BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 21 March 1968 vol 761 cc615-736

Mr. Speaker

Before I call the opener of the debate, may I remind the House that I am deeply aware of the intense desire of hon. Members on both sides to speak in this debate. I was able to call, I believe, 13 back benchers yesterday because hon. Members made reasonably brief speeches.

4.8 p.m.

The Secretary of State for Economic Affairs (Mr. Peter Shore)

Before I proceed to explain the Government's intentions in the field of prices and incomes policy, I want to spend a little time describing the economic background in order that our policy in prices and incomes may be seen in the right context. Our starting point this year is that for reasons well known to the House absolute priority must be given to the balance of payments. There was an overall deficit last year of £540 million and a large part of this deterioration was in the fourth quarter. Added to this, the provisional trade figures for January and February suggest a visible trade deficit of about £100 million for the two months taken together. Although the figures were still distorted by the effects of the dock strike and the closure of the Suez Canal, a massive turn-round is clearly required to achieve surpluses of the order necessary to put our balance of payments right. This objective must take priority over all else. The special task of prices and incomes policy will be to safeguard the competitive advantage that devaluation has provided us and ensure a lasting benefit to our balance of payments. The first object of our policy is to see that sufficient resources are switched to the balance of payments over the next 18 months. The forecasts included in the Financial Statement show that more than half of the expected increase in resources will be needed for this purpose. But we must also allow for an increase in stocks, work in progress and productive investment, for without it we run the risk of jeopardising our future productive potential. Also, some allowance must be made for a slight increase in public consumption despite the drastic restrictions which have been announced. As has been explained, it is neither practicable nor economic to seek to cut all increases in public expenditure programmes overnight.

These demands will more than absorb the extra resources that we believe we can safely get from increased production. Therefore, it follows that personal consumption will need to fall; but in this situation we must give, and we are giving, help to some poorer sections of the community and particularly those with large families. It is clear, therefore, that the better-off sections of the community will have to accept a fall in their standard of living which is rather more than the average fall of 1 per cent. The proportion which personal consumption bears to the total national expenditure is expected to fall by 2 per cent. Despite this reduction, we will not compare unfavourably with our main competitors. At present, personal consumption absorbs a higher proportion of the total in Britain than in many other countries. This has been one of our troubles for many years. We have been consuming this higher proportion of our output only at the expense of too little investment and of quite inadequate balance of payments. It has involved us running into massive debt. This has got to change. The task before us is to see that the change is brought about as effectively as possible and with the least damage to our competitive position.

Inevitably, the question is being asked whether we need face such stark alternatives. Can we not envisage a rate of growth in gross domestic product rather more than 3 per cent. and which would, in principle, enable us both to conquer the balance of payments and, at the same time, to provide the resources required for a rise in the standard of living? Could we, as our friends in the T.U.C. have urged, achieve a 6 per cent. increase in 1968–69? These are serious questions and I entirely accept that this must be established.

We have, of course, looked very carefully at this. I am not a masochist, nor are my right hon. Friends. If in our judgment a higher rate of growth would provide a solution, our whole instinct would be to accept it. There are, however, powerful reasons why we cannot accept such a high rate of growth. First, in the whole of the past decade there has been only one calendar year in which the gross domestic product has risen by 6 per cent. compared with the previous year. That was in 1964, when the growth was accompanied by the worst balance of payments deficit in the post-war period. [HON. MEMBERS: "Until last year."]

Secondly, while we have the physical capacity to achieve—

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

rose—

Mr. Shore

I think I know what is in the hon. Member's mind. I was referring to the balance of payment figure and not to the trade gap.

Secondly, while we have the physical capacity to achieve such an increase in production, it would not be to export markets, but to domestic consumption, that production would be routed. Thirdly, such a rate of expansion could not be sustained beyond a single year because it greatly exceeds the long-term rate of growth of productivity of the British economy. The result, therefore, of such a hectic pace of advance would be an increase in the pressure of demand.

Mr. J. J. Mendelson (Penistone)

It is not hectic.

Mr. Shore

It is certainly hectic, my hon. Friend will find, by comparison with what has previously been achieved over a long period of years in the British economy. If we were to accept such a rate of growth, the outlook for the following year would be one of rapidly mounting costs, leading to all the old stop-go problems.

Mr. Mendelson

It must not be allowed to go unchallenged that the figure of 6 per cent. is described as hectic by a responsible Minister. That was the figure suggested by my right hon. Friend the Prime Minister the day after devaluation as being the right level at which to aim.

Mr. Shore

The hon. Member may be confusing figures for the increase in manufacturing industry output and the figure which I am using for the increase in gross domestic product.

Mr. Ridley

I am grateful to the right hon. Gentleman for giving way, although we have rather passed the point at which I wanted to intervene. May I bring to his attention the fact that the balance of trade, both private and Government, was £112 million worse last year than in 1964? Therefore, how can he ever again bring 1964 in aid in any argument?

Mr. Shore

I anticipated that point and I dealt with it at the time. I said that I was referring to the balance of payments and not to the trade deficit.

After a year or two, the advantages of devaluation, so painfully gained, would have been lost. Exports would be frustrated, imports would rise too rapidly and our costs position would worsen. That is something which we cannot at present contemplate.

Of course, forecasts in this area are far from infallible. A rather higher rate of increase might be possible if exports rise faster than we have assumed, but this would not materially affect the resources available for personal consumption. We certainly cannot assume such an increase in exports in advance of actual performance.

We must, therefore, conclude that an optimistic growth rate does not provide the answer and that there is no alternative to a reduction in personal incomes. This was the Budget judgment. Once this is accepted, the next question is the right relationship between fiscal and incomes policy.

A number of courses have been suggested. The first is a total freeze on incomes on the model of July, 1966. This, as I said in the devaluation debate in November, I would not accept; first because, in a period of inevitably rising prices, a freeze would bear much too harshly on the lower paid and, secondly, a rigid policy of that kind would militate against the increases in productivity which we seek to encourage. It must, therefore, be ruled out.

Secondly, we could have a free-for-all. Prices could be free to rise not merely in response to genuine increases in costs, but totally without restraint and to whatever level the domestic market could accept. Incomes would then chase after them but with no chance of catching them up.

The objections to such a policy are overwhelming. First, it would disproportionately favour those in a strong bargaining position and disproportionately affect those whose bargaining position was weak. Outside earned incomes, those who depended on the social wage would be most cruelly affected. Secondly, such a course of uninhibited cost-push inflation would disastrously affect the cost advantage that devaluation has given us.

Thirdly, if such effects on costs were judged to be unacceptable then the only remaining alternative would have been to present so deflationary a Budget as to negate the bargaining position of organised labour. This we were not prepared to do. Not only would such a Budget have had to include such massive tax increases as seriously to affect incentives to greater work and increased productivity, but the misery and waste of resources involved in achieving a level of unemployment which such a course would demand would be quite unacceptable. This, too, however attractive to some hon. Members opposite, we ruled out.

In the circumstances, the Government have chosen the only sensible course. The Budget is tough and provides the necessary framework. It cannot succeed by itself, however, unless we develop alongside it a means of securing a just but firm restraint on prices and incomes. Neither fiscal policy nor prices and incomes policy can work alone, but in the current context prices and incomes policy should be able to play a vitally important part in securing our objective. Moreover, a successful prices and incomes policy is the only way of ensuring that the competitive advantage afforded by devaluation is not eroded by too rapidly rising costs. It is against that background of economic circumstances and alternative courses that I remain convinced that a firm and successful incomes policy is vital.

Before I describe the main features of the new policy, I would like to describe briefly the four main considerations which I have had in mind. First, the policy must encourage rather than hinder productivity. Secondly, we must have real concern for the needs of the lower-paid section of the community. Thirdly, the policy must do all that is possible to stop unjustifiable price increases. Fourthly, there must be restraint not only on incomes from work, but on incomes from property.

I now turn to the new policy, which is now in operation. Its distinctive feature is the ceiling of 3½ per cent. on wage and salary increases. It is in sharp contrast to the pre-standstill norm of 3 per cent. to 3½ per cent. which in practice became the starting point for wage and salary bargaining rather than the culmination or outcome of negotiations.

Since 1st July last year, the incomes policy has operated on the basis that there is no automatic entitlement to a pay increase and all increases have had to be justified against the criteria which were agreed with management and unions in April, 1965. This has not been a weak policy but experience in recent months has shown that it has the disadvantage of not providing a yardstick against which the reasonableness of individual settlements can be judged.

In a period of rising economic activity and a substantial increase in the level of prices, the danger is that the average outcome of wage and salary settlements would rise far beyond the level which the country can afford.

The Government have, therefore, decided to give firm guidance on the maximum wage or salary increase which will be permissible from now until the end of 1969. All increases, whether settled at national, local, firm or plant level, must continue to be justified against the criteria, but now they must also be contained within a ceiling of 3½ per cent.

Mr. Arthur Lewis (West Ham, North)

Will that apply to lawyers' briefs and lawyers' fees?

Mr. Shore

A large part of the pay of solicitors is separately controlled by statutory powers. If my hon. Friend reads the report of the National Board for Prices and Incomes, he will see that they do not recommend an overall increase in solicitor's rewards.

Mr. Lewis

That is solicitors. What about barristers?

Mr. Shore

I may be asked, why 3½ per cent.? Because 3½ per cent. is the maximum figure for settlements which in our view is consistent with fully maintaining the competitive advantage of devaluation. This is not the same thing as saying that the overall growth of earnings can be contained rigidly within the 3½ per cent. ceiling. It would be impracticable and would make economic nonsense to seek to put a ceiling on increases in earnings directly related to the amount of work done. It is the increases in rates or scales of pay underlying increases in earnings to which the ceiling will apply.

Below the ceiling, the existing criteria will continue to operate. Twelve months must be regarded as the minimum period between successive improvements. Where more than twelve months have elapsed since the previous increase and the criteria point to a further increase, the ceiling can be applied at an annual rate. As is provided in the current White Paper, large increases may have to be achieved by stages.

It must be stressed that there is no justification under the criteria for income increases simply due to a rise in the cost of living. Not only would that be self-defeating, since it would result in further increases in the cost of living, but it could set off a wage-price spiral which would quickly erode our competitive position.

Mr. Robert Carr (Mitcham)

Would the right hon. Gentleman make it clear for the benefit of the House what he means by large increases having to be made effective in stages? Suppose there were a large increase which could be proved to be a genuine productivity increase. Would that have to be implemented in stages?

Mr. Shore

I ask the right hon. Gentleman to be patient. That point will be dealt with in a few moments. Frankly, I was referring mainly to public sector pay and to the gap which may have elapsed—and there often is a long gap—between the previous settlement and the latest settlement.

It is, moreover, a necessary condition of the economic adjustment which we have to make that incomes should rise more slowly than the cost of living over the next year. As I said the policy must encourage rather than hinder productivity. Here I take up the point made by the right hon. Gentleman. For this reason there will be an exception—it is the only exception to the ceiling—for genuine productivity agreements and major reorganisations of wage and salary structure which can be justified on grounds of economic efficiency and increased productivity. This exception reflects our concern to do everything possible to encourage the rapid increase in productivity which is so vital in the interests of exports and import saving. But exceptions to the ceiling will have to be genuine productivity agreements and must conform to the guide lines laid down by the National Board for Prices and Incomes.

Mr. Stanley Orme (Salford, West)

Will that affect plant bargaining? Will the normal negotiations which go on daily in engineering, with rate fixers, to improve rates and piecework earnings, be covered by that agreement?

Mr. Shore

The ceiling will apply to all agreements whether concluded at plant level or at any other level. If the agreement results in a pay award which is above the ceiling, then it will have to be justified—

Mr. John Biffen (Oswestry)

Are we to understand that agreements reached by rate fixers on pay in a factory at Salford, for example, must be referred to the Ministry of Labour, must be examined by the Ministry of Labour and must be confirmed by the Ministry of Labour, and that confirmation must be reported back to the factory floor in Salford, before they are accepted?

Mr. Shore

I do not want to be misunderstood. I said that increases in piece rate earnings, in so far as they are related to increases in output, are not affected—

Mr. Norman Atkinson (Tottenham)

rose—

Mr. Shore

I have a substantial speech to deliver.

Mr. Atkinson

rose—

Mr. Speaker

Order. The right hon. Gentleman has obviously not given way. Mr. Shore.

Mr. Shore

I have a substantial speech to deliver which covers a very wide area. I know that my hon. Friends and other hon. Members will have many detailed questions to put, and I will try to deal with them later. But I must try to establish the main shape of the policy now.

Mr. R. Carr

rose—

Mr. Shore

I am sorry. I must get on.

We have given most careful thought to the difficult problem of the low paid. The T.U.C. have drawn attention to the difficulties in their Economic Review, which states: Faced with recommendations by the Incomes Policy Committee that they should seek to secure greater improvements for their members on or near basic rates and relatively little for members whose earnings are comparatively high, unions have, often after considerable efforts to establish a viable basis on which this can be done, either tacitly decided that it is not practicable—at least in the short run—or have explicitly said that it would not be possible because of the marked effect on differentials". The low paid can be helped by the policy in two ways. First, one of the criteria for settlements up to the ceiling specifically covers their case. Secondly, it is always up to a group within which there are low-paid workers to negotiate above-ceiling increases for these workers within an overall settlement which does not exceed the ceiling. Nor should it be overlooked that many low-paid workers will benefit from increased overtime and piecework earnings as industrial activity picks up, and will have an opportunity to obtain above-ceiling pay increases arising from genuine productivity increases at factory and plant level.

But I have never believed that the problem of the lower paid can be dealt with simply through collective bargaining. How can we establish a satisfactory measuring-stick for the lower paid irrespective of family circumstances and commitments? It is for this reason that we have made this year—and it is the first increase for 11 years—provision for increased family allowances. We have concentrated our help on those low-paid workers with family commitments. Our proposals for increasing family allowances, together with pay increases of up to 3½ per cent., will give substantial protection to low-paid workers with families with two or more children. For example, a man with two children who is earning £14 a week could receive a pay increase of up to 3½ per cent., plus a family allowance increase in gross terms of 10s., which would be equivalent to a pay increase of 3½ per cent., or, if he has three children, a gross increase of £1, equivalent to a pay increase of 7 per cent.

Now, I turn to prices—

Mr. R. Carr

Would the right hon. Gentleman give way?

Mr. Shore

No.

Hon. Members

Give way.

Mr. Shore

I come now to prices, and a large part of this—

Mr. Carr

On a point of order. Since there is to be no wind up from the Government side this evening, unless some major questions are answered at this stage the House will not have a reply and cannot debate this matter successfully.

Mr. Shore

rose—

Mr. Speaker

Order. This is a point for the Minister and not for the Chair.

Mr. Shore

rose—

Mr. Carr

Will the right hon. Gentleman give way, then?

Mr. Shore

No.

Hon. Members

Disgraceful.

Mr. Shore

On prices, nothing would give me more pleasure than to be able to announce to the House this afternoon a total freeze. I can think of no better way to win friends, influence people—and ruin the economy. Such a course is clearly impossible. First, many prices must legitimately rise as a consequence of devaluation. As the House knows, this will vary, but the overall effect will be to increase prices by about 3 per cent.

Second, there are price increases of 1½ per cent. which will flow from the tax measures announced in the Budget. Those who accept the case for devaluation and those who genuinely support the Budget will understand and accept that these price increases are inevitable and that it does no good for us to complain about them—[Laughter.]—but beyond this, there are other price movements—

Mr. Arthur Lewis

On £5 a week it does; it is ridiculous.

Mr. Shore

—and it is here that the prices policy must be set to work—[Interruption.]

Mr. Speaker

Order. We have had a placid Budget debate so far; I hope that we can keep it so.

Mr. Shore

The objective is not to secure a freeze but to see to it that price increases do not take place unless they are fully justified. We have now brought into the net of administrative examination and potential reference to the Board the major part of manufacturing industry and virtually the whole of the public sector. This means a genuine scrutiny and, of course, we have the power to defer price increases which cannot be justified. But it is a fact that increased prices may, in the event, be justified by rising costs.

At the retail end, where there is an infinite variety of goods and a vast number of outlets, provision is more difficult, although we do maintain our "constant watch" arrangements over food prices and some other consumer prices, and we are, of course, prepared to use our powers of reference to the National Board. But there is an important additional point to be made here. Seventeen years ago, almost the last White Paper issued by the post-war Labour Government concluded that resale price maintenance, whether collectively or individually enforced, should be abolished. It took right hon. Gentlemen opposite a rather long time to implement this policy, but today it is a fact that resale price maintenance has been virtually abolished. In other words, in an important sector of the economy, and one which affects the consumer most directly, private price control has been abolished.

There are those who deride the effects of our prices policy and those who convince themselves that prices have outstripped incomes throughout the period that we have been in power. This is manifestly untrue. The plain facts are that, since we came to office in 1964, prices have risen by about 11 per cent., while average earnings have risen by over 18 per cent. Even during 1967, when, for the first six months, we had the period of severe restraint on incomes, the retail price index rose by only 2.5 per cent., which is less than the average annual rate in the period between 1960 and 1966, compared with an increase of 6 per cent. in wage rates.

This does not suggest to me or to anyone who is prepared to look at the facts that our prices policy has operated with the laxity which has so often been suggested. Our prices policy has been working, and to good effect. But there are two ways in which we have decided to strengthen the powers available to us. First, we propose to seek new powers which will enable us to require a reduction in existing prices if the Prices and Incomes Board so recommends. This will be an important deterrent to the maintenance of price levels which are unjustified. Second, we propose to take powers in relation to rents.

As rents are a major part of the average household budget, we are sure that we must avoid rent increases which are too steep, and this includes increases in the rents of certain private rented houses as well as local authority houses. In the private field, controlled rents are already, in effect, frozen. Regulated rents determined under the 1965 Rent Act can rise or fall. A new regulated rent, even though it excludes scarcity value, can occasionally involve a sharp increase in the previous rent. We intend that the legislation on prices and incomes should include powers to prescribe a scheme for phasing big increases in regulated rents. What we have in mind is that, where the fixing of a new rent would lead to an increase above a stipulated amount, the increase might be staged over a period not exceeding three years—

Mr. Arthur Lewis

Oh, dear.

Mr. Shore

We have no intention of interfering with the rent fixing machinery, which, in our judgment, is working well. The rents will be determined in the same way and by applying the same criteria as now, but we shall be able to restrain the sudden sharp increases, against which there have been many complaints.

On local authority rents, the Government have always made it clear that some increases are fully justified and, indeed, unavoidable because of increased costs, and that rent rebate schemes which help the poorer tenants who need help may have to be met in part by increasing the general level of a council's rents. Rent increases bear much more heavily on lower-income families than on the better-off tenant, and one way of moderating their effect is by having an effective rent rebate scheme.

The Government have consistently urged local authorities to adopt and improve such schemes, and there has been an encouraging increase in the number of such schemes over the past year. Of course, if the subsidies are used mainly to help the poorer tenants, then the better-off tenant is likely to have to pay a rather higher rent. But the effect of this can easily be exaggerated, and sometimes the introduction of a modest rent rebate scheme is blamed for severe rent increases, when in fact those increases are mainly due to other factors. It is perfectly possible, as many authorities have shown, to have a sensible rebate scheme without imposing big rent increases or stirring up bitter controversy.

Most local authorities have kept rent increases to a moderate level, but some have made increases which are far larger than is needed for meeting current expenditure or for introducing a rent rebate scheme. In the present, critical, phase, such increases are not compatible with the Government's prices and incomes policy. Nor would it be fair to the vast majority of authorities who have acted reasonably and moderately if an unresponsive minority pursued quite different policies.

The Government have decided, therefore, that, in addition to the new powers over private rents, power should be taken, first, to secure early warning of local authorities' rent increases, and, second, to enable the Housing Ministers to intervene, in exceptional cases, so as to moderate or phase increases which they regard as unduly high. The Government are also awaiting the report of the Prices and Incomes Board on certain local authority rent increases, and this will be taken into account—

Mr. Albert Murray (Gravesend)

Will there be any retrospection with regard to local authorities which have made blatant increases before this announcement?

Mr. Shore

I ask my hon. Friend to await a more detailed amplification of this small but important point of the policy.

Hon. Members

When?

Mr. Edward Heath (Bexley)

On this question of rents, are the Government going to take any action to help those local authorities which are bound to put the additional money on the rates? Will he also say, in regard to incomes policy, exactly what additional powers the Government propose to take or what powers they intend to use to carry out the policy that the hon. Gentleman has described?

Mr. Shore

This is the reason why I have tried to resist the attempts of hon. Members to intervene and question me—[HON. MEMBERS: "Oh."]—simply because I am coming to these powers, and I hope to reach that part of my speech as quickly as possible.

Hon. Members

What about the rates?

Mr. Shore

It is wrong to assume—and this is part of what I was saying—that the only choice is a straight one between increasing rates and increasing rents. We will have more information on this when the National Board reports, and I therefore ask hon. Members to await that report.

Not only are we extending this policy to cover rents, but I believe that it would be quite wrong for our policy on incomes to be confined simply to earned incomes. As I said at the beginning, it must also embrace property incomes. It is for this reason that we are insisting that the 3½ per cent. ceiling should apply to dividend payments. The statutory powers which we are to seek will cover dividend payments in order to prevent breaches of the policy in this respect. The details of the scheme have been set out in the announcement made by the Treasury following the Budget statement, and it will also be described in the forthcoming White Paper. The essence of the scheme is that companies will be required to limit any essential increase in their dividend payments to not more than 3½ per cent. of the dividend for the preceding account year, and we are asking them to make no increase at all without good reason.

In addition to the measure to curb dividend payments and bring them within the ceiling, we have, of course, thought it right that the wealthy should make a substantial extra contribution in the context of our national problems. I refer, of course, to the special charge upon investment income announced in the Budget speech, which will yield £100 million.

I come to our intention to take further statutory powers in support of the policy which I have been describing. We have, of course, considered carefully the possibilities of a purely voluntary system and, in particular, the immensely important developments that have recently taken place in the T.U.C. But in considering this alternative, we must form a view on these questions: first, how far could the T.U.C. expect at this early stage to win and hold the support of member unions; secondly, how in practice could such a policy reach down from national bargains to agreements at the firm and plant level; thirdly, how would we deal with wage and salary claims by those outside the T.U.C., and how would we deal with prices; and fourthly, how, with the best will in the world, could a purely voluntary policy stand up to the exceptional restraints that our present economic situation demands?

Our conclusion was that we could not allow our present powers to expire on 11th August and, indeed, that they would need to be strengthened. This certainly does not mean that we regard statutory powers as an alternative to a wide measure of voluntary co-operation. Such co-operation is, and will remain, of crucial importance. The statutory powers which we propose to take will be a buttress and not a substitute for this support.

The package of powers which I will briefly describe covers the essential elements for a firm and effective policy. We are not proposing to have arbitrary powers exercisable at our own hand. The powers will be exercised only in the context of reference to the National Board for Prices and Incomes which is an independent statutory body. The Board has been strengthened to enable it to deal with more cases and it will be further strengthened if this should prove necessary.

It is not our intention to place the present early warning arrangements on a statutory basis. Under the existing early warning arrangements, the Government receive information about claims and proposals to increase pay from the T.U.C. and C.B.I., from organisations which are not members of either of these two bodies and directly from firms and employers' organisations in the case of local and company negotiations. We expect these arrangements and the related arrangements for price notification to continue on a voluntary basis and we hope to extend them.

We shall not use our powers to require statutory notification unless the voluntary system is not working satisfactorily. The main existing statutory powers expire on 11th August. They enable the Government to delay pay and price increases for up to seven months on the recommendation of the National Board for Prices and Incomes. The Government now propose to introduce legislation to extend the maximum delay from seven to 12 months, although the power will still be exercised only on the recommendation of the Board. The Government consider that these extended powers should run for 18 months in the first place, with provision for renewal or modification thereafter.

