HC Deb 26 March 1968 vol 761 cc1254-80

8.9 p.m.

Sir Harmar Nicholls (Peterborough)

I am delighted to hear that the Joint Under-Secretary of State for Economic Affairs is to reply to this debate, and I hope that he does it in the same detail as he has just answered my hon. Friends, it must have given them a lot of satisfaction.

It has helped me a great deal to know that the hon. Gentleman proposes to dash away in the middle of it to buy himself some food. If he remembers the prices that he used to pay for food in the Dining Room and Cafeteria when he first came to the House in 1964 and compares them with what he has to pay tonight, that will be a very effective way of appreciating the point that I intend to put to him.

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

The hon. Gentleman will recall that at that time we were making a loss which was in excess of £30,000, and perhaps it was not really fair that Members of Parliament should be subsidised to that extent.

Sir Harmar Nicholls

Perhaps that is a good thing. It means that despite the subsidies, the price structure has seeped through, and he will have to pay a lot more tonight than he did in 1964. It is only what people outside have to pay without any sort of subsidy to help them. I bring that in, because it could be that the hon. Gentleman will take it as a practical illustration of what I shall endeavour to argue now.

Debates on the Consolidated Fund are Parliamentary democracy at its best. They enable back benchers to bring to the attention of the Government things which are disturbing the country. The debate we have just had on the regional problem is a good example. Now we move to the cost of living which is a national problem. It is a national problem from which can flow consequences which could make the recent riots in Grosvenor Square seem like a day at the seaside. The consequences that can flow from the frustrations and feelings at the cost of living deserve that sort of comment. I believe that the steep and seemingly never-ending rise in prices carries with it the risk that normal agencies for keeping people within the law may break down, or at any rate be severely tested. I hope that the Joint Under-Secretary and his friends on the Treasury Bench will keep the magnitude of what can flow from it well in mind.

From 1964 on the curve of prices has only been upwards—steeply upwards—and it has now reached a point where it hurts everybody very much, and they will be reacting to it.

Between October, 1964, and November, 1967—before devaluation—prices went up 11.6 per cent., and the first round of price increases following devaluation brought this up to 12.3 per cent. That was a pretty hefty rise. I know that to talk in percentages, whilst it may fit in with the blue books and statistical records which we have here, does not reflect the position in the language understood by the housewife. In money terms the percentages which I have quoted mean that the £, worth 20s. in 1964, fell to be worth only 17s. 10½d. In terms of the family budget the same percentages mean that purchases of equivalent goods and services compared with 1964 would today cost £2 8s. per week more. That comes out of the family budget.

The Chancellor's estimate is that the full effects of devaluation will raise prices by about 3 per cent. This means that on top of the figures which I have given, which were up to devaluation, the weekly budget costs will go up another 11s. 8d. That is quite a slice out of the income of the average family.

If one examines food prices in particular, we find that they have risen by 11.2 per cent. since October, 1964. The Grocers' Gazette has stated authoritatively that between devaluation and the end of February, 2,643 items of foodstuffs, cleaning materials and toiletries had risen in price. That shows the range of these extra charges that are put on the costs of a normal household.

As recently as 23rd of this month the Financial Times reported: There was another rise in the cost of living last month. The Index of Retail Prices moved to a fresh high of 122.2 on February 20 from the January 16 record of 121.6 due to 'increases in the price of bread and some other goods and services', announced the Ministry of Labour. The index is based on prices on January 16, 1962 (taken as 100). That means that since the period for which I have quoted these figures, we have had this extra rise even over the last month, as reported by the very authoritative Grocers' Gazette.

In order that we shall have no doubt about what is meant—because it is easy to talk in percentages and follow these general figures, but it has to be brought home so that it is understood—a typical example of prices since devaluation is as follows: bread has gone up by 1½d. a large loaf; flour 2d. for a 3 lb. bag; marmalade 2d. for a 1 lb. jar; honey 3d. for a 1 lb. jar; soap 2d. on a tablet; sausages 2d. a lb.; instant coffee 3d. on a 4 oz. tin; disinfectants 3d. a quart; toothpaste 2d. a tube; cooked meats 2d. a lb.; tongue 5d. on a 12 oz. tin; cocoa 2d. a lb.; pickles 3½d.; ham 2d. a lb.; beer id. a pint; corned beef 1s. on a 12 oz. tin; and frozen foods 4d. per 13 oz. That is a pretty representative list that I have sorted out, but it is only a list. It does not by any means cover the whole of the area of normal purchases in the normal household.

If all this had happened as a consequence of rising world prices or things outside our control, one would not wish to attack the Government for it. The Joint Under-Secretary quite rightly anticipated that I was attacking the Government for this. I believe that these increases are mainly as a consequence of Government action or Government ineptitude, and I believe that they have to be the legitimate target for attack upon it. It is not these outside things; it is the Government. It is abundantly clear that it is mainly Government action which has brought all this about if we look at the table of events over recent months and years.

For example, on 26th October, 1964, a 15 per cent. import surcharge was imposed, breaking all international agreements, and we remember the repercussions from that. The point I am making is not the breaking of agreements—though that was bad enough, because that contributed to these increases in prices by Government action.

On 11th November, 1964, we had an autumn Budget—6d. a gallon on petrol and 6d. in the £ increase in Income Tax. Those are items which reflected themselves in the increased prices that people had to pay.

