic measures referred to in the Gracious Speech. The other measure is about the House of Lords. Whatever people may think about their Lordships' House, no one can possibly argue that revising the composition or powers of the House of Lords can have any relevance to our current economic difficulties.

We come back to the point that nothing in the Gracious Speech makes any contribution to action or thought about Britain's current economic difficulties. There is nothing to deal with the problem of Government expenditure, with an expanding bureaucracy. We have heard about 44,000 additional public servants in three years with average costs rising by 18 per cent. per person in that time.

There is nothing to deal with the tax situation. There is nothing to deal with incentives. There is nothing to produce a credible incomes policy, and the incredibility of the present incomes policy is one of the main reasons for our economic problems. In addition, many of the problems in industrial relations at the moment stem from the lack of authority of trade union leaders, which in turn stems from the way in which they have been compelled to support the Government's incomes policy. There is nothing to deal with the urgent problem of trade unions and industrial relations. There is nothing to deal with a review of the social services of the kind which we advocate, making the provision of Government help on the basis of a person's need and not on the basis of a monolithic spread of money, irrespective of need.

There is nothing to stimulate more savings. We have heard that there is some improvement in the level of National Savings. A major increase in the rate of saving in this country must be a prime necessity for any policy to deal with our current economic difficulties.

Those are our reasons for wishing to censure the Government this evening. They have lost the confidence of the country by their false promises, by their conduct in office and by their total inability to deal with the economic situation. As they have lost their position in the country, so we believe that they will lose their position in this House. They are no longer a credible Government. They are a sorry, bedraggled crew of failures sheltering behind a leader who has lost his magic.

9.28 p.m.

The Lord President of the Council and Leader of the House of Commons (Mr. Richard Crossman)

It is always difficult for the Leader of the House to follow tradition by speaking at the end of this debate and, simultaneously, to reply to six days of speeches, deal with an Amendment and answer every question on every kind of activity. As a result, I am sure that the right hon. Member for Barnet (Mr. Maudling) will not be surprised when I say that I shall not be tempted by his speech. However, I will try to answer his points about the Gracious Speech as I go along, and I will deal with the Amendment.

I welcome one general feature of the debate. It was a familiar one to me, and very pleasing. It is that it has become once again, a three-sided debate. It is just like old times under Herbert Morrison in the 1945 Parliament. It is, once again, nice to see a debate almost being taken over by the Government back benchers—if the hon. Member for Guildford (Mr. David Howell) had made his speech from our side we would have had a back bench of all the talents.

I congratulate my hon. Friend the Member for Lewisham, West (Mr. Dickens) on the vigour and doctrinal severity with which he spoke to his Amendment, in marked contrast to the mover of an Amendment in 1946. I assure my hon. Friend that he will not be accused at the annual party conference of stabbing his leader in the back, as I was then. In part, my hon. Friend's speech was answered by my hon. Friend the Member for Woolwich, West (Mr. Hamling), and in part by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) who, I am sure, would be the first to agree that I cannot answer his specific arguments now. I hope that my hon. Friends will concur in my view that the dialogue they started here today would best be continued upstairs, where no holds need be barred. Indeed, they will probably agree that my job is to deal with them.

My first comment on what has been said by the right hon. Gentleman the Member for Barnet must be in the form of a question. I have to ask why so few items in the Gracious Speech have aroused debate. After all, it contains proposals for consumer protection, for the control of medicines, for the control of gambling—which, I believe, has a certain interest to hon. Members—as well as reference to important legislation on race relations and to a complete revision of planning procedure. I think that I have either read or heard every speech in this long debate, but, apart from occasional mentions from this side of the House, those subjects have been entirely pushed aside.

It is natural that everything has concentrated on the country's central economic problem. There, I agree with the hon. Member for Orpington (Mr. Lubbock), who said that he felt—and I detected it, too—some unreality in our discussions; and that he had an uneasy feeling—which I also share, perhaps because I am a non-economist—that these economic problems are not soluble in purely economic terms.

I have noticed that, very naturally, a number of hon. Members have referred to recent by-election results to point out the severity of the blow at our side. I would agree, with qualifications, about Leicester, South-West, and I admit that a scrape home, despite an absolutely first-rate candidate, was not nearly good enough at Gorton. But as to Hamilton, I suggest in all seriousness to the other two parties that they deceive themselves if they believe that only the Government were rejected. Following Carmarthen, Hamilton should be a warning that in public opinion powerful forces are in revolt against us, but also against what they call the whole political system. If I am right, that is a warning which no one can afford to ignore.

I say that because I want to talk about the issue of Parliamentary reform, referred to by the right hon. Gentleman. I am sure that one of the things these angry voters feel that we politicians, of all parties, have utterly failed to tackle is the basic weakness which underlies all our economic problems. I will go further. I believe that it is common knowledge that four at least of our essential democratic institutions which made us the envy of the world 50 years ago are felt by wider and wider sections of the public to be obsolescent; that, as a result, the gap between ourselves and the electors to whom we are responsible grows wider and deeper each year, and that, with a great deal of encouragement from the Press, they get more and more sceptical about government.