The same power of delay will apply to price increases, and, as I have indicated, the Government propose to seek a new power to require a reduction in existing prices if the Board so recommends. The Government are not proposing a power to bar retrospective payment of pay increases held up under the policy, but it must be made clear that attempts to secure such retrospection would be against the purpose of the policy. We propose that employers, as at present, should be protected against breach of contract where increases are witheld in strict accordance with the requirements of the policy. The important extension to 12 months of the period of delay and the retention of statutory powers for at least 18 months should mean, however, that employers will be less likely to commit themselves to inflated settlements which would permanently raise the level of their costs, particularly as they will have to justify any increases in prices which they may subsequently propose.

I have begun consultations with both the C.B.I. and the T.U.C. on the terms of a White Paper to provide guidance on the new policy for prices and incomes. It is obviously important that detailed guidance should be available as soon as possible for all concerned i the determination of prices and incon[...]s. We hope that the White Paper will be published very shortly.

In conclusion, I come to the question of whether, whatever the justification for the policy, it cannot work, as some would allege, and that we are asking too much.

Mr. Heath

Before the right hon. Gentleman concludes. The Government are not taking any powers for retrospective action. Is it clear, therefore, that they will have power to delay for 12 months but that at the end of that 12 months the claimants can be paid everything that they claimed dating back 12 months and that the Government will have no power to stop it?

Mr. Shore

The Government are not taking powers other than to defer for a period of up to 12 months. We have made the point that employers would have a defence in law, as they have under the existing Act, against such claims for retrospective payments.

Mr. Heath

So what I said was right?

Mr. Shore

Yes, but I was elaborating for the right hon. Gentleman's benefit. I am glad that he does not need it.

I do not underestimate what we are asking and the strains that it will impose, above all the strains that it will place on the trade union movement. But I believe that their response—and that of management and of the British people as a whole—will in the end be decided by the answer to two questions: is the policy necessary and is it fair?

There are those—and I see many in front of me—who have never understood the British trade union movement or the millions of people whom it represents. They believe, and it is part of the contempt they hold for the ordinary British citizen, that they can never take other than a short-term and selfish view; that, in short, we are a nation not of citizens but of greedy consumers. They are wrong. The distinctive feature of the British trade union movement is that, in addition to its rightful concern for secure ing the welfare and rewards of its members, it is also concerned with the total development of our society. It is equally concerned with social welfare, with economic growth, with full employment, and with the achievement of a better and more just society. In short, the British trade union movement has always had, and still retains, its Socialist commitments.

The quality of that leadership and their understanding has already been revealed in the initial response of the General Council to devaluation—a response that put to shame the petulant, pessimistic and damaging comments from many other quarters. The response by the British people will, I believe, show a much clearer grasp of the national interest at this time than hon. Members opposite suppose. I think the verdict of the nation, like that of this House, will be that the policy is both necessary and fair.

4.50 p.m.

Mr. Robert Carr (Mitcham)

I think there is one point on which the whole House can be unanimous, and that is that we can add one to the list of those who have never understood the British trade union movement. We have been given a disgracefully superficial account, as well as a boring and supercilious account, of what is claimed to be one of the major problems facing this country. The failure of the right hon. Gentleman to know the answer to the question—which I believe in the first place came from one of his hon. Friends who does know the trade union movement—what is to happen about piece-work negotiations on the factory floor? shows once more that this policy has been cooked up in an ivory tower by theoretical schoolmasters who know not the first thing about the working and problems of British industry.

For that reason alone this policy will fail, just as its predecessors have failed. The House has listened to that speech with the levity and scorn which it deserved. It is not a policy but a non-policy.

Mr. John Peyton (Yeovil)

I wonder if my right hon. Friend would issue a serious invitation to the Chancellor of the Duchy of Lancaster to wind up this debate after all and to make all things clear to us.

Mr. Carr

Opinions may differ about how much the right hon. Gentleman the Chancellor of the Duchy makes things clear to us, but if he were to wind up this debate we would at least have some views from someone who has worked in this field and who knows something about it in practice. That might do some good to the debate.

I could not help having some reflections of a wider kind as I listened to the right hon. Gentleman's lecture. I wonder, do the Ministers of this Government ever have any sense of guilt or even some uncomfortable self-consciousness when they turn previous policies upside-down and deny and dishonour apparently solemn pledges? To hear the right hon. Gentleman claiming now that this Government refuse to base their policy on forecasts of optimistic growth rates makes me ask: did he clear that with the Prime Minister, who won the election on such optimistic forecasts?

Does he not remember when he comes to the House with this claptrap about a statutory incomes policy that the Prime Minister said—accurately for once—in the middle of the 1966 election that we cannot legislate for wage increases? Does he not remember when he makes proposals for compulsory powers with a further 18 months provision for renewing them, and renewing them, and renewing them, the promises made when these powers were first introduced, that they would be for one year and when that was over they would be for a maximum of another year?

Does he not remember that the present Home Secretary, when still Chancellor of the Exchequer—after devaluation, not before—told this House that the Government do not believe that additional legislation would yield us the benefits we need? That was on 20th November after devaluation. It was said by the then Chancellor of the Exchequer, but now we have this today. Do Ministers, not once but over and over again, fool themselves, or are they deceiving us and the country? One wonders, is it worse to be governed by knaves or to be governed by fools?

We on this side of the House remain unalterably opposed to an incomes policy enforced by law. I want to explain seriously our reasons for that opposition and to expound seriously our alternative. In order to do so, I must briefly set this discussion about incomes policy in the context of this Budget and its purposes.

The Budget has two principal objectives, first, to free resources for diversion into exports and import substitution, and secondly, to preserve the competitive advantage which we have gained by devaluation. There are at least five main ways of achieving these purposes. First, we can cut private purchasing power by extra taxation. The Government have certainly done that all right—£923 million worth of it. Secondly, one can stimulate personal saving. The Government have unfortunately neglected that almost entirely. Their proposals are pettifogging in that field. Thirdly, one can cut Government as well as private purchasing power. That, of course, the Government have failed to do altogether. I am sure it may be a coincidence, but one could not help noticing when one looked at the blue Financial Statement we have by tradition on every Budget Day that the difference between the Budget estimates of expenditure given to us on Budget Day last year and the estimates as they were before the Budget this year showed an increase of £922 million. By a strange coincidence we had to have £923 million extra taxation.

The fourth way would be to take positive action to stimulate efficient growth in the total resources at our disposal. That is another way of providing for extra exports and import substitution. On that we have no action at all. The fifth main way of achieving these purposes is to restrain personal incomes, that is to say by incomes policy. All these five main ways are legitimate and proper ways of achieving the legitimate and proper purposes of this Budget, but the Government have put almost the entire weight on the first and the fifth—on cutting private purchasing power by extra taxes and on the incomes policy. That is our fundamental quarrel with them.

I make quite clear that we are not opposed to an incomes policy as such. We are not condemning an incomes policy as a concept, but this particular kind of incomes policy. We operated an incomes policy when we were in office, and we would do so again. A Government in a modern economy must have a strong view about movements in incomes and try to influence them. What we oppose is the excessive weight which this Government have placed on incomes policy. We also oppose the method of incomes policy which involves statutory power and legal compulsion. Those two errors by the Government have led to short-term failure and long-term damage.

Mr. Joel Barnett (Heywood and Royton)

rose—

Mr. Carr

I am afraid I cannot give way. I want to get on with my argument.

Mr. Barnett

I had understood—perhaps the right hon. Gentleman will correct me—that it was the view of the Opposition, or at least 50 per cent. of the Opposition, that an incomes policy was a nonsense and a dangerous nonsense. Is this now not so?

Mr. Carr

It never was so. Perhaps the hon. Member's intervention is of some use because it gives me a further opportunity to make that plain. The Conservative Government when in power operated an incomes policy, but without statutory power, and when we are next in Government we shall do exactly the same.

Mr. Russell Kerr (Feltham)

Will the right hon. Gentleman allow me?

Mr. Carr

I am afraid not. I want to get on with my speech, and the Minister refused to give way to us on this side in any reasonable way at all.

I hope that the House, or those Members interested in this subject, took account, when it was published, of the O.E.C.D. Observer of April, 1966, because, in reporting on various O.E.C.D. enquiries, it showed that unit labour costs in manufacturing industry in Britain rose by 2 per cent. only between 1958 and 1964 when we were in power and operating an incomes policy without statutory control, and by only 1 per cent. between 1961 and 1963. That was as good as or better than other major industrial countries analysed by the O.E.C.D., with the exception of the United States and Canada. But in the first 15 months of the statutory incomes policy under this Government, between July, 1966, and October, 1967, average industrial earnings rose by 5.3 per cent. while manufacturing production failed to rise at all. That is the stark measure of the failure, and that failure of the Government's statutory incomes policy is clearly continued both in absolute terms and by comparison with what we achieved when we were in power with no legal compulsion.

As my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) pointed out yesterday, weekly wage rates since 1st July, 1966, have gone up by 8 per cent. and monthly rates by 8.45 per cent., with all the paraphernalia of control and compulsion and the damage caused by it. In the same months of 1961 and 1963, the comparable period, the respective increases were 5.7 per cent. and 6.5 per cent.—smaller increases with no statutory control. And let the final verdict be pronounced by the National Institute of Economic and Social Research in their report of February this year—and I quote from page 26: Over the whole period from just before the freeze to the latest available figures (for October 1967) average earnings rose about 5½ per cent. This—given the relatively high rate of unemployment and the comparatively high rise in prices—is roughly what one might expect from natural forces. Or, to make a rather rougher type of comparison, it is if anything fractionally higher than the rise during previous roughly comparable periods… That is no prejudiced, theoretical, Tory view; it is the verdict and judgment of the National Institute.

Mr. Shore

Would the right hon. Gentleman now go on to tell the House what conclusion the authors of that report reached about the future prices and incomes policy?

Mr. Carr

When I come to discuss what the future policy should be, I will give our own policy. At the moment I am dealing with the present policy. I am about to comment on the future policy and I am going to tell the House what a Conservative Government would do.

Hon. Members

Answer.

Mr. Shore

rose—

Hon. Members

Sit down.

Mr. Carr

I wish to put forward serious arguments as to why the present Government's policies will not work and what the alternative should be and to contain my remarks within a reasonable space of time. This is a lengthy, serious and difficult subject. It is the Minister who is wasting time, not me.

Mr. Mendelson

Give the answer. The right hon. Gentleman has only read part of the report.

Mr. Carr

I could quote from this article in extenso: I have it with me and I can assure the House that I have read it, although I do not necessarily agree with all it says. I am giving its conclusion at the moment on the historical record of whether a statutory policy has worked. So far, the statutory incomes policy has not worked any better than one with no statutory backing behind it. We said it would not, and it has not. Unfortunately, the other half of our forecast has come true as well, and that was that lasting and serious damage would be done to industrial relations and to the development of responsible free collective bargaining, and all for no economic advantage even in the short run. I shall return to the question of that damage later on.

First, however, I want to consider whether the new powers announced by the right hon. Gentleman today supplementing what the Chancellor said on Tuesday are any more likely to work than the old ones. We are sure they will not, and if they appear to do so to any extent in the next 18 months that is far more likely to be the result of the Chancellor's savage taxation and deflationary measures than of any statutory compulsion. Yet the compulsion, which will have no effect, will continue to exacerbate the damage already done. Last year we warned that the Government's incomes policy would not work and would be unstable, and we said that they would have to go back to freedom or go on to still stronger compulsion. We had no doubt that this Labour Government would choose the latter alternative, and today we see that that is exactly what they are doing. We forecast a Prices and Incomes (No. 3) Bill in 1968, with extra powers, and here it is. The Government are running true to form. We say now that these new powers also will fail and will do further damage in the process.

There are two main reasons for which, in our opinion, these new powers will fail. First, if one believes—as we do not, of course—in the efficacy of statutory powers, these new powers are clearly inadequate. The pressure behind wage claims is increasing to a greater extent than the powers designed to dam them. Compared with the earlier period of statutory control, unemployment, at least in the next few months, will be falling rather than rising. Prices, too, will be rising faster, partly because of devaluation and partly as a result of the deliberate policies of the Government in the Budget, and we agree with the T.U.C. that the increase in prices is almost certain to be significantly greater than that at present forecast by the Government. But, above all, it is clearly absurd, if you are going to depend on powers, to take your powers but to leave out the power to prevent back-dating. If you are going to depend on powers, it is an absurdity not to take that particular power.

The second and far more fundamental reason for which this will not work is that the statutory control of wage increases is an inherently unworkable proposition in itself. As the Prime Minister told the country in March, 1966—accurately for once—you cannot legislate for wage increases; and here we must make a distinction, as I did in moving the opposition to the 1967 Prices and Incomes Bill last year, between a real freeze and a policy of allowing controlled increases. I should like to quote just two or three sentences from my speech on 13th June last year: It is possible, and it may even be necessary, however unpleasant, for a Government, at a moment of national emergency and for a short period, to clamp a complete standstill on all incomes. It is brutal, but there is a rough justice about it which most people will accept if they can be convinced that it is temporary and that the emergency requires it."—[OFFICIAL REPORT, 13th June, 1967; Vol. 748, c. 346.] People on the whole accepted the rough justice and the necessity during that six month period, and in the last part of 1966 earnings rose by less than 0.1 per cent.

A freeze, however objectionable, will work for a limited period. The utter unworkability enters in when one moves from a complete freeze to legislated and State-administered increases.

Consider what must be done to try to make the sort of policies described by the right hon. Gentleman this afternoon effective. First, the proposed settlement must be notified, in the case of incomes, to the Ministry of Labour. Each must be assessed by Ministry of Labour officials. In the case of straight increases unrelated to productivity it might seem relatively easy to decide whether they meet the criteria laid down in the White Paper and whether their effect would be to increase earnings by not more than a 3½ per cent. maximum, which we have been told is the essential feature of the new policy. In practice, the true assessment, even of these simple proposed settlements, is far less easy than it appears.

The real difficulty arises in vetting the proposed settlements which claim to be genuine productivity agreements and, therefore, to justify an increase greater than the 3½ per cent. How does one spot the fake? That requires tremendous economic and financial expertise and considerable experience, not just of industry as a whole but of the industry or even the particular company concerned. That expertise does not exist in either sufficient quality or quantity within the Government machine, nor can it be acquired in a reasonable period.

Only on Tuesday of this week the Joint Parliamentary Secretary to the Ministry of Labour informed me in answer to a Question that 20 Ministry of Labour staff are engaged full-time on vetting proposed wage settlements, and that a larger but unspecified number spend part of their time on it. How many proposed settlements will they have to vet? In answer to another Question of mine on Tuesday, the Joint Parliamentary Secretary said that in 1967 they had to vet 98 major settlements involving more than 10,000 wage earners. He said that he could not give me any information about the number of smaller settlements which had been notified. But, of course, the number of those smaller settlements must be vastly greater than the number of major ones. The number of smaller settlements is also bound to escalate. That is inevitable, because the tendency, which is to be welcomed from almost every other point of view, is that far more settlements will be negotiated at company rather than national level. Therefore, the number of really significant wage bargains will be and should be rapidly multiplying. What can 20 full-time staff in the Ministry of Labour, and an unspecified number of part-timers, do to cope with the flood? Are more staff to be taken on? The Joint Parliamentary Secretary told me that he was not in a position to forecast what changes, if any, there would be in staff during the current year. Will the right hon. Gentleman tell us?

Mr. Arthur Lewis

rose—

Mr. Carr

I am asking the right hon. Gentleman, because I presume that he is in charge of Government policy on this. If the proposals are all to be strictly vetted according to the criteria laid down in Report No. 36 of the Prices and Incomes Board, as the Chancellor told us on Tuesday, what staff is the Ministry of Labour to take on to deal with them? Instead of the 20, will there be 100, 200 or 500? It is nonsense, it is a charade, it is pie in the sky to say that all these things will be stringently applied if there is a staff of only 20 full-time people trying to examine these matters.

Mr. Shore

The right hon. Gentleman leaves one major factor out of account. I fully accept that a policy of this kind can work only given a substantial degree of co-operation by management, and a good deal of what one might call the probing and testing of productivity agreements must be done by management itself.

Mr. Carr

Does the right hon. Gentleman mean like the agreement with the Birmingham car delivery drivers? We are still waiting to hear the outcome of that. We had a Prayer on the matter, I forget how many months ago, and we still do not know any result. That was presumably probed and tested by management, but the Government still found it necessary to lay an Order about it. The policy is an absolute charade and pie in the sky. It will not work on that basis.

Mr. Biffen

Is it also the intention of the Secretary of State that management should do its own testing of price increases?

Mr. Carr

Would the right hon. Gentleman like to answer that question?

Mr. Shore

I have always thought that it was better, and obviously more sensible, for price increases to be checked by the appropriate Government Department and, where right, referred to the National Board for Prices and Incomes.

Mr. Carr

Then how many economists and trained accountants are to be taken on by the various Government Departments, the Board of Trade and so on, that must vet all the price increases? The problem of vetting proposed wage settlements is as nothing compared with that of vetting the many, many times greater number of price adjustments which take place in the economy every year.

Mr. Peyton

Does my right hon. Friend agree that the final crown of absurdity on a ludicrous policy would be to allow the trade unions to vet price increases?

Mr. Carr

My hon. Friend's intervention serves to point out the fundamental lunacy and unreality of the whole policy. It is a serious matter when this country, in its present crisis, has put before it solemnly by the Government a policy which any untrained observer could expose as a practical nonsense.

The initial and vital vetting procedure—because that is the starting point of the policy once the claims have been notified—is almost certain to be hopelessly inadequate and either arbitrary or unfair in its operation, or alternatively, and perhaps both, very slow. Long delay is in itself inefficient and leads to much bitterness and unrest in industrial relations. Every hon. Member could quote examples. A file of correspondence came into my hands only last week. The firm concerned has been corresponding for six months with the Ministry of Labour about a settlement affecting 15 draughtsmen. That was six months for 15 men. How many million workers are there in this country, and how many firms?

The policy will not work. The unworkability does not end with the vetting process within the Ministry of Labour, because if that is adverse the case must go to the Prices and Incomes Board. As the right hon. Gentleman said, even this Government are not daring to take decree powers on themselves to put into force the verdict of their own vetting. They acquire further powers of delay beyond one month only if and when they refer the mater to the Prices and Incomes Board.

How many inquiries can the Board make in a year, even if it is strengthened? Can the right hon. Gentleman give us any indication of what degree of strengthening of the Board is contemplated, and what capacity for inquiry is contemplated? Is it proposed that it should be able to make 100 inquiries a year, 200 or 300? I cannot believe that that is so, but unless the Board can do that how can the policy be made credible? This question is crucial because, as I said, anything more than one month's delay can be imposed only after reference to the Board. Therefore, what will inevitably happen in practice is that the Board will be able to inquire into only a tiny fraction of the proposed settlements purporting to be genuine productivity agreements. The stringency of testing on which the Chancellor laid such stress on Tuesday cannot exist. He is fooling himself, let alone the country, if he believes it can.

That is why we must look for an alternative, because the inevitable result of what we are embarked on is that many agreements will have to be let through even though they patently fail to meet the criteria. Hence we shall have exemplary justice in a few arbitrarily selected cases, which will lead to unfairness as well as failure in economic effects. All the arguments applying to incomes apply with even greater force to the prices side of the policy. We are to have rents as well now. The machinery and the Board will have to cope with them as well. What the right hon. Gentleman said is either deceiving the rent-payer or the ratepayers will have to be pasted with a tremendous extra burden.

We are, therefore, faced no longer just with the objections of principle and theoretical argument, but with the proven fact that a statutory incomes policy has not worked so far. We are convinced that these new and stronger powers will equally fail to work in future. The policy is an economic red herring, but unfortunately the herring is also poisonous. It has already done much damage to industrial relations, and that damage will multiply the longer it goes on.

Even advocates of this type of policy today admit that it must be riddled with anomalies and cause much unfairness. It encourages dishonesty and irresponsibility, because small groups who choose to disregard the policy can drive a coach and horses through the restrictions if they have no sense of responsibility. Employers who try to observe the policy responsibly and voluntarily suffer increasing ill will in their industrial relations and face disruption when key members of their staff, determined to get rises, avoid the policy by leaving and taking new jobs elsewhere.

The damage to the whole structure and development of good and responsible industrial relations is even greater and more lasting because attempts to apply the statutory policy use up precious good will desperately needed for bringing about other more effective and constructive changes. The only effect of statutory control of collective bargaining can be to make it less rather than more responsible in future. So the authority of responsible trade union leaders will continue to be weakened, which will have two consequences.

In the first place, power will increasingly pass to irresponsible and, at the moment, largely unofficial leaders. In the longer run, the tendency will be for such people to get elected to high union office. In this situation the Government may well find it not only necessary to continue the present statutory powers on a permanent basis, but to increase progressively the degree of compulsion. I hope that hon. Members opposite will above all bear in mind that it will lead to the destruction of free collective bargaining in any real sense of the term, which would be a most dangerous development, because collective bargaining by independent trade unions and employers, free of State control, is one of the hall marks of liberty in any industrial society. So this dangerous chain reaction must be broken, and it can only be done by positive and entirely different new measures to make collective bargaining more responsible and more constructive. That leads me in conclusion to the Conservative alternative.

When we have argued our proposals before, it has often been objected that they are long-term in effect, whereas the need is short-term. But that argument no longer cuts any ice, even if it ever did. Look at the time now wasted on this statutory nonsense. Had our fundamen tal proposals been put into effect immediately after the General Election two years ago, the position today would have been entirely different. So we say to the Government and to the country, "Let us waste no more time."

Having got themselves into the crisis of July, 1966, the proper course for the Government would have been to have used the breathing space provided by the complete freeze to get basic new policies into operation, and even today I believe that the trade unions and the people as a whole might prefer to suffer a limited period of freeze, rather than the extended, unknown period of dreary misery which is being meted out to them, if only they could feel certain—and this is the key—that that limited period would be used to introduce new policies and a new structure of industrial relations which would allow a return to responsible freedom and provide the hope of new economic progress.

Mr. Shore

The right hon. Gentleman should clear up this important point. Does he say that it is the Opposition's policy that there should be a statutory freeze on incomes at the present time? If so, for how long should it be operated?

Mr. Carr

I am very kind to the right hon. Gentleman, compared with his intolerance of interventions, in allowing him to try to make a misrepresentative intervention. I did not say that. I said that even now, as an alternative to what the Government are doing, the trade unions and the country might have preferred it. I am now going on to say what a Conservative Government will do.

The very term "incomes policy" has become abused and adulterated. I must explain what it means, therefore. It really means balancing the equation between earnings and production, and that equation will never be balanced by operating on one side of it alone. It is too easily forgotten, not only by the Government but by many of the most prominent commentators, that Britain's failure relative to other industrial countries has not been a failure to hold down earnings. That has been pointed out by my right hon. Friends and by hon. Members opposite. In most other major industrial countries, earnings have risen in recent years faster than in Britain. Where we have failed relative to them is in matching increased earnings by increased production and higher efficiency.

There will never be a successful incomes policy in any sort of free society unless it is part and parcel of a comprehensive set of economic industrial proposals radically different from those now operated by the Government. This is true in the short term just as much as in the long term, and there are seven major requirements.

First, there must be a proper overall balance between supply and demand, and particularly a closer balance than has usually been the case in the past in each main industrial area between the number of jobs vacant and the number of people available to fill them. This is not only a question of broad economic management. It also involves far more radical schemes for improving the mobility of labour, including a new concept of retraining of adult workers. My right hon. Friend the Leader of the Opposition has been repeatedly speaking about this during the last year, and we are actively considering radical new schemes. We only wish that there were some sign of the Government doing likewise.

Secondly, there must be a reduction in the proportion of the gross national product absorbed by Government expenditure for non-productive purposes. This is essential. Until the Government have done it, no further progress will be possible.

Thirdly, there must be radical new measures to stimulate personal savings—a scheme of "save as you earn" as well as "Pay As You Earn", as my hon. Friends have said. Fourthly, we must make use of the elbow-room obtained by lower Government spending and higher personal savings to give more incentives by cutting direct taxation.

Fifthly, the Government must set a firm example in their own field as employers and in the related field of nationalised industries. They must be stringent in their criteria there.