On 23rd November, 1964, the Bank Rate was raised to 7 per cent. Those who run businesses know how the increased Bank Rate finds its way through to the price of products that the businesses have to put on offer.

On 6th April, 1965, we had another Budget—4d. on cigarettes; 6d. on wine, 1d. on pint of beer, 4s. a bottle on whisky, £2 10s. on car tax, and Corporation and Capital Gains Tax were introduced. All these were imposts which could only increase the price of all the essentials that people have to buy.

On 17th May, 1965, we had higher postal charges—letters up from 3d. to 4d. We have had that again recently. All these items make their contributions to these extra charges.

On 1st March, 1966—just before the election—we had the mini-budget, because the election was coming off. The ex-Chancellor of the day said that he foresaw no severe increase in taxation. That was the mini-Budget just prior to the election. The month after the election we had Selective Employment Tax introduced. If any tax has added to the cost of things it is the Selective Employment Tax. It is utter madness that this should have been increased in the recent Budget. We have been told that the only reason it was increased was because it was easy to collect. Not that it was justified, not that it made any worthwhile contribution, but that it was easy to collect. That was the only explanation why this rather stupid tax was increased, but I hark back to the time when it first came in. A month after the election, when we were told that there were not to be any increases, first we had the S.E.T., and then we had Corporation Tax fixed at 40 per cent.

I move on now to 20th July, 1966, when we had a new crisis Budget. Perhaps I might interject here that over the past three years we have had no fewer than 11 Budgets, the formal ones recognised as Budgets, and the crisis and other Budgets. I am now up to the crisis Budget of 20th July, 1966. Then there was a 10 per cent. increase in Purchase Tax, another 4d. a gallon on petrol, another 1d. on a pint of beer, 3s. 5d. on a bottle of whisky, and 3s. 6d. on a bottle of wine. These were all Government contributions to the staggering increase in costs, which, as I have said, will cause this country trouble unless something is done pretty quickly. Finally, I move to 18th November when we had devaluation and when the Bank Rate was raised to 8 per cent.

That is the record of the Government's contribution to these increases in prices which are hurting people very much. Following devaluation, I move to the day before the Budget. The day before the Budget, on 18th March, we had the announcement that gas and electricity prices were to rise, and that postal charges were to be increased. All these increases will seep through and affect prices.

We then had the Budget itself, with all the consequences that will flow from that. The Chancellor said that devaluation would increase the cost of living by 3 per cent. I think that it will be more, but, like the Joint Under-Secretary of State for Economic Affairs in the previous debate, I do not want to gild the lily. A figure of 3 per cent. is bad enough. It means an increase of 11s. 8d. a week on the normal purchases of a normal household. This is pretty hot stuff, but I think that it will be more. I therefore feel justified in saying that we are attacking the Government for increasing the cost of living to the point at which it could produce disastrous consequences for the general democratic processes of this country.

It would have been some relief it devaluation could have been heralded as the end of the price rise saga, but after the Budget we knew to our cost that devaluation was only the beginning of the steepest climb of all. One sees in tonight's evening papers that the cost of the increase in gas charges is likely to amount to 3s. 3d. a week for the ordinary householder. Added to that, we have the stream of things which will clearly flow from the Budget itself.

Tax increases always mean prices increases, and last week's Budget, with its annual tax increases which are to rise to £923 million, represents the highest impost ever in peacetime. It is an impost which will make certain that the cost of living will reach its highest mark ever, and make certain that the standard of living of ordinary people will plunge to its lowest level for many years. Indeed, the Chancellor made no secret of the fact that one of the aims of the Budget was to lower living standards. They had to be cut back, he said.

I find that very disturbing, as I am sure the citizens of this country do, because it was only a month or two ago that we learned that we had fallen to eighth place in the Western world in living standards. For a century or more this nation prided itself on having the highest living standards, or certainly being a very near second to America, but as a consequence of the developments which I have tried to describe, both in money terms and in percentage terms, we were in the position of being eighth even before devaluation and even before the Budget. I tremble to think what our position is likely to be when these price increases really seep through. This is a degrading position for this country to find itself in. The increase in the S.E.T., and the increase in the petrol tax, will seep through to the price structure with speed and with certainty.

Why did the Chancellor have to take up £923 million by this Budget? We knew about the Letter of Intent. We knew that as a consequence of what I regard as bad government, careless government, we had reached a position when we had to borrow money, and we had to show that we were prepared to tighten the national belt. We expected that, but every economist that I have read, and every journalist who is supposed to be an expert on these matters, puts £700 million as the top figure which it was necessary to take out of the economy to meet our obligations to the people who had loaned us money. Why did the Chancellor take the extra £200 million? What was the necessity for that? By not taking that sum, he could have avoided the increase in the S.E.T., and the increase in petrol tax, increases which I maintain will make a terrific impact on the cost of living.

From all that it can be seen that the price rises have been followed by a definite and distinct rise on the graph which denotes these things over the last three years. I have followed it through step by step in the dates and Budgets to which I have referred. One would have thought that people would have become used to it. Why, if I am trying to establish that it has gone on for so long, do I now forecast that there will be a specially worrying reaction to it? Is it just that this is the last straw that will break the camel's back? It is a bit of that, because we have had impost on top of impost, but in addition to the last straw explanation there is another one.

