PUBLIC EXPENDITURE

HC Deb 17 January 1968 vol 756 cc1787-911

Mr. Speaker

Before this important debate takes place, may I observe to the House that already I have the names of 73 right hon. and hon. Gentlemen who wish to contribute. I hope that, when the general debate takes place, hon. Members will assist me to get a complete cross-section of the House.

3.40 p.m.

The Chancellor of the Exchequer (Mr. Roy Jenkins)

I beg to move,

That this House approves the Statement made by the Prime Minister on 16th January.

What I want to say to the House falls into four main parts: first, the economic thinking lying behind the Government's measures; second, the reason why alternative and quite different approaches, which have been canvassed in various quarters, would offer us no adequate Solution; third, the reasons for the particular cuts that we have proposed; and, fourth, the prospect ahead.

First, the economic framework. The essence of devaluation is that, having failed, as we did, to get over the obstacle at the old parity, it enables us to go back and take a run at it. But, at the same time—[Laughter.] I am perfectly happy for hon. Members to have a little fun if they wish, but I would have thought that the House wished to take this debate seriously.

But, at the same time, devaluation increases both the height of the obstacle and the penalties for again failing to clear it. These two sides to the coin of devaluation have created, I think, some contradictory confusions about its effect. Some in industry have been slow to see the real and new opportunities which it offers. Others have welcomed it too enthusiastically as a panacea which would make possible a retreat from the harsh realities of the world. The latter it most certainly is not. On the contrary, it leaves us with a most formidable task ahead. And if we fail this time to match up to this task, I see nothing but the most dismal and debilitating economic prospect ahead—[Hon. Members: "Resign."] I am interested in the position

What is the size of the task? In 1967, we incurred a balance of paymets deficit of of the country generally, not merely party politics. about £500 million, by far the greater part of it in the second half of the year, when there were special, short-term adverse factors at work. But the underlying trend was bad enough. The year 1968 will be a transitional year. In the early part the balance of payments figures will continue to be fairly bad. By the end they should be much better, and must lead on to a substantial and continuing surplus in 1969 and the subsequent years. The surplus that we need to work towards is of the order of £500 million, and this is not beyond our reach.

But exactly how big a surplus we shall be able to achieve in a particular year must depend to some extent on the state of international trade, and the position taken up by other countries. Clearly, for instance, recent American measures will not make things any easier for us.

But I cannot begin to understand the reasoning of those who think that we need not go for a big surplus in 1969. It is a year when the competitive advantages of devaluation should be at their height. It will follow a long period of deficits, continuous since 1963 and substantial, on average, since 1956. During these years we have used up nearly all our international borrowing possibilities. These debts we must begin to pay back, as well as strengthening our own reserves. If we fail to get a good surplus by 1969, the increasing shortage of resources and pressure on home demand will face us with a grim prospect for the 'seventies.

In these circumstances, I estimate that we need to put about £1,000 million in the balance of payments to get the turn round that we need and to meet the additional calls imposed by the loss on the terms of trade. On the other hand, with devaluation we now expect to see vigorous growth in home output in the next few years. While we must be careful not to run yet again into periods of severe labour shortages, or to allow a runaway consumer boom, I think that we can safely allow a rate of expansion of roughly 4 per cent. a year during 1968 and 1969. We could no doubt get a higher rate for a short time, but what I am interested in is a sustainable rate. We want no more short, ineffective spurts.

It is, however, a fallacy to believe that economic growth, undirected and on its own, will solve our balance of payments problems. We have long suffered from a structural fault. We consume too high a proportion of our national income, import too much, and export too little. This is where we are out of line with our more successful trade competitors. Contrary to a great deal of ill-informed criticism, it is not so much our public consumption as our private consumption which is out of line. I will return to that in a moment.

So long as the proportion of our income that we devote to consumption is too high, growth on its own will not see us through. If we merely repeated the experience of the past, where growth in our output was largely pre-empted for private consumption, economic expansion would make our difficulties worse, riot easier. It is essential, therefore, that, in contrast with experience in past economic recoveries, a disportionately large part of the extra resources should go into exports and import saving. In other words, we must have export-led growth.

How can we arrange our affairs so that this happens? Broadly speaking, there are only two ways in which any Government can proceed on this front. They can restrict the growth of their own expenditure; and they can restrict, by taxation and other methods, the growth of private consumption. If we had a long term in which to operate, it might well be that it would be best to restrain the growth of personal consumption in relation to the growth of incomes so as to leave room for our long-term objectives in the public sector and the satisfaction of social priorities.

But there are two qualifications. First, we have to operate, and operate decisively and successfully, in the short term. Secondly, public expenditure is at present growing fast. It grew fast last year. It was scheduled to grow even faster in this coming year. Therefore, unless we were to ask private consumers, at a time of rising employment, growing overtime and growing profits, to take the whole sudden burden, which would mean an absolute cutback, we have no alternative but to moderate public expenditure. I do not believe that the other alternative would be either feasible or right. It would not be feasible because it could be frustrated by dis-saving and an uncontrollable wages situation. It would not be right—

Mr. Edward Heath (Bexley)

Before the Chancellor leaves this part—I am sorry to interrupt him in the middle of a sentence—could he tell the House what the actual rate of growth of public expenditure will be in this coming year, 1968–69—not the average, as in the White Paper—both in real and monetary terms?

Mr. Jenkins

Could I give the right hon. Gentleman that figure when I come to the part of my speech when, in any event, I was going to give it?

I said that it would not, in my view, be feasible because it would be frustrated and it would not be right because it would involve a sudden excessive burden of taxation.

We had, therefore, to do part of the job with the cuts in the public expenditure programme. They will not be able to do the whole job. They will need to be reinforced by budgetary measures and, to reduce the period between the two sets of measures, I propose to open my Budget several weeks earlier than usual—on Tuesday, 19th March.

As the House is well aware, it cannot in present circumstances be other than a hard Budget, but exactly how harshly I shall have to bear on consumption will depend in considerable part on the way in which incomes policy develops. In any case, some increased taxation will be necessary, but the faster money incomes increase the harsher must be the tax increases. Unless firm restraint in increases in all forms of incomes becomes a reality, I shall be forced to take away the excess increases by extra taxation.

This, of course, will be unpopular and unpleasant, but, worse than that, it will not offset all the damage caused by excessive rises in incomes. Rises in incomes mean rises in industrial costs, and I am not prepared to sit back and watch the competitive advantages of devaluation frittered away before they have even begun to turn themselves into a balance of payments improvement. My right hon. Friend the Prime Minister will say more about incomes policy tomorrow.

But, just as yesterday's cuts were not a substitute for firm Budgetary action, so taxation increases could not be an effective substitute for changes in Government expenditure. For the Government to have regarded their own spending as immune from the need for stringency elsewhere would not have been tolerable. We are convinced that there is no alternative to a combination of action on public expenditure and private spending.

I now turn to my second main section, an examination of why alternative approaches could not, in my view, provide satisfactory solutions. I have already dealt with what I think is the fallacy that we could solve the whole problem by taking up the slack in the economy. That apart, I distinguish two main strands of general criticism, and I shall deal with particular criticisms in my next section.

The first is that we should have done the whole job, or nearly the whole of it, by operating on Government expenditure, by allowing no increase at all, or even by making absolute cuts. Those who hold this view—and there are many in the business community who do—often support it by a business analogy. If a business is in trouble, they say, the right course is to make swingeing economies, and to say that next year they will spend 10, or 20, or 30 per cent. less than this year. By these means, they argue, a deteriorating situation is often put right. With respect, I think that that analogy is mistaken.

The Government, as right hon. Gentlemen opposite who have held office know, are not, and cannot be, the same as a private business. A private business, if it finds a line unprofitable, can simply stop producing it. It is not answerable to its disappointed customers. It has neither moral nor statutory obligations to provide particular services. It can slash its activities by whatever means it thinks right.

The Government cannot do that. They have both statutory and moral obligations. They cannot say that for next year, and perhaps several more years, they are out of social security, or out of health, or education, or defence, or transport. They cannot, except with unacceptable social and economic upheavals, change their own expenditure very quickly. Public expenditure is, therefore, peculiarly viscous. This is why, in preparing this exercise, we have fixed our sights on 1969–70, even more than on 1968–69, although we are, nevertheless, securing certain important economies for the first year.

It is also the reason why, in many cases, we have had to go for identifiable cuts involving policy changes. Only in this way is it possible to make substantial short-term savings without the economic nonsense of stopping construction schemes halfway through, or failing to provide running costs after capital expenditure has been incurred.

Furthermore, it becomes increasingly clear in the course of any discussion how reluctant are those who advocate the most sweeping Government economies to see any of their pet projects affected. Cut across the board, they say, in general. But it is a different story when they realise that this might affect Government assistance to industry, which has been rising very rapidly indeed, or roads, where there is also a rapidly rising programme, where we have reluctantly felt it necessary to make certain postponements although concentrating by far the greater part of the economies on maintenance and minor improvement schemes.

The same thing is true of those who have an interest, either vested or ideological, in defence, and also of those who have a particular social service attachment. The plain fact is that all Government economies are painful, and even to some extent harmful, and it is no use looking for them unless one is willing to face these consequences in one's own field as well as in someone else's chosen area. I did not find yesterday that the Opposition were showing very much sign of being willing to do this.

Sir Gerald Nabarro (Worcestershire, South)

What about the Civil Service?

Mr. Jenkins

We are endeavouring to hold the Civil Service—

Sir G. Nabarro

Is the right hon. Gentleman aware that we on this side of the House demand a great reduction in the Civil Service and an alteration in the policies that have caused a crass inflation of the bureaucracy which is largely the cause of crippling taxation today?

Mr. Jenkins

I know that these splendid words come easily off the hon. Gentleman's tongue, but I happen to have looked at what happened to the staff of the Board of Trade during the period when the right hon. Gentleman the Leader of the Opposition presided over that Department. I found that in a little over a year it increased by 4 per cent. I propose no increase in the Civil Service for the years 1968 to 1969.

The second main strand of general criticism comes from some of my hon. Friends. It is based on the view that we are a rich country, that we have a lot of assets overseas, and that if we mobilised them more effectively there would be no need to do a great deal more. Associated with this, I think, is the belief that we should get rid of our sterling liabilities, while at the same time becoming both more autarchic and protective and promote international liquidity.

We have substantial international assets —in total at the last published date, about £17,800 million. But our total liabilities were then just over £16,400 million. The difference certainly amounts to no excessive margin. Our assets are, for the most part, in less liquid form than our liabilities, and there is certainly something to be said for moving gradually into a more liquid position. But this certainly cannot be done precipitately. It might cost us far more in confidence than it would gain in any other way and it might involve selling our portfolio investments for considerably less than they are worth; and most of them give us a good return, particularly if capital appreciation is taken into account.

Still more important, however, is the fact that it is, in my view, only a short step between realising long-term assets with the ostensible purpose of paying off short-term debt, and finding ourselves using the proceeds to finance a continuing deficit. That would be utterly wrong, and would very soon lead to the disappearance of that already narrow margin between £17,000 million and £16,000 million.

Mr. Heath

When the right hon. Gentleman is referring to portfolio investments, is he referring to remaining Government holdings—I thought these were small—or to private portfolio investments?

Mr. jenkins

I was referring—following the argument which is sometimes put —principally to private portfolio investments. [HON. MEMBERS: "Oh."] I do not know why there should be some surprise. The size of the portfolio of investments is £3,800 million. There is a scheme by which there would be some repatriation of that investment, and I was dealing with the argument that we ought to repatriate it very much more quickly.

Nor can we quickly change the rôle of sterling or escape from our sterling liabilities. In the past, I have expressed considerable scepticism about the value to Britain's own economy of the present arrangements. Like some of our military commitments, they made more sense in a world in which we were a dominant imperial power. I have not changed those views as a result of arriving at my new office. I believe that, on the whole, a Minister should take his views into his Department and not leave them at the door outside.

But that does not mean that we can just slough off our sterling liabilities. The sterling balances are debts which we owe. We can reduce them only by paying them off or by getting someone else to take them over in exchange for our incurring a long-term funded debt. That would require the agreement of the present holders of sterling in the first place, but in any event I do not see any candidates for that rôle at the present time. Nor could sterling's international trading function just be allowed to disappear. If others would share with us in creating and backing such a trading currency, that might be very good, but until they do sterling must continue to perform its function, unless the flow of world trade is to be made much more difficult—and few would suffer from that more than we would ourselves.

Mr. James Dickens (Lewisham, West)

Would the Chancellor say something about the use of exchange controls, which is the first item of an alternative policy, to protect the £ against the foreign currency speculation which the Prime Minister has so roundly condemned as being responsible for the Government's present economic position?

Mr. Jenkins

As so often is the case with interruptions from both sides of the House, I was just about to come to a point about exchange controls.

We cannot easily impose exchange controls upon foreigners who hold sterling, nor can we operate a trading currency very easily with exchange controls. At this point, few would suffer more than we should suffer from making the flow of international trade more difficult. That has also to be borne closely in mind in any discussion of a more autarchic policy of tougher exchange controls, which my hon. Friend mentioned, or import restrictions. How can we possibly assume that other countries would allow us to take such further measures without retaliation? There is already too much danger of an escalation of protectionism throughout the world. If we encouraged that, we should be one of the nations to suffer most of all. That is partly for the long-term reasons that our basic trading position makes us peculiarly exposed. Other countries could do without our exports more easily than we could do without many of our imports. That is also partly so for the longer-term reason that we, more than almost anyone else, need to swing quickly in the near future from deficit into surplus.

At the same time, I am urged to take the initiative in summoning international conferences to strengthen reserves and to promote a greater international liquidity. I am, of course, very willing to study all such proposals, but, clearly, the first need is to complete and then to bring into operation the scheme for special drawing rights approved in outline at Rio de Janeiro. But there are two warnings which I must give.

First, I do not think that I should get very far if I prefaced such an initiative with the announcement of a new autarchic policy at home. Secondly, the room for manoeuvre of any British Chancellor of the Exchequer will remain most strictly limited until he can begin to show that devaluation is working, that our trading position is improving and that we have an early prospect of paying off some of our indebtedness. None of the proposed measures which I have been discussing in this section begins to be a substitute for paying our way in the world, although some might be a most useful adjunct to that process once we have it firmly under way.

I turn to the third section of my speech —the details of public expenditure and 'the reasons for the cuts which my right hon. Friend the Prime Minister announced yesterday. Total public expenditure, which embraces not only central Government but also local authority and social insurance expenditure, has been increasing fast for many years. Between 1959–60 and 1966–67 total public expenditure increased at an average annual rate of about 4½ per cent, at constant prices. Fixed investment in the public sector increased on average by about twice the rate of this total.

This overall rise masks a wide variation in the increases between different years, which have ranged from 1 per cent. in 1962–63 and 1½ per cent. in 1966–67 to 7 per cent. in 1965–66 and nearly 7½ per cent. in 1961–62. The increase in 1967–68 over 1966–67—estimate to estimate—was rather more than 72 per cent. The increase in terms of out-turn will probably work out at an even higher figure. We have today tabled Special Winter Supplementary Estimates for about £120 million. These are all, of course, for past expenditure, and they arise mainly from the increases in investment grants, payments in connection with foot-and-mouth disease and some Ministry of Public Building and Works expenditure.

The rise in 1968–69, after the cuts which have been announced, will be about 3¾ per cent.—that was the question asked by the Leader of the Opposition—and in 1969–70 it will be only 1 per cent. To make these figures comparable I have excluded the effect of S.E.T., R.E.P., and investment grants. It' those were included the increase next year—1968–69would be 4¾ per cent. instead of 3¾ per cent., but that is not on a truly comparable basis because of the substitution of investment grant for investment allowance, which did not show as expenditure but which had very much the same effect.

Mr. Heath

Are those in real terms?

Mr. Jenkins

They are in real terms.

Supply Estimates will show a higher rise—higher, indeed, than for 1967–68 over 1966–67. But it is the increase in public expenditure as a whole, not the increase in Supply expenditure, which is the significant figure, and as I have already indicated that will be 3¾ per cent. for the coming year, which will be below the expected increase in the gross national product and below the average increase since the beginning of this decade. For 1969–70—the year at which our measures have been particularly directed—it will be one of the lowest figures for many years past and only a fraction of the expected increase in the gross national product.

I come to the individual changes. First, we have looked at defence for a major longer-term contribution towards the reductions in expenditure which we need. My right hon. Friend the Prime Minister will be expounding these reductions very fully tomorrow.

Sir Douglas Glover (Ormskirk)

Leaving no opportunity to reply.

Mr. Jenkins

He is speaking in the afternoon.

At this stage I will make only four points. First, the changes which we have announced are no more than the recognition—some will say the belated recognition—of basic currents in the tide of history. We are no longer, and have not been for some time, a super Power. It does not make sense for us to go on trying to play a rôle beyond our economic strength. From here forward, as I said last night, our part in world affairs must be underpinned by economic strength and not undermined by economic weakness.

Secondly, such a process of disengagement can never be carried out without some difficulty and upheaval and recrimination. But all our recent history shows that, when it has to be done, it is best done reasonably quickly and that it is only too easy to do it too late rather than too soon. This has been true from Ireland to India; and the party opposite —or half of it, at any rate—has always been left clinging to an untenable concept.

Thirdly, the idea that these changes have been brought forward only as part of a package to appease some of my hon. Friends is absolute nonsense. I do not regard myself as a wholly natural below-the-Gangway figure, but I believe these changes to be overwhelmingly right and necessary in themselves. They will give us some much-needed elbow room in the early 1970s—

Mr. Goodhew (St. Albans)

Tell that o the Marines.

Mr. Jenkins

I did not see exactly who said that. I do not know whether it was intended to be a pleasantry, or whether it was intended to imply that we should not make any changes in the Forces' structure.

Hon. Members opposite are very eager all the time to talk about the redeployment of our labour force at home, about switching people from one industry to an-other and moving them up and down the country. Provided that this is done in a proper way, and with reasonable arrangements, it makes no sense at all to say that the Forces must be precluded from changes in the deployment of labour which can affect many other people in the country.

Mr. Sandys (Streatham)

If these changes are "overwhelmingly right and necessary in themselves", why have the Government only discovered this now?

Mr. Jenkins

They are overwhelmingly right in relation to our present position. If the right hon. Gentleman, who has been far from noteworthy for his fore-sight in conducting our affairs in this field, cannot see that there has been a major change in our world position arising from matters far more important than that of any particular Government in power, then he is even more blind in his view of history than I believe him to be.

Mr. R. J. Maxwell-Hyslop (Tiverton)rose—

Mr. Jenkins

No, I will not give way.

But—this is my fourth point—these defence cuts will not yield any net saving in 1968–69. On the contrary, there will be some cancellation charges to be met. The impossibility of reducing expenditure on defence before the year after next is one important reason why the level of public expenditure next year will still show an appreciable increase over this year. It is also a reason why no one who looks at the position rationally can believe that we could possibly have avoided civil cuts by making bigger defence cuts. Even if it had been right to attempt more, which I do not believe, it would have had no effect at all on the outlook for next year. [An Hon. Member: "Or for the year after that."] Yes, for the year after. On civil expenditure—

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

If the Chancellor is about to leave the subject of defence, would he, before he does so, remind the House that this is the sole major element of Government expenditure which has steadily been falling for many years' past?

Mr. Jenkins

I do not know what the right hon. Gentleman means by "many years past", but certainly the programme which we took over, so far from leading to a fall, would have led, had it been left unamended, to the most enormous increase in defence expenditure.

Mrs. Anne Kerr (Rochester and Chat-ham)

Will my right hon. Friend give way?

Mr. Jenkins

No.

Hon. Members

Give way. Be chivalrous.

Mr. Jenkins

If right hon. and hon. Members opposite are really trying to say that they believe that the defence economies which have been made under my right hon. Friend in the past three years should not have been made, and if they wish to reconcile this with their view that the total of public expenditure is much too high, I would very much like to hear the detailed civil cuts that they propose, not only to produce the reductions themselves, but to compensate for the very much greater increase in defence expenditure which, as I under-stood it, the right hon. Member for Wolverhampton, South-West (Mr. Powell), who, I must say, swivels about in the most bewildering way in his attitude to defence, was advocating in the previous intervention.

Mrs. Anne Kerr

Before my right hon. Friend leaves the question of defence cuts, which I applaud, along with very many hon. Members, at least on this side of the House, may I ask what plans the Government have for alternative forms of work for the defence workers who will be unemployed as a result.—[Laughter.]

Mr. Speaker

Order. Noise prevents the House from hearing.

Mr. Jenkins

I was not able to hear the latter part of my hon. Friend's intervention, but I do not think that I will invite her to repeat it, if I have your permission to adopt that attitude, Sir. However, I was delighted to hear her delicately balancing her views on defence with her responsibilities as the hon. Member for Rochester and Chatham.

I turn, if I may, to civil expenditure—I think that I had better make some progress at this stage—where our freedom to choose between priorities is limited, as would be that of any Government at present, by the immense increase in the demand for some of these services. The combined numbers of those under 15 and of men over 65 and women over 60 rose from 18⅓ million in 1955 to 20½ million in 1966 and will go further to 21¾ million in 1970 and to about 23½ million in 1975. This rapid increase—more than proportionate to any increase in the population as a whole—in the numbers of young and old has inevitable consequence in increased demand for education and health services. These are facts which we must face, quite apart from any question of improving these services, and we have endeavoured to choose our priorities to take account of this.

On social security, my right hon. Friend the Prime Minister has already announced that I intend to secure, by means of Income Tax adjustments, that the 7s. increase goes only to those in need. This will, in effect, save approximately £60 million in addition to any figures mentioned by my right hon. Friend yesterday. It is also, in my view, a most important opening of the door to selectivity in a civilised and acceptable form.

I wish that I could go further this year in widening the application of this selectivity. But, apart from the fact that the administrative burdens on the Department concerned would have made this virtually impossible, I felt that, in the absence of advance warning, it would be unreasonable to do more this year. Next year, however, I hope to introduce full selectivity for family allowances and to do it in such a way that people who are not in real need of them do not draw them at all.

This needs looking at further, in regard to relativities, for example, to which the noble Lord the Member for Hertford (Lord Balniel) referred yesterday, but I am sure that this is the sensible approach to the problem of using our limited resources to relieve real hardship without the indignities of an individual means test.

Education is now absorbing 13 per cent. of our public expenditure, having grown very fast. The postponement of the raising of the school-leaving age is, to me, much the most repugnant part of this series of measures. I none the less believe that it is necessary. We could have found no equivalent saving in education without far more dislocation of programmes. We have done it for the shortest practicable time, two years, and I utterly reject the view that such a postponement means that this great social advance will not then take place.

Yet, unpleasant though this is, one must surely distinguish between the postponement of a most desirable advance and going back on what already exists. Two age groups of children will not have the compulsory extra year. But we were all accepting that this must in any event have applied to the three age groups leaving in the next three years. Furthermore, it is certainly possible that we can use the extra two years to improve the curriculum which can be offered to the first batch of compulsory 15-year-old pupils.

Now, prescription charges. I know the strong feelings of some of my hon. Friends on this matter. The essence of the problem is that we could not have made effective economies without asking for some contribution from health. In what other form could an equivalent sum have been less damagingly recovered? An increase in the stamp was much canvassed. We are introducing this in order to make possible the desirable exceptions, but I do not think that we should have gone above 6d. I am sure that a reduction in the hospital building programme, which we have safeguarded, would have cut much deeper into the sinews of the Health Service.

We have, over recent years, made notable advances towards achieving the Government's housing objectives. In 1967, 415,000 houses have been completed in the United Kingdom. Houses under construction number about 490,000, and the strong probability is that we shall have another record for completions in 1968, with a total of about 430,000 houses. In the new situation, however, we must regretfully accept a rate of advance smaller than in the recent past and smaller than we had hoped.

We shall cut the approvals programmes for local authority housing for letting in England and Wales by about 9 per cent. in 1968 and 1969 below the level for which we had hoped and planned. This means that starts in local authority housing will, in 1968 and 1969, be less by about 15,000 in each of those years, and completions will be correspondingly reduced, mainly in the years 1969–70 and 1970–71. The reductions in Scotland will be 1,500 in each year. All this will produce the substantial savings in expenditure in 1968–69 and later years which have already been announced.

Mr. Emrys Hughes (South Ayrshire)

Will my right hon. Friend explain how an assessment is to be made in respect of the 1,500 houses which are to be cropped off the local authorities in Scotland? Does he intend to cut down on houses for people on the waiting lists? Is he aware that there are people in Scotland who have been on the waiting list for a house for 10 years? Or does he intend to cut down on houses for key workers needed for new industry?

Mr. Jenkins

What I can tell my hon. Friend is that the cut in Scotland is substantially less than proportional to the cut in England and Wales. I am aware that there is a difficult housing problem in Scotland, as there is in some parts of England and Wales, but the plain fact is that we have here a rapidly rising programme, and there is no means of making economies in public expenditure unless we are prepared to make some cutback—not an absolute cutback—in the rate of growth of programmes which have been rising rapidly. It is no use hon. Members on either side of the House telling me to economise in public expenditure while believing that this can be a totally painless process. It cannot be.