Sixthly, we would reconstitute the present Prices and Incomes Board into a new productivity board. Some of the work of the Board has had valuable results in promoting sensible productive bargaining, for example. The trouble is that it has been used by the Government too often for the wrong purposes, and far too often in any case. That is why a new start has to be made.

Our proposed Productivity Board would have two main purposes. The first would be to inquire into and report on important collective negotiations prior to the stage when settlement has been reached. The purpose would thus be to influence settlements rather than to upset them. Thus, while we reject outright the concept of statutory control and the use made by this Government of the Prices and Incomes Board, we see a valuable rôle for an independent investigating agency, operating through the influence of inquiry and report.

The second function of our new Board, and one closely related to the encouragement of genuine productivity bargaining, would be to act, again through the process of inquiry and report, as an investigating agency into restrictive practices in the use of manpower, something which we are convinced is urgently needed.

The seventh and last of the main headings of policy is a new Industrial Relations Act, to create a radical, new and comprehensive framework of law, governing not just the trade unions, but the conduct of industrial relations as a whole. These proposals will no doubt arouse controversy, not least among hon. Members opposite, who share most strongly our opposition to statutory powers. That is why I hope they will consider what I have to say very carefully.

The arguments are inevitably complex and detailed, and I will not try to list them in headline form at the end of a speech like this. Were I to do so, I would be in danger of adding to the controversy without increasing understanding. We have already spoken about and published our proposals in this House and outside it. We intend soon, and I mean soon, to publish these proposals in detail with full supporting argument and analysis in a report which will be available to the public and, of course, hon. and right hon. Gentlemen opposite.

Mr. Mendelson

rose—

Mr. Carr

We—

Mr. Mendelson

On a point of order. My right hon. Friend, in accordance with tradition, gave way 11 times. The right hon. Gentleman has refused to give way even twice or three times. It ought to be put on the record. He is frightened to reveal his policy.

Mr. Deputy Speaker (Sir Eric Fletcher)

The hon. Member knows that that is not a point of order.

Mr. Carr

I am sure that when HANSARD comes to be looked at tomorrow I shall be found to have given way at least as often, I suspect more often, than the right hon. Gentleman. We are not afraid to disclose our policy we will be publishing it in detail.

These proposals are the outcome of very deep study, lasting over the past three years. That study has been carried out not only by Members of Parliament, not even only by those who call themselves Conservatives, but also with the help of people with deep knowledge of the practice of industrial relations, from the trade union as well as the employer side of the picture. In such a complicated matter, these studies will continue and we shall naturally want to take account of what the Royal Commission has to say. Our proposals, as they will be published, represent a deeply considered set of proposals which will be the basis for action by the next Conservative Government.

To those in this House and outside who, by instinct and emotion bred in the past, may automatically be inclined to oppose our proposals, I would say this—and I hope that hon. Gentlemen will listen carefully, because they must consider where trade unionism is going in this country. The life force of independent trade unions is free collective bargaining, and this is being strangled by legally enforced incomes policies. No one knows that truth better than hon. Gentlemen opposite. What will stop that process? We have heard today that the legal compulsion, which was to be for one year and then two, is now to be continued for a further 18 months, with powers for renewal. That is how it will go on. Who can have faith that it will not continue permanently on this basis?

The break has to be made, and we have to return to freedom. There has to be a freedom which works more responsibly than before. The new legal framework, providing greater authority and freedom for responsible trade unionism, is the only long-term alternative to a continuation of statutory control which, while it may vary in intensity from year to year, will inevitably tend to become more authoritarian and comprehensive. The sort of new law which we are proposing is comparable to that existing in every other major industrial country except Britain.

It has been found by trade unions in other countries to strengthen, not to weaken, the influence and authority of constitutionally appointed union leaders and to increase, not decrease, their ability to serve the interests of their members as well as the interests of the nation as a whole. Is there not a direct connection between the fact that Britain is the only large industrial country in which wages are now held down by law and the other fact, that Britain is also the only large industrial country which does not have comprehensive industrial legislation of the kind that we are proposing?

We do not imagine for one moment that the new law can, on its own, solve all the problems of human relations in industry. We do not suggest that these problems can be overcome by bringing large numbers of people into court, least of all by holding over them any threat of imprisonment, but the Government's policy does just that. We believe that the present law, largely antiquated, incomplete and often unjust in its effects, is handicapping voluntary action by both sides of industry. We believe that a new, fair and comprehensive law can provide a new environment in which responsible voluntary action within industry would have more opportunity and provide more incentive to succeed.

Here then are seven interlocking proposals, which form a comprehensive, constructive alternative to the misguided and failing policies to which this Government are committed. The last Conservative Government succeeded, as I have shown, in having a more effective incomes policy than this Government without statutory control. Those are facts which cannot be denied. We are convinced that our previous methods, supplemented by the new policies which we have indicated this afternoon, would be even more successful.

We are also absolutely convinced, not on the basis of dogma or theory, but practical effect, that the Government's strengthened statutory policy outlined by the right hon. Gentleman will fail, just as badly as their previous attempts have failed, and that, in their failure, will cause further and perhaps irreparable damage to freedom and responsibility, as well as to economic efficiency. We are convinced that the 1968 Prices and Incomes Act, when it is introduced, like its predecessors, will be a vain hope, bred by desperation out of failure, and we shall oppose it, as we have opposed the previous Measures.

5.38 p.m.

Mr. David Marquand (Ashfield)

I do not think that I have ever heard a more certain recipe for social dislocation and perhaps even class war than that propounded by the right hon. Member for Mitcham (Mr. R. Carr). The House ought to remember exactly what he said about the economic strategy propounded by the Government. He said that he accepted that the total amount which my right hon. Friend wants to take out of the economy is correct. Then he said that in his view the Government should cut direct taxation in order to provide more incentives. Finally he said that the Government should cut public expenditure.

We all know that the Conservative Party stands for increasing defence expenditure. What this means, therefore, and it can only mean this, is that the right hon. Gentleman stands for increasing indirect taxation and drastically reducing social expenditure. In other words, the policy which is being propounded from the benches opposite is that the sacrifices, which the whole House agrees the community will have to bear in order to make devaluation work, shall be borne by the poorer sections of the community. That is the policy of the party opposite; there is no escape from that logic.

I do not want to spend much of my time debating with hon. Members opposite. Since I have come into this House the most interesting debates on economic affairs which have taken place in the House have been between members of my own party rather than across the Floor. The debate this week is no exception. I want, therefore, to concentrate on the arguments which have been advanced by some of my hon. Friends from below the Gangway. Before I do this, however, I would pay very warm tribute to my right hon. Friend the Chancellor of the Exchequer on one aspect of his Budget speech which I think will be quite uncontroversial and which I do not think has yet been mentioned in the debate; that is, the decision to publish for the first time the Treasury's official forecast. This is a very important step forward.

I take this opportunity to urge the Government to go one step further and set up a Select Committee of this House on finance and economic affairs, so that we can examine these and other official forecasts in a good deal more detail and, above all, so that we can examine the decisions which are based upon them.

The whole procedure of this House needs to be radically reformed, in order to enable elected Members to control the central, strategic, economic and social decisions which determine the way in which the economy and society develop over the years. The first step towards this is to set up the kind of select committee which I have in mind. I would urge the Government to consider this very seriously indeed.

In the debate yesterday we had a very interesting and important speech from my hon. Friend the Member for Tottenham (Mr. Atkinson), who, perhaps without realising it, challenged the central premise on which the Labour Party is based. He said: Labour Governments exist in a hostile economic environment. Whatever their policy, the economic environment is hostile to their political concept. Therefore, the Government must either concede political and economic principles to their opponents and work in a concensus arrangement or, if they reject that, start to pursue a Socialist policy which must inevitably be hostile to those sources in the economy whose confidence they attempt to gain."—[OFFICIAL REPORT, 20th March, 1968; Vol. 761, c. 488.] In effect, I think my hon. Friend was saying that democratic Socialism cannot work in a mixed economy; that a democratic, Socialist Government in a mixed economy is confronted by such hostility from the existing holders of social and political power that it has either to abandon its Socialism or its tenure of office. That seems to be the essence of the argument put forward by my hon. Friend. I am glad to see that others of my hon. Friends agree with me that this is what he meant. This is an argument which the Labour Party ought to take very seriously. It cannot be dismissed.

The Government's record from October, 1964, to November, 1967, undoubtedly gives a good deal of force to the argument of my hon. Friend the Member for Tottenham. In spite of many very important social advances, the Government did fail on the central issue of economic policy. The National Plan, which all of us saw as a very valuable experiment in planning by consent, was torn up.

Mr. Biffen

The hon. Gentleman should speak for himself.

Mr. Marquand

The concept that the centrepiece of the Government's economic strategy would be a high rate of growth was abandoned and, when the Government faced the choice between sticking to the old parity of sterling and abandoning planning and growth, they stuck to the old parity of sterling. This is a very severe charge which can, and must, be levied against them; there is no question about it. What I would say to my hon. Friends below the Gangway, however, is this: this does not prove that a gradualist, democratic, Socialist policy does not work; it merely proves that from October, 1964, to November, 1967, it was not tried.

The situation is now different. Thanks to devaluation, we do now have the possibility of going back to the policy of high growth; we do now have the possibility, for the first time since 1950, of combining a balance of payments surplus with a high and continuous rate of growth. Indeed, in his Budget my right hon. Friend the Chancellor of the Exchequer has had to make strenuous efforts to bring the rate of growth down from the excessively high level, which it might otherwise have reached in the short term, to a level of 3 per cent.—which, of course, is a good deal higher than the rate of growth we have had in the past few years. In other words, the situation that faces us at the moment is not one where we have to fear excessively low growth, but one in which, if nothing is done to stop it, the economy may grow too rapidly.

In fact, devaluation has transformed the situation. I would beg my hon. Friends below the Gangway to realise this. We are no longer arguing in a pre-devaluation situation; we are now arguing in a situation where high and sustained growth is well within our grasp, provided we have the self-discipline and courage to accept a couple of years of rather severe hardship.

There are, as I see it, three main criticisms which are advanced from within the Labour movement against this Budget. In the first place, the charge is made that this Budget cuts the living standards of working-class people in this country. There is no question about it—it does. We all agree on this. This is the harsh, inescapable fact. But any policy which is aimed at transferring resources from domestic consumption to exports and to import substitution must, to that extent, reduce the living standards of the people of this country. One cannot have it both ways. One cannot use the same resources both to improve one's balance of payments and to improve one's home consumption. There can be no escape from this dilemma. It is not the case that devaluation has made it necessary to cut living standards. Any successful policy aimed at transferring resources would do this. The difference between devaluation and the alternatives is simply that devaluation does the job very much more quickly, in a short, sharp blow, instead of drawing it out over a longer period.

The second charge which is made against this Budget is that it is, as it has been termed, a bankers' budget.

Mr. Russell Kerr

By The Guardian.

Mr. Marquand

The Guardian has changed a great deal since I wrote leading articles for it. I no longer accept any responsibility for the editorials in The Guardian.

I am not clear what is meant by the term "bankers' Budget". If it is supposed to mean the Budget has been drawn up and dictated by the I.M.F., then the idea is nonsense. This is not how the I.M.F. works. If it means that in his Budget judgment my right hon. Friend had to take into account not only all the objective, economic considerations, but also subjective, psychological, confidence factors, then, of course, it is true. In that sense, it could be called a bankers' budget.

Mr. Orme

Is that not the central theme of the earlier argument that my hon. Friend used when my hon. Friend the Member for Tottenham (Mr. Atkinson) talked about pressures, particularly outside pressures from speculators, which make it so difficult for the Government to cary out its policy of growth?

Mr. Marquand

No one disputes that it is difficult for a Socialist Government in a mixed economy and in a capitalist world to carry out these policies. But my hon. Friends must agree that, with the world monetary system in its present fragile state—as we know it almost collapsed last weekend—it would be suicidal for any British Chancellor of the Exchequer to ignore confidence factors. Of course my right hon. Friend had to take confidence factors into account.

The third criticism, which is perhaps the most serious one, is made not only from this side of the House, but was also hinted at by the hon. Member for South Angus (Mr. Bruce-Gardyne) in his very interesting speech yesterday. It is the criticism that this has been an "overkill" Budget, that it will deflate home demand excessively, that it may induce other countries to do the same, and that we may face a recession in world trade as a result of beggar-my-neighbour policies like those adopted in the 'thirties.

That danger undoubtedly exists, and the Government should admit it openly. There is a danger that the world could go back to the policies of the 'thirties. We saw just how great this danger is during the gold crisis last week.

But the underlying cause of the gold crisis had nothing to do with this country. It was caused by the deficit on the United States balance of payments—

Mr. Orme

And the Vietnam war.

Mr. Marquand

—and the chronic surpluses being run by the E.E.C. countries. It is not possible to achieve a steady and stable expansion of world trade unless the E.E.C. countries are prepared to run down their surpluses. It is not just a matter of the deficit countries getting themselves into surplus. It is also a matter of the surplus countries being prepared to operate responsible policies. I cannot see that for Britain to perpetuate its existing deficit will help the situation in any way. In fact, it can only make it worse.

In that situation, I do not believe that my right hon. Friend had any alternative other than to go for a large balance of payments surplus as rapidly as possible. Only if we do that shall we have the remotest hope of being able to persuade the E.E.C. countries to behave in a sensible fashion.

Mr. J. Bruce-Gardyne (South Angus)

I agree with the hon. Gentleman that, having got themeslves to 19th March, the Government had no choice but to have a degree of over-kill this time. However, if they had acted more promptly and, above all, tackled the problem of public expenditure, they could have reduced the risk of over-kill.

Mr. Marquand

That brings me to my next point, which is the question of public expenditure. This is the crucial philosophical difference between the two sides of the House. The recipe advanced by right hon. and hon. Gentlemen opposite is that we should cut public expenditure. However, since most of them are in favour of increasing defence expenditure, that must mean cutting social expenditure.

The essence of what the Labour Party stands for in a mixed economy in the second half of the twentieth century is the steady shift of resources from the private sector to the public sector. That is what it is all about. In fact, the total economic strategy of my right hon. Friend does that to a very marked degree. The Treasury forecast to which I referred earlier reveals that public expenditure is likely to increase by 2 to 2½ per cent. At the same time, my right hon. Friend is asking for a reduction in private consumption for the first time in seventeen years. I do not believe that any member of the Labour Party could ask for more. It is a really heroic shift of resources to public expenditure at a time of very severe economic stringency. That is why the party opposite do not like it and why I believe it deserves the fullest support from this side of the House.

Mr. David Howell (Guildford)

I hesitate to interrupt the seminar on elementary economics which we are hearing from the other side of the House, but is the implication of the hon. Gentleman's argument that there should be a steady shift of resources from private consumption to public consumption within a growing G.N.P., that under this regimé in the second half of the twentieth century there will be a steady and continuous increase in taxation under a Labour Government?

Mr. Marquand

Yes.

5.55 p.m.

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

No doubt the sudden and unhappily unexpected resumption of his seat by the hon. Member for Ashfield (Mr. Marquand) results from his sudden reflection that, to use transatlantic phraseology, he has said a mouthful. He has admitted what so many of my right hon. and hon. Friends have often suspected but which his more cagey right hon. Friends have always been concerned to deny.

He said that the purpose of his speech was to engage in a private war with some of his hon. Friends. I would not, therefore, wish to be so tactless as to intrude upon it. I hope that I shall not do the hon. Gentleman any undue harm if I say that I thought that he made an infinitely better defence of the Government's policies than was even attempted by the Secretary of State for Economic Affairs when he opened the debate. If I may say so, that is what those of us who know the hon. Gentleman's very distinguished father would expect.

The speech of the Secretary of State was a shambles. I leave aside his complete ignoring of the conventions of this House and in particular the convention that a Minister speaking from the Dispatch Box, unless he is right up against the time of 10 o'clock, gives way to the right hon. Gentleman sitting opposite. That is a convention which the right hon. Gentleman plainly flouted, and that useful convention could never have been more useful than on this occasion, because, if I understand it aright, we are to have no reply tonight from the Government.

I am not the right hon. Gentleman's most sedulous admirer, but not even his Parliamentary Private Secretary could pretend that he left a position of clarity about the Government's intentions. What he did was to tell us that the Government will intervene and take statutory powers of a far-reaching nature concerned with prices, wages, salaries and rents. Having done that, he left the matter without giving any practical answers to any of the questions which have been put or, as I understand it, will be put in the course of this debate.

That is not merely a matter of treating the House of Commons badly, though it is so. Much more important, it is treating the country badly, because, although the right hon. Gentleman in his ivory tower may not appreciate it, ordinary people on both sides of industry have to get on with their jobs during the next few days. All over the country, sometimes between one or two individuals, sometimes at plant level and sometimes at national level, agreements have to be made. They cannot just be put aside simply because the Secretary of State for Economic Affairs is a Parliamentary incompetent. People have to proceed and, as a result of his shambles of a speech, we are left with all sorts of questions unanswered which, inevitably, will remain unanswered for some days. It is clear that, in the language of mariners, the Department of Economic Affairs is on a lee shore, but I did not realise that it had drifted so far.

Let me put one practical question to the Government which at least the Parliamentary Secretary to the Ministry of Labour will understand. Will an agreement made in the next few days in good faith between a trade union and an employer be one that can be carried out? Or will the Department, if it goes beyond the 3½ per cent., or whatever other criterion the Department wishes to bring forward, intervene to stop it? What is the position of agreements already made? For example, what is the position of an agreement made lawfully and in good faith last week for a 4 or 5 per cent. increase? Can the employer pay it?

The position is made worse by the fact that the Secretary of State—I took down his words—said that this policy is now in operation. It is all the more lamentable and unpardonable that a policy now in operation is apparently not to be explained to the House of Commons or to the country. People are supposed to conduct their affairs in accordance with the policy now in operation, but no one in any quarter of the House can believe that the guidance given a few moments ago by the Secretary of State will be of the slightest help. This is an intolerable' position. I must press the Parliamentary Secretary, who understands these matters, that some guidance be given today in some way or other to those in industry who have negotiated or are negotiating agreements. This is essential.

I should like now to make a criticism which seems to emerge from what I understood the right hon. Gentleman to say about the treatment of rents under this new policy. First, local authority rents. It is well known to the House that many of the new majority parties that have taken over in a great many local authorities, as the result of recent local government elections, have inherited very large and growing deficits on their housing accounts. They have sought, therefore, both responsibly and in accordance with, I think, paragraph 41 of the White Paper issued by the Ministry of Housing and Local Government, to adjust that situation. What are they to do now? Are they to halt those increases because they will be threatened with some form of phasing resulting in the reduction of rents already being paid?

If the Government intervene, with the inevitable consequence, where there is a growing deficit on a housing account, of throwing a substantial additional burden on the rates, will they come to the rescue of those local authorities with an additional rate support grant? Otherwise the Government are pursuing their own policy at the expense of ratepayers who, as a matter of definition, have at recent elections decided in exactly the opposite sense. These are questions which must be answered.

Turning to the sphere of private rents, I must formally declare an interest. As I think the House knows, I am a director of a property company. We have a system of regulation of rents and the assessment of fair rents. I understand that the process will be that all that will go on and, when a fair rent has been determined, someone from the Department of Economic Affairs will decide over and above that how, when and by what stages that is to come into operation. I suggest that will cause the greatest confusion in this sphere. The Government's existing system for fixing rents is now to be interfered with in its operation by further governmental action.

The House will recall that many of the people to whom these rents are paid are not property companies. There are a vast number of people with one or two houses—they are the majority of landlords—who depend for their living upon their rents. Many are widows. We are now told that when a rent officer or Rent Assessment Committee, set up to apply the Government's own criteria in the Rent Act, has assessed what is said to be a fair rent, the landlord, dependent on that rent for his livelihood, is to be told, "You cannot have it, or most of it, for quite a time." This is to be done regardless of the relative means of the tenant and the landlord. This kind of clumsy policy, which would be bad enough if it had been properly and clearly explained, puts everybody again in an intolerable position when we have it dealt with in the way in which the Secretary of State saw fit to deal with it.

Therefore, since we are to be told nothing by the Government, since we have had no explanation and are to have no answer, I turn to the Budget. Whatever complaints one may have about it, no one could conceivably complain about the clarity, the force or the grace of the Chancellor's very long exposition of his financial proposals on Tuesday. These at least we can debate and argue about with a full knowledge.

The Secretary of State for Economic Affairs made one extraordinary reference to public expenditure. He said there would be a slight increase in public expenditure. As, on Monday night, the Chief Secretary to the Treasury told the House that the Estimates for 1968–69, after certain adjustments to make them comparable, were going to be up 10 per cent. compared with 1967–68, the use of the word "slight" by the Secretary of State bears a rather odd connotation. I wonder whether someone could tell me what the Secretary of State would regard as a moderate or, indeed, a substantial increase in public expenditure if 10 per cent. is slight?

On this point of the Budget judgment I should like to make a comment. I take first, what the Chancellor said on Tuesday: For this purpose we must check the growth of public expenditure and private consumption which were the main expansionary forces last year, and release the resources necessary to sustain as large an increase in exports and industrial investment as possible."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 259.] I ask the House to note that the right hon. Gentleman bracketed together, as matters which should be restrained, public expenditure and private consumption. He has told us—and I have no reason to doubt his figures—that the effect of his measures on private consumption will be to reduce it by 1 per cent. below the present level or by 2 per cent. below the level it would otherwise have attained. On the other hand, we have heard from the Chief Secretary that the other matter which the Chancellor bracketed with private consumption—public expenditure—is estimated to rise by no less than 10 per cent. in money or 61 per cent. in real terms. It is a curious bracketing of two matters to allow one to rise by 10 per cent. and to reduce the other overall by 2 per cent.

This leads to the criticism I make about the whole basis of the Budget. We know, because the figure has been repeated over and over again, that the Chancellor seeks to take out of consumption in a full year £923 million. The Chief Secretary's figures on Monday night on the other hand, showed that estimated expenditure on estimates would rise by £1,017 million. The figures are of the same order of magnitude. But the increase in the Estimates is somewhat the larger.

Those figures must surely mean that the great increases in taxation now being imposed on our fellow citizens would not have had to be imposed in anything like so sharp a degree if the Government had exercised even a reasonable measure of restraint on public expenditure. It must be clear that if the Chancellor had been faced with an increase in public expenditure of half that with which he was faced, he would not have found it necessary to introduce increases in taxation of the order of those which he has put forward.

Therefore, it is important that the House and people outside should realise that these heavy imposts are not necessitated solely by an economic crisis, by whoever caused, and they are not the inevitable result of world economic disturbances or a flurry in the gold market; they are in substantial measure the bill which has to be paid for the Government's failure to restrain their own expenditure. It is important that this should be realised, and that we should not pass too easily into talking about whether the Chancellor has indulged in an overkill or not, without at the same time having in mind that the whole basis of the figures on which the Chancellor had to operate involved taking into account, as the Chancellor undoubtedly did, the large increase in public expenditure which has resulted from the Government's policy.

The public will take these increases the more sourly because they are so contrary to what we were promised. I shall not weary the House by repeating the oft-quoted statement of the Prime Minister about no general increase in the levels of taxation, but I remind the House of what the Chancellor said in his book "Labour's Case" a few years ago in Chapter VIII: The commitments of the Labour Party's policy,"— and I ask the hon. Member for Ashton-under-Lyne (Mr. Sheldon) to listen to this— provided they are not all pushed through in the first year, which nobody has ever suggested—can be carried out comfortably without any question of an increase in the tax burden. On the contrary, they should leave room for substantial tax reductions. That is the published statement of a leader of the party opposite, and therefore the public have the right to resent it intensely when the largest increase in taxation in time of peace, and the rise of the Estimates to the highest level they have ever known in time of peace, takes place under a Labour Government, under a Government who made promises and gave assurances of that kind. Even assuming that increases of this sort, or of some sort, had to be made, I think that they have been made with extraordinary ineptitude.