Until now, despite all these increases, the unions have been able to look after their own, and of course the rich can always look after themselves. They do not want anybody to look after them. It is only the poor and the elderly living on fixed incomes who have been the victims. They have been severely dealt with over the last three years, and over the last two years in particular. Those living on fixed incomes have suffered grievously, and they are the people who will be hardest hit. The increase in old-age pensions which was provided with so much trumpeting not long ago will be more than eaten up by the increased costs which will flow from devaluation and the Budget.

Until now they have been the only ones who have suffered. The wage increases negotiated by assiduous trade unions have ensured that trade unionists have been looked after pretty well. The rich can handle their own affairs. But things are different now, because we are also to have a statutory wage freeze, so the unions will not be allowed to cushion their own, and that segment of the population which will feel the full consequences of bad government and improvident budgeting will be much larger, including the wage earners as well as the old and those with fixed incomes, and it will be much more vocal and active.

I believe that the women's reaction will change. In the dock strikes and other disruptions of our exports, it is usually the women who have said, "Stop this nonsense and get back to work." A classic example is that of the woman who slapped the face of a strike leader. The women have been on the side of law and order because they are pretty sound, but these extra imposts on the housewife will lose her support and she may join this vocal segment.

The Government have overdone it. Their price increases are hurting. Not only are they increasing prices: they are also taking away working people's right to extra wages arising from increased productivity. The consequences will make the Grosvenor Square riots look like a picnic. But the worst consequences can be avoided even now if the Government will make efforts to prune their own spending Departments and re-establish their position. They should remember the historical outline which I gave; I beg them to do something, even at this late stage, to put this right.

8.33 p.m.

Mr. Julian Ridsdale (Harwich)

I am sure that we are grateful to my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) for raising this subject. Thousands of people now know that the high cost of living is the high cost of Socialism and the increased Government spending which Socialism brings. But I want to consider, as well as the cost of living, means of helping those hardest hit by it, while still being responsible and not spending too much Government money.

After devaluation, the Prime Minister said that help would go to those who most needed it. Since then, there have been cuts in Government spending and an extremely harsh Budget, which The Times described as Draconian, as well as increases in indirect taxation—and the poorer section of the community are hit hardest. To buy the goods which £5 would have bought in 1965, one now needs an extra 15s., and will probably need an extra £1 shortly.

How far can the needs of this section of the community be met? The Government have said that supplementary bene fits will be increased in the autumn to help the poorest—the old, the sick and the unemployed—but we have heard nothing about helping those in need outside that section, particularly the retired on small incomes, those over 60 who cannot find employment. In my constituency, in North-East Essex, there is probably the largest number of people drawing rate relief in the country. In March of this year, Clacton's unemployment rate was 6.2 per cent., of which the Minister admitted that many were over 60. Of these older people, 19 per cent. are drawing relief. A rise of even 8d. in the £ greatly affects those who live on fixed incomes. The Minister of Housing and Local Government intends to extend rate relief to help this section of the community, but in doing so he should realise that he is shifting the burden from those who cannot pay to those who can hardly pay.

Mr. David Winnick (Croydon, South)

While I am aware of the difficulties being faced by the retired people in the hon. Gentleman's constituency and elsewhere, would not the hon. Gentleman agree that elderly people living on limited incomes are in a better position because of the rate relief legislation passed by the present Government compared with the legislation passed in 1964 by the then Conservative Government?

Mr. Ridsdale

The hon. Gentleman opposed me in the 1964 election and knows the efforts I made to get the Allen Report available to help these people. The Labour Government's Rate Relief Act followed the Report of the Allen Committee, which was established by the former Conservative Government. Whoever was responsible, I am glad that this section of the community has some relief. I want to know how we can give these people a little more help. The Financial Secretary is a sympathetic man and he will agree that 25 per cent. of this burden of rate relief should be borne not by those who can hardly pay but by a central charge. It would not cost the Treasury much. Was the Chancellor being generous in his Budget in giving help by the age exemption relief? Considering the rise in the cost of living, had he raised the age exemption relief by an extra £14 for a single person and £25 for a married person it would not have cost much but would have been of great help.

Mr. Deputy Speaker (Mr. Sidney Irving)

Order. The hon. Gentleman is going beyond the scope of the Bill we are discussing.

Mr. Ridsdale

I was drawing attention to the grave burdens that are having to be borne and was suggesting some means whereby the Government could help.

Mr. Deputy Speaker

That is what makes the hon. Gentleman out of order.

Mr. Ridsdale

I have made two suggestions and I trust that they will be considered. My hon. Friend the Member for Peterborough has done a service in drawing attention to the difficulties being faced by so many people in the community as a result of the rise in the cost of living and I am glad of this opportunity to support him. My hon. Friend referred to gas bills going up. They will increase by 3s. 3d. in the £, and when one considers the gas and electricity increases that have taken place this year—they have increased by 10 per cent., resulting in an extra £1 million having to be found—we must try to do something to help the hardest hit section of the community. The Government can always go to the taxpayer whom they think has a bottomless purse to pay for the increase in the cost of living, but the country has seen through the policies of the Government. Sooner or later people will realise the failure of the Government to tackle the cost of living.

8.40 p.m.

Mr. W. H. K. Baker (Banff)

I wish to address my remarks to a somewhat more narrow issue than those already covered in this debate. The issue I wish to raise is applicable to the South-West of England as well as to Wales, North-East Scotland and particularly my constituency. I refer to the rise in the cost of living in the remoter rural areas. Those on the Treasury Bench can take it from me, even if they will not admit it, that the rise in the cost of living has been greater in remote rural areas than in urban areas. My hon. Friend the Member for Peterborough (Sir Harmar Nicholls) laid the bais for a considerable attack on the Government. I endorse all that he said. The points he made are as valid in the country as in the towns.