The most obvious example is local government. When I was Minister of Housing and Local Government I discovered that, although no one was prepared to do anything about it, there was universal agreement that the whole structure of local government, constructed 80 years ago in the horse-and-buggy age, was an anachronism and that the people increasingly share this view.

Consider another essential institution in our democratic life, the trade union movement, a tangle of organisations great and small, efficient and inefficient, which grew up at the end of the last century whose structure has changed little since then. The trade unions are constantly under attack and condemned unfairly and uncritically as being cumbrous, obsolete and inadequate by a hostile Press, but they are criticised from inside, too. We all know that they desperately need reform.

But that is not the end. There is a strong conviction that our Civil Service, another product of the 19th century, has failed to move with the times, that its arteries are hardening and its muscles stiffening and it is in need of drastic rejuvenation. I am glad to know that this opinion is shared by the Opposition Front Bench. The right hon. and learned Member for Hexham (Mr. Rippon) said that what the Government desperately need and what ought to have been provided for in the Queen's Speech are measures to reorganise the machinery of government, particularly the Treasury. A glimpse of light. When we took office we had a great deal of sympathy with this view, but there was just this difference between them and us. They spent 13 years in power—[HON. MEMBERS: "Ah."] It is no good hon. Members saying "Ah" when they spent 13 years and left every one of the institutions of democracy completely unreformed. What did they do about the Treasury? Nothing at all. The machinery of government? The reform of the Civil Service? Total inactivity.

That is why we have the right to be indignant when we hear the Leader of the Opposition suggesting that a Royal Commission on the Trade Unions was deliberate delaying tactics, and that the right thing was for a Government to legislate without delay, although for 13 years they did nothing about it. When the right hon. Gentleman started by accusing us of delay he was wrong and he is wrong now. I shall tell the House why he is wrong in saying that we should not have a Royal Commission on the Trade Unions.

I am all for enabling the Government to act more quickly and decisively when the national interest requires it. I am all for speedy legislation when what we need is speedier action by the Government. That is why we have included our Industrial Expansion Bill in the Gracious Speech. But there is one area in which I believe all Governments should be extremely reluctant to act unilaterally and without previously seeking to achieve a consensus of public opinion. That is when they are not handling economic problems, but tampering with the institutions of democracy. I am sure that the right method of tackling an obsolete institution is to establish a Royal Commission so powerful, so representative, that when it publishes its report it will carry public opinion with it and so create the right political climate for radical legislation.

I am convinced that each of the three Royal Commissions we established, the Maud Commission on Local Government, the Donovan Commission on Trade Unions, the Fulton Commission on the Civil Service, will create public opinion and move things forward to a point where legislation is possible.

I come now to Parliament. This is the only thing we have to reform without a Royal Commission. We have to do it ourselves. One of the things we have been busy on during the last year has been seeking to find ways and means to reform our own House. The idea that we should start reforming other people and leave ourselves unreformed, or, even more ridiculous, that we should reform this House and leave in existence the only Second Chamber in the world still based on an hereditary system and still retaining a built-in Conservative majority would mean that we would be regarded by people outside—[Interruption.] We see the passion the Opposition have.

I say to the Leader of the Opposition in all seriousness that he is wrong to think that the reform of Parliament has nothing to do with dealing with our economic problems. It has a very great deal to do with them, not only if we want to make ourselves more efficient, but because people outside will not believe in politicians and democracy unless we put our house in order better than was done in the last 13 years.

That is all right; I have got through that piece which I wanted to say, and which, as Leader of the House, I thought it my duty to say. Before I forget I want to answer two questions which the Leader of the Opposition asked me about the other place. The right hon. Gentleman asked me for two assurances and I think that it is only courteous to reply to those requests. He asked me, first, that there should be full and proper consultation and, secondly, that powers would be considered along with composition. There will indeed be consultations, as my right hon. Friend the Prime Minister made clear on the first day of this debate. Indeed, those consultations are due to start tomorrow evening. [An HON. MEMBER: "Guillotine."] No guillotine. I am hopeful, with the small delegations involved, that we shall get down to our task quickly.

From our side, although I am aware that on this point there are grave doubts among those sitting behind and below me, we go into these consultations with a genuine preference for an agreed solution provided that our two principles—the elimination of the hereditary element and the eradication of excessive delaying powers—are made the basis for the reform of the House. Indeed, the only limitation of our readiness to consult is the right we must reserve, if the prospect of agreement seems so remote as to rule out agreed legislation this Session, to put our proposals before the House. I hope that the Leader of the Opposition will regard those assurances as sincerely meant, as they are.

I now have more time than I had hoped to deal with the Opposition. [Interruption.] We will deal with the economy and with the Opposition's view of the economy. An opposition claim to be an alternative Government. One would not have thought so from today's debate. When I listened to the right hon. Member for Enfield, West (Mr. Iain Macleod) I was back in Oxford common rooms; I was almost a member of a seminar and listening to a brilliant academic lecture, listening to the right hon. Gentleman dazzling and pirouetting on the point of a needle, thinking aloud—something I have often been accused of doing—thinking aloud and at one terrible point saying, "But I am talking seriously here to serious people, but outside, there we have selective quotation."