Perhaps I might now deal with the collection of imposts which will increase transport costs—on petrol, vehicle licences, and by way of Purchase Tax, all operate on the most sensitive part of the cost structure of industry, all operate to increase the cost of moving components to the final assembly line and the final assembled article to the ports for export. What is the use of the Secretary of State for Economic Affairs saying that he will control prices, that if prices rise too high he will use the power of the law to bring them down, when it is the Government themselves, through these tax increases, who are deliberately inflating the costs of British industry, and taking away at any rate some part of the competitive advantage which was the one gain from devaluation. It is extraordinarily inept to operate in a way which produces so substantial an increase in transport costs.

I come, now, to discuss the effect on invisible exports of the swingeing increase in the S.E.T. Yesterday the President of the Board of Trade praised, and rightly so, these activities which produced £3,000 million of invisible exports. He said that invisible exports, unlike visible ones, turned out last year with a balance on the right side. These activities include banking, insurance, shipbroking, and merchanting, and every one of these activities is caught by the full blast of S.E.T., at a rate of 37s. 6d. for a man. What use is it appealing to these activities to be competitive when the Government want only add to their costs by this large increase in this crazy tax? It is of the nature of the tax that it discriminates, and does so strongly, against those activities which earn us these invisible exports which the President of the Board of Trade went out of his way to praise.

I have one or two questions to ask about the proposal to aggregate the income of children under 21 with that of their parents. How far is this to go? Is it, for example, to cover a child who is living away from his parents, though he is under 21? Is it to apply to a child under 21 who is married? If it is, will it apply also on the ordinary principle of taxation to bring in the earnings of the child's wife? I hope that I shall receive answers to those questions. One reason why minors under 21 sometimes have substantial investment incomes is that they have received awards from the courts in respect of serious, and sometimes terrible, injuries. The classic case at the moment is that of the thalidomide babies who, as a result of a recent settlement, have received, I think, about £40,000, which, curiously enough, invested at present would produce about £3,000 a year income. Is income from such damages, properly invested, to be aggregated with the parents' income? If a child receives heavy damages because of personal injury, will this mean that his parents Income Tax will be increased?

Mr. James Dickens (Lewisham, West)

That is a Committee point.

Mr. Boyd-Carpenter

The Chancellor has announced this to the country, and people outside who are concerned want to know the answer. It is not my fault if the Government do not know the answer to this question, or to any others that are put to them.

The Financial Secretary said last night that no one had criticised the surcharge on Surtax on investment income. I think that he spoke a little too soon. I think that a rate of 28s. 3d., which is the top rate of combined tax, on any income is intolerable, and I regard it as economic madness. The Chancellor said that we could not continue with this because it would encourage people to invest their money in unremunerative ways. The fact that the larger their income at that level, the greater the amount of taxation at more than 20s. in the £ must mean that people are given an interest to diminish their income. To do this shows an ignorance of the whole way in which the capitalist system works. Apart from the fact that investments derive from many sources, including savings from a lifetime's work, it seems peculiarly crazy to take such a step.

The Chancellor told us that the object of his restrictions on overseas investment was to secure that these remained selective. This sounds very reasonable, but he told us a few moments later that he was continuing to impose the special discriminatory restriction on investments in Australia, New Zealand, South Africa, and the Irish Republic. I can understand a selective restriction, in our present circumstances, on investments aimed at securing right across the sterling area a good return on the money invested, but what seems wholly irrational is to impose on top of that a special negative discrimination against investment in precisely those areas where investment is likely to be most remunerative and therefore most in the interests of this country.

The first result of this is that we are losing the opportunity to take part in the surging progress of Australia. I was there last autumn, and I saw the opportunities that we were throwing away. I saw, too, the reaction of Australians to what they regarded as wholly irrational discrimination against investment in their country. It is no good the Chancellor saying blandly that he wants to make investment more selective, if at the same time he selects out, if one may so put it, investment in the areas in which investment makes most sense. How can it be in the economic interests of this country to permit investment virtually unchecked in Tanzania and Gambia, and restrict it in Australia and New Zealand? I hope that someone will explain what the Chancellor meant by selection of that kind.

The most damning indictment of the whole Budget comes from the Government. The fact that they have thought it necessary to reinforce this unprecedented increase in taxation by compulsory control of wages, prices, rents, and the rest of it, is the most vivid indication that they have no confidence that the Budget, unaided, will do the trick. They are not themselves convinced of the adequacy of their measures and on this point they are right.

Every unbiased commentator knows that what is needed is something which will persuade boys and girls to stop at home and to train themselves, and not to join the "brain drain", and something that will make the rest of us work harder and save more. Yet I challenge any Minister who takes part in this debate to point to one single aspect of this Budget which will keep a single bright young person in this country or cause any of the rest of us to save an extra penny or to work even half an hour more; and that, after all, is the ultimate test of the Budget. By that test it fails and that failure will bring down a good deal more than the Budget. It will certainly bring down the Government and it will do this country much harm.

6.20 p.m.

Mr. W. Howie (Luton)

I found two points of interest in the speech of the right hon. Gentleman the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), the whole of it delivered with his customary eloquence and grace. He pointed to one particular aspect of Government policy which interests me, namely, the proposals to interfere, as he saw it, with the rent arrangements which now prevail. It is a very severe Budget and with the severity and restraint which many people are going to feel in the coming years the psychological effect of an apparently arbitrary increase in rent should not be over looked. I feel that the right hon. Gentleman rather under-estimated the pain and anxiety which ordinary working people feel when their rent is increased by, let us say, 10s. or more in what appears to them a sudden and unreasonable way. I am sure that the right hon. Gentleman, with his experience of property matters, knows this but he did not quite bring it out. It was a pity that once again he dragged in the widows. No doubt there are widows who own houses and are landlords but we have for many years had rather much of widows and orphans.

I want to touch on the incomes policy aspect of the Budget, the other point in the speech of the right hon. Gentleman which particularly caught my interest. He thought that the existence of the incomes policy suggested that the Government believed that the other aspect of the Budget would not work. I can quite see his point as a serious criticism of the whole, but I would invert the argument and look at it the other way.

I would feel that the size of the general tax burden—and it is very large indeed—really suggests that my right hon. Friend the Chancellor of the Exchequer has had rather less of a total success from the prices and incomes policy; and, in so far as the word "over-kill" can be used, the Chancellor is really carrying into effect a warning he gave some time ago that if the voluntary incomes policy did not work—and I would think that virtually every person on this side of the House would prefer a voluntary policy to any other kind—he would have to apply taxation. I feel that that is what he has done and in a way he has given himself plenty of elbow room so that if the voluntary incomes policy does work he may be able, at a later date, to relax some of the taxes he has imposed. I am reinforced in this belief by the comment made by my right hon. Friend the Chancellor of the Exchequer in presenting his Budget statement on Tuesday last when he said: A firm and effective incomes policy is not a substitute for fiscal action as an instrument of demand management."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 263.] I feel that the right hon. Gentleman the Member for Kingston-upon-Thames had a point but unfortunately that he had it upside down, though it is none the less interesting for that.

Touching more generally on prices and incomes, I feel that it is important to write that policy in, not as the central part of the Government's economic policy but as an important peripheral part of it. Although I have supported the Government, and continue to do so, on its prices and incomes policy, I feel that overmuch emotion has been expended on it and certainly overmuch has been expended in opposing it. What strikes me about the present situation is that in his Budget statement the Chancellor has promised some kind of action of a statutory nature, particularly on prices and dividends and, of course, the action on rents of which the right hon. Member for Kingston-upon-Thames so strongly disapproves.

These are items of statutory policy which many of my hon. Friends, particularly those who are active in trade unions, have been asking of the Government for a very considerable period. To some extent they have won their point, in that the statutory limitations on wages, which are the things which so strongly concern them, are being reinforced by statutory limitations on other forms of income and on rent.

We might argue about the efficacy of these statutory measures in relation to prices, wages and rent, but the general point has been conceded to my hon. Friends. Since trade unionists have been asking for these concessions from the Government for a considerable time, as they undoubtedly have, it will prove interesting to me as an unbiased observer to see how they react to this substantial move in their direction by the Government. Unfortunately, in this respect, if I may be mildly critical for a moment, Mr. Scanlon's appearance on television on the evening of Budget day was not very promising. I realise that he was elected in a certain context so that this was not unexpected, but it seemed to me that in his approach—and he made the same approach in a debate at Croydon a week or two ago—he saw the trade union movement as the working man's end of the capitalist system.

This is an old comment which was first made long ago. In our mixed economy there is a good deal of force in looking at the trade union movement from that standpoint. That must be admitted straight away. But what strikes me as being rather wanting in that approach nowadays is the fact that we do not have quite the laissez-faire capitalist system we had when the trade union movement was originally conceived; and it is a little disheartening to find that the one corner of the economic activity where people on the Left of politics are advocating a free market is in wages. This is not the best way to run the wages and incomes side of the economy.

One thing in my right hon. Friend's approach that has interested me is that although a ceiling of 3½ per cent. has been suggested recently for wage increases he has made an allowance for higher increases in terms of productivity. That approach is entirely right, and justified, mainly because it is from increases in productivity that the increased wealth for which we are looking will come rather from people working harder in the old-fashioned way.

That being so, I should like to see the Government encouraging a great increase in local as opposed to national bargaining. Nationally bargained productivity increases must be very general, but a productivity bargain struck at the local plant can be specific and result in real as against illusory productivity increases. To me, the logic of the productivity part of the prices and incomes policy must lead to more rather than less local bargaining.

It seems to me to lead to something else. A productivity bargain within the criteria laid down by those in authority, having been obtained at local level, it seems logical to believe that the local trade union officials would not then end their interest in the bargaining. Once productivity bargaining became usual at the local level, I think that the union would interest itself in seeing that the productivity actually came about; and that, in a sense, the trade union would begin to take over part, at any rate, of the prerogative of management. Obviously, this will not be a very easy change to make, but it seems to me to be a natural and very worth while change.

On the incomes side, I want to refer to a minor irritant, and I will no doubt at some time receive an answer. Comment has already been made today about the problem of receiving answers, but I am patient, and I can wait until Monday or even longer for a reply. The minor irritant in this wage bargaining is the treatment in respect of the first three days of sickness. I do not, at first sight, see the point of that particular Draconian measure, if it is one. Is it the idea that the temporary loss will be made up by the firms themselves—as, in some cases, it is—or that will be made up by some avenue available to the Ministry of Social Security? This is a minor matter in terms of the economy, but it is very far from being minor in the eyes of a man who might not be chronically sick but could easily be off work for a day or two on, perhaps, three or four occasions in the year.

Since my constituency is heavily engaged in the manufacture of motor vehicles I have looked at those aspects of the Budget that are of interest to the industry. In my constituency there are two very large motor car manufacturers, both of them American. I am pleased that my right hon. Friend has resisted a temptation that has not always been resisted in the past to strike the motor car industry rather hard.

This is a very important industry, and it is sometimes very sensitive to economic change. It sometimes seems as though it were assuming the same importance in our economy as does the cocoa bean in that of Uganda. It has not yet got to that stage, but I am particularly glad that the Chancellor of the Exchequer has resisted the tempetation to increase hire-purchase charges and make changes in hire-purchase arrangements, because that is the economic change which most suddenly and startlingly hits the industry.

The comment of the motor manufacturers in my constituency is of interest, and is in contrast to the rather hysterical outburst of Sir Donald Stokes. They believe that the effect of the Budget on motorists will permit the firms to meet the level of home market demand. Their problem until recently has been that the level of home market demand for their cars—which, incidentally, are very good cars—has inhibited their export effort. They feel that the slight reduction in home demand will permit them more and more to increase their export effort. That local statement justifies my right hon. Friend's present attitude to the motor car industry.

I might at this point add that the proposed changes to the Transport Bill will be welcomed by the industry. They will be welcomed by me for quite different reasons. Obviously, I do not regard myself as a spokesman of the motor car industry, but I spent a considerable part of my life before coming to the House as a builder of bridges and roads. I am therefore familiar with the wear and tear on roads caused by heavy traffic, and with the bridge design problems caused by abnormal loads. Nevertheless when the wear and tear and abnormal load charges were first proposed, I thought that they might have been more readily justified by publication of the data on which they were based. It is quite conceivable that the information is appropriate to the charges, but I should like to know.

The right hon. Gentleman the Member for Kingston-upon-Thames referred to the heavy increase in the Selective Employment Tax. I have always supported this tax because it is cheap to collect and seems to me to be infinitely flexible. There seems to be no reason why any Chancellor of the Exchequer should not at any given time adjust the different sections into which the tax is divided to suit his specific purposes. But I think that the present division of the tax into three main groups is slightly crude, and I should like to see it further subdivided.

Since in the Budget some relief is being given to some part of the hotel trade, for example, the idea of flexibility must be in my right hon. Friend's mind, and I should like him to take a very shrewd look at the position of the consulting engineering world. It is, in a sense, a service industry, but in a sense it is a manufacturing industry as well. We all know that if a drawing office is added to a plant it is manufacturing; if it is along Victoria Street as a consulting engineer's office, it is not. However, this is itself a very important exporting industry. Whether its exports are visible or invisible I would not care to say, but the export of design is important to Britain and important to our technological reputation. In addition, the fact that a job is being done through a British consulting engineer very often has a direct result in orders for British machinery and plant of various kinds, and those orders are important to us. The consulting engineering world suffers under the weight of S.E.T. I would very much like that to be looked at if the Chancellor could see fit to do so at some time.

This was a necessary Budget. Its severity is undoubted, but I think it is a just Budget. I do not think there are any sections of the community who can cry out that they have been unfairly treated. It seems to me to be a brave Budget in political terms, and a clever Budget, and one which was brilliantly introduced by my right hon. Friend. It is a Budget which deserves to succeed. I strongly support it.

6.41 p.m.

Mr. David Howell (Guildford)

I listened with interest to the speech of the hon. Member for Luton (Mr. Howie) without agreeing with all of his points, but I certainly found myself agreeing with what I understood him to imply about the whole of the incomes policy, that in some ways it was a bit of a sideshow. I believe the same label applies not only to the incomes policy but to the Department of Economic Affairs and to the Secretary of State for Economic Affairs as well.

We have been presented with a Budget in which, we are told, there are three constituent elements, three supports on which the strategy for restraining demand rests, so that room can be made for exports. I should like to comment on all these things together, because however skilfully the Chancellor may have presented his taxation increase proposals on Tuesday, they are only one support out of the three. No matter how urbanely and in however balanced a fashion these things may have been put over, if the other supports of the strategy have feet of clay then the whole thing collapses.

Before I do that, however, I should like to add to the bouquets which have been thrown to the Chancellor by hon. Members on both sides, and, indeed, to the Financial Secretary to the Treasury as well, for their decision to publish 18-month forecasts of likely economic performance. This is a really valuable and excellent advance, and I agree with the hon. Member for Ashfield (Mr. Marquand) who said it was important now that the Government should go further.

Now that we have got the figures let us for goodness' sake have a forum in which we can have a civilised debate about these things; let us know the views of those officials and the arguments which led up to the publication of the figures; let us question them, and let us have a genuine public debate about the evolution of public expenditure. I think that is important. It is the message which the Lord President of the Council should carry in his head, if he has the time to turn from other things, for I think it an important advance in the country's economic policy.

Having said that I should like to turn to the three elements. First of all, the taxation element, of which we heard on Tuesday; second the control of public spending element, of which we have heard a great deal from hon. Members on both sides; and thirdly, the incomes policy element about which we have heard a great deal today.

Let me start with public spending. We should make no bones about it. The size of the taxation bill announced on Tuesday is, of course, a direct reflection of the fact that public spending is out of control. About that I should have thought there could be little doubt. Indeed, it is something which the Government had themselves indicated. It is not as though the Government have not at any rate attempted to cut public spending. As hon. Members opposite will remember, the history of the last two years is littered with attempts by the Labour Government to cut public spending. Time and again notional cuts of various size have been announced. On 8th February, 1966, there was talk of £200 million which, we were told, must be taken off; on 20th July last year another £250 million was to come off; on 18th November, 1967, devaluation time, another £400 million was to come off; on 16th January this year there was another £300 million to come off this year and £416 million next year. So that somewhere in the Government machine there is agreement that there should at least be an attempt made to try to bring public spending under control.

Yet at the end of all that, what do we have? Figures indicating that by 1970 public spending will actually be running at a higher level than that projected in the now discarded National Plan which was related to a wildly ambitious idea of a steady 3.8 per cent. a year growth in resources. That is the picture at the end of the attempts by the Government to have some sort of control of public spending. That is the picture, and it is one of failure. How that squares with what the Chief Secretary said the other night, that public spending is under control and on target, heaven only knows.

Mr. Russell Kerr

Would the hon. Member not agree that as a matter of practical politics the only area in which saving can be made is in defence?

Mr. Howell

No. I would not. I want to come on to a number of other areas, but I noticed earlier that the hon. Member for Ashfield seemed to think the choice was between defence and social spending. I did not interrupt then, but that is a quaint view of the structure of public spending, which involves many other areas as well, on which I will touch in a moment, if the hon. Member will allow me.

It seems that there are really two approaches to the whole business of Government and public spending. There is what one may call the heartrending approach, and there is the good management approach. Of the heartrending approach we have seen an example. It involves the Government shutting themselves up in the Cabinet Room for a day or two allowing a few leaks to the Press about the agonies they have gone through. Then they emerge after a few days and saying they have decided to reverse, rather arbitrarily, a range of policies which previously, perhaps only a few weeks previously, they were solemnly asserting, both to their supporters and to the outside world, as something they would not reverse. That is the heartrending approach, which led to the decision on 16th January, and it did not work. I think many of us at the time suggested that in a year or two, when we had a look at the Budget outturn, the savings would not have materialised. I do not think many of us realised that it was not to be a year or two but a month or two before, looking at the figures, we found that the proposed economies had been swept aside like sand castles before the rising tide of administrative expenditure and other expenditure proposals. That is the outcome of the heart-rending approach, and I think it is a rather sad and sorry commentary on the managerial competence of those who are supposed to be governing the nation.

The other approach is the good management approach. This has two prongs to it. The first prong is the more obvious one, and this is where the question arises of whether the cuts should be on defence or in social policies. The more obvious aspect of controlling the growth of Government spending is to avoid policies which will lead to the proliferation of Government spending. My hon. and right hon. Friends have suggested a whole range of items which are neither defence nor social policy items of spending and where there could be curbs on the proliferation of public spending. They have talked about the Transport Bill, the Industrial Expansion Act—one more in the costly range of agencies involved in Government intervention in industry—they have talked about research spending by Government which could do with close examination; they have talked about the costly mechanism of investment grants, and the need for a greater use of private enterprise to do jobs now done by civil servants, use of on the lines of those of the Federal Government in America. They have talked about abolishing the Land Commission and S.E.T. These are the obvious ways in which Government spending could be cut.

But if we are serious about bringing public expenditure under control, there are two more fundamental points. The first lies in taking steps—these involve administrative changes inside the Government—to spread individual responsibility for the carrying out of projects and ensuring that they are carried out in a cost-conscious way by individuals in the Government, who at present hide under the broad cloak of Ministerial responsibility. The second way in which public spending can be brought under control is by adopting modern and up-to-date methods of Government accounting.

The first point, about spreading responsibility, has profound implications for the whole doctrine of Ministerial responsibility. We should not be afraid of these. This doctrine is a dangerous and misleading fiction. It is a device for ensuring, not that the Administration will seek ways to cut costs, but that it will find ways of not having to explain why costs have risen. If the Government are serious about cutting expenditure, which I doubt, they will have to devise ways in which decisions can be made and routines followed by civil servants which lead to cost cutting. Responsibility must be delegated to particular civil servants and high officials who will have to justify—with their reputations to improve or tarnish—their handling of specific projects and be publicly judged on the success or failure of them.

That cannot be dismissed as an ideal. It cannot be pushed aside as something which the Labour Government used to think about in the heady days before 1964 when they had ideas. It must be a direct aim of policy if the Government wish to bring public spending under control.

'The Joint Under-Secretary of State for Economic Affairs (Mr. Alan Williams)

We all agree with the idea of better accounting and improvements in financial matters, but the Hawker Siddeley and Ferranti cases happened while the hon. Gentleman's party was in office.

Mr. Howell

That is an observation, but I do not see that it has much to do with the desperately serious problem of a system of public expediture which is out of date and a public spending bill which is out of control, which has led to the present difficulties.

I come to the second point, the question of modern accounting. The traditional system of accounting used by the Treasury is probably very good. It is, though, a traditional system of checking figures after expenditure has been made. We shall have to find ways of establishing proper management accounting, of ensuring that there is proper control of expenditure patterns as they unfold and of devising ways in which management accounting in the commercial sense can apply to government. Unless that is done, we shall remain saddled with a system in which the Chancellor of the Exchequer is powerless to control the growth of public spending.

The real job for the politicians is to reorganise the business of government. This point is brought out extremely sharply by the saga of this Budget and the size of the taxation burden. If anything is shown by the figures of recent weeks, and by the financial statement, it is that the business of organising the Government and the methods for controlling their expenditure are in a shambles. If we are to reduce the dominance of overcentralised government in this country and get on top of the public expenditure problem, which we are not doing at the moment, these changes must be made. It is not good enough for the Government to say that these are ideals in which we all believe but that at the moment they are too busy with day-to-day things. As long as they say that, there will be chaos in our public finances.

I come to the third leg of the Chancellor of the Exchequer's strategy, namely, incomes policy. It is right that we should put this matter at the end of what we have to say, because, as the hon. Member for Luton said, it is not directly central to our problems. I think that it is the least important of all aspects of the Chancellor's strategy. I agree with the hon. Gentleman that the Chancellor thinks the same. Therefore, we may be wondering why the other limbs of the Government should be asked to wave in this ludicrous way and why the rest of the Labour Party should be asked to go through the contortions which it will have to go through on incomes policy legislation.

I welcome the view, the more robust view, of my party about a statutory incomes policy. I believe that we must reject this whole idea, because it does not work. I say that, not for narrow ideological reasons, but for down-to-earth reasons. As my right hon. Friend the Member for Mitcham (Mr. R. Carr) has clearly shown, all the evidence is that when it has been applied wage rates have risen, not more slowly, but certainly at the same speed and probably faster. When we look at the relationship between earnings, costs and exports—and the ultimate aim of this policy is to increase exports—there is no connection at all. The attempts to impose wages legislation have achieved nothing in cutting costs and increasing exports. All that has happened is that legislation and the House have been brought into disrepute.

That is why this is a vitally important stand which the Conservative Party takes in rejecting the incomes policy idea and the mumbo-jumbo which goes with it as a sensible and credible support for an economic policy. It is not a policy. Luckily, it is not significant in the Budget arithmetic. It is an escape from reality. The reality is that no economy will grow and costs will not be kept down unless there are incentives to save. The reality is that productivity is far too low and that costs are too high.

Yesterday, the President of the Board of Trade told us about the wonderful export boom which was to come. He said—and this is the orthodox view of the Government at the moment—that devaluation will bear fruits in due course but that there would be difficulties to start with. I have heard many comments from people who think that this may not be so and who argue that perhaps the fruits of devaluation could have been gleaned only in the first few weeks after devaluation. This is the argument of many businessmen—that unless advantage of devaluation is taken in the first few weeks other countries will not take matters lying down. Hon. Members must not imagine that the Japanese have sat back and said, "Let British exporters have this great advantage", which is not as great as it was originally but is still considerable. On the contrary, there are many signs that costs are being cut sharply in other rival exporting countries, either directly or by improved credit terms.

While I should be happy to think that the President of the Board of Trade was right, I warn him and other members of the Government not to assume that the fruits of devaluation will fall into their hands automatically at the end of next year. That may not be so.

Above all, there is the reality of the need for administrative reform of the public sector. That does not imply that the Civil Service is to blame. That is not so. It is the politicians who run the system who are to blame. It is their job to put the public sector house in order. The buck cannot be passed. This is the central contribution which the Government can make to national efficiency and to cutting costs. If there is any vitality left in this bunch, that is where their energies should be directed.

6.58 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

The Budget has been described by The Guardian, by the newspaper which used to be known as the Daily Worker and a number of my hon. Friends and leading speakers on the benches opposite as a bankers' Budget. I do not entirely agree. It is a bit of an exaggeration to say that this is a bankers' Budget. What is right, however, is that the Budget has been greatly, although not drastically, influenced by the bankers.