In the area I have the honour to represent about 18 per cent. of the population live in the country. The rise in the cost of living is bad enough to people in the towns, but it is far worse for those in remote areas because of the ever-increasing imposts the Government have been putting on the country. The two major factors which have led to this increasing cost of living in the country are S.E.T. and the fuel tax. Shortly there is to be a 50 per cent. rise in S.E.T. The Transport Bill will have a very adverse effect.

The reason why all this serious effect will come about is that people in remote areas rely on the travelling shop. The travelling shop is usually based on a town or a country village store. Its owner has to pay S.E.T. and more in fuel tax. Consequently, when the shop arrives at the farmstead, the croft or a retired person's dwelling, it is found that the price of every commodity sold from it—bread, cigarettes, whisky, wellington boots and everything—has gone up. The price has been going up steadily during the years of this Government. With the extra imposts made under this Budget, the effects of the Transport Bill and all the other things, those costs will go even higher.

They are made all the more serious in such areas as I represent because already they are suffering from a decline in population. It could be said by theorists that those people can go into the towns and get their food and other necessities more cheaply there, but what on earth is the point of a philosophy such as that? We have to stem the outflow of population from these areas. We have heard about that in the South-West in the earlier debate. If this continues, not only will people go on leaving such areas but it will become increasingly difficult to find labour to staff farms, forestry and distilleries.

I am sorry that the Financial Secretary to the Treasury has left the Government Front Bench, because I have had considerable correspondence with him on the question of whisky. It is a subject dear to the hearts of many in this House. This commodity is not a luxury, although perhaps it is not a necessity. It is to be found in many of the homesteads to which I have referred. It is almost the water of life to some of these people. If the Government keep increasing these and other costs, more and more of the population will leave areas where it is essential they should stay.

I suggest two things to the Government. On these travelling shops which provide the key to living in remote areas, S.E.T. should be abolished. If that is not possible, the shopkeepers who keep the travelling vans going should be treated in the same way as forestry, agriculture and fishing are treated and receive a refund. Secondly, they should in some way receive a subsidy on the fuel they utilise in going round these country areas. If this does not happen or if some other measures are not taken by the Government, then quite simply the travelling vans and travelling shops will be forced to close down and will be unable to serve the rural areas. I would sincerely ask the Government to take note of this because it is a very grave problem. The people to whom I am referring are not wealthy. They have not got vast means. They are either small crofters, small farmers or retired people. In many cases they cannot afford motor cars to run in to buy their supplies and they cannot obtain supplies in any other way than from these travelling shops, for the simple reason that there is no public transport available to move goods about. I would, therefore, request the Government to take this very seriously. I hope we can have some reassurance from the Minister when he replies.

8.46 p.m.

Mr. Ted Leadbitter (The Hartlepools)

I do not intend to say more than a few words. Indeed, I have already indicated to the hon. Member for Peterborough (Sir Harmar Nicholls) that I felt sufficient had been said without any further words from me. But the significance of the comments that have already been made compel me to add at least a word or two on a matter which affects, if not everybody, certainly too many people in this country for us to allow the situation to remain without making some contribution to urge on the Government the need to take care. I am quite satisfied in my own mind that we have to try to balance, as it were, the urgent need to put this country's economy right with the need to avoid hurting too many people in doing so; because, as I have said before, for man there is neither beginning nor an end. But each one of us is here for but a short time and if, in a lifetime, anybody thinks in terms of solving all the world's problems, or all this country's problems, he is just a Walter Mitty and dreaming.

What is essential, however, when we are thinking in terms of the economy and of the cost of living is that while we have the opportunity we should do what is right and just for the people who need the defence of our political institutions, and particularly of the House of Commons. There is great need for the Government to be watchful on what arises from their Budget because while the best judgments in the world, and some of the worst, cannot assess a situation to the satisfaction of everybody, we must admit that there is possibly an element of overkill in the Budget. Possibly because of that, due to the rightful desire of the Government to solve once and for all the serious basic problem which is not the responsibility of any Government but which, arising out of the nature of things in this 20th century, has faced other Administrations, we may, when we have a determination to solve it, create more problems than we started with.

Here we have the very important subject of the Selective Employment Tax. When that was introduced I said in the House that it was a half-baked, ill-thought-out tax which could have well done with another year of consultations with industry, commerce, the T.U.C. and other bodies that would be affected by it, and in particular the distributive services. The tax is to be increased by 50 per cent. There is a great danger of the whole of the increase falling upon prices.

When the tax was first imposed, it was clearly shown that only a limited amount of manpower could be transferred from the distributive trades to manufacture, because the distributive services were already at a high state of efficiency. If the objectives of the tax have been achieved only marginally, and if now the incidence of the 50 per cent. increase will fall upon lower-paid workers, who spend a large proportion of their incomes on food and services, should not the Government watch this issue very carefully? No party political point arises. Our duty is to the people. If there are signs that those on limited social allowances and lower-paid workers will suffer too much, the situation must be remedied somehow. I put on one side the question of benefits such as rate rebates and social allowances. The keynote is caution.