The reduction in the approvals programmes for local authority housing and other relevant factors makes necessary an adjustment of the aim of 500,000 houses by 1970. My right hon. Friends the Housing Ministers are engaged on this. At the same time, we shall endeavour to make better use of our existing stock of houses. A recent survey suggests that 41 million, or nearly 25 per cent. of our existing houses, are in need of substantial repair and the provision of basic amenities. Our new objectives must embrace quality as well as quantity, and rehabilitation as well as new building. In addition, my right hon. Friends and I are now discussing the whole question of housing finance in the public sector, and specifically whether the present housing subsidy structure makes the best use of money and resources.

We have had to make some reductions in road expenditure. No one doubts that there is great pressure on our roads, but the major road building programme has been rising fast for a number of years. Despite the reduction, it will go on rising considerably faster than expenditure on health and education in the next two years. Part of the saving on the major road programme will be at the expense of smaller improvements and maintenance. Where the start of major projects has to be postponed, it should be for only a matter of months. No schemes will be abandoned.

We are looking also for a considerable saving in expenditure on the almost 200,000 miles of roads which are the sole responsibility of local authorities. High standards of maintenance have been reached and held for many years. In present circumstances, and for a limited period, some reduction in maintenance and improvement of these roads must be made.

We propose no reductions in expenditure designed to increase employment and industrial investment in development areas—that is, Board of Trade factory building and other Local Employment Act assistance, the Regional Employment Premium, the differential element in investment grants, and Ministry of Labour expenditure on training in industry. However, my right hon. Friend the President of the Board of Trade is considering whether some change of balance between the various forms of assistance might produce better results. The raising of the level of employment in these areas towards the national average is a most vital part of our policy.

As regards local authority expenditure, my right hon. Friend the Prime Minister said yesterday that we must look for a sharp general reduction in the rate of growth of local authority current expenditure which qualifies for rate support grant and which has recently been increasing at about 6 per cent. a year in real terms. My right hon. Friends the Minister of Housing and Local Government, the Secretary of State for Scotland and Wales and the other Ministers concerned will shortly enter into discussions with the local authority associations about the implications of all these matters for the local authorities.

The Government recognise in advance, however, that with these restrictions the room for development and improvement of local authority services will be strictly limited and that in some cases there may be a temporary lapse in standards. Economy here, as elsewhere, is not painless.

I should like to say three things about the effects of all these cuts on the construction industry. First, though the industry will inevitably be affected by them, we have not singled it out as an economic regulator. Even after the cuts, we expect the demands on the industry to be higher in 1968 than in 1967, and higher again in 1969. Second, there is still a great deal of design and planning work to be undertaken for the construction elements in the revised public sector programmes, and I hope that it will proceed energetically. Third, one of the main objects of the cuts is to help switch resources into the exporting and import-saving industries. Those industries will need to expand their capacity, and I hope that they will press forward with their plans for new building.

I come to my fourth and very brief concluding section. The cuts which we have announced are a necessary part, but only a part, of our general approach to these problems. The moderation of public expenditure had become essential. This we have done, with considerable effects for next year and very substantial effects for the year after. It was right to give this priority, because this is the right time of year for a review of Government expenditure. It would have been much more difficult once the Estimates had gone through. Nor, until it was done, could we tell how much would remain to be taken out of consumption. Even now, that cannot be seen with complete precision. It depends on how the economy develops in the next few weeks and on incomes policy. But that there will be a great deal to be done is certain. Whatever is necessary we propose to do.

No one, contemplating our present very serious economic situation and looking over the vicissitudes of the British economy during the past 20 years—[HON MEMBERS: "Oh."] There really are some hon. Gentlemen who seem completely incapable in any circumstances of rising above Ate most petty party politics. If anyone believes that we have not seen a series of economic crises extending back for several decades, a long period in which the fundamental weakness in our economy has not been dealt with— [Interruption.]

Mr. Speaker

Order. We cannot debate by running commentary.

Mr. Jenkins

If hon. Gentlemen opposite believe that they will convince the British people that they can cure every thing by ignoring the history and their crises, and merely shouting out cheap party cries, I think that they are mistaking the mood of the British people at present.

No one contemplating the present position and looking back at the whole series of vicissitudes which has beset the British economy throughout the past 20 years can find the prospect other than very difficult at present. But I believe that there is also a great opportunity at present. There is certainly no quick, easy road to prosperity for this country, but the changes which must be made are fairly marginal. They must be made with absolute determination, but if they are so made, and accepted by the people, the whole outlook can change.

The Government can only provide the right framework. Unless they do that, our national energies will be misdirected, but once they have done it the opportunities for export and growth and efficiency must be seized by everyone. There will still be two years of hard slog ahead. But at the end of it we could have a more securely-based prosperity than we have known for a generation.

4.35 p.m.

Mr. lain Macleod (Enfield, West)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: ' while having no confidence in Her Majesty's Government whose mismanagement of the economy has led to the present situation, recognises that there is a need to curtail public expenditure, regrets that the Statement is purely negative in character, and deplores cuts in defence which involve breaking faith with friends and allies and will severely undermine our national security '. For myself and, I think, for the Chancellor of the Exchequer and the whole House, it is something of a relief at last to be able to debate, after the torrents of advice—a good deal of it hysterical—to which we have been subjected. Much of that comment has been directed to Parliament itself.

Perhaps I may be allowed one sentence in reply. I believe that Winston Churchill had the right answer when he said that democracy is the worst possible system except for all the others. I am not attracted by any of the solutions, which all have an unattractive authoritarian ring about them, whether put forward by business men or heads of nationalised industries, or, occasionally, by editors. I do not think that they would improve the situation, and I have every confidence that the House, like its predecessors, is entirely capable of debating a grave situation with suitable gravity. I hope, as far as I can, to address the House in the same vein as the Chancellor did.

I had some argument at the time of the devaluation debate with the present Home Secretary about whether devaluation was or was not well prepared. I think that it is now clear, from the evidence that it has taken two months to produce this package, that it was ill-prepared. The package announced yesterday sent the £ down and equity shares roaring up. [An HON. MEMBER: "The other way round."] Not at all. That must have been the very last response that the Government wanted.

Much of the real failure stems from the original presentation of devaluation by the Prime Minister, particularly in his television broadcast. It was a misreading of the psychology of the people. I do not think that something which has been spoken of as unthinkable for three years can suddenly become a deliverance. I do not believe that any housewife will accept as true the statement that the £ in her purse had not been devalued. I think that it was because we had that presentation at the beginning that, even with an 8 per cent. Bank Rate, neither confidence nor money returned to this country, at least in the early days. So, by an excursion into South African arms, yesterday's package became inevitable.

I do not want to spend more than a moment or two on the past three years. I should like to recall, first, that each year so far—in 1965, 1966 and 1967—we have seen much the same pattern. We have had a Budget put forward by the Chancellor of the Exchequer of the day which has been attacked as wrong in either its amount or its timing by the Opposition, and in each autumn of those years the Opposition's criticisms have been more than justified.

We have finished the year 1967, and everybody must have been glad to see it go. We finished it with a visible trade deficit of £565 million. That is higher than 1964 and higher than any of the 13 years. The only comparable year is 1951. As to unemployment, last year, although it was marginal, was the worst since the war. When I last spoke, I drew to the attention of the House the fact that for six months in 1967 the level of wholly unemployed, which is the key factor, had been in excess of 500,000. Since then we have had the figures for November and December. Each of those is over 500,000, and the result is that in eight months in 1967 the figure has run above 500,000, and there were only eight occasions in all the months in all the 13 years of which that is true. This is the situation that we now have. We have had over 25 deflationary measures and every single one has failed, mostly because of a lack of will. This is the first thing. I am sure the Chancellor, judging from his television performance last night, recognises that this is the first thing to be put right.

I would like to make a general comment before I come to detail on the Prime Minister's statement yesterday. I found it difficult to follow what the philosophy and purpose of it was. We had been told that it was to be fair to everybody. This is a slogan, not a policy. Indeed it is wrong to be fair, if that means being equal, between the growth and the declining industries of the country, or between the productive and non- productive users of manpower, or between the efficient and inefficient firms.

The political thinking is easy enough, and we can comprehend it because we are all politicians. The Prime Minister calculated that the defence cuts would anger nearly all, although perhaps not quite all, of the Conservative Party, and that the cuts in the social area in particular would anger all, though perhaps not quite all, of the Labour Party. There it was possible to balance two ends against the middle and he might emerge from the debate more or less intact.

This may well work in debating terms, but the very last thing that the country needs at present is a shabby political compromise of this sort. The right hon. Member for Battersea, North (Mr. Jay) was right when, in a recent article in the Financial Times, on 15th January, he said: The Government's sudden enthusiasm for sweeping new cuts in public expenditure is a little puzzling to anybody who tries to take a rational view of economic policy. Later he said: The policy would not be one of making devaluation work, but using it as a pretext for going back on previously agreed decisions about the ratio between public and private spending. I have hammered away at this point in a dozen speeches and articles in the past year. If I can refer briefly to an article of mine, also in the Financial Times, immediately before the last Budget, on 6th April I said: Nevertheless, the levels of public expenditure will pose the most serious problem for 1968–69 and the latter years. This problem will remain so long as public spending plans are based on growth targets that are clearly now, under Socialism, difficult to reach. Six days later, following the Chancellor in the Budget debate, I said: I am sure that the Chancellor is conscious of the difficulty about the level of public expenditure and the problem that this will create in 1968–69 and later years.… I do not believe that this is the true problem for 1967, although I believe that it may well be the true problem for 1968."—[OFFICIAL REPORT, 12th April, 1967; c. 1216–17.] Therefore, the emphasis yesterday on making devaluation work is frankly, at best, only half a truth. It would have been vital anyway to cut back Government expenditure, and it is something that the Government have recognised. Then I asked, and perhaps the First Secretary, who I think is replying to the debate, can answer, why this particular sum of £300 million, tiny though it is, in the first year? There is not a word to explain it in the White Paper, nor was there in the Chancellor's speech. I have a feeling that this, like so many of the Government's other calculations, has been simply plucked out of the air. I think that they have thought of a number, as they did for the National Plan. It was that which basically destroyed the National Plan. They did the same for their previous Defence Reviews, and that is one of the main reasons why the defence policy of this Government is a shambles today—because they have always tortured the facts to fit some unsupported figure.

This, and we gather this from the Chancellor's speech, is only half a proposal. The remainder is to come, and I will deal with it in the section of my speech dealing with public expenditure. As my right hon. Friend the Leader of the Opposition said yesterday, we will judge everything that is done by two criteria. First, whether it helps to restore confidence; secondly, whether it adds to the efficiency of our economy.

I want to examine the main proposals. Where I agree, I will say so. Where I think the Government are wrong on balance, in a desperately difficult position—and I instance the school-leaving age, on which I know there are arguments on both sides, where I think the decision the Government have taken is wrong—I will say so. Where I think they are utterly and shamefully wrong, as in the 1971 withdrawal from Suez and the Gulf, I will say so. [Interruption.] From east of Suez and the Gulf. I take the point that is made. There are fields where the Chancellor might yet have to swing his scythe.

I divide the examination into three sections: social services, public expenditure and defence. I do not intend to plough through every item, but it is right, in this opening speech of the debate, to indicate our attitude towards the main blocs. The argument about selectivity and universality is one that has fascinated me for a long time, as the House knows. We have made a lot of converts to the doctrine of selectivity, and they are very welcome.

This development is also inevitable. It is 25 years ago that Sir William Beveridge, as he then was, produced one of the greatest State papers of all times. What he did was to look at the general misery of the 'thirties and produce a general answer to it. That was right in the circumstances of the time, but that is not the problem of today. Both sides of the House can take credit for this. The problem of today is how one meets the particular needs of groups that have been left behind in a general advance.

The difficulty is that so much of the thinking has stayed behind, in the 'thirties, while the problems of prosperity have moved on into the 1960s. It is also an odd reversal of traditional philosophy, because the doctrine of selectivity is basically the doctrine of to each according to his need ", and this has always been, as I understand it, a Socialist slogan. Universality is outdated. It stems from a fear of the means test, but this has little relevance today, because the argument that I would put before the House is this: if it be our objective to meet particular needs, that implies identification, and identification in turn implies some sort of test.

The crucial case is family allowances. We know the basic problem here. There are 160,000 families who have 500,000 children living below the poverty line. This is an accepted figure. The Government's solution was to pay 7s. to everybody, rich and poor alike, irrespective of need. But that would still leave half of these children—250,000 of them—living in poverty.

At the time, I pointed out to the House that, with the same overall amount of money entailed in paying 7s. for all entitled children, the Government could pay £1 a week each for the 500,000 children below the poverty line. I said that it made vastly more sense to identify the children in need and give generous help to them. But that is not the proposal before the House, and I have some questions about it which I hope the First Secretary of State will deal with.

Paragraph 30 of the White Paper can be read in two ways, although I think that the Chancellor of the Exchequer cleared up the difficulties. As it stands, it could have meant that the right hon. Gentleman intends to recover the full amount by raising Income Tax itself. But I take it that the proposal is related to allowances. The point made by my hon. Friend the Member for Hertford (Lord Balniel) yesterday in an intervention is very valid.

There is a real distinction, which I beg the House to keep clear in its mind, between a tax relief and a cash benefit. They are not the same thing. One of them allows a person to keep more of his own money. The other, the cash benefit, is paid for by the State taking other people's money and distributing it. I ask the First Secretary of State—perhaps the Chancellor does not want to reply in detail on this yet—how this is to be done. As I see it, there are two possible methods. Either the right hon. Gentleman could add to the tax bill of those parents who have children and who pay at the standard rate, or he could reduce the child tax allowance. But that, of course, will have the result of bringing hundreds of thousands of people into Income Tax for the first time.

I believe that both proposals are a mistake and strike at the basis of Income Tax. Income Tax is founded on the principle that a man shall pay according to his ability to do so, but bearing in mind not just his income but his commitments—his dependants. The argument now used—and it is persuasive—in relation to children's allowances, could be applied with almost equal force to the married allowance and to other personal tax allowances. I hope that the Chancellor will reflect a good deal on this matter before he picks this method of solving the problem.

Lastly, I ask the First Secretary of State to bear in mind what has happened since the announcement of the 7s. increase in July, 1967. In November, the weekly insurance stamp went up by 2s. As a result of yesterday's proposals, the health stamp goes up by 6d. to a total of 2s. 6d., and the National Insurance Stamp goes up by 6d. I am referring to employees only, of course. This makes a total increase of 3s.

There has been already a substantial rise in the cost of living, and naturally a heavier rise lies ahead. Prices are forecast to rise between 5 and 6 per cent., and this may well be an underestimate. Food prices will certainly rise considerably more than that. It follows that at this rate it will not be long before the whole of the 7s. increase in family allowances has been cancelled out in this year, and I ask the First Secretary of State to deal with that.

I need say little about the prescription charge. I have been deeply involved in this matter since I came to the House. I think that to make a charge is right, but I do not want to go into doctrine about it. I leave that argument to the other side of the House. But I draw one curious point to the attention of the Prime Minister. What he said yesterday about exemptions is almost word for word what appeared in the Conservative Party manifesto in the 1966 General Election. There is, however, one difference. We undertook to exempt the disabled and the Prime Minister omitted this from his statement. I am not making a political point. I think that his omission must have been accidental. One cannot call the disabled chronic sick, but they are surely bound to be exempt. Perhaps the First Secretary of State will say something about that as well.

On the question of the prescription charge, I cannot resist, I am afraid, one small quotation from the Sunday Telegraph of 23rd July, headed, Charges would wreck N.H.S.. says Robinson. The report says: Proposals to make charges for treatment under the National Health Service would damage the Service, perhaps irreparably, the Minister of Health said yesterday. ' I believe that the premises on which these schemes are based are wholly fallacious,' he said at the Labour party's Eastern Conference at Cambridge. 'Those who propound them, at least within our own party, have simply not thought the arguments through.' I do not expect that the Minister of Health will be asked to the Eastern Regional Labour Party again, for those were rough words to the Government, and it is interesting that the right hon. Gentleman now has the job, which he regards as impossible, of thinking these problems through.

In parenthesis, and recalling my own time as Minister of Health, I think that both sides of the House—and I have acknowledged this on the Conservative manifesto as well—will be in desperate difficulty in trying to define who the chronic sick are. Other groups can be defined but the term "chronic sick" is such a nebulous one that it is very difficult to define. The chronic sick are by no means a group one can necessarily equate with being poor. Chronic sickness is something that afflicts all sorts of people and there are very real difficulties. I mention that in passing.

The Prime Minister (Mr. Harold Wilson)

Perhaps I may clear up any misunderstanding there may be about the question of the disabled in relation to the prescription charge. Yesterday, in reply to a question, I referred to previous regulations with regard to the war disabled. If the right hon. Gentleman is now referring to the industrial disabled, it is intended to include them with the chronic sick. I am sorry if this was not made clear. There is no difference between us as to what this is intended to cover.

Mr. Macleod

I am sure that there is no difference between us on this point. Indeed, I am not really making a point of it, but, with respect, I would point colt to the Prime Minister that the disabled cover a vastly larger section of people than either war pensioners or the industrial disabled. There are many people, as the right hon. Gentleman knows, and as I know from my own family experience, who are disabled but do not come under any of the headings he has mentioned. It is vital—and I am sure that this is common to both of us—that this matter be cleared up.

I turn now to education. I have already said that I believe the major decision to postpone the raising of the school leaving age is wrong in principle. The Secretary of State for Education and Science, at his first Press conference as Secretary of State, said how much importwice he attached to the raising of the school leaving age, and I believe that my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) was right in his recent speech when he said: …it would be absolutely criminal to boggle at the reimposition of a prescription charge, or at higher charges for school meals for those who can afford them, while announcing a substantial delay in the raising of the school leaving age… I think that the Government have probably chosen the most popular solution for a cut in education expenditure, but that, of course, is not a good argument for it. The case for this reform was examined and was reaffirmed without qualification both by the Crowther and Newsom Reports. We all know of the enormous differences there are between the number who stay on at school, for example, in the North of England and the number who stay on in the South. We know that when a reform of this sort is postponed, even for two years, there is a desperate danger that the impetus will be lost, and I am deeply unhappy to see this proposal in the package.

I do not subscribe to the doctrine that if one says that one particular part of a proposal is wrong one should automatically come leaping forward with an alternative, but in this case, as I said on television last night, it would have been better—not more popular, but better—to have increased the price of school meals rather than cut back on a cherished reform to which both sides of the House are committed. I believe that that makes better educational sense, not more political sense —I concede that straight away—but more educational sense.

The only other point on education which I take up is that I myself very much dislike that it is said that the capitation grants to direct grant schools are to be reduced. The present Secretary of State quite recently defended his decision not to increase these grants, in spite of rising costs, on the ground that the status quo should be held until the Newsom Committee reported. If that be the doctrine, then by the same token what is the justification now for cutting these grants? For free places it will merely put an extra burden on local government expenditure, and it is incontestible that this decision will hit the less well off parents of those who fill the remaining places and will tend to make the class composition of these schools all the narrower. I cannot think that that is what the Secretary of State looks for.

I turn now to public expenditure. I ask, first, the question which one must ask if one has taken part, as I have, in this sort of exercise. How much of this is real and how much is, for example, the ordinary Treasury gleanings which in any case occur at this time of the year as every single spending Department has its estimates and its budget put under the scrutiny of the Treasury? For example; by far the largest single item in the reductions for 1968–69 is that of £80 million in relation to investment grants. I find this saving entirely incomprehensible. I cannot trace, and nor in the limited time available to me have I been able to trace, and the Government Department concerned could not help me, any announcement of the Government's intention to accelerate.

In fact, the £80 million saving is notional. It is an estimate of the amount which would have been saved if an announcement which has not been made had been made. [Laughter.] But it is tragic at the same time. This is by far the biggest item. It comes to more than one-quarter of the entire saving. It is not surprising that people find this particular package not particularly reassuring.

The total deflationary effect of the package—and my calculation agrees with the main calculations in the newspapers this morning—after all the fire and thunder, is about £170 million. There are two months to go to the Budget, and I must ask the Chancellor a question and press him about it in a moment: does he really think that he can wait so long; does he really think that he can avoid taking action in the weeks which lie ahead?

Some commentators, both Mr. Peter Jay in The Times Business News and Mr. Sam Brittan in the Financial Times, say that about £500 million to £600 million is required. I will accept that figure for the sake of argument, although in one sense at least this is a sum without an answer, because we are concerned with the intangible, with the restoration of confidence, and that is something which cannot necessarily be measured in any given number of pounds or hundreds of millions of pounds. The impact of different items of expenditure, or taxation for that matter, are different in the confidence scales from what they may be in the arithmetical scales.

But if for the sake of argument and putting oneself in the Chancellor's position one accepts the figure, and if about £400 million or so is still needed, I must ask the Chancellor what he is to do about it. Does he think that he can wait two months? Does he not think that by doing nothing today he is inviting a spending spree which will make it all the more difficult for him to control as the Budget comes nearer?

Let me put a specific point to him. The easiest and quickest method of taking back, if it be right to do so, a large amount of money is through the use of the regulator, which could get anything up to £250 million very quickly. Does the Chancellor intend to use it? If he does, does he not think that he would be wise to use it swiftly rather than wait for the pressures, which are already there, to mount? What we are having is Government by instalment, and that is a very bad way of trying to overcome the confidence factors which we know beset us.

There was a notable absentee from the statement yesterday, and this is one of the reasons why we have characterised it as negative in character. It is very sad that we have heard nothing about the encouragement of savings. There is an alternative method, much better if we can do it, than some of the vague hints to which the Chancellor referred. If he is leaving this to his Budget—and he may want to do so—I urge him to make an important feature of that Budget the encouragement of savings.

I said that I would mention briefly some places where the Chancellor could also obtain revenue from this kind of source. First, paragraph 53, which refers to the number of people employed in the public service, is wet and weak-kneed. It is quite intolerable that the aim of the Government should be merely to hold this massive increase where it is. Since October. 1964, 52,000 people have been added to the public service. This paragraph stems from the defeatist thinking of the Treasury itself, because in the paper which it put to the N.E.D.C. and which was reprinted in the Financial Times of 4th January it said—and the Chancellor said this again today— General assertions that the public sector employs too many people are easy to make; but, given the functions which Departments and local authorities have to carry out (including new policy departures such as investment grants, the rate rebate scheme, and the Regional Employment Premium), it is far from easy to find ways of reducing the total compatible with provision of an efficient service. It may be far from easy, but it simply has to be done.

Very large sums of money could be saved here. The Prime Minister came much nearer to the right approach in one of his supplementary answers when he talked about the giving of targets. There is no other way. One must give a target to each of the Departments in Government and must tell them to get down to that given figure by a given date It is no good preaching vague instructions to them. That is the only effective way in which we shall control the growth of the Civil Service in this country.

There are many other matters— and I will pass very quickly over them—which would put, but I do not expect any agreement from hon. Members opposite. I would abandon the Industrial Expansion Bill and abandon all the transport Measures before the House. I would wind up as quickly as possible the Selective Employment Tax and—I do not wish to duck this issue—the regional employment premium as well, because a fraction of that money spent properly on major trunk roads for development areas would do vastly more good than would the R.E.P. and, incidentally, such expenditure would be a great benefit to the grey areas which otherwise suffer from the discrimination again them. I realise that it is not a direct Exchequer saving, but I would encourage rent rebate schemes on the lines of the recent Greater London Council pronouncement.

Mr. Robert Sheldon (Ashton-under-Lyne) rose—

Mr. Macleod

I will give way in a moment. I would also abolish the Land Commission— and that is a suitable moment at which to pause.

Mr. Sheldon

The right hon. Gentleman said that he would abolish the regional employment premium. Why, then, did he not advise his hon. Friends to vote against that Measure?

Mr. Macleod

In fact, we said that the right way to spend the money was that which I suggested a moment or two ago—by improving the infrastructure of the grey areas and of the development areas. If S.E.T. is to go, then in my judgment R.E.P. ought to go with it.

It ma well be that some hon. Members would say that the list of things which I have just announced would be a call to them to abandon half of their Socialist programme. That is quite true, but every line of this White Paper abandons Socialist promises and pledges. There is not a single paragraph or a single proposal, virtually, that does not go against some carefully given pledge. We remember the distinction which the Prime Minister once drew when he was talking about the housing programme, when he said, "This is not a lightly given promise. This is a pledge." This was in relation to the target of half-a-million houses. That was abandoned a few moments ago by the Chancellor of the Exchequer. Even the pledge has disappeared.

I turn to the last main section of my speech which is on defence. There is an urgent need for a defence debate. My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) hopes to catch Mr. Speaker's eye tonight, and I will leave to him many matters, particularly those concerning the level of forces and the supply of equipment. But what is vital for me in my opening speech is that I should declare our view on the accelerated withdrawal from the Gulf and the area known as east of Suez.