It is interesting to note that, on the very weekend that the Chancellor was putting the finishing touches to the Budget, aeroplanes from all over the world were going to Washington bearing men who were to discuss the world monetary problems. It was not the Prime Minister or the Chancellor who went from England, but the Financial Secretary, because, according to one newspaper, he was going because he knew about these things. The important person, of course, was Sir Leslie O'Brien. It was the heads of the central banks and not the heads of world Governments who met, basically to discuss the future economic and monetary problems of the capitalistic world. Therefore, although the bankers did not lay down the Budget in detail, they undoubtedly seriously influenced it.

Nevertheless, it would be wrong to suggest that there is no progressive side to this picture. The faces of hon. Gentlemen opposite on Budget day showed this. They did not cheer and wave Order Papers—nor did I, but that was because there were one or two aspects which I did not like, and they were not the same aspects which hon. Gentlemen opposite did not like. They did not like the modified form of wealth tax which I understand is supposed to be a sop to the Left-wing of the Labour Party. I should have thought it much more a sop to the T.U.C. Up to now, the Left-wing has not appeared to have much effect on the Government—regrettable though that may be—but I hope that we will have more effect on them in future.

Hon. Gentlemen opposite were not entirely happy with the Budget. I read the next day that one representative of the City said that it was not too bad but was a bitter Socialist assault on him personally, so he did not think that it was particularly a bankers' Budget.

I agree that we had to take a great deal out of the economy after devaluation. This is regrettable, because it should never have happened—[HON. MEMBERS: Hear, hear."] For three years, we pursued a completely wrong economic policy—[HON. MEMBERS: "Hear, hear."] We put the £ before the people's interests—[HON. MEMBERS: "Hear, hear."] Hon. Gentlemen opposite should not say, "Hear, hear," when they always wanted to put the £ before the people's interests.

I have listened to the usual claptrap from hon. Members opposite. We had it from the right hon. Member for Enfield, West (Mr. Iain Macleod) yesterday and from the hon. Member for Guildford (Mr. David Howell), from whom I expected a better contribution, today. They said that we must cut public expenditure. What do they mean? One hon. Member yesterday said that we should cut the amount of paper in the House of Commons and another that we should lower the heating level, but what they really mean is cutting back on the social services.

When they talk about the growth in public expenditure, they are talking about the fact that we have given redundancy payments and increased sickness and unemployment benefits, all of which benefit ordinary working people. That is what they mean by public expenditure. In the debate on defence, for example, they said that, if they ever got back, they would send all the troops back east of Suez and renew the bases. So they would cut public expenditure and increase defence expenditure at the same time. This can only come from one source—the social services.

Mr. John Page (Harrow, West)

The hon. Gentleman heard my hon. Friend the Member for Guildford (Mr. David Howell) give six or seven exact ways in which Government expenditure could be saved without touching any of the social services. It is extremely discourteous of him not to have taken notice of that, even though I see that they are set on an extension of Socialism and increase of public control in so many parts of our community life.

Mr. Heffer

I heard the hon. Gentleman, and was sorry that his speech was not up to his usual standard. His seven points added up to very little and I did not take them seriously, because they were largely irrelevant.

I turn now to the question of direct as against indirect taxation. I would not say that the speech of the right hon. Member for Enfield, West was not up to his standard, because their standards seem to be declining every day, and it was not a bad speech. He said that we should broaden the base of taxation, by which he meant much the same as the C.B.I. pamphlet, "The Budget 1968", which said: As a means of shifting the burden of taxation from direct to indirect, we prefer a broadening of the base of indirect taxation to an increase in the rates of the existing purchase tax and excise duties. That means, across-the-board taxation on everything. That is what they want and that is how they would cut public expenditure. Therefore, I hope that we shall have no more hypocrisy from hon. Gentlemen opposite trying to give the impression in the country that they want to lower Income Tax and concern themselves with savings.

Although an irrelevancy, what has unfortunately been made a central issue of the Budget is the question of prices and incomes policy. I listened to my right hon. Friend's speech today, thinking that perhaps we would at least get some words of wisdom about an incomes policy. We did not get any words of wisdom, and despite my efforts on this occasion to bend over backwards to support the Government, I fear that, as a result of that speech, those efforts have been thwarted once again. It seems that the prices and incomes policy is to be with us for a long time.

When the Secretary of State said that something would be done about rents, I thought that his remarks were somewhat vague. The other day I asked for an immediate rent freeze to be introduced while the Government worked out a policy for giving national finance by some means or other to help local authorities like Liverpool which require help to overcome the enormous problems which they face. I did not hear much about that from the Minister, although I did hear quite a lot about the way in which incomes would be treated. We are told that 3½ per cent. is not the amount that one can expect annually. It is a percentage for which one must strive. On the other hand, the criteria laid down in Cmnd. 3235 in June, 1967, stated: There can be no justification at present for returning to the norm of 3–3½ per cent. per annum which prevailed up to July 1966 and which in practice tended to be regarded as the minimum increase which everyone expected to receive". It means that we are back to where we started. We must begin with nothing and all concerned must strive to get 3½ per cent. I can imagine the welcome that workers would have given to a policy for increased wages of 3½ per cent. annually. In this connection, the right hon. Member for Enfield, West boasted by saying, in effect "We did better than you because we did it without having an incomes policy." He was right. It did not need the Government to keep wages down. They could rely on the employers.

When I heard the Minister this afternoon talking about massive wage increases I wondered to whom they had been given. I spent my life in industry before coming to this House. I cannot remember an employer ever saying, "Listen here lads. I am giving you all a hefty increase in your wages." I can only remember employers saying, "Nothing." It was after we had been told that we were to get nothing that we began to build up our case, argue, possibly threaten to go on strike and then, at the end of the day, receiving perhaps 2½d. an hour extra instead of the 6d. for which we had asked.

That is the sort of thing that goes on in industry. The Government must accept the reality of the situation. I have never found employers being willing to help workers to improve their lot. They have had to give higher wages from time to time, but basically all that they are interested in is making profits. The Minister did not seem to understand this. The Government seem to have been living in a different world from mine. It is regrettable that this position should have arisen.

Then we heard the story about productivity bargaining and we were told that, at plant level, 3½ per cent. would apply, but not for piece rates. I do not know what that means and so far nobody has been able to clarify it. My hon. Friend the Member for Salford, West (Mr. Orme) spent half his life as an engineering shop steward negotiating questions of this sort. So did I. I recall going to various building jobs and shipyards to negotiate agreements. Does the latest policy mean that every agreement that is negotiated must go to an enlarged Prices and Incomes Board? What an absurdity. It is all completely irrelevant and I appeal to the Government to reconsider this matter.

Mr. Orme

It is too late.

Mr. Heffer

It always seems to be too late when we are discussing this question.

I am not opposed to an incomes policy and I have always accepted the argument that certain workers at the point of production are not in as strong a position as others. For example, it is not easy for firemen to get increased wages, because over the years they have given a firm pledge not to go on strike but always to be available in case of emergency. That does not apply in other countries. Firemen abroad do go on strike, but because our firemen do not use their industrial strength they often find themselves left at the bottom of the wages queue.

The same can be said of nurses and others working in the hospital service. These people go on strike in, for example, New York, although they do not here. Many workers have no real industrial strength to use. Today 3,500 Liverpool busmen are on strike. That inconveniences the local populace, but one cannot say that those busmen have any real industrial strength in the true sense of the word. These are the sort of people who get left behind.

My hon. Friends may be interested to know the reason for the Liverpool bus strike. Originally the busmen were offered 23s. An agreement was reached in November and was put to the Prices and Incomes Board on 1st March. After that, they did not get their money. Thank goodness an Order was not imposed. If it had been half of these busmen might now be in gaol. They went on strike because they felt that an agreement had been reached and a bargain had not been kept. In addition to the Liverpool busmen, Liverpool lorry drivers and Tate and Lyle workers, in addition to about a quarter of the docks, are on strike. I could go on and list others. It is rumoured that the people of Liverpool are not getting their milk now and a serious situation is arising.

I mention these facts to show that this could he the pattern with the continuation or reintroduction of this type of incomes policy. Although the workers and trade unions reluctantly accepted the position, it takes about 18 months before anger percolates through. I suggest that it is now beginning to percolate through and that what is happening in Liverpool today could happen in practically every other city. I warn the Government that this could be the outcome of such a policy if it is pushed to the nth degree.

As I said, I believe in an incomes policy. The T.U.C. has bent over backwards to try to reach agreement with the Government. That was explained in the economic document which was approved by a majority of the T.U.C. executives when they met in Croydon last month. The Minister asked, "How can we be sure that the trade unions will carry this out?" I have always known the trade unions to be democratic. For example, although the T. & G.W.U., along with other unions, opposed the system, they have consistently sent their wage claims to the vetting machinery. Indeed, I am told that the T. & G.W.U. is still doing that. I believe that they would have accepted it, but that we are destroying the chance of that happening. Resentment is being built up and anger is being caused unnecessarily to the trade union movement.

I am much in favour of many of the proposals in the Budget. Those which I do not like I am prepared to accept in the main, except for the niggardly business of the three days pay being stopped for a worker who is sick or unemployed. That is absolutely niggardly and detestable and need never have been introduced in the Budget. In the main I can support this Budget, but I cannot at the same time support a further introduction of incomes policy. This is irrelevant, unnecessary and will not help in our economic problems but will have the reverse effect. What little saving we could get in relation to that policy could be utterly destroyed by an industrial upheaval the like of which we have never seen.

7.21 p.m.

Mr. R. Chichester-Clark (Londonderry)

After the Secretary of State's speech one can understand why the hon. Member for Liverpool, Walton (Mr. Heffer) began his remarks with what appeared to be almost a rehearsal of his hustings speech, but when he turned to prices and incomes policy, if words could win battles he routed the Secretary of State completely. In fact the Secretary of State had fled the field before he began.

Perhaps at this point, at the risk of giving a respite to the Government, it would be a good thing if there were a lull in this battle. I do not want to talk particularly about prices and incomes. If he catches your eye, Mr. Speaker, no doubt that will be pursued by my hon. Friend the Member for Oswestry (Mr. Biffen). I turn to a matter which was approached by the hon. Member for Luton (Mr. Howie) when he spoke of the position of consulting engineers and those in similar occupations. I want to speak particularly of the building industry. Incidentally, I congratulate the hon. Member for Luton on what I believe was his first speech since, he managed to escape from the Whips Office. I have a great deal of sympathy for him because at one time I held exactly the same office in that establishment, although circumstances never dictated that I should take the same constructive step as he recently did.

I want to talk about the impact of the Selective Employment Tax and its relationship to the construction industry in particular. I do not want to dwell on the yield of the tax, because that is well known. At 25s. a head it is costing the industry £80 million a year and adds from £70 to £150 to the cost of a house, depending upon whether one is talking about Parker Morris standards. The further increase which the Chancellor announced means that another £40 million or so is to be taken from the industry and that is likely to add a further £35 to the price of the average house. We must take this very seriously, because by the time we have totted up all the other increases due to devaluation, increased transport costs as a result of the Budget and the new drivers' hours proposals in the Transport Bill, and so on, the £5,000 limit set by the Ministry of Housing and Local Government for people to get 100 per cent. mortgages will look like a bad joke.

In his statement the Chancellor said …figures published recently indicate that it may have had a substantial and beneficial effect on productivity in the service trades—notably distribution—and perhaps also in the construction industry."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 284.] If by that preposterous statement he meant that the industry's labour force has dropped by 4 per cent. in those years, it was a nonsensical remark. Many factors have contributed to that drop, but the Chancellor knows that the Ministry of Public Building and Works statistics show that in the first quarter of 1967 there was an increasing trend towards self-employment. This is something which hon. Members opposite, particularly the hon. Member for Walton, should be concerned about. There is a significant rise in the number of one-man concerns. There is a trend which hon. Members on both sides of the House find undesirable and it is certainly not welcomed by any part of industry. After the increase in this Budget it may be that the trend will turn to a flood. That is something we must worry about.

If the Chancellor by his extraordinary statement on Tuesday meant that manufacturing industry had benefited pro rata from S.E.T., he was misleading the House, because only on 19th November the Parliamentary Secretary to the Ministry of Labour, in answer to my hon. Friend the Member for Harwich (Mr. Ridsdale), said that the number of employees in manufacturing industries had decreased by about 5 per cent., by 395,000, between September, 1966, and January, 1968, which shows clearly that the mobility of labour had not been assisted. S.E.T. is raising money from the construction industry—too much—and it is pushing up building costs adding substantially to the difficulties of buying a home and increasing "the lump" and in particular the type of disreputable operator who evades taxes and insurance responsibilities. That is the measure of the present Home Secretary's achievement and now the Chancellor has made confusion worse confounded. I hope that we shall hear something from hon. Members opposite about this because it is a matter of concern, as it should be, to all of us.

It is typical of this Government that they could not even speak with one voice on this subject. I want to say something about the horrifying series of announcements by Ministers on Selective Employment Tax which have only served to mystify the industry and to make Government statements a laughing stock. On 23rd June, 1966, the former Chancellor introduced the Selective Employment Payments Bill. At that time it is fairly apparent that it was intended that firms producing factory-built houses should get a premium while traditional builders would be taxed in full. That is not what actually was achieved, in fact right to the last disputes were going on about who was entitled to premium and who was not. On the Second Reading of the Selective Employment Payments Bill the Chancellor said: There will be a great incentive to industrial building…This will have a very valuable effect in altering the shape of the construction industry by speeding up industrial building. I welcome it as a great improvement."—[OFFICIAL REPORT, 23rd June, 1966; Vol. 730, c. 1045.] We wanted to debate the construction industry on the Finance Bill, but it was guillotined. I had only 10 or 11 minutes in which to tell the House about the building industry's problems and there was no reply from any Minister and no time for any of my hon. Friends to give their support. That is a procedure which brings the House into disrepute.

The Bill was passed and the tax had to be paid. Once it was announced the National Federation of Building Trade Employers computed that it would cost the industry £80 million. At some point I want to hear from the Government whether that was their estimate then and what their estimate is of what the additional increase will be. That £80 million was a public figure which, so far as I know, has never been questioned in this House.

On 17th November last year, the day before devaluation, my hon. Friend the Member for Poole (Mr. Murton) asked the Chancellor what was the yield of S.E.T. from the building and civil engineering industries to which the Chief Secretary replied: I regret that it is not possible to provide figures of the actual yield from particular industries."—[OFFICIAL REPORT, 17th November, 1967; Vol. 754, c. 222.] The House will note that a public figure had been quoted often in the House and has never been denied, yet 18 months later the Chief Secretary still did not know the yield of the tax. One may be forgiven for asking, if he did not know the yield, how he knew that he was collecting the right sum. The industry knew what the tax was costing all along and so did hon. Members. The Minister of Public Building and Works knew, because not so long ago, at Question time on 11th March, he said: The annual S.E.T. payable by the construction industry as a whole is about £80 million."—[OFFICIAL REPORT, 11th March, 1968; Vol. 760, c. 945.] So there was not much cohesion in the Government about this, and I still think we ought to get it cleared up.

I come now to the question of the premium. I referred a moment ago to this premium being paid to some firms manufacturing industralised building systems in off-site factories. The Chancellor told us that this was going to be "a great improvement" and was to have "a very valuable effect", and so on. But on the same day, when my hon. Friend the Member for Poole exposed the Chief Secretary's ignorance about the actual yield of the tax, he also asked how much premium was paid to the industry—obviously in respect of industrialised building. The reply was almost unbelievable, even from this Government, because it was not that the Chief Secretary did not know: he replied flatly that the building and civil engineering industries …are not eligible for premium."—[OFFICIAL REPORT, 17th Nov., 1967; Vol. 754, c. 222.] This was the premium that was going to alter the shape of the construction industry. No wonder the economy gets blown off course, when we have captains like that in charge.

Then devaluation came along and with it the removal of the premium, except of course in development areas. The great improvement which was to have "a very valuable effect" was to disappear. It is typical of this Government that no apology was offered. The President of the N.F.B.T.E., Mr. Laing, wrote to the Minister of Housing—and this was public correspondence—that the Premium was due to many firms engaged in industrialised building, and its cancellation will therefore lead to some increase in the cost of public housing and other types of building work carried out by industrialised methods", and he added the advantages predicted by the Chancellor [in June, 1966,] no longer exist. He wrote in similar terms—and this is important—to the Minister of Works, and all these letters were made public in Press notices.

The Minister of Housing's reply was in what some people would call really Orwellian double-think style, because he then said: The withdrawal of premiums certainly reduces an element of discrimination in favour of industrialised building which I believe other sectors of the construction industry have regarded with misgivings and resentment. So the "great improvement" of the Chancellor of the Exchequer has suddenly become "an element of discrimination", which we now learn from the Minister was received with "misgivings and resentment".

Incidentally, the Minister of Public Building and Works entirely disregarded this point when he replied to Mr. Laing, yet on 11th March he told the House with considerable effrontery that they had not brought forward to him the question of the withdrawal of the premium, and that they had made no representations about it. Those were both completely inaccurate statements, as he must have known, and they have never been withdrawn. I think some action should be taken in this matter.

I am bound to say that he must take a great deal of the blame for what has happened in the building industry, and in particular the increase in the employment Tax. He failed to correct the answer given by the Chief Secretary, which he must have known was wrong. He misled the House about the very recent formal representations he had received from the builders about the premium. He also told the House bluntly on 11th March that he had received no recent formal representations from the builders about S.E.T. itself, which is another inaccurate statement about which he has remained, as far as I know, totally publicly silent. He knows the industry loathes the tax. He must have seen their Budget memorandum, details of which appeared in the Press in February, in which they bitterly attacked that tax again.

The ignorance of the Chief Secretary on this subject was not pardonable or even funny, and we have had this doublethink from the Minister of Housing, with the sort of drivel which brings public life into contempt. The industry has been badly treated in this matter and I hope something will be done to restore its confidence, if in this Government that is possible.

I do not know whether the Treasury pays any attention any longer to the Minister of Public Building and Works. I do not know whether, when the Chancellor receives memoranda from great industries such as the construction industry, he sends them on to the Ministry of Public Building and Works and takes its advice. I do not know whether they bother now to send on letters of this kind. I can only say that the Ministry of Public Building and Works used to be—and I hope still is—a Department…

Mr. Russell Kerr

On a point of order. Is it in order for the hon. Member to remind the House of material which would be more appropriate to a parish or regional council meeting?

Mr. Speaker

If the hon. Gentleman is out of order, the Chair will call him to order.

Mr. Chichester-Clark

I do not suppose that the hon. Member is interested in the building industry or in those who are employed in it. If he does not like what I am saying he can always go away as the Secretary of State did during earlier speeches.

What I was saying was that the Ministry of Public Building and Works was once a Department of crucial importance. It is responsible, after all, for the second largest employer of labour in this country. Can it pretend today that, despite the abilities of its Civil Service, despite the growing importance which that industry represents in the economy of this country, it is holding its own in an over-expanded Government and against the depredations of other empire-building Departments? Indeed, there is every sign that, unless the present Minister can succeed in defence of his Department where his immediate predecessors have failed, its representations will be increasingly disregarded in the Government, and its advice will no longer be sought.

The Ministry of Public Building and Works is a Department which used to be known as the Office of Works. Unless the present Minister asserts himself a bit more strongly to Office of Works it will return.

7.38 p.m.

Mr. Arthur Lewis (West Ham, North)

I am now approaching my twenty-third year as a Member of Parliament. I think it is true to say that I have sat through almost every Budget debate we have had during those 23 years, and this is only the second time that I have taken part in the debate. During those 23 years we have had 13 years of the Tories in power and 10 years of Labour but I would say that in that time, during which we have had about 27 Budgets, we have had, in fact, 27 Treasury Budgets.

My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) asked whether this was or was not a bankers' Budget. All I will say is: that prior to the Budget the Press were clamouring, at the behest of the bankers, for a certain type of Budget. Strangely enough, the type of Budget they were clamouring for came along, and the bankers were very happy with it. Over the years I have seen this repeating itself ad nauseam. It reminds me very much of the child who has a little touch of diarrhoea and whose mother tries to solve the problem by giving it a small dose of castor oil. When she finds that the castor oil does not cure the complaint, she gives it a bigger dose of castor oil; and so she goes on, never curing the trouble.

This is what has been happening year after year. Irrespective of what party has been in power, and irrespective of what Chancellor has been in office, that has happened. Going back to any year, any time, from 1945 onwards, that has been my experience. First, the Treasury has published its figures and its economic surveys. Then, after 12 months, the Treasury has told everyone that it has got the figures and the estimates wrong, and so it is going to put the screw on by imposing taxation, by slowing up, by going faster or by coming to a halt—whichever it may be. As I say, this has happened each year, and after 12 or 18 months or two years we hit an economic crisis. We gradually get out of the crisis, but then we return to crisis.

With all the remedies it is invariably the poorer members of the population who suffer most. It is all very well for Ministers, whether in the present Government or any other, to say that rents are going up but that it is only by a few shillings; rates are going up, but it is only a few shillings; that school milk is being taken away, but only a few shillings are invoved; that school dinners are going up, but that it is only a few shillings. I could go on for hours like that.

We also have Ministers saying that the workers must have the screw put on them because they are spending too much, that they are taking liberties with the country, that these people on £10, £12, £14 or £15 a week are really shocking. This is said by people who are getting £120 to £200 a week. Ministers receiving £200 a week say, "You on £10, £12, £14 and £15 should be more careful. You should cut down."

Only last week a dear old lady told me, "I nursed a bed-ridden sick husband for 25 years. I could have stayed at home and gone on National Assistance, but I went out to work to get some money. Now that he has died I get £5 7s. 6d. a week, from which I must pay rent and pay for heating, lighting and so on. I went to what used to be the National Assistance Board and I get 3s. 6d. a week supplementary benefit." Is it fair, right or reasonable for the present Government or any other to say to this woman, "Your rent, rates, gas, electricity and fares are going up, as well as a lot of other things", and then add, "You should be careful, because the country is getting into economic difficulty".

I am disgusted with the way all Governments over the years, particularly of most recent years, show preference to those who have as against those who do not. I am fortunately one of those who have, but I say this because it is a bit immoral. The newspapers write things—the Daily Mirror is an example. A journalist who writes an article perhaps once a week receives for that one article more than the average worker gets for a whole week's work at the pit or wherever it may be. He tells the workers that they should cut down, and he tells the Chancellor that we should have a restrictive Budget.

We find the Daily Mirror, led by Mr. Cecil King, saying that it is all in favour of the incomes policy and that the paper supports the Government. Well, does it? It supported incomes policy, but not when it affected the Daily Mirror. It wanted to increase its price and of course it did so. It alleged that that was because of devaluation, but devaluation did not affect the cost of the newsprint until some time this month. It put its price up in January, even though the Prices and Incomes Board said that it should not do it. That is the paper that pays exorbitant sums to journalists to tell the workers, "You should cut down on your standard of living".

Another one is the Sunday Times. I am told that it has signed an agreement for the political memoirs of some Government Ministers for £100,000. I am also told that it has paid £5,000 for one article. Then this paper puts up its price because it says that it cannot manage. What about the Government doing something about that? What about their saying that this is inflationary and should be dealt with?

I have been campaigning for years to try to alter the disgusting procedure whereby lawyers received the last year of their earnings tax-free. I was very pleased to see that at long last this is to end, but will it? It will cease only up to a point. They will still keep 5 per cent., I think it is, of their last year's earnings tax-free. If the lawyers can do it, why not the engineers, bricklayers, carpenters and so on? This is another case of one law for one and another for the other.

I asked my right hon. and learned Friend the Attorney-General whether he would refer to the Prices and Incomes Board the report in all the newspapers that in the recent Emile Littler libel case, which lasted for 17 days, the legal fraternity drew between £75,000 and £100,000 in fees. I should have thought that he would reply, "Yes. We shall hurry that to the Board because it is against the Government's policy." But, no. It was not referred. But it would have been if it was the ordinary worker asking for a couple of bob a week more. We see this happening all the time. The Government can always do something to stop wages, and they do it. But I believe that there is just one price rise that they have stopped during the past twelve months. I think it concerned some laundry charges. They cannot do anything about prices.