The Government should bear in mind that the very purpose of the budgetary proposals is to take out of domestic consumer demand a certain amount so as to encourage an export-led economy. The Government are saying, in other words, that it is their intention to lower the standard of life of many people. Special watch should be kept on the plight of the old-age pensioner with an income of about £7 or £8 a week; the young widow with problems and a limited amount of money to meet her overheads; the injured; the sick, and the long-term unemployed. I am not interested in the man who will not work—the type of man to whom the hon. Member for Louth (Sir C. Osborne) rightly drew attention not long ago. I am concerned about the ordinary decent citizen who, by the very nature of the economy and his personal circumstances, has not much money to live on.

The Government's budgetary and other proposals are designed to put the country's economy right. Both sides of the House are united at least in their concern about the theme raised by the hon. Member for Peterborough. I hope that my hon. Friend the Minister will depart from a prepared brief and talk for a few minutes in human terms so that those about whom we are particularly concerned can feel that the pulse we have touched in the House has been felt by the Government.

8.55 p.m.

Sir Cyril Osborne (Louth)

I am compelled to say a few words in support of my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) on this important subject of the cost of living. I am astonished that in a House of 630 Members there are scarcely a baker's dozen interested enough to be here. We are told in the Press that politicians on all sides have lost the respect of their electors, that the House does not mean today what it meant formerly. The public looking down at these empty benches, may well be justified in taking that cynical point of view.

To the ordinary industrial worker—and this is not a matter of party politics—the three things that really matter are these. First, is his job safe, for he fears unemployment more than anything else? Secondly, does he get a decent wage, because that is what he works for? Thirdly, will the wage enable his wife to go out and buy the simple groceries which he and his family need? These are the three things that really matter, and it is the cost of living that eats at the wage packet he takes home.

It is no good talking to industrial workers and saying how much gross they earn. As far as they are concerned, their wage is what they take home: it is the take-home pay that matters, after all the deductions. They are not a bit interested in the gross amount. They ask: "How much do I take home, governor?" And their wives are concerned with how much it will buy in the shops for their children and themselves. That is why the cost of living is of such vital importance to the ordinary people whom we represent.

This afternoon I took the liberty of asking the Prime Minister if he really thought that he could enforce a wages freeze policy against the will of organised labour; if the trade union leaders were opposed to it, did he really think he could make it succeed? He wobbled and wobbled and in the end had to admit that he could not do that.

Why will he not succeed? He will not succeed because of the cost of living. I am convinced that if one could say to the industrial workers that if they accepted a wage freeze one would guarantee that prices did not go up, the vast majority would accept a wage freeze. I am certain of that. But if they know in their hearts that the wage freeze is going to be accompanied by an unreasonable increase in the cost of living they feel it is unfair. These are the people who look mostly to hon. Members opposite rather than to us, who put their faith in hon. Members opposite and who are going to be outraged by the continual increase in the cost of living.

It is said sometimes—it was said last week—across the Floor of the House that it is those of us in private industry mostly who are putting up the cost of living. This is untrue, and I remind the House that last week the Minister of Power came to that Box and said that gas prices would go up by an average of 8.7 per cent. This touches the poorest people in their homes. During the bad weather the one thing the old people want is to be kept warm; that is almost more important to them than being well fed. And the cost of warming even a small house today, with coal, gas or electricity, is getting beyond the means of the ordinary, poor individual. These factors are so important in the cost of living; they affect the poorest people and, above all, the lowest-paid worker, the man who is not in a big union, who has not got a big union to demand that he gets more, who is not well organised and welt represented. He and his family are feeling the pinch. Moreover, it is often those who work for nationalised industries and for the State in certain occupations who are, on the whole, less well paid than the workers whom we employ in private industry.

The truth is that the rise in the cost of living about which my hon. Friend the Member for Peterborough rightly complains is caused, basically, as the Chancellor of the Exchequer admitted yesterday, by our having spent roughly £540 million more than we had earned. If we do that, the cost of living must go up. This is the basis of our problem. If we as a nation spend more than we earn, the paper money which we use internally must be worth less. The Government are like a fellow who wants a glass of whisky but puts more and more water into it, diluting it so that it is worth less. This is what the Government are doing, and they are selling whisky which is 10 per cent. proof instead of 70 per cent. proof. I am not an expert on these things, but I believe that that is somewhere near the mark.

This is not a narrow party issue. It is an industrial issue creating a real problem which faces both sides of the House. Either we increase national productivity by that £540 million which we have overspent or we reduce our spending power by that amount. Charles Dickens said it all in his Micawber story a hundred years ago—Income a pound, expenditure 19s. 6d.—heaven; income a pound, expenditure 20s. 6d.—debtors' prison. That is where this country is today, in the international debtors' prison. This is the root cause of the rise in the cost of living.

I can understand Ministers' difficulties in various Departments. The right hon. Lady the Member for Lanarkshire, North (Miss Herbison), formerly the Minister of Social Security, spoke eloquently last week about what we were doing for the old and the infirm and about how much better a country we were producing as a result. I agree with her—that is all true—but it costs money. If we do not produce the extra wealth to provide our admirable social services, the cost goes tip and our money is worth less.

Mr. Leadbitter

If the hon. Gentleman has come to that conclusion, will he then go on to measure health in money terms? Would he rather have a state of affairs where we did not have the services about which my right hon. Friend spoke? Would he rather have himself better off and the services less effective?