Very much of yesterday's statement—indeed, it is the first line of the statement —stems from the statement by the Prime Minister on 18th December when the House was expecting a statement on South African arms and, in short, was given a general economic statement. I think the House will agree that in the debate on South African arms, the best of the case—and there is a case on both sides—was put cogently and sincerely by my right hon. Friend the Leader of the Opposition and by the First Secretary. The First Secretary's speech, which was a very fine speech, has been somewhat weakened since by the suggestions of a threat, at least, that we might lose our position in relation to Simonstown. As the House knows, I detest apartheid, but I am bound to say that I judge it muddleheaded to sell machine tools and even handcuffs to South Africa and to refuse, at enormous cost to our export trade and some cost to employment, to provide submarines and planes for that country. I find it less than idealistic that as part of the cost of that gesture we should leave our friends in South-East Asia in the lurch and abandon, before we need to do so, our commitments to peace-keeping in that area.

I was very fortunate in that, being Secretary of State for the Colonies at the time of the wind of change, I had an opportunity, more than any other Member of the House, to advance the cause of the negro in Africa and of many of the inhabitants of many countries. I was very proud of being able to do so. I think that it is, therefore, obvious that I do not approach the question whether we stay or whether we go from the Far East through the eyes of Kipling, or perhaps more appropriately, in respect of Malaysia and Singapore, through the eyes of Somerset Maugham. Of course, one day we shall leave. It is folly to assume anything else. But we believe that it is wrong to name a date, even a date in the mid-1970s, and then, having done so, that to break our word, solemnly pledged and reaffirmed only a few months ago, is shameful and criminal. We seek now, even if he does not, to keep the Prime Minister's word for him.

There are scores of quotations from his speeches which I could read to him, but I ignore them all. I will, however, read two quotations from the Secretary of State for Defence—and, if I may say so, I understand how he must be feeling. The first is from HANSARD of 7th March, 1967. He said: Some hon. Members feel that, if we arc leaving Aden, we should leave the Gulf, too. But in the Gulf we have treaty obligations to States which are independent, such as Kuwait, which is a member of the United Nations. Moreover, the Gulf is an area of such vital importance, not only to the economy of Western Europe as a whole but also to world peace, that it would be totally irresponsible for us to withdraw our force from the area unless we were completely satisfied that peace and order would be maintained after our withdrawal."—[OFFICIAL REPORT, 7th March 1966; Vol. 725, c. 1786–7.] He said that it would be "totally irresponsible," but yesterday it was done.

The second quotation is from the right hon. Gentleman speaking in Canberra on 2nd February, 1966, when he said: We have no intention of ratting on any of our commitments. We intend to remain and shall remain fully capable of carrying out all the commitments we have at the present time, including those in the Far East, the Middle East and Africa. That was from The Times on 3rd February, 1966. He said: We do intend to remain in a military sense, a world power.… It would not make any military sense at all for us to leave Singapore unless we had to. He spoke of "ratting on our commitments. But yesterday it was done.

The scale of British interests, of course, is formidable. In Singapore and Malaysia the official sterling balances are about £345 million. The estimated value of British private investment is about £700 million. The trade balance in our favour in 1966 was £80 million. In 1966, British exports to the Middle East were £302 million; British imports from the Middle East were £395 million.

Yet I confess that the need to consider British interests does not weigh first with me. In my view, it is our treaties, our obligations and our duties which come first. Yesterday, my right hon. Friend the Member for Barnet (Mr. Maudling) asked the Prime Minister whether the statements which he and other Ministers had made, giving pledges on behalf of us all—because they were speaking for Britain and not just for a political party —could be laid before the House. Let us have them—the whole sad and sorry list. There has been a stern reaction from America, Australia and New Zealand warning us of this folly.

I do not expect any sympathy from large sections of the party opposite, but I feel that the Foreign Secretary and the Secretary of State for Defence will understand the point that I make when I say that I am very concerned about the effect of this in relation to Vietnam. No doubt, by the mid-1970s the Vietnam conflict, which we all want to see end, will have come to an end. By 1971—who knows? Is it not dangerous to leave a vacuum on the southern flank and might it not encourage continuance of a war which everyone wants to see ended? My right hon. Friend the Member for Barnet, who has frequently and recently visited the Gulf, will be making special reference to that.

However, with regard to the Far East, I agree very much with the representations made to the Prime Minister by the Malaysia-Singapore Commercial Association: All British interests in Malaysia and Singapore view this new situation with the most protound misgivings. This Association is the spokesman for a majority of these interests and we should like to emphasise that we are not protesting against the policy decided upon last year but only at the fundamental change in the policy which flows from the accelerated tempo of change—a change which we think may have disastrous consequences. I have followed with close interest the efforts of a man who has many friends on both sides, Mr. Lee Kuan Yew, Prime Minister of Singapore. It appears that he has at least won a nine months' reprieve. so that the journey and advocacy that he has put into the effort has not been wasted.

There is no saving at all, even under this proposal, next year. My right hon. Friend the Member for Wolverhampton, South-West was entirely right that in the Tory years a steadily reduced percentage of the gross national product was taken by defence; and that is a policy which we believe can and should continue. But the risks which are admitted by the Prime Minister in this acceleration are simply not acceptable to us. If there is a price to be paid for defence and for keeping our word, then we must pay it. I make quite clear that when we become the Government, if in the years to the mid-1970s it is practical and helpful for us to maintain a presence in the Far East, we shall do so. We will keep the Prime Minister's word for him. Events have largely passed the Prime Minister by.

Mr. E. Shinwell (Easington)

Is that a pledge?

Mr. Macleod

Yes, and one we will keep.

Mr. Christopher Mayhew (Woolwich, East)

rose—

Mr. Macleod

But I simply cannot understand how the Secretary of State—

Mr. Mayhew

Will the right hon. Gentleman assure the House that the Opposition would not support the deployment of British forces east of Suez during this period without the support of the F111A and the carriers?

Mr. Macleod

No. The F111 and the carriers are not necessarily part of the presence for which Mr. Lee Kuan Yew has asked, as the hon. Gentleman knows very well.

I have urged speedy action on the Chancellor of the Exchequer. I hope that he will reflect on what I have said—because I mean it as a most serious point—about the delay between now and the Budget, which is two months ahead. I leave the undertakings which I have read to the House to the Ministers concerned. I simply do not understand how the Secretary of State for Defence or the Secretary of State for Education and Science can live with what they have said and with what they are trying to do. I, too, am in no sense a pessimist. Of course, things are extremely difficult at the present time; no one can doubt that. But equally no one can doubt that the British people have always responded to leadership, and if the Government are unable or unwilling to give that lead they should give way to those who are anxious to do so.

Mr. Deputy Speaker (Sir Eric Fletcher)

Mr. Newens.

Sir Harmar Nicholls (Peterborough)

On a point of order. is there any chance of the Amendment in the name of my hon. Friends and myself being called? The one fundamental point which has come out so far is that the essential need at this time is exports, and our Amendment is the only one which deals with that point in precise terms.

Mr. Deputy Speaker

That Amendment has not been selected.

5.26 p.m.

Mr. Stan Newens (Epping)

The arguments which we have heard today from both Front Bench speakers accept that vast cuts in domestic, public expenditure are required to overcome our balance of payments problems. Yesterday, the Prime Minister defined very clearly the aims of the cuts. He said that they were to release resources from home use; secondly, to provide a curb on public and private demand and to prevent inflation; and, thirdly, to ensure that expansion is export led and not consumer led. There was one aim which was not specified and which has not been clearly mentioned today—the psychological aim of seeking to restore confidence, so-called, in international business circles.

As the right hon. Member for Enfield, West (Mr. Iain Macleod) said, yesterday sterling fell, allegedly because of the failure to announce the curbs on private expenditure which are to come. I maintain that many of the cuts which are being embarked upon are necessary, not to release resources for exports, but to meet the demands of the international bankers, of the speculators in sterling and of the most reactionary economic circles in this country and in the world.

If we examine the cuts which are to be made, we can see that the effect of many of them in releasing resources or labour for the expansion of exports and for dealing with our fundamental needs will be minimal. Take the question of school milk. We are told that this is a necessary cut. In my view, what will happen when school milk is stopped is that certain farmers will go out of producing milk for dairy purposes and will probably go over to cereal production. The milk which will be saved certainly will not be used for exports. Making charges for prescriptions will not release labour or resources for helping the export drive.

In my view, these cuts are fundamentally unnecessary if we are to deal with our economic problems in a sensible manner and if we are not to pander the whole time to reactionary economic interests and outlooks which have brought us to the present crisis. I am prepared to agree that the policy which has been pursued by the Government up to now has been wrong in many respects. I only hope that at this stage the Government will at last recognise that it is time to cut adrift from those policies which, unfortunately, are still embodied in the decisions which have now been taken to pander to reactionary economic ideas.

I accept that there would be certain indirect effects of the cuts in mopping up the pressure of domestic purchasing power, but the cuts which are being made greatly exceed any resultant help for the balance of payments. There is already slack in the economy with the present level of unemployment and our reserve industrial capacity. In my view, we should in present circumstances introduce economic measures which would enable us to expand production both for consumption at home as well as for exports.

Consider the motor car industry, from which so much of the economic growth which is talked about has come since the war. The motor industry has been able to maintain its competitiveness internationally only because of the expansion at the same time of home demand. If home demand is reduced drastically, that reduction may well increase the unit cost of output and, therefore, make it considerably more difficult for the car industry to make the sort of contribution to the export drive which is required. I maintain that we need expansion on the domestic front if we are to sustain the competitiveness in exports that we require at the international level.

It seems likely that the present economic package will primarily place the burden on the lower paid workers, and I believe that something like 2½ million workers earn less than £14 a week. Let us think of those people for a moment. Their incomes will be restrained at the same time as prices will rise, not only in the retail sector but, in addition, for fares, fuel and rents.

Those people must put up with the Is. increase on the insurance stamp. If they are sick, they must pay their 2s. 6d. for health prescriptions—and remember that it is 2s. 6d. not for a bulk prescription but for each individual item on a prescription—when somebody is sick. In addition, if they require dental treatment, the minimum cost has been raised from £1 to 30s. Furthermore, no free milk is to be provided for their children at secondary schools.

In other words, all those people who most need help will bear the brunt of the package. When people talk in terms of selectivity, I believe that the objectives which, they claim, they are seeking to achieve by means of selectivity will be denied by the effects of the package.

The same people will be affected by postponing the raising of the school-leaving age, particularly the children of families living away from the more prosperous areas in the South-East, where the numbers of children who stay on voluntarily beyond the age of 15 fall considerably. It seems to me—and I say this as a teacher and one who has had a certain amount to do in demanding improvements in education—that this is a very regrettable and disastrous step.

When the raising of the school-leaving age was put off in 1931, it was not until the war came that eventually the intended improvement was made. The present temporary postponement could easily be a means of putting off this very necessary step for many years.

Mr. J. C. Jennings (Burton)

Speaking also as a teacher, may I ask the hon. Member whether he would not agree that if cuts have to be made in education in this package deal, in at least this one respect the Government are right in their priorities; that the first priority in education is the primary schools and the remedying of the grave neglect in that direction—that is the first thing that should be put right—and that we should quite rightly defer the raising of the school-leaving age?

Mr. Newens

Basically, I do not accept he necessity for these cuts in education at all. Therefore, I am not prepared to argue about my priorities for individual cuts from that point of view.

The basis of the case which has been advanced from the Government Front Bench, and accepted on the other side of the House, is wrong. I believe that the cuts in domestic public expenditure will not automatically help imports or produce import savings, at least certainly riot to the extent commensurate with the stringency of the cuts actually imposed.

When we consider the situation with which we are faced and we talk about spending more abroad than we are earning, we must realise that this is not something which applies simply to our exports as against imports. From 1950 to 1966, visible and invisible exports exceeded the level of imports quite handsomely. The principal reason why we were spending more abroad than we were earning depended upon two factors: overseas investments and, secondly, the maintenance of our military commitments.

Although I am very unhappy about the package which has been put before us, the cuts in military expenditure overseas which it contains are very much to be welcomed. The only folly is that we ever embarked upon the original endeavour to maintain those military commitments and sought to enter into an agreement, for example, to purchase the F111 and the other military aircraft from the United States of America. Had the policy which I and many of my hon. Friends, particularly here below the Gangway, have been advocating since 1964 been adopted at an earlier stage, this country would be in a very much healthier economic position today and we would not be faced with the sort of package we are being asked to support at present.

However, I want to say quite honestly that I still do not believe that these cuts in military expenditure go far enough. We should turn our attention to what is probably the most expensive of all these military commitments—the maintenance of the British Army of the Rhine, which is more than anything else a way by which we subsidise the German balance of payments position. If 23 years after the Second World War ended we look at the situation and consider whether or not it is still necessary for us to regard this form of expenditure as useful, I say, quite frankly, that I believe that it is high time that we turned our attention to drastic cuts in this area as well. There are numerous other spheres of military expenditure where I would equally strongly demand that further cuts should be made, because when one considers the Prime Minister's statement yesterday one can see very clearly that the major cuts which are to be made in the immediate future are not in the military sphere at all but are in the sphere of domestic public expenditure.

I personally feel that this sort of policy of putting the burden on domestic expenditure is not in the long run going to work. We have been talking about achieving a tremendous change-over in our balance of payments. Has anybody seriously considered what is going to happen if we are successful in achieving this turn over? Are the Germans and the French and the Scandinavians going to sit back while they lose their export markets to the extent that our exports prosper? Are they going to take no action? Is it sensible that we should regard the economic situation outside of this country as static? Every hon. Member who has paid attention to the economic situation in the world today knows very well that the measures announced by President Johnson a few weeks ago will have a very considerable effect upon the world economic situation, as we were considering it at that time. To the extent that our economic polices succeed so other countries will take precisely those reciprocal actions which those of us who talk in terms of other measures are often told about. Those reciprocal actions which will be taken in any case will make our attempt to secure the sort of aims we have set ourselves to achieve impossible.

Hon. Members have got to consider what is happening to world capitalism. In my view, we had a period during the 'fifties in which high rates of economic growth were possible for a variety of reasons with which I do not intend to weary the House now, but in the 'sixties one can see, when one looks at the position right throughout the world, that this is no longer the case, that most countries are finding it very much more difficult to sustain high levels of economic growth, and the results of any of the measures which we are taking are likely to produce reciprocal actions, and there is a very considerable likelihood that the world will move into a period of economic stagnation. This illustrates something which is fundamentally rotten in the world economic system and in world capitalism which those of us in this House who are Socialists are still concerned to change.

It is all very well for hon. Members here to talk very glibly about the present state of affairs and to advance various policies which they think are practical and realistic and dismiss as being quite out of this world the sort of suggestions which my hon. Friends and I have put forward, but could anybody—and I address my remarks particularly to hon. Members on the other side of the House —could anybody have created a more critical economic situation in this country —which is fundamentally a rich country —than has been created today by Governments other than this one? This. hon. Members, if they are honest, know very well is true.

My hon. Friends and myself have put forward in the Tribune statement certain alternative policies which we believe would enable us to tackle many of the problems which we are facing in the world today and in this country, and to tackle them very much more effectively than by the sort of policies which have been advanced and which are being advanced either by the Government or by the Opposition.

It seems to me that it is very necessary that we should not reject ideas of direct controls on imports. Only last week I was given an example of large quantities of manufactures—household kitchen sinks—which we could easily make in this country and which are being imported into this country as a result of a recent agreement entered into by a large organisation. I could cite many other examples of this sort. To my mind it is absolutely essential that we should be prepared to keep out from this country all manufactures which we can make at home.

Mr. Jennings

Shades of tariff reform. Go back to the nineteen-twenties.

Mr. Newens

I do not follow the hon. Member's point.

It seems to me we should certainly introduce direct controls on a Short term basis tili we strengthen our position.

Mr. John Hall (Wycombe)

The hon. Member has mentioned something which comes within my own experience. My own firm exports to the United States goods which in the United States they can manufacture and do manufacture perfectly well. Would the hon. Member call upon the United States also to bar imports of goods which they can make?

Mr. Newens

I think that the United States are very often very much more hostile to the import of foreign products than we in this country are, but of one thing I am quite certain, that so long as we maintain—I am glad the F111 has gone—a heavy adverse balance of payments with two of our principal rivals in the West, namely the United States of America and Western Germany—I am speaking about those two in particular—we cannot possibly hope to over-come our balance of payments problems. What would be involved in the case of Germany would be exporting a vast quantity of goods to the Germans which they can make themselves. The same is true in the case of the United States of America.

In my opinion, we have to embark upon different policies. It is in that frame of mind that I believe that the Government's policy still does not deal with the fundamental economic problems which we face. Had the items in the Prime Ministers package been put separately, I should have been very happy to give wholehearted support to the cutting back of military expenditure. However, I do not believe that many of the other cuts are necessary to help us to deal with our economic problems and, in those circumstances, I do not feel that I can support them. Therefore, when they are presented to the House in the form of an economic package. I shall find myself obliged to abstain in the Division which is to come tomorrow.

The fact that I find myself in that position is one which I do not relish. I feel very unhappy about it.

Mr. James Hamilton (Bothwell)

If all my hon. Friends accepted the point of view put forward by my hon. Friend the Member for Epping (Mr. Newens) and abstained, the Government would be out of office. Is that really what he wants?

Mr. Newens

Having spent most of my adult life working for a Labour Government, the last thing that I want is for that Government to fail. However, I believe that this Government are in danger of failing in the long run because they have refused to embark upon the policies which I believe to be correct. Like my hon. Friend the Member for Bothwell (Mr. James Hamilton), I have done a great deal of electoral work over the years. I have come to recognise recently that there is no additional enthusiasm for the obsolete, anachronistic and out-dated policies of the Conservative Party. At the same time, however, there has been a catast-ophic fall in support for the Government among Labour voters, which is reflected in the tremendous level of abstentions at recent by-elections.

I believe that the only way in which that situation can be reversed is by embarking upon different policies, and I have no other way of forcing the Government to embark upon the policies which I believe to be correct and necessary for the salvation of this movement than that of withholding my support in the Lobby tomorrow night. I shall do so with very great regret. Furthermore, I shall not do it for any trivial, short-term reason. In the long run, I believe that the only answer to the problems which the world faces today lies in Socialism. The Socialist movement has been built up by hundreds of thousands of individuals working in this country for generations. If that movement is dissipated by support for the sorts of policies and arguments which are equivalent to those which have been put forward by the Opposition, at this stage of our history we shall be doing something which is very damaging to the country's Socialist tradition.

In many ways, we have reached a cross-roads. I say without shame that for those of us who believe in a Socialist solution to the problems of our society, there is no future in policies which seek merely to run capitalism differently from the way in which right hon. and hon. Gentlemen opposite would run it, and we must have the courage of our convictions to say so clearly.

The package which has been put before us in respect of prescription charges, deferring the raising of the school-leaving age and many other respects, in addition to the continuing restraint on private incomes, is wrong. I intend to make it clear that I believe that it is wrong by withholding my vote from the Government tomorrow night.

5.54 p.m.

Mr. Jeremy Thorpe (Devon, North)

I hope that the hon. Member for Epping (Mr. Newens) will forgive me if I do not follow him in an examination of world capitalism and the need to return to protectionism, although that might have gladdened the heart of Joseph Chamberlain, or in assisting him in wrestling with his own conscience. It must be difficult for those who regard themselves as Socialists now to be supporting this Government.

I have considerable sympathy for the Chancellor of the Exchequer, for whom I have a great personal regard. He is dealing with a situation which he inherited from his predecessor, whose optimistic clichés in the summer led, on his own initiative, to his resignation in the autumn. What is quite plain to me is that the ex-Chancellor did not leave very much in the pigeon-hole after devaluation for his successor to adopt and carry on.

The Amendment which will not be called but which has been tabled in the names of my hon. Friends and myself condemns the Government for the incoherent jumble of hastily contrived promises on public expenditure which fail to give the strategy and leadership which the nation needs and has the right to expect.

One major criticism of the Government, among many, is their appallingly bad timing. First, we had devaluation. To many people and to many right hon. and hon. Gentlemen opposite, the need for devaluation had long been obvious. After months of speculation and denial by the Government, it was brought about in a panic measure in November of last year. Then we paused and had to wait two months before the Government could come forward and tell us their policies to back up devaluation and take advantage of it. We are now to wait another two months before the Chancellor will come forward and say how he intends to deal with the private sector of the economy with virtually no attempt at the moment to hold consumption in check.

There has been the most appalling mistiming by the Government on almost every economic factor. No one could accuse the Prime Minister of insomnia in politics. Quite the contrary: he is such a heavy sleeper that he is roused only when the alarm bells are actually ringing in his head. All this has happened because every year the Government have indulged in vast expenditure which has outstripped our resources, with a defence posture worthy of Rudyard Kipling, defending the parity of the £ at all costs, even that of sacrificing economic growth. Even now, they are losing the opportunity of getting any public response because, although the electors have shown a mood of determination, consistently they are well in advance of the Government.

Let us take defence as an example. The Chancellor of the Exchequer accused some members of the Tory Party of clinging to an untenable concept. In many spheres, that may be right. But does not the same apply to the defence posture of Her Majesty's Government in the past few years in the Far East? Have they not been clinging to an untenable concept?

In answer to the right hon. Gentleman the Member for Streatham (Mr. Sandys), who asked why it was that we had changed our defence policy, he said that it was because there had been a major change in our world position. Has that occurred only in the last six months since the last supplementary Defence Review? Time and again, whether in the Far East or the Gulf, they have taken the right tactical decision not from a realisation of the political lunacy of spending £216 milion a year on defence in the Far East or nearly £50 million in the Gulf, but because their minds have been made up for them by the force of economic events which they were unable to control.

So it is not out of political realism, but out of economic necessity that this change has come about. To call that courageous is like saying that a man who is pushed into a swimming pool and cannot swim is courageous if he fights to get out at the other end—[Interruption.] Whether the hon Member for Ebbw Vale (Mr. Michael Foot) swims or not, I never in these matters regard him as having waterwings.

Turning to the Government's Supplementary Statement on Defence Policy, they say, in the introduction: Defence policy can never be static. How right they are! Since the start of the Defence Review we have had to make the best possible long-term assumptions in our planning …". We now know that the best possible long-term assumptions that this Government can make are of approximately six months' duration. In paragraph 8, talking about the reductions, they say, …we are determined that they will take place in an orderly manner which will enable our Commonwealth partners to adjust their plans, and will allow Singapore and Malaysia to make the necessary economic transition as smoothly as possible. We plan to withdraw altogether from our bases in Singapore and Malaysia in the middle of the 1970s; the precise timing of our eventual withdrawal will depend on progress made in achieving a new basis for stability in South-East Asia and in resolving other problems in the Far East. We now know that was a bogus commitment and that the decision, the actual details of which I personally support, has been brought about for the wrong reasons and has produced the maximum bitterness and the maximum dislocation of the economies of the countries affected.

It is difficult to say when any Government—even this Government—could have realised that the time had come to start phasing out our obligations in the Far East. Some would say it was from 1966 when there was the Suharto coup d' etat in Indonesia and it looked as if confrontation was on the way out. Some might say it was even 12 months before in 1965 when the heat was being taken out of confrontation. Certainly, many must have realised our comparative impotence at the time of the Indo-Chinese war. Had they started to think about phasing out instead of going on and on and on with commitments, we might have started that phasing out before we had bought the F111K, which we bought after we had cancelled the TSR2. We should not have lost £40 million in cancellation charges. I personally think that the total bill will be £100 million, taking the offset costs as well. I think that the Prime Minister is wildly off on this in thinking the cancellation costs are likely to be only £40 million.

We certainly could have done without the grave attack on the morale of the Services who are now facing cuts upon cuts. We might have been able to conclude regional defence arrangements on the Kuwait basis with our partners in the Far East without the bitterness which this rapid withdrawal will bring about.

It might have been possible not to have embarked upon the Phantom project. I asked the Prime Minister yester-day what the position was here. We are now committed to buying 170 Phantoms at a cost of £755 million over the next 10 years. The first 50 are required for the Royal Navy. Since it is essential that they are aircraft-carrier based, and since we are not to have air-craft carriers—unless they are to be put on rowing boats—I suggest that the Royal Navy will not require those 50 Phantom aircraft. There were to be 120 for the Royal Air Force. I suggest that the 50 which were scheduled to go to the Navy might now be transferred to the Royal Air Force. I wonder whether, with its limited rôle, the Royal Air Force will need as many as 120. There-fore, even if they are reduced to 100, we shall still save, by cancelling 70 at £2 million each, about £140 million more on our defence bill.

But no doubt, as always happens when we order planes, we shall cancel them when the cancellation charges are likely to be at their maximum. So perhaps it will not be a total of £140 million, but about £100 million. I hope that when the right hon. Gentleman replies he will say something about the Phantom project, because it is an enormously heavy prospective expenditure for this country. We shall probably be told today that we have no intention of cancelling any part of the Phantom project, which means that in two years' time it will be cancelled in whole or in part.