Another broken promise was that we were originally told that these powers would be retained for only 12 months. Then it was for two years, and now we are to have them for 18 months. We do not know. I believe that it is not the present Government or previous Governments but the Treasury that has got its sums and its promises wrong all the time. I believe the Government genuinely meant it when they said that the powers would be used for only 12 months, and again when they extended them by 12 months. But what happens is that in the course of time they find that what they said would occur does not. They now say, "Leave it to us. We have now got it right. We shall now be successful. We shall get out of these continual economic crises because we have the answer. We have devaluation, and this will succeed." Sir Stafford Cripps tried it and we still had the crises.

The trouble with the present Government and all Governments is that we allow the Treasury to dictate terms and policy. It may well be that there is a little bit of manoeuvring within it as to whether one puts the tax on this or on that, but basically the overall amount, whether £900 million is taken out of the economy or £900 million put in, is decided by the Treasury, and the Treasury starts working out how it shall be done.

We are told that the increased tax on petrol and so on will affect the cost of living by only a few points. It is always only a few points or only a half point, and it is all only temporary—we are told that it will be for only a short while. That happened with the whisky tax and the surcharge on petrol. I do not know how long the whisky tax has been on, but it is a temporary tax.

What amazes me is the increase in the Road Fund licence.

Mr. Orme

My hon. Friend has a point of view on this.

Mr. Lewis

I have, because 4 per cent. of the motoring population is not now paying its £17 10s., and very many firms with heavy lorries and trucks are not paying their tax, which I think is £150, on the heavy four-tonners.

The Minister of Transport, the Home Secretary and the Chancellor of the Exchequer have done nothing about enforcing the existing tax of £17 10s. Four per cent. or 5 per cent. of motorists have learned the dodge—that it cannot be enforced. I remind my right hon. Friend that, for four years, I have been trying to get the Government to accept their responsibilities in this. If 96 per cent. of drivers are paying the tax, the Government should see that 100 per cent. pay it. If they cannot and will not—and they have not—then I say that we should let everyone join in. "If you can't beat 'em join 'em."

I am going to tell those who have cars, "Do not pay your road tax because there is no means of enforcing it." There is no means of seeing that it is paid at the moment. I have told Ministers how it could be done and, indeed, it could be done simply. They refuse to do it. That is why, whenever I get the opportunity, I shall advise motorists not to pay the tax until the Government get down to the job of seeing that everyone pays it.

Lastly, even at this stage, I hope that my right hon. Friend will have another chat with some of our trade union comrades and have explained to him how shop stewards work on the shop floor. Let them explain to him such terms as low-wage rates, middle-wage rates and piece work productivity

In the main, the lower paid worker is the one who cannot increase productivity because he is not in that sort of job. He is low paid because there is no productivity that he can give. We cannot ask a mortician working in a hospital mortuary to produce more bodies. He might like to but, of course, it is difficult for him to get paid by results. It is hard for the toilet attendants at gentlemen's conveniences. [Laughter.] We may laugh, but these are, after all, among the lower paid workers, who also include the road sweepers and the dustmen—all very essential to our economy. We all know that these sort of people do a very useful job but cannot get on to a productivity payment.

Are we going to suggest that they shall not get increases? If so, why? Are the nurses, the firemen and others to be excluded from increases? Surely not. But I warn the Government that, if that is their attitude, they will head for trouble.

Even at this late stage my right hon. Friend should go back to Mr. Woodcock and discuss with him whether, even now, a scheme cannot be worked out which would be acceptable to the trade union movement, because I warn my right hon. Friend that, if the Government, who have made many mistakes, go ahead with this plan, not only will they lose the next election but they will ruin in all probability the trade union movement and the Labour movement and will ensure that neither he nor I are here again during the rest of our lives.

7.55 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

Unlike the hon. Member for West Ham, North (Mr. Arthur Lewis), I have not had the great privilege of listening to 27 Budget speeches but I respect the passion and sincerity of his speech. I have merely had the privilege of listening to four Budget speeches as a Member of Parliament, although many years ago I heard the late Hugh Gaitskell present his Budget. I was sitting in a place somewhat higher in the building. I shall always remember the sincerity and skill with which he did it, even though perhaps I was as much in disagreement with his policies as I am with those of his successors.

We all know that, in another part of the Palace of Westminster, the death watch beetle has got into the great oaks and we are doing our best to eliminate it. But another type of animal has emerged. I call it the "death waffle beetle" and it is prevalent in this Chamber. We have heard a great deal of it today and by no means only today. It is an animal with a strange origin. It is by syllogism out of tautology and survives on a diet of false premises. It can only survive within the artificial cocoon of Socialist ideology and it is just as dangerous an animal as the death watch beetle because it pervades the whole fabric of our society.

I want to take up points made by the hon. Member for West Ham, North and the hon. Member for Liverpool, Walton (Mr. Heffer). First, there is the question of workers taking too much out of the total national pay packet. This seems on the face of it a plausible and convincing argument. But we perhaps ignore a fundamental distinction which we should carefully consider. No one in this House can ever object to what we all understand by the term "real worker"—the really productive contributing individual. We all know who he is. In any organisation he can always be found and defined. He carries the weight and burden of the day, produces the goods, achieves the increase in productivity and earns every penny he is paid and more.

Unfortunately there are many other workers—so-called workers—whom I would call "workers by definition"—by statistical definition. We all know them too. They co-exist with the real workers, in the same factories and offices. They, too, make demands on total output of society and it is the demands of both bodies which lie at the heart of our deep inflationary problems.

One of the problems we have not faced up to completely is that of so defining the distinction between these two groups in legislation, national life and the system of rewards, so that society could give rewards properly where rewards were due and not give them improperly where they were not due.

I am not a barrister but in some ways I wish I had been. I set out to be one but the war intervened. So I can at least speak impartially about this great profession. They have been attacked on all sides. It has been said that some earn £100,000 a year and that it is monstrous and inequitable that, in their final year in what I understand to be almost the most arduous profession in the country, they should have such a privilege and that they should be denied it. [Interruption.] I have many barrister friends. They work a jolly sight harder than many hon. Members.

We are always using the term "gross" income. The Government set a bad example. Every time they publish an advertisement, every time a Minister refers to a salary the Government propose to pay, the gross figure is given. What does £100,000 mean in real terms? The Treasury gets £92,000 and the barrister £8,000.

Mr. Arthur Lewis

The hon. Gentleman is wrong because in the barrister's last year of earnings he gets the £100,000 tax-free. If it is good enough for him to get that, let the miner who is probably on £1,000 or, if he is lucky, £2,000, get that tax-free. Let the hon. Member, let everyone be treated alike.

Mr. Lloyd

I have not misunderstood the hon. Member on this point. I was coming to the question of the final year. This is another matter altogether. The argument that there should be consistent treatment for all people is one which can be extended, but there is no contributory pension scheme for barristers. They are self-employed. [Interruption.] Hon. Members may laugh, but might I ask whether they saw the analysis of barristers' earnings published in The Times six years ago, showing that a very small minority in this profession earned anything like this sum of money? It was something like 2 per cent. Those are the facts, and it is quite silly for the Government to introduce this type of narrow, pettifogging tax for a very narrow section of the community, simply to attempt to achieve this result.

The hon. Member for Walton used an interesting phrase deserving analysis. He said that Governments occasionally put the £ before the interests of the people. This is an extraordinary phrase. Can we analyse what it means? If we were to ask the ordinary people in any of the Western societies of which we have some intimate knowledge since the war what they would have liked most to have seen their Governments achieve, without exception there would be the solid response, "To sustain the value of our currency."

This is what all Governments, almost without exception, have consistently failed to do. To suggest that there is any real divergence of interest between a Government maintaining the value of their currency and following all measures necessary to do that, and then in some way deserting or not considering the interests of the people, seems a most astonishing statement to make because it cannot be sustained. On the most narrow social grounds, those who suffer most from inflation and from Governments which decide to put the interests of the people before the value of their currency, which allow the currency to go to pot, are the poor, those on fixed incomes and the retired—the sections of the com munity most completely incapable of defending themselves.

Let us have no more of this nonsense about putting the £ before the interests of the people. The value of the £ is identical with the interests of the people. What the people want is a Government which will rediscover and re-establish that identity in rather more successful terms.

Mr. Arthur Lewis

Over the last 20 years Governments have taken all these measures, yet the £ has now reached the position where it is worth only a few shillings compared with its former value.

Mr. Lloyd

I take the hon. Member's point. Governments are singularly unsuccessful in this. The fact that they are not successful does not damage the argument. They may have to try different remedies, and these are certainly available to us.

I have a number of detailed points of criticism about the Budget. The first I direct specifically to the Chancellor and it concerns the imprecision of his magnitudes. This is an important point and he referred to it in at least eight places. He said: …retail prices rose by 2½ per cent.… and real wages rose by 3 per cent. That is a magnitude. Again he said: Public investment and public consumption are expected to each increase at a rate of little more than 2 per cent. per year up to mid-1969. Later he said: …the gross domestic product in real terms… will increase— …at least 3 per cent. a year over the whole 18-month period… And so on. It is well known to those who profess to have some knowledge of these matters that the statistical limits of error inherent in all these types of figure is of the order of magnitude of something between 5 per cent. and 10 per cent.

Yet, over and over again, the Chancellor refers to these types of magnitude with the most spurious precision. He goes right down to the last £1 million and implies that these things are measure-able to one-tenth of 1 per cent, in some cases. He bases his judgments of the movements of the economy, and his operation of the regulators of the economy, on the fact that these types of measurement can be made.

I dispute most strongly that they can. I would go further and say that any Chancellor or any Minister representing the Treasury who comes to this House and presents it with this type of spurious precision deserves to be attacked strongly. If his professional advisers advise him properly he will know that he cannot do it. I hope that the Chancellor in replying to the debate will meet this point. If he can convince the House—and the House has the right to demand conviction on this point—that he can measure these magnitudes in the economy to the order of plus or minus 1 per cent. this will represent an achievement in statistical economics on which the country can be rightly proud and we should know all about how it is done and how he justifies it.

We heard a great deal about using new, advanced scientific methods of government and one would have hoped that they would have been used in the presentation of the Budget. Here again, some of the Chancellor's figures given at a later stage in his speech will illustrate my point. He says, in estimating his yields from taxation, that: The total yield of the Purchase Tax changes will bring in £163 million… Not plus or minus £163 million but precisely £163 million. A little further, talking about tax changes and other indirect taxes he says: This brings the score to £440 million for a full year and £397 million in 1968–69."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 259–84.] All these estimates have a spurious precision. I ask the Chancellor quite simply when he is presenting this type of estimate to indicate what he knows to be the facts, what the Treasury knows to be the facts—that these are the summations of the whole series of probability estimates of revenue. Will he indicate what these probability estimates are, because he and others who understand this type of calculation know perfectly well that it is quite fatuous to present a figure of this kind.

There is a probability that certain types of revenue will appear to be exactly 100 per cent. of the estimate, but there is a whole range of probabilities which suggest that others will not. The House is entitled to know exactly what the Chancellor's probability estimates are beneath the figures which he presents to us. Everyone would know a little more about the solidity of his Budget and whether, at the end of the day, we are likely to achieve figures of this kind, or anything near them. We can make our own judgments of his estimates of probability where revenue and expenditure are concerned. Expenditure is more easy to define, but revenue is most certainly subject to analysis of this kind.

On a more general point it seems that this Budget can be most strongly criticised on the grounds that I implied in a question to the Prime Minister this afternoon, namely that it fails to produce or harness the strongest motivations in the prosecution of the whole economic system and the improvement of our state of affairs. I want to put it in terms of a simple analogy, because these are always the most convincing.

Suppose that tomorrow there was, somewhere in the North, a bright inventor who was to discover the 1968 equivalent of the Model T Ford, which was a most tremendous success as a technological invention. Imagine that he was to come to the Prime Minister at No. 10, showing him convincing proof, from his folder of drawings and estimates and market research, that he had the 1968 equivalent of the Model T Ford, and saying that to put it into production would increase our exports by £300 million, because it would sell all over the world. The bright inventor says that he could do this because he has the capital and the backing, and could lay all this convincingly before the Prime Minister.

If he was then to say to the Prime Minister "I ask one condition only before I put this into operation. I ask that I might keep £1 million as a result of the total operation". This House knows what the answer would be. The answer would be "I am sorry we cannot do it here; go away." Then what would happen? He would go to some other country where, if he could not keep £1 million, he could keep possibly a substantially higher proportion than the fiscal system in this country allows him to keep.

This is a far-fetched analogy, but, on a smaller scale, this is the type of entrepreneur we need to produce in Britain today, on a sufficient and substantial scale. Where are they? When they arrive, what do we do to them? With what encouragement do we provide them? How do we bring them effectively into our system? We do precisely the contrary.

The Left is proud of the fact that some 92,000 people are going to have to pay a very substantial impost on their wealth. Let us examine for a moment who these 92,000 people are with an investment income of more than £3,000 a year. I would not pretend that all the people in this class were exactly the type of person I hope to define, but does it not include precisely the type of entrepreneur, the man with wealth, the man with judgment, the man with skill, the type of man we need to put this country on its feet again and get it moving? What incentive is there for this type of man to come here to stay or to bring to Britain the fruits of his invention and genius? The answer is—precisely none.

This Government simply do not believe in this type of activity, yet they want the fruit of such activity. Their blatant inconsistence is something which I am quite unable to understand.

There has been no emphasis in this Budget on what one might call the total effectiveness of national investment policy. May I quote, in this instance, a series of remarks by the Confederation of British Industry which are relevant to our problems. It has been said that Governments do not listen to the representations made to them by industry but the Economic Secretary will have to listen to this, if he is with me thus far. The Confederation of British Industry has said this: The final decision to invest or not to invest is still one of judgment. With all the help afforded by expert advisors and new techniques, the last link in the chain is one forged by boards and managements acting confidently in the knowledge that conditions will not vary so widely from those anticipated as to vitiate the basis of their assessments. It is unhappily in this respect that the ups and downs of recent years have most profoundly shaken industry's faith in the future". This is not a statement which any Government can ignore. The Confederation of British Industry may represent merely one sector of British society, but no one can dispute that it is a vast and important sector. If this is the type of judgment that is made, we have no alternative but to consider it with all the seriousness that it deserves.

In this Budget there has been too little emphasis on management. The Confederation of British Industry, in the same document to which I referred, has pointed out that, on the administration of prices and incomes policy, the main burden will fall on management. There will be a much greater burden on management doing pettifogging administration which is not essentially productive in character, and this Government are proposing to add new burdens on the managerial classes—if one may use that rather unpleasant term.

I need hardly speak of the utter futility of treating scrip issues as income. This is the sort of pandering to ignorance which one has now come to expect of the Government, but it remains pandering to ignorance, none the less.

The core of this problem is that the growth which we may have anticipated, and the people of this country have every right to expect, over the last three years has simply not taken place. I wonder if on the hustings, whenever they reach them, there will be one Member opposite who would dare again to use the phrase "Thirteen wasted years". I doubt it. Because, during those 13 wasted years, from 1957 to 1963 the gross national product of this country increased by £4,590 million; if one takes the calculation to the year 1964, as we have a right to do, at least until October, that figure becomes £6,188 million. In the three years this Government have been in power what is the equivalent figure? It is a paltry £1,067 million. This is the essence of the problem. This is why there are no resources to meet the legitimate social ambitions of hon. Members opposite, and to meet what they might describe as the illegitimate imperialistic ambitions of hon. Members on this side who dislike our pullin gout from east of Suez rather more rapidly than we feel is appropriate.

The main criticism of the Government is that such a gross national product has been driven underground; it has not emerged. Devaluation, the consequences of this Budget, and everything else which has flown from this Government's maladministration, can be related directly to the absence of wealth. Because that wealth is not here we cannot achieve our legitimate aspirations and ambitions.

I have with me a national income blue book. This is an interesting document. It becomes, with every month that passes, a more depressing document. I suggest seriously to the Government that it should be published with a black edge, because the country is now in mourning for its own economic performance. If this Government stays in power there will be little point in publishing at all, because the 1967 issue will always be up to date.

I know the hon. Members are most interested in what I have to say because they are economic armchair strategists. I know them well and I know their thinking. They criticise the armchair strategists of real war; we all know generals are supposed to fight the last war but one. My impression is that the economic armchair strategists, particularly on the other side of the House, fight the last economic war but three.

If the people of this country look at the situation now they would say that on the home front we are fighting our Passchendaele. When we are in that type of situation, as indeed in a military sense we were at Passchendaele, there is only one solution—we must change the general staff.

8.20 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Gentleman the Member for Mitcham (Mr. R. Carr) suggested a number of alternatives to the present prices and incomes policy. I waited eagerly to hear something that was new and relevant. Although I am strongly against such a policy, I thought he might advocate something that might be worthy of attention. We have heard, as we know, the same old policies, not even bearing different labels. Amongst those policies, there was one new one, which I will examine a little more carefully: this was the new productivity board which was suggested the Opposition would like to see set up.

Productivity has often been called our greatest problem. Those who advocate a productivity board would reason something like this: that as productivity increased, prices would be lowered, goods would become more competitive, sales would increase, exports would rise and the economic miracle would be with us. This is a completely wrong approach to productivity. I do not believe that one can ever have productivity in a vacuum. What is needed is something to trigger it off. The trigger is never going to be Government exhortation, nor productivity conferences, nor boards such as those the right hon. Gentleman suggested.

The only thing likely to trigger off productivity is demand itself. Given a high and rising level of demand I believe that necessity is still a main parent of invention. Given the pressure from sales and from production, I believe that the goods will eventually be produced.

If I may quote from my personal experience, I was once in charge of a medium-sized machine shop. One of our great problems at that time was that the number of compressors that we manufactured could not be increased above 20 in any one day. There was only one machine operating a vital production process, and we reached a position where the entire production of the factory depended on the number of compressors made. That is a situation which is familiar to many people in industry.

Not surprisingly, once the position was reached where the bottleneck was this one machine, an enormous amount of attention and thought was given to easing the bottleneck. The foreman, the managing director, the works manager and everyone else concerned gathered round and gave it the benefit of their massive experience. Ideas were suggested. Not surprisingly, once some of them were put into practice, production increased by 50 per cent. So 30 compressors a day became possible, and not only was this massive increase in production achieved, but the process was very much cheaper, with the result that we got a very high increase in productivity.

That is what happens in these cases. That is what productivity means. That is what it is all about. When one has the level of demand pushing on production, a change in working methods results, but someone has to do the pushing first. It will not come about because someone exhorts the factory manager to increase his productivity. Someone has to say to him, "We must have this, or we are in trouble", and the only people who can do that are those who are selling more of the product and bringing pressure to bear on the factory manager.

There are those gloomy prophets who see 3 per cent. a year as the sort of productivity increase that we can get, and they compare that with Japan's 10 per cent. or so. They relate our 3 per cent. to the 10 per cents. of other countries and consider that we have a lack of basic inventiveness, that somehow we have gone soft, that we have not the pace of modernisation of other countries, that somehow this has become a national characteristic, and, therefore, that we are in decline.

The blame must be put squarely on past Governments, who have never allowed the people to show what they can do. But it has not always been like that. Occasionally, we have had a glimmer of what is possible once the economy has operated properly and our inventive processes have been allowed to develop. We saw it in 1955, 1959 and again in 1964, when there were four and five point rises in productivity. The reason was that those were Tory election years, when they took off the brakes to achieve their electoral boom.

However, the underlying reason is still true that, once the brakes came off and the pressure of demand went on to the factories, we got those massive increases in productivity. The pressures were there. There were reasons why they could not be maintained. Among them were our balance of payments problems. But they had nothing to do with the basic inventiveness of the people, which is still there ready to be tapped, once we get the economic situation right. It is that pressure from sales and demand which is now required.

As a result of balance of payments difficulties in 1955, and in particular in 1964, Governments have had to apply the tourniquet, and so we have strangled our own economic miracles when they were in the making. Other countries have been able to ride through them and have achieved increases in productivity year after year. The fact remains that the one lesson which we must learn is that productivity increases are there for the asking. What we need to do is to apply the goad. The machine shop manager will not be driven when all he sees from the result of his work is an increase in stocks and unsold goods.

If one gets a high level of demand, the situation is arrived at in times of prosperity when the trade unions cooperate, because they, too, are anxious to produce the goods which can be sold and anxious to get the advantages which they themselves can share. But there will be no trade union co-operation if all that they see is a stagnant level of production, when the main fears dominant throughout the factory are suspicions of redundancy. It is at times of growth and prosperity that the unions are adaptable, managements are progressive, inventiveness flourishes, and productivity rises. Given those conditions, and only then, the other matters with which the Ministry of Technology is concerned can help most usefully.

The one important and relevant feature about devaluation is that it helps to maintain growth by removing the spectre of balance of payments difficulties in the future. For those firms engaged in export markets, very large growth is possible because they have large markets where their prices are right and where they can increase production as much as the very large demand makes possible. It is here that inventiveness counts. It is here that we can get the benefit of the ideas of people in our factories.

This Budget has come before us in the shadow of the Washington conference. I believe that the rôle of the speculator has always been misunderstood in this country. We have underestimated him because we have been largely unaware of the way in which certain markets operate. The crucial matter which has brought about the speculation in gold has been that, if one assumes a 50 per cent. increase in the price of gold, any person who puts £100 into gold stands a chance of making a profit of £50. If he is wrong, he loses the interest on his £100 for a period of about six months, and that would be subject to Income Tax, Surtax and so on.

The betting for him is that, if he wins, he makes £50. If he loses, he drops £2 or £3. Given odds of 20 to one or thereabouts, large sums of money came from many parts of the world. However, no one could say that the odds were 20 to one against the Americans revaluing the price of gold. That is why the weight of money went into the purchase of gold. The odds were very high and, whatever view one may hold about transactions of this kind, the pressure to buy can be enormous.

I believe that, if the two-tier system falls under suspicion—and there are signs of it already—this very suspicion may leave room for speculators to operate in this sort of way, so that even the United States may be unable to withstand these kinds of pressures. Because of this, I feel that the small central banks may be leaking larger amounts of gold away which it will not be easy for the United States Government to check.

There is a hydraulic analogy. One has a two-price system for gold, one at the lower price and one at the higher price, with a dam in between. The greater the difference between those two prices, the greater the pressure on the dam until finally it may burst. The important thing from our point of view is to make sure that, if fie dam bursts, it does so without any harmful consequences to ourselves.

I believe that the two-tier system will be unworkable. The great problem that we have to face is a win by de Gaulle in this unpleasing contest, whereby South Africa and Russia will be two of the ma in beneficiaries. Even though this is extremely distasteful, both because of the opportunities that it gives de Gaulle to continue his policies and the lack of opportunities which will face us in reforming international monetary matters properly, I am strongly against revaluing the price of gold. But better that than see the international monetary system collapse. I believe that the two-tier system is unworkable, first, because of the leakage by the smaller central banks selling gold at the higher price; secondly, because eventually the other central banks, if faced with a large difference between the official and the market price, will become disinclined to support the policy; and, thirdly, because deflation in the United States, which is the positive solution, is extremely unlikely this year, both because of the situation in Vietnam, where the spending looks like being more rather than less, and because of the difficulty of introducing austerity in an election year.

Therefore, all that we have is a short breathing space, and it is important that we use it in the right way. The most important thing that we should do in this breathing space, in the eventuality of a general revaluation against gold, is to make sure that the existing parities are preserved. The cardinal principle of British economic policy today, if there is a general revaluation against gold, should be to ensure that the relationships between all other currencies are preserved in our own interests.

I have always had very strong reservations about the prices and incomes policy. Recently I have been particularly afraid that the undue emphasis placed on the prices and incomes policy might inhibit the Chancellor from acting in the way that he did. I felt that if excessive reliance was placed upon the prices and incomes policy it might be thought that this very largely would cure our problems. I am pleased that my right hon. Friend has not fallen for that. That, at any rate, is one fear that has now been removed.

The second fear that I had was that the advantages of devaluation might be dissipated by the industrial unrest referred to by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer). This real fear is still with us.