Sir C. Osborne

Certainly not. The hon. Gentleman misunderstands me. I do not want to abolish these lovely social services. I was poor once, and I know what it means. I am merely pointing out that we have got to increase the efficiency of our economic machine so that we may provide for all people what we thing they should have. But to promise them that they can have it without working or without making an effort is fraudulent. This is the Government's problem.

If I may say so—I hope I am not being unfair—the young Minister who, last Thursday, lectured us on economic affairs was the least suitable person whom hon. Members opposite could have found, for he knows nothing about our industrial problems. He has never faced an industrial problem. He has never had the difficulty of meeting a wage claim for 1,000 men week by week and wondering where the money would come from. He knows nothing about it—I do not say that in a disparaging way.

We all want to keep the cost of living down and give our people a higher standard of living. There is no essential nobility in poverty. There is nothing fine in being poor as such. Only the prophets of the old times who went into the desert were ennobled by their poverty, but they were exceptions. Poverty does not ennoble the ordinary person but tends to degrade. We should not tell our people that we shall make them better by making them poorer. I should like to see a much bigger cake shared out more fairly for the whole country. Only those who have known hunger and hardship know the validity of that argument.

I was provoked to speak by my hon. Friend, and I have no speech prepared. I am sorry that the Minister has so little support on his Front Bench—I say that with no disrespect to him. If I were in his place I could handle the matter a great deal better, but I should not sit there by myself.

The cost of living is one of the most important factors affecting the lives of ordinary people. For less than a baker's dozen of us to be bothered to talk about it is an incredible admission of failure by the Parliamentary system to help the ordinary people in their ordinary way of living. I should love to see more fire on the Government benches, whichever party is in power, by men who understand how to make the economic machine work so that we could earn that £550 million more and not have to tell our people that they must have less.

I have been in the House for 23 years, and I never dreamt that I should see the day when a Labour Government would tell the industrial workers, "You must accept a lower standard of living." That is the situation we face, though not because our people are enjoying too much. I am not saying that. Since the early 1950s, our standard of living has slipped as compared with that of the industrial nations of Europe. Italy and Germany have caught up with us and surpassed us, although we used to be ahead of them. An Englishman used to be proud of his higher standard of living. He thought that he was worth two Frenchmen at any time. Today we are in the third division and likely to slip into the fourth, economically, because we cannot make the economic machine work efficiently.

We have the equipment and I should say from my experience that on the whole English industrial workers both men and women, are as good as any in the world. All they want is to be organised. They want somebody to lead them and inspire them to better efforts. With an empty Government Front Bench, as there is tonight, there is neither inspiration nor leadership. That is what I complain of. People in the country are saying that in the things that really matter to them we are not measuring up to the challenge of the times.

While I cast no reflection on the Joint Under-Secretary of State, I think that a senior Minister should have been here to answer on this immensely important subject of the cost of living and to promise our people that, within a reasonable time, the ever-increasing costs will be checked. The Prime Minister promised—and I do not sneer at him because he did so, for he must have meant it—that, with devaluation, the £ in our pockets would not be devalued. I wish that were true. It is what we ought to be fighting for. The House should be full, not empty. Where are all the hon. Members on this vitally important issue?

Mr. Thomas Oswald (Edinburgh. Central)

Where are they on the hon. Gentleman's side as well?

Sir C. Osborne

I agree that it applies to both sides. But things are too important to play party politics all the time. Whichever party is in power, the cost of living is one of the three most important factors affecting working-class families. It is no good paying them an extra 10 per cent. and letting their cost of living go up by 15 per cent. That is a mockery.

If we could say to our people, "Do as the Prime Minister has asked. Let us have a wage freeze and be content with the paper money we have got. We guarantee that it will buy more and will be worth more", our people would be better off. That is what I should like to see. But it will only be possible if we produce more wealth that we can share out.

No Government can share out any social benefits with wealth the industrial machine does not produce. Unless our industrial machine produces wealth the social services will be starved and I do not see at the moment the slightest sign on the Government side—and here I am talking party politics—of the urgency there should be to get, in both nationalised and private industries, that urge to greater production at lower prices which is the key to success for the future, and if the hon. Gentleman could promise that tonight then, despite our small number, it would be better than if he were unable to promise it in talking to a crowded House.

9.13 p.m.

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

It is always a pleasure to debate—

Mr. Speaker

Order. The hon. Gentleman must have leave of the House to speak again. There is only one debate tonight.

Mr. Williams

I am sorry, Mr. Speaker, but I am not quite sure of the procedure for asking leave to speak again.

Mr. Speaker

Perhaps I can assist the hon. Gentleman. There is only one debate on the Consolidated Fund Bill and the hon. Gentleman is intervening for the second time. He can do so by leave of the House, which I am sure that it will give.

Mr. Williams

In that case Mr. Speaker, I ask the House for leave to deal with this subject. I only wish I had had the opportunity to finish after the first one, when I could have enjoyed that meal I promised myself when we were discussing the South-West.

It is always a pleasure to debate with the hon. Member for Peterborough (Sir Harmar Nicholls). I do not think that anyone in the House can put forward quite such outrageous propositions with such charm as he does. His party has now abandoned its scare story that unemployment this winter would be between 750,000 and 1 million. He has now worked out a new line for it. He is in the process of describing price riots. I trust that these will no more come to fulfilment than the 750,000 to 1 million unemployed predicted by the Opposition.