It will be interesting to know when the Anglo-French Jaguar project is to get off the drawing board, because it seems that this does become of importance. I hope that there will be an assurance that R.A.F. Transport Command will not be cut and that there will be no cut in the Hercules or the military version of the VC10, because they will be needed for the new type of military operation which the Prime Minister envisages in his statement.

I hope that we may hear something about what the Prime Minister used to call the so-called independent so-called nuclear deterrent. That was in one of his earlier manifestations when he was in opposition. It is true that the major capital expenditure on Polaris has already been expended—thanks to the weekend activities of a succession of Cabinet Ministers' wives who have attended numerous launching ceremonies. It is significant that the last Polaris stuck in the mud—no doubt wanting to show some sympathy for the corresponding plight of Her Majesty's Government. The existence of the Polaris may be a useful bargaining counter to achieve a nonproliferation treaty or in the renegotiation of N.A.T.O.

But I hope that one thing has become absolutely plain, namely, that this Government will not embark on a second generation of nuclear weapons for this country. Having recognised the realities of our position in the world by our withdrawal in the Far East we have no right to pose as an independent nuclear Power, unless we believe that the independent possession of that nuclear power will deter any would-be aggressor. This, I maintain, would only be successful if it was credible to believe that Britain would use nuclear power independent of her allies. If any Government were prepared to do that, God help the people of this country.

What about the T82 destroyer? The House will remember that in 1966 we ordered two of them. In 1967 we cancelled one, and so, on past form, it seems logical we might do the same in 1968. That would save at least another £20 million. What is to happen to the ships in the Far East, of which there will probably be about 20 withdrawn? There is a suggestion that they might be stationed in the Mediterranean, supporting the weak south-east flank of N.A.T.O. and possibly counterbalance the increased Russian influence there.

In paragraph 19 of his statement the Prime Minister said that there would be corresponding cuts in the civilian man power attached to the Ministry of Defence. When one reckons the public service bill for the 114,400 U.K.-based staff at the Ministry of Defence costs something like £129 million a year, we should look carefully to see that there are corresponding reductions.

On defence, I am delighted that the Government have at last recognised the realities of our world situation by withdrawing east of Suez. How many millions of punds they could have saved if they had done the obvious two to three years ago, or even started to do the obvious two or three years ago.

The Chancellor said that everyone had some pet project which he was not prepared to see axed. How right he is. I suggest that the staffs of Government Departments are the Chancellor's pet project, and that one of the most ludicrous phrases in the White Paper to which I referred yesterday is in paragraph 53 where it says: Government Departments will, under the guidance of the Treasury, plan their staffing so that over the year 1968–69 there is no further increase in the number of civil servants as a whole. This is estimated to save £15 million. It could save that sum only if it was envisaged that there would be an increase. We are told that this is a great saving. Because the Government are not to increase the number of civil servants, but merely to hold them at what they are this will save the country £15 million. The Civil Service is one of the largest growth industries of this Government. It has increased by 52,000 since 1964. The 122 public relations officers who have been appointed, taking the total cost of their ancillary staff and pensions, have already cost more than £500,000.

One must accept that the increase in the Civil Service is something for which the Government are entirely to blame. There is, for example, incredible centralisation. Every planning appeal has to go to Whitehall, there is then a delay of six months before it can come on, and a further three months' delay before a Ministerial reply is received. Again, the most incredibly detailed expenditure on education has to go to Curzon Street and go through the mesh of the Department of Education and Science. If ever there was a case for devolution, I should have thought that it was now proved.—[Interruption.] It shows how little thinking hon. Gentlemen opposite have done. It will need four more Scottish Nationalist victories before they come to their senses.

There is tremendous multiplication at the moment. I know of a colleague who had the experience only last week of writing to the Department of Economic Affairs, the Treasury, and the Board of Trade. The case is passed from one Ministry to another, until, finally, the applicant is told which is the appropriate Department of the appropriate Ministry to approach. If regional councils had power to grant I.D.C.s, if grants under the Local Employment Acts did not have to go to a centralised Board of Trade Advisory Council which takes six months to adjudicate, and if power was pumped into the regions, with democratically elected regional councils, we would have much greater efficiency at a much lower cost.

The total wage bill for staff in Government services has risen by between 71 per cent. and 10 per cent. per annum. This has been the extent of the increased demand on public expenditure. Even if it was kept at 5 per cent. this would produce a saving of £140 million by 1970. I believe that every civil servant should enjoy the increments to which he is entitled provided that they are comparable to the national norm prevailing at the time.

But the total wage bill, which, after all, is running at £600 million per annum, should be frozen as a static total, and within this total the job of thinning out and reallocating duties should start straight away.

I cannot vouch for the accuracy of this figure, but I know that the general point it makes is correct. If, in the Government service, we had saved on forms in the past three years as much as the industries of this country saved, we would have had 500 million fewer forms, used 4,000 tons less of paper, and saved £100 million. [Interruption.] Hon. Gentlemen opposite must keep their fire for their own side. I am sure that it will be better received. [Interruption.]

The hon. Member for Lewisham West (Mr. Dickens) was not listening. I suggested that cuts should be made in the Phantom, and in the £600 million bill for the Civil Service—[Interruption.]

Mr. Speaker

Order. The hon. Member for Lewisham, West (Mr. Dickens) must contain himself.

Mr. Thorpe

The hon. Gentleman was not listening. I suggested economies in respect of the T82 destroyer. I suggested, too, that there should be economies by not starting on a second generation of nuclear weapons. I have suggested that considerable savings could be made in Government Departments. I believe that £35 million could be saved by the 5 per cent. wastage which one can expect in the Civil Service, and the 5 per cent. which on any management consultant basis, I believe, would be declared redundant.

Mr. Peter Bessell (Bodmin)

Would not my right hon. Friend agree that it would he better to save the £70 million which it is proposed to spend on part of the Transport Bill?

Mr. Thorpe

We are told that part of the purpose of the package deal is to assure foreign bankers, of whom the hon. Member for Epping (Mr. Newens) spoke so eloquently, that we have our priorities right, and that we have every intention of defending the £. To bring in a measure of nationalisation at a cost of £70 million in increased borrowing powers does not seem to be the most relevant Measure to introduce to bring that convincing evidence before the world.

We are told that there will be a net saving of £25 million by the introduction of prescription charges. I think that this is an over-estimate. I do not think that the savings will be anything of the sort. There will be a great temptation—and I make no criticism of this professionally—for bulk prescribing. Very often doctors will feel that their patients who may not come within the exemptions are not able to afford the treatment to which their illness entitles them. There will be a return to bulk prescribing. There will also be a return to blunderbuss prescriptions. When charges were made in earlier days, many drug firms combined two or more drugs in one tablet so that it served a dual purpose. I think that the hon. Member for Falmouth and Camborne (Dr. John Dunwoody) is familiar with this practice.

There will be tremendous difficulty in trying to decide who are, and who are not, the chronic sick. When there were charges under a Conservative Administration, the exemptions were not as great as are now intended, but even in those days it was extremely complicated to work out who should be exempt, to collect from those who had to pay, and to collect from and repay to those who were entitled to have the money refunded. There were the most incredible bureacratic difficulties.

For the last three years the Government have been conducting a review into how the Health Service should be financed. I think that there is a strong case for changing the method of financing it. I have no objection to people paying for the use of the Health Service, but I believe that to decide how we should finance the Service as part of a package of cuts at a time when we are hoping to hold wages, at a time when we have decided to tax the sick, is a short-sighted and bad decision. The Government are singling out those who are sick, and who, on the advice of a doctor, require drugs.

In an article in The Guardian on the 12th of this month my hon. Friend the Member for Cheadle (Dr. Winstanley) instanced the case of a person who was suffering from pneumonia and was treated at home who might now be expected to spend about £1 or 30s. on drugs. Had she been admitted to hospital she might well have cost the nation about £20 or £30 a week and her drugs, which are part of the £150 million a year we are spending on drugs, would have been free, as would her food, her accommodation and her laundry. It seems to me ludicrous that a patient who is, let us say, a diabetic, and who goes to the doctor's surgery, will have to pay 10s. for a prescription for cotton wool, insulin, surgical spirits and hypodermic needles, although she will probably take only two minutes of the doctor's time, whereas a patient who goes to see the doctor for a long talk. lasting for an hour, about her matrimonial problems will find that it costs her nothing. This is a thoroughly bad scheme and my hon. Friends and I are bitterly opposed to it. It will impose hopeless administrative problems on doctors, because 5,000 out of 23,000 registered doctors are also dispensing doctors. This will add to their work and their administration at a time when we are critically short of doctors.

I turn to the cuts in housing and roads. These represent very short-sighted cuts.If the Government wish to reduce the subsidies being spent on housing, I would far rather see the subsidies which are being paid also being assessed for tax purposes, which follows the same philosophy as that of the Chancellor of the Exchequer on family allowances. We should subsidise the person and not the bricks. To cut down on starts in housing is incredibly short-sighted. I am told that one reason why the Government felt this acceptable for Scotland was that they were unlikely to meet their targets in any case, so that in Scotland it gets one Minister off the hook.

Personally, I reluctantly accept the postponement of the raising of the school-leaving age for one reason, and subject to one comment. The reason is that, whatever the Government may say, there is clearly a shortage of teachers, and the present strength of our teaching staff will be insufficient to meet the increased demand made upon them. But if we are to postpone the raising of the school-leaving age, let us at least do something for the primary schools. Let us put Plowden into operation. I therefore hope that the Government will not reduce the total sum available for education, for that would be a very short-sighted economy indeed.

It is depressing—and here I agree with the right hon. Member for Enfield, West (Mr. Iain Macleod)—that no guidance has been given to the private sector of the economy. It must wait until the Budget in the middle of March. In 1965 and 1966, and in the 1967 Parliament, my hon. Friends and I supported the investment grants because we were told—and at the time we believed the Government—that they would be a more expedious way of assisting industry than investment allowances set against Income Tax.

We were told that the payments to industry would be accelerated and that, although there was a 12 months' delay at present there was every expectation that the process would be speeded up. The development areas are referred to in one context in paragraph 47. I ask the Minister whether, for the purposes of paragraph 47, the development areas are included in paragraph 49—that is to say, whether they will continue to suffer the twelve months delay or whether they will be given special treatment.

What I find personally depressing is the cost to the country of the delay of so many of the things which the Government have done. The greatest example is in defence. Why the electorate is disenchanted with politicians, and with the Government in particular, is that time and time again they have seen the helplessness of the Government to overcome events which were largely of their own economic creation. Nor do I think that they will get very much assistance from the Opposition. We do not know when the Opposition would have pulled out east of Suez. We are told that they would have honoured the 1975 commitment. We do not know how much longer they would have stayed. [HON. MEMBERS: "What would the Liberals have done?"] If the advice of the Liberal Party had been taken, we should have been in Europe and out of the Far East, or at any rate phasing out of the Far East, many years ago and no longer an independent nuclear Power. We should have saved many millions of pounds. That is what the Liberal Party would have done, and it is the fault of right hon. Gentlemen opposite that they do not look for wisdom where they could get it.

We still do not know whether the Opposition would have devalued in November. I think that the decision to devalue was right, but that it was taken in the wrong circumstances. It should have been done much earlier and with a proper package deal to support it. What is again depressing is that we could probably have saved the £ by the right measures, we could certainly have been in Europe by now and we could with equal certainty have with drawn from the Far East two if not three years ago without breaking commitments.

The right hon. Member for Easington (Mr. Shinwell) appears to be making some comments. I know that he is a good sedentary shouter, but he makes no impression upon me at all.

The British people have seen their resources and the latent powers which they possess wasted time and time again. I understand that tomorrow night the Opposition do not intend to divide on the main Motion. We on the Liberal bench do intend to divide upon it. Perhaps that may assist hon. Members who wish to abstain. The Leader of the Opposition has promised that he will harry the Government on their economic policies night and day—but apparently not in the mornings. I hope that on this occasion he will change his mind and that the Opposition will go into the Lobby. But we shall vote against the Tory Amendment because we believe that the cuts in overseas expenditure are right even if they have been introduced at the wrong time and for the wrong reasons.

6.26 p.m.

Mr. Austen Albu (Edmonton)

The tone in which the debate was opened by my right hon. Friend the Chancellor of the Exchequer and by the right hon. Member for Enfield, West (Mr. Iain Macleod) was the tone in which the country expects the debate to be conducted. If there were some parts of the historical analysis of the right hon. Member for Devon, North (Mr. Thorpe) in which I found agreement, nevertheless I found it difficult to believe that it was a speech being made by a leader of a once great party.

After the speech of the right hon. Member for Enfield, West it is clear that the Opposition's claim that they would make substantial cuts in public expenditure cannot be substantiated. If his promise to return to our defence rôle east of Suez means what it says, it must involve an increasing level of defence expenditure, and nothing else which he has put forward so far would in any way balance that.

We must recognise that the Government are embarked on a radical change in their major policies which will put the word finis to the imperial chapter. We are at last facing, as many of us claimed that we should many years ago, our true position in the world both militarily and economically. It is true that many of us hoped that we should start on this course when we first came into office. As was said by my right hon. Friend the Chancellor of the Exchequer, it is by no means only my hon. Friends below the Gangway, but also many of us who stand in the centre of the party, who have held that view for many years. Most of us on this side of the House, therefore, welcome the change. What is more, I believe that many of the younger hon. Members opposite welcome it, too, in their heart of hearts.

The abandonment of an outdated posture makes it all the more necessary that the Government should make clear what our new posture implies and what our defence policy in the future is to be. The speech of my hon. Friend the Member for Epping (Mr. Newens) gave me the feeling that he and his hon. Friends would have no defence of this country at all, and that is certainly not the position which this party has ever maintained.

Mr. Newens

That is not the position of my hon. Friends and myself at all.

Mr. Albu

A belief which is held in theory or as a matter of policy must be carried out in practice. I do not think that the country would accept a position in which troops are to be withdrawn, not only from east of Suez, but also from Europe, if we are not to be given any clear indication of how the defence of Britain is to be assured. Nor is this a position that the Labour Party has ever held. I believe that the country will accept the change in our rôle that is now taking place. In fact, I think that most people in Britain, including many businessmen, think that it is long overdue. The number of letters written by businessmen pointing out that they have been struggling to maintain a surplus in our overseas trade while the Government have been pouring it out overseas in expendi- ture mainly on defence is legion. I therefore believe that this change will be very widely accepted.

But if the country does accept it the country must also be assured that the policy that replaces it is fully adequate for the maintenance of our national security. We must recognise that defence, even in support of collective security, is in these technological and full employment days, very expensive. I therefore say to my hon. Friends that defence is no more of a soft option than devaluation. I doubt very much whether much more can now be taken out of defence as a means of reducing public expenditure. The country will now expect from us a credible defence policy.

I do not want to make a long speech. My right hon. Friend the Chancellor of the Exchequer put the issues before the House clearly and cogently. We all know the purpose of the measures which have been announced. They are designed to provide room for the exports for which there is now the opportunity following devaluation. These are very real reasons for the cuts or for whatever further measures may be necessary. It is no good looking for bogeys wherever they may be. The reasons for the cuts are real and not imaginary and it is only ageing populists who believe that today all bankers, especially international bankers, are reactionary Scrooges.

I do not believe that we in this House can go item by item through the agonising examination of the cuts which the Cabinet has had to go through in its examination of each of the details of the reductions in the growth in public expenditure. Nor can we assess whether the total amount is right or wrong, though we may make our own judgments. We must assume that the Government have done their arithmetic right. [HON. MEMBERS: "Why?"] I do assume it and I believe it—although I admit that we shall not finally know until we know what the other measures are. There are no doubt very good reasons why the Chancellor cannot announce them, but I share the anxiety of the right hon. Member for Enfield, West about the delay in the announcement of the tax changes. I think that this delay can lead to a dangerous situation. I also agree with the right hon. Gentleman that we should think about ways of increasing savings.

If I might slightly back-track on what I have just said, I am not quite sure about the dangers inherent in the delay in announcing tax changes, because the only danger would be if the delay were seriously to affect confidence in the £. That does not seem to be happening at the moment. As to the consumer boom, what is spent today will not be spent tomorrow. As the strategy involved here is to increase the rate at which money is taken out of the economy as devaluation affects the growth of exports, it is better if private expenditure runs free over the next two or three months and is substantially reduced in the months that follow. In the end, any delay and the consumer boom that it causes may not necessarily be as harmful as some people feel.

Mr. J. Bruce-Gardyne (South Angus)

Would not the hon. Gentleman agree that this is precisely what the previous Chancellor of the Exchequer did in 1966, with positively disastrous results?

Mr. Albu

I do not agree at all. The situation is completely different. It is not proper to compare the two situations.

I want to say this finally, especially in view of what my hon. Friend the Member for Epping said. My hon. Friend knows, as I know and as we all know, that this is the last chance for this Government, if only because of the time that it takes economic policies to come to fruition. This is the last chance and the last Chancellor. Those who refuse to vote for this Government are refusing to face the facts of life, and this is what the country will understand. They are giving the impression, whether they mean it or not, that the Labour Party, of which they are members, is not interested in the responsibility of government.

Mr. Eric S. Heifer (Liverpool, Walton)

Will my hon. Friend give way?

Mr. Albu

No, I think not. I have already given way enough.

Mr. Heifer

I would like to answer that point.

Mr. Albu

My hon. Friends will have an opportunity to reply if they are called.

Mr. Hafer

We are not being called.

Mr. Albu

I am not quite sure that I have the words of my hon. Friend the Member for Epping exactly, but he used words to the effect that there is no future for him in supporting the policies of the present Government, which means that there is no future for him in the party which supports the present Government. My hon. Friend had better draw that conclusion. I cannot see any conclusion but that one to be drawn from what my hon. Friend said.

This is a serious matter. There is not a shadow of doubt that among the electors the policies which are now to be implemented—not only amongst members of the Labour Party, but amongst the electors, including the electors in constituencies like mine—will, I do not say be welcomed, but they will certainly be accepted. [Laughter.] Yes, some of them will be welcomed. They will certainly be accepted. They will be accepted, provided that the Government are resolute in carrying them out and in carrying out any measures which are necessary to ensure that we get the economic growth out of which all the social policies which we want to carry out must finally come.

'There is no alternative Government to that of my right hon. Friend's Government. If my hon. Friends do not support this Government, and if the economic measures are not accepted, our policies will fail, we shall lose the next election, and our party will be out of office for a quarter of a century.

6.36 p.m

Mr. Sandys (Streatham)

This is a very wide-ranging debate. I propose, however, to concentrate my remarks on the question of Britain's rôle east of Suez. The Chancellor of the Exchequer justified our withdrawal on the strange ground that "we must recognise the basic currents in the tide of history". Have the currents in the tide of history changed in these last few weeks?

Up till yesterday the Prime Minister had unequivocally, and even enthusiastically.. emphasised the importance of a British military presence in the Middle East and tie Far East. After the change of Government in 1964 the Prime Minister assured the House that, whatever economies; might be necessary— we cannot afford to relinquish our world rôle … which, for shorthand purposes, is sometimes called our east of Suez' rôle .…" —[OFFICIAL REPORT, 16th December, 1964; Vol. 704, c. 423.] A year later the right hon. Gentleman said that he had told the Government of the United States of the British Government's decision to continue to maintain a world-wide defence rôle, particularly to fullfil those commitments which, for reasons of history, geography, Commonwealth association and the like, we, and virtually we alone, are best fitted to undertake."—[OFFICIAL REPORT, 21st December, 1965; Vol. 722, c. 1903.] In March, 1966 the Secretary of State for Defence said in the House: The fact is that Britain has got to stay east of Suez in any case for many years."—[OFFICIAL REPORT, 7th March, 1966; Vol. 725, c. 1779.] As recently as last April the Foreign Secretary assured the Ministerial Council of the S.E.A.T.O. Alliance that the British Government contemplated no dramatic reduction of their military forces east of Suez. All these fine words have now been swept under the carpet. The whole basis of our defence policy has been scrapped. To meet a temporary financial difficulty, Britain's rôle in the world is to be permanently reduced.

The prolonged squabbling in Downing Street and the slanted leaks which we re- ceived from interested Ministers showed quite clearly that devaluation caught the Government completely unprepared. The Chancellor of the Exchequer as good as admitted that they were caught unprepared when he said this afternoon that "no one contemplated our present serious situation".

The fate of the £ had been hanging in the balance for months, yet it is quite evident that no contingency plans had been made to deal with this eventuality. The only conceivable explanation is that the Prime Minister, no doubt quite rightly, regarded his colleagues as so insecure that he did not dare mention to them the possibility of devaluation.

There have been loud rumours of resignations. We have followed with anguish the heart-searching of the right hon. Lady the Member for Cannock (Miss Jennie Lee). We read of the firm warnings uttered by the Secretary of State for Education and Science, though I do not think that we were altogether surprised when that intrepid warrior decided to have second thoughts. He will live to fight and lose another day. Only one Minister had the courage of his convictions, and he was the one old Etonian in the Cabinet.

It is significant that there have been no Ministerial resignations over the defence cuts. It is Britain which has resigned. The Prime Minister has handed in Britain's resignation as a world Power.

Our commitments to the Commonwealth, our obligations to our allies, the protection of our overseas investments—all these have been treated as matters of secondary importance. Ministers who have over and over again given the most categoric assurances have found no difficulty in eating their words. To ask people who can afford it to pay half-a-crown for their medicine is regarded as an issue of principle in which honour is involved. The abandonment of Britain's world rôle and the tearing up of solemn promises to other nations are matters which, apparently, raise no question of principle or honour. The Government have completely lost their sense of proportion.

We are told that the decision to withdraw from the Far East involves no change of policy; it is merely an acceleration of the timetable already agreed. This is a complete distortion of the facts. The Malaysian and Singapore Prime Ministers have publicly complained that the British Government are breaking a firm agreement. I hope that the First Secretary of State will deal with that point when he speaks tonight. Let us be clear about it. Do the Government accept that they are unilaterally tearing up an agreement with two Commonwealth countries?

That agreement, which was set out in writing only last year—I hope that the right hon. Gentleman will correct me if I am wrong—provided for the withdrawal of half the British troops by 1971 and the other half some time between 1973 and 1977. The British Government promised, also—this is very important—that, after the final withdrawal, they would continue to maintain an amphibious force in the Far East.

The Malaysian and Singapore Governments raised no objections to a reduc- tion in the size of the British forces. What to them was of cardinal importance was the retention of a British military presence, even if on a reduced scale. I submit to the House that there is a great difference between, on the one hand, a phased withdrawal over a period of up to 10 years and the maintenance in the area of an amphibious force for a further period thereafter and, on the other, a crash evacuation in three years.

What applies to the Far East applies with equal force to the States of the Persian Gulf, which Britain is pledged to protect. Australia and New Zealand also attach great importance to the retention of some British forces in Singapore as a visible proof of our intention to come to their aid in time of need. The Australian Prime Minister has expressed his deep concern at this change of policy. The Prime Minister of New Zealand said only yesterday: There is all the difference between reducing forces and removing them altogether. But they are wasting their breath. They know that the present British Government are not greatly interested in what Australians and New Zealanders think or say. After all, they are only our kith and kin.

Even if the Government are indifferent to their promises and their moral obligations, they must, surely, be aware of the strong financial arguments against precipitate withdrawal. We have investments east of Suez worth thousands of millions of pounds. The earnings from this source are a vital element in our balance of payments, not to mention the large sterling balances which those countries keep in London.

It is sometimes asked why we need soldiers to protect our commercial interests. Other countries, it is said, manage quite well to carry on trade without any bases. There are two explanations. The first is that, in the process of protecting our interests, we indirectly protect the interests of others. [Laughter.] That is a fact. Second, we are not just traders. We are large-scale producers in these countries. British firms grow rubber and tea, they mine and dredge for minerals, they extract oil, and they run manufacturing operations of all kinds. Our plantations, our mines and our factories are all of them liable to be expropriated by unfriendly Governments.

Mr. Thorpe

I am interested in the right hon. Gentleman's thesis. Does he feel that the existence of British troops in the Middle East effectively safeguarded our oil -interests after the six-day war?

Mr. Sandys

That was a far wider issue. I would remind the right hon. Gentleman that, if it had not been for British troops, Kuwait would have been overrun by Iraq a few years earlier.

Mr. Thorpe

That had nothing to do with the six-day war.

Mr. Sandys

No, but it is very relevant.

Mr. Joel Barnett (Heywood and Royton) rose—

Mr. Sandys

I do not wish to waste the time of the House by giving way too much.

Mr. Barnett

Will the right hon. Gentleman give way on just one point?

Mr. Sandys

There are a good many hon. Members who might want to make one point.

Mr. Speaker

Order. It is clear that, even on just one point, the right hon. Gentleman is not giving way.