I am generally in favour of a prices and incomes policy. Governments are now expected to control the economy in order to improve living standards. It is expected by the people and right hon. and hon. Members. When the economy is going badly, criticism is directed against the Government, but the Government cannot take responsibility without having some powers. The Government cannot be neutral about many aspects of the economy, and they must have some view on prices and incomes. The danger is that they may over-estimate their own powers and the powers they try to create. If they over-estimate their powers they can take some wrong and dangerous decisions. In the long run, I am sure that the incomes policy will turn out to be the keystone of the economic policy of the future whereby these things are settled in a fair way between people. But that time is not now. Our task now is to prepare and build for it. An incomes policy is a long-term solution. To attempt to make a short-term solution out of it is to risk both the present reality and the future hopes of it.

I have said that the prices and incomes policy is a bonus. I believe it is a bonus, because if exports were not to rise, as a result of present Budget policy, the deflation in the Budget would prevent wages being increased. If exports were to rise some wage increase would be acceptable. So, either way, the prices and incomes policy is a bonus. I repeat, if exports do not rise the deflation inherent in the Budget would prevent any wage claims being met. If exports were to rise, I think that some wage increase would be acceptable The prices and incomes policy ought not to be the kernel of our economic policy. It can help, but it must be used with care.

I join with other hon. Members in congratulating the Chancellor on a splendid decision to free the statistical forecasts for our use and benefit. When one thinks of some of the things they show, it must have been tempting to conceal them once again. With growth prospects a little less optimistic than we had hoped, there must have been a strong temptation to conceal them. The fact that as a new Chancellor my right hon. Friend has had the courage to do this should be recognised. We can now make comparisons and have much more informed discussions of the way the economy is going in preparing people for the kind of decisions which the Government are going to take. The most important thing of all is that the Treasury knowledge is now open for us all to see. The basis of the oracle is now revealed to us all. Its assumptions are open to us.

We have had a Budget which is in tune with reality. For all its harshness, it is probably the only kind of Budget which could have been acceptable to us. As a result, we now have the right exchange rate, the right kind of world rôle, and the right kind of economic policy. There is not a great deal more that the Government can do to assist industry with effect over the next two or three years. It is now up to industry to make use of the advantages which have been given to it, and I hope that it will prove equal to our expectations.

8.36 p.m.

Mr. John Biffen (Oswestry)

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred to the shadows which quite clearly overhung the Chancellor during the weekend before he presented his Budget, with the whole of the international payments situation in some dislocation. Like the hon. Gentleman, I do not believe that there is any likelihood of the two-tier system enduring. I think that it was monumental optimism on the part of the Chancellor to suggest that it would endure. If someone takes a decision in the 1930s to fix the price of a commodity, it is hardly surprising to find, 30 years later, that there has developed a shortage and a black market.

That is what has happened to gold, and I retain sufficient scepticism of Govment paper, be it the paper of the British Government or any other, to believe that there will be no long-term solution along the lines of the special drawing rights, and that we will inevitably be driven to a revaluation of the price of gold. I am only sorry that it will not be proceeded with in an orderly fashion, rather than having ourselves pushed and manoeuvred into this decision probably at some period after the American Presidential elections. I do not lay the blame for that particularly at the door of the British Govern-because quite clearly this is very much more the concern of the Americans.

The debate having been opened by the Secretary of State for Economic Affairs, it has naturally concerned itself primarily with prices and incomes policy, and inasmuch as it has had supporters at all, they have tended to be of that apocalyptic nature in which the hon. Member for Ashton-under-Lyne gave it a somewhat temperate endorsement. I suggest that a good starting point for the consideration of these further stages of the Government's prices and incomes legislation—because what we are talking about is not some abstract metaphysical consideration of policy, but legislation—could well be the Question tabled by my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), and answered on 27th February, which indicated that over the last three years the total money supply was increased at an average rate of about 7 per cent., and the gross national product at constant prices had increased by about 2 per cent. It is the gap between those two figures which lies at the heart of so much of the unhappy inflation which has characterised recent years.

The conclusion which I draw from that is that it is not the recklessness of trade union leaders, or the ineptitude of industrial managements, but the irresponsibility of Government monetary management which is on trial, and there is no doubt that this was in the minds of the I.M.F. when its members were at the the Chancellor's elbow when he drew up his Budget. It is of great significance that we have had a Chancellor calculating the Budget arithmetic taking additional taxation of the order of well upwards of £800 million, with the emphasis on indirect taxation. I think that he is right. I may quarrel with various aspects of the package, but, broadly speaking, I am certain that he was right to be aiming at figures of £800 million plus, given the high level of public expenditure. Given the fact that for each £1 spent by the Government in 1964 today we spend 26s.—given those circumstances the amount of additional taxation at which he had to aim was unhappily of this order of magnitude and this has a real bearing upon the net borrowing requirement, or the uncovered borrowing requirement as I would prefer to term it.

In these circumstances, we must ask ourselves why, then, do we have yet another chapter in the whole question of incomes legislation?—because I cannot believe that anyone who heard the right hon. Gentleman the Secretary of State for Economic Affairs this afternoon felt there was some compulsive inner logic about this policy which would commend itself to the House. Whatever scepticism I might have had about the policy, and I believe my scepticism was shared by some hon. Members opposite, was fully underlined by the Secretary of State this afternoon; for it seems to me that the prices and incomes legislation, as it has been seen to work over the last two or three years, is a blend of farce, self-deception and random tyranny. I will detain the House for only a few moments because I believe there may be some hon. Members opposite who may want an opportunity to follow these three points.

First of all, there is the element of farce. Before we go too far I feel that the House should be alerted to the danger of trying to engage in some kind of Parliamentary bloodsport, of harrying the Secretary of State for Economic Affairs; because many of the assertions made by the right hon. Gentleman the Chancellor of the Exchequer himself from that Box on Tuesday last were of just as great a magnitude of stupidity—no, that is a harsh word—of strain on our credulity as anything that was said by the Secretary of State for Economic Affairs this afternoon. I should like to quote from the speech of the Chancellor of the Exchequer. He was talking about the 31 per cent. increase to be permitted to incomes. He said: There will be an exception to the ceiling for productivity agreements"— and I come now to the real key words: stringently tested—which raise productivity sufficiently to justify a pay increase above 3½ per cent. As my right hon. Friend the Member for Mitcham (Mr. R. Carr) asked, "Who is going to do the stringent tests?" The 20 stout fellows at the Ministry of Labour, we are told, are employed full time on examining productivity agreements. But of course the situation does not end there. As we are constantly reminded, it is a policy which applies not merely to income but to prices, and the Chancellor of the Exchequer had this to say: But we must see that prices do not rise by more than is strictly justifiable, and we shall be seeking an extended power to enable us to defer or suspend increases which cannot be strictly justified."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 264.] I love this concept of a strict and careful assessment of price increases. The First Secretary of State, in answer to the question raised by my right hon. Friend the Member for Mitcham and myself, was anxious to explain that it was not going to be left to employers to act as a screen on behalf of the Government, that the Government would do this job themselves, with the help of the Prices and Incomes Board. I reflected on a little exchange I had a few weeks ago with the Ministry of Building and Public Works.

Mr. Charles Pannell (Leeds, West)

rose—

Mr. Biffen

As I am trying to speak briefly I will not give way. The Ministry of Building and Public Works is a very important Ministry. I say that quite genuinely in the presence of a very distinguished former holder of that office. Under the early warning system, the Ministry is given the responsibility for examining bricks, roofing felt, asbestos cement products, pitch fibre pipes, plasterboard, glass, glazed floor tiles, ceramic sanitary ware, building blocks, sand and gravel, clay pipes and ready mixed concrete. One may wonder how many people are examining this vast range of highly important and sensitive products on behalf of the Government's prices and incomes policy. The answer given to me by the Minister at Question Time was that three officials are employed part time. This is the measure of the farce of this policy.

I turn now to the element of self-deception. One of the fascinating aspects of the debate is the repeated assertions that the policy is working. "You sceptics," the argument goes, "are being disowned by the course of events." This is not simply an argument of months ago, followed by a suddent pre-Budget silence. Only on Monday, the Joint Parliamentary Secretary to the Ministry of Labour, when I asked him also about the number of officials vetting productivity agreements, said: Before devaluation it"— the prices and incomes policy— was working successfully with the number of civil servants that we then had. Since devaluation it has been working successfully with the same number of civil servants."—[OFFICIAL REPORT, 18th March, 1968; Vol. 761, c. 31.] The policy which was working successfully, according to the Parliamentary Secretary on Monday, the following day was described by the Chancellor in these terms: In the course of 1967, as I have said, average earnings per head rose by about 6 per cent.…—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 263.] Of course it is not working, notwithstanding the heroic assertions of the Parliamentary Secretary.

My third charge is the random tyranny of the policy. There seems to be a "Nelson's Law" in the Government's approach. They blunder around in practically universal blindness, relieved only occasionally by the startling revelation of sight. Not long ago, 15 draughtsmen employed by Beckman Instruments were selected for the full majesty of a directive. I can do little better than quote what the management said on that occasion, as reported in the Financial Times: Now, five-and-a-half months after we first reported the agreement, a direction has been imposed on us suspending payment of the increases which the draughtsmen have been receiving for the past 12 weeks. Well, hard luck. That would seem a little arbitrary, if those draughtsmen have followed the intricacies of prices and incomes policy as I have sought to do.

One example takes me into Scotland, which is usually thought to be without the responsibility of English Members. The Secretary of State for Scotland told me recently the increases as a result of settlement for officers working on the Scottish fisheries protection vessels. I do not begrudge a penny of it, and I am sure that they fully deserve it, and we should remember that 2¼ years had elapsed since the previous increase had taken effect. Second engineers were earning £26–£30 a week, which, as a result of the award, rose to £34–38 a week. No question of the lower paid here, and that is an increase of between 21 and 28 per cent. It is these examples which begin to make one doubt the sense of social justice of this policy.

There is an anxiety on the part of hon. Members to say that the prices and incomes policy is getting less and less relevant. That was the view of the hon. Member for Luton (Mr. Howie), and my hon. Friend the Member for Guildford (Mr. David Howell) said that he thought that it was becoming a sideshow. I can see the force of their argument, but the fact remains that the legislation which we were asked to consider in 1966 provided for a four months' delay, that the legislation which we were asked to consider in 1967 provided for a seven months' delay and that now we are being asked to consider legislation which provides for a 12 months' delay.

This is not a policy which is getting less and less significant in its statutory implications. It is not a statutory bridge across which we must travel to get to the voluntary system which, we were told, lays at the heart of the desire of hon. Gentlemen opposite. I cannot help feeling that Government-planned incomes, prices and investment is the hallmark of managerial Socialism. What we are seeing—and what we saw particularly from the Secretary of State today—is a dessicated and foredoomed search for efficiency replacing the compassion which was the original inspiration of the Labour Party. The legislation that has been outlined today merits the sustained opposition which I am confident it will receive.

8.51 p.m.

Mr. Roy Hughes (Newport)

In the 1959 General Election I was assisting my right hon. Friend the Leader of the House in his campaign in the Coventry, East constituency. His opponent on that occasion was the hon. Gentleman who is now the Member for Oswestry (Mr. Biffen). I am sure that he will forgive me if I say that he was aware that he had no chance of winning Coventry, East and that he was merely being a decoy for his party to attract my party's workers away from the more marginal and key seats of Coventry, North and Coventry, South. Having listened to the hon. Gentleman tonight—to his resentment of Government interference in industry and his adherence to laissez-faire principles—I feel that he is still being a decoy for his party, but this time a decoy on behalf of his right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell).

It is reasonable to suggest that on Tuesday we all listened—at least all of my hon. Friends did—with great admiration to my right hon. Friend the Chancellor as he faced up to his formidable task. The severity of the measures he introduced left no one in doubt about his determination to conquer Britain's balance of payments problem. For me, The Guardian summed up the situation in a leading article yesterday, which said: If Zurich, Paris and other centres of gnomedom are not satisfied by the measures announced yesterday, then nothing will ever satisfy them. In response to this one could say that it was disproved long ago that what is good for General Motors is necessarily good for America, and likewise one could say here that what is good for the bankers is not necessarily good for the working people of this country.

In general terms, I welcome the new taxes on the more wealthy sections of the population. Some of these measures are long overdue. On the other hand, I dislike the emphasis on indirect taxation. We must face the fact that the Budget could lead to unemployment. The severity of its cut-back on home demand could lead to short-time working and unemployment in firms making consumer durables like washing machines, television sets and so on. We must also remember that many of these factories are based in the development areas, where unemployment is already quite high.

My main criticism of the Government is that in the three-and-half years they have been in office they have seemed to lack a tactical approach. There are a number of examples one could cite, but I mention only two. Whatever one's views may be on the Common Market, whether one is in favour of Britain's entry or not, it was fairly apparent from the start that Britain's attempt to get in would be abortive. It struck me that the Cabinet had been intoxicated by the enthusiasm of my right hon. Friend the Member for Belper (Mr. George Brown).

Secondly, there was the issue of prescription charges. It has been said many times that that is a great emotive issue among hon. Members generally and in this party. The amount the charges will yield will be puny. It compares with the amount which will accrue from the new payment of Income Tax on children's investment income. As The Guardian said, the bankers have been satisfied that the new measures will raise over £900 million in a full year. The basic question is, why then the need for new incomes legislation?

This is where my charge of lack of tactical approach comes. I do not agree with the Secretary of State for Economic Affairs who appeared to believe that one of the reasons for our exports being uncompetitive is the wages situation. Our wage levels no longer compare favourably with those paid in countries which are our principal competitors. Wage increases granted in this country from 1960 up to the present do not compare favourably with those granted in those countries.

My third accusation is that this incomes restraint leads to inefficiency in industry. There is no incentive to forward-looking people, no incentive to manufacturers to invest in new plant and machinery. That item alone could give more power to their elbow and could increase productivity in industry. It seems that at present the Government, above all else, need friends. Where will they get those friends? Will it be in the C.B.I.? Right up to the time of the Budget the C.B.I. called for more profits and was trying to maintain price stability. Its co-operation with the Government has been most limited. By comparison the demands of the trade unions have been most modest. They have bent over backwards to co-operate with the Government.

One of the most famous figures in the Labour movement in this country in this century was Ernest Bevin. I believe that at the 1935 conference of the Labour Party he said that the party was the child of the trade union movement. One would not get that impression today. I am given the impression that some of my hon. Friends think that the only reason for the existence of the trade unions is for them to go to them with a begging bowl for financial support for their election campaigns.

If the Government do not show a better spirit of co-operation with the trade unions, catastrophic defeats will continue in local elections and in by-elections. Then, as a result of this incomes legislation, all the Government's plans could go up in the air because of a major strike. The Government certainly have a vested interest in getting some real co-operation with the trade unions, so I would say to them, "Withdraw this proposed legislation while there is still time."

"Roy's the Boy: millions on shares" said the headline in the Evening News yesterday. This may be very gratifying, but when the euphoria dies down, as die down it will, the Chancellor and the Government will need to remember that bankers have never been recognised as friends of the working people of this country or of the British Labour movement.

9.1 p.m.

Mr. Terence L. Higgins (Worthing)

This has been an interesting and a controversial debate. Concentrating as it has on incomes policy, the controversy has raged not only across the Floor of this House but of course, as one might have expected, between the Government Front Bench and those on the other side of the House below the Gangway, and particularly in the third row, such as the hon. Member for Liverpool, Walton (Mr. Heffer). It has been very significant that the degree of support which they have had could be described, at the most optimistic, as minimal and the number of questions which have been asked has been very large indeed. The hon. Gentleman the Member for Walton certainly asked some very cogent questions, as did the hon. Member for Luton (Mr. Howie), and my right hon. Friend, in opening, also asked a number of questions.

Therefore it is quite extraordinary that we are not, I understand to have a Minister replying to this debate this evening, because clearly it will not be possible for the Minister, speaking on Monday, to deal adequately with all the points that have been raised on this particular question of incomes policy. Therefore we are forced to the conclusion that as far as incomes policy is concerned the Government simply are not prepared to face up to the questions. Indeed, they have lost their nerve on the whole matter. There is total confusion behind the scenes, between the Labour Party and the Prime Minister, the Government themselves and the trade unions and the Government and the C.B.I. It was abundantly clear from the speech made by the First Secretary that the Government themselves do not know the answers to a great many very cogent questions of the kind put in earlier interventions.

Mr. Mendelson

As far as the right hon. Gentleman the Member for Mitcham (Mr. R. Carr) is concerned, there is no need to reply to that string of platitudes and evasions. From that point of view there is no obligation on my right hon. Friends to waste their time on it.

Mr. Higgins

The hon. Gentleman usually makes a much better intervention than that. He is referring to his own position, which is entirely against the Government point of view.

The First Secretary's speech generated a great deal of heat, it was singularly ill-mannered and threw very little light on what the Government propose to do. I understand that the hon. Member for Heywood and Royton (Mr. Barnett) is likely to catch your eye, Mr. Deputy Speaker, but the sad thing is that, while I always listen to his speeches with the greatest interest, he is not in a position to commit the Government in answering the cogent questions put this afternoon.

The fact is that there has been very little consultation such as there was back in the golden days of the right hon. Gentleman the Member for Belper (Mr. George Brown) and his declaration of intent, with the trade union movement or the C.B.I., and the extraordinary answer apparently given in discussing this was that the Chancellor could not anticipate his Budget.

Many people in the House believe that there is a strong case for having a more detailed examination of proposed changes in the principle of taxation before Budgets. To suggest that there could not have been prior consultation on the incomes policy before the Budget is most arrant nonsense. Even after reading the hon. Gentleman's speech tomorrow, it will not be possible for the industrialists and trade unionists really to know what the Government's policy will be on this. We must wait day after day for a White Paper which apparently has not yet been formulated. In view of the negotiations which are clearly going on behind the scenes it would he interesting to know whether it has been printed and whether the negotiations will have any effect on the policy. It was clear after the T.U.C. meeting at Croydon that whatever it agreed in the way of a voluntary policy it would be clobbered by legislation.

In any case, the incomes policy should be placed in the general economic context. I want to spend a short time in going into that in some detail because we have had what was undoubtedly the toughest Budget this country has ever had to face. As my hon. Friend the Member for Guildford (Mr. David Howell) pointed out, there are a number of very obvious reasons. The first and most overwhelming is that Government spending is out of control. In his television broadcast on Tuesday, the Chancellor said, "Last January we cut Government expenditure". That is simply not true, and he knows it. All that the Government did then was to reduce the rate in plans for Government expenditure, which is totally different.

The second main reason has been mistiming, which has been the hallmark of the present Government time and time again. From October, 1964, the Government, and particularly the Chancellor of the day, have deferred taking action until too late. As a result, we have gone from crisis to crisis. That is so even now, when the Chancellor failed to take adequate action on the day of devaluation, which even a first-year economic text book would tell him he should have done. Perhaps the hon. Member for Heywood and Royton can enlighten us on this.

We are told in an article in The Guardian today that the timing was defended. It said: As for the charge that he should have acted sooner, Mr. Jenkins pointed out that his carefully calculated proposals achieved a redistribution of income from rich to poor of about 1¼ per cent. This could not have been done by careful use of the regulator last January, he said. Surely he could have put on the regulator at that time, carried out the reforms in the Budget and take off the regulator then. Therefore, that argument falls to the ground with a sickening thud. The article continued: Nor would it have been timed correctly from the point of view of exports. It is abundantly clear that the spending spree resulting from the Chancellor's failure to take action—not in January, as the report said—but in November, resulted in a great loss of opportunities. In January exports of motor vehicles from this country fell by 14 per cent. and imports rose by 75 per cent., clearly as a result of the Chancellor's not taking action earlier. Therefore, the timing problem continues right along the line.

We have also the division of responsibility over the years between the D.E.A. and the Chancellor, and the fact that too much weight has been placed by the Government on incomes policy. If nothing else, we should be grateful that the Chancellor suggested in his Budget Statement that the incomes policy had been moved from the central position it had previously taken to something which my hon. Friend the Member for Guildford described as a sideshow. We certainly regard this as a healthy development.

I want to make one other point before turning to the incomes policy in rather more detail. We do not accept and have not accepted that the reason for the present Government's troubles is in any way the situation which existed in October, 1964, for reasons which my right hon. and hon. Friends have spelt out many times. In any case, it is right and proper that we should look at this year's Budget in the light of the statements made at the time of last year's. That dispels once and for all the alibi that our present troubles were in some way due to 1964 or the underlying difficulties in the economy.

I am glad to see the Chancellor of the Exchequer here. He stressed the other day that we had to go into devaluation and have to take these measures because of underlying structural changes. How can the Government reconcile that statement with the kind of speech being made by the Home Secretary a year ago, when he was Chancellor of the Exchequer? On 3rd June, 1967, at the Co-operative Education Centre, the present Home Secretary said—and it is worth quoting this at some length— The message I want to leave with you this afternoon is that the period of standstill in the economy is finished. We are now beginning on a period of controlled growth and expansion. It will not be wild and irresponsible as it was during the last days of the Tory Administration when they ran up debts amounting to several hundreds of millions of pounds. That, of course, is quite different from the debts recently incurred. The right hon. Gentleman went on: This time our controlled rate of expansion will be combined with a surplus in the balance of payments. How can that be reconciled with the Chancellor's statement on Tuesday? The Home Secretary continued: The Government estimate is that we can increase our real resources by getting on for £1,000 million every year. Some of the critics and pessimists are expressing their doubts about whether we can do it. One newspaper yesterday had the heading: 'Economists knock Callaghan's output predictions.' This kind of comment misunderstands the Government's policy…We aim at a 3 per cent. growth rate confident in the knowledge that that can be combined with a balance of payments surplus. How can the Chancellor possibly reconcile that statement, made only nine months ago, with the statement he made on Tuesday saying that there was a structural difference in the economy, that we had to take this kind of measure and that devaluation was necessary and so on? Still less, how can any right hon. Member opposite, in the light of that statement, say that the present situation is due to something which happened in 1964?

The fact is that the present crisis is due, as we have consistently asserted this week, to gross mismanagement of the economy over the last year, and the reason why we cannot look forward, as the Home Secretary claimed we could only nine months ago, to a situation in which the standard of living of every family would steadily rise, and the reason why the Chancellor has had to introduce a Budget which deliberately cuts the standard of living, is that the Government have mismanaged the economy.

If we look at the kind of point we have been discussing on the speech made such a short time ago—only last June—and compare it with the Chancellor's Budget speech, it is abundantly clear who is responsible for getting the country into the mess we are in. I had hoped at this point to say a few kind words to right hon. Members opposite because, for three year, particularly in debates on the economic regulator and on Finance Acts, I pressed the Home Secretary to publish the economic forecasts of the economy. We got unsympathetic replies from him. On 16th June, 1966, refusing to publish the forecast, the Home Secretary said: As everyone knows, I am neither an economist nor a statistician. I do not have a trained mind. I merely dance to an old Hungarian tune."—[OFFICIAL REPORT, 16th June, 1966; Vol. 729, c. 1854.] He explained then why he could not publish the forecasts. That extract well serves as the epitaph to his Chancellorship.

I was glad to hear the Chancellor say on Tuesday that the Government would publish the economic forecasts. If that were so, it would be a very great step forward and I do not doubt that, if the Economist comes out tomorrow, it would say so and what a good thing it was. I had hoped to say, "Hear, hear" and I am sorry, therefore, to have had to put down a Question to the Chancellor asking for figures for real disposable personal incomes corresponding to the figures for consumers' expenditure on page 38 of the Financial Statement. The Financial Secretary's Answer today was: No. The scope of the information in Part III of the Financial Statement has been very carefully considered, and represents a great advance on the practice of all Governments since the war. This is perfectly true but we are now in the situation in which the Chancellor will not give us the figures that we have asked for. We have now reached the position when he says, "I will give a column of eight figures and provide six answers but you will tell me if the remainder are correct". Then he says, "I will give you the seventh figure". That is a great advance, but when we ask for the eighth figure, so that we can see whether we are right, he turns round and says that giving the seventh figure was a great advance upon anything that we have had before.