I thought that I would just have a look. Let us look at the difference between the right hon. Gentleman here addressing the Chancellor as a fellow expert and what he says to the poor boobs at Brighton. I shall return the compliment. I shall address the House in an academic fashion on the seven-point Brighton programme, the programme the right hon. Gentleman did not dare to put here to the Chancellor, but the programme which he put to the Tories and to the country.

Let us go through it rapidly. I will not take long on each point, because they are simple points. They are points which I can understand as a non-economist. Point No. 1 was policies of lower personal taxation". That is simple, direct, in staid, responsible terms. I do not know quite what it meant, so I looked up with interest—I I have it here—the interview which the Leader of the Opposition gave to Ronald Butt, of the Sunday Times. The right hon. Gentleman put it rather more clearly. He said this: Conservatives believe in reducing the burden of direct taxation, in moving over to indirect taxation… That is the language of the expert.

Let me translate that into my simple English. This is what it really means: Conservatives believe in reducing the burden of taxation on the wealthier classes by using taxation to raise the price of things which loom heaviest in working-class budgets. Here, in modern form, is the old traditional theory that the upper classes need the incentive of lower direct taxation and the lower classes need the incentive of higher prices. What is a bit surprising to me is to hear this 19th century nostrum of Dickens's "Hard Times" enunciated as "with-it" 1967 Conservative policy.

The second point is closely linked—"Levies on agricultural imports". There is a consistency in the argument. Prices are increased by indirect taxation and then they are increased still further by taxing food. That is very clear. In considering entry to the Common Market, I have always regarded the C.A.P., not as a blessing to be welcomed, but as a cross to be borne, as the inevitable price we have to pay for those wonderful future benefits.

Not so the alternative Government. They are so keen on higher prices for the workers that they pledge themselves to scrap our admirable British support system, not as a condition of entry, but so as once again to shift taxation on to the back of the consumer. It is nice to see that this is the kind of thing the right hon. Gentleman tells the boys at Brighton and spares the Chancellor. I will not deal with the third and fourth points—[HON. MEMBERS: "Ah!"] Very well, I will, then.

Sir C. Osborne rose

Mr. Speaker

Order. The right hon. Gentleman is obviously not going to give way.

Mr. Crossman

I will deal with the third and fourth points. The third point was about trade unions, with which we have dealt already. The fourth point was very interesting. It is: …commercial efficiency of the nationalized industries. Here we do have an issue which we can discuss almost rationally here. The Opposition believe that it is the main job of the Government to induce the men who run the nationalised industries to be ruled by commercial and financial interests. We disagree.

As the Chancellor of the Exchequer made clear only last Thursday in a new and extremely important White Paper, our view is that while the nationalised industries should be run efficiently, and should use the latest systems of cost control, it is the Government's main responsibility to ensure that their policies take national as distinct from commercial factors into account and, in planning their programmes, take full account of social as well as commercial costs.

The great deficiency of the nationalised industries before 1964 was that they were left by the Tories to look after their highly monopolistic commercial interests, and encouraged to neglect national and social factors. If these public service industries are to play their full part in national recovery, we have got to abandon that sterile doctrine.

Now I come to point No. 5, which I will read verbatim, as it is so interesting: A reduction in the percentage taken of our gross national product by public expenditure. Again it is difficult to translate these things into ordinary English, but I think the meaning is that the right hon. Gentleman is too canny to commit himself to a firm pledge to cut Government expenditure and recognises that one takes refuge in percentages to avoid a commitment.

How wise he is, when he is a member of a party which, when in opposition, has advocated economy in public expenditure in general ever since 1964, has argued against the saving of £56 million a year on defence in Malta; against a saving of £12 million a year in Aden; in favour of amendments which would have cost us an extra £100 million a year by exemptions from S.E.T.; and in favour of a further loss of £125 million a year by deferring the date of application of this tax. I can understand that it is unwise, in view of that record, to make that commitment too firm.

So I come to points Nos. 6 and 7 in this great new Brighton programme: The minimum of Government interference and greater selectivity in the social services. They are grouped together because they are extremely interesting when linked. Minimum Government interference, of course, in the profitable areas of the private sector; minimum interference to achieve a fair distribution of the national wealth; but active, continuous, inspectorial interference in one particular sector, where millions of ordinary people rely for their security—sickness and old age. The only area where the laissez faire modern Tory commits himself to almost unrestricted intervention is in ensuring a means test, wherever possible, in a social service.

I must be fair about it, so I shall qualify that. The Leader of the Opposition, in his interview, gave us an illuminating expansion or gloss on that doctrine. There is no general principle of selectivity", he remarked, which can be applied to all the social services. You have got to have selective selectivity, each social service having its own form of selectivity. That is quite a phrase. I take it to mean that, not content with one bureaucracy interfering in the lives of millions of people, the Leader of the Opposition envisages a multiplicity, a gallimaufry, of bureaucracies each with its own definition of social need, each with its own specific means test, each with its particular thumb-screw.