Mr. Sandys

We should not forget that an unfriendly Government in Indon2sia confiscated all our assets in that country, and we have still not got them back. The same would have happened in Malaysia and Singapore, and also, as I pointed out to the right hon. Member for Devon, North (Mr. Thorpe), in Kuwait, but for the presence of British troops.

With so much at stake, is it not wise that we should do what we can to protect our interests? Should we not be prepared to pay some insurance? We earn about £200 million a year from our oil operations alone, and that will be in jeopardy the very moment our troops leave the Persian Gulf. Those small oil-producing States will have little chance of maintaining their independence without our help. Control may pass into the hands of people who feel no friendship towards Britain and who may be actively hostile.

It is quite possible that when we go the whole area will fall under Russian in- fluence. The Russians are all the time extending their position in the Arabian Peninsula. In that case it is more than likely that we shall see our mineral concessions cancelled and our oil wells and other installations expropriated. This by itself would wipe out at one stroke a large chunk of the saving the Government hope to obtain. If we were also to lose a substantial part of our commercial assets in South-East Asia the cuts would prove a ruinously expensive economy. The outlook in that area is completely unpredictable.

Speaking in the House in March, 1966, the First Secretary, who was then Foreign Secretary, said: …it is difficult to prophesy in advance what the situation in the Far East in the 1970s will be. What I am sure would be wrong would be for us to take a decision now which would make it certain that whatever was happening in the Far East then we could in no way influence it, and that is what not having an East of Suez rôle is."—[OFFICIAL REPORT, 8th March, 1966; Vol. 725, c. 1957.] The right hon. Gentleman could not have exposed more clearly the utter folly of the Government's present position.

The Prime Minister preached to us for years about the disastrous consequences of devaluation. Yet when it came he told us that it would be the answer to all our problems. He is now doing the same over defence cuts. After repeatedly stressing the importance of our east of Suez rôle, he now tells us what a blessing it will be to get rid of it. As he did over devaluation, the right hon. Gentleman is trying again to play down the significance of the change of policy. But Mr. Dean Rusk rightly described it a few days ago as "a complete watershed in British history, the end of an era."

It is quite monstrous that a change of this magnitude, affecting the nation's whole future, should be made without giving Parliament an opportunity to debate the immense issues involved before —I emphasise "before"—a decision is reached by the Government. Is that the Socialist idea of democracy? The facts and the alternatives should have been placed before us so that the question could be fully discussed here in Parliament and in the country before any irrevocable step was taken. Our Common. wealth partners should have been properly consulted at formal conference, such as the Prime Minister of Malaysia is asking for.

When I questioned him yesterday, the Prime Minister said that he was merely putting forward proposals for the House to consider. What complete bunkum! Proposals for the House to consider! Is that what he said to the Prime Ministers of Malaysia, Australia and New Zealand? Did he tell them that this was just a proposal which is still open to discussion? Not at all. He went out of his way to impress on them that this is an irreversible decision. He told them that whatever they may say this is what will happen. The truth is that the Government know quite well that their decision will not stand up to impartial scrutiny. For it is not based on any rational argument.

The Government's emergency cuts have been referred to as a package deal. They are indeed a deal—a shameful political manoeuvre made at the expense of Britain's interests and honour. Whatever hon. Members opposite may say, that is the truth and they know it. The Prime Minister has tried to buy off resistance to the cuts in the social services by pandering to the prejudices of the little yapping dogs on his Left wing. To think that only the other day he was threatening to withdraw their dog licences! Last week he was afraid of having his own withdrawn.

Hon. Members opposite seem to think that by closing down our overseas bases they are fighting against old-fashioned imperialism. In fact, they are striking at the roots of the modern Commonwealth, whose younger members look to us for aid, military as well as economic. That was very well stated in a cogent letter in The Times by the right hon. and learned Member for Ipswich (Sir Dingle Foot).

The sterling crisis is a crisis of confidence. A panic decision to run away from our obligations, to break our pledges and leave our investments unprotected is not likely to increase confidence. If this short-sighted and wrongheaded policy is carried through, incalculable damage will be done to our country's reputation and interests. I am, therefore, delighted that my right hon. Friend the Member for Enfield, West (Mr. lain Macleod) made it clear that when a Conservative Government are returned to power this perfidious and irresponsible decision will be reversed.

The Prime Minister boasted that "under Labour Britain counts for more". Thanks to him, Britain has never counted for less. The other day he told us that we are a proud nation. That is quite true, and that is why we are bitterly ashamed of what he is doing in our name. Before he goes any further, he has an absolute duty to consult the British people. It is their honour and their country's place in the world which is at stake. They have a right to decide.

6.58 p.m.

Mr. F. J. Bellenger (Bassetlaw)

The right hon. Member for Streatham (Mr. Sandys) chose to make his speech on one aspect of what he called a wide-ranging debate. I hope that he receives replies to his questions. I do not disagree with his quotations; they are no doubt accurate. But, as my right hon. Friend the Prime Minister said, we must look at all the proposals he made in the white Paper as one. One cannot take defence or anything else separately and discuss it in detail, and, therefore, I hope that the right hon. Gentleman will forgive me if I do not answer him in detail.

I agree with him on the indirect assistance that other nations receive through the British presence. It has been galling for me to see that Germany, which was beaten flat in the last war, should now be the source to which we go cap in hand to borrow money to pay for the upkeep of our forces. Therefore, we must be realists. Why should we spend any money, however indirectly it may help others? The money has to come from the taxpayers, and we are here only because those taxpayers sent us here. The first duty of hon. Members is to their electorate and their electorate's interests.

It may be that the right hon. Gentleman is right in saying that certain substantial interests that this country owned abroad and that we have accumulated over many years will be at the mercy of those who do not love Britain and are our enemies. I think it possible that Russia, for example, will move into the Middle East; but she has been doing that for years and it is not a result of Britain's economising in the defence of the Gulf or any of those parts. It is because there is trouble between Egypt and Israel and Russia is backing a different horse—Egypt. I do not think that anything we could do economically or militarily could save the situation, even it we could keep vast military forces out there, which I do not think we can. The forces have to go somewhere and if we cannot get other nations to give us a resting place for them out there, then we shall revert to the situation that we had over Suez, when we could not even operate from Cyprus but had to do it from far away.

As I understood my right hon. Friend's statement yesterday, we shall attempt to (13 what has to be done. It would be a very doubtful situation if we decided to challenge, for example, Russia militarily in the Middle East or anywhere else. What we should do has to be done from the home base. With regard to B.A.O.R., France withdrew her troops from Algeria when she was in difficulty and took them back to France.

I am not attempting to set up as a military strategist. I saw a good deal of that when I was in the ranks and when I was in the officers' mess, and I know that military strategy is a very difficult matter to argue even when one has passed a staff course, which I have not. The right hon. Gentleman will know that I am no pacifist and I tell him that I do not want Britain to withdraw from her obligations anywhere and break her word, but the arguments that he used today reminded me of the aristocrats who had noble mansions and are now finding that they cannot keep them up and the mansions are falling into disarray merely because the owners have not the wherewithal. It must be self-evident to us that we must not be starry-eyed about these things. We must try to do our duty according to what we think is right and try to keep our obligations.

But the situation in Australia, which I have visited, is changing, and I have no doubt that it is doing so in other parts, too. For a long time Australia has been looking towards America, and in economics Australian development is towards Japan and America. Australians have told me that they wish they could do it towards Britain. They have still got an attachment to us, but they recognise facts for facts. I suggest to the House that we must do the same.

Perhaps I may now say a word to my hon. Friend the Member for Epping (Mr. Newens). I listened with great interest to his statement that he will abstain from voting tomorrow night. I do not object to that. I have done it myself on more than one occasion, when I did not agree with the Government's policy. But his arguments to substantiate his abstaining are not watertight. He referred to the interest of the motor trade and said that its exports are due to the home market. So they are. So they are in America, too. But other countries make motor cars. Some will buy ours; indeed, many are buying our motor car exports. But I cannot believe that it is absolutely vital that we must keep our motor industry going in this country so that we can export.

After all, let us never forget that Germany is a great exporter of motor cars, including to this country, and also to the North American continent, and the Germans have hardly any military forces. The Germans are able to do it by means on which we ourselves must do it—on delivery dates, worthiness of the machines and price. We must get down to the fact that, devaluation or not, we must satisfy our overseas importers that we have under control the three factors of delivery dates, worthiness of the machines and price, and so long as we have free trade and free enterprise we shall be able to do it. We have shown the world in the past that our people are as good as any others in engineering and other things, but we must have a free market in which to operate.

I listened to the Prime Minister yesterday, and to the Chancellor of the Exchequer today and saw him on television last night. The Chancellor is an economist, but I should not think that it is necessary for hon. Members to be given lectures or such an erudite speech on economy as he gave us today. The basic factors in the economy are known to many of us who have had to make both ends meet on a very limited income. They are simple, basic and certain. Although we have listened to a very wise speech from the Chancellor, the whole House is to a large extent in the dark. We have had only half the solution to the problem presented to us, and we shall not know until 19th March what the other part of the solution will be.

I suspect that the House will be very discontented when it hears the Chancellor open his Budget. Until we are told about those factors we are like sleepwalkers, however much we may argue, as the right hon. Gentleman opposite did, about certain facts in the Prime Minister's statement. So the sooner the Chancellor lets us know how the second part of the problem is to be solved the better we shall be in a position to assess whether the Government are right in the measures they propose to take.

We know that there is a crisis. Here, I would interject a personal illustration. When I was in Australia I caught a very virulent bug. The surgeon said that I ought not to go home at that time. I asked him to tell me the diagnosis and the cure for the trouble. He told me the cure—rest. I said that I was going home and could rest better there than I could 12,000 miles away. Here again, we have not had the complete diagnosis or the surgeon's prescription for curing our troubles, and that we urgently need.

The Chancellor should take us into his confidence and let us know what the second part of the solution is to be. Then we can go with confidence to our people, as we have done before and as a very important relation of the right hon. Member for Streatham did at one time, and tell them, "There is nothing for you but blood, toil, tears and sweat."

The nation will respond, as it responded 25 years ago. The people are not fools and they are not cowards. They may have their own views about some of the politicians who may have engineered this situation and they will deal with them at the right time—not before, incidentally, if the right hon. Gentleman is hoping for an early appeal to the country.

I have not the slightest doubt, as my hon. Friend the Member for Edmonton (Mr. Albu) said, that we shall not be very popular when that time comes, but it has to be. The voters of this democracy have the right to say who they want to govern them and, indeed, as occasion may arise, misgovern even. As a democrat, as I am sure the right hon. Gentleman is, I simply accept that as part of the way this country's affairs are conducted.

The Leader of the Liberal Party spoke very technically and made it very difficult to follow him. He mentioned the Hamilton by-election. It is true that that result was a lesson for the Labour Party. It was a much stronger lesson for the Liberal Party. But I am not concerned with the Liberal Party. It has many estimable members, but it seems that the Liberal Party does get into trouble because of various factors which I shall not mention at the moment.

As a member of the Labour Party I know that the struggle is, in the main, between the Conservative Party and the Labour Party, at any rate as far as the Government are concerned. The only thing I want to say on this to most of my colleagues in the Government is that they do not always give us the lead which they should have given us long ago. As has been said, it is only when a crisis occurs that we have to consider matters like this.

Listening to the Prime Minister yesterday, I got the impression, which many other people got, that he is by way of being a wizard, certainly in the use of words, because, in examining in black and white some of the things he said, I cannot follow him when he says that there will be no deflation. Of course there will be deflation. For example, the cutting in the defence forces of 75,000 uniformed troops and 80,000 civilians is bound to create problems of unemployment. I ask the Government whether they can get these people transferred to export industries on which they base the future in conjunction with devaluation. If they can, I shall be far happier than I was with the method used by my right hon. Friend the Home Secretary in creating the Selective Employment Tax.

This tax was supposed to be for the purpose of transferring labour from service industries to export industries, but—let us be frank—it has, in the main, failed. That is why I would welcome its disappearance and I shall probably say so to my right hon. Friend the Chancellor of the Exchequer at the appropriate moment.

But the Prime Minister has been a wizard to the extent that, so far, he has been able to keep his Cabinet together. There has only been one casualty so far, although it has been very interesting to watch the spectacle of other Ministers wrestling with their consciences all over the place. They seem to have been very successful in subduing them. However, that is their affair. I do not think that we are concerned with the personal fortunes and misfortunes of individual Members. What we are concerned with is the fortunes of our electorate.

In this respect, I regret certain features of my right hon. Friend's speech, as I think the whole House does. But what alternative is being offered by the Conservative Party? Right hon. Members opposite can talk about giving guarantees to replace our troops overseas if and when they are returned to office, but our constituents are looking to their own livelihoods and their own fortunes. I suspect that the clash will come when the Government make up their mind on how they will treat the T.U.C., when they settle their policy on wages. Let us be frank. We are politicians. We are used to dealing with our electorates as human beings and we know where the shoe pinches with them.

We know that many of us are elected because of the promises we make in our election manifestos which, I regret to say, have been sadly abused in the course of time. However, there again, it is a matter for the voters. They can change their doctor when given the opportunity. They are not tied to us for ever but, while we are here, we have to consider what those who voted for us want. There is no doubt about what they want.

We may regret that this is a material age, with hire purchase for washing machines, motor cars and everything else our constituents want, but they are prepared to pay the price for such living on the future and we must conform to it. What is to happen when my right hon. Friend the Chancellor of the Exchequer deals with hire purchase, as he will have to do if he is to reduce consumption? I hope that he will be big enough to see to that and to say, as we say to our children sometimes, "You cannot have it just now." It does not make us beloved with our children and it will not make us beloved with our constituents. But it has to be said. In a debate such as this, ranging so widely, we have o deal with these things.

I do not believe that the mass of our people are very much concerned with Singapore. Indeed, many of those captured there by the Japanese during the war perhaps regret that we ever went there. It is all very well to say that it is part of our honour. Of course it is. If one gives pledges one must keep them, but only so far as one is in a position to keep them. The fact is that we are not in such a position. The rôle of Britain in the world has changed now. One can say what one likes about who is responsible, but it has changed and we have to accept the fact.

Perhaps I should say this, because I feel disappointed with some of my hon. Friends in the Government. It seems to me that, for a long time, certain Ministers were more concerned for their individual fate. They wanted to retain power at all costs, and we are landed in this situation to a large extent because they have not faced the facts and done their homework. If it means the purchase of a few computers to see what the problems are, I would not be averse to giving my vote for such a purchase, but, willy-nilly, some Ministers have not done their homework.

On taking office every Cabinet Minister should be given a copy of Dickens' famous novel and should be made to study Mr. Micawber, who had a very simple solution for dealing with these matters. That may seem funny, but if that had been done in principle they would not have landed us in our present position. However, here we are and we have to put it right. I do not think that any party has the complete prescription. We shall have to dispense the medicine, and it will be very unpalatable for the country, but there it is.

The real reason why many people have lost faith or confidence in politicians is that politicians will not tell the unpalatable truth. They gloss over it in various ways and make all sorts of promises which cannot be kept, whether in foreign or home affairs. Are we to be hypocrites in either party? Tomorrow there will be a Division on the Amendment and perhaps also on the Motion. I know where I stand. I shall support the Government on the Motion and hon. Members opposite will not, but that will not endear them to the electors, who have the final say.

Either side has to put the country right, and the only way in which to do so is to make economies and then have expansion, but I am not so sure that expansion will come in the way my right hon. Friend the Prime Minister has said. I have recently been abroad and have seen what the value of the £ nowadays is and I do not think that devaluation will put the country right, although it may help. What is needed is an appeal to the people to put their backs into it and to support whatever measures the Government think right. By all means we should grasp all opportunities—Englishmen like that on any occasion—but if they can get on with the job, we can raise ourselves out of our difficulties as we did after Dunkirk.

I hope that hon. Members will consider this problem in that way, in the belief that the people behind us only want the right lead. It is true that they will not like the medicine, but they will take it if they can believe that it will make them healthy once again.

7.23 p.m.

Viscount Lambton (Berwick-upon-Tweed)

I do not intend to detain the House for very long, because many hon. Members desire to speak, but I should like to deal in some detail with one subject, one area of our withdrawal, the Middle East. Hon. Member after hon. Member from the benches opposite again and again, in and outside the House, has stressed the great liabilities of our overseas possessions and has said that it would be of the greatest advantage if we were able to get shot of these things. In fact, we are not getting out of liabilities but destroying our own assets abroad.

Listening to hon. Members opposite one would be encouraged to believe that the Middle East was an area in which it was disadvantageous to us to have any troops at all, but as a matter of fact it is an area of the greatest possible importance to this country. Our possessions in the Gulf and the Middle East as a whole add up to between £2,000 million and £3,000 million and our annual income from the area is more than £200 million a year. We are able to get our oil for sterling and not for dollars which we would have to pay if it did not come from the sterling area. Indeed, the assets of the area are so vast that it is impossible to add them up.

Apart from this, it is an area which has more oil reserves than any other known place in the world. It is an area of incredible development. A few years ago a place like Abu Dhabi was just a tract of empty sand and yet by the mid-1970s it will be producing about £100 million worth of oil a year.

What we are doing in this area is not trying to establish British sovereignty, but merely to stabilise the peace. Hon. Members opposite seem to imagine that if we get out these little countries will live happily with each other, but have we any reason for believing that? Persia has claims on Bahrein; Iraq has tried in the past to seize Kuwait; Saudi Arabia has claims on Burami; and the Adeni Federation is at enmity with Oman. Directly we withdraw from the area, we shall encourage the stirring up of internecine strife and encourage nations which are now friendly towards each other and us to break out into antipathy against each other.

Apart from this, there is now a great build-up of Russia in the Mediterranean. It is said that Russia has been doing this for years, but I do not think that that is quite the case. There is now a far greater penetration of the Middle East by Russia than ever before and what we are doing is creating a vacuum which we are inviting Russia to fill. Therefore, by withdrawing from the Middle East we are not withdrawing from an area which is a liability to us, but squandering an asset abroad of inestimable value with the same prodigality that we are squandering our money and opportunities at home

The second issue on which I want to speak is the whole honour of Parliament. Only a few months ago a representative of Her Majesty's Government went to the Persian Gulf to assure the Rulers there that it was our pledged intention to stay. Rather like the postman going his rounds, a little later the same man had to go back and say that we would not stay.

The position of the right hon. Gentleman the Secretary of State for Defence is one which he should consider himself very carefully. My right hon. Friend the Member for Enfield, West (Mr. Macleod) quoted some statements of his which must have made him, sitting on the Front Bench, very unhappy, for up to now, although we might not have agreed with him, we have always conceded that he was an honourable man. But I do not believe that any Minister in this country can so flatly contradict himself and so flatly break pledges and stay in the Government. Otherwise, all the traditions upon which the government of the country rests are destroyed. Apart from this, how can the right hon. Gentleman himself think that at any future date any credence whatever will be given to any future statements which he makes, or any pledges which he makes in the name of the Government?

Where does honour lie in the Labour Party'? It really lies below the Gangway. The hon. Member for Ebbw Vale (Mr. Michael Foot.) is so honourable that I do not believe that there is any Government in the world, or in heaven, that he could stay in for more than a week without resigning. Back benchers also have their own type of honour. They say what they believe in and they stick to it. That tradition has now vanished from above the Gangway. What remains to the right hon. Members on the Government Front Bench? Certainly not honour, certainly not ability. The only thing that they retain at the moment is possession of a position, which they increasingly show themselves unfit to fill.

7.30 p.m.

Mr. James Dickens (Lewisham, West)

I hope that the noble Lord the Member for Berwick-upon-Tweed (Viscount Lambton) will forgive me if I do not proceed to deal with all the defence aspects of the Government's package which he has discussed. I shall resist, too, the temptation to follow the invitation of my right hon. Friend the Member for Bassetlaw (Mr. Bellenger) and recommend that Cabinet Ministers should read the words of my illustrious namesake as a contribution to solving our country's economic problems.

I begin by drawing attention to the fact that in the course of his speech today t he Chancellor dwelt at some length on the constructive ten point alternative programme set out in the recent Tribune manifesto. I thank him for doing so. This is an advance on the attitude of his predecessor, who all too frequently tended to run away from the arguments that we were advancing. At least it can be said of the present Chancellor that he recognises that our alternative programme is a serious contribution to the current economic debate, in the House and throughout the country.

Yesterday the Prime Minister, in his lengthy speech, dealt with the totality of this country's world rôle. I congratulate the Government on taking the first essential steps to wind up at least one important aspect of this rôle, namely, the world military rôle. For there can be no doubt that the Government's decisions to withdraw from South-East Asia and the Persian Gulf and to abandon the order for the F111 aircraft are decisions of the most momentous historical importance.

They will have great significance to the future of the Anglo-American alliance, perhaps most notably on the attitude of the British Government henceforth on the American barbarism in Vietnam. The Government have taken a decision which we who have hitherto criticised them strongly on defence, support. They ought to go further because it is totally illogical if one is to wind up our military rôle to continue with the present indefensible military commitment in Western Germany.

My hon. Friends and myself want to see an end to the British Army of the Rhine by 1970–71 as well as the reduction in defence commitments already announced, and we want, moreover, to see the Armed Forces reduced to a level of roughly 300,000 men by that period. Why do we say that? Britain is currently spending 6.5 per cent. of her gross national product on defence—the highest figure in Europe outside the Soviet Union. This may be compared with the average of 4 per cent. per annum of gross national product spent by our trading rivals in the European Economic Community. The difference between our spending and theirs is to our disadvantage, to an annual total of something like £750 million. We say that that is a target which we have to set ourselves by the early 1970s.

I turn now to deal with the domestic matters contained in the Prime Minister's speech. It is here that the Government have shirked attacking the most sacred cow of all, which is Britain's international rôle as a banking nation, with reserve currency obligations, and, in particular, the future function of the City of London in the world economy. The Chancellor and the Prime Minister both know where the strains will be placed externally on the British economy in the latter part of 1968. They will come, when we resume economic expansion, from the source that they have always come over the past decade or so; that is from a handful of foreign currency speculators who specialise in "hot money" transactions lodged in London.

When the Government rightly devalued the £ on 18th November last they announced a package of measures which would take out of the economy a figure of between £750 million and £800 million. This was in addition to the lingering after-effects of the classical Tory deflationary measures pursued by my right hon. Friend's predecessor at the Treasury. These effects are still with us—620,000 are out of work; the rate of new capital formation, already the lowest of any major advanced industrial country, is 6 per cent. lower in 1967 than the level attained in 1966 which was already inadequate. There is an abundance of spare capacity in industry. The steel industry is a good example of this. There are no fewer than 61 advance factories, new modern, purpose-built factories, currently lying empty and untenanted in our development areas.

In addition my right hon. Friend the Chancellor is trying to recommend the package of measures which, in their domestic implications, will take a further £300 million out of the economy in 1968–69. Some of my hon. Friends who support his general line in this matter foresee a further cut of between £300 million and £400 million in internal consumption with the forthcoming Budget in March.

I am putting it to him that this is altogether far too severe. It will depress the domestic economy in a way which will hinder the modernisation of industry, and which will have the most adverse repercussions on investment in the private sector. This deflation will not stop the speculation against the £ which will develop in the latter part of 1968.

When the Prime Minister was asked, in a television interview following devaluation, what he thought was the big- gest mistake that this Government had made over the past three years in the economic management of our country he said: We underrated the power of speculators at home and abroad to put the £ in jeopardy and to force the Government into short-term measures which were injurious to Britain. How is this possible? Basically because in the 1950s the Tories dismantled all the exchange controls surrounding the £ which had been in operation from 1939. As Mr. Andrew Schonfield notes in his brilliant and prophetic book "British Economic Policy since the War": The advent of convertibility, like the restoration of the gold standard in its day, would prove to be a ruthless and effective disciplinarian of the home economy. Once sterling was exposed, without the shield of exchange control, to every slightest movement of confidence in the international market, the country would find that it could no longer afford many of the things which it had come to take for granted after the Second World War. There were, and still are, many business people—not all of them bankers—who hold this view. In 1958, the Prime Minister took a leading part in the preparation of the only substantial document on economic policy which the Labour Party issued during its 13 years in opposition, "Plan for Progress". It contained the following interesting paragraph, in dealing with Tory policy, which is of great significance today: The language of Government spokesmen has suggested that it is positively desirable for the British economy to be shaped by speculators at home and abroad … since the measures claimed are necessary to appease such persons—in particular reducing Government expenditure and getting tough with the unions—are almost invariably those advocated by our Tory diehards … That was the official attitude of the Labour Party in 1958. Then it stood for the reintroduction of exchange controls and for blocking the sterling balances. That is what the Government must do in the course of this year.

The position has been sadly weakened as a result of the ignominious and foolish terms of paragraph 13 of the Letter of Intent which throws away the prospect of exchange controls being reintroduced by the Government. It gives away the only defence which the Government have against currency speculation. Apart from the other arguments about the level of public expenditure, to which I shall come later, it is utterly wrong for the Government to imagine that they can, while maintaining the social programme which we have a right to expect from a Labour Government, get the confidence not only of bankers abroad but of the foreign currency speculators so roundly condemned by the Prime Minister in the recent past.