The right hon. Gentleman is sensible about this, and we are grateful to him for giving us what he has, but we cannot tell whether the figures are correct unless we have the figures for real disposable incomes and personal disposable incomes. I should not like him to think that he has given us everything. I hope that in asking for more, like Oliver Twist, I will succeed in getting the missing figures, without which we cannot reconcile those figures that he has given us.

The crucial point to be made about incomes policy is that made by my right hon. Friend the Member for Mitcham (Mr. R. Carr) in his opening remarks. It is that an incomes policy can mean a great many things. This was cogently put in an article in the District Bank Review by the editor and assistant editor of the National Institute Review, who wrote as follows: Sometimes 'incomes policy' is discussed as if it were a single thing—an attribute which an economy either has or does not have, in much the same way as a human body either has or does not have chicken pox. In fact 'incomes policy' can be all sorts of devices. There is a vast different between the kind of incomes policy which we on this side believe that we ought to have and the kind of compulsory policy which H[...] and right hon. Gentlemen opposite have been pursuing. It is relevant to ask whether we need an incomes policy at all. Is compulsion necessary? Is the compulsory policy effective, and finally are the costs and damage done by that policy worth the results?

I address myself particularly to the Minister of Labour, who I am glad to see is here. The point that needs to be made is that, when we were in office, we accepted the view that any measure which would help to keep increases in incomes in line with increases in pro ductivity was likely to be beneficial. For that reason my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) adopted an incomes policy which was voluntary over the mass of the country. In the public sector, over which the Government have responsibility, then the Government ought to set an example and adopt the kind of criteria which they feel should be adopted by other businessmen in the national interest.

There are many areas where the Government can set an example, not least in the gas and electricity industries and on the railways. That was the crux of my right hon. Friend's policy, operated on the basis of exhortation. The extraordinary thing is that if one looks at the statistical analyses which have been carried out it is shown to have had remarkable effects. The National Institute Review shows that the percentage rises for weekly wage rates from April, 1961, to October, 1962, were 5.4 per cent. From April, 1966, to October, 1967, the period of freeze and severe restraint, the equivalent figure was 6.2 per cent., significantly higher. The voluntary policy of my right hon. Friend, in terms of actual results, was more effective than the compulsory policy of the Government.

In describing the policy of the Government of freeze and severe restraint the District Bank Review says: During the short period of freeze itself, there is no doubt that there was an effect. Both the wage-rate index and the average earnings index levelled off for about six months. The question to decide here is whether or not there was any permanent effect or whether the freeze simply postponed the increases. It goes on: It seems probable that there was simply a postponement. From July 1966 to October 1967—that is, from just before the freeze to the latest available figures—average earnings rose just over 5½ per cent. This, given the relatively high level of unemployment and the comparatively slow rise in prices, is reflected as roughly what one might expect from natural forces. All the trouble, therefore, we took with that first Prices and Incomes Act and the second Prices and Incomes Act, all the trouble which has gone on in the Left-wing of the Labour Party, in an estimate of the editor and deputy editor of the National Institute Review produced no significant effect other than that which would have been likely to be produced by natural forces. It is for that reason there has been all this trouble.

I would say a word or two about the next stage and, in particular, I wish to examine the signs we have so far as to what the Government actually intend. It seems clear that the Government propose to extend the powers from seven months to twelve months. As was pointed out, this means that it will be possible, thereafter, for trade unions to put in claims retrospectively for the amounts which they might otherwise have obtained. It will not be possible for them to pursue the matter in court. That was, I think, the effect of the reply given to my right hon. Friend.

Then we come to the question of the maximum figure and what it means. I was somewhat disappointed regarding the precision of the Chancellor of the Exchequer in his Budget Statement. He said: On the income side its main feature will be a ceiling of 3½ per cent. on increases in all the main forms of remuneration, but excluding increases directly related to the amount of work done." [OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 264.] I should have thought it more convenient and precise if he had expressed it in terms of wage rates or earnings, or some other more precise terminology.

At all events, we are told this figure is to be a maximum figure. Perhaps we might have from the Chancellor of the Exchequer on Monday, an answer to the point made by the hon. Gentleman the Member for Walton who asked whether it is true that the provisions of Cmnd. Papers 3225 do apply now. That is to say, does the nil norm apply except in cases where the criteria are met? There is a clear question here and I hope we shall get a clear answer on Monday. If that is so, the ceiling appears to be very stringent indeed. Are we to understand that in the Government's view there shall be nothing whatever above the 3½ per cent. whatever in the case of productivity agreements? There is still some doubt about that point.

What is the position with regard to overtime? Does it come within the phrase used by the Chancellor in his Budget speech, or is it to be considered as something over and above that?

It is extraordinary that the Government, the Prime Minister at Question Time some weeks ago, the Chancellor in his speech, and the First Secretary today, have failed to spell out in detail exactly what is meant by this figure.

Mr. Shore

I would not now attempt to answer all the points raised by the hon. Gentleman the Member for Worthing (Mr. Higgins). There are two points to be made clear. First, overtime is not included in the calculation. Secondly, productivity agreements expressly, providing that they are genuine productivity agreements, can be above the ceiling.

Mr. Higgins

It is extraordinary that the right hon. Gentleman the Secretary of State for Economic Affairs agrees he cannot give an answer to all these points. Clearly no one knows the answer to them. He has not given answers to many of the other questions; he would answer two only. The first answer is still ambiguous, but I have not time to go into it in detail now. I will return to the second answer in a few moments.

I would ask the Chancellor of the Exchequer, since he says he is not putting the incomes policy in a central position, exactly what quantitative effect he expects to get from the incomes policy. In other words, how much more does he think he would have to increase taxation if he has not got an incomes policy? This is very relevant.

I want to raise a second broader point on what the policy means. The argument all the way through the Government's policy so far has been that the objective must be to keep increases in incomes—that is to say, earnings—in line with increases in production. That has been the clear statement all along the line. But that is not what was said by the Secretary of State for Economic Affairs today. Perhaps the hon. Member for Walton might like to consider this. Previously, it has been said that earnings must be kept in line with production. We are now told that earnings must not rise faster than the cost of living. This is a totally different concept. They have rung the changes.

If that is the objective, the policy is doomed to failure, because it assumes that incomes will be rising faster than production. So not only are we asked to make sacrifices for an incomes policy. We are now asked to accept a policy which will not succeed in the objective which all previous Prices and Incomes Acts have declared as their objective. Again, one hopes for some clarification in the course of the Chancellor's speech on Monday.

Finally, I want to say a word or two about the costs of the policy and the criteria. As regards the costs of the policy, it has been pointed out time and time again when debating prices and incomes orders that the policy of the Government strikes at the very roots of collective bargaining. It discriminates against small groups. We do not know what criteria are used in deciding whether or not to impose an order and whether they are imposed on the weakest or on those who are being most awkward. It is grossly unfair as far as "Nelson's Law" is concerned. It appears to depend on whether a particular increase catches the Government's eyes and gets itself referred to the Board.

It is not surprising that the whole concept is totally ineffective. It is a bucket with hundreds and thousands of holes, and, therefore, the result is the kind of result which has been pointed out in the National Institute Review and the District Bank article to which I have referred.

We have been told that the same criteria apply and that the first is that of productivity. We have been told that productivity agreements are to be exempted. But the only case about productivity debated in this House has been that of the Birmingham car delivery drivers, and that faded into oblivion. The question of whether return loads comprised productivity agreements arose. The Guardian had this to say about it on 28th July, 1967: Mr. Hattersley said that the information which had been produced was inadequate to judge whether the agreements fell within the productivity criteria, but since they had already undergone substantial deferment, the Government did not believe there should be a further delay. The resources of the Minister of Labour's Department working on this single case still cannot decide whether they are productivity agreements, yet we are told that there will be hundreds and thousands of such agreements examined by these 20-odd people in the Ministry of Labour, who will decide whether they justify an increase over the norm. As regards lower paid workers, we have had no definition to provide a workable basis for the House to consider.

As we progress with the Finance Bill upstairs and the legislation comes before the House, we shall make progress in elucidating these mysteries to which, alas, we are to have no answer tonight but on some of which we hope to get answers from the Chancellor on Monday.

It is abundantly clear that the Government's economic policy has failed utterly. It is for that reason that we are given the kind of Budget that we have had this year. What is even clearer is that the Government's prices and incomes policy, in contrast with the kind of prices and incomes policy advocated by my right hon. Friend the Member for Mitcham, is doomed to failure. It has not proved effective. Statistics prove that. There is no reason to suppose that the further measures of compulsion and discrimination which the Government propose to introduce will make any difference in the future or be any more successful than their two foolish Acts of 1966 and 1967 have been over the last period.

9.30 p.m.

Mr. Joel Barnett (Heywood and Royton)

I am sure that it will be clear, Mr. Speaker, that the fact that you have been good enough to call me to wind up on this side does not mean that I am speaking for the Government. If it is not clear now, it will become clearer later. Meanwhile I hope that my hon. Friends will forgive me if I do not reply in detail to the excellent points which they raised. I will leave that to the Chancellor on Monday.

The attitude of the Opposition today, and indeed throughout the debate on the Budget, has been patently dishonest, and the seven so-called alternatives put forward by the right hon. Gentleman the Member for Mitcham (Mr. R. Carr) were not alternatives at all. The only way in which the proposals of the Opposition would be worthy of any consideration would be if one of three particular circumstances applied. First, if the handling of the economy in the past had left us with a sound economic base; secondly, if they had taken fundamentally different measures since 1964; and, thirdly, if, in the situation that we have today, they had put forward other and concrete proposals.

On the first proposition, it is patently obvious from what we found in October 1964. that, whatever else there may have been, there was no sound economic base.

Secondly, the only substantial difference between what the Opposition have proposed and what the Government have done in the past three and a half years—apart from devaluation, which they say they would not have carried out, which would have made the situation much worse—is that they would have cut public expenditure whilst at the same time increasing it in other spheres, particularly defence, where they would have increased it enormously. The increases that they would have made are real, but their cuts are anything but real. The only cuts that we heard about from the hon. Member for Guildford (Mr. David Howell) were tiny and would have no real bearing on the situation facing us.

The other cuts which we hear about from time to time from the right hon. Gentleman the Member for Enfield, West (Mr. Iain Macleod) and other Opposition Front Bench spokesmen are cuts in the social services which, if one accepted them, are not cuts in public expenditure, but cuts in private consumption. Therefore, the proposals put forward by the Opposition are no answer to the problems facing us.

The third proposition, if one could listen to it seriously, is the same as the second—a re-hash of their old proposals.

Mr. Higgins

The hon. Gentleman will be aware that in the speeches on the Government's proposed cuts we listed a great many cuts, not least on the Transport Bill, the Industrial Development Bill, the Regional Employment Premium and the S.E.T. premium, amounting to about £350 million or £400 million.

Mr. Barnett

The hon. Gentleman knows that the cuts he is talking about are not cuts in the real sense. It will be clear to any serious observer of what the Opposition have been doing in the past three and a half years that they do not deserve to be taken seriously in their criticism of what the Government have done. One can, therefore, agree with what my hon. Friend the Member for Ashfield (Mr. Marquand) said—that the argument is between those of us on this side, and we can tend to ignore the Opposition in serious economic debates.

I turn to the real attempts which have been made in the Budget to deal with our economic problems. My hon. Friend the Member for Newport (Mr. Roy Hughes) and other hon. Friends have referred to this as a bankers' Budget. They are right in one sense. It is a bankers' Budget in the sense that we are, and have been, using bankers' money, and it is therefore not surprising that we have to take measures which will eventually enable us to make some effort to repay it. Whether we call it a bankers' Budget, or anything else, we will have to take measures which will enable us to repay the money that we have had to borrow. If we did not want this sort of Budget, we should have taken different economic meaures in the past and we would then not have needed to borrow money.

The Budget was a good presentation, but it was more than just that. It did rather more than make the best of a bad job. In most difficult circumstances, in almost impossible circumstances, it was reasonably fair, although inevitably those with no capital, and on fixed incomes, whether they be £10, or £100 a week, are those who will really suffer. But they will suffer from any increases in taxation, however they are made, whether direct or indirect. This is one of the unfortunate facts of life.

Despite the distress that we have seen from those in the high income brackets about their standards of living being affected by the increased taxation provided for in this Budget, the fact is that these people will not have their standards of living affected at all. It is a great shame that we cannot do something about that, because it is always those at the lower end of the scale who suffer.

Above all, the Budget faced the problems confronting us, even if all the answers with which it came up did not appear wholly satisfactory, and it is with these problems which I should now like to deal. The key to it all, as ever, is the balance of payments problem. It is now clearer than ever that this is not dependent on ourselves alone. The recent gold crisis showed that no matter how sound our own basic balance of payments situation, if there is a panic rush out of currencies into gold we go with it.

On Tuesday when my right hon. Friend the Chancellor of the Exchequer was referring to this aspect of the problem he rather qualified the position as he saw it. He said: …on present prospects for world trade and given the restoration of stability to the International monetary situation I certainly hope and expect that we shall be in surplus in the second half."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 258.] That is in the second half of this year. He was right to qualify it, and in that sense we are still dependent on the world monetary system giving us the stability that we need.

This is the great worry, because we have now taken measures which mean that we are dependent, not on sterling, but on the dollar, and it was utterly disgraceful that the right hon. Gentleman the Leader of the Opposition, when he spoke immediately after the Chancellor on Tuesday, as usual played politics with the world monetary system. The right hon. Gentleman knows, or should know, what would be the consequences of a disorderly collapse of the system.

I hope that the two-tier system so laboriously worked out in Washington last weekend will work for a long time. Unfortunately, I do not feel altogether happy about it, although I think that my hon. Friend the Member for Ashton-under-Lyne rather overdid the case against it. I believe that with further action it can be made to work for long enough to give us an opportunity, but, unfortunately, I do not like living in hope that it will work.

It would be unrealistic and dangerous not to recognise, and for the world bankers and the members of the I.M.F. not to recognise, the situation that exists. The United States will almost certainly be in deficit at the end of 1968, whatever financial measures they take this year. Whatever measures they take in the fiscal field will be more than counterbalanced by the fiscal escalation of the Vietnam war. This is one reason why one hopes to see the United States pursue a new policy in South-East Asia. It would have two good results, but it does not mean that international financial disaster is inevitable. It means that we must not sit and wait for another crisis to be upon us.

There is a temptation to seek a way out by unilateral action. Like everyone else, I do not like to depend on others but it is impossible to opt out of the international monetary system, certainly for a country like Britain. Equally, we must recognise that the ideal way out, by way of something like the Triffin Plan and other arrangements whereby we can have a new world currency unit, is not going to be available to us for a considerable time. Even the very tiny step of Special Drawing Rights will not be ready quickly enough if we do not take other drastic action—and I hope we will—through the Group of Ten and the I.M.F. so that we do not get a repeat of last week's panic.

The talk of 1931 last week was absolute rubbish. We all know that there is a much greater degree of international co-operation today than there ever was, and one should be able to control the situation very much better than it has been controlled in the past. But the position is still serious enough to cause a great deal of trouble, so it is vital that as quickly as possible we should have talks that are realistic. It does not help to pretend to the word that there will not be a deficit in the United States this year, but pending bigger changes, the two-tier system can be made to work long enough to enable use to have, eventually, a new system in the world to enable world trade to continue to expand. It will not be easy, and I suggest to the Chancellor of the Exchequer that we need a very much greater sense of urgency.

There are too many people who think, when the international monetary system is mentioned, that it is a technicality which does not really mater. It matters a great deal to the standard of living of people all over the world, and particularly to people in this country, so I hope we will show a much greater sense of urgency, first of all, to make the two-tier system work long enough to enable us to get a rather more stable system away from the nonsense of relying on a piece of metal; but, in the end, we in the United Kingdom can plan only on the assumption of comparative world stability.

On those assumptions, the Budget strategy cannot be faulted. No one on the Opposition side of the House has been able to fault its strategy. The reason hon. Gentlemen opposite have not done so is that they fear it will be too successful, and that before very long we are going to be in a much improved situation. The strategy is based on the economic forecasts we have been given in the White Paper. Like many hon. Gentlemen, I am glad that the Chancellor of the Exchequer has decided to let us have these forecasts although one must confess that there is no real reason why we should be happy about seeing Treasury forecasts. The way in which the Treasury has handled forecasts in the past has not been such as to make us feel terribly happy about the present ones being likely to be any more accurate. But both the Chancellor of the Exchequer and the shadow Chancellor so qualified the forecasts we now have—and quite rightly—that I do not quite know how much they will mean. No doubt we shall know in due course.

Arising out of these forecasts I should like to be able to be as optimistic as the T.U.C. and those of my hon. Friends who would have liked to have seen us go for the 6 per cent. growth rate recommended by the T.U.C., but unfortunately one cannot blind one's self to what has happened in the past 20 years, or the past three and a half years. I confess I prefer the margin of safety of going for 3 or 4 per cent. at this time, but I sincerely hope that, once we have got this sound basis, we may be able to go for a much larger rate of growth than anything we have seen in the past. I am not content with the statement that 3 per cent. is three times as much as last year.

So one comes to the amount which the Budget takes out. The right hon. Member for Enfield, West (Mr. Iain Macleod) and others said that there is an element of "overkill" in the Budget. In view of the amount of money collected—the total, not just the extra—and in the context of the total G.N.P., I do not know how people can say that there might be an "overkill" to the tune of £100 million. They are as likely to be right as they are wrong, and might therefore be 50 per cent. right, but I think that my right hon. Friend was right to err on the side of taking too much, as all the evidence suggests that he has done. If it is slightly too much and things are slightly wrong in the autumn, this will not be too difficult to remedy.

However, I cannot give so much agreement to the size of the surplus and the length of time for which he is aiming to have it. I know that he has to make the right noises, but what is the basis for deciding that we need exactly £500 million? My right hon. Friend said: For the future we need, as I have said, to achieve a continuing balance of payments surplus of the order of £500 million a year as soon as we can and to sustain it for as far ahead as we can see…".—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 258.] I do not believe that we need £500 million for our sakes or for the sake of world trade, and it could be positively harmful if we tried to maintain such a surplus for as far ahead as we can see. Therefore, how was this figure decided upon?

Then one comes to the method of extraction of this total. Again, the Leader of the Opposition cannot really be as foolish as he made himself sound yesterday—

The Chief Secretary to the Treasury (Mr. John Diamond)

Why not?

Mr. Barnett

I suppose that my right hon. Friend is right: he could be.

All the right hon. Gentleman's complaints were ludicrous. He complained that there were no incentives. Does he really suggest that, in a year like this, we should reduce Surtax or even the standard rate of tax? As to the Budget's impact on industrial costs, what magical way does he know of increasing indirect taxation without such an impact? If he has it, he should enlighten the House. As to savings, I too would like to see some scheme like that suggested by the right hon. Member for Enfield, West, "Save as you earn", which might attract the small savers rather than the rich, but one thing we need is not the hope of increase saving but the certainty that we will get something out of demand.

Therefore, although we can hope for something in savings, to suggest that there is some easy way of getting it while avoiding extra taxation is a refusal to face the facts. We should pay tribute to the ingenuity of past Chancellors. When one thinks of ways of helping the small saver, one realises how much they have done. There are small bonds easily available in the Post Offices and many points of supply for the small wage earner. Many forms of savings have been thought of in the past. There is no gimmicky way to get a massive increase in real savings, as opposed to switching, which would obviate the need for increased taxation.

My right hon. Friend has clearly chosen the instrument of indirect taxation rather than direct taxation, as he made clear in his Budget speech. While many of us would normally consider this to be a regressive method, any reasonable person must concede that while indirect taxation does not generally benefit the lowest income groups, this time the selective method by which it has been done, together with increased family allowances, rebates and increased supplementary benefits, should go some way to mitigate the worst effects.

At the same time, my right hon. Friend has taken this opportunity, through a special charge which at its highest level is a wealth tax, to bring forward another fair method of extraction. This new method of wealth tax might administratively be a better method of raising this sort of revenue than through an actual wealth tax. The Chancellor said that it will apply for only this year, but I remind the House that Income Tax was going to be temporary, too. There may be some other method of applying a similar tax—but I emphasise that I am not speaking for the Government. Nevertheless, I recommend my right hon. Friend to give great thought to this matter because this might prove a more simple administrative method of collecting a wealth tax.

In the long-term, the only way to get a simpler and better tax system is to have a negative Income Tax system whereby relief could be given to those who are not earning enough to pay any tax at all. I understand, however, that computers are not yet available at the Inland Revenue to make this possible. I trust that my right hon. Friend will give a greater degree of urgency to the need for computers to change the tax system in this way.

In the meantime, my right hon. Friend should have taken this opportunity to have introduced a small re-structuring of the Income Tax system. Without cost, we could have removed the earned income relief and had rates of tax of 6s. 8d. and 5s. By that means workers would know that at the highest rate they would be paying one-third of their income while at the lowest rate they would be paying one-quarter of it. This would have had a considerable psychological effect particularly on people who tend to say, "I will not work overtime because I will pay it all away in tax." Hon. Gentlemen opposite may be delighted to know that by 1970 we may yet have a standard rate of 6s. 8d. or even less. I accept that this year it might have been administratively difficult to make this change, and I also concede that the other taxation changes which I would have liked to have seen would have been equally difficult to introduce.

I come now to a serious reservation about the Budget, certainly about its underlying strategy. The Chancellor, when speaking about prices and incomes, made this comment which disturbed me: A firm and effective incomes policy is not a substitute for fiscal action as an instrument of demand management. I have not formulated my proposals on the basis that it could be, though they allow for its effects."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 263.] I do not know what my right hon. Friend means by that, but if he is allowing for its effects it is a serious matter. Is he saying that he would have taken more in taxation if there was not a prices and incomes policy? I say that because the little that one can get from prices and incomes legislation—the ability to hold down incomes by perhaps only 1 per cent.—does not seem worth the disruption which would be caused.

When the Secretary of State referred today to plant bargaining I thought that his remarks were put in their right perspective by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) who questioned how this would work in practice. In this context, my hon. Friend speaks with great knowledge of how the system really works on the factory floor and at plant level. He showed clearly what could happen and what is likely to happen as a result of this sort of policy.

Of course it is argued, "If you don't agree, what is the alternative?" I do not know why one needs to put forward an alternative for a policy which in any case will be unsuccessful. My answer is that the alternative to 1 per cent. restraint, plus industrial disruption is a voluntary system with the extra 1 per cent. which we might lose. That would be a better alternative taken together with the saving in industrial unrest and the provision of a better atmosphere to get the increased productivity of the kind about which my right hon. Friend spoke.

Mr. Higgins

I am interested in this 1 per cent., but of course it is the hon. Member's figure. What we want to know from the Chancellor on Monday is his expectation, because all the evidence, on the figures analysed so far, suggests that it has not been worth anything at all to cause this disruption.

Mr. Barnett

At this stage it is no good asking me that. I should have thought that after the traumatic experiences of the last three-and-a-half years we could have stopped pretending to ourselves, to the public and to foreign bankers that wages legislation can be really effective. With these tax increases and devaluation I cannot see the need for psychological measures, especially when by going for prices and income legislation we shall get the worst of all possible worlds because we all know that in practice we cannot stop price increases. No wonder the C.B.I. has at least seen sense and accepted a prices policy. Of course it can accept a prices policy when it knows that it will not work.

As for dividend legislation, not only is this psyhologically not necessary but we are reversing everything we have said. We should know that Capital Gains Tax and Corporation Tax make dividend legislation unnecessary. We do not need to tell our hon. Friends or the public that dividend legislation is needed, because Capital Gains Tax and Corporation Tax do the trick very well indeed. I hope that for these reasons the Government might reconsider the need for wages legislation. The very marginal economic benefit we are likely to get is simply not worth the industrial, economic and political upheaval.

With the opportunities we have now given the economy, it would be a real tragedy to be deflected from the course we have chosen, because without wages policy the Budget, plus devaluation, provides an opportunity for the next 12 months to move forward on a sounder economic basis than ever before.

Debate adjourned.—[Mr. Gourlay.]

Debate to be resumed Tomorrow.