Sir C. Osborne

What about the economy? That is what matters.

Mr. Crossman

The hon. Gentleman always makes the apposite intervention. What about the economy? I have been listing all the constructive Tory proposals for dealing with the economy. The hon. Gentleman will see the importance of the seminar I am conducting in order to enable Members of Parliament to be taught what the Tory programme really means and to be given the same rights as the electorate.

Sir C. Osborne

Will the Leader of the House now explain seriously why the Labour Government, during the Recess, had to run to the Swiss bankers to borrow another £37½ million so as to carry on?

Mr. Crossman

I do not think that the hon. Gentleman was here much of this afternoon, or he would have known—

Sir C. Osborne

I was here.

Mr. Crossman

The hon. Gentleman cannot have been here much of the afternoon or he would have known how the Opposition like to treat this subject. We each run debates in our own style, and the Opposition have spent the whole of today attacking the Government. We have had Stansted, we have had the British Museum, but, till I came along to fill the gap, we had no account of what our alternative Government have got ready for us. [HON. MEMBERS: "Answer."] I am answering a question which, in speech after speech, the Opposition were asked to answer. My right hon. and hon. Friends said to right hon. and hon. Members Opposite, "Tell us what you would do". I have now told them. The Opposition have not denied a word of it. They cannot, because it is all written down in the "Gospel according to Macleod".

Mr. Selwyn Lloyd

During the debate I asked certain questions about the textile industry and the position of North-East Lancashire. Will the right hon. Gentleman please answer?

Mr. Crossman

I am answering certain question now and, in due course, time permitting, I shall try to come to that.

I turn now to one other aspect of the Opposition's view of the Government's record as expressed by the right hon. Member for Enfield, West. He dealt with the record. I have noticed a curious feature of the Opposition's approach: the record always changes year by year. Housing is an interesting subject. Let us take that. I can remember days when I was Minister of Housing and the Leader of the Opposition complained of crises in the housing industry and of how a wicked, doctrinaire Minister had broken the back of the building industry. He kept on saying to me, "There is only one thing to judge housing by. You must not claim completions. You must not claim starts. What matters is houses under construction".

Being a docile pupil, I learned from him. I told myself that I would be good, I would lay a foundation so that my successor would be able to come back in due course and tell the Leader of the Opposition that the Government were willing to learn, that we were determined to do what we were told, and we were determined to see that the number of houses under construction should be a suitable number. [An HON. MEMBER: "Get on with it."] Whatever aspect of Conservative policy I start to deal with, I am told to get on with the next. I shall linger on this subject for a minute or two longer, just to relate a few facts.

We have starts at 353,000, an increase of 20 per cent. and completions at 288,000, an increase of 8 per cent. over the first nine months of 1966. That is not too bad an achievement. As for houses under construction, I am sure that the Leader of the Opposition will be glad to hear that the number of private houses for owner-occupation under construction—the ones I was specially accused of not getting built—at the end of September, 1967, was 14 per cent. up on a year ago. The total of houses under construction was 498,000 —[Interruption.] Hon. Gentlemen opposite should wait for it—60,000 above the figure for the month of October, 1964, that record figure which he boasted we would never rival.

Now we are 60,000 up, and that is no accident. On this occasion, however, housing seems to have fallen out of the Gracious Speech debate. There was no reference to it by hon. Gentlemen opposite. Can it be that the Opposition now know that, certainly in this matter, the Government have not done too badly?

I will mention another subject, motor cars. Every Tory was saying last year that we had destroyed the car industry and that it would never recover. Now the industry is heading for a boom. Indeed, I hear alarm and despondency lest we should be told that we will have to apply the brake because of the great success of the industry. Instead of getting the praise that we deserve from the Opposition for doing our job, all that we get is a total omission of mention of these subjects in the speeches of hon. Gentlemen opposite.

I suppose that that accounts for the omission of reference by them of shipbuilding, where the most remarkable strides forward have taken place in the last six months. The Opposition, when in power, doled out money to any people who built ships and allowed them to take the profits. We give money only on condition that they reorganise themselves. Indeed, we have had more orders in the last six months for the shipyards than occurred in the previous five years.

I am sorry if I have upset hon. Gentlemen opposite by spending so much time comparing the policies which we have with the non-policies which they profess. I have also spent a little while examining their attitude to our record. I have meant it as a compliment. After all, these are the issues which the House must decide tonight, and I am answering the debate.

The truth is that the Opposition know, as well as we know, that their so-called new programme, the programme which is to distinguish them from the Socialist Government, is very different from our policies. But it happens also to be identical in substance with what they did and said in the 13 years before 1964. Hard as I try to find an original thought, or even a new inflection, I cannot find one.

It is the same old Tory Toryism. The only difference is the label and the marketing.