My right hon. Friend the Chancellor w ill have to reintroduce exchange control to prevent a further run on the £ in the second half of 1968. This will mean blocking the sterling balances and making London a much less attractive centre for short-term lending. This means that we must follow the example of the German and Swiss banks. It is nonsense to argue that we in Britain have to attract short-term "hot money" deposits by increasing Bank Rate to 8 per cent. when the Swiss arid the German banks from a very much stronger financial base, not only do not pay 8 per cent. on such short-term lendings, but pay no interest at all. Indeed, they charge interest for the privilege of extending this facility.

This we shall have to follow through in 1968. My right hon. Friend the Chancellor must not underestimate what this will mean for the Government and the Labour Party. It will mean facing up to powerful financial interests in the City of London and its function for the remainder of this century and beyond in our post-imperial era. This means recognising that some of the activities of the City are positively injurious to the British economy and that we can no longer support a position in which by maintaining the prestige of the pound and of the City of London we have to restrict our domestic and economic development at home.

In his book "The Labour Case", my right hon. Friend the Chancellor said this on page 70: Britain is not primarily a banking nation. Our manufacturing industry is 100 times more important to us than the foreign exchange earnings of the City of London. That is the basic point that we must recognise. This afternoon, my right hon. Friend—and he is open-minded in this respect—tried to deal with the other aspect of our policy which we have advocated for some time, namely, that we should mobilise our immense private assets abroad and use them to maintain a much higher rate of economic ex- pansion at home and to help ward off speculation against the pound. This does not mean, as my right hon. Friend must surely know, that we suddenly unload £3,700 million worth of overseas assets at once.

We urge the Government to introduce emergency legislation to acquire these assets and to tell the present holders that the Government will wish to have first call on them in the national interest for two purposes. First, to buy out the more volatile short-term sterling balances. Thus, if Mr. Lee Kwan Yew comes to London and threatens us with the withdrawal of Singapore's sterling balances he should be given every encouragement to do so. He should be told that we will refund these balances as part of an agreement with him over a phased period by liquidating, with fair compensation, part of our overseas portfolio holdings. Secondly, we should use these assets to refund our debt to the International Monetary Fund. In this way, we would have much more freedom not merely to organise our external commercial policy but to produce at home the social and economic advance which we all want.

How can this be done? We should seek over a period and with careful planning--I am sure that the Treasury is examining this possibility—gradually to liquidate our portfolio investments in Canada and the United States and on the Continent and to put the foreign exchange into the reserves and use it for the purposes I have mentioned; alternatively if by agreement with the International Monetary Fund we can come to an understanding whereby it simply takes over the assets in payment of debt there would be no need to liquidate them in various stock exchanges in accordance with prevailing market circumstances. In any event the exercise would be phased to coincide with the most advantageous conditions abroad to give us the best possible return.

Mr. David Marquand (Ashfield)

Does my hon. Friend think that this complex of measures would make it no longer necessary for us to turn our existing current deficit into a current surplus? That is the key issue which my hon. Friend has avoided.

Mr. Dickens

Of course we need a surplus on our balance of payments. In the three years from 1964 to 1966, the total payments deficit of this country was £1,293 million. This was rather less than the total of the foreign exchange costs of overseas military expenditure plus the net outflow of private direct investment to advanced industrial countries.

Therefore, if we intend to tackle the balance of payments question, of course we must deal with these two weaknesses in the payments situation and, at the same time, work for a payments surplus.

Now, a word to the holders of these portfolio investments. We would pay full compensation at current market rates, including the dollar premium, in non-convertible sterling bonds, and we would hope that the holders of such bonds would reinvest the capital where it counts, namely, in building up the British economy where the seed corn rests.

The rate of capital formation in this country has been the lowest of any industrial country for decades. Taking the rate of capital formation and the rate of economic growth over the ten years from 1955 to 1965 for advance countries, we are at the bottom of the tables of capital investment and economic growth. The Japanese, with 28.8 per cent of capital formation, are firmly at the top. The lessons to be drawn from this are obvious. I do not have time to go through all the other items in our ten-point programme, but I again urge my hon. Friends to read what we are saying, by all means talk to us about it and argue it with us. We are not being assertive or dogmatic about it. We do not claim that we have all the answers, but we are putting forward this programme as a constructive alternative to the sort of programme announced yesterday and today by the Prime Minister and the Chancellor of the Exchequer. That programme is likely to get the Government into the most serious trouble.

The Chancellor is being Jar too ambitious in imagining that he can get anything like the balance of payments surplus for which he hopes in 1969 by having this massive switch from internal demand to the export market. My hon. Friend the Member for Epping (Mr. Newens) made this point cogently earlier today. Moreover, it is flying in the face of all the trends of world trade and the inadequacies of international liquidity to hope that that can be achieved. It is bound to have the most adverse effects on countries such as France, Germany, the Scandinavian countries and, it may be, North America, and it will lead to the situation which we and I wish to prevent—a return to isolationism and protectionism.

Those who argue, as do the Opposition and, now, the Government, that the rate of public spending is insupportable are avoiding two aspects of this matter. Because the Government's classical Tory deflationary measures failed and cut growth below the level of 3.8 per cent. per annum, which we had every reasonable expectation of getting, because they pursued the wrong policies, they therefore say that we must also cut back on public spending. We disagree. We say that the Government should seek growth as the first priority and, pending the increase in growth, raise the revenue and resources available to us by combating the growing social inequality in our country.

In reply to an intervention of mine earlier today, the Chancellor of the Exchequer said that he does not leave his old ideas outside the door of No. 11 Downing Street. We are glad to hear that. We look forward, therefore, to hearing from him in March that he is contemplating a wealth tax, a gifts tax and much tougher Estate Duty. I remind him that a 3 per cent. tax on fortunes of £20,000 and above would yield £1,000 million per annum.

If a wealth tax is a commonplace, as, indeed, it is in Western Europe, in Germany, Holland, Belgium and Scandinavia —the exceptions are France, Spain and Portugal—we should surely have it in Labour Britain.

Mr. John Hall

Does the hon. Member know how much the wealth tax in those countries yields?

Mr. Dickens

I cannot give the figures, but those countries have in operation a wealth tax of 1 or 2 per cent. and in Denmark almost 3 per cent. We should have it here. If Christian Democrat Governments can do it abroad, surely a Labour Government can do it here at home.

One must see the Government's social services cuts against that background. I regard the Government's cuts in the social services as a fatuous irrelevance to the real economic circumstances of the country. I am putting it to the Chancellor and to the Government that these cuts have no bearing whatever on the economic needs of Britain today. I put it to them that they are simply pandering to the ignorant social prejudices of a handful of foreign currency speculators, and the bankers abroad. In doing so, they are pandering also to the most backward, reactionary Tory elements in this country who regard the present situation as a godsend—the sort of people who have always opposed the social advances made by the British people since 1945.

We say to the Government that it will be to their lasting discredit if they enact this package tomorrow night. We ask them to think again, to bring forward new proposals and to take these steps of Socialist economic planning which I have outlined this evening. Britain can then go forward in the 1970s to a prosperous future and to a democratic Socialist society that otherwise will be denied to us.

7.56 p.m.

Sir John Eden (Bournemouth, West)

The hon. Member for Lewisham, West (Mr. Dickens) was more than courteous in thanking his right hon. Friend the Chancellor of the Exchequer for recognising the existence of himself and his hon. Friends and the group or point of view which they represent. Subsequently, however, the sentiments which the hon. Member expressed in his opening words were not fully borne out by his later remarks.

For my part, I consider that the hon. Member's thanks to the Chancellor of the Exchequer were fully justified, because the Chancellor has certainly recognised the Left-wing pacifist element in the Labour Party. Indeed, he has done more than that: he has appeased them substantially. The extent to which the Chancellor has done this is clear to us all. In my view, it amounts to more than recognition. It is on the point of capitulation.

One or two hon. Members during the debate have commended the speeches of the Chancellor of the Exchequer and of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for the tone they set in opening the debate. I do not see how the tone could be anything else but sombre when one gives thought to the situation which we are now considering.

One or two hon. Members during the debate have commended the speeches of the Chancellor of the Exchequer and of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for the tone they set in opening the debate. I do not see how the tone could be any- thing else but sombre when one gives thought to the situation which we are now considering.

This is yet another set of proposals brought forward by the Government which, it is claimed, will right our ills and restore our balance of payments. We are promised once again that if only we buckle to, and swallow the bitter medicine which they have to offer us, all will be well, and we will be able to move forward, as the hon. Member for Lewisham, West said, to a more prosperous future.

Two things are worth noting at the outset. The first is that we need never have been in this situation at all. I am not thinking so much of the decision of the electorate, although many of them must now regret it. Had Ministers, and the Prime Minister in particular, been less arrogant and heeded more of the advice which they were given, not only from these benches, but by many men of experience and good will in business and other circles, we need not now be considering the contents of this depressing and wholly negative package.

We have not been brought to this point by a sudden change in our international trading position. What we are considering are the direct consequences of the policies that the Government have been following ever since they came to office first in 1964.

The second point of which it is worth reminding ourselves, and of which I have reminded myself constantly throughout the last few days, is that this is only part of the total operation which the Government have in store for us. There is further and substantial taxation on the way. In the light of what the hon. Member for Lewisham, West has said, I would offer contrary advice to the Chancellor. I hope that he will not increase taxation on individuals in such a way as further to deprive them of any incentive or encouragement to greater endeavour.

Taxation must be designed in these circumstances to control consumption rather than investment, and in this regard I am fearful of the hints of the attitude of the Government given in paragraph 49 of the proposals as set out in the White Paper, where it is hinted that the proposal is to delay the payment of investment grants.

But more important than this is a point which I hope we shall have answered during the debate, and which was made by my right hon. Friend in his opening speech this afternoon. Surely we cannot wait two months for some further action, for the next part of the package to be presented. Why have the Government not taken the opportunity which they certainly have got of using the regulator now? I personally think that they should have done this as part of the presentation which the Prime Minister made yesterday, and I cannot understand why the Chancellor of the Exchequer made no reference to this during his speech earlier this afternoon.

A large part of the package which we are examining is in any event bogus. The proposals to cut public expenditure are, very substantially, proposals for a reduction in the rate of increase in public expenditure. We obviously cannot tell exactly what the Government might have done had the economic circumstances been any different from those which their policies have produced, but they are now telling us that because things have gone so wrong under their own hand they are not able to carry out the programme which otherwise they might have done.

What I regret about this package is that it is so negative, that it lacks any form of positive encouragement. There is no direct stimulus here to private investment or to individual savings, and yet this is surely the most urgent and imperative need of all in the country today. We must make it possible for people to have some clear prospect of the future before them. We must give some encouragement to the men and women who have ambition for themselves and for their families and who want to build up and store wealth for themselves and for their families. This is what ambition amounts to; this is what it is about. And yet here we see nothing which encourages this.

We should make it possible for people to save; we should make it possible for the creation of wealth; we should make it possible for people to build up capital. I suppose it is unrealistic of me, or of any of us, really, to believe that measures of such a kind can come from this Government. Socialists, after all, do not basically believe in that sort of pro- gramme they do not believe in the system at all, and many of them, as we have heard, are, in fact, committed to its destruction.

It is clear to me that the Government have used the defeat of devaluation and are now using the grave economic circumstances to which their policies have brought us in order to fasten an ever-tightening grip on the commercial and industrial life of the country. It is significant in this context to notice that the transport Measures are to be proceeded with unchanged, that the Industrial Expansion Bill is to be pushed through. It is clear that, whatever else may have gone, Socialist dogma remains; and, basically, the approach and attitude of the Government are not changed.

Turning for a moment to the international position, the Chancellor of the Exchequer apparently prided himself that he had recognised what he called the basic currents in the tide of history and has, therefore, defended the decision to withdraw our military position from the Far East and the Persian Gulf. I do not for one moment accept his interpretation of what he calls the basic currents in the tide of history. For my part, I think that it is even more important, as my right hon. Friend indicated, that we should honour our treaties and that we should stand firm by our obligations for the duration of the time to which Ministers clearly have committed this country. I feel deeply that even for a nation in dire economic distress the honour of our word will count for a very great deal. But apparently it means nothing to the Ministers of this Government.

What I fear is that if they persist in this attitude and with these policies the cost of this betrayal which cannot immediately be foreseen or measured will, even in terms of trade, prove to be very substantial indeed, for it is possible that the decisions announced in the defence field by the Government could bear very heavily on our trading position in the future, and that would almost certainly make the task of our salesmen much more difficult, for I have experienced, as others must have done, how important it is, when entering into contracts and into engagements, in whatever field, with people of other countries, that our national integrity is something on which they can depend.

Now the ground has been cut from under their feet, and the Government have chosen to run out on our solemn pledges to appease some of their hon. Members in the pacifist Left wing. So we have to witness the decimation of our Armed Forces. We see, to my personal regret, and it must be to that of many other hon. Members as well, the sad reference to the further progressive decline in the strength of the Brigade of Gurkhas which has contributed so nobly to the defence of peace in our cause.

But more significant and more fearsome than all these things is the point touched upon by my noble Friend the Member for Berwick-upon-Tweed (Viscount Lambton), a short while ago, when he pointed to the extent and to the suddenness of Russian infiltration in the Middle East. I do not believe that this can be brushed on one side. Ministers must face up to this, and I would hope that we shall hear, at any rate, from the Foreign Secretary tomorrow, how he views this particular situation.

It is clear that the Soviets are already putting down their roots deep into the soil of Aden and South Yemen. They have many technicians—so called—at work in those areas. They are already the main suppliers of arms to Egypt, Iraq, Yemen, the Sudan. Russian warships are today in Alexandria and Port Said. There has been a significant shift in the pattern of naval power in the Mediterranean, with a resultant weakening, at one of their most vulnerable points, of the strength of the North Atlantic Treaty Organisation forces and, also, the position of CENTO itself is being eroded by subversion and intrigue going on apace within its own area. Clandestine radio stations are at work and other means of propaganda are being employed, and will be so increasingly, to foment any tensions which can be stirred up in the Middle East.

How right my noble Friend was to emphasise the contribution which a British military presence has made over all these years towards stabilising what is a highly volatile area. By our precipitate and sudden withdrawal and by the announcement of the date when this is to happen, the Government have given notice to those who are out to cause trouble and strife in this area for their own purposes. With the British with- drawal, the Soviet advance will now proceed unchallenged.

I have one concluding thought to express. It is that to some people it might seem amazing that Ministers responsible for national betrayal and humiliation on this scale should still remain at their posts. I say it might seem to be amazing, I mean, to anyone who has not watched them since 1964 as they followed the examples set by the Prime Minister in placing office before honour and the unity of the party before the needs of the nation. To me, it is not amazing. It is sordid and degrading in the extreme.

I do not believe that there is any chance of a return of confidence in the country in the face of cynicism on such a scale. I admit that, by what has been announced, by the attitude of the Government which it has shown and by the manner in which the announcement has been made, I am very depressed and concerned. However, I will not readily accept national defeat from any Government, and certainly I do not take it from the bigoted rabble which has so misled and deceived the British people.

8.12 p.m.

Mr. Eric Moonman (Billericay)

From the moment when the right hon. Member for Enfield, West (Mr. Iain Macleod) rose today until a few minutes ago the debate appeared to be proceeding on two levels, and this has been emphasised most, perhaps, by my hon. Friend the Member for Lewisham. West (Mr. Dickens) and the hon. Member for Bournemouth, West (Sir J. Eden). However, I suggest that both these levels of debate fail to meet the massive problems which the nation faces in 1968.

On the one hand, we have the reaction of some of my hon. Friends who, after searching their hearts, have selected those items of the package which should not be touched. That is the view of my hon. Friend the Member for Epping (Mr. Newens), who would tell us that the whole crisis is about particular areas with which he is concerned. Unfortunately, that is not relevant. It is nowhere near the global problem which the Cabinet have had to look at and which is what we should be discussing.

The second area of discussing has been the view of the official Opposition, who continue to react without even the thoughtfulness or sincerity of those who support the first argument. Under their Leader and the chairman of their party, they continue to act as if they were suddenly planted on earth and had nothing to do with the years between 1951 and 1964.

I would go a little further and say that many of the problems which have arisen in terms of actual confidence can be related to the attitude of right hon. and hon. Gentlemen opposite. Even in 1967, the Leader of the Opposition undermined the confidence of the nation when he said that British industrialists would be advised not to co-operate with the Government. That is a highly intimidating attitude to adopt when one considers that the whole exercise over the last few years has been to export more, to become more efficient and generally to do everything possible to create greater activity within industry.

I want also to comment on some of the statements which were made in the previous economic debate on 22nd November by the right hon. Member for Altrincham and Sale (Mr. Barber). I indicated to him that it was my intention to raise the matter in this debate, Mr. Deputy Speaker. if I was fortunate enough to catch your eye.

That was the debate which followed devaluation, and the matter is highly relevant because here was an important right hon. Member of the Opposition making such statements as: The simple truth is that the House of Commons and the nation were deceived, and the simple consequence of all that has happened is that never again will any words of the right hon. Gentleman "— referring to the Prime Minister— be taken at their face value. These may be fair debating points, but I should have hoped that they might have been left to the Oxford or Cambridge Union and not be made following a crisis in which the nation had to engage in devaluation.

The right hon. Gentleman also engaged in realms of fantasy when he said: In three short years the Prime Minister and his colleagues have turned a prosperous and confident country into a state of economic depression. However, he was happiest in his hatchet work when he said about my right hon. Friend the Prime Minister: No one any more believes a single word of what he says."—[OFFICIAL REPORT, 22nd November, 1967; Vol. 754, c. 1423–32.] This is all relevant, not because it is true, but because we have leading right hon. and hon. Members of the Opposition encouraging an attitude within our society to become disenchanted with politicians and think that nothing really counts for anything. If politicians are so prejudiced and unable to distinguish the national interest from party interest, we cannot blame the public for failing to play its part.

There is a further level of debate which arises from the economic crisis and the Government's measures. With all the difficulties for public expression to be heard in this mass media age, the majority of serious-minded people in Britain want the Government's policies to succeed. The Government must say, therefore, clearly and accurately that, while devaluation has given us a chance to put our balance of payments on a firm foundation, it will be less effective if these additional measures fail to work. That also means telling people that the average standard of living for consumers cannot rise this year.

It becomes necessary, therefore, to look at the underlying factors which make Britain's economic problems so intractable. On the one hand, there is the disproportion between our commitments and our natural resources. On the other, there is the great difficulty of disengaging ourselves from a rôle to which we are no longer fitted.

Very much at the heart of this is the question of our trading. We still trade to the extent of something like £14,000 million a year. We are not a nation which has failed to trade effectively, and our export records have been extremely encouraging. What is more significant is the switch in markets. Traditionally, we were geared to the Commonwealth. In the period between 1945 and 1950, the Commonwealth took something like two-thirds of our exports. That level has now dropped to something like a third of the total. The easy markets of the Commonwealth with which we were concerned in the past are no longer quite so relevant, and now we are attempting to get into the more sophisticated markets of Europe. That is why the whole question of membership of the European Economic Community is so highly significant.

There has been a changing rôle in the Commonwealth itself. The hon. Member for Bournemouth, West spoke at length about our integrity and honour, but he must not forget that the individual nations of the Commonwealth have changed radically. Just as they look for new ties with other nations and for new trading areas, it is right that we too should look round, and that means Europe.

Mr. John Hall

Does the hon. Gentleman believe that the rôle of those nations has changed radically over the last six months? Because it is only six months ago that firm pledges were given.

Mr. Moonman

It is of a more permanent character. It arose initially at the beginning of the century when greater authority was given to the nations concerned. It was accelerated in the period after 1945, when they were given political identity and greater individual responsibility. It became complete with a general desire throughout the world for nations to look to new regional relationships.

In terms of trade, the relationship between Australia and this country, for example, has not changed in the last six months. It changed because of a real need for Australia to establish proper trading links with the United States and Japan, which has been going on for eight or nine years.

The other main factor associated with the Government's measures arises from the need to save substantially on defence. This is one of the most difficult tasks for any Government in trying to reassess their rôle. There are not only commitments and friendships which have been established overseas, but there is the transition which has been made in France, and made quite successfully. In short, by their latest measures the Government have made a determined attempt to remove these particular constraints on the economy.

Nevertheless, the success of these measures will depend on two things. One is greater efficiency in production and the other is success in marketing abroad. The Government must understand a little more effectively the differences in their macro and micro economic policies. Cer- tainly, we want to see much more emphasis given to macro economics, but, at the same time, increasing support should be given to institutions like I.R.C. and the establishment of greater effectiveness within the training boards.

I welcome the Industrial Expansion Bill. We had the White Paper yesterday. I hope that the Bill will assist and aid industry where necessary. I do not see this as a prop for the inefficient firm, nor as a major attempt to restructure industry.

There is one other relevant factor, and this is where the Opposition completely misjudge the mood of the electorate. It may be a fairly popular campaign to engage in "Hunt the Civil Servants" by talking about the number of civil servants which operate in this country. For a party which boasts of having a businessmanlike attitude, it is a great pity that it has failed to realise that the debate should be about the qualities of those engaged in the Civil Service rather than the number.

I take the view of Michael Shanks who, in a recent publication, said that one of the difficulties in the British Civil Service was not so much in numbers, but in the quality of the industrial consciousness of the people in senior posts and added: Organisationally and psychologically, government in Britain is designed to respond to outside pressures. It is not designed to initiate change. Civil servants have little direct feeling for or understanging of industry. Success comes to the civil servant, not from taking bold initiatives, but from avoiding anomalies, mistakes or decisions which cannot be publicly justified. This is the position and this is where, if there is any criticism to be made, it is on this level of attracting into the Civil Service a network whereby men who have this atmosphere and this feeling and experience of industry could come into the Civil Service even on short assignments.

The Government's measures, therefore, are necessary, not because we have failed in our exports, but because we are not able to narrow the gap between what we spend and what we earn. For instance, throughout the last century on average Britain's visible exports covered 85 per cent. of our import bill by overseas sales. Although they fell in the period 1890 to 1910, they stimulated in the post-war period to a figure of about 90 per cent. So, despite economic difficulties and the general problems we have had to face over the last 10 years, this is a success story. Those members who tend to think that we have not done enough in exports should bear this in mind.

The figures are significant. I will mention them briefly, because they appeared in the December issue of the Banker. We have had a total private balance of visible and invisible trade plus in the range of over £300 million in six out of the last seven years. Our difficulty has been in the total Government spending overseas, and this has brought us down to about £300 million in each of these years. These figures give a clear lesson: that Britain has been earning a surplus on total private visible and invisible trade for the past 12 years, including the difficult year of 1963–64. But the real encroachment is what we spend in defence. This is one of the main areas that has been tackled by the Government and, therefore, I welcome this.

A final detailed point on the Government's measures. Prescription charges go very deep on this side and many hon. Members have very strong personal views about the matter. However, it would be wrong for any of us to attempt to be identified or associated with the Conservatives, who have made very little noise about prescription charges. We have had to do this regretfully and as part of the overall need to shift resources. It also has an important psychological factor, but this is a very different reason from that which the Conservatives gave when they increased prescription charges in 1956.

With the Opposition it is almost a statement of faith, because this cuts into the social services. This is something we do not accept, but we have had to do it, in the circumstances, with great regret. I hope, however, that once these charges are introduced the Minister of Health will look seriously on any fall away in the number of prescriptions which are made. In 1956, there was a substantial fall away—about 12 per cent. in the first three months. This is not intended on this side. Nevertheless, we look forward with interest to the criterion which will be established for the chronic sick.

In conclusion, I would mention what the Economist said last weekend: Mr. Heath and his colleagues will win no new support if they simply play politics … That is what they have done, both yesterday and today. But I would add that the Government will not only win the support of the nation if they can beat the balance of payments problem, and, indeed, gain overall restraint by their measures, but they will have transformed our economic prospects and we shall have regained our national self-confidence.

8.26 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

I hope that the hon. Member for Billericay will not mind if I do not follow his arguments too closely, except on one point. He has attempted to draw the attention of the House to the responsibility of defence expenditure overseas for the balance of payments deficit. This is slightly fallacious thinking, because if the country has a balance of payments deficit of whatever magnitude, it is possible and logical, if one so chooses, to attribute that deficit to almost any sector of overseas expenditure. One can attribute it to defence, if one so chooses; one can attribute it to overseas investment, if one so chooses; and one can attribute it, if one so chooses, to the fact that the population is spending £300 million more on internal domestic consumption and imports. But there is absolutely no logic and no reason why one should take one particular sector of overseas expenditure and attribute the whole blame for the balance of payments deficit to that and that alone. This is a matter of choice, a matter of preference. It is not a matter of economics.