I am sure that he would agree that he does not want to see this at all. On this question of prices, we all recognise that no party or Government has really solved this problem. It is one common to the advanced societies, and not just a British problem. Much of the world's problems seem to centre around keeping prices moving in step, so that one does not become uncompetitive, rather than trying to stop prices rising altogether. This is complicated for us by the fact that we have to live as a trading power, and, as far as possible, we have to be conscious of the relationship between price movements in this country and overseas.

If we were a self-contained unit, we should not have this complication to consider. The second complication—and at this stage I am not attributing responsibility, but I am sure that hon. Gentlemen opposite would not evade partial responsibility—is that we are limited because we have, as a nation, a large deficit and we have somehow to shift resources out of the domestic market into production for overseas consumption. Because we are a trading power, our present system is complicated by the fact that we import nearly half of our foodstuffs and virtually all our raw materials. We therefore have a situation where many of the contributory costs which may not be within the control of the manufacturer are also outside the control of the Government. This complicates the task of any Government trying to solve the cost-of-living problem.

The policy of the Government has been to try to establish a relationship between prices and incomes and productivity. Each of these variables are influenced by different factors. At the same time, one has an influence on the other. The aim which we have to set ourselves in relation to prices is simply to try to ensure that price increases only take place if they are fully justified. This is the objective which the Government have set themselves and it is the objective of their prices and incomes productivity policies. To achieve this we have established certain machinery.

First of all, nearly half the goods that appear in the Retail Price Index, and many items that enter into industrial costs, are covered by a perfectly voluntary early warning system. Under this, firms give advance details of price increases to the Departments. They give details not only of the extent of the increase but reasons why they are to take place. In addition, outside this sector, because so much food is imported and because there are seasonal fluctuations in prices and one could not really work such a system when prices are changing from day to day, particularly in relation to perishable products, we have a system of a constant watch by the Ministry of Agriculture, which is continually reviewing prices.

With regard to raw material imports, where prices are not always within our control, the trends in manufacturers' prices are also reviewed to establish that those prices do not do anything more than reflect the increases which have occurred. Where it would appear that any price movement does not conform to this, the issue is referred to the National Board for Prices and Incomes for an even more detailed analysis. What we proposed in the Budget was to extend the delaying powers from 7 to 12 months, with the power to reduce prices which the Board recommends should be reduced—prices which, after an objective analysis, it is felt do not measure up to the criteria established.

There are many misconceptions about prices, and the hon. Member for Peterborough—who has indicated to me that he had to leave at this stage and intends no discourtesy—referred to the problem of the number of prices which have increased over a period of time. There has been considerable publicity about this in recent months as the result of information published in the journal called The Grocer.

On 11th March, my hon. Friend the Joint Parliamentary Secretary to the Ministry of Agriculture indicated how misleading it can be just to consider the numbers of price increases. He took two particularly good examples. The hon. Member for Peterborough referred to one of them—pickles. My hon. Friend referred to one firm which produced five flavours of pickles in seven different sizes. So when this firm found its costs had increased, according to the index 35 prices had increased. My hon. Friend quoted two firms who imported Continental cheeses, who found that they had to increase their prices on commodities which had very little general impact and did not make a considerable contribution to the cost of living index. In this case, 118 price increases were recorded.

The Report of the Prices and Incomes Board on distributors' margins indicated that as a result of a spot check on groceries which the Board had carried out, it discovered that the recommended prices, which are the prices to which The Grocer refers, are normally undercut in 94 per cent. of the cases. The Grocer publishes the recommended manufacturer's price, but according to the Board 94 per cent. of the grocery prices which it checked fell below the recommended price. Therefore, to take gross figures of movements of prices can give a completely distorted view of what is happening.

The second popular, or unpopular, misconception is that, whereas prices increase, incomes do not. Again, statistics do not bear out this thesis. In 1965, prices rose 4.6 per cent. Virtually half of that increase was accounted for by measures which we took as soon as we came to office to deal with the balance of payments deficit. During that year, average weekly earnings went up by 8.5 per cent., nearly twice as much. In 1966, prices went up 3.8 per cent., but weekly earnings went up by 4.2 per cent. Last year, the cost of living increase was 2.1 per cent.—incidentally, just half of the increase in the cost of living during the last 12 months in which hon. Members opposite were in office—and average weekly earnings increased by 5.8 per cent.

Sir C. Osborne

If the hon. Gentleman is trying to demonstrate that the cost of living has increased by only half as much as weekly wages, how does he account for the fact that the trade unions are dissatisfied with their present position?

Mr. Williams

It is the trade unions' job to be dissatisfied with their present position. Their purpose is to improve the position of their workers.

Mr. Leadbitter

The figures which my hon. Friend has given are obviously correct. They are significant and measure the Government's achievement. But would he not agree that the average weekly figures he is quoting reflect the problem to which I referred, namely those below the average income?

Mr. Williams

I accept that completely. I will come to that point.

I have demonstrated that, during the three years to which I have referred, weekly earnings increased by nearly twice as much as prices.

My hon. Friend the Member for The Hartlepools (Mr. Leadbitter) rightly asked about the position of the low-paid worker. One has to recognise that the overall percentage increases in price movements have more significance for someone who is on a low rate of pay or a pension than on people like ourselves who happen to be on the salaries of Members of Parliament.

Even during this period of restraint on incomes, given extra productivity, we have included low-paid workers in our criteria for pay increases. Even in the next phase, where my right hon. Friend has announced that the ceiling will have to be 3½ per cent. subject to the one possible exception of productivity agreements, it is possible for a low-paid worker to enter into such a productivity agreement, and there is also the opportunity for him to earn overtime in the pick-up of output that we anticipate during the next 12 months.