In substance, however, hon. Gentlemen opposite have learnt nothing, and that is why the issue tonight is a simple one. It is the choice between the policies expressed in the Gracious Speech—which, despite all the difficulties, are beginning to work, and which given time, will create a stable economic basis—and, on the other hand, a return to the men and measures which were rejected by the country three years ago. It is for these reasons that I ask the House to reject the Amendment and accept the Motion.—[Interruption.]

Mr. Hirst

What about textiles?— [Interruption.]

Mr. Speaker

Order. Mr. Hirst.

Mr. Hirst rose—

Question put, That those words be there added:—

The House divided: Ayes 239, Noes 321.

Division No. 3.]	AYES	[10.0 p.m.
Alison, Michael (Barkston Ash)	Cooper-Key, Sir Neill	Grant, Anthony
Allason, James (Hemel Hempstead)	Cordle, John	Grant-Ferris, R.
Astor, John	Corfield, F. V.	Gresham Cooke, R.
Atkins, Humphrey (M't'n & M'd'n)	Costain, A. P.	Grieve, Percy
Awdry, Daniel	Craddock, Sir Beresford (Spelthorne)	Grimond, Rt. Hn. J.
Baker, W. H. K.	Crosthwaite-Eyre, Sir Oliver	Gurden, Harold
Balniel, Lord	Crouch, David	Hall, John (Wycombe)
Barber, Rt. Hn. Anthony	Crowder, F. P.	Hall-Davis, A. G. F.
Batsford, Brian	Cunningham, Sir Knox	Hamilton, Marquess of (Fermanagh)
Beamish, Col. Sir Tufton	Currie, G. B. H.	Hamilton, Michael (Salisbury)
Bell, Ronald	Dalkeith, Earl of	Harris, Frederic (Croydon, N.W.)
Bennett, Sir Frederic (Torquay)	Dance, James	Harris, Reader (Heston)
Bennett, Dr. Reginald (Gos. & Fhm)	Davidson, James (Aberdeenshire, W.)	Harrison, Brian (Maldon)
Berry, Hn. Anthony	d'Avigdor-Goldsmid, Sir Henry	Harrison, Col. Sir Harwood (Eye)
Biffen, John	Deedes, Rt. Hn. W. F. (Ashford)	Harvey, Sir Arthur Vere
Biggs-Davison, John	Digby, Simon Wingfield	Harvie Anderson, Miss
Birch, Rt. Hn. Nigel	Dodds-Parker, Douglas	Hastings, Stephen
Black, Sir Cyril	Doughty, Charles	Hawkins, Paul
Blaker, Peter	Drayson, G. B.	Heald, Rt. Hn. Sir Lionel
Boardman, T. (Leicester, S.W.)	du Cam, Rt. Hn. Edward	Heath, Rt. Hn. Edward
Body, Richard	Eden, Sir John	Heseltine, Michael
Boyd-Carpenter, Rt. Hn. John	Elliot, Capt. Walter (Carshalton)	Higgins, Terence L.
Boyle, Rt. Hn. Sir Edward	Emery, Peter	Hiley, Joseph
Brewis, John	Errington, Sir Eric	Hirst, Geoffrey
Brinton, Sir Tatton	Eyre, Reginald	Hobson, Rt. Hn. Sir John
Bromley-Davenport, Lt.-Col. Sir W alter	Farr, John	Hogg, Rt. Hn. Quintin
Brown, Sir Edward (Bath)	Fisher, Nigel	Hordern, Peter
Bruce-Gardyne, J.	Fletcher-Cooke, Charles	Hornby, Richard
Buchanan-Smith, Alick(Angus, N&M)	Fortescue, Tim	Howell, David (Guildford)
Buck, Antony (Colchester)	Fraser, Rt. Hn. Hugh(St'fford & Stone)	Hunt, John
Bullus, Sir Eric	Galbraith, Hon. T. G.	Hutchison, Michael Clark
Burden, F. A.	Gibson-Watt, David	Iremonger, T. L.