Turning to the main subject of my speech, I would like to get somewhat nearer to the central core of responsibility. I am anxious to do so, because it is my belief that the Prime Minister is the real architect of this disaster. Cromwell once earned the title "The Great Protector". I propose to confer another title on the Prime Minister. I think that he deserves to be known as "The Great Attempter". He has attempted to make a profession of running the country; he has attempted to make a profession of running the economy; he has attempted to make a virtue out of an evil necessity; and in all these attempts he has failed. He has succeeded merely in making a profession of triviality, and he has raised irrelevance to a new standard of excellence.

The right hon. Gentleman challenged my right hon. Friend the Leader of the Opposition, and others, to say whether he supports these measures. What an extraordinary question. I was at one lime, many years ago, a pilot. There are others in the House, although they do not include the Prime Minister, who will understand when I say that the normal position for the rudder and the joystick in an aircraft is central. One does not fly along with full opposite rudder and stick fully forward. That is the technique appropriate to recovery from a spin. If one finds oneself in an aircraft which an incompetent pilot has put into a severe spin, only a damned fool will oppose the appropriate recovery techniques; but my first step after recovering would be to land immediately and gel rid of the pilot.

The pilot who has got us into this spin and asks how we would get out of it has often described himself and his policies as "purposive" and "dynamic". He has devalued the word "dynamic", but I would like the House to hear what Keynes, whom I think hon. Members on both sides would respect as an economist, said about the word "purposive". He said: .… we shall inquire more curiously than is safe today into the true character of this ' purposiveness ' with which, in varying degrees, nature has endowed almost all of us. For purposiveness means that we are more concerned with the remote future results of our actions than with their own quality or their immediate effects on our own environment. The ' purposive ' man is always trying to secure a spurious and delusive immortality for his acts by pushing his interest in them forward into time. He does not love his cat, but his cat's kittens; not, in truth, the kittens, but only the kittens' kittens, and so on forward forever to the end of cat-dom. For him jam is not jam unless it is a case of jam tomorrow and never jam today. Thus, by pushing his jam al ways forward into the future, he strives to secure for his act of boiling it an immortality. The Government have boiled the Navy, the Army and the TSR2. They have boiled the raising of the school-leaving age, the roads, the Territorial Army, Singapore, the Persian Gulf, 15,000 houses and £13 million worth of technological development. This is quite a boiling, and the steam will stain the ceiling of national pride for many a decade. But the electorate may soon have an opportunity of depriving the chefs of this particular hors d'oeuvre of any spurious claims to immortality.

The Prime Minister had just been born when Keynes wrote those words, but the Socialist Party was no chicken and he described it, in words which are appropriate today, as "The Party of Catastrophe". These were his words, and I have no hesitation in commending them to the House: …this secret sympathy with the Policy of Catastrophe is the worm which gnaws at the seaworthiness of any constructive vessel which the Labour Party may launch. The passions of malignity, jealousy, hatred of those who have wealth and power (even in their own body) ill-consorts with ideals to build up a true Socialist Republic. Yet it is necessary for a successful Labour leader to be, or at least to appear, a little savage. It is not enough that he should love his fellow-men; he must hate them too. Events have afforded the Prime Minister an opportunity for savagery, but this is savagery at the nation's expense, and indeed at the expense of a much wider concept than the nation which Britain has always sought to serve. Yet we know, once again, how dramatically correct Keynes has proved in his judgments. But I am not particularly anxious to strike a party note, so I shall not inflict any more of them on the party opposite.

It was, I suppose, predictable that this debate, like so many others in the House, would take precisely the form which it has. The conventional arguments for and against most of the measures are almost as well-known to politicians as they are to economists. But the distinction between them is important. It will not be the first time that an analogy with the theatre is appropriate. The economists are, as it were, the designers of the wardrobe. They spend long and wearisome hours designing and producing an infinite variety of "pros" and "cons" which wait in the stage wardrobe until they are required. They cover every age and every rôle, but the best ones which are simple, straightforward, fustian garments have been almost unused. Puritanical in their simplicity, they hang in the textbooks of Marshall, Pigou, Keynes and Boulding until the dust gathers heavily upon them. The more fashionable arguments, those with which we are more familiar, are those of the Carnaby Street school of economists. The colour and gloss of their arguments is what matters. Through rose-tinted spectacles most economic situations have a glossy appearance.

The politicians who act out their chosen rôles and prefer to clothe their arguments in the bright and gaudy arguments of hyperbole, hypothesis, and exaggeration. The Government are wholly responsible or irresponsible. Devaluation, the defence cuts, and all that has given rise to them, are wholly appropriate or inappropriate. The situation which has given rise to it is wholly the responsibility of one or other side of the House. It has developed entirely before the election of 1964 or entirely after it. The judgment is wholly good or wholly bad. Falstaff and Othello are much more popular rôles than Lear or Hamlet.

It would be convenient if economic choices were quite as simple as we sometimes make them out to be. No wonder that Alfred Marshall, at the end of a long and distinguished life in the service of economics, confessed that the more he studied it the less he knew about it, that it was a very simple subject in which few excelled. No wonder Max Planck once confessed to Maynard Keynes that economics was in reality a much more complex subject than quantum physics.

Hon. Members opposite are particularly tempted to lay most of our troubles at the door of those whom they describe as foreign speculators. The hon. Member for Ebbw Vale (Mr. Michael Foot)—I am sorry that he is not in his place—has often confessed a passionate dislike for the gnomes of Zurich. Perhaps it would be more true to say merely that he has a passionate dislike, in general, and that the gnomes of Zurich are the subject of it at the moment. I have never ceased to be surprised—and I have been no less surprised this evening—by the extraordinary ignorance of economic detail which is displayed by the luminaries of the Left when reaching for their generalisations.

I do not have to tell the hon. Member for Ebbw Vale or the hon. Member for Lewisham, West (Mr. Dickens) that we are a trading nation. I do not have to tell them that in any month our export and import finance, collectively, amounts to not far short of £1,000 million. It needs only a few decisions to delay or to accelerate payment for the normal flows of trading finance to build up on the £ a pressure far greater than anything which the gnomes of Zurich can produce or are likely or willing to create. It is in this area that the initial lack of confidence, or its opposite, first finds its expression. Certainly, there are others, and certainly all these actions tend to be self-reinforcing. But is it not time that we ceased attempting to blame our national disasters on the modern equivalent of Snow White and the Seven Dwarfs?

The hon. Member for Ebbw Vale referred in a previous debate to the Opposition Front Bench as a bunch of vultures. I suggest to him that the responsibilty lies not with the vultures, which are at least effective creatures, but with that bunch of flamingoes on the Government Front Bench who scare the wits out of the international financial community, first by endeavouring to stand on one leg—their gammy leg—and then by taking flight, en masse, flapping into the sky whenever the word "profit" is mentioned. They also flap into the sky en masse whenever a firm pledge or treaty is rustled on the other side of the lake.

There is also the argument referred to by the hon. Member for Lewisham, West, that we should get rid of the financiers and bankers and hand over the economy to the technologists. Even if we put the technologists in charge, they would find themselves exercising a predominantly economic, selective or financial function in choosing the projects for development in national investment. This dilemma is quite inescapable. We can argue that financiers make bad choices if they are ignorant of technology, but the technologists are equally likely to make some pretty disastrous choices if they act as if the financial outcome of their decisions were irrelevant. Listening to hon. Members opposite this evening one could not fail to conclude that in their view the financial outcome of decisions is irrelevant.

Can we not for once in this great House of Commons at least attempt to rise above ourselves? However tempting it may be to conduct a party battle—and we all know how tempting it is—will we not serve a much more constructive purpose, indeed serve the reputation of the House of Commons, if we endeavour to turn the debate into a grand inquisition on the national economy? Can we not at least pose ourselves and attempt to answer the question, why has Britain got herself into this mess? It may be argued that the moment one puts the question one cleaves the diagnosis in twain with the hatchet of party argument and party explanation. That may be inevitable, but are there not occasions on which the House should endeavour to escape from the self-imposed straitjacket and is this not one of them?

The British economy reminds me now of one of those clever stage illusions of a railway carriage. It is the scenery which travels. The carriage stays still. The people in it appear merely to change sides. They glare at each other with contrived misunderstanding, though one suspects that, like the fiddler in the old people's home in Somerset Maugham's short story, if the other party disappeared they would mourn.

Now must we not take stock of ourselves as a nation? Governments certainly bear their full share of responsibility for national economic failure. Ambitious Governments who interfere bear a greater responsibility for national economic failure than less ambitious Governments that do not. This is an inescapable conclusion.

If we leave the country to conclude from this debate that it is the collective view of the House of Commons that this massive economic and political failure is primarily and solely the responsibility of the Government, whether from our side this Labour Government or, from the other side, the Conservative Administration which preceded it, we shall, I think, be falling into a most dangerous trap. We shall, first, be focussing national attention merely on the tip of the iceberg of national administration. It is a tip which glows pink or blue, depending on whether the sun of one or other major party's fortunes is rising or setting. It is very visible and it is certainly responsible.

However, it is my belief that, unless we can, as a nation, strive and carry through an effective and fundamental change in the other concealed nine-tenths of national administration, we shall fail again. Certainly, nationally, under a Tory Administration, we may avoid a further devaluation, a further disaster of the type we have had during the last two days, and recover a more positive economic growth rate. But that alone would not be enough, for in the last twenty years successive British governments, the national administration which serves all governments, and the innumerable administrations which are not directly answerable to Governments—nationalised industries, public corporations, private corporations, family firms, partnerships; yes, even the one-man tobacconist's shop is a form of administration—have found themselves increasingly hamstrung by a vast web of national restriction and legislation—not all of it State legislation or restriction by any means.

This has, in my view, lowered the response rate of this great community, unparalleled in the range of its skill and in the diversity of its experience, to dangerously low levels. This is where I think that the five girls—I am proud to say that they are in my constituency in the Colt factory at Havant—have, in their very significant voluntary effort to work an extra half an hour, with the idealism of youth and the intuition of their sex, shown us that leadership cannot function without grass roots support.

For we have become a restrictive society. In the nineteenth century, for all of our faults, we were a centre of achievement and excellence. We were famed for our ability, in military terms, to pour oil on troubled waters. Today, neither our achievements nor our excellence are pre-eminent. We are famed, certainly in Europe, the United States and in the great Dominions, for pouring restrictions on the pools of initiative and innovation. We say "No" too often. We have imposed too great a burden of proof on those who advocate change. We have been too slow, as a nation, to recognise that our survival depends upon the quality of our industrial achievement and our export performance.

All the rest—research, academic or otherwise; the Arts; the dash we cut, whether in diplomatic or defence posture —depends on this. However, our social values do not as yet recognise it sufficiently. We have only got to ask ourselves where a self-made man stands in the hierarchy of English social life to find the answer. If he is a self-made author, or surgeon or musician, all is well. But heaven help him if he is a self-made industrialist or an export sales manager. Such people are expected to apologise to their self-styled social superiors for their vocation or achievements.

It is, therefore, not surprising that we have the brain drain. We also have an initiative drain and an enterprise drain, for these people tend to be attracted by societies in which there is greater social mobility and in which a man is respected more for his character and achievements than for his origins. There is a vast difference between human elites and racing stables.

The facts are now becoming well known. As the Governor of the Bank of England recently said, in an excellent speech which he made in Buenos Aires, we now excel in national self-criticism. It certainly can be overdone. It will probably be overdone in this debate. But we have now reached a stage in our national affairs when, as I see it, priority must be given to prescription rather than diagnosis. It is easy to see that the elephant is wallowing in the mud, that he is an old elephant and the mud is particularly thick. Now we are looking for people who know how to get him out.

We want a Government who are capable of more than wailing at the edge of the pit or wringing their moral preoccupations in the House of Commons. Another priority is required in our national thinking. There are heaps of armchair economic strategists. This place is full of them. They must now make way, not only within the tip of the iceberg but within all the rest of the administration which I described earlier, for those who have a proven record of getting things done.

What rôle have the Government to play in all this? We must, of course, start at the top. From now on, I doubt that I shall altogether escape the need to be, perhaps, more blatantly partisan. Socialism, whatever its technological pretensions, is fundamentally a philosophy of restriction and intervention. It is a philosophy which, whatever its pretensions to equity, is hostile to the aggregation, application and reward of private capital, on which the whole economy of our coun- try now depends. It is in many ways the expression of an emotional reaction against the inescapable as well as the escapable realities of economic life. It inspires legislation based on the belief that only human nature stands between man and Utopia, that if it cannot be inspired by Shaw or Gaitskell it can at least be effectively straitjacketed by Cripps, Dalton and Jenkins. The belief is not confined to the party opposite. It runs deep in the Treasury and the Civil Service and in the world of academic economics. It is, as I understand it, the death-watch beetle in the fabric of our national life, and it is high time that the people of Britain recognised it for what it is.

It will not be enough merely to change the party at the top. That is absolutely necessary but by no means the sole condition for national survival. We must now give the highest priority to changing the attitude of mind of the nation. This cannot be done under a Socialist administration. It cannot be done by swapping the rôles of Chancellor and Home Secretary. But much more is needed than a change of party, indispensable though this might be. We need a change of national mind and a change of national heart.

Those who advocate and sustain restrictive practices and unofficial strikes must become the victims of a social ostracism as severe as that which society would normally mete out to a national traitor, even if legel penalities cannot, for good and understandable reasons, be imposed. The whole climate of opinion must be changed. Wealth and security must once again become an inevitable and natural consequence of achievement at all levels. There must be less grudging of success.

Mr. William Molloy (Ealing, North)

Five minutes ago—I think it came at about page 10 of his speech—the hon. Gentleman was eulogising certain societies and implying that there were some countries, Western Europe, and America, for example, which were surging ahead of this country. He now makes the point that one of the obstacles holding our production back is the unofficial strike. The facts are well known. Many of the major industrialised countries to which he was referring have a far higher record of days lost through industrial dispute than we have in Britain.

Mr. Lloyd

I do not really dispute what the hon. Gentleman says. It is a fairly well established fact of statistics. If I were asked to outline a hierarchy of reasons for Britain's national economic failure. I should not put unofficial strikes at the top. I should regard them much more as a symptom of the far wider general failure which I have tried to describe. Certainly, unofficial strikes are a major factor, but they are certainly not the primary cause of the situation. How ever given the present situation, which is serious in more ways than one, it seems to me that restrictive practices and unofficial strikes must be got under control quickly. Irrespective of their statistical significance, they are an area of our national life in which a great contribution must be made.

Everything the Government have done in the past few days can be summed up in a simple phrase. My prescription for the country is found in another simple phrase—" Let's have a go ". Let us see if we can try new devices, techniques and forms of administration. The impression I get from the past few days is very contrary to that. It is, "Let's give up. Things are too difficult. Let us withdraw into the shell". That is out of character for this nation and society. It always has been and always should be, and I therefore hope that in the course of time—for time will obviously be needed—the British people will reject this philosophy because it is alien, entirely unsatisfactory, out of keeping with tradition and out of character.

I should like to refer briefly to two ether aspects of the crisis cuts. First, on the decision to abandon the F111A, I have not heard any member of the Government Front Bench state clearly and unequivocably that a direct and inescapable, if unintended, consequence of the cancellation of the F111A is that Britain is to cease to be a nuclear power within a very short period. I should like to be contradicted if that is not so. I know that there are the Polaris submarines and that they form a not insignificant element in a nuclear capacity. But is the country now to depend for its nuclear rôle—if it is to continue to maintain it—entirely on the Polaris submarine? If it is, has the Cabinet discussed it, and, if so, why has the Prime Minister said nothing about it? If that is the case, it is by far the most significant decision taken in the past few days, yet nothing has been said and as far as I can understand the whole issue has been completely glossed over. I hope that the Foreign Secretary, whom I see here tonight, or the Prime Minister will deal with the point specifically because the nation is entitled to know the answer.

Second, over and over again we have had attempts to quantify the cuts the Government are making, but no mention has been made of the most significant cut of all, which is responsible for our present situation, the cut in the overall national economic performance since 1964. What would have been the growth in the gross national product had it continued at the average of the years 1961 to 1964? Had those resources been available, surely all the present cuts would have been unnecessary? I hope that the Government will at least try to quantify what the cut in our gross national performance has been.

8.54 p.m.

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

This has been a peculiar debate so far in at least one respect, in that, being a debate concerned with a statement of policy, of which the main impact and centre of gravity by common consent lies upon defence, there is no indication that a Minister responsible for defence is to participate in it, least of all the Secretary of State for Defence, who bears the prime and direct responsibility.

It is not difficult to understand why the Secretary of State might be reluctant to participate in the debate. Even his self-confidence and effrontery might shrink back from examination of the turning upon its head of all that he has said, promised and offered by way of policy and intention during the three years that he has been in office.

This, I say, is easy to understand. What is not easy to understand is how the right hon. Gentleman can still remain a member, albeit a silent member, of the Government Front Bench, sitting as he does—I am glad that the right hon. Gentleman has now entered the Chamber —amid the wreckage of assertions, pledges, plans and policies. This is the Secretary of State who, when he came into office, initiated what he was pleased to tell us was not only the most important but in many ways the first review of Britain's defence commitments and preparations: it was designed to bring her commitments and preparations into due relationship and give certainty and assurance for the future to the Services and the country.

The results of that review were announced early in 1966. But hardly had they been announced, and hardly had the right hon. Gentleman claimed in the House on 7th March, 1966, that the major decisions are now taken." [OFFICIAL REPORT, 7th March, 1966; Vol. 725, c. 1797.] than it began to transpire that there were to be further major decisions about the size, composition and rôle of all this country's forces and that that review was then in progress. The results were presented on the eve of Parliament's rising for the last Summer Recess and were debated in the House on 27th July. They involved dramatic alterations in our posture in the world as that had been indicated in the Defence Review of 1966, and they foreshadowed unexplained but drastic cuts ranging from 18 to 25 per cent. in each of the Armed Forces to be carried out over the following eight years. That was the Defence Review Mark II.

Then the Secretary of State assured the House, the country and the forces that on that basis people could have assurance for the future, that they would now know how they stood and that at last commitments and resources and the means of meeting the commitments had been brought into harmony. There was in November a further hiccough, a matter of some £100 million or so, sufficient however very considerably to disturb all the Services and cast doubt upon the programmes on which they were then working. But then followed almost immediately the third review, of which we are this evening contemplating the consequences. For the third time we were given a new version of this country's commitments and rôle in the world, and new and even more extensive reductions and cuts in her forces were not merely foreshadowed but announced.

The single episode of the right hon. Gentleman and the Royal Air Force is sufficient in itself to necessitate his resignation from office in acknowledgment of responsibility for confident assertions and firm promises which have been falsifield and denied. Just under two years ago, in February, 1966, the right hon. Gentleman announced that following his review it was the Government's decision that both operationally and industrially the Anglo-French variable geometry aircraft was the core of our long-term aircraft programme, but if the Royal Air Force is not to be lacking in a most cirtical part of its capability for some five years, some arrangement must be made for bridging this gap. We have therefore decided to buy 50 of the F111A aircraft from the United States. That was the Secretary of State's policy, the Government's policy—the cancellation of TSR2; the assumption that there would be an Anglo-French variable geometry aircraft which would be "the core of our long-term industrial and operational aircraft programme"; and the supplementation of this programme to fill the gap in the meantime by the purchase of 50 F111As from the United States.

There was no doubt of the importance —it was at that time an importance in the Far East—which the Government attached to this aircraft. The First Secretary of State said on 8th March, 1966: The importance of the F111 A … was that no alternative aircraft has been proposed which would have the effectiveness that would cause anyone to believe that we were serious about the role in the Far East with our allies if we did not have that aircraft.…If we decided that we would not have this aircraft that would be a decision … to give up being a considerable power. The right hon. Gentleman said, on the same day: Essentially, most of these aircraft will be based in Singapore. … We shall also keep some F111 s in Britain, partly for training, and partly in order to be able to rotate their air crews properly."—[OFFICIAL REPORT, 8th March, 1966; Vol. 725, c. 1958 and 2041.] So it was an essential purchase, essential to enable Britain to fulfil the rôle upon which the party opposite had decided for the years ahead.

An Hon. Member

The policy has changed.

Mr. Powell

The hon. Gentleman is right—it has changed, and not only that; a lot else has changed.

A year after, the right hon. Gentleman was obliged to come to the House and admit that there neither was nor was going to be such an aircraft as the Anglo-French variable geometry aircraft. The core of the Government's aircraft programme, his key decision, had collapsed. He had been proved to have led the Royal Air Force up a drain pipe.

But, before that disclosure, we were already being told that, after all, the F111 aircraft was essential in Europe. In March, 1967, the right hon. Gentleman said: …we shall need a replacement for the Canberras, the tactical strike and reconnaissance aircraft, whether we are east of Suez or not. This aircraft the F111— replaces the cancelled TSR2, designed by the previous Government primarily as an aircraft for use in the European theatre. When the hon. Member for Woolwich. East (Mr. Mayhew) asked whether it would still be necessary to acquire this aircraft if we were not east of Suez, the right hon. Gentleman replied: I cannot conceive "— he could not conceive—this is just under a year ago— of fewer than 50 F111Ks as being a replacement for the Canberras…—[OFFICIAL REPORT. 1st March. 1967; Vol. 742, c. 477 and 505.] Only a month ago, the Minister of Defence for Equipment told the House: These aircraft are operationally required for our rôle in Europe. He also stated: It is required in Europe as much as elsewhere …if we did not have an operational strike-reconnaissance aircraft of this kind, we should be dependent on the French in Europe and on United States cover in N.A.T.O."— [OFFICIAL REPORT, 13th December, 1967; Vol. 756. c. 399–413.] Finally, the right hon. Gentleman the Secretary of State for Defence told the House and the country on 18th December, a month after devaluation: We do not propose to cancel this aircraft "—.[OFFICIAL REPORT, 18th December, 1967; Vol. 756, c. 310] After that story of repeatedly being proved wrong over and over again—of asserting that an aircraft was essential and then finding that it did not exist and would not. of asserting that another aircraft was essential and then discovering that we were not to have it—the right hon. Gentleman still remains in office. Even the last Chancellor of the Exchequer, recognising that in future he would not be believed, thought it right to make a form of resignation. No one will any longer believe the right hon. Gentleman the Secretary of State. If he does not think that it is a duty which he owes to himself in common decency, at least it is a duty which he owes to the public to recognise the consequences of his failure and to go.

He has not only knocked the heart out of the Royal Air Force; he has also made this country a laughing stock among the nations. He has made us the country which first cancelled its own aircraft in order that it might buy an American aircraft, and now has cancelled the American aircraft because it cannot buy that either. We are getting to a point where cancellation charges are forming a rising proportion of the defence expenditure of this country.

In the light of this behaviour what sort of people are the other nations going to think we are? What sort of people are they going to think we are in the whole of that great area where once the power of Britain and India combined predominated—[An HON. MEMBER: "Kipling."]Yes, that was the period of K ipling—an area in which we still claim to have unique connections, where we have vast interests and where we ought to be capable of exercising a beneficient influence? What will be thought of us in that area?

I have never refrained from asserting that the first priority for the defence forces of this country, the first consideration for those responsible for British defence, is the safety of these islands, the defence of Western Europe, and the defence of the communications of these islands and Western Europe. As the Prime Minister said yesterday afternoon, I believe this to be common ground and surely it should be common ground between all people and all parties. I have made no secret of my belief that anyone remotely responsible for defence who neglected that first priority would be gravely to blame.

I have also said, and said repeatedly, that the forces which would enable this country to be safe and secure here in the Atlantic and to do her duty in Europe were capable of enabling her to fulfil commitments elsewhere as well, and capable of making this country a force and an influence respected in the world. That, too, I have said; that, too, hon. Members are welcome to quote.

I have also said that it is inevitable that the systems which have succeeded the disappearance of imperial and colonial power in the Far East, the Middle East, and the Indian Ocean, are destined in turn to be replaced by other arrangements in which the nations of those regions will take a greater responsibility for their own defence and realise to the full the implications of independence. This, too, I have said, believing it to be an indisputable truth.

The Secretary of State for Defence (Mr. Denis Healey)

I am sure that the House will recall, even if the right hon. Gentleman does not, that in recent months the right hon. Gentleman has sneered at our presence in the Persian Gulf, and has said to a meeting of his own party that we have and can exert virtually no influence in the Far East. If that is the case, how can the right hon. Gentleman justify the humbug and hypocrisy of supporting his right hon. Friend the Member for Enfield, West (Mr. lain Macleod) this evening?

Mr. Powell

The right hon. Gentleman, if he still decides to take part in this debate, and any other hon. Gentleman, is welcome to quote anything they please from the speeches which I have made, inside and outside this House, but it will avail them nothing against the charges that they have to answer unless they can find that I have advocated that, having accepted commitments, we should break them.

Let them quote a passage to that effect. Let them find where I have said that in July of a year we should tell the world, our friends and allies, of specific intentions extending over the following decade and come back in less than six months and say that all that was to be swept away. Let them find a passage in support of that.