The low-paid worker is very difficult to define. Neither side of the House has defined exactly what we mean. We know that there are certain types of people who cannot be judged by a gross figure of pay but who have difficulties over and above those facing the rest of the community. If one takes families with two children. 4 per cent. or one in 25 of them live below the supplementary benefit standards. When one comes to families with six children, 21 per cent., or one in five of them do. It was for that reason that we gave what we know is an unpopular social supplement in the form of the family allowance. We argue that it is a supplement to the low-paid worker, because we shall take most of it back from someone with a higher income in the form of Income Tax.

For someone with two children on £14 a week, the increase in family allowances alone will give him the equivalent of a 3½ per cent. pay rise this year. If he has three children, he will get the equivalent of a 7 per cent. pay rise over and above what he is able to negotiate as a pay rise in his work as a result of a productivity agreement. For this reason, we believe that, within the inhibitions imposed by a Budget which had to take so much money out of circulation, we are trying to cater for those with a special need.

In the same way, the hon. Member for Louth (Sir C. Osborne) and my hon. Friend both referred to the problems of people like old-age pensioners. Since we came into office, the cost of living has gone up by 11 per cent. The single old-age pensioner received an initial increase of 18½ per cent. and, with the March increase, during a period in which prices have gone up by 11 per cent., he will have had an increase in pension of 33 per cent. This is in addition to other benefits which he may get if, for example, he is a ratepayer in the form of rate rebate.

There has been an attempt to tailor the general economic strategy to the known social needs of particular groups within our society. Since there are so few hon. Members present, I will not at this stage deal with the problem of rents, because it was touched on by my right hon. Friend the Secretary of State last week. I had intended to deal with it, but I know that the hon. Member for Poole (Mr. Murton) is eager to get his debate started.

Mr. Oscar Murton (Poole)

It is on rents.

Mr. Williams

In that case, it is even better that I do not deal with the matter at this stage.

Several hon. Members referred to S.E.T., and. unless I am mistaken, they did not all show the greatest affection for this form of tax. However, as my right hon. Friend the Chancellor of the Exchequer pointed out last week, people regard very few taxes with affection.

So far, S.E.T. is the only method that we have found of taxing services. One has to face this alternative. If we do not have Selective Employment Tax on services and we are to withdraw the same amount of money we either have to increase Purchase Tax—

Mr. Speaker

Order. Even the Government Front Bench cannot discuss new legislation on the Consolidated Fund Bill.

Mr. Williams

I think I have established the point that one, would have to resort to a different form of fiscal arrangement if one did not use this particular device. In any case, as was pointed out, it happens to be a cheap tax to collect, though no one is pretending that is the major criterion on which we decided that it should be introduced. Even after its introduction, the on-cost of labour to the service industries is substantially lower than any of our Common Market competitors. The Chancellor gave these figures during his Budget speech.

Mr. Baker

Does the hon. Gentleman realise that that sort of argument about on-cost being lower than in the Common Market countries cuts no ice in Banffshire and other remote areas?

Mr. Williams

I appreciate the point does the hon. Gentleman equally realise that the alternative of putting up the tax on motor cars does not cut much ice in the Midlands either? Eventually it is a matter of some ice having to be cut somewhere, and someone will be unhappy about it. However, the Government still have to remove from circulation the money which they judge it necessary to remove.

Mr. Speaker

We have had the Budget debate. We are on the Consolidated Fund Bill Second Reading.

Mr. Williams

I am afraid that prior to the stage when you, Mr. Speaker, returned to the Chamber there was considerable discussion about the merits and demerits of Selective Employment Tax. As hon. Gentlemen opposite will know, I had no wish to avoid debating the issue of S.E.T. in relation to current circumstances.

I was about to say that no country has really solved this problem. The hon. Member for Louth said that the Government were not making the machine work. In the last resort this is a political as well as a Parliamentary debate, and I must establish the point that while the Conservative Party were in office, far from showing any understanding of the problem of prices, during their 13 years the cost of living went up by over 50 per cent. The more alarming feature was that in the last 12 months of their Administration—a time when, if they were ever to learn anything about controlling prices, one would have thought they would have learned by it then—prices went up by more than the average rate—by 4.2 per cent.

Sir Harmar Nicholls

I am sure the hon. Gentleman would like to have on record that it was an average rise of 2½ per cent. and if the present Administration could have kept down to that we would have been in a much happier position than we are.

Mr. Williams

I wish I could congratulate the hon. Member for Peterborough as much on his arithmetic as I did on his speech. Some of his allegations in his speech were a little wild, but his arithmetic is somewhat wilder. If he works out the implications of the 50 per cent., I am sure that he will realise this.

The hon. Member for Louth rightly referred to the impact of such things as heating and housing on old people and people in need. Towards the end of the period in which hon. Gentlemen opposite were in office, the figures are somewhat disturbing. The housing element in the cost-of-living index between 1957 and 1964 went up by 50 per cent. and rates were still going up at 9½ per cent. a year and they did nothing about it. One can legitimately counter allegations that the price policy of this Government has not been absolutely effective by saying that at least in the last 12 months we have done twice as well as hon. Gentlemen opposite did in their last 12 months. I am sure that the hon. Member for Peterborough will recognise that on this subject his attack has been ill-directed.