Campbell, Gordon	Giles, Rear-Adm. Morgan	Irvine, Bryant Godman (Rye)
Carlisle, Mark	Gilmour, Ian (Norfolk, C.)	Jenkin, Patrick (Woodford)
Carr, Rt. Hn. Robert	Gilmour, Sir John (Fife, E.)	Jennings, J. C. (Burton)
Cary, Sir Robert	Glover, Sir Douglas	Johnson Smith, G. (E. Grinstead)
Channon, H. P. G.	Glyn, Sir Richard	Jones, Arthur (Northants, S.)
Chichester-Clark, R.	Godber, Rt. Hn. J. B.	Jopling, Michael
Clark, Henry	Goodhart, Philip	Joseph, Rt. Hn. Sir Keith
Clegg, Walter	Goodhew, Victor	Kershaw, Anthony
Cooke, Robert	Cower, Raymond	Kimball, Marcus
King, Evelyn (Dorset, s.)	Nabarro, Sir Gerald	Smith, John
Kitson, Timothy	Neave, Airey	Stainton, Keith
Lambton, Viscount	Nicholls, Sir Harmar	Stodart, Anthony
Lancaster, Col. C. G.	Noble, Rt. Hn. Michael	Stoddart-Scott, Col. Sir M. (Ripon)
Lane, David	Nott, John	Summers, Sir Spencer
Langford-Holt, Sir John	Onslow, Cranley	Tapsell, Peter
Legge-Bourke, Sir Harry	Orr, Capt. L. P. S.	Taylor, Sir Charles (Eastbourne)
Lewis, Kenneth (Rutland)	Orr-Ewing, Sir Ian	Taylor, Edward M.(G'gow, Cathcart)
Lloyd, Rt.Hn. Geoffrey (Sut'nC'dfield)	Osborne, Sir Cyril (Louth)	Taylor, Frank (Moss Side)
Lloyd, Ian (P'tsm'th, Langstone)	Page, John (Harrow, W.)	Teeling, Sir William
Lloyd, Rt. Hn. Sehwyn (Wirral)	Pardoe, John	Temple, John M.
Longden, Gilbert	Pearson, Sir Frank (Clitheroe)	Thatcher, Mrs. Margaret
Loveys, W. H.	Peel, John	Thorpe, Rt. Hn. Jeremy
Lubbock, Eric	Percival, Ian	Tilney, John
McAdden, Sir Stephen	Peyton, John	Turton, Rt. Hn. R. H.
MacArthur, Ian	Pike, Miss Mervyn	van Straubenzee, W. R.
Mackenzie, Alasdair(Ross & Crom'ty)	Pink, R. Bonner	Vaughan-Morgan, Rt. Hn. Sir John
Maclean, Sir Fitzroy	Pounder, Rafton	Vickers, Dame Joan
Macleod, Rt. Hn. Iain	Price, David (Eastleigh)	Wainwright, Richard (Colne Valley)
McMaster, Stanley	Prior, J. M. L.	Walker-Smith, Rt. Hn. Sir Derek
Macmillan, Maurice (Farnham)	Pym, Francis	Wall, Patrick
Maddan, Martin	Quennell, Miss J, M.	Walters, Dennis
Maginnis, John E.	Ramsden, Rt. Hn. James	Ward, Dame Irene
Marples, Rt. Hn. Ernest	Rawlinson, Rt. Hn. Sir Peter	Weatherill, Bernard
Marten, Neil	Rees-Davies, W. R.	Webster, David
Maude, Angus	Renton, Rt. Hn. Sir David	Wells, John (Maldstone)
Maudling, Rt. Hn. Reginald	Ridley, Hn. Nicholas	Whitelaw, Rt. Hn. William
Mawby, Ray	Rippon, Rt. Hn. Geoffrey	Wills, Sir Gerald (Bridgwater)
Maxwell-Hyslop, R. J.	Robson Brown, Sir William	Wilson, Geoffrey (Truro)
Maydon, Lt.-Cmdr. S. L. C.	Rodgers, Sir John (Sevenoaks)	Winstanley, Dr. M. P.
Mills, Peter (Torrington)	Rossi, Hugh (Hornsey)	Wolrige-Gordon, Patrick
Mills, Stratton (Belfast, N.)	Royle, Anthony	Wood, Rt. Hn. Richard
Miscampbell, Norman	Russell, Sir Ronald	Woodnutt, Mark
Mitchell, David (Basingstoke)	St. John-Stevas, Norman	Worsley, Marcus
Monro, Hector	Sandys, Rt. Hn. D.	Wylie, N. R.
Montgomery, Fergus	Scott, Nicholas	Younger, Hn. George