Mr. Healeyrose—

Mr. Deputy Speaker (Mr. Sydney Irving)

Order. The right hon. Gentleman is not giving way. Mr. Powell.

Mr. Healeyrose—

Mr. Sandys

On a point of order. [Interruption.]

Mr. Deputy Speaker

Order. This is a very important debate. I hope that hon. and right hon. Gentlemen will not waste the time of the House. Mr. Powell.

Mr. Powellrose—

Mr. Molloy

On a point of order. Is it in order for the right hon. Member for Wolverhampton, South-West (Mr. Powell) to challenge Members on this side of the House to make reference to something and then, when they wish to do so, not have the guts to give way?

Mr. Deputy Speaker

That is not a point of order.

Mr. Powell

This debate has still another whole day to run, and there will be ample opportunity for the Members opposite to reply to my challenge. The final part of it is that I challenge them to find any occasion where I have said that we ought to announce, years in advance, and unconditionally, our intention to leave this or that area.

The right hon. Gentleman, in October of last year, said this in relation to the Gulf: "if Britain withdrew there is the danger of a conflict which would interrupt oil supplies for a long period. It could cause millions of additional unemployed in Britain. A British departure before there is an alternative basis for stability in the area could lead to a prolonged conflict". That is what he said last October. Those are not the words of my right hon. Friend the Member for Streatham (Mr. Sandys). In an unworthy passage yesterday, the Prime Minister talked about commitments which my right hon. Friend had entailed on the present Administration. This is not one of them, unless the right hon. Gentleman is a kind of ventriloquist's dummy on the knee of my right hon. Friend.

Mr. Healeyrose—

Hon. Members

Sit down.

Mr. Speaker

Order. The right hon. Gentleman is intervening.

Mr. Healey

Is the right hon. Gentleman aware that the only extent to which I echo the views of the right hon. Member for Streatham (Mr. Sandys) is that he, like me, as Defence Secretary recommended his Government to withdraw from Singapore?

Mr. Sandys

That is a complete lie.

Mr. Powellrose—

Mr. Healeyrose—

Mr. Speaker

Order. The right hon. Member for Streatham (Mr. Sandys) must withdraw that remark.

Mr. Sandys

It did not correspond with the truth.

Mr. Powell

The Secretary of State—

Mr. Healeyrose—

Mr. Sandysrose—

Hon. Members

Withdraw.

Mr. Speaker

Order. We have had an orderly debate so far. I want to hear the protagonists.

Mr. Powell

The Secretary of State for Defence, as recently as October, was thus reaffirming the solemn decision of his own Government, announced last July, in relation to our presence in the Gulf and the States in the Gulf. That has now been broken.

The right hon. Gentleman mentioned the Far East just now. This is what the right hon. Gentleman, in the name of the Government, told the world and those whom it most concerned less than six months ago in the Defence Statement: We plan to withdraw altogether from our bases in Singapore and Malaysia in the middle 1970s; Then follow these words: the precise timing of our eventual withdrawal "— that is, in the middle 1970s— will depend on progress made in achieving a new basis for stability in South East Asia and in resolving other problems in the Far East ". He continued: We are…planning to maintain a military capability for use …in the area even when "— that is, beyond the middle 1970s— we no longer have forces permanently based there ". Those are the pledges, those are the undertakings, voluntarily entered into by them in the recent past, which the Government have broken. They have broken them without true consultation, without more than the mere pretence of information to friends and allies who were justified, perhaps, in relying upon them. Then, with a cynicism that was surprising even in the right hon. Gentleman, the Prime Minister yesterday came to the House and said, "After all, these are just proposals. It is a matter for the House".

I thought that one of the strangest passages yesterday afternoon was when the Prime Minister showed his sympathy with the Minister of State, who had had to go to the Gulf two months running —the first time to say that we were going to stay there, the second time to say that we were not going to stay there. Yet the Prime Minister seemed to be quite insensitive to the ignominy which he had brought not only upon his whole Government, but upon this country, by the decisions of the last few days.

Well, now we are told that Europe is to be the centre of our concern. But our allies anywhere in the world have been warned how, under the present Government, Britain treats her allies. There is much in the statement which bears upon Britain's capability in Europe. A categorical assurance was given by the right hon. Gentleman as recently as November that there would be no acceleration in the rundown or in the redeployment of our forces ".—[Official Report 27th November 1967; Vol. 739, c. 59] A categoric assertion to that effect was made in this House. Now, we are told that not only is the rundown to be accelerated, but the reduction in size of all our forces is to be still greater, but greater to an unspecified extent. No wonder the White Paper and the statement anticipated that there will be a considerable amount of disruption in the Armed Forces. I should think so. After being told that over eight years there would be a reduction of something like 20 per cent., they are now told not only that that reduction will be achieved in four or five years, but that that is not the end and that more and more, unspecified, is still to come.

One of the most remarkable statements in the White Paper relates to the Navy, which is surely relevant to the security of these islands and our rôle in Europe. What is to happen to the Navy? Of all possible decisions as part of the reduction in new naval construction, there are to be reductions in the building of the nuclear-powered hunter-killer submarines, which, on any view, are absolutely vital for Atlantic defence and for the safety of this country. That is the decision of the Government—of the Prime Minister, who, on the eve of the 1964 General Election, like a new Alfred the Great, went down to Plymouth to announce an increased programme of naval construction.

Next, the Territorial Army and the announcement that T.A.V.R. III is to be scrapped. Of course, the right hon. Gentleman the Secretary of State never liked T.A.V.R. III. It was forced upon him reluctantly by public opinion. Having had it forced upon them, the Government first tried to starve it by giving it no equipment, and now have decided to cut it out altogether—a squalid and cynical act. The party opposite will be very mistaken if it underestimates the cold and lasting anger which there will be in hundreds of thousands of homes at this blow that has fallen on the citizen reserve of this country.

We in this party have never accepted that the sole function of the Territorial Army is to supply certain units for the reinforcement of B.A.O.R. We assert, we shall continue to assert, our belief that our safety and the future of the British Army requires a Territorial Army which is a genuine citizen volunteer reserve. The party opposite has done its best to destroy it. We shall do our best to restore it.

Finally, as to our forces on the Continent of Europe, to which in the end it seems all to have come down. Even there, we have already had the opening words of a further retreat: ' We are firmly determined, says the right hon. Gentleman, to cover"— our costs— by a new offset agreement."—[OFFICIAL REPORT, 27th November, 1967; Vol. 755, c. 72] if we are still to keep our forces there.

There are many in the world who would be glad to find an excuse to see a reduction of the British presence on the Continent of Europe. The party opposite, which secretly aim at withdrawing our forces from the Continent as it has withdrawn them from elsewhere in the world, is laying the foundations for this move now. We are not seeing here the policy of a Government who, after long, mature consideration of defence, have decided to make a shift in emphasis, a shift to Europe from outside Europe. We are seeing a party which, after three years, and through all these mutations, has reverted to its true self.

The right hon. Gentleman the Prime Minister has, of course, got his own neo-Kipling form in which he sometimes appears, as he did before the Labour Party upstairs on 15th June last year, when he was rebutting "a motion of the hon. Member for Woolwich, East (Mr. Mayhew) seeking to commit that party to a withdrawal from Malaysia, Singapore and the Persian Gulf by 1969–70 "—the hon. Member was a year out" permitting a saving on the defence budget of more than £250 million a year -"—the hon. Member was more or less dead right there. In the course of his well-publicised speech the right hon. Gentleman the Prime Minister said: Perhaps there are some members who would like to contract out and leave it to the Americans and Chinese, eyeball to eyeball, to face this thing out. The world he continued— is too small for that kind of attitude today. It is the surest prescription for a nuclear holocaust I could think of. I hope that it will be some reassurance to hon. Members opposite below the Gangway when they recall that the nuclear preparations of this country are the only ones which are not being affected by the present proposals.

That was one incarnation of the right hon. Gentleman the Prime Minister but there was a highly significant moment yesterday, during the questions and answers which followed his statement. When someone from behind him was talking about prescription charges, he retorted: We cannot get all that we need from defence savings."—[OFFICIAL REPORT, 16th January, 1968; Vol. 756, c. 1605.] There speaks the authentic voice of the Labour Party: "Let us get the whole of it from defence if possible"—let us get the whole of it from the most essential part of public expenditure—[HON MEMBERS: "No."] Yes—and that which alone has been steadily falling as a proportion of our national income during the last decade.

I do not see the right hon. Lady the Member for Cannock (Miss Jennie Lee), one of the non-resigners; but she gave her reason for not resigning to the Press, and it was reported today: She "said last night that, although she deplored the cuts in the social services, she did not intend to resign because she felt that the defence cuts were ' real, drastic and permanent '."

So there it is: "Away with all the pledges; never mind what we said at the election; never mind what we told the electorate; never mind what has been the policy of our party: we can swallow it all, provided that defence is cut drastically and permanently." That is the spirit of the party opposite, as it has always been. The angry shade which haunts the party opposite can be placated If there are sufficient cuts in the country's defence capability. Now, as in the past, as in the inter-war years, the gods of the Labour Party are gods to be propitiated with the blood of the next generat ion. [HON. MEMBERS: "Withdraw."] For the present, we in Her Majesty's Opposition can only protest and denounce. When our opportunity comes, be it soon or be it less soon, we shall repair the breaches which have been torn in the essential defences of the country, and we shall rebuild the honour of our country which has been cast down.

9.31 p.m.

The First Secretary of State (Mr. Michael Stewart)

I begin with one or two points which are disputed by very few in this long argument. The first of them is that there is a vital need to improve our balance of payments and to do it not only speedily but permanently. There may be ingenious proposals for controlling speculation and for the handling of our overseas investment which have certain merits to deal with temporary difficulties for the currency, though I cannot feel that anyone who heard my right hon. Friend the Chancellor would think that those merits were great. But whatever those merits might be for those limited purposes, quite clearly they are no substitute for remedying a long period imbalance in our balance of payments. One cannot get away from that.

Secondly, it would be undisputed that, despite the reductions in overseas expenditure, if the balance of payments is to be improved there must be a substantial increase in exports. If we try to deal with the situation solely by cutting overseas expenditure, by the reduction of investment overseas and by trying to reduce imports—in other words, if we seek what my right hon. Friend called a solution of autarchy—it will not help the position of a great trading nation. Therefore, a permanent improvement in our balance of payments must mean a greater mass of exports, and that increase will be impossible if home demand, both public and private, goes on increasing as had been planned and hoped.

My hon. Friend the Member for Epping (Mr. Newens) drew attention to the possibilities of meeting the situation by greater productivity. That was the implication of part of his speech. Certainly that is one road of help in the situation and, as the statement makes clear, all those Government policies, all those efforts of private people in industry, employees and management, working towards greater productivity need to be continued as part of the whole national policy. But it would be idle to suppose that that alone could give us the increase in exports which is needed.

I say, therefore, that the necessary increase in exports is impossible unless home demand, both private and public, ceases to increase at the rate which we had planned and hoped. However, I ask the House to note the phrase, continues to increase as we had planned and hoped", because, even after this statement, it will increase.

The right hon. Member for Devon, North (Mr. Thorpe) asked, for instance, what would happen to the global sum spent on education. In the coming year that will be 31 per cent. greater than in the year before, and there will be a similar increase in the year after that.

That is the broad general picture. Our public services, which have massively improved in the last three years, will continue to improve. But there is bound to be a reduction compared with the rate of increase which we had planned and had hoped for both public and private expenditure.

The right hon. Member for Enfield, West (Mr. Iain Macleod)—the House should remind itself that there has been another Front Bench speech from the Opposition besides the one to which we have just listened—asked: how do we arrive at the figure of £300 million for this checking of the growth of public expenditure? He will be familiar with the sources of information and the methods of reckoning by which one starts this calculation. One considers what degree of improvement in the balance of payments it is wise or necessary to work for and what degree of shift to exports is necessary to get that result. One then considers the various ways in which that result can be obtained. One is by the cutting of overseas expenditure, which involves, as the right hon. Gentleman was quite justified in pointing out, grave political considerations. One looks at the possibilities of reducing private spending, which involves asking oneself: what is it reasonable to do in the matter of taxation; what degree of restraint is it reasonable to expect from the receivers of wages, salaries and other incomes? On public spending one asks: to what extent can we reduce the planned rate of growth in a way which, although it gives deferments, will not wreck or permanently damage the whole service?

By bringing those competing considerations together, in the end one reaches a judgment on what is the right figure. In this sense it is right to describe the whole thing as a package, but not a package in the sense of trying to see how much can we please this person or how much can we displease that person. It is a package in the sense of assessing the political problems of cutting expenditure overseas, the personal problems of cutting private spending, the structure of the public services and the importance of not doing anything which would wreck a service. It follows from the fact that it is a package in that sense that if anyone wants to do what I have heard described as "opening up the package and taking out the things one does not like", unless he denies the self-evident proposition that we must improve the balance of payments and must get exports up, he must be prepared to say what he will put in its place either in the form of some other restriction on the public services or make a bold claim that increased taxation is necessary. That applies to people who say, "We ought to take out of the package the very considerable savings that will come from what is said about defence", and that was an obligation which the right hon. Gentleman failed to fulfil.

Colonel Sir Tufton Beamish (Lewes)

What about the Transport Bill?

Mr. Stewart

If the hon. and gallant Gentleman studies the nature of that Bill he will see how irrelevant that comment is.

I propose to refer, first, to the various social services which have been mentioned in this debate—education, health, housing and social security. Then I shall say a few words about the speech of the right hon. Member for Wolverhampton South-West (Mr. Powell), but he will understand that my right hon. Friend the Foreign Secretary will be dealing with that nexus of foreign and defence matters with which the House is rightly concerned.

Rear-Admiral Morgan Giles (Winchester)

Before the right hon. Gentleman leaves the question of exports, will he explain how we can increase exports by permanently alienating all our best customers abroad?

Mr. Stewart

I do not think that the hon. and gallant Gentleman quite understood what I was saying. We must get our balance of payments right. This is done, in part, by reducing Government overseas expenditure, and if we say, as apparently the party opposite does, that we do not want to do that, the burden of increasing exports is the greater. The need to create a gap in home demand is greater, and one must therefore ask either for still greater cuts in the social services, or for substantially increased taxation.

Let us consider education. The right hon. Member for Devon, North, in speaking about the deferment of the raising of the school-leaving age, suggested that perhaps there were compensations here. I am not going to follow him in that line of argument. I am not going to pretend that this is a blessing in disguise. This is clearly a great disappointment, and it is really no good dodging the fact.

One must look—and what I said about the necessity to put something back into the package if one takes something out runs all through the argument—at the size of this item in the package. Over the two years concerned, it amounts to £81 million. It was suggested, I think by the right hon. Member for Barnet (Mr. Maudling), though not in this House, that this might be met by increasing the price of school meals. It is already intended to do that next April. If the right hon. Gentleman chose to push up the price of school meals to half-a-crown he might get somewhere near halfway to the cost of scrapping this proposal. Does he suggest that we should shove up the price of school meals to 4s.? Will he say that he believes in selectivity? Having done that, he will have a generous remission scale. In that case, we will not get the figures involved.

Sir Edward Boyle (Birmingham, Handsworth)

Is it not a fact that a further 6d. on school meals would save, recurrently every year, £26 million, and is not this very much more worth while than this deferment of once-for-all capital expenditure, which in any case we shall have to undertake in two years' time? Why not give priority to Government expenditure which affects growth and efficiency?

Mr. Stewart

The figure mentioned by the right hon. Gentleman is twice as big as it ought to be. Secondly, it would not meet the situation of how to reduce the growth of demand during the coming two years. It is this necessity which hon. Gentlemen opposite have to face if they want to take this item out of the package.

One could have looked all round the educational sphere and said, "Scrape a bit off here, and a bit off there, until it adds up to that sum". I believe that if we had done that we would have found that every part of the education system was beginning to limp a bit, and, unhappy as the choice is, I believe that the choice to make this deferment is a better way of dealing with an unquestionable problem than to scrape all round.

I want to draw the attention of the House to the progress which has been made in education. The pivot of all educational advance is to have enough teachers. If one considers the increase in the number of people in training as teachers during the three years this Government have been in office, and compares it with the three preceding years, one finds that there is an increase of about 50 per cent. in the number of people in training. Never before in a period of that length has there been an increase of that amount. The same is true of the number of students, where we are ahead of the Robbins requirement and shall remain ahead. One might set against the deferment of the raising of the school leaving age the sum of money —£8 million—which, as has been announced, is to be set aside each year to deal with the building problems of authorities who have specially linked comprehensive reorganisation with the raising of the leaving age and to deal with the problem of the educational priority areas.

May I say a word about the Health Service. Here again, I think, no one can face the reimposition of prescription charges—I was about to say that no one could face it without regret, but I will not answer for hon. Members opposite; but certainly no one ought to approach it without misgivings. This is an item involving £50 million. We could have avoided putting on prescription charges if we had put up the cost of the stamp by 1 s. instead of 6d., but I ask hon. Members to realise that already the stamp is a considerable item and that that would have been adding, in effect, to the cuts in consumption on a poll tax and regressive basis. Alternatively, we could have had no increase in the cost of the stamp at all and have raised the £50 million by prescription charges, without exemptions. I do not believe that that would have been satisfactory either.

Mr. John Hall

Is it £50 million?

Mr. Stewart

It is £25 million from the stamp and £25 million from the scheme with exemptions. If the hon. Member thinks it out, he will see that it adds up to £50 million.

The exemptions are a very important part of the scheme. The right hon. Gentleman said that the Government's exemptions are what the Opposition put in their 1966 election programme. But they had 12 years in power with the prescription charges. Why did not they put their exemptions into force then instead of waiting for the election programme of 1966? Part of the reason is quite creditable. It is a difficult problem. As was made clear by my right hon. Friend, the Minister of Health will have to discuss it. Indeed, he has begun discussions with the leaders of the medical profession, who are addressing themselves to it constructively. I believe that we shall be able to create a workable and viable exemptions scheme which will cover about half of the prescriptions which are issued.

Again, one could have hunted around the Health Service to see whether there were odds and ends which would add up to that sum. I looked particularly at the suggestion whether we could do more about the cost of drugs. We are doing something about that, taking into account the Report of the Sainsbury Committee, but I must tell the House that it could not in time, or indeed at any time, amount to anything like a comparable sum. But to reduce the cost of drugs is an action worth taking for its own sake, and we are pursuing it.

Meanwhile, in the great pillars of the Health Service—hospital beds and the number of doctors—and I add another which I hope will be increasingly as strong a pillar of the Service, health centers—good progress has been made and will continue steadily to be made. There has been an increase of 40 per cent. in the number of hospital beds. For doctors there has been a new system of remuneration, substantially improving the position of the individual doctor, which I think needed to be done. There were ten health centres in existence when the Service began in 1948. By 1964 there were 21 more in existence. There are now another 20 on top of that, so that as many were added in the last three years as in the preceding 16 years, and 40 more are being built. Those who feel, as I do, regret over what it has been necessary to do should remember that the main structure of the Service goes steadily ahead.

Sir Keith Joseph (Leeds, North-East)rose—

Mr. Stewart

I will not give way again.

Sir K. Josephrose—

Mr. Speaker

Order. If the First Secretary does not give way, the right hon. Member for Leeds, North-East (Sir K. Joseph) must resume his seat.

Mr. Stewart

Mr. Speaker, I deliberately did not ask for much time and I think that I am entitled to use what I have.

It is a similar picture on housing. Here we have had to make a reduction—not a reduction on what we are doing, but a reduction in the rate of planned increase of, in all, 33,000 houses in Great Britain, 30,000 in England and Wales and 3,000 in Scotland. I think that the answer to the question asked by my hon. Friend the Member for South Ayrshire (Mr. Emrys Hughes) is that this is a matter on which local authorities will have to use their best judgment, but I think that in Scotland they need the approval of the Secretary of State.

Here again, there is a considerable record of progress. We have, for the first time in our history, reached a total, and passed it, of 400,000 houses in a year. In the United Kingdom over½ million houses are now under construction.

On the social services, the right hon. Member for Enfield, West particularly raised the question of the less fortunate family.

I think that I know what is worrying the right hon. Member for Leeds, North-East. The percentage figure I mentioned was that if the achievement in the last three years was compared with that in the previous three years.

Sir K. Joseph

The right hon. Gentleman was wrong.

Mr. Stewart

Yes. With regard to social security, here again it should be noticed that we start from a position where we can look back over good progress in the last three years. The real value of the retirement pension has been raised by about one-sixth. I doubt if there has ever previously been that kind of increase in real value in a period of three years. In addition, we have brought about better treatment of widows, earnings-related benefits, the redundancy payments scheme —a whole range of improvements in the social services.

Although improvement continues, though at a slowed down rate, that improvement must now be particularly directed to those who are most vulnerable, to those whose need is greatest. That is why, for example, we have decided that in the autumn of this year there ought to be an increase in the rate of supplementary benefit. That is why we are arranging to alter the income limit for rate rebates, which is a form of help which I believe has been particularly welcomed and which is, incidentally, a selective form of help.

It is interesting to notice that when people are asked to come forward and give reasons why they should not have to pay out money they are very much more willing to undergo that kind of test of income than if they are asked to come forward and give reasons why they should receive money. I think that rate rebates are a useful form of selectivity, because those who need them are not reluctant to take them up. We are now extending the scheme in a way which will bring into it probably another half a million people.

There will be the increase of family allowances of 7s. in April. The right hon. Member for Enfield, West raised the problem of the family which is faced with this increase, on the one hand, and, on the other hand, with the increase in the cost of the stamp and of school meals and with possible increases in prices. It is not easy to deal with this problem, but, in view of what is happening to school meals, what we propose to do is to adjust the remission scales for the charge on school meals in a way which we believe wt11 help the kind of family which the right hon. Gentleman has in mind.

If we followed the advice of the right hon. Member for Barnet and tried to pay for not deferring the raising of the school leaving age out of an increase in the price of school meals, the position of the family for whom the right hon. Member for Enfield, West was sorry would be very much worse, and right hon. Members opposite must sort that out between them.

I turn now to what was said about the Chancellor's intention to arrange through taxation—these are Budgetary matters, and I deliberately refrain from going into detail—that the increase in family allowances does not go where it is not needed. We honestly thought that, when we told the Opposition of this arrangement, they would be delighted. We thought that it was exactly what they wanted. But, apparently, that is not so. If it is a question of discriminating between two people with, perhaps, 30s. or 40s. between them in weekly wage but neither of them well enough off to pay the standard rate of Income Tax, right hon. and hon. Members opposite are all for selectivity. If, on the other hand, one approaches the question of selectivity by saying, "Here are people of whom one can genuinely say that the help is not so badly needed and it should not, therefore, go to them", the Opposition begin to shrink away from the idea of selectivity.

They ought to try to get more used to it. I believe that it is likely to be increasingly the pattern of our social services. What is the alternative? If people say that they believe in selectivity but do not believe in that form of it, then, plainly, what they believe in is an old-fashioned means test. I do not know whether right hon. and hon. Members opposite realise that the objections to this are not just old-fashioned sentiment. Have they considered the great difficulty of getting people to take the benefit up? Have they considered the danger to incentive if a man is put in such a position that he can genuinely say that it makes no difference to him whether he does a bit more overtime or not? Would that be a sensible situation to create? Moreover, with their clamour to reduce the number of civil servants, have the Opposition considered the considerable increase in staff which the administration of such a system would require?

For the reasons I have given, therefore, I reject, though with sympathy and with regret, the criticisms which come on the social side of the package.

As to the defence side, what does all the rodomontade of the right hon. Members for Wolverhampton, South-West and for Streatham come to? They say that they resist what we propose to do on defence. This means that the whole thing will cost more money than we had planned. If, in addition, we are to have what we did not hear about tonight, the proposal of the right hon. Member for Wolverhampton, South-West for forces in Europe as big as those of any other Western European country—

Mr. Powell

I never made any such a statement.

Mr. Stewart

I beg his pardon.

Mr. Powell

I never said anything of the kind.

Mr. Stewart

All right. If I have that wrong, I withdraw it. But the right hon. Gentleman knows perfectly well that he has made statements of an extravagant character concerning our forces in Europe. If we are to have all this extra expense, but public expenditure is to be contained and there is not to be more taxation, what does it all mean?

The Opposition say, "We will stretch Britain's might and splendour all over the world, but we will not ask any rich man in the country to pay for it." If there were a right hon. and hon. Member opposite who said, "I believe in that policy and I urge the Chancellor to increase the Surtax, to devise a wealth tax and to devise any instrument which will ensure that the whole nation pays for it", I could understand and respect that view. But their vicarious flag-waving at the expense of the poorest of our fellow citizens commands no respect. If I reject with sympathy and regret the criticisms on the social service side of the package, the criticisms embodied in the Amendment I reject with contempt.

Debate adjourned.—[Mr. Harold Walker.]

Debate to he resumed Tomorrow.