Morrison, Charles (Devizes)	Sharples, Richard
Mott-Radclyffe, Sir Charles	Shaw, Michael (Sc'b'gh & Whitby)	TELLERS FOR THE AYES:
Munro-Lucas-Tooth, Sir Hugh	Silvester, F. J.	Mr. R. W. Elliott and
Murton, Oscar	Sinclair, Sir George	Mr. Jasper More.
NOES
Abse, Leo	Callaghan, Rt. Hn. James	Edelman, Maurice
Allaun, Frank (Salford, E.)	Cant, R. B.	Edwards, Rt. Hn. Ness (Caerphilly)
Alldritt, Walter	Carmichael, Neil	Edwards, Robert (Bilston)
Allen, Scholefield	Carter-Jones, Lewis	Edwards, William (Merioneth)
Anderson, Donald	Castle, Rt. Hn. Barbara	Ellis, John
Archer, Peter	Chapman, Donald	English, Michael
Armstrong, Ernest	Coe, Denis	Ennals, David
Ashley, Jack	Coleman, Donald	Ensor, David
Atkins, Ronald (Preston, N.)	Concannon, J. D.	Evans, Albert (Islington, S. W.)
Atkinson, Norman (Tottenham)	Conlan, Bernard	Evans, Ioan L. (Birm'h'm, Yardley)
Bacon, Rt. Hn. Alice	Craddook, George (Bradford, S.)	Faulds, Andrew
Bagier, Gordon A. T.	Crawshaw, Richard	Fernyhough, E.
Barnes, Michael	Cronin, John	Finch, Harold
Barnett, Joel	Crosland, Rt. Hn. Anthony	Fitch, Alan (Wigan)
Baxter, William	Crossman, Rt. Hn. Richard	Fletcher, Raymond (Ilkeston)
Beaney, Alan	Cullen, Mrs. Alice	Fletcher, Ted (Darlington)
Bellenger, Rt. Hn. F. J.	Dalyell, Tam	Foley, Maurice
Bence, Cyril	Darling, Rt. Hn. George	Foot, Sir Dingle (Ipswich)
Benn, Rt. Hn. Anthony Wedgwood	Davidson, Arthur (Accrlngton)	Foot, Michael (Ebbw Vale)
Bennett, James (G'gow, Bridgeton)	Davies, Dr. Ernest (Stretford)	Ford, Ben
Bidwell, Sydney	Davies, G. Elfed (Rhondda, E.)	Forrester, John
Binns, John	Davies, Ednyfed Hudson (Conway)	Fowler, Gerry
Bishop, E. S.	Davies, Harold (Leek)	Fraser, John (Norwood)
Blackburn, F.	Davies, Ifor (Gower)	Freeson, Reginald
Blenkinsop, Arthur	Davies, S. O. (Merthyr)	Galpern, Sir Myer
Boardman, H. (Leigh)	de Freitas, Rt. Hn. Sir Geoffrey	Gardner, Tony
Booth, Albert	Delargy, Hugh	Garrett, W. E.
Boston, Terence	Dell, Edmund	Gins burg, David
Bottomley, Rt. Hn. Arthur	Dempsey, James	Gordon Walker, Rt. Hn. P. C.
Boyden, James	Dewar, Donald	Gourlay, Harry
Braddock, Mrs. E. M.	Diamond, Rt. Hn. John	Greenwood, Rt. Hn. Anthony
Bray, Dr. Jeremy	Dickens, James	Gregory, Arnold
Brooks, Edwin	Dobson, Ray	Griffiths, David (Rother Valley)
Broughton, Dr. A. D. D.	Doig, Peter	Griffiths, Rt. Hn. James (Llanelly)
Brown, Hugh D. (G'gow, Provan)	Donnelly, Desmond	Griffiths, Will (Exchange)
Brown, Bob(N 'c' tle-upon-Tyne, W.)	Driberg, Tom	Gunter, Rt. Hn. R. J.
Brown, R. W. (Shoreditch & F'bury)	Dunn, James A.	Hamilton, James (Bothwell)
Buchan, Norman	Dunnett, Jack	Hamilton, William (Fife, W.)
Buchanan, Richard (G'gow, Sp'burn)	Dunwoody, Mrs. Gwyneth (Exeter)	Hamling, William
Butler, Herbert (Hackney, C.)	Dunwoody, Dr. John (F'th & C'b'e)	Hannan, William
Butler, Mrs. Joyce (Wood Green)	Eadie, Alex	Harper, Joseph

Harrison, Walter (Wakefield)	McMillan, Tom (Glasgow, C.)	Robinson, W. O. J. (Walth'stow,E.)
Hart, Mrs. Judith	McNamara, J. Kevin	Roebuck, Roy
Haseldine, Norman	MacPherson, Malcolm	Rogers, George (Kensington, N.)
Hattersley, Roy	Mahon, Peter (Preston, S.)	Rose, Paul
Heffer, Eric S.	Mahon, Simon (Bootle)	Rowlands, E. (Cardiff, N.)
Henig, Stanley	Mallalieu, E. L. (Brigg)	Ryan, John
Herbison, Rt. Hn. Margaret	Mallalieu, J. P. W.(Huddersfield, E)	Shaw, Arnold (Ilford, S.)
Hilton, W. S.	Manuel, Archie	Sheldon, Robert
Hobden, Dennis (Brighton, K'town)	Mapp, Charles	Shinwell, Rt. Hn. E.
Hooley, Frank	Marks, K.	Shore, Peter (Stepney)
Horner, John	Marquand, David	Short, Rt. Hn. Edward(N'c'tle-u-Tyne)
Houghton, Rt. Hn. Douglas	Marsh, Rt. Hn. Richard	Short, Mrs. Renée(W'hampton,N.E.)
Howarth, Harry (Wellingborough)	Mason, Roy	Silkin, Rt. Hn. John (Deptford)
Howarth, Robert (Bolton, E.)	Maxwell, Robert	Silkin, Hn. S. C. (Dulwich)
Howell, Denis (Small Heath)	Mayhew, Christopher	Silverman, Julius (Aston)
Howie, W.	Mendelson, J. J.	Skeffington, Arthur
Hoy, James	Mikardo, Ian	Slater, Joseph
Huchfield, Leslie	Millan, Bruce	Small, William
Hughes, Rt. Hn. Cledwyn (Anglesey)	Milne, Edward (Blyth)	Snow, Julian
Hughes, Emrys (Ayrshire, S.)	Mitchell, R. C. (S'th'pton, Test)	Spriggs, Leslie
Hughes, Hector (Aberdeen, N.)	Molloy, William	Steele, Thomas (Dunbartonshire, W.)
Hughes, Roy (Newport)	Moonman, Eric	Stewart, Rt. Hn. Michael
Hunter, Adam	Morgan, Elystan (Cardiganshire)	Storehouse, John
Hynd, John	Morris, Charles R. (Openshaw)	Strauss, Rt. Hn. G. R.
Irvine, A. J. (Edge Hill)	Morris, John (Aberavon)	Summerskill, Hn. Dr. Shirley
Jackson, Colin (B'h'se & Spenb'gh)	Moyle, Roland	Swain, Thomas
Jackson, Peter M. (High Peak)	Mulley, Rt. Hn. Frederick	Swingler, Stephen
Jay, Rt. Hn. Douglas	Murray, Albert	Symonds, J. B.
Jeger, George (Goole)	Neal, Harold	Taverne, Dick
Jeger,Mrs.Lena(H'b'n& St.P'cras,S.)	Newens, Stan	Thomas, George (Cardiff, W.)
Jenkins, Hugh (Putney)	Noel-Baker, Francis (Swindon)	Tinn, James
Jenkins, Rt. Hn. Roy (Stechford)	Norwood, Christopher	Tomney, Frank
Johnson, Carol (Lewisham, S.)	Oakes, Gordon	Tuck, Raphael
Johnson, James (K'ston-on-Hull, W.)	Oram, Albert E.	Urwin, T. W.
Jones, Dan (Burnley)	Orme, Stanley	Varley, Eric G.
Jones,Rt. Hn. Sir Elwyn(W.Ham,S.)	Oswald, Thomas	Wainwright, Edwin (Dearne Valley)
Jones, J. Idwal (Wrexham)	Owen, Dr. David (Plymouth, S'tn)	Walden, Brian (All Saints)
Jones, T. Alec (Rhondda, West)	Owen, Will (Morpeth)	Walker, Harold (Doncaster)
Judd, Frank	Padley, Walter	Wallace, George
Kelley, Richard	Page, Derek (King's Lynn)	Watkins, David (Consett)
Kenyon, Clifford	Paget, R. T.	Watkins, Tudor (Brecon & Radnor)
Kerr, Mrs. Anne (R'ter & Chatham)	Palmer, Arthur	Weitzman, David
Kerr, Dr. David (W'worth, Central)	Pannell, Rt. Hn. Charles	Wellbeloved, James
Kerr, Russell (Feltham)	Park, Trevor	Wells, William (Walsall. N.)
Lawson, George	Parker, John (Dagenham)	Whitaker, Ben
Leadbitter, Ted	Parkyn, Brian (Belford)	White, Mrs. Eirene
Ledger, Ron	Pavitt, Laurence	Whitlock, William
Lee, Rt. Hn. Frederick (Newton)	Pearson, Arthur (Pontypridd)	Wigg, Rt. Hn. George
Lee, Rt. Hn. Jennie (Cannock)	Peart, Rt. Hn. Fred	Wilkins, W. A.
Lee, John (Reading)	Pentland, Norman	Willey, Rt. Hn. Frederick
Lestor, Miss Joan	Perry, Ernest G. (Battersea, S.)	Williams, Alan (Swansea, W.)
Lever, Harold (Cheetham)	Perry, George H. (Nottingham, S.)	Williams, Alan Lee (Hornchurch)
Lever, L. M. (Ardwick)	Price, Christopher (Perry Barr)	Williams, Clifford (Abertillery)
Lewis, Ron (Carlisle)	Price, Thomas (Westhoughton)	Williams, Mrs. Shirley (Hitchin)
Lipton, Marcus	Price, William (Rugby)	Williams, W. T. (Warrington)
Lomas, Kenneth	Probert, Arthur	Willis, George (Edinburgh, E.)
Loughlln, Charles	Pursey, Cmdr. Harry	Wilson, Rt. Hn. Harold (Huyton)
Lyons, Edward (Bradford, E.)	Randall, Harry	Wilson, William (Coventry, S.)
Mabon, Dr. J. Dickson	Rankin, John	Winnick, David
McBride, Neil	Rees, Merlyn	Winterbottom, R. E.
MacColl, James	Reynolds, G. W.	Woodburn, Rt. Hn. A.
MacDermot, Niall	Rhodes, Geoffrey	Woof, Robert
Macdonald, A. H.	Richard, Ivor	Wyatt, Woodrow
McKay, Mrs. Margaret	Roberts, Albert (Normanton)	Yates, Victor
Mackenzie, Gregor (Rutherglen)	Roberts, Gwilym (Bedfordshire, S.)
Mackie, John	Robertson, John (Paisley)	TELLERS FOR THE NOES:
Maclennan, Robert	Robinson, Rt. Hn. Kenneth(St. P'c'as)	Mr. Charles Grey and Mr. Brian O'Malley.

Main Question put and agreed to.

Resolved,

That an humble Address be presented to Her Majesty, as follows:

Most Gracious Sovereign,

We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland, in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.

To be presented by Privy Councillors or Members of Her Majesty's